NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford Trust”), 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 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
March 31, 2014
, we owned interests in the following hotel properties (all located in the United States) and a note receivable:
|
|
•
|
86
consolidated hotel properties ("legacy hotel properties"), including
84
directly owned and
two
owned through majority-owned investments in consolidated entities, which represent
16,895
total rooms (or
16,868
net rooms excluding those attributable to our partners),
|
|
|
•
|
28
hotel properties owned through a
71.74%
common equity interest and a
50.0%
preferred equity interest in an unconsolidated entity (“PIM Highland JV”), which represent
8,083
total rooms (or
5,799
net rooms excluding those attributable to our partner),
|
|
|
•
|
10
hotel properties owned through a
14.6%
interest in Ashford Hospitality Prime Limited Partnership ("Ashford Prime OP"),
|
|
|
•
|
90
hotel condominium units at WorldQuest Resort in Orlando, Florida, and
|
|
|
•
|
a mezzanine loan with a carrying value of
$3.4 million
.
|
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of
March 31, 2014
, our
86
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
March 31, 2014
, 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
March 31, 2014
, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer and Mr. Archie Bennett, Jr., our Chairman Emeritus, managed
53
of our
86
legacy hotel properties,
21
of the
28
PIM Highland JV hotel properties, and WorldQuest Resort. Third-party management companies managed the remaining hotel properties.
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 Hospitality Trust, Inc., its majority-owned subsidiaries, and its majority-owned entities 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 2013 Annual Report to Shareholders on Form 10-K and Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on March 3, 2014 and March 31, 2014, respectively.
The following items affect reporting comparability related to our consolidated financial statements:
|
|
•
|
Historical seasonality patterns at some of our properties cause fluctuations in our overall operating results. Consequently, operating results for the three months ended
March 31, 2014
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2014
.
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
|
|
•
|
On November 19, 2013, we completed the spin-off of Ashford Hospitality Prime, Inc. ("Ashford Prime") and on March 1, 2014 we completed the sale of the Pier House Resort to Ashford Prime. The results of the eight initial hotel properties, that were spun-off on November 19, 2013 and are now owned by Ashford Prime, are included in our consolidated statements of operations for the three months ended March 31, 2013, in accordance with the applicable accounting guidance. The results of the Pier House Resort, which we acquired on May 14, 2013 and sold on March 1, 2014, are included in our results of operations for the three months ended March 31, 2014, until its date of sale. Because we acquired the Pier House Resort on May 14, 2013, its operating results are not included in our results of operations for the three months ended March 31, 2013.
|
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, net
– Hotel properties are generally stated at cost. However,
four
hotel properties contributed upon Ashford Trust'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 entities, the carrying basis attributable to the 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 entities. All improvements and additions which extend the useful life of hotel properties are capitalized.
Impairment of Investments in Hotel Properties
– Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property's net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period, and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary.
No
impairment charges were recorded for investments in hotel properties for the
three
months ended
March 31, 2014
and
2013
.
Note Receivable
– Mezzanine loan financing, classified as note receivable, represents a loan held for investment and intended to be held to maturity. Note receivable is 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 when contractually due. Payments received on impaired nonaccrual loans are recorded as adjustments to impairment charges.
No
interest income was recorded for the
three
months ended
March 31, 2014
and
2013
.
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
March 31, 2014
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 Note 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 management judgment and
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
assumptions.
No
impairment charges were recorded during the
three
months ended
March 31, 2014
and
2013
. Valuation adjustments of
$101,000
and
$96,000
on previously impaired notes were credited to impairment charges during the
three
months ended
March 31, 2014
and 2013, respectively.
Investments in Unconsolidated Entities
– Investments in entities 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 entities' net income (loss). We review the investments in our unconsolidated entities for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities.
No
such impairment was recorded in the
three
months ended
March 31, 2014
and
2013
.
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), 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 a VIE operates as designed, and (iii) the 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 the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these entities on an ongoing basis and therefore such entities should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
We have a
71.74%
ownership interest in PIM Highland JV. We adopted the equity accounting method for our investment in the PIM Highland JV because we exercise significant influence but do not control the joint venture. Although we have the majority ownership of
71.74%
in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of
four
persons with us and our partner each designating
two
of those persons. Our investment in PIM Highland JV had a carrying value of
$136.5 million
and
$139.3 million
at
March 31, 2014
and
December 31, 2013
, respectively.
In connection with the spin-off of Ashford Prime on November 19, 2013, we maintained an initial
20%
ownership interest in Ashford Prime OP (subsequently reduced to a
14.6%
ownership interest as the result of an additional equity raise by Ashford Prime). We adopted the equity accounting method for our investment in Ashford Prime OP because we exercise significant influence but do not control the entity. All major decisions related to Ashford Prime OP that most significantly impact Ashford Prime OP's economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Prime OP General Partner LLC, its general partner. Our investment in Ashford Prime had a carrying value of
$54.7 million
and
$56.2 million
at
March 31, 2014
and
December 31, 2013
, respectively.
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 upon transfer of title. When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received, the fair value of 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.
Marketable Securities
– Marketable securities, including U.S. treasury bills, public equity securities and equity put and call options of certain publicly traded companies, are recorded at fair value. Equity 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 “Marketable securities” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. On the consolidated statements of operations, net investment income, including interest income (expense), dividends, realized gains or losses and related costs incurred, is reported as a component of “Other income” while unrealized gains and losses on these investments are reported as “Unrealized gain (loss) on marketable securities."
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. Advisory services are recognized when services have been rendered. The quarterly base fee is equal to
0.70%
per annum of the total enterprise value of
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Ashford Prime, as defined in the advisory agreement, subject to certain minimums. The incentive fee is earned annually in each year that Ashford Prime's total shareholder return exceeds the total shareholder return for Ashford Prime's peer group, as defined in the advisory agreement. Reimbursements for overhead and internal audit services are recognized when services have been rendered. Interest income (including accretion of discounts on the mezzanine loan using the effective interest method), is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. We are reimbursed by PIM Highland JV for costs associated with managing its day-to-day operations and providing corporate administrative services such as accounting, insurance, marketing support, asset management and other services. For the three months ended March 31, 2014, we changed the presentation to report such reimbursements as "Other" revenue as opposed to credits within "Corporate, general and administrative" expense. This change had no impact on our financial condition or results of operations.
Derivatives and Hedges
– We 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 and flooridors. 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 of our 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.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance. Interest rate derivatives and credit default swaps are reported as “Derivative assets, net” or “Liabilities associated with marketable 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:
|
|
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 loss on derivatives” in the consolidated statements of operations. For the
three
months ended
March 31, 2014
and
2013
there was
no
ineffectiveness.
|
For non-hedge designated interest rate derivatives and credit default swaps, changes in fair value are recognized in earnings as “Unrealized 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 Issued Accounting Standards
-
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
("ASU 2014-08"). ASU 2014-08 revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, including disclosure of pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. Upon adoption of this standard, we will be required to evaluate whether a disposal meets the discontinued operations requirements under ASU 2014-08. We will make the additional disclosures upon adoption. We do not expect the adoption of this standard to have an impact on our financial position, results of operations or cash flows.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Summary of Significant Transactions
On January 24, 2014, we refinanced our
$164.4 million
loan due March 2014 with a
$200.0 million
loan due February 2016, with
three
one
-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of
LIBOR
+
4.75%
, with a LIBOR floor of
0.20%
. The new loan continues to be secured by the same
five
hotels that secured the original loan including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America. The refinance resulted in excess proceeds above closing costs and reserves of approximately
$37.8 million
.
On February 27, 2014, we announced that our Board of Directors unanimously approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable distribution. The distribution is expected to be completed in the third quarter of 2014, and we anticipate that (i) the distribution will be comprised of common stock in Ashford Inc., a newly formed company, (ii) Ashford Hospitality Advisors LLC ("Ashford LLC") will become a subsidiary of Ashford Inc. and (iii) Ashford Inc. will conduct its business and own substantially all of its assets through Ashford LLC. Ashford LLC will continue to externally advise Ashford Prime and we expect that Ashford LLC will enter into a
20
-year advisory agreement to externally advise the Company. We also expect that Ashford Inc. will file an application to list its shares on the NYSE or NYSE MKT Exchange. This distribution is anticipated to be declared effective during the third quarter of 2014; however, it remains subject to effectiveness of the registration statement filed with the SEC, the approval of the listing of shares by the applicable exchange, and other legal requirements. We cannot be certain this distribution will proceed or proceed in the manner as currently anticipated.
On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was
$92.7 million
. Ashford Prime assumed the
$69.0 million
mortgage and paid the balance of the purchase price in cash, in accordance with the option agreement. We recognized a gain of
$3.5 million
. We deferred a gain of
$599,000
as a result of our retained interest in Ashford Prime.
4. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
December 31, 2013
|
Land
|
$
|
353,248
|
|
|
$
|
410,148
|
|
Buildings and improvements
|
2,053,943
|
|
|
2,071,811
|
|
Furniture, fixtures, and equipment
|
148,651
|
|
|
166,193
|
|
Construction in progress
|
35,097
|
|
|
11,956
|
|
Condominium properties
|
12,465
|
|
|
12,442
|
|
Total cost
|
2,603,404
|
|
|
2,672,550
|
|
Accumulated depreciation
|
(527,240
|
)
|
|
(508,161
|
)
|
Investments in hotel properties, net
|
$
|
2,076,164
|
|
|
$
|
2,164,389
|
|
5. Note Receivable
As of
March 31, 2014
and
December 31, 2013
, we had
one
mezzanine loan receivable with a net carrying value of
$3.4 million
and
$3.4 million
, respectively, net of a valuation allowance of
$7.8 million
and
$7.9 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 Entities
We hold 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 in PIM Highland JV, a
28
-hotel portfolio venture. 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 partner each designating
two
of those
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
persons. As a result, we utilize the equity accounting method with respect to PIM Highland JV, which had a carrying value of
$136.5 million
and
$139.3 million
at
March 31, 2014
and
December 31, 2013
, respectively.
Mortgage and mezzanine loans securing PIM Highland JV are non-recourse 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.
The following tables summarize the consolidated balance sheets as of
March 31, 2014
and
December 31, 2013
and the consolidated statements of operations for the three months ended
March 31, 2014
and
2013
of the PIM Highland JV (in thousands):
|
|
|
|
|
|
|
|
|
PIM Highland JV
|
Condensed Consolidated Balance Sheets
|
|
March 31,
2014
|
|
December 31,
2013
|
Total assets
|
$
|
1,388,010
|
|
|
$
|
1,390,782
|
|
Total liabilities
|
1,174,082
|
|
|
1,173,841
|
|
Members' equity
|
213,928
|
|
|
216,941
|
|
Total liabilities and members' equity
|
$
|
1,388,010
|
|
|
$
|
1,390,782
|
|
Our ownership interest in PIM Highland JV
|
$
|
136,548
|
|
|
$
|
139,302
|
|
|
|
|
|
|
|
|
|
|
PIM Highland JV
|
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
|
|
|
|
Total revenue
|
$
|
108,761
|
|
|
$
|
102,273
|
|
Total expenses
|
(95,388
|
)
|
|
(94,760
|
)
|
Operating income
|
13,373
|
|
|
7,513
|
|
Interest income and other
|
13
|
|
|
18
|
|
Interest expense, amortization and write-offs of deferred loan costs, discounts and premiums and exit fees
|
(15,908
|
)
|
|
(15,702
|
)
|
Other expenses
|
(44
|
)
|
|
—
|
|
Income tax expense
|
(447
|
)
|
|
(716
|
)
|
Net loss
|
$
|
(3,013
|
)
|
|
$
|
(8,887
|
)
|
Our equity in loss of PIM Highland JV
|
$
|
(2,754
|
)
|
|
$
|
(6,888
|
)
|
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an
80%
ownership interest in an
8
-hotel portfolio, totaling
3,146
rooms (
2,912
net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our common shareholders receiving
one
share of Ashford Prime common stock for every
five
shares of our common stock held by such stockholder as of the close of business on November 8, 2013. We maintained a
20%
ownership interest in Ashford Prime OP at the time of the spin-off. Our ownership interest in Ashford Prime OP was
14.6%
at
March 31, 2014
.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following tables summarize the condensed consolidated balance sheets as of
March 31, 2014
and
December 31, 2013
and the condensed consolidated statement of operations for the
three months ended
March 31, 2014
and the condensed combined consolidated statement of operations for the three months ended March 31,
2013
of Ashford Prime OP (in thousands):
Ashford Hospitality Prime Limited Partnership
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
Total assets
|
$
|
1,249,099
|
|
|
$
|
962,407
|
|
Total liabilities
|
808,105
|
|
|
659,280
|
|
Partners' capital
|
440,994
|
|
|
303,127
|
|
Total liabilities and partners' capital
|
$
|
1,249,099
|
|
|
$
|
962,407
|
|
Our ownership interest in Ashford Prime OP
|
$
|
54,651
|
|
|
$
|
56,243
|
|
Ashford Hospitality Prime Limited Partnership
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
Total revenue
|
$
|
61,806
|
|
|
$
|
54,086
|
|
Total expenses
|
(57,031
|
)
|
|
(48,909
|
)
|
Operating income
|
4,775
|
|
|
5,177
|
|
Interest income
|
4
|
|
|
10
|
|
Interest expense and amortization and write-offs of loan costs
|
(8,989
|
)
|
|
(9,863
|
)
|
Unrealized loss on derivatives
|
(15
|
)
|
|
(31
|
)
|
Income tax expense
|
(226
|
)
|
|
(619
|
)
|
Net loss
|
(4,451
|
)
|
|
(5,326
|
)
|
Loss from consolidated entities attributable to noncontrolling interests
|
405
|
|
|
704
|
|
Net loss attributable to redeemable noncontrolling interests in operating partnership
|
1,168
|
|
|
—
|
|
Net loss attributable to Ashford Prime OP
|
$
|
(2,878
|
)
|
|
$
|
(4,622
|
)
|
Our equity in loss of Ashford Prime OP
|
$
|
(744
|
)
|
|
$
|
—
|
|
Additionally, as of
March 31, 2014
and
December 31, 2013
, 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
.
Indebtedness
Indebtedness consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness
|
Collateral
|
Maturity
|
Interest Rate
|
|
March 31, 2014
|
|
December 31, 2013
|
Mortgage loan
(5)
|
5 hotels
|
March 2014
|
LIBOR
(1)
+ 4.50%
|
|
$
|
—
|
|
|
$
|
164,433
|
|
Mortgage loan
(2)
|
9 hotels
|
May 2014
|
LIBOR
(1)
+ 6.50%
|
|
135,000
|
|
|
135,000
|
|
Mortgage loan
|
1 hotel
|
May 2014
|
8.32%
|
|
5,036
|
|
|
5,075
|
|
Senior credit facility
(4)
|
Various
|
September 2014
|
LIBOR
(1)
+ 2.75% to 3.50%
|
|
—
|
|
|
—
|
|
Mortgage loan
(2)
|
5 hotels
|
November 2014
|
Greater of 6.40% or LIBOR
(1)
+ 6.15%
|
|
211,000
|
|
|
211,000
|
|
Mortgage loan
|
8 hotels
|
December 2014
|
5.75%
|
|
101,724
|
|
|
102,348
|
|
Mortgage loan
|
10 hotels
|
July 2015
|
5.22%
|
|
148,346
|
|
|
148,991
|
|
Mortgage loan
(3)
|
1 hotel
|
September 2015
|
LIBOR
(1)
+ 4.90%
|
|
—
|
|
|
69,000
|
|
Mortgage loan
|
8 hotels
|
December 2015
|
5.70%
|
|
94,360
|
|
|
94,899
|
|
Mortgage loan
|
5 hotels
|
February 2016
|
5.53%
|
|
107,288
|
|
|
107,737
|
|
Mortgage loan
|
5 hotels
|
February 2016
|
5.53%
|
|
88,974
|
|
|
89,347
|
|
Mortgage loan
|
5 hotels
|
February 2016
|
5.53%
|
|
77,071
|
|
|
77,394
|
|
Mortgage loan
(5)
|
5 hotels
|
February 2016
|
LIBOR
(1)
+ 4.75%
|
|
200,000
|
|
|
—
|
|
Mortgage loan
|
5 hotels
|
April 2017
|
5.95%
|
|
112,960
|
|
|
113,343
|
|
Mortgage loan
|
5 hotels
|
April 2017
|
5.95%
|
|
101,533
|
|
|
101,878
|
|
Mortgage loan
|
5 hotels
|
April 2017
|
5.95%
|
|
154,494
|
|
|
155,019
|
|
Mortgage loan
|
7 hotels
|
April 2017
|
5.95%
|
|
123,578
|
|
|
123,997
|
|
Mortgage loan
|
1 hotel
|
November 2020
|
6.26%
|
|
100,910
|
|
|
101,268
|
|
Mortgage loan
|
1 hotel
|
January 2024
|
5.49%
|
|
10,775
|
|
|
10,800
|
|
Mortgage loan
|
1 hotel
|
January 2024
|
5.49%
|
|
7,383
|
|
|
7,400
|
|
Total
|
|
|
|
|
$
|
1,780,432
|
|
|
$
|
1,818,929
|
|
____________________________________
(1)
LIBOR rates were
0.152%
and
0.168%
at
March 31, 2014
and
December 31, 2013
, respectively.
(2)
These mortgage loans have
three
one
-year extension options subject to satisfaction of certain conditions.
(3)
This mortgage loan was assumed by Ashford Prime in connection with the sale of the Pier House Resort.
(4)
Our borrowing capacity under our senior credit facility is
$165.0 million
. We have an option, subject to lender approval, to further expand the facility to an aggregate size of
$225.0 million
. We may use up to
$10.0 million
for standby letters of credit. The credit facility has a
one
-year extension option subject to advance notice, certain conditions and a
0.25%
extension fee.
(5)
On January 24, 2014, we refinanced our
$164.4 million
loan due March 2014 with a
$200.0 million
loan due February 2016, with
three
one
-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of
LIBOR
+
4.75%
, with a LIBOR floor of
0.20%
.
On January 24, 2014, we refinanced our
$164.4 million
loan due March 2014 with a
$200.0 million
loan due February 2016, with
three
one
-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of
LIBOR
+
4.75%
, with a LIBOR floor of
0.20%
. The new loan continues to be secured by the same five hotels that secured the original loan, including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America. The refinance resulted in excess proceeds above closing costs and reserves of approximately
$37.8 million
.
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 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 Trust or AHLP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust 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
March 31, 2014
, we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
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
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
March 31, 2014
, 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 a liability of
$46,000
.
8
.
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 March 31,
|
|
2014
|
|
2013
|
Net loss allocated to common shareholders:
|
|
|
|
Net loss attributable to the Company
|
$
|
(2,388
|
)
|
|
$
|
(14,686
|
)
|
Less: Dividends on preferred stocks
|
(8,490
|
)
|
|
(8,490
|
)
|
Less: Dividends on common stock
|
(9,629
|
)
|
|
(8,139
|
)
|
Less: Dividends on unvested restricted shares
|
(84
|
)
|
|
(61
|
)
|
Undistributed loss
|
(20,591
|
)
|
|
(31,376
|
)
|
Add back: Dividends on common stock
|
9,629
|
|
|
8,139
|
|
Distributed and undistributed net loss - basic and diluted
|
$
|
(10,962
|
)
|
|
$
|
(23,237
|
)
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
81,690
|
|
|
67,682
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
Loss from continuing operations allocated to common shareholders per share
|
$
|
(0.13
|
)
|
|
$
|
(0.34
|
)
|
Income (loss) from discontinued operations allocated to common shareholders per share
|
—
|
|
|
—
|
|
Net loss allocated to common shareholders per share
|
$
|
(0.13
|
)
|
|
$
|
(0.34
|
)
|
|
|
|
|
Diluted loss per share:
|
|
|
|
Loss from continuing operations allocated to common shareholders per share
|
$
|
(0.13
|
)
|
|
$
|
(0.34
|
)
|
Income (loss) from discontinued operations allocated to common shareholders per share
|
—
|
|
|
—
|
|
Net loss allocated to common shareholders per share
|
$
|
(0.13
|
)
|
|
$
|
(0.34
|
)
|
Due to the anti-dilutive effect, the computation of diluted loss per share does not reflect adjustments for the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
Net loss allocated to common shareholders is not adjusted for:
|
|
|
|
Income allocated to unvested restricted shares
|
$
|
84
|
|
|
$
|
61
|
|
Net loss attributable to noncontrolling interest in operating partnership units
|
(877
|
)
|
|
(2,762
|
)
|
Total
|
$
|
(793
|
)
|
|
$
|
(2,701
|
)
|
|
|
|
|
Weighted average diluted shares are not adjusted for:
|
|
|
|
Effect of unvested restricted shares
|
144
|
|
|
146
|
|
Effect of assumed conversion of operating partnership units
|
19,316
|
|
|
17,967
|
|
Total
|
19,460
|
|
|
18,113
|
|
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. 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 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, floors and flooridors. Our derivatives are subject to master-netting settlement arrangements. The maturities on these instruments range from May 2014 to February 2016. 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
. The net carrying value of our credit default swaps were liabilities of
$46,000
and
$73,000
as of
March 31, 2014
and
December 31, 2013
, respectively, which are included in “Liabilities associated with marketable securities and other” in the consolidated balance sheets. We recognized unrealized losses of
$226,000
and
$904,000
for the
three
months ended
March 31, 2014
and
2013
, respectively, that are included in “Unrealized loss on derivatives” in the consolidated statements of operations.
Marketable Securities and Liabilities Associated with Marketable Securities and other
– We invest in public securities, including stocks and put and call options, which are considered derivatives. At
March 31, 2014
, we had investments in these derivatives totaling
$458,000
and liabilities of
$376,000
. At
December 31, 2013
, we had investments in these derivatives totaling
$560,000
and liabilities of
$561,000
.
10. 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.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 marketable securities and liabilities associated with marketable securities, including public equity securities, equity 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
March 31, 2014
, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from
0.16%
to
1.04%
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)
|
|
Counterparty and Cash Collateral Netting (4)
|
|
Total
|
|
|
|
|
March 31, 2014:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedge
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
95
|
|
(1)
|
|
Equity put and call options
|
458
|
|
|
—
|
|
|
—
|
|
|
458
|
|
(2)
|
|
Non-derivative assets:
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
32,638
|
|
|
—
|
|
|
—
|
|
|
32,638
|
|
(2)
|
|
Total
|
33,096
|
|
|
95
|
|
|
—
|
|
|
33,191
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
—
|
|
|
769
|
|
|
(815
|
)
|
|
(46
|
)
|
(3)
|
|
Short-equity put options
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
(3)
|
|
Short-equity call options
|
(279
|
)
|
|
—
|
|
|
—
|
|
|
(279
|
)
|
(3)
|
|
Non-derivative liabilities:
|
|
|
|
|
|
|
|
|
|
Margin account balance
|
(5,524
|
)
|
|
—
|
|
|
—
|
|
|
(5,524
|
)
|
(3)
|
|
Total
|
(5,900
|
)
|
|
769
|
|
|
(815
|
)
|
|
(5,946
|
)
|
|
|
Net
|
$
|
27,196
|
|
|
$
|
864
|
|
|
$
|
(815
|
)
|
|
$
|
27,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives - non-hedge
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
19
|
|
(1)
|
|
Equity put and call options
|
560
|
|
|
—
|
|
|
—
|
|
|
560
|
|
(2)
|
|
Non-derivative assets:
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
29,041
|
|
|
—
|
|
|
—
|
|
|
29,041
|
|
(2)
|
|
Total
|
29,601
|
|
|
19
|
|
|
—
|
|
|
29,620
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
Credit default swaps
|
—
|
|
|
995
|
|
|
(1,068
|
)
|
|
(73
|
)
|
(3)
|
|
Short-equity put options
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
(82
|
)
|
(3)
|
|
Short-equity call options
|
(479
|
)
|
|
—
|
|
|
—
|
|
|
(479
|
)
|
(3)
|
|
Non-derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
Margin account balance
|
(3,130
|
)
|
|
—
|
|
|
—
|
|
|
(3,130
|
)
|
(3)
|
|
Total
|
(3,691
|
)
|
|
995
|
|
|
(1,068
|
)
|
|
(3,764
|
)
|
|
|
Net
|
$
|
25,910
|
|
|
$
|
1,014
|
|
|
$
|
(1,068
|
)
|
|
$
|
25,856
|
|
|
____________________________________
(1)
Reported net as “Derivative assets, net” in the consolidated balance sheets.
(2)
Reported as “Marketable securities” in the consolidated balance sheets.
(3)
Reported as “Liabilities associated with marketable 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 summarizes the effect of fair-value-measured assets and liabilities on the consolidated statements of operations for the
three
months ended
March 31, 2014
and
2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized In Income
|
|
Interest Savings (Cost) Recognized In Income
|
|
Reclassified from Accumulated OCI
into Interest Expense
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(121
|
)
|
|
$
|
(10,645
|
)
|
|
$
|
—
|
|
|
$
|
10,639
|
|
|
$
|
71
|
|
|
$
|
8
|
|
Equity put and call options
|
(512
|
)
|
|
204
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Credit default swaps
|
(247
|
)
|
|
(925
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative assets:
|
|
|
|
|
|
|
|
|
|
|
|
Equity and US treasury securities
|
1,242
|
|
|
2,576
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
362
|
|
|
(8,790
|
)
|
|
—
|
|
|
10,639
|
|
|
71
|
|
|
8
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
—
|
|
|
4,400
|
|
|
—
|
|
|
(4,424
|
)
|
|
—
|
|
|
—
|
|
Short-equity put options
|
391
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Short-equity call options
|
4
|
|
|
(585
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Short-equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
395
|
|
|
3,822
|
|
|
—
|
|
|
(4,424
|
)
|
|
—
|
|
|
—
|
|
Net
|
$
|
757
|
|
|
$
|
(4,968
|
)
|
|
$
|
—
|
|
|
$
|
6,215
|
|
|
$
|
71
|
|
|
$
|
8
|
|
Total combined
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(121
|
)
|
|
$
|
(6,245
|
)
|
|
$
|
—
|
|
|
$
|
6,215
|
|
|
$
|
71
|
|
|
$
|
8
|
|
Credit default swaps
|
(226
|
)
|
|
(904
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives
|
(347
|
)
|
(1)
|
(7,149
|
)
|
(1)
|
—
|
|
|
6,215
|
|
(2)
|
71
|
|
|
8
|
|
Unrealized gain on marketable securities
|
1
|
|
(3)
|
2,701
|
|
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Realized gain (loss) on marketable securities
|
1,103
|
|
(2) (4)
|
(520
|
)
|
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
|
$
|
757
|
|
|
$
|
(4,968
|
)
|
|
$
|
—
|
|
|
$
|
6,215
|
|
|
$
|
71
|
|
|
$
|
8
|
|
____________________________________
(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 marketable securities” in the consolidated statements of operations.
(4)
Includes cost of
$21
and
$21
for the three months ended
March 31, 2014
and 2013, respectively, associated with credit default swaps.
For the
three
months ended
March 31, 2014
and 2013 the change in fair values of our interest rate derivatives that were recognized as change in other comprehensive loss totaled
$0
and
$(2,000)
, respectively. During the next twelve months, we expect
$28,000
of accumulated comprehensive loss will be reclassified to interest expense.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
11.
Summary of 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
Financial assets and liabilities measured at fair value:
|
|
|
|
|
|
|
|
Marketable securities
|
$
|
33,096
|
|
|
$
|
33,096
|
|
|
$
|
29,601
|
|
|
$
|
29,601
|
|
Derivative assets, net
|
$
|
95
|
|
|
$
|
95
|
|
|
$
|
19
|
|
|
$
|
19
|
|
Liabilities associated with marketable securities and other
|
$
|
5,946
|
|
|
$
|
5,946
|
|
|
$
|
3,764
|
|
|
$
|
3,764
|
|
|
|
|
|
|
|
|
|
Financial assets not measured at fair value:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
154,110
|
|
|
$
|
154,110
|
|
|
$
|
128,780
|
|
|
$
|
128,780
|
|
Restricted cash
|
$
|
62,853
|
|
|
$
|
62,853
|
|
|
$
|
61,498
|
|
|
$
|
61,498
|
|
Accounts receivable
|
$
|
30,689
|
|
|
$
|
30,689
|
|
|
$
|
21,791
|
|
|
$
|
21,791
|
|
Note receivable
|
$
|
3,424
|
|
|
$ 2,858 to $3,158
|
|
$
|
3,384
|
|
|
$ 2,800 to $3,094
|
Due from affiliates
|
$
|
761
|
|
|
$
|
761
|
|
|
$
|
1,302
|
|
|
$
|
1,302
|
|
Due from Ashford Prime, net
|
$
|
1,580
|
|
|
$
|
1,580
|
|
|
$
|
13,042
|
|
|
$
|
13,042
|
|
Due from related party, net
|
$
|
877
|
|
|
$
|
877
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due from third-party hotel managers
|
$
|
35,960
|
|
|
$
|
35,960
|
|
|
$
|
33,728
|
|
|
$
|
33,728
|
|
|
|
|
|
|
|
|
|
Financial liabilities not measured at fair value:
|
|
|
|
|
|
|
|
Indebtedness
|
$
|
1,780,432
|
|
|
$ 1,746,456 to $1,930,294
|
|
$
|
1,818,929
|
|
|
$ 1,786,651 to $1,974,714
|
|
Accounts payable and accrued expenses
|
$
|
68,946
|
|
|
$
|
68,946
|
|
|
$
|
70,683
|
|
|
$
|
70,683
|
|
Dividends payable
|
$
|
20,891
|
|
|
$
|
20,891
|
|
|
$
|
20,735
|
|
|
$
|
20,735
|
|
Due to related party, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
270
|
|
|
$
|
270
|
|
Due to third-party hotel managers
|
$
|
1,362
|
|
|
$
|
1,362
|
|
|
$
|
958
|
|
|
$
|
958
|
|
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 their short-term nature. This is considered a Level 1 valuation technique.
Accounts receivable, accounts payable, accrued expenses, dividends payable, due to/from Ashford Prime, due to/from related party, due to/from affiliates and due to/from third-party hotel managers.
The carrying values of these financial instruments approximate their fair values due to their short-term nature. This is considered a Level 1 valuation technique.
Note 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 note receivable to be approximately
16.5%
to
7.8%
lower than the carrying value of
$3.4 million
at
March 31, 2014
and approximately
17.3%
to
8.6%
lower than the carrying value of
$3.4 million
at
December 31, 2013
. This is considered a Level 2 valuation technique.
Marketable securities
. Marketable securities consist of US treasury bills, public equity securities, and equity put and call options. The fair value of these investments is based on quoted market closing prices at the balance sheet dates. See Notes 2, 9 and 10 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. 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 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
98.1%
to
108.4%
of the carrying value of
$1.8 billion
at
March 31, 2014
and approximately
98.2%
to
108.6%
of the carrying value of
$1.8 billion
at
December 31, 2013
. This is considered a Level 2 valuation technique.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Derivative assets, net and liabilities associated with marketable 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. Liabilities associated with marketable securities consists of a margin account balance, short public equity securities and short equity put and call options. Fair value is determined based on quoted market closing prices at the balance sheet dates. See Notes 2, 9 and 10 for a complete description of the methodology and assumptions utilized in determining fair values.
12. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represent certain 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 common 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. Additionally, certain independent members of the Board of Directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. 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
March 31, 2014
, we have issued
8.0 million
LTIP units in total, of which all but
921,000
units issued in February 2014 have reached full economic parity with the common units. All LTIP units issued had an aggregate value of
$79.3 million
at the date of grant which is being amortized over their vesting periods. Compensation expense of
$3.9 million
and
$7.9 million
was recognized for the
three
months ended
March 31, 2014
and
2013
, respectively. The unamortized value of LTIP units was
$27.5 million
at
March 31, 2014
, which will be amortized over periods from
0.1
to
2.9
years. During the
three
months ended
March 31, 2014
,
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
March 31, 2014
and
December 31, 2013
were
$194.2 million
and
$134.2 million
, respectively, which represents ownership of our operating partnership of
12.91%
and
12.72%
, respectively. The carrying value of redeemable noncontrolling interests as of
March 31, 2014
and
December 31, 2013
included adjustments of
$175.7 million
and
$123.3 million
, respectively, to reflect the excess of the redemption value over the accumulated historical costs. Redeemable noncontrolling interests were allocated net losses of
$877,000
and
$2.8 million
for the
three
months ended
March 31, 2014
and
2013
, respectively. We declared cash distributions to operating partnership units of
$2.7 million
and
$2.6 million
for the
three
months ended
March 31, 2014
and
2013
, respectively. These distributions are recorded as a reduction of redeemable noncontrolling interests in operating partnership.
13. Equity and Equity-Based Compensation
Common Stock Dividends
– For each of
2014
and
2013
, the Board of Directors declared quarterly dividends of
$0.12
per outstanding share of common stock with an annualized target of
$0.48
per share for
2014
.
Equity-Based Compensation
– We recognized compensation expense related to restricted shares of our common stock of
$617,000
and
$444,000
for the
three
months ended
March 31, 2014
and
2013
, respectively. As of
March 31, 2014
, the unamortized cost of the unvested shares of restricted stock was
$6.5 million
, which is being amortized over periods from
0.5
to
2.9
years.
Preferred Dividends
– During the three months ended
March 31, 2014
, 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
9.00%
Series E preferred stock. During the three months ended
March 31, 2013
, 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
9.00%
Series E preferred stock.
Noncontrolling Interests in Consolidated Entities
– Our noncontrolling entity partner, had an ownership interest of
15%
in
two
hotel properties and a total carrying value of
$1.0 million
at each of
March 31, 2014
and
December 31, 2013
. Our ownership interest is reported in equity in the consolidated balance sheets. Through November 19, 2013, we held a
75%
ownership interest
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
in
two
hotel properties in which our partner held a
25%
ownership interest. These two hotel properties were contributed to Ashford Prime in connection with the spin-off. Noncontrolling interests in consolidated entities were allocated losses of
$27,000
and
$707,000
for the
three
months ended
March 31, 2014
and
2013
, respectively.
14. Commitments and Contingencies
Restricted Cash
– Under certain management and debt agreements for our hotel properties existing at
March 31, 2014
, 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
March 31, 2014
, we pay franchisor royalty fees between
3%
and
6%
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
4%
of gross room revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between
2015
and
2035
. 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
$8.9 million
and
$7.1 million
for the
three
months ended
March 31, 2014
and 2013, respectively.
Management Fees
– Under management agreements for our hotel properties existing at
March 31, 2014
, 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
2015
through
2032
, 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.
Income Taxes
– We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2010 through 2013 remain subject to potential examination by certain federal and state taxing authorities.
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 owned 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 disagreed with the IRS's position and appealed our cases to the IRS Appeals Office. 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. We believe the IRS transfer pricing methodologies applied in the audits contained flaws and that the IRS adjustments to the rent charged were inconsistent with the U.S. federal tax laws related to REITs and true leases. The IRS Appeals Office reviewed our cases in 2012. In July 2013, the IRS Appeals Office issued "no-change letters" for the TRS and the REIT indicating that the 2007 tax returns were accepted as filed and the examinations resulted in no deficiencies. 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 and we agreed to extend the assessment statute of limitations for both the TRS and the REIT for the 2007 tax year to March 31, 2014. Accordingly, the IRS had the right to reopen the cases until March 31, 2014 but did not elect to do so.
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 did not propose any adjustments to the TRS or the REIT. For the 2008 tax year, the IRS 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
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
$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 owned a
75%
interest in the lessor entity through November 19, 2013, when our interest was contributed to Ashford Prime in connection with the previously discussed spin-off. 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 agreements, and bank loan agreements. We appealed our cases to the IRS Appeals Office and the IRS assigned the same Appeals team that oversaw our 2007 cases to our 2008 cases. Our representatives attended the Appeals conferences for the 2008 cases in August 2013 and February 2014. One or more additional conferences with the Appeals Office will be required to resolve our cases and we anticipate these will occur in 2014. The IRS has requested and we have agreed to extend the assessment statute of limitations four times for both the TRS and REIT for the 2008 tax year. The most recent request was made in March 2014 and extends the statute for the 2008 tax year to December 31, 2014. We have indemnified Ashford Prime for any potential losses resulting from the completion of this examination.
With respect to the 2008 IRS audit, we believe we will substantially prevail in the eventual settlement of the audit and that the settlement 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.
On November 19, 2013, we completed the spin-off of Ashford Prime. For federal income tax purposes, we recorded a gain as a result of the spin-off. If Ashford Prime qualifies for taxation as a REIT for 2013, that gain will be qualifying income for purposes of our 2013 REIT income tests. If, however, Ashford Prime were to fail to qualify as a REIT for 2013, that gain would be non-qualifying income for purposes of the 75% gross income test.
If we sell or transfer the Marriott Crystal Gateway in Arlington, Virginia prior to July 2016, we will be required 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.
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, a majority of employees, who are employees of the hotel manager, Remington Lodging, petitioned the employer to withdraw recognition of the union. As a result of the decertification petition, Remington Lodging withdrew recognition of the union. At the time of the withdrawal, the National Retirement Fund, the union's pension fund, indicated unfunded pension liabilities existed. The National Labor Relations Board ("NLRB") filed a complaint against Remington Lodging seeking, among other things, that Remington Lodging's withdrawal of recognition was unlawful. Pending the final determination of the NLRB complaint, including appeals, the pension fund entered into a settlement agreement with Remington Lodging on November 1, 2011, providing that (a) Remington Lodging will continue to make monthly pension fund payments pursuant to the collective bargaining agreement, and (b) if the withdrawal of recognition is ultimately deemed lawful, Remington Lodging will have an unfunded pension liability equal to
$1.7 million
minus the monthly pension payments made by Remington Lodging since the settlement agreement. To illustrate, if Remington Lodging - as of the date a final determination occurs - has made monthly pension payments equaling
$100,000
, Remington Lodging's remaining withdrawal liability shall be the unfunded pension liability of
$1.7 million
minus
$100,000
(or
$1.6 million
). This remaining unfunded pension liability shall be paid to the pension fund in annual installments of
$84,000
(but may be made monthly or quarterly, at Remington Lodging's election), which shall continue for the remainder of the twenty-(
20
)-year capped period, unless Remington Lodging elects to pay the unfunded pension liability amount earlier. We agreed to indemnify Remington Lodging for the payment of the unfunded pension liability as set forth in the settlement agreement.
Litigation
– We are engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
15. Segment Reporting
We operate in
one
business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refer 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. As of March 31, 2014 and December 31, 2013, all of our hotel properties were domestically located.
16. Subsequent Events
On April 8, 2014, we commenced a follow-on public offering of
7.5 million
shares of common stock at
$10.70
per share for gross proceeds of
$80.3 million
. The offering settled on April 14, 2014. The aggregate proceeds net of underwriting discount and other expenses were approximately
$76.8 million
. We granted the underwriters a
30
-day option to purchase up to an additional
1.1 million
shares of common stock. On May 9, 2014, the underwriters partially exercised their option to purchase an additional
850,000
shares of our common stock at a price of
$10.70
per share less the underwriting discount resulting in additional net proceeds of approximately
$8.7 million
.
On May 1, 2014, we refinanced a
$5.1 million
mortgage loan due May 2014, with a
$6.9 million
loan due May 2024. The new loan provided for a fixed rate of
4.99%
. The new loan continues to be secured by the Manchester/Hartford Courtyard. We have an
85%
ownership interest in the property, with Interstate Hotels & Resorts holding the remaining
15%
. We received
85%
of the excess loan proceeds, which were
$727,000
.