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EX-32.2 - EXHIBIT 32.2 - ASHFORD HOSPITALITY TRUST INCaht2017q310-qxex322.htm
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EX-31.2 - EXHIBIT 31.2 - ASHFORD HOSPITALITY TRUST INCaht2017q310-qxex312.htm
EX-31.1 - EXHIBIT 31.1 - ASHFORD HOSPITALITY TRUST INCaht2017q310-qxex311.htm
EX-12 - EXHIBIT 12 - ASHFORD HOSPITALITY TRUST INCa2017ahtq310-qxex12.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 001-31775

ASHFORD HOSPITALITY TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland
 
86-1062192
(State or other jurisdiction of incorporation or organization)
 
(IRS employer identification number)
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
Dallas, Texas
 
75254
(Address of principal executive offices)
 
(Zip code)

(972) 490-9600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
¨
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share
 
97,416,095
(Class)
 
Outstanding at November 3, 2017




ASHFORD HOSPITALITY TRUST, INC
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS


 
 
 




PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS (unaudited)
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
 
September 30, 2017
 
December 31, 2016
Assets
 
Investments in hotel properties, net
$
4,064,555

 
$
4,160,563

Cash and cash equivalents
393,527

 
347,091

Restricted cash
133,127

 
144,014

Marketable securities
11,960

 
53,185

Accounts receivable, net of allowance of $609 and $690, respectively
61,677

 
44,629

Inventories
4,384

 
4,530

Investment in unconsolidated entities
5,240

 
58,779

Deferred costs, net
2,845

 
2,846

Prepaid expenses
24,198

 
17,578

Derivative assets, net
1,721

 
3,614

Other assets
14,225

 
11,718

Intangible assets, net
9,972

 
10,061

Due from third-party hotel managers
19,230

 
13,348

Assets held for sale

 
19,588

Total assets
$
4,746,661

 
$
4,891,544

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness, net
$
3,698,869

 
$
3,723,559

Accounts payable and accrued expenses
153,772

 
126,986

Dividends and distributions payable
25,520

 
24,765

Unfavorable management contract liabilities
345

 
1,380

Due to Ashford Inc., net
13,689

 
15,716

Due to Ashford Prime OP, net

 
488

Due to related party, net
326

 
1,001

Due to third-party hotel managers
2,627

 
2,714

Intangible liabilities, net
15,928

 
16,195

Derivative liabilities, net
146

 

Other liabilities
18,203

 
16,548

Liabilities related to assets held for sale

 
37,047

Total liabilities
3,929,425

 
3,966,399

Commitments and contingencies (note 13)


 


Redeemable noncontrolling interests in operating partnership
117,434

 
132,768

Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
Series A Cumulative Preferred Stock, 0 and 1,657,206 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 
17

Series D Cumulative Preferred Stock, 7,904,353 and 9,468,706 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
79

 
95

Series F Cumulative Preferred Stock, 4,800,000 shares issued and outstanding at September 30, 2017 and December 31, 2016
48

 
48

Series G Cumulative Preferred Stock, 6,200,000 shares issued and outstanding at September 30, 2017 and December 31, 2016
62

 
62

Series H Cumulative Preferred Stock, 3,800,000 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
38

 

Common stock, $0.01 par value, 400,000,000 shares authorized, 97,416,095 and 96,376,827 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
974

 
964

Additional paid-in capital
1,783,912

 
1,764,450

Accumulated deficit
(1,086,071
)
 
(974,015
)
Total stockholders’ equity of the Company
699,042

 
791,621

Noncontrolling interests in consolidated entities
760

 
756

Total equity
699,802

 
792,377

Total liabilities and equity
$
4,746,661

 
$
4,891,544

See Notes to Consolidated Financial Statements.

2


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenue
 
 
 
Rooms
$
289,017

 
$
300,875

 
$
876,927

 
$
917,396

Food and beverage
48,313

 
56,206

 
175,005

 
188,467

Other hotel revenue
15,006

 
14,389

 
43,720

 
43,213

Total hotel revenue
352,336

 
371,470

 
1,095,652

 
1,149,076

Other
989

 
461

 
2,052

 
1,297

Total revenue
353,325

 
371,931

 
1,097,704

 
1,150,373

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
63,950

 
65,474

 
188,857

 
195,769

Food and beverage
37,173

 
41,086

 
121,619

 
129,606

Other expenses
112,421

 
114,377

 
337,978

 
347,126

Management fees
13,027

 
13,616

 
40,100

 
42,191

Total hotel expenses
226,571

 
234,553

 
688,554

 
714,692

Property taxes, insurance, and other
18,194

 
17,172

 
55,293

 
55,077

Depreciation and amortization
60,135

 
60,170

 
185,380

 
182,411

Impairment charges
1,785

 
4,922

 
1,785

 
4,695

Transaction costs

 
124

 
11

 
201

Advisory services fee
14,612

 
11,948

 
39,482

 
34,927

Corporate general and administrative
2,412

 
1,968

 
10,836

 
6,426

Total expenses
323,709

 
330,857

 
981,341

 
998,429

Operating income (loss)
29,616

 
41,074

 
116,363

 
151,944

Equity in earnings (loss) of unconsolidated entities
(679
)
 
(560
)
 
(3,580
)
 
(4,432
)
Interest income
706

 
92

 
1,460

 
229

Gain (loss) on sale of hotel properties
15

 
1,448

 
14,024

 
24,428

Other income (expense)
(273
)
 
(926
)
 
(3,539
)
 
(4,263
)
Interest expense and amortization of premiums and loan costs
(56,963
)
 
(55,762
)
 
(167,224
)
 
(168,167
)
Write-off of premiums, loan costs and exit fees

 
(972
)
 
(1,629
)
 
(4,913
)
Unrealized gain (loss) on marketable securities
(936
)
 

 
(4,813
)
 

Unrealized gain (loss) on derivatives
(1,479
)
 
(9,548
)
 
(1,804
)
 
4,248

Income (loss) before income taxes
(29,993
)
 
(25,154
)
 
(50,742
)
 
(926
)
Income tax (expense) benefit
1,267

 
16

 
507

 
(1,216
)
Net income (loss)
(28,726
)
 
(25,138
)
 
(50,235
)
 
(2,142
)
(Income) loss from consolidated entities attributable to noncontrolling interest
(22
)
 
(16
)
 
(4
)
 
16

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,940

 
5,009

 
13,202

 
2,745

Net income (loss) attributable to the Company
(21,808
)
 
(20,145
)
 
(37,037
)
 
619

Preferred dividends
(11,440
)
 
(8,875
)
 
(33,352
)
 
(25,856
)
Extinguishment of issuance costs upon redemption of preferred stock
(4,507
)
 
(6,124
)
 
(4,507
)
 
(6,124
)
Net income (loss) attributable to common stockholders
$
(37,755
)
 
$
(35,144
)
 
$
(74,896
)
 
$
(31,361
)
 
 
 
 
 
 
 
 
Income (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
(0.40
)
 
$
(0.37
)
 
$
(0.80
)
 
$
(0.34
)
Weighted average common shares outstanding – basic
95,332

 
94,531

 
95,169

 
94,384

Diluted:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
(0.40
)
 
$
(0.37
)
 
$
(0.80
)
 
$
(0.34
)
Weighted average common shares outstanding – diluted
95,332

 
94,531

 
95,169

 
94,384

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.12

 
$
0.12

 
$
0.36

 
$
0.36

See Notes to Consolidated Financial Statements.

3


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
(28,726
)
 
$
(25,138
)
 
$
(50,235
)
 
$
(2,142
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Total other comprehensive income (loss)

 

 

 

Comprehensive income (loss)
(28,726
)
 
(25,138
)
 
(50,235
)
 
(2,142
)
Less: Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities
(22
)
 
(16
)
 
(4
)
 
16

Less: Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
6,940

 
5,009

 
13,202

 
2,745

Comprehensive income (loss) attributable to the Company
$
(21,808
)
 
$
(20,145
)
 
$
(37,037
)
 
$
619

See Notes to Consolidated Financial Statements.

4


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands)
 
Preferred Stock
 
 
 
Additional
Paid In
Capital
 
Accumulated
Deficit
 
Noncontrolling
Interests In
Consolidated
Entities
 
Total
 
Redeemable Noncontrolling
Interests in
Operating
Partnership
 
Series A
 
Series D
 
Series F
 
Series G
 
Series H
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at January 1, 2017
1,657

 
$
17

 
9,469

 
$
95

 
4,800

 
$
48

 
6,200

 
$
62

 
$

 
$

 
96,377

 
$
964

 
$
1,764,450

 
$
(974,015
)
 
$
756

 
$
792,377

 
$
132,768

Purchases of common stock

 

 

 

 

 

 

 

 

 

 
(203
)
 
(2
)
 
(1,271
)
 

 

 
(1,273
)
 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 
5,002

 

 

 
5,002

 
3,749

Forfeitures of restricted shares

 

 

 

 

 

 

 

 

 

 
(49
)
 

 

 

 

 

 

Issuance of restricted shares/units

 

 

 

 

 

 

 

 

 

 
1,271

 
12

 
(12
)
 

 

 

 
94

Redemption of preferred shares
(1,657
)
 
(17
)
 
(1,565
)
 
(16
)
 

 

 

 

 

 

 

 

 
(76,014
)
 
(4,507
)
 

 
(80,554
)
 

Issuances of preferred shares

 

 

 

 

 

 

 

 
3,800

 
38

 

 

 
91,596

 

 

 
91,634

 

Dividends declared - common shares

 

 

 

 

 

 

 

 

 

 

 

 

 
(35,319
)
 

 
(35,319
)
 

Dividends declared - preferred shares- Series A

 

 

 

 

 

 

 

 

 

 

 

 

 
(2,539
)
 

 
(2,539
)
 

Dividends declared - preferred shares- Series D

 

 

 

 

 

 

 

 

 

 

 

 

 
(14,891
)
 

 
(14,891
)
 

Dividends declared – preferred shares- Series F

 

 

 

 

 

 

 

 

 

 

 

 

 
(6,637
)
 

 
(6,637
)
 

Dividends declared – preferred shares- Series G

 

 

 

 

 

 

 

 

 

 

 

 

 
(8,573
)
 

 
(8,573
)
 

Dividends declared – preferred shares- Series H

 

 

 

 

 

 

 

 

 

 

 

 

 
(712
)
 

 
(712
)
 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(7,655
)
Redemption/conversion of operating partnership units

 

 

 

 

 

 

 

 

 

 
20

 

 
161

 

 

 
161

 
(161
)
Redemption value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 
(1,841
)
 

 
(1,841
)
 
1,841

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 
(37,037
)
 
4

 
(37,033
)
 
(13,202
)
Balance at September 30, 2017

 
$

 
7,904

 
$
79

 
4,800

 
$
48

 
6,200

 
$
62

 
3,800

 
$
38

 
97,416

 
$
974

 
$
1,783,912

 
$
(1,086,071
)
 
$
760

 
$
699,802

 
$
117,434

See Notes to Consolidated Financial Statements.

5


ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash Flows from Operating Activities
 
Net income (loss)
$
(50,235
)
 
$
(2,142
)
Adjustments to reconcile net income (loss) to net cash flow from operating activities:
 
 
 
Depreciation and amortization
185,380

 
182,411

Impairment charges
1,785

 
4,695

Amortization of intangibles
(178
)
 
(157
)
Recognition of deferred income
(593
)
 

Write-off of intangibles

 
564

Bad debt expense
1,441

 
863

Deferred income tax expense (benefit)
(1,683
)
 

Equity in (earnings) loss of unconsolidated entities
3,580

 
4,432

(Gain) loss on sale of hotel properties, net
(14,024
)
 
(24,428
)
Realized and unrealized (gain) loss on marketable securities
3,991

 

Purchases of marketable securities
(38,889
)
 

Sales of marketable securities
76,123

 

Net settlement of trading derivatives
(3,840
)
 
(3,259
)
Payments for derivatives

 
(230
)
Realized and unrealized (gain) loss on derivatives
6,512

 
(823
)
Amortization of loan costs and premiums, write-off of premiums, loan costs and exit fees
10,783

 
21,340

Equity-based compensation
8,751

 
5,511

Changes in operating assets and liabilities, exclusive of effect of dispositions of hotel properties:
 
 
 
Accounts receivable and inventories
(14,169
)
 
(19,190
)
Prepaid expenses and other assets
(6,311
)
 
(13,849
)
Accounts payable and accrued expenses
18,573

 
26,751

Due to/from related party
(734
)
 
(940
)
Due to/from third-party hotel managers
(5,969
)
 
7,405

Due to/from Ashford Prime OP, net
(488
)
 
535

Due to/from Ashford Inc., net
(2,027
)
 
384

Other assets
(541
)
 

Other liabilities
1,213

 
1,150

Net cash provided by (used in) operating activities
178,451

 
191,023

Cash Flows from Investing Activities
 
 
 
Investment in unconsolidated entity
(983
)
 
(2,000
)
Proceeds from payments on note receivable

 
184

Acquisition of hotel properties and assets, net of cash acquired
(110
)
 
(2,106
)
Improvements and additions to hotel properties
(164,075
)
 
(137,897
)
Net proceeds from sales of assets/properties
105,267

 
168,831

Liquidation of AQUA U.S. Fund
50,942

 

Payments for initial franchise fees
(225
)
 
(30
)
Proceeds from property insurance
2,369

 
268

Net cash provided by (used in) investing activities
(6,815
)
 
27,250

Cash Flows from Financing Activities
 
 
 
Borrowings on indebtedness
180,800

 
37,500

Repayments of indebtedness
(246,139
)
 
(141,528
)
Payments for loan costs and exit fees
(5,813
)
 
(5,119
)
Payments for dividends and distributions
(75,571
)
 
(69,328
)
Purchases of common stock
(1,273
)
 
(732
)
Redemption of preferred stock
(80,554
)
 
(115,750
)
Payments for derivatives
(633
)
 
(104
)
Proceeds from preferred stock offering
91,634

 
115,769

Other
94

 
66

Net cash provided by (used in) financing activities
(137,455
)
 
(179,226
)
Net increase (decrease) in cash, cash equivalents and restricted cash
34,181

 
39,047

Cash, cash equivalents and restricted cash at beginning of period
492,473

 
368,758

Cash, cash equivalents and restricted cash and at end of period
$
526,654


$
407,805


6


 
Nine Months Ended September 30,
 
2017
 
2016
Supplemental Cash Flow Information
 
 
 
Interest paid
$
158,443

 
$
152,378

Income taxes paid
1,610

 
1,611

Supplemental Disclosure of Non-Cash Investing and Financing Activity
 
 
 
Accrued but unpaid capital expenditures
$
18,300

 
$
9,941

Dividends and distributions declared but not paid
25,520

 
22,547

Supplemental Disclosure of Cash, Cash Equivalents and Restricted Cash
 
 
 
Cash and cash equivalents at beginning of period
$
347,091

 
$
215,078

Cash and cash equivalents at beginning of period included in assets held for sale
976

 

Restricted cash at beginning of period
144,014

 
153,680

Restricted cash at beginning of period included in assets held for sale
392

 

Cash, cash equivalents and restricted cash at beginning of period
$
492,473

 
$
368,758

 
 
 
 
Cash and cash equivalents at end of period
$
393,527

 
$
256,421

Cash and cash equivalents at end of period included in assets held for sale

 
348

Restricted cash at end of period
133,127

 
149,865

Restricted cash at end of period included in assets held for sale

 
1,171

Cash, cash equivalents and restricted cash at end of period
$
526,654

 
$
407,805

See Notes to Consolidated Financial Statements.

7

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford Trust”), is a real estate investment trust (“REIT”) focused on investing in full-service hotels in the upscale and upper upscale segments in domestic and international markets that have revenue per available room (“RevPAR”) generally less than twice the national average, and in all methods including direct real estate, equity, and debt. Other than Ashford Hospitality Trust, Inc.’s investment in Ashford Inc. common stock, we own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership (“Ashford Trust OP”), our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Trust, 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.
We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC”), a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
As of September 30, 2017, we owned interests in the following assets:
120 consolidated hotel properties, including 118 directly owned and two owned through a majority-owned investment in a consolidated entity, which represent 25,055 total rooms (or 25,028 net rooms excluding those attributable to our partners);
87 hotel condominium units at WorldQuest Resort in Orlando, Florida (“WorldQuest”);
a 29.6% ownership in Ashford Inc. common stock with a carrying value of $2.6 million and a fair value of $36.2 million; and
a 16.2% ownership in OpenKey with a carrying value of $2.7 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, 2017, our 120 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, 2017, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman, and Mr. Archie Bennett, Jr., our Chairman Emeritus, managed 82 of our 120 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. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2016 Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2017.
Ashford Trust OP is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (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. All major decisions related to Ashford Trust OP that most significantly impact its economic performance, including but not limited

8

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 our wholly-owned subsidiary, Ashford Trust OP General Partner LLC, its general partner. As such, we consolidate Ashford Trust OP.
Historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three and nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The following dispositions affect reporting comparability of our consolidated financial statements:
Hotel Property 
 
Location 
 
Type
 
Date
5-hotel portfolio (1)
 
Various
 
Disposition
 
June 1, 2016
Hampton Inn & Suites
 
Gainesville, FL
 
Disposition
 
September 1, 2016
SpringHill Suites Gaithersburg
 
Gaithersburg, MD
 
Disposition
 
October 1, 2016
2-hotel portfolio (2)
 
Palm Desert, CA
 
Disposition
 
October 7, 2016
Renaissance
 
Portsmouth, VA
 
Disposition
 
February 1, 2017
Embassy Suites
 
Syracuse, NY
 
Disposition
 
March 6, 2017
Crowne Plaza Ravinia
 
Atlanta, GA
 
Disposition
 
June 29, 2017
(1) The 5-hotel portfolio is comprised of the Courtyard Edison in Edison, New Jersey; the Residence Inn Buckhead in Atlanta, Georgia; the Courtyard Lake Buena Vista, the Fairfield Inn Lake Buena Vista and the SpringHill Suites Lake Buena Vista in Orlando, Florida.
(2) The 2-hotel portfolio is comprised of the Courtyard and Residence Inn in Palm Desert, California.
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.
Restricted Cash—Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions. We early adopted Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash effective January 1, 2017. See discussion in recently adopted accounting standards below.
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. We recorded an impairment charge of $1.8 million to investments in hotel properties for the three and nine months ended September 30, 2017 related to hurricanes in Florida and Texas. We recorded an impairment charge of $5.0 million to investments in hotel properties for the three and nine months ended September 31, 2016. See note 4.
Hotel DispositionsDiscontinued operations are defined as the disposal of components of an entity that represents strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. We believe that individual dispositions of hotel properties do not represent a strategic shift that has (or will have) a major effect on our operations and financial results as most will not fit the definition.

9

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Assets Held for Sale—We classify assets as held for sale when we have obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. The related operations of assets held for sale are reported as discontinued if the disposal is a component of an entity that represents a strategic shift that has (or will have) a major effect on our operations and cash flows. Depreciation and amortization will cease as of the date assets have met the criteria to be deemed held for sale. See note 4.
Investments in Unconsolidated Entities—Investments in entities in which we have ownership interests ranging from 16.2% to 29.6%, at September 30, 2017, 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 in earnings (loss) in unconsolidated entities. No such impairment was recorded for the three and nine months ended September 30, 2017 and 2016.
Our investments in certain unconsolidated entities 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 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.
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. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. 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 when contractually due.
Equity-Based Compensation—Stock/unit-based compensation for non-employees is accounted for at fair value based on the market price of the shares at period end in accordance with applicable authoritative accounting guidance that results in recording expense, included in “advisory services fee” and “management fees” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Performance stock units (“PSUs”) and performance-based Long-Term Incentive Plan (“Performance LTIP”) units granted to certain executive officers are accounted for at fair value at period end based on a Monte Carlo simulation valuation model that results in recording expense, included in “advisory services fee,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Stock/unit grants to independent directors are recorded at fair value based on the market price of the shares at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.
Recently Adopted Accounting Standards—In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”), which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. We adopted this standard effective January 1, 2017, and the adoption of this standard did not have any impact on our financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which clarifies the presentation of restricted cash and restricted cash equivalents in the statements of cash flows. Under ASU 2016-18 restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We adopted this standard effective January 1, 2017 on a retrospective basis. The adoption of this standard resulted in the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows for all periods presented. As a result net cash provided by operating activities increased $13.1 million and net cash used in investing activities decreased $15.7 million in the nine months ended September 30, 2017. Our beginning-of-period cash, cash equivalents and restricted cash increased $144.4 million and $153.7 million in 2017 and 2016, respectively.

10

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Recently Issued Accounting Standards—In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model, which requires a company to recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The update will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which defers the effective date to fiscal periods beginning after December 15, 2017. The standard permits the use of either the full retrospective or cumulative effect (modified retrospective) transition method. We are continuing to evaluate each of our revenue streams under the new standard and because of the short-term, day-to-day nature of hotel revenues, our pattern of revenue recognition is not expected to change significantly. Additionally, we have historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations, therefore, ASU No. 2014-09 will not impact the recognition of hotel sales. We presently expect to select the modified retrospective method. We do not expect adoption of this standard will have a material impact on our consolidated financial statements. We continue to evaluate the related disclosure requirements.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. ASU 2016-01 provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. It also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain provisions of ASU 2016-01 are eligible for early adoption. We do not expect that ASU 2016-01 will have a material impact on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The accounting for leases under which we are the lessor remains largely unchanged. While we are currently in the initial stages of assessing the impact that ASU 2016-02 will have on our consolidated financial statements, we expect the primary impact to our consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our consolidated balance sheets resulting in the recording of ROU assets and lease obligations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The ASU sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016-13 will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force (“ASU 2016-15”). The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that ASU 2016-15 will have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. ASU 2017-01 is

11

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. While we are currently evaluating the potential impact of the standard, we currently expect that certain future hotel acquisitions may be considered asset acquisitions rather than business combinations, which would affect capitalization of acquisitions costs (such costs are expensed for business combinations and capitalized for asset acquisitions).
In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU “2017-05”), which clarifies the scope of Accounting Standard Codification (“ASC”) Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. An entity may elect to apply ASU 2017-05 under a retrospective or modified retrospective approach. We are evaluating the impact that ASU 2017-05 will have on our consolidated financial statements and related disclosures.
3. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Land
$
657,144

 
$
663,013

Buildings and improvements
3,902,162

 
3,913,377

Furniture, fixtures, and equipment
442,468

 
434,091

Construction in progress
36,468

 
32,525

Condominium properties
11,896

 
11,558

Total cost
5,050,138

 
5,054,564

Accumulated depreciation
(985,583
)
 
(894,001
)
Investments in hotel properties, net
$
4,064,555

 
$
4,160,563

4. Hotel Dispositions, Impairment Charges and Insurance Recoveries and Assets Held For Sale
On June 1, 2016, the Company sold the Noble Five Hotels, a 5-hotel portfolio of select-service hotel properties for approximately $142.0 million in cash. The sale resulted in a gain of $22.8 million for the year ended December 31, 2016. The portfolio is comprised of the Courtyard Edison in Edison, New Jersey, the Residence Inn Buckhead in Atlanta, Georgia, the Courtyard Lake Buena Vista, the Fairfield Inn Lake Buena Vista and the SpringHill Suites Lake Buena Vista in Orlando, Florida.
On September 1, 2016, the Company sold the Hampton Inn Gainesville for approximately $26.5 million in cash. The sale resulted in a gain of $1.6 million for the year ended December 31, 2016.
On October 1, 2016, the Company sold the SpringHill Suites in Gaithersburg, Maryland for approximately $13.2 million. The consideration received from the sale was a combination of cash and approximately 2.0 million Class B common units of the Company’s operating partnership. The Class B operating partnership units were redeemed at a price of $5.74 per unit, or a price of $6.05 per common share after taking into account the current conversion factor. The Company also repaid approximately $10.4 million of debt associated with the hotel property. The sale resulted in a loss of $223,000 for the year ended December 31, 2016.
On October 7, 2016, the Company sold the Courtyard and Residence Inn in Palm Desert, California for $36.0 million. The consideration received from the sale was a combination of cash and assumption of approximately $23.8 million of mortgage debt associated with the hotel properties. The sale resulted in a gain of $7.5 million for the year ended December 31, 2016.
On February 1, 2017, the Company sold the Renaissance hotel in Portsmouth, Virginia (“Renaissance Portsmouth”) for approximately $9.2 million in cash. The sale resulted in a loss of $43,000 for the nine months ended September 30, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $20.2 million of debt associated with the hotel property. See note 6.
On March 6, 2017, the Company sold the Embassy Suites in Syracuse, New York (“Embassy Suites Syracuse”) for approximately $8.8 million in cash. The sale resulted in a loss of $40,000 for the nine months ended September 30, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $20.6 million of debt associated with the hotel property. See note 6.

12

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

On June 29, 2017, the Company sold the Crowne Plaza Ravinia in Atlanta, Georgia for approximately $88.7 million in cash. The sale resulted in a gain of $14.1 million for the nine months ended September 30, 2017 and is included in “gain (loss) on sale of hotel properties” in the consolidated statements of operations. The Company also repaid approximately $78.7 million of debt associated with the hotel property. See note 6.
We included the results of operations for these hotel properties through the date of disposition in net income (loss). The following table includes condensed financial information from these hotel properties in the consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total hotel revenue
$
5

 
$
14,293

 
$
12,447

 
$
67,704

Total hotel operating expenses
(305
)
 
(9,649
)
 
(9,849
)
 
(44,581
)
Operating income (loss)
(300
)
 
4,644

 
2,598

 
23,123

Property taxes, insurance and other
(4
)
 
(742
)
 
(617
)
 
(3,273
)
Depreciation and amortization

 
(2,077
)
 
(2,588
)
 
(10,159
)
Impairment charge

 
(5,039
)
 

 
(5,039
)
Gain (loss) on sale of hotel properties
15

 
1,448

 
14,024

 
24,428

Interest expense and amortization of loan costs

 
(2,069
)
 
(2,361
)
 
(8,905
)
Write-off of loan costs and exit fees

 
(972
)
 
(98
)
 
(4,913
)
Net income (loss)
(289
)
 
(4,807
)
 
10,958

 
15,262

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
45

 
673

 
(1,724
)
 
(2,138
)
Net income (loss) attributable to the Company
$
(244
)
 
$
(4,134
)
 
$
9,234

 
$
13,124

Impairment Charges and Insurance Recoveries
In August and September 2017, twenty-four of our hotel properties in Texas and Florida were impacted by the effects of Hurricanes Harvey and Irma. The Company holds insurance policies that provide coverage for property damage and business interruption after meeting certain deductibles at all of its hotel properties. During the three and nine months ended September 30, 2017, the Company recognized impairment charges, net of anticipated insurance recoveries of $1.8 million. Additionally, the Company recognized remediation and other costs, net of anticipated insurance recoveries of $3.7 million, included primarily in other hotel operating expenses. As of September 30, 2017, the company has recorded an insurance receivable of $1.4 million, net of deductibles of $5.5 million, included in “accounts receivable, net” on our consolidated balance sheet, related to the anticipated insurance recoveries. The Company will not record an insurance recovery receivable for business interruption losses associated with lost profits until the amount for such recoveries is known and the amount is realizable.
Assets Held For Sale
At December 31, 2016, the Renaissance Portsmouth and the Embassy Suites Syracuse were classified as held for sale in the consolidated balance sheet based on methodologies discussed in note 2. Since the sale of the properties did not represent a strategic shift that had (or will have had) a major effect on our operations or financial results, their results of operation were not reported as discontinued operations in the consolidated financial statements. Depreciation and amortization were ceased as of the date the assets were deemed held for sale. On February 1, 2017, we completed the sale of the Renaissance Portsmouth for approximately $9.2 million. On March 6, 2017, we completed the sale of the Embassy Suites Syracuse for approximately $8.8 million.

13

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The major classes of assets and liabilities related to the assets held for sale included in the consolidated balance sheet at December 31, 2016 were as follows:
 
December 31, 2016
Assets
 
Investments in hotel properties, net
$
17,232

Cash and cash equivalents
976

Restricted cash
392

Accounts receivable
305

Inventories
96

Deferred costs, net
4

Prepaid expenses
309

Other assets
274

Assets held for sale
$
19,588

 
 
Liabilities
 
Indebtedness, net
$
35,679

Accounts payable and accrued expenses
1,323

Due to related party, net
45

Liabilities related to assets held for sale
$
37,047

5. Investment in Unconsolidated Entities
Ashford Inc.
We held approximately 598,000 shares of Ashford Inc. common stock, which represented an approximate 29.6% ownership interest in Ashford Inc. as of September 30, 2017, with a carrying value of $2.6 million and a fair value of $36.2 million.
The following tables summarize the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 and the condensed consolidated statements of operations of Ashford Inc. and our equity in earnings (loss) for the three and nine months ended September 30, 2017 and 2016 (in thousands):
Ashford Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
September 30, 2017
 
December 31, 2016
Total assets
$
84,012

 
$
129,797

Total liabilities
$
49,754

 
$
38,168

Redeemable noncontrolling interests
1,936

 
1,480

Total stockholders’ equity of Ashford Inc.
31,862

 
37,377

Noncontrolling interests in consolidated entities
460

 
52,772

Total equity
32,322

 
90,149

Total liabilities and equity
$
84,012

 
$
129,797

Our ownership interest in Ashford Inc.
$
2,582

 
$
5,873


14

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Ashford Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total revenue
$
19,255

 
$
16,538

 
$
51,907

 
$
48,099

Total operating expenses
(21,595
)
 
(16,673
)
 
(54,965
)
 
(50,938
)
Operating income (loss)
(2,340
)
 
(135
)
 
(3,058
)
 
(2,839
)
Realized and unrealized gain (loss) on investment in unconsolidated entity, net

 

 

 
(1,460
)
Realized and unrealized gain (loss) on investments, net

 
(441
)
 
(91
)
 
(5,889
)
Interest expense and loan amortization costs
(20
)
 

 
(35
)
 

Other income (expense)
77

 
59

 
220

 
(21
)
Income tax (expense) benefit
25

 
(575
)
 
(9,248
)
 
(560
)
Net income (loss)
(2,258
)
 
(1,092
)
 
(12,212
)
 
(10,769
)
(Income) loss from consolidated entities attributable to noncontrolling interests
102

 
486

 
267

 
6,852

Net (income) loss attributable to redeemable noncontrolling interests
300

 
321

 
995

 
794

Net income (loss) attributable to Ashford Inc.
$
(1,856
)
 
$
(285
)
 
$
(10,950
)
 
$
(3,123
)
Our equity in earnings (loss) of Ashford Inc.
$
(569
)
 
$
(85
)
 
$
(3,291
)
 
$
(959
)
AQUA U.S. Fund
The AQUA U.S. Fund was managed by Ashford Investment Management, LLC (“AIM”), an indirect subsidiary of Ashford Inc. As of June 30, 2017 and December 31, 2016, and for the three and six months ended June 30, 2017 and for the three and nine months ended September 30, 2016, the AQUA U.S. Fund was consolidated by Ashford Inc. The AQUA U.S. Fund invested substantially all of its assets in the Ashford Quantitative Alternatives Master Fund, LP (the “Master Fund”), previously named the AIM Real Estate Hedged Equity Master Fund, LP, and as a consequence of our investment in the AQUA U.S. Fund, we obtained an indirect interest in the Master Fund. Our maximum exposure of loss was limited to our investment in the AQUA U.S. Fund.
During the first quarter of 2017, we liquidated our investment in the AQUA U.S. Fund subject to a 5% hold back of $2.6 million, which was received during the second quarter of 2017. Our ownership interest in the AQUA U.S. Fund was $50.9 million at December 31, 2016. For the nine months ended September 30, 2017 our equity in earnings was $52,000. For the three and nine months ended September 30, 2016 our equity in loss was $395,000 and $3.3 million, respectively.
OpenKey
In 2016, the Company made investments totaling $2.3 million in OpenKey, which is controlled and consolidated by Ashford Inc., for a 13.3% ownership interest. On March 2, 2017 and September 12, 2017, we invested an additional $650,000 and $333,000, respectively. As of September 30, 2017, the Company has made investments totaling $3.3 million, for a 16.23% ownership interest. Our investment is recorded as a component of “investment in unconsolidated entities” in our consolidated balance sheet and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance. As of September 30, 2017, our ownership interest had a carrying value of $2.7 million. For the three and nine months ended September 30, 2017, our equity in earnings (loss) in the unconsolidated entity was a loss of $111,000 and $341,000, respectively. For the three and nine months ended September 30, 2016, our equity in earnings (loss) in the unconsolidated entity was a loss of $80,000 and $196,000, respectively.

15

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

6. Indebtedness
Indebtedness consisted of the following (in thousands):
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
September 30, 2017
 
December 31, 2016
Mortgage loan (2)
 
1 hotel
 
June 2017
 
5.98%
 
$

 
$
15,729

Mortgage loan (3)
 
17 hotels
 
December 2017
 
LIBOR (1) + 5.52%
 
412,500

 
412,500

Mortgage loan (4)
 
2 hotels
 
January 2018
 
4.44%
 

 
105,047

Mortgage loan
 
1 hotel
 
January 2018
 
4.38%
 
94,722

 
96,169

Mortgage loan (5)
 
8 hotels
 
January 2018
 
LIBOR (1) + 4.95%
 
376,800

 
376,800

Mortgage loan (6)
 
5 hotels
 
February 2018
 
LIBOR (1) + 4.75%
 
200,000

 
200,000

Mortgage loan (7)
 
1 hotel
 
April 2018
 
LIBOR (1) + 4.95%
 
33,300

 
33,300

Mortgage loan (8) (9) (10) (11)
 
22 hotels
 
April 2018
 
LIBOR (1) + 4.39%
 
971,654

 
1,070,560

Mortgage loan (12)
 
1 hotel
 
May 2018
 
LIBOR (1) + 5.10%
 
25,100

 
25,100

Mortgage loan (13)
 
1 hotel
 
June 2018
 
LIBOR (1) + 5.10%
 
43,750

 
43,750

Mortgage loan (14)
 
1 hotel
 
July 2018
 
LIBOR (1) + 4.15%
 
35,200

 
35,200

Mortgage loan (14)
 
1 hotel
 
July 2018
 
LIBOR (1) + 5.10%
 
40,500

 
40,500

Mortgage loan (14)
 
8 hotels
 
July 2018
 
LIBOR (1) + 4.09%
 
144,000

 
144,000

Mortgage loan (15)
 
1 hotel
 
August 2018
 
LIBOR (1) + 4.95%
 
12,000

 
12,000

Mortgage loan (16)
 
4 hotels
 
August 2018
 
LIBOR (1) + 4.38%
 
52,530

 
52,530

Mortgage loan (16) (17) (18)
 
6 hotels
 
August 2018
 
LIBOR (1) + 4.35%
 
280,421

 
301,000

Mortgage loan (3)
 
18 hotels
 
October 2018
 
LIBOR (1) + 4.55%
 
450,000

 
450,000

Mortgage loan
 
1 hotel
 
July 2019
 
4.00%
 
5,361

 
5,436

Mortgage loan (2)
 
1 hotel
 
May 2020
 
LIBOR (1) + 2.90%
 
16,100

 

Mortgage loan
 
1 hotel
 
November 2020
 
6.26%
 
95,638

 
96,873

Mortgage loan (4)
 
2 hotels
 
June 2022
 
LIBOR (1) + 3.00%
 
164,700

 

Mortgage loan
 
1 hotel
 
May 2023
 
5.46%
 
54,020

 
54,685

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
7,028

 
7,111

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
10,258

 
10,378

Mortgage loan
 
1 hotel
 
May 2024
 
4.99%
 
6,559

 
6,641

Mortgage loan
 
2 hotels
 
August 2024
 
4.85%
 
12,288

 
12,427

Mortgage loan
 
3 hotels
 
August 2024
 
4.90%
 
24,561

 
24,836

Mortgage loan
 
3 hotels
 
August 2024
 
5.20%
 
66,454

 
67,164

Mortgage loan
 
2 hotels
 
February 2025
 
4.45%
 
20,304

 
20,575

Mortgage loan
 
3 hotels
 
February 2025
 
4.45%
 
52,517

 
53,293

 
 
 
 
 
 
 
 
3,708,265

 
3,773,604

Premiums, net
 
 
 
 
 
 
 
1,756

 
3,523

Deferred loan costs, net
 
 
 
 
 
 
 
(11,152
)
 
(17,889
)
 
 
 
 
 
 
 
 
$
3,698,869

 
$
3,759,238

 
 

 
 
 

 


 


Indebtedness related to assets held for sale (10)
 
1 hotel
 
April 2017
 
LIBOR (1) + 4.39%
 

 
16,080

Indebtedness related to assets held for sale (18)
 
1 hotel
 
August 2017
 
LIBOR (1) + 4.35%
 

 
19,599

Indebtedness, net
 
 
 
 
 
 
 
$
3,698,869

 
$
3,723,559

____________________________________
(1) LIBOR rates were 1.232% and 0.772% at September 30, 2017 and December 31, 2016, respectively.
(2) On May 24, 2017, we refinanced this mortgage loan totaling $15.7 million set to mature in June 2017 with a new $16.1 million mortgage loan with a three-year initial term and two one-year extension options subject to the satisfaction of certain conditions. Through May 2019, the new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.90%. Beginning on June 1, 2019, monthly principal payments based on a thirty-year amortization and a 6.00% interest rate are due.
(3) This mortgage loan has four one-year extension options, subject to satisfaction of certain conditions.

16

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

(4) On May 10, 2017, we refinanced this mortgage loan totaling $104.3 million set to mature in January 2018 with a new $181.0 million mortgage loan, of which our initial advance was $164.7 million. The new mortgage loan is interest only and bears interest at a rate of LIBOR +3.00%. Beginning on July 1, 2020, quarterly principal payments of $750,000 are due.
(5) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in January 2017
(6) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions and a LIBOR floor of 0.20%. The second one-year extension period began in February 2017.
(7) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in April 2017.
(8) This mortgage loan has four one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in April 2017.
(9) This mortgage loan had a $20.2 million pay down of principal related to the sale of the Renaissance Portsmouth that was sold on February 1, 2017.
(10) A portion of this mortgage loan at December 31, 2016 relates to the Renaissance Portsmouth that was sold on February 1, 2017. See note 4.
(11) This mortgage loan had a $78.7 million pay down of principal related to the sale of the Crowne Plaza Ravinia that was sold on June 29, 2017. See note 4.
(12) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in May 2017.
(13) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in June 2017.
(14) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in July 2017.
(15) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.
(16) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. The second one-year extension period began in August 2017.
(17) This mortgage loan had a $20.6 million pay down of principal related to the sale of the Embassy Suites Syracuse that was sold on March 6, 2017. See note 4.
(18) A portion of this mortgage loan at December 31, 2016 relates to the Embassy Suites Syracuse that was sold on March 6, 2017. See note 4.
On February 1, 2017, we repaid $20.2 million of principal on our mortgage loan partially secured by the Renaissance Portsmouth. This hotel property was sold on February 1, 2017.
On March 6, 2017, we repaid $20.6 million of principal on our mortgage loan partially secured by the Embassy Suites Syracuse. This hotel property was sold on March 6, 2017.
On May 10, 2017, we refinanced a $105.0 million mortgage loan, secured by the Renaissance Nashville in Nashville, Tennessee and the Westin in Princeton, New Jersey. The new mortgage loan totals $181.0 million, of which our initial advance was $164.7 million with future advances totaling $16.3 million as reimbursement for capital expenditures. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 3.00%. Beginning on July 1, 2020, quarterly principal payments of $750,000 are due. The stated maturity is June 2022, with no extension options.
On May 24, 2017, we refinanced a $15.7 million mortgage loan, secured by the Hotel Indigo (“Indigo Atlanta”) in Atlanta, Georgia. The new mortgage loan totals $16.1 million. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.90% for the first two years with a 30-year amortization schedule based on a 6% interest rate starting in the third year. The stated maturity is May 2020, with two one-year extension options.
On June 29, 2017, we repaid $78.7 million of principal on our mortgage loan partially secured by the Crowne Plaza Ravinia. This hotel property was sold on June 29, 2017.
During the three and nine months ended September 30, 2017, we recognized premium amortization of $185,000 and $1.8 million, respectively, and during the three and nine months ended September 30, 2016, we recognized premium amortization of $527,000 and $1.6 million, respectively. The amortization of the premium is computed using a method that approximates the effective interest method, which is included in interest expense and amortization of premiums and loan costs in the consolidated statements of operations.
We are required to maintain certain financial ratios under various debt and related agreements. If we violate covenants in any debt or related agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. 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 Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP. As of September 30, 2017, we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
7. 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 stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss)

17

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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,
 
2017
 
2016
 
2017
 
2016
Income (loss) allocated to common stockholders:
 
 
 
 
 
 
 
Income (loss) attributable to the Company
$
(21,808
)
 
$
(20,145
)
 
$
(37,037
)
 
$
619

Less: Dividends on preferred stock
(11,440
)
 
(8,875
)
 
(33,352
)
 
(25,856
)
Less: Extinguishment of issuance costs upon redemption of preferred stock
(4,507
)
 
(6,124
)
 
(4,507
)
 
(6,124
)
Less: Dividends on common stock
(11,439
)
 
(11,345
)
 
(34,316
)
 
(34,018
)
Less: Dividends on unvested performance stock units
(98
)
 
(40
)
 
(294
)
 
(120
)
Less: Dividends on unvested restricted shares
(251
)
 
(197
)
 
(709
)
 
(548
)
Undistributed income (loss)
(49,543
)
 
(46,726
)
 
(110,215
)
 
(66,047
)
Add back: Dividends on common stock
11,439

 
11,345

 
34,316

 
34,018

Distributed and undistributed income (loss) - basic and diluted
$
(38,104
)
 
$
(35,381
)
 
$
(75,899
)
 
$
(32,029
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
95,332

 
94,531

 
95,169

 
94,384

 
 
 
 
 
 
 
 
Basic income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
(0.40
)
 
$
(0.37
)
 
$
(0.80
)
 
$
(0.34
)
 
 
 
 
 
 
 
 
Diluted income (loss) per share:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
(0.40
)
 
$
(0.37
)
 
$
(0.80
)
 
$
(0.34
)
Due to the anti-dilutive effect, the computation of diluted income (loss) per share does not reflect adjustments for the following items (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,