Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to “we,” “us,” “our,” the “Company” or “Braemar” refer to Braemar Hotels & Resorts Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Braemar Hospitality Limited Partnership, a Delaware limited partnership, which we refer to as “our operating partnership” or “Braemar OP.” “Our TRSs” refers to our taxable REIT subsidiaries, including Braemar TRS Corporation, a Delaware corporation, which we refer to as “Braemar TRS,” and its subsidiaries, together with the two taxable REIT subsidiaries that lease our two hotels held in a consolidated joint venture and are wholly-owned by the joint venture and the U.S. Virgin Islands’ (“USVI”) taxable REIT subsidiary that owns The Ritz-Carlton St. Thomas hotel. “Ashford Trust” refers to Ashford Hospitality Trust, Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Limited Partnership, a Delaware limited partnership and Ashford Trust’s operating partnership, which we refer to as “Ashford Trust OP.” “Ashford Inc.” refers to Ashford Inc., a Nevada corporation and, as the context may require, its consolidated subsidiaries. “Ashford LLC” or our “advisor” refers to Ashford Hospitality Advisors LLC, a Delaware limited liability company and a subsidiary of Ashford Inc. “Premier” refers to Premier Project Management LLC, a Maryland limited liability company and a subsidiary of Ashford LLC. “Remington Lodging” refers to Remington Lodging & Hospitality, LLC, a Delaware limited liability company and a hotel management company that was owned by Mr. Monty J. Bennett, chairman of our board of directors, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust before its acquisition by Ashford Inc. on November 6, 2019. “Remington Hotels” refers to the same entity after the acquisition was completed resulting in Remington Lodging & Hospitality, LLC becoming a subsidiary of Ashford Inc.
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains registered trademarks that are the exclusive property of their respective owners, which are companies other than us, including Marriott International®, Hilton Worldwide®, Sofitel®, Hyatt® and Accor®.
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:
• the impact of COVID-19 and numerous governmental travel restrictions and other orders on our business, including one or more possible recurrences of COVID-19 case surges causing state and local governments to reinstate travel restrictions;
• our business and investment strategy;
• our projected operating results and dividend rates;
• our ability to obtain future financing arrangements or restructure existing indebtedness;
• our understanding of our competition;
• market trends;
• projected capital expenditures;
• anticipated acquisitions or dispositions; and
• the impact of technology on our operations and business.
Such forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. You should carefully consider this risk when you make an investment decision concerning our securities. Additionally, the following factors could cause actual results to vary from our forward-looking statements:
• the factors discussed in our Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2021 (the “2020 10-K”), including those set forth under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;” and other filings under the Exchange Act;
• adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and travel restrictions in regions where our hotels are located, and one or more possible recurrences of COVID-19 case surges
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causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments;
• our ability to raise sufficient capital and/or take other actions to improve our liquidity position or otherwise meet our liquidity requirements;
• actions by our lenders to accelerate loan balances and foreclose on the hotel properties that are security for our loans if we are unable to make debt service payments or satisfy our other obligations under the forbearance agreements;
• general volatility of the capital markets and the market price of our common and preferred stock;
• general business and economic conditions affecting the lodging and travel industry;
• changes in our business or investment strategy;
• availability, terms and deployment of capital;
• unanticipated increases in financing and other costs, including a rise in interest rates;
• changes in our industry and the markets in which we operate, interest rates, or local economic conditions;
• the degree and nature of our competition;
• actual and potential conflicts of interest with Ashford Trust, Ashford Inc. and its subsidiaries (including Ashford LLC, Remington Hotels and Premier) and our executive officers and our non-independent director;
• changes in personnel of Ashford LLC or the lack of availability of qualified personnel;
• changes in governmental regulations, accounting rules, tax rates and similar matters;
• our ability to implement effective internal controls to address the material weakness identified in this report;
• the timing or outcome of the SEC investigation;
• legislative and regulatory changes, including changes to the Internal Revenue Code of 1986, as amended (the “Code”) and related rules, regulations and interpretations governing the taxation of REITs;
• limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes; and
• future sales and issuances of our common stock or other securities might result in dilution and could cause the price of our common stock to decline.
When considering forward-looking statements, you should keep in mind the matters summarized under “Item 1A. Risk Factors” in Part I of our 2020 10-K and this Form 10-Q, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak and the numerous government travel restrictions imposed in response thereto. The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Form 10-Q. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Form 10-Q to conform these statements to actual results and performance, except as may be required by applicable law.
Overview
We are a Maryland corporation formed in April 2013 that invests primarily in high revenue per available room (“RevPAR”), luxury hotels and resorts. High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-current U.S. national average RevPAR for all hotels as determined by Smith Travel Research. Two times the U.S. national average was $91 for the year ended December 31, 2020. We have elected to be taxed as a REIT under the Code. We conduct our business and own substantially all of our assets through our operating partnership, Braemar OP.
We operate in the direct hotel investment segment of the hotel lodging industry. As of September 30, 2021, we owned interests in 14 hotel properties in six states, the District of Columbia and St. Thomas, U.S. Virgin Islands with 3,865 total rooms, or 3,630 net rooms, excluding those attributable to our joint venture partner. The hotel properties in our current portfolio are predominantly located in U.S. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators. We own 12 of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity.
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We are advised by 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.
We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. As of September 30, 2021, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 14 hotel properties. Third-party management companies managed the remaining hotel properties.
Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. has an ownership interest. These products and services include, but are not limited to design and construction services, debt placement and related services, broker-dealer and distribution services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.
Mr. Monty J. Bennett is chairman and chief executive officer of Ashford Inc. and, together with Mr. Archie Bennett, Jr., as of September 30, 2021, owned approximately 609,413 shares of Ashford Inc. common stock, which represented an approximate 20.2% ownership interest in Ashford Inc., and owned 18,758,600 shares of Ashford Inc. Series D Convertible Preferred Stock, which was exercisable (at an exercise price of $117.50 per share) into an additional approximate 3,991,191 shares of Ashford Inc. common stock, which if exercised as of September 30, 2021 would have increased the Bennetts’ ownership interest in Ashford Inc. to 65.6%; provided that prior to August 8, 2023, the voting power of the holders of the Ashford Inc. Series D Convertible Preferred Stock is limited to 40% of the combined voting power of all of the outstanding voting securities of the Ashford Inc. entitled to vote on any given matter. The 18,758,600 shares of Ashford Inc. Series D Convertible Preferred Stock owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. include 360,000 shares owned by trusts.
As of September 30, 2021, Mr. Monty J. Bennett, chairman of our board of directors and his father, Mr. Archie Bennett, Jr., together owned approximately 4,234,775 shares of our common stock (including common units, long-term incentive plan (“LTIP”) units and performance LTIP units), which represented an approximate 5.9% ownership in the Company.
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses throughout the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Beginning in late February 2020, we experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations. The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses.
As of September 30, 2021, the Company maintained unrestricted cash of $195.5 million and restricted cash of $44.8 million. For the nine months ended September 30, 2021, cash flows provided by operating activities was approximately $55.1 million. The vast majority of the restricted cash comprises lender and manager held reserves. At the end of the quarter, there was also $20.4 million due to the Company from third-party hotel managers, which is primarily the Company’s cash held by one of its property managers which is also available to fund hotel operating costs. On December 10, 2020, the Company announced that it plans to continue its suspension of the common stock dividend into 2021 to protect liquidity and will evaluate future dividend declarations on a quarterly basis going forward.
We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic fully subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions. Facts and circumstances could change in the future that are outside of management’s control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19.
Recent Developments
On July 12, 2021, the Company entered into a second equity distribution agreement with Virtu to sell from time to time shares of our common stock having an aggregate offering price of up to $100 million (the “Virtu July 2021 EDA”). We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of November 3, 2021, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received proceeds of approximately $24.0 million.
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On July 12, 2021, the Company made an additional investment in OpenKey of approximately $117,000.
On August 5, 2021, the Company acquired a 100% interest in the 138-room Mr. C Beverly Hills Hotel and five luxury residences adjacent to the hotel. The total consideration consisted of $10.0 million of cash, 2.5 million Braemar OP common units with a fair value of approximately $13.2 million and 500,000 warrants for the purchase of Braemar common stock with a $6.00 strike price and a fair value of approximately $1.5 million. Additionally, the Company assumed a $50.0 million mortgage loan, with a fair value of approximately $49.8 million. Upon closing, the Company repaid $20.0 million of the assumed mortgage loan.
On September 23, 2021, the Company finalized an extension of its mortgage loans for the Bardessono Hotel and Spa with a final maturity in August 2022 and the Hotel Yountville with a final maturity in May 2022. Each of the loans was extended for one year beyond its original maturity on the same terms as the original loan.
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel’s contribution to cash flow and its potential to provide attractive long-term total returns. These key indicators include:
• Occupancy . Occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels’ available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period.
• ADR . ADR means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate.
• RevPAR. RevPAR means revenue per available room and is calculated by multiplying ADR by the average daily occupancy. RevPAR is one of the commonly used measures within the hotel industry to evaluate hotel operations. RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense. Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
We also use funds from operations (“FFO”), Adjusted FFO, earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) and Adjusted EBITDAre as measures of the operating performance of our business. See “Non-GAAP Financial Measures.”
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RESULTS OF OPERATIONS
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020 (in thousands except percentages):
Three Months Ended September 30, Favorable (Unfavorable)
2021 2020 $ Change % Change
Revenue
Rooms $ 77,560 $ 28,118 $ 49,442 175.8 %
Food and beverage 24,494 8,537 15,957 186.9
Other 14,123 8,099 6,024 74.4
Total revenue 116,177 44,754 71,423 159.6
Expenses
Hotel operating expenses:
Rooms 17,072 7,975 (9,097) (114.1)
Food and beverage 20,252 7,994 (12,258) (153.3)
Other expenses 36,124 20,516 (15,608) (76.1)
Management fees 3,595 1,321 (2,274) (172.1)
Total hotel operating expenses 77,043 37,806 (39,237) (103.8)
Property taxes, insurance and other 12,622 6,929 (5,693) (82.2)
Depreciation and amortization 18,284 18,507 223 1.2
Advisory services fee 4,809 4,575 (234) (5.1)
Transaction costs 275 — (275)
Corporate general and administrative 2,094 1,405 (689) (49.0)
Total expenses 115,127 69,222 (45,905) (66.3)
Gain (loss) on insurance settlement and disposition of assets — 10,149 (10,149)
Operating income (loss) 1,050 (14,319) 15,369 107.3
Equity in earnings (loss) of unconsolidated entity (68) (58) (10) (17.2)
Interest income 13 12 1 8.3
Other income (expense) — (3,604) 3,604 100.0
Interest expense and amortization of loan costs (8,364) (8,859) 495 5.6
Write-off of loan costs and exit fees (432) (1,335) 903 67.6
Unrealized gain (loss) on derivatives 142 3,561 (3,419) (96.0)
Income (loss) before income taxes (7,659) (24,602) 16,943 68.9
Income tax (expense) benefit (560) 1,545 (2,105) (136.2)
Net income (loss) (8,219) (23,057) 14,838 64.4
(Income) loss attributable to noncontrolling interest in consolidated entities 450 1,999 (1,549) (77.5)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 823 2,381 (1,558) (65.4)
Net income (loss) attributable to the Company $ (6,946) $ (18,677) $ 11,731 62.8 %
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All hotel properties owned for the three months ended September 30, 2021 and 2020 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended September 30, 2021 and 2020. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our condensed consolidated financial statements:
Hotel Properties Location Acquisition/Disposition Acquisition/Disposition Date
Mr. C Beverly Hills Hotel Los Angeles, CA Acquisition August 5, 2021
The following table illustrates the key performance indicators of all hotel properties owned for the periods indicated:
Three Months Ended September 30,
2021 2020
Occupancy 61.64 % 26.88 %
ADR (average daily rate) $ 357.99 $ 304.68
RevPAR (revenue per available room) $ 220.66 $ 81.89
Rooms revenue (in thousands) $ 77,560 $ 28,118
Total hotel revenue (in thousands) $ 116,177 $ 44,754
The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full three months ended September 30, 2021 and 2020:
Three Months Ended September 30,
2021 2020
Occupancy 61.81 % 26.88 %
ADR (average daily rate) $ 358.25 $ 304.68
RevPAR (revenue per available room) $ 221.43 $ 81.89
Rooms revenue (in thousands) $ 76,027 $ 28,118
Total hotel revenue (in thousands) $ 113,905 $ 44,754
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $11.7 million, from $18.7 million for the three months ended September 30, 2020 (the “2020 quarter”) to $6.9 million for the three months ended September 30, 2021 (the “2021 quarter”), as a result of the factors discussed below.
Rooms Revenue . Rooms revenue increased $49.4 million, or 175.8%, to $77.6 million during the 2021 quarter compared to the 2020 quarter. During the 2021 quarter, we experienced a 3,476 basis point increase in occupancy and a 17.5% increase in room rates. The increase in rooms revenue is primarily due to the hotel properties recovering from the COVID-19 pandemic as well as an increase of $1.5 million associated with the acquisition of the Mr. C Beverly Hills Hotel on August 5, 2021.
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Fluctuations in rooms revenue between the 2021 quarter and the 2020 quarter is a result of the changes in occupancy and ADR between the 2021 quarter and the 2020 quarter as reflected in the table below (dollars in thousands):
Hotel Property Favorable (Unfavorable)
Rooms Revenue Occupancy
(change in bps) ADR (change in %)
Comparable
Capital Hilton (1)
$ 2,145 2,698 21.7 %
Marriott Seattle Waterfront 5,850 6,315 34.0 %
The Notary Hotel 2,823 3,169 10.9 %
The Clancy (2)
5,185 7,469 n/a
Sofitel Chicago Magnificent Mile 3,527 3,243 45.9 %
Pier House Resort & Spa 3,367 1,978 78.8 %
The Ritz-Carlton St. Thomas 8,693 3,763 73.6 %
Park Hyatt Beaver Creek Resort & Spa 2,436 3,893 15.2 %
Hotel Yountville 2,942 3,455 42.0 %
The Ritz-Carlton Sarasota 3,267 1,189 39.2 %
Hilton La Jolla Torrey Pines 3,644 2,465 62.4 %
Bardessono Hotel and Spa 3,722 2,834 53.2 %
The Ritz-Carlton Lake Tahoe 307 (908) 26.2 %
Total $ 47,908 3,493 17.5 %
Non-comparable
Mr. C Beverly Hills Hotel $ 1,534 n/a n/a
_______________
(1) The hotel was closed from April 2020 through mid-August 2020.
(2) The hotel was being renovated through September 30, 2020.
Food and Beverage Revenue . Food and beverage revenue increased $16.0 million, or 186.9%, to $24.5 million during the 2021 quarter compared to the 2020 quarter. This increase is attributable to an aggregate increase at all comparable hotel properties of $15.4 million as they are recovering from the COVID-19 pandemic, as well as an increase of $553,000 resulting from the acquisition of the Mr. C Beverly Hills Hotel on August 5, 2021.
Other Hotel Revenue . Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals and business interruption revenue, increased $6.0 million, or 74.4%, to $14.1 million during the 2021 quarter compared to the 2020 quarter. The increase is attributable to an aggregate increase in other hotel revenue of $5.8 million at 13 comparable hotel properties and an increase of $186,000 at the Mr. C Beverly Hills Hotel.
Rooms Expense . Rooms expense increased $9.1 million, or 114.1%, to $17.1 million in the 2021 quarter compared to the 2020 quarter. This increase is primarily attributable to an aggregate increase of $8.8 million at 12 comparable hotel properties as they are recovering from the COVID-19 pandemic and an increase of $410,000 at the Mr. C Beverly Hills Hotel, partially offset by a decrease of $113,000 at the Capital Hilton.
Food and Beverage Expense . Food and beverage expense increased $12.3 million, or 153.3%, to $20.3 million during the 2021 quarter compared to the 2020 quarter. This increase is attributable to an aggregate increase of $11.8 million at all comparable hotel properties and an increase of $455,000 at the Mr. C Beverly Hills Hotel.
Other Operating Expenses . Other operating expenses increased $15.6 million, or 76.1%, to $36.1 million in the 2021 quarter compared to the 2020 quarter. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees.
We experienced an increase of $2.2 million in direct expenses and $13.4 million in indirect expenses and incentive management fees in the 2021 quarter as compared to the 2020 quarter as the hotel properties are recovering from the COVID-19 pandemic. Direct expenses were 4.4% of total hotel revenue in the 2021 quarter and 6.4% in the 2020 quarter. The increase in direct expenses is primarily attributable to higher occupancy levels at all of our comparable hotel properties as they are recovering from the COVID-19 pandemic and an increase of approximately $13,000 at the Mr. C Beverly Hills Hotel.
The increase in indirect expenses comprises increases in: (i) general and administrative costs of $4.6 million comprising an increase of $4.3 million at our 13 comparable hotel properties and $294,000 at the Mr. C Beverly Hills Hotel; (ii) marketing
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costs of $3.8 million comprising an increase of $3.6 million at our 13 comparable hotel properties and $181,000 at the Mr. C Beverly Hills Hotel; (iii) repairs and maintenance of $1.8 million, comprising an increase of $1.7 million at our 13 comparable hotel properties and $79,000 at the Mr. C Beverly Hills Hotel; (iv) lease expense of $825,000 comprising an increase of $820,000 at our 13 comparable hotel properties and $5,000 at the Mr. C Beverly Hills Hotel; (v) energy costs of $1.2 million comprising an increase of $1.0 million at our 13 comparable hotel properties and $153,000 at the Mr. C Beverly Hills Hotel; and (vi) incentive management fees of $1.2 million comprising an increase of $1.2 million at our 13 comparable hotel properties and $22,000 at the Mr. C Beverly Hills Hotel.
Management Fees . Base management fees increased $2.3 million, or 172.1%, to $3.6 million in the 2021 quarter compared to the 2020 quarter at all of our comparable hotel properties as a result of the recovery from the COVID-19 pandemic and an increase of $67,000 at the Mr. C Beverly Hills Hotel.
Property Taxes, Insurance and Other . Property taxes, insurance and other increased $5.7 million, or 82.2%, to $12.6 million in the 2021 quarter compared to the 2020 quarter. The increase comprised an aggregate increase of approximately $5.9 million at six hotel properties. Approximately $5.3 million of the increase is primarily attributable to higher current year assessments at two hotel properties. The increase also includes an increase of $209,000 at the Mr. C Beverly Hills Hotel, partially offset by an aggregate decrease of approximately $314,000 at seven hotel properties.
Depreciation and Amortization . Depreciation and amortization decreased $223,000, or 1.2%, to $18.3 million in the 2021 quarter compared to the 2020 quarter. The decrease is comprised of an aggregate decrease of approximately $959,000 at eight comparable hotel properties, partially offset by an aggregate increase of $363,000 at The Clancy, Hotel Yountville, The Ritz-Carlton St. Thomas, The Ritz-Carlton Sarasota and The Ritz-Carlton Lake Tahoe as well as an increase of $373,000 at the Mr. C Beverly Hills Hotel.
Advisory Services Fee. Advisory services fee increased $234,000, or 5.1%, to $4.8 million in the 2021 quarter compared to the 2020 quarter due to increases in the base advisory fee of $372,000, reimbursable expenses of $290,000 and equity-based compensation of $1.2 million, partially offset by a decrease in incentive fee of $1.6 million.
In the 2021 quarter, we recorded an advisory services fee of $4.8 million, which included a base advisory fee of $2.8 million, reimbursable expenses of $694,000, $3.0 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and a credit to incentive fee of $1.6 million.
In the 2020 quarter, we recorded an advisory services fee of $4.6 million, which included a base advisory fee of $2.4 million, reimbursable expenses of $404,000 and $1.8 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
Transaction Costs. In the 2021 quarter, we recognized transactions costs of $275,000 associated with the acquisition of the Mr. C Beverly Hills Hotel. There were no transaction costs in the 2020 quarter.
Corporate General and Administrative . Corporate general and administrative expense was $2.1 million in the 2021 quarter and $1.4 million in the 2020 quarter. The increase in corporate general and administrative expense is due to higher professional fees of $226,000, higher public company costs of $225,000 and an increase of $414,000 related to our share of the reimbursed operating expenses of Ashford Securities, partially offset by lower miscellaneous expenses of $176,000.
Gain (Loss) on Insurance Settlement and Disposition of Assets. In the 2020 quarter, we recognized a gain of $10.1 million as a result of finalizing the insurance settlement from Hurricane Irma.
Equity in Earnings (Loss) of Unconsolidated Entity . In the 2021 quarter and 2020 quarter, we recorded equity in loss of unconsolidated entity of $68,000 and $58,000, respectively, related to our investment in OpenKey.
Interest Income . Interest income increased $1,000, or 8.3%, to $13,000 for the 2021 quarter.
Other Income (Expense) . Other expense was $3.6 million in 2020 quarter compared to $0 in the 2021 quarter. In the 2020 quarter, we recorded a realized loss of $3.5 million on interest rate floors and expense of $64,000 related to CMBX premiums and interest paid on collateral.
Interest Expense and Amortization of Loan Costs . Interest expense and amortization of loan costs decreased $495,000, or 5.6%, to $8.4 million in the 2021 quarter compared to the 2020 quarter. The decrease is primarily due to lower interest expense from a lower average LIBOR rate, a credit to interest expense related to the amortization of default interest and late charges recorded on loans that were previously in default and the repayment of our secured term loan. These decreases were partially offset by higher interest expense associated with our Convertible Senior Notes and the mortgage loan associated with the Mr. C
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Beverly Hills Hotel acquisition. The average LIBOR rates in the 2021 quarter and the 2020 quarter were 0.09% and 0.16%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was $432,000 in the 2021 quarter, primarily associated with the $419,000 write-off of loan costs upon the $20 million pay-down of the mortgage loan assumed with the Mr. C Beverly Hills Hotel acquisition.
Write-off of loan costs and exit fees was $1.3 million in the 2020 quarter, resulting from amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments. Third-party fees incurred in conjunction with these amendments, totaling $1.3 million, were expensed in accordance with applicable accounting guidance.
Unrealized Gain (Loss) on Derivatives . Unrealized gain on derivatives of $142,000 in the 2021 quarter consisted of an unrealized gain of approximately $190,000 on warrants, partially offset by an unrealized loss of approximately $48,000 on interest rate caps.
Unrealized gain on derivatives of $3.6 million in the 2020 quarter consisted of a $3.5 million unrealized gain on interest rate floors associated with the recognition of realized losses from the expiration of interest rate floors and a $51,000 unrealized gain on CMBX credit default swaps, partially offset by a $30,000 unrealized loss on interest rate caps.
Income Tax (Expense) Benefit . Income tax (expense) benefit changed $2.1 million, from an income tax benefit of $1.5 million in the 2020 quarter to income tax expense of $560,000 in the 2021 quarter. This change was primarily due to an increase in the profitability of our TRS entities in the 2021 quarter compared to the 2020 quarter.
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities. Our noncontrolling interest partner in consolidated entities was allocated a loss of $450,000 and $2.0 million in the 2021 quarter and the 2020 quarter, respectively. At both September 30, 2021 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated a net loss of $823,000 and $2.4 million in the 2021 quarter and the 2020 quarter, respectively. Redeemable noncontrolling interests in Braemar OP represented ownership interests of 8.35% and 10.08% as of September 30, 2021 and 2020, respectively.
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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table summarizes changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2021 and 2020 (in thousands except percentages):
Nine Months Ended September 30, Favorable (Unfavorable)
2021 2020 $ Change % Change
Revenue
Rooms $ 195,720 $ 105,119 $ 90,601 86.2 %
Food and beverage 60,976 39,417 21,559 54.7
Other 40,439 30,633 9,806 32.0
Total hotel revenue 297,135 175,169 121,966 69.6
Expenses
Hotel operating expenses:
Rooms 41,569 29,300 (12,269) (41.9)
Food and beverage 50,526 35,544 (14,982) (42.2)
Other expenses 98,143 75,585 (22,558) (29.8)
Management fees 9,079 5,664 (3,415) (60.3)
Total hotel operating expenses 199,317 146,093 (53,224) (36.4)
Property taxes, insurance and other 27,076 21,833 5,243 (24.0)
Depreciation and amortization 54,881 55,398 (517) (0.9)
Gain on legal settlement (989) — 989
Advisory services fee 16,343 14,545 (1,798) (12.4)
Transaction costs 571 — (571)
Corporate general and administrative 6,077 4,850 (1,227) (25.3)
Total expenses 303,276 242,719 (60,557) (24.9)
Gain (loss) on insurance settlement and disposition of assets 696 10,149 (9,453) (93.1)
Operating income (loss) (5,445) (57,401) 51,956 90.5
Equity in earnings (loss) of unconsolidated entity (198) (138) (60) (43.5)
Interest income 34 165 (131) (79.4)
Other income (expense) — (3,806) 3,806 100.0
Interest expense and amortization of loan costs (22,346) (38,167) 15,821 41.5
Write-off of loan costs and exit fees (1,960) (3,572) 1,612 45.1
Unrealized gain (loss) on derivatives 64 3,748 (3,684) (98.3)
Income (loss) before income taxes (29,851) (99,171) 69,320 69.9
Income tax (expense) benefit (766) 4,622 (5,388) (116.6)
Net income (loss) (30,617) (94,549) 63,932 67.6
(Income) loss attributable to noncontrolling interest in consolidated entities 2,546 4,975 2,429 48.8
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 3,184 10,036 6,852 68.3
Net income (loss) attributable to the Company $ (24,887) $ (79,538) $ 54,651 68.7 %
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All hotel properties owned for the nine months ended September 30, 2021 and 2020 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the nine months ended September 30, 2021 and 2020. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our condensed consolidated financial statements:
Hotel Properties Location Acquisition/Disposition Acquisition/Disposition Date
Mr. C Beverly Hills Hotel Los Angeles, CA Acquisition August 5, 2021
The following table illustrates the key performance indicators of all hotel properties for the periods indicated:
Nine Months Ended September 30,
2021 2020
Occupancy 49.46 % 31.11 %
ADR (average daily rate) $ 385.28 $ 330.77
RevPAR (revenue per available room) $ 190.58 $ 102.90
Rooms revenue (in thousands) $ 195,720 $ 105,119
Total hotel revenue (in thousands) $ 297,135 $ 175,169
The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
Occupancy 49.42 % 31.11 %
ADR (average daily rate) $ 385.63 $ 330.77
RevPAR (revenue per available room) $ 190.60 $ 102.90
Rooms revenue (in thousands) $ 194,187 $ 105,119
Total hotel revenue (in thousands) $ 294,863 $ 175,169
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $54.7 million, from $79.5 million for the nine months ended September 30, 2020 (the “2020 period”), to $24.9 million for the nine months ended September 30, 2021 (the “2021 period”), as a result of the factors discussed below.
Rooms Revenue . Rooms revenue increased $90.6 million, or 86.2%, to $195.7 million during the 2021 period compared to the 2020 period. During the 2021 period, we experienced a 1,835 basis point increase in occupancy and a 16.5% increase in room rates compared to the 2020 period. The increase in rooms revenue is due to the hotel properties recovering from the COVID-19 pandemic as well as an increase of $1.5 million associated with the acquisition of the Mr. C Beverly Hills Hotel on August 5, 2021.
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Fluctuations in rooms revenue between the 2021 period and the 2020 period is a result of the changes in occupancy and ADR between the 2021 period and the 2020 period as reflected in the table below (dollars in thousands):
Hotel Property Favorable (Unfavorable)
Rooms Revenue Occupancy
(change in bps) ADR (change in %)
Comparable
Capital Hilton (1)
$ (1,146) 449 (30.8) %
Marriott Seattle Waterfront 6,159 2,517 9.1 %
The Notary Hotel 1,480 666 (0.5) %
The Clancy (2)
1,615 2,832 (47.3) %
Sofitel Chicago Magnificent Mile 4,970 1,305 43.4 %
Pier House Resort & Spa 9,294 3,320 25.2 %
The Ritz-Carlton St. Thomas 29,939 4,786 50.8 %
Park Hyatt Beaver Creek Resort & Spa 2,103 2,326 (28.4) %
Hotel Yountville 5,606 2,722 40.0 %
The Ritz-Carlton Sarasota 14,270 2,465 30.0 %
Hilton La Jolla Torrey Pines 3,928 1,505 8.7 %
Bardessono Hotel and Spa 7,693 2,741 45.2 %
The Ritz-Carlton Lake Tahoe 3,156 1,249 (3.8) %
Total $ 89,067 1,831 16.5 %
Non-comparable
Mr. C Beverly Hills Hotel $ 1,534 n/a n/a
_______________
(1) The hotel was closed from April 2020 through mid-August in 2020.
(2) The hotel was being renovated through September 30, 2020.
Food and Beverage Revenue . Food and beverage revenue increased $21.6 million, or 54.7%, to $61.0 million during the 2021 period compared to the 2020 period. This increase is primarily driven by the recovery from the COVID-19 pandemic. We experienced an aggregate increase in food and beverage revenue of $24.3 million at ten comparable hotel properties as well as an increase of $553,000 at the Mr. C Beverly Hills Hotel. These increases were partially offset by an aggregate decrease of $3.3 million at Capital Hilton, Hilton La Jolla Torrey Pines and The Notary Hotel.
Other Hotel Revenue . Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, increased $9.8 million, or 32.0%, to $40.4 million during the 2021 period compared to the 2020 period.
The increase is attributable to higher other hotel revenue of $14.0 million at 11 comparable hotel properties and an increase of $186,000 at the Mr. C Beverly Hills Hotel, partially offset by an aggregate decrease of $381,000 at The Clancy and Capital Hilton as well as lower business interruption revenue of $4.0 million.
During the 2020 period, we recognized business interruption revenue of $4.0 million at The Ritz-Carlton St. Thomas as a result of Hurricane Irma. There was no such revenue recorded in the 2021 period.
Rooms Expense . Rooms expense increased $12.3 million, or 41.9%, to $41.6 million in the 2021 period compared to the 2020 period. The increase is attributable to an aggregate increase in rooms expense of $12.7 million at 12 comparable hotel properties and an increase of $410,000 at the Mr. C Beverly Hills Hotel, partially offset by a decrease of $791,000 at the Capital Hilton.
Food and Beverage Expense . Food and beverage expense increased $15.0 million, or 42.2%, to $50.5 million during the 2021 period compared to the 2020 period.
The increase is attributable to an aggregate increase of $18.0 million at nine comparable hotel properties and an increase of $455,000 at the Mr. C Beverly Hills Hotel, partially offset by an aggregate decrease of $3.5 million at the Capital Hilton, The Notary Hotel, Hilton La Jolla Torrey Pines and Marriott Seattle Waterfront.
Other Operating Expenses . Other operating expenses increased $22.6 million, or 29.8%, to $98.1 million in the 2021 period compared to the 2020 period. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees. We experienced an
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increase of $5.4 million in direct expenses and $17.2 million in indirect expenses and incentive management fees in the 2021 period compared to the 2020 period.
Direct expenses were 5.1% of total hotel revenue in the 2021 period and 5.6% in the 2020 period. The increase in direct expenses is associated with higher revenues as all of our comparable hotel properties are recovering from the COVID-19 pandemic and an increase of 13,000 at the Mr. C Beverly Hills Hotel.
The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $2.0 million comprising an increase of $1.7 million at our 13 comparable hotel properties and $294,000 at the Mr. C Beverly Hills Hotel; (ii) marketing costs of $3.7 million comprising an increase of $3.5 million at our 13 comparable hotel properties and $181,000 at the Mr. C Beverly Hills Hotel; (iii) repairs and maintenance of $3.3 million comprising an increase of $3.2 million at our 13 comparable hotel properties and $79,000 at the Mr. C Beverly Hills Hotel; (iv) lease expense of $667,000 comprising an increase of $662,000 at our 13 comparable hotel properties and $5,000 at the Mr. C Beverly Hills Hotel; (v) energy costs of $2.5 million comprised of an increase of $2.4 million at our 13 comparable hotel properties and $153,000 at the Mr. C Beverly Hills Hotel; and (vi) incentive management fees of $5.0 million comprising an increase of $5.0 million at our 13 comparable hotel properties and $22,000 at the Mr. C Beverly Hills Hotel.
Management Fees . Base management fees increased $3.4 million, or 60.3%, to $9.1 million in the 2021 period compared to the 2020 period. Management fees increased $3.6 million at eleven comparable hotel properties and $67,000 at the Mr. C Beverly Hills Hotel, partially offset be an aggregate decrease of approximately $200,000 at the Capital Hilton and The Clancy.
Property Taxes, Insurance and Other . Property taxes, insurance and other increased $5.2 million, or 24.0%, to $27.1 million in the 2021 period compared to the 2020 period. The increase is comprised of an aggregate increase of approximately $5.7 million at nine hotel properties. Approximately $4.9 million of the increase is primarily attributable to higher current year assessments at two hotel properties. The increase also includes $209,000 at the Mr. C Beverly Hills Hotel. These increases were partially offset by an aggregate decrease of approximately $489,000 at four hotel properties.
Depreciation and Amortization . Depreciation and amortization decreased $517,000, or 0.9%, to $54.9 million for the 2021 period compared to the 2020 period. The decrease is comprised of an aggregate decrease of $2.7 million at eight comparable hotel properties, partially offset by an increase of $373,000 at the Mr. C Beverly Hills Hotel and an aggregate increase of $1.8 million at The Clancy, Hotel Yountville, The Ritz-Carlton St. Thomas, The Ritz-Carlton Sarasota and The Ritz-Carlton Lake Tahoe.
Advisory Services Fee. Advisory services fee increased $1.8 million, or 12.4%, to $16.3 million in the 2021 period compared to the 2020 period due to increases in the base advisory fee of $402,000, reimbursable expenses of $336,000, as well as an increase in equity-based compensation of $1.1 million.
In the 2021 period, we recorded an advisory services fee of $16.3 million, which included a base advisory fee of $8.0 million, reimbursable expenses of $1.7 million, $6.7 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
In the 2020 period, we recorded an advisory services fee of $14.5 million, which included a base advisory fee of $7.6 million, reimbursable expenses of $1.4 million and $5.6 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
Gain on Legal Settlement . In the 2021 period, we recognized a gain of $800,000 related to the settlement of a transfer tax matter with the City of San Francisco and $189,000 related to a billing dispute. In the 2020 period, there was no such gain recognized.
Transaction costs. In the 2021 period, we recognized $571,000 of transaction costs associated with the acquisition of the Mr. C Beverly Hills Hotel. There were no transaction costs in the 2020 period.
Corporate General and Administrative . Corporate general and administrative expense was $6.1 million in the 2021 period and $4.9 million in the 2020 period. The increase in corporate general and administrative expenses is primarily due to higher miscellaneous expenses of $45,000, an increase of $946,000 related to our share of the reimbursed operating expenses of Ashford Securities and higher public company costs of $457,000, partially offset by lower professional fees of $222,000.
Gain (loss) on Insurance Settlement and Disposition of Assets . In the 2020 period, we recognized a gain of $10.1 million as a result of finalizing the insurance settlement from Hurricane Irma. In the 2021 period, we recognized a gain of $481,000 associated with proceeds received from an insurance claim, a gain of $18,000 upon disposition of certain fixed assets as well as a gain of $197,000 associated with the sale of certain ERFP assets to Ashford Inc.
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Equity in Earnings (Loss) of Unconsolidated Entity . In the 2021 period and the 2020 period, we recorded equity in loss of unconsolidated entity of $198,000 and $138,000, respectively, related to our investment in OpenKey.
Interest Income . Interest income decreased $131,000, or 79.4%, to $34,000 for the 2021 period compared to the 2020 period.
Other Income (Expense) . Other expense decreased $3.8 million, or 100.0% to $0 in the 2021 period compared to the 2020 period. In the 2020 period, we recorded a realized loss of $3.6 million on interest rate floors and expense of $191,000 related to CMBX premiums and interest paid on collateral.
Interest Expense and Amortization of Loan Costs . Interest expense and amortization of loan costs decreased $15.8 million, or 41.5%, to $22.3 million for the 2021 period compared to the 2020 period. The dec rease i s primarily due to lower interest expense from a lower average LIBOR rate, a credit to interest expense related to the amortization of default interest and late charges recorded on loans that were previously in default and the repayment of our secured term loan. These decreases were partially offset by higher interest expense from our Convertible Senior Notes and the mortgage loan associated with the Mr. C Beverly Hills Hotel acquisition. The average LIBOR rates for the 2021 period and the 2020 period were 0.10% and 0.64%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was $2.0 million in the 2021 period, primary associated with a $1.2 million write-off of unamortized loan costs upon the payoff of our secured term loan payoff and $351,000 from several amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments. Third-party fees incurred in conjunction with these amendments, totaling $351,000, were expensed in accordance with applicable accounting guidance. In addition, there was approximately a $419,000 write-off of loan costs upon the $20 million pay-down of the mortgage loan assumed with the acquisition of the Mr. C Beverly Hills Hotel.
Write-off of loan costs and exit fees was $3.6 million for the 2020 period, resulting from several amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments. Third-party fees incurred in conjunction with these amendments, totaling $3.6 million, were expensed in accordance with applicable accounting guidance.
Unrealized Gain (Loss) on Derivatives . Unrealized gain on derivatives of $64,000 for the 2021 period consisted of an unrealized gain of approximately $190,000 on warrants, partially offset by an unrealized loss of approximately $126,000 on interest rate caps.
Unrealized gain on derivatives of $3.7 million for the 2020 period consisted of a $3.6 million unrealized gain on interest rate floors associated with the recognition of realized losses from the expiration of interest rate floors and a $226,000 unrealized gain on CMBX credit default swaps and partially offset by an unrealized loss of $93,000 on interest rate caps.
Income Tax (Expense) Benefit . Income tax expense changed $5.4 million, from an income tax benefit of $4.6 million in the 2020 period to income tax expense of $766,000 in the 2021 period. This change was primarily due to an increase in the profitability of our TRS entities in the 2021 period compared to the 2020 period.
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities . Our noncontrolling interest partner in consolidated entities was allocated a loss of $2.5 million and $5.0 million for the 2021 period and the 2020 period, respectively. At both September 30, 2021 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated a net loss of $3.2 million and $10.0 million for the 2021 period and the 2020 period, respectively. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 8.35% and 10.08% as of September 30, 2021 and 2020, respectively.
LIQUIDITY AND CAPITAL RESOURCES
COVID-19, Management’s Plans and Liquidity
In December 2019, COVID-19 was identified in Wuhan, China, subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses throughout the United States. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. Beginning in late February 2020, we experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant
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reservation cancellations as well as a significant reduction in new reservations. The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses.
As of September 30, 2021, the Company maintained unrestricted cash of $195.5 million and restricted cash of $44.8 million. For the nine months ended September 30, 2021, cash flows provided by operating activities was approximately $55.1 million. The vast majority of the restricted cash comprises lender and manager held reserves. At the end of the quarter, there was also $20.4 million due to the Company from third-party hotel managers, which is primarily the Company’s cash held by one of its property managers which is also available to fund hotel operating costs. On December 10, 2020, the Company announced that it plans to continue its suspension of the common stock dividend into 2021 to protect liquidity and will evaluate future dividend declarations on a quarterly basis going forward.
We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic fully subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions. Facts and circumstances could change in the future that are outside of management’s control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19.
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
• advisory fees payable to Ashford LLC;
• recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
• interest expense and scheduled principal payments on outstanding indebtedness, including our secured term loan (see “Contractual Obligations and Commitments”);
• distributions, if any, in the form of dividends on our common stock, necessary to qualify for taxation as a REIT;
• dividends on our preferred stock; and
• capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, capital market activities and existing cash balances.
Pursuant to the advisory agreement between us and our advisor, we must pay our advisor on a monthly basis a base advisory fee, subject to a minimum base advisory fee. The minimum base advisory fee is equal to the greater of: (i) 90% of the base fee paid for the same month in the prior fiscal year; and (ii) 1/12 th of the “G&A Ratio” for the most recently completed fiscal quarter multiplied by our total market capitalization on the last balance sheet date included in the most recent quarterly report on Form 10-Q or annual report on Form 10-K that we file with the SEC. Thus, even if our total market capitalization and performance decline, we will still be required to make payments to our advisor equal to the minimum base advisory fee, which could adversely impact our liquidity and financial condition.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments. We expect to meet our long-term liquidity requirements through various sources of capital, including future common and preferred equity issuances, existing working capital, net cash provided by operations, hotel mortgage indebtedness and other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the current and ongoing effects of COVID-19 on our business and the hotel industry, the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us. The success of our business strategy will depend, in part, on our ability to access these various capital sources. While management cannot provide any assurances, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for U.S. federal income tax purposes.
Our hotel properties will require periodic capital expenditures and renovation to remain competitive. In addition, acquisitions, redevelopments or expansions of hotel properties may require significant capital outlays. We may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90%
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of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected.
Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties decline. When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan. These cash trap provisions have been triggered on some of our mortgage loans.
Equity Transactions
On December 5, 2017, our board of directors approved the stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share and preferred stock having an aggregate value of up to $50 million. The board of directors’ authorization replaced any previous repurchase authorizations. No shares were repurchased during the nine months ended September 30, 2021, pursuant to this authorization.
On December 11, 2017, we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our common stock having an aggregate offering price of up to $50.0 million. Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent. On July 7, 2020, we entered into a side letter (the “Side Letter”) with the sales agents pursuant to which we agreed to pay all reasonable documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the sales agents, in connection with the ongoing services contemplated by the equity distribution agreements (subject to a $75,000 cap on certain expenses incurred in June 2020). Pursuant to the Side Letter, the sales agents have agreed to reimburse us for up to $50,000 of such expenses, if the sales agents offer and sell an amount of our common stock with an aggregate offering price of $15,000,000, and have agreed to reimburse us for up to an additional $50,000 of such expenses, provided the sales agents offer and sell an amount of our common stock with an aggregate offering price of $30,000,000. As of November 3, 2021, the Company has sold approximately 7.4 million shares of common stock and received gross proceeds of approximately $30.8 million under this program.
On November 13, 2019, we filed an initial registration statement with the SEC, as amended on January 24, 2020, for shares of our non-traded Series E Redeemable Preferred Stock (the “Series E Preferred Stock”) and our non-traded Series M Redeemable Preferred Stock (the “Series M Preferred Stock”). The registration statement became effective on February 21, 2020, and contemplates the issuance and sale of up to 20,000,000 shares of Series E Preferred Stock or Series M Preferred Stock in a primary offering and up to 8,000,000 shares of Series E Preferred Stock or Series M Preferred Stock pursuant to a dividend reinvestment plan. On February 25, 2020, we filed our prospectus with the SEC. Ashford Securities, a subsidiary of Ashford Inc. serves as the dealer manager and wholesaler of the Series E Preferred Stock and Series M Preferred Stock. On April 2, 2021, the Company filed with the State Department of Assessments and Taxation of the State of Maryland (the “SDAT”) articles supplementary to the Company’s Articles of Amendment and Restatement that provided for: (i) reclassifying the existing 28,000,000 shares of Series E Preferred Stock and 28,000,000 shares of Series M Preferred Stock as unissued shares of preferred stock; (ii) reclassifying and designating 28,000,000 shares of the Company’s authorized capital stock as shares of the Series E Preferred Stock (the “Series E Articles Supplementary”); and (iii) reclassifying and designating 28,000,000 shares of the Company’s authorized capital stock as shares of the Series M Preferred Stock (the “Series M Articles Supplementary”). The Series E Articles Supplementary and Series M Articles Supplementary were filed to revise the preferred stock terms related to the dividend rate, our optional redemption right and certain other voting rights. The Company also caused its operating partnership to execute Amendment No. 5 to the Third Amended and Restated Agreement of Limited Partnership to amend the terms of its operating partnership agreement to conform to the terms of the Series E Articles Supplementary and Series M Articles Supplementary. As of November 3, 2021, the Company has issued approximately 459,000 shares of Series E Preferred Stock and received net proceeds of approximately $10.3 million and issued approximately 17,000 shares of Series M Preferred Stock and received net proceeds of approximately $408,000.
On December 4, 2019, we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our 5.50% Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) having an
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aggregate offering price of up to $40.0 million. Sales of shares of the Series B Convertible Preferred Stock may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for the Series B Convertible Preferred Stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of the Series B Convertible Preferred Stock sold through such sales agents. Since the inception of the program, we issued approximately 63,000 shares of the Series B Convertible Preferred Stock through our “at-the-market” equity offering program resulting in gross proceeds of approximately $1.0 million before discounts and commissions to the selling agents of approximately $19,000.
On February 4, 2021, the Company entered into the SEDA, pursuant to which the Company will be able to sell the Commitment Amount at the Company’s request any time during the commitment period commencing on February 4, 2021, and terminating at the end of the Commitment Period. Other than with respect to the Initial Advance the shares sold to YA pursuant to the SEDA would be purchased at 95% of the Market Price and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock.
At any time during the Commitment Period the Company may require YA to purchase shares of the Company’s common stock by delivering an Advance Notice. The Company may deliver an Initial Advance for up to 1,200,000 Advance Shares. The Preliminary Purchase Price per share for such shares shall be 100% of the average daily VWAP for the 5 consecutive trading days immediately prior to the date of the Advance Notice.
Pursuant to the SEDA, we currently intend to use the net proceeds from any sale of the shares for working capital purposes, including the repayment of outstanding debt. There are no other restrictions on future financing transactions. The SEDA does not contain any right of first refusal, participation rights, penalties or liquidated damages. We are not required to pay any additional amounts to reimburse or otherwise compensate YA in connection with the transaction except for a $10,000 structuring fee. As of November 3, 2021, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.
From March 16, 2021 through November 3, 2021, Braemar entered into privately negotiated exchange agreements with certain holders of the Series B Convertible Preferred Stock in reliance on Section 3(a)(9) of the Securities Act. The Company agreed to exchange a total of approximately 2.0 million shares of its common stock for approximately 7.3 million shares of its Series B Convertible Preferred Stock.
On April 21, 2021, Braemar and Lincoln Park, entered into a purchase agreement, pursuant to which the Company may sell to Lincoln Park up to 8,893,565 shares of its common stock, par value $0.01 per share of the Company, from time to time during the term of the purchase agreement. The issuance of the common stock pursuant to the purchase agreement has been registered pursuant to the Company’s Registration Statement, and the related base prospectus included in the Registration Statement, as supplemented by a prospectus supplement filed with the SEC on April 21, 2021. Braemar and Lincoln Park also entered into a registration rights agreement, pursuant to which the Company agreed to maintain the effectiveness of the Registration Statement. As of November 3, 2021, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $4.2 million under the Purchase Agreement .
On May 25, 2021, the Company entered into an equity distribution agreement with Virtu Americas LLC (“Virtu”), to sell from time to time shares of our common stock having an aggregate offering price of up to $50 million (the “Virtu May 2021 EDA”). We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of November 3, 2021, the Company has sold approximately 8.3 million shares of common stock under the Virtu May 2021 EDA and received gross proceeds of approximately $50.0 million.
On July 12, 2021, the Company entered into a second equity distribution agreement with Virtu to sell from time to time shares of our common stock having an aggregate offering price of up to $100 million (the “Virtu July 2021 EDA”). We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of November 3, 2021, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.
Debt Transactions
In May 2021, the Company issued $86.25 million aggregate principal amount of 4.50% Convertible Senior Notes due June 2026 (the “Convertible Senior Notes”). The net proceeds from this offering of the Convertible Senior Notes were approximately $82.8 million after deducting the underwriting fees and other expenses paid by the Company.
The Convertible Senior Notes are governed by an indenture (the “Base Indenture”) between the Company and U.S. Bank National Association, as trustee. The Convertible Senior Notes bear interest at a rate of 4.50% per annum, payable semi-
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annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The Convertible Senior Notes will mature on June 1, 2026.
The Convertible Senior Notes are convertible at any time prior to the close of business on the business day immediately preceding the maturity date for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the election of the Company, based on an initial conversion rate of 157.7909 shares of the Company’s common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $6.34 per share of common stock), subject to adjustment of the conversion rate under certain circumstances. In addition, following the occurrence of certain corporate events, if the Company provides notice of redemption or if it exercises its option to convert the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate for a holder that converts its Convertible Senior Notes in connection with such corporate event, such notice of redemption, or such issuer conversion option, as the case may be.
The Company may redeem the Convertible Senior Notes at the Company’s option, in whole or in part, on any business day on or after the date of issuance if the last reported sale price per share of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed subject to certain adjustments, plus accrued and unpaid interest to, but excluding, the redemption date.
On September 23, 2021, the Company finalized an extension of its mortgage loans for the Bardessono Hotel and Spa with a final maturity in August 2022 and the Hotel Yountville with a final maturity in May 2022. Each of the loans was extended for one year beyond its original maturity on the same terms as the original loan.
Sources and Uses of Cash
We had approximately $195.5 million and $78.6 million of cash and cash equivalents at September 30, 2021 and December 31, 2020, respectively.
We anticipate that our principal sources of funds to meet our cash requirements will include cash on hand, positive cash flow from operations and capital market activities.
Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities were $55.1 million and $(35.6) million for the nine months ended September 30, 2021 and 2020, respectively. Cash flows from operations were impacted by the COVID-19 pandemic and changes in hotel operations of our 13 comparable hotel properties as well the acquisition of the Mr. C Beverly Hills Hotel on August 5, 2021. Cash flows from operations are also impacted by the timing of working capital cash flows such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties, settling with hotel managers and timing differences between the receipt of proceeds from business interruption insurance claims and the recognition of the related revenue.
Net Cash Flows Provided by (Used in) Investing Activities . For the nine months ended September 30, 2021, net cash flows used in investing activities were $23.7 million. These cash outflows were primarily attributable to $15.8 million of capital improvements made to various hotel properties, approximately $9.5 million associated with the acquisition of the Mr. C Beverly Hills Hotel, partially offset by proceeds of $1.8 million from the sale of certain ERFP assets to Ashford Inc.
For the nine months ended September 30, 2020, net cash flows used in investing activities were $18.9 million. These cash outflows were primarily attributable to $21.5 million of capital improvements made to various hotel properties offset by $2.5 million of insurance proceeds received related to the hurricanes.
Net Cash Flows Provided by (Used in) Financing Activities. For the nine months ended September 30, 2021, net cash flows provided by financing activities were $95.6 million. Cash inflows primarily consisted of net proceeds of $83.2 million from the issuance of our Convertible Senior Notes, $100.0 million from the issuance of common stock, $4.6 million from the issuance of preferred stock and contributions of $920,000 from a noncontrolling interest in consolidated entities. The cash inflows were partially offset by repayments of indebtedness of $83.8 million, $6.9 million of dividend and distribution payments and $1.9 million of payments for loan costs and fees.
For the nine months ended September 30, 2020, net cash flows provided by financing activities were $47.1 million. Cash inflows primarily consisted of borrowings on indebtedness of $109.3 million, net proceeds of $6.4 million from the “at-the-market” common stock offering and $474,000 from the issuance of preferred stock, partially offset by repayments on indebtedness of $46.0 million, $13.6 million of dividend and distribution payments, $6.5 million of payments for loan costs and fees associated with loan forbearance, and distributions of $2.6 million to a noncontrolling interest in consolidated entities.
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Dividend Policy . In December 2019, the board of directors approved our dividend policy for 2020, which stated our then-expectation to pay a quarterly dividend of $0.16 per share during 2020. As previously disclosed, the approval of our dividend policy did not commit our board of directors to declare future dividends with respect to any quantity or the amount thereof. On March 16, 2020, the Company and its board of directors announced a suspension of its previously disclosed 2020 common stock dividend policy. The Company did not pay a dividend on its common stock during any quarter of 2020. On December 10, 2020, the Company announced that it plans to continue its suspension of the common stock dividend into 2021 to protect liquidity and will evaluate future dividend declarations on a quarterly basis going forward. The board of directors will continue to review our dividend policy and make announcements with respect thereto.
Seasonality
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months and some during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel. To the extent that cash flows from operations and cash on hand are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize borrowings to fund distributions required to maintain our REIT status. However, we cannot make any assurances that we will make distributions in the future.
Contractual Obligations and Commitments
There have been no material changes, outside of the ordinary course of business, as of September 30, 2021 to contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Form 10-K.
Off-Balance Sheet Arrangements
In the normal course of business, we may form or invest in partnerships or joint ventures. We evaluate each partnership and joint venture to determine whether the entity is a variable interest entity. If the entity is determined to be a VIE we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion see note 2 to our consolidated financial statements. We have no other off-balance sheet arrangements.
Critical Accounting Policies
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us 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. Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2020 Form 10-K. There have been no material changes in these critical accounting policies.
Non-GAAP Financial Measures
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, Funds From Operations (“FFO”) and Adjusted FFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of loan costs, depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entity and after the Company’s portion of EBITDA of OpenKey. In addition, we excluded impairment on real estate, (gain) loss on insurance settlement and disposition of assets and Company’s portion of EBITDAre of OpenKey from EBITDA to calculate EBITDA for real estate, or EBITDAre, as defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/ loss on derivatives and stock/unit-based compensation.
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We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) (unaudited):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ (8,219) $ (23,057) $ (30,617) $ (94,549)
Interest expense and amortization of loan costs 8,364 8,859 22,346 38,167
Depreciation and amortization 18,284 18,507 54,881 55,398
Income tax expense (benefit) 560 (1,545) 766 (4,622)
Equity in (earnings) loss of unconsolidated entity 68 58 198 138
Company’s portion of EBITDA of OpenKey (68) (56) (196) (135)
EBITDA 18,989 2,766 47,378 (5,603)
(Gain) loss on insurance settlement and disposition of assets — (10,149) (696) (10,149)
EBITDAre 18,989 (7,383) 46,682 (15,752)
Amortization of favorable (unfavorable) contract assets (liabilities) 118 207 394 621
Transaction and conversion costs 980 517 2,148 1,128
Other (income) expense — 3,604 — 3,806
Write-off of loan costs and exit fees 432 1,335 1,960 3,572
Unrealized (gain) loss on derivatives (142) (3,561) (64) (3,748)
Non-cash stock/unit-based compensation 3,044 2,006 7,265 6,039
Legal, advisory and settlement costs 107 142 (320) 1,168
Advisory services incentive fee (1,637) — — —
Company’s portion of adjustments to EBITDAre of OpenKey 1 1 7 6
Adjusted EBITDAre $ 21,892 $ (3,132) $ 58,072 $ (3,160)
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FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on insurance settlement and disposition of assets, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of Adjusted FFO excludes dividends on Series B Convertible Preferred Stock, gain/loss on extinguishment of preferred stock, transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, other income/expense and non-cash items such as interest expense on Convertible Senior Notes, interest expense accretion on refundable membership club deposits, amortization of loan costs, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey. FFO and Adjusted FFO exclude amounts attributable to the portion of a partnership owned by the third-party. We consider FFO and Adjusted FFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and Adjusted FFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to GAAP net income or loss as an indication of our financial performance or GAAP cash flows from operating activities as a measure of our liquidity. FFO and Adjusted FFO are also not indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and Adjusted FFO should be considered along with our net income or loss and cash flows reported in our condensed consolidated financial statements.
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The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands) (unaudited):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income (loss) $ (8,219) $ (23,057) $ (30,617) $ (94,549)
(Income) loss attributable to noncontrolling interest in consolidated entities 450 1,999 2,546 4,975
Net (Income) loss attributable to redeemable noncontrolling interests in operating partnership 823 2,381 3,184 10,036
Preferred dividends (1,977) (2,554) (6,258) (7,664)
Gain (loss) on extinguishment of preferred stock (111) — (4,595) —
Net income (loss) attributable to common stockholders (9,034) (21,231) (35,740) (87,202)
Depreciation and amortization on real estate (1)
17,619 17,791 52,843 53,142
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership (823) (2,381) (3,184) (10,036)
Equity in (earnings) loss of unconsolidated entity 68 58 198 138
(Gain) loss on insurance settlement and disposition of assets — (10,149) (696) (10,149)
Company’s portion of FFO of OpenKey (68) (57) (197) (137)
FFO available to common stockholders and OP unitholders 7,762 (15,969) 13,224 (54,244)
Series B Convertible Preferred Stock dividends 1,058 1,729 3,689 5,189
(Gain) loss on extinguishment of preferred stock 111 — 4,595 —
Transaction and conversion costs 980 517 2,148 1,128
Other (income) expense — 3,604 — 3,806
Interest expense on Convertible Senior Notes 1,361 — 2,010 —
Interest expense accretion on refundable membership club benefits 190 201 582 616
Write-off of loan costs and exit fees 432 1,335 1,960 3,572
Amortization of loan costs (1)
407 670 1,684 2,651
Unrealized (gain) loss on derivatives (142) (3,561) (64) (3,748)
Non-cash stock/unit-based compensation 3,044 2,006 7,265 6,039
Legal, advisory and settlement costs 107 142 (320) 1,168
Advisory services incentive fee (1,637) — — —
Company’s portion of adjustments to FFO of OpenKey 1 1 7 6
Adjusted FFO available to common stockholders, OP unitholders, Series B Cumulative Convertible preferred stockholders and convertible note holders on an “as converted” basis $ 13,674 $ (9,325) $ 36,780 $ (33,817)
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(1) Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for noncontrolling interests for each line item:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Depreciation and amortization on real estate $ (665) $ (716) $ (2,038) $ (2,256)
Amortization of loan costs (22) (19) (65) (56)
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Hotel Properties
The following table presents certain information related to our hotel properties:
Hotel Property Location Total Rooms % Owned Owned Rooms
Fee Simple Properties
Capital Hilton Washington, D.C. 550 75 % 413
Marriott Seattle Waterfront Seattle, WA 361 100 % 361
The Notary Hotel Philadelphia, PA 499 100 % 499
The Clancy San Francisco, CA 410 100 % 410
Sofitel Chicago Magnificent Mile Chicago, IL 415 100 % 415
Pier House Resort & Spa Key West, FL 142 100 % 142
The Ritz-Carlton St. Thomas St. Thomas, USVI 180 100 % 180
Park Hyatt Beaver Creek Resort & Spa Beaver Creek, CO 190 100 % 190
Hotel Yountville Yountville, CA 80 100 % 80
The Ritz-Carlton Sarasota Sarasota, FL 266 100 % 266
The Ritz-Carlton Lake Tahoe (1)
Truckee, CA 170 100 % 170
Mr. C Beverly Hills Hotel (2)
Los Angeles, CA 143 100 % 143
Ground Lease Properties (3)
Hilton La Jolla Torrey Pines (4)
La Jolla, CA 394 75 % 296
Bardessono Hotel and Spa (5)
Yountville, CA 65 100 % 65
Total 3,865 3,630
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(1) The above information does not include the operations of ten condominium units not owned by The Ritz-Carlton Lake Tahoe.
(2) Includes 138 hotel rooms and five residences adjacent to the hotel.
(3) Some of our hotel properties are on land subject to ground leases, two of which cover the entire property.
(4) The ground lease expires in 2067. The ground lease contains one extension option of either 10 or 20 years dependent upon capital investment spend during the lease term.
(5) The initial ground lease expires in 2065. The ground lease contains two 25-year extension options, at our election.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.