Ashford Hospitality Trust(AHT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's discussion and analysis for the reporting period ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the unaudited consolidated financial statements of Ashford Hospitality Trust, Inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive income (loss), equity (deficit), and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, revenue breakdown, investments, indebtedness, and other financial instruments Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Summary (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :------------------ | | Total assets | $3,800,858 | $3,917,377 | | Total liabilities | $3,975,653 | $4,044,168 | | Total equity (deficit) | $(235,194) | $(150,389) | - Investments in hotel properties, net, increased to $3,147,577 thousand as of June 30, 2023, from $3,118,331 thousand at December 31, 2022[10] - Cash and cash equivalents decreased significantly to $251,547 thousand as of June 30, 2023, from $417,064 thousand at December 31, 2022[10] Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific periods Consolidated Statements of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $375,749 | $348,095 | $704,635 | $595,233 | | Total operating expenses | $324,002 | $306,128 | $629,110 | $567,975 | | Operating income (loss) | $52,824 | $42,148 | $76,578 | $27,542 | | Net income (loss) attributable to the Company | $(24,608) | $(6,170) | $(85,530) | $(61,600) | | Net income (loss) attributable to common stockholders | $(29,186) | $(9,274) | $(93,758) | $(67,807) | | Basic EPS | $(0.85) | $(0.27) | $(2.73) | $(1.98) | - Total revenue increased by 7.9% for the three months ended June 30, 2023, and by 18.4% for the six months ended June 30, 2023, compared to the same periods in 2022[12] - Net loss attributable to common stockholders significantly widened to $(29,186) thousand for the three months ended June 30, 2023, from $(9,274) thousand in the prior year, and to $(93,758) thousand for the six months ended June 30, 2023, from $(67,807) thousand in the prior year[12] Consolidated Statements of Comprehensive Income (Loss) This section presents the net income or loss and other comprehensive income or loss components for the reporting periods Consolidated Statements of Comprehensive Income (Loss) Summary (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(24,957) | $(6,246) | $(86,479) | $(62,048) | | Total other comprehensive income (loss) | — | — | — | — | | Comprehensive income (loss) attributable to the Company | $(24,608) | $(6,170) | $(85,530) | $(61,600) | - The company reported a comprehensive loss attributable to the Company of $(24,608) thousand for the three months ended June 30, 2023, and $(85,530) thousand for the six months ended June 30, 2023, reflecting the net loss without significant other comprehensive income/loss components[14] Consolidated Statements of Equity (Deficit) This section outlines changes in the company's equity or deficit, including common stock, preferred stock, and accumulated deficit Consolidated Statements of Equity (Deficit) Summary (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------------- | :------------ | :------------------ | | Total stockholders' equity (deficit) of the Company | $(243,155) | $(150,389) | | Noncontrolling interest in consolidated entities | $7,961 | — | | Total equity (deficit) | $(235,194) | $(150,389) | - Total stockholders' equity (deficit) of the Company decreased from $(150,389) thousand at December 31, 2022, to $(243,155) thousand at June 30, 2023, primarily due to accumulated deficit[17] - The accumulated deficit increased to $(2,628,370) thousand at June 30, 2023, from $(2,534,043) thousand at December 31, 2022[17] Consolidated Statements of Cash Flows This section categorizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $35,289 | $35,671 | | Net cash provided by (used in) investing activities | $(49,626) | $(36,994) | | Net cash provided by (used in) financing activities | $(123,156) | $(25,360) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(137,493) | $(26,683) | | Cash, cash equivalents and restricted cash at end of period | $421,533 | $664,961 | - Net cash used in investing activities increased to $(49,626) thousand for the six months ended June 30, 2023, from $(36,994) thousand in the prior year, primarily due to higher capital improvements[23] - Net cash used in financing activities significantly increased to $(123,156) thousand for the six months ended June 30, 2023, from $(25,360) thousand in the prior year, driven by higher repayments of indebtedness and payments for derivatives, partially offset by proceeds from preferred stock offerings[23] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. Organization and Description of Business This note describes the company's structure, business focus, and key operational relationships - Ashford Hospitality Trust, Inc. is a REIT focused on investing in upper upscale full-service hotels in the United States, primarily branded under Hilton, Hyatt, Marriott, and Intercontinental Hotel Group[27][28] - As of June 30, 2023, the company held interests in 100 consolidated operating hotel properties (22,317 rooms), one hotel under development, 79 hotel condominium units at WorldQuest Resort, and investments in OpenKey and Meritage Resort[28][32] - The company is advised by Ashford Hospitality Advisors LLC (a subsidiary of Ashford Inc.) and does not have employees, with all services provided by Ashford LLC. Remington Hospitality, also an Ashford Inc. subsidiary, manages 68 of the 100 hotels[29][30] 2. Significant Accounting Policies This note outlines the critical accounting principles and methods used in preparing the financial statements - The financial statements are prepared in accordance with GAAP for interim financial information, with all adjustments considered necessary for fair presentation included[32] - Ashford Trust OP is consolidated as a Variable Interest Entity (VIE) because Ashford Trust's wholly-owned subsidiary, Ashford OP General Partner LLC, has the power to direct its activities and absorb losses/receive benefits[35] - 815 Commerce Managing Member, LLC (815 Commerce MM) was consolidated as a VIE as of May 31, 2023, after Ashford Trust funded a $3.0 million default loan and obtained kick-out rights of its manager[36] 3. Revenue This note details the company's revenue recognition policies and provides a breakdown of revenue by geographical market Total Revenue by Geographical Market (in thousands) | Primary Geographical Market | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Atlanta, GA Area | $28,043 | $23,106 | $54,250 | $41,039 | | Boston, MA Area | $22,731 | $18,889 | $33,719 | $26,987 | | Dallas / Ft. Worth, TX Area | $20,811 | $18,433 | $43,448 | $35,494 | | Washington D.C. - MD - VA Area | $49,116 | $43,855 | $84,865 | $64,736 | | Other Areas | $102,162 | $98,646 | $192,828 | $173,964 | | Corporate | $771 | $828 | $1,429 | $1,440 | | Total | $375,749 | $348,095 | $704,635 | $595,233 | - Total revenue increased by $27.6 million (7.9%) for the three months ended June 30, 2023, and by $109.4 million (18.4%) for the six months ended June 30, 2023, compared to the same periods in 2022[40][43] - Rooms revenue is the largest component, showing strong growth across most geographical markets[40][43] 4. Investments in Hotel Properties, net This note provides a breakdown of the company's hotel property investments, including land, buildings, and construction in progress Investments in Hotel Properties, net (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :------------------ | | Land | $627,368 | $622,759 | | Buildings and improvements | $3,610,472 | $3,650,464 | | Furniture, fixtures and equipment | $209,506 | $222,665 | | Construction in progress | $97,558 | $21,609 | | Total cost | $4,562,173 | $4,546,384 | | Accumulated depreciation | $(1,414,596) | $(1,428,053) | | Investments in hotel properties, net | $3,147,577 | $3,118,331 | - Construction in progress significantly increased to $97,558 thousand at June 30, 2023, from $21,609 thousand at December 31, 2022, reflecting ongoing development activities[45] - The company consolidated 815 Commerce MM as of May 31, 2023, recognizing a gain of $1.1 million, which included land, construction in progress, restricted cash, and indebtedness related to the Le Meridien hotel in Fort Worth, Texas[46][47][48] 5. Hotel Disposition and Impairment Charges and Assets Held For Sale This note discusses any hotel dispositions, impairment assessments, and assets classified as held for sale - No impairment charges were recorded for the three and six months ended June 30, 2023 and 2022[53] - WorldQuest Resort was classified as held for sale as of June 30, 2023, following a purchase and sale agreement on April 17, 2023, with assets held for sale totaling $11,653 thousand[54][57] - The disposition of WorldQuest does not represent a strategic shift, so its operations were not reported as discontinued operations[54] 6. Investments in Unconsolidated Entities This note details the company's equity method investments in entities not fully consolidated Carrying Value and Ownership Interest in Unconsolidated Entities (in thousands) | Entity | June 30, 2023 Carrying Value | December 31, 2022 Carrying Value | Ownership Interest | | :----------------------- | :----------------------------- | :------------------------------- | :----------------- | | OpenKey | $1,801 | $2,103 | 15.1% | | Meritage Investment | $8,716 | $8,991 | N/A | Equity in Earnings (Loss) of Unconsolidated Entities (in thousands) | Entity | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | OpenKey | $(152) | $(151) | $(302) | $(304) | | Meritage Investment | $(29) | — | $(275) | — | | Total | $(181) | $(151) | $(577) | $(304) | - The company's investment in 815 Commerce MM was consolidated in Q2 2023 and is no longer reflected as an unconsolidated entity[59] 7. Indebtedness, net This note provides a comprehensive overview of the company's debt obligations, including mortgage loans and their terms Indebtedness, net (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------------- | :------------ | :------------------ | | Total indebtedness | $3,713,312 | $3,835,272 | | Premiums (discounts), net | $(12,225) | $(20,249) | | Capitalized default interest and late charges | $3,494 | $8,363 | | Deferred loan costs, net | $(11,339) | $(8,530) | | Embedded debt derivative | $22,660 | $23,687 | | Indebtedness, net | $3,715,902 | $3,838,543 | - Total indebtedness decreased to $3,713,312 thousand at June 30, 2023, from $3,835,272 thousand at December 31, 2022[65] - Several mortgage loans, including KEYS Pool A, B, and F, were in default as of June 30, 2023, due to the company electing not to make required paydowns for extension options, with consensual transfer to lenders appearing likely[71][77] 8. Notes Receivable, Net and Other This note details the company's notes receivable and other miscellaneous assets Notes Receivable, Net (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------ | :------------------ | | Certificate of Occupancy Note Face amount | $5,250 | $5,250 | | Discount | $(9) | $(188) | | Notes receivable, net | $5,241 | $5,062 | - A deferred receivable from the sale of Sheraton Ann Arbor (September 2022) is included in 'other assets', with a face amount of $1.5 million and a carrying value of $1.324 million at June 30, 2023[82] - No impairment charges were recorded for receivables during the three and six months ended June 30, 2023 and 2022[82] 9. Derivative Instruments and Hedging This note describes the company's use of derivative instruments, primarily interest rate caps, for hedging purposes Interest Rate Derivatives Summary (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :----------------------------- | :----------------------------- | | Notional amount | $1,704,167 | $2,873,651 | | Total cost | $14,184 | $5,255 | - The company uses interest rate caps to hedge debt and cash flows, with a notional amount of $4,168,907 thousand at June 30, 2023[83][85] - An exit fee in the Oaktree Credit Agreement is considered an embedded derivative liability, bifurcated from the debt host and measured at fair value each reporting period[85] 10. Fair Value Measurements This note explains the methodologies and inputs used to measure the fair value of financial instruments Assets and Liabilities Measured at Fair Value (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------ | :------------------ | | Derivative assets (Level 2) | $36,532 | $47,182 | | Embedded debt derivative (Level 3) | $(22,660) | $(23,687) | | Net | $13,872 | $23,495 | - The embedded debt derivative is classified as a Level 3 measurement due to significant unobservable inputs, such as default probability-weighted exit fee and prepayment cash flows, and equity volatility estimates[92][94] - For the three months ended June 30, 2023, the company recognized a net realized and unrealized gain on derivatives of $12,583 thousand, including a $12,000 thousand realized gain from interest rate caps[100] 11. Summary of Fair Value of Financial Instruments This note provides a summary of the carrying values and estimated fair values of the company's financial instruments Fair Value of Financial Instruments (in thousands) | Instrument | June 30, 2023 Carrying Value | June 30, 2023 Estimated Fair Value | December 31, 2022 Carrying Value | December 31, 2022 Estimated Fair Value | | :--------------------------------------- | :----------------------------- | :--------------------------------- | :------------------------------- | :--------------------------------- | | Derivative assets | $36,532 | $36,532 | $47,182 | $47,182 | | Embedded debt derivative | $22,660 | $22,660 | $23,687 | $23,687 | | Cash and cash equivalents | $254,060 | $254,060 | $417,064 | $417,064 | | Indebtedness | $3,701,087 | $3,374,340 to $3,729,533 | $3,815,023 | $3,500,635 to $3,869,122 | - The fair value of indebtedness is estimated to be between 91.2% and 100.8% of its carrying value at June 30, 2023, using discounted future cash flows and current replacement rates[107] - Cash, cash equivalents, restricted cash, and most short-term receivables/payables have carrying values approximating fair values due to their short-term nature (Level 1 valuation)[104][105] 12. Income (Loss) Per Share This note reconciles the net income or loss attributable to common stockholders to basic and diluted earnings per share Income (Loss) Per Share Reconciliation (in thousands, except per-share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(29,186) | $(9,274) | $(93,758) | $(67,807) | | Weighted average common shares outstanding – basic and diluted | 34,429 | 34,330 | 34,385 | 34,300 | | Basic and Diluted EPS | $(0.85) | $(0.27) | $(2.73) | $(1.98) | - Basic and diluted EPS were $(0.85) for the three months ended June 30, 2023, a significant increase in loss compared to $(0.27) in the prior year[110] - For the six months ended June 30, 2023, basic and diluted EPS were $(2.73), compared to $(1.98) in the prior year, indicating a worsening loss per share[110] 13. Redeemable Noncontrolling Interests in Operating Partnership This note details the redeemable noncontrolling interests in the operating partnership and their impact on equity Redeemable Noncontrolling Interests in Ashford Trust OP (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :--------------------------------------- | :------------ | :------------------ | | Redeemable noncontrolling interests in Ashford Trust OP | $22,409 | $21,550 | | Ownership percentage of operating partnership | 1.14% | 0.91% | - Redeemable noncontrolling interests in the operating partnership increased to $22,409 thousand at June 30, 2023, from $21,550 thousand at December 31, 2022, with an ownership percentage of 1.14%[123] - Net losses allocated to redeemable noncontrolling interests were $349 thousand for Q2 2023 and $949 thousand for H1 2023[123] 14. Equity and Equity-Based Compensation This note outlines the company's equity structure, preferred dividends, and equity-based compensation plans Quarterly Preferred Dividends Declared Per Share | Preferred Stock Series | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | 8.45% Series D Cumulative Preferred Stock | $0.5281 | $0.5281 | | 7.375% Series F Cumulative Preferred Stock | $0.4609 | $0.4609 | | 7.375% Series G Cumulative Preferred Stock | $0.4609 | $0.4609 | | 7.50% Series H Cumulative Preferred Stock | $0.4688 | $0.4688 | | 7.50% Series I Cumulative Preferred Stock | $0.4688 | $0.4688 | - The company did not declare a common stock dividend in 2023 or 2022[124] - In March 2023, 165,000 Performance Stock Units (PSUs) were granted with a three-year vesting period, reclassified as equity awards with a fair value of $811,000 after stockholder approval[128] 15. Redeemable Preferred Stock This note provides details on the issuance and characteristics of the company's redeemable preferred stock series Series J Redeemable Preferred Stock Activity (in thousands) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :----------------------------- | | Shares issued | 1,073 | 1,487 | | Net proceeds | $24,132 | $33,458 | | Cumulative adjustments to Series J Preferred Stock | $2,108 | N/A | | Dividends declared | $618 | $751 | Series K Redeemable Preferred Stock Activity (in thousands) | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :----------------------------- | | Shares issued | 38 | 70 | | Net proceeds | $909 | $1,696 | | Cumulative adjustments to Series K Preferred Stock | $71 | N/A | | Dividends declared | $30 | $37 | - Both Series J and Series K Preferred Stock are classified outside of permanent equity due to cash redemption features outside the company's control, with carrying values adjusted to redemption amounts each period[136][147] 16. Related Party Transactions This note discloses transactions and agreements with related parties, including advisory and management fees Advisory Services Fees Incurred (in thousands) | Fee Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Base advisory fee | $8,249 | $8,613 | $16,718 | $17,348 | | Reimbursable expenses | $3,065 | $2,364 | $6,292 | $4,935 | | Equity-based compensation | $955 | $1,451 | $2,245 | $3,380 | | Total advisory services fee | $12,269 | $12,277 | $25,255 | $25,663 | - The company pays advisory fees to Ashford LLC, a subsidiary of Ashford Inc., consisting of base fees, incentive fees, and reimbursements for overhead, internal audit, risk management, and asset management services[150][154] - Cash incentive compensation to Ashford LLC employees was waived up to $13.1 million for H1 2023, following a similar waiver in 2022[160] 17. Commitments and Contingencies This note describes the company's legal commitments, contingent liabilities, and ongoing litigation - The company is involved in a class action lawsuit regarding California employment laws affecting nine hotels, with potential loss not reasonably estimable as of June 30, 2023, due to legal uncertainties and ongoing discovery[178] - Escrow payments for insurance, real estate taxes, debt service, and capital improvements (4-6% of gross revenues) are required under certain management and debt agreements[173] - Franchise fees range from 3% to 6% of gross rooms revenue (and sometimes 1% to 3% of F&B revenue), plus marketing/reservation fees of 1% to 4% of gross rooms revenue[174] 18. Segment Reporting This note identifies the company's operating segments and provides financial information for each - The company operates in a single business segment: direct hotel investments, which includes owning hotel properties through acquisition or new development[181] - All hotel properties were domestically located as of June 30, 2023, and December 31, 2022[181] 19. Subsequent Events This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - On July 14, 2023, the company received $5.3 million from a note receivable, used to pay down a mortgage balance[182] - On August 1, 2023, the company completed the sale of WorldQuest Resort for $14.8 million, with a carrying value of approximately $8.0 million at June 30, 2023[182] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, including an executive overview, detailed analysis of operating results for the three and six months ended June 30, 2023, liquidity and capital resources, and a discussion of non-GAAP financial measures. It highlights key performance indicators, recent debt and equity transactions, and the impact of seasonality FORWARD-LOOKING STATEMENTS This section cautions readers about forward-looking statements and the inherent risks and uncertainties that could affect actual results - The report contains forward-looking statements based on management's beliefs and assumptions, which are subject to risks and uncertainties[183][185] - Key forward-looking subjects include business strategy, asset transactions, operating results, financing, competition, capital expenditures, and technology impact[186] - Factors that could cause actual results to vary include rising interest rates, inflation, macroeconomic conditions, banking sector uncertainty, extreme weather, and potential conflicts of interest with related parties[186] EXECUTIVE OVERVIEW This section provides a high-level summary of the company's portfolio, strategic priorities, and recent operational and financial developments - As of June 30, 2023, the portfolio comprised 100 consolidated operating hotel properties (22,317 rooms) all located in the United States[188] - Current key priorities include maintaining liquidity, opportunistic preferred stock exchanges, non-core asset dispositions, capital market activities, selective capital improvements, effective asset management, and strategic financing[192] - Recent developments include extending the BAML Highland mortgage loan (April 2024), refinancing two mortgages into a new $98.5 million loan (May 2026), and exercising a one-year extension for Keys Pool C mortgage loan (June 2024)[194][195][196] - The company defaulted on KEYS Pool A, B, and F mortgage loans after electing not to make required paydowns, with consensual transfer of these hotels to lenders appearing to be the most likely outcome[198][199][200][201] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including revenue, expenses, and net income, for the reporting periods Key Performance Indicators (KPIs) for All Operating Hotel Properties and WorldQuest | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | RevPAR | $143.55 | $134.54 | $134.30 | $115.61 | | Occupancy | 75.31% | 73.34% | 71.86% | 65.88% | | ADR | $190.60 | $183.45 | $186.90 | $175.49 | - Net loss attributable to the Company increased by $18.4 million for Q2 2023 and $23.9 million for H1 2023, compared to the same periods in 2022[213][231] - Total revenue increased by $27.6 million (7.9%) for Q2 2023 and $109.4 million (18.4%) for H1 2023, driven by higher rooms, food and beverage, and other hotel revenues as properties recover from the COVID-19 pandemic[214][215][216][232][233][234] - Interest expense and amortization of discounts and loan costs significantly increased by $41.2 million (85.1%) for Q2 2023 and $79.2 million (86.1%) for H1 2023, primarily due to higher interest rates on variable rate debt[226][244] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's cash position, debt, and ability to meet its financial obligations and fund operations - As of June 30, 2023, the company held $254.1 million in cash and cash equivalents and $167.5 million in restricted cash, with a net debt to gross assets ratio of 69.5%[249] - 41% of hotels were in cash traps at June 30, 2023, with approximately $10.0 million of restricted cash subject to these provisions, potentially limiting financial flexibility[253] - Net cash used in financing activities for H1 2023 was $123.2 million, primarily due to $257.5 million in debt repayments and $14.2 million in derivative payments, partially offset by $99.7 million in new borrowings and $34.7 million from preferred stock offerings[277] SEASONALITY This section explains the seasonal nature of hotel operations and its potential impact on quarterly financial results - Hotel operations are seasonal, with varying occupancy rates during summer and winter months, which can cause fluctuations in quarterly lease revenue[282] - Quarterly revenue can be adversely affected by renovations, management effectiveness, and external events like pandemics or extreme weather[282] - Cash on hand, borrowings, and common stock are expected to be used to fund required distributions if cash flows from operations are insufficient due to seasonal fluctuations[282] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section highlights the accounting policies and estimates that require significant management judgment and could materially affect financial reporting - The preparation of financial statements requires significant management estimates and assumptions, which could differ from actual results[283] - No material changes in critical accounting policies were reported since the 2022 Form 10-K[283] NON-GAAP FINANCIAL MEASURES This section provides reconciliations and explanations for non-GAAP financial measures used by management to assess performance Reconciliation of Net Income (Loss) to Adjusted EBITDAre (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(24,957) | $(6,246) | $(86,479) | $(62,048) | | EBITDA | $114,187 | $98,606 | $182,583 | $138,603 | | EBITDAre | $113,110 | $98,425 | $181,530 | $138,319 | | Adjusted EBITDAre | $103,955 | $96,372 | $179,572 | $136,592 | Reconciliation of Net Income (Loss) to Adjusted FFO (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(29,186) | $(9,274) | $(93,758) | $(67,807) | | FFO available to common stockholders and OP unitholders | $16,656 | $41,365 | $(528) | $34,477 | | Adjusted FFO available to common stockholders and OP unitholders | $28,529 | $44,569 | $35,374 | $43,034 | - Adjusted EBITDAre increased to $103,955 thousand for Q2 2023 (from $96,372 thousand in Q2 2022) and to $179,572 thousand for H1 2023 (from $136,592 thousand in H1 2022), indicating improved operational performance excluding certain adjustments[289] - Adjusted FFO available to common stockholders and OP unitholders decreased to $28,529 thousand for Q2 2023 (from $44,569 thousand in Q2 2022) and to $35,374 thousand for H1 2023 (from $43,034 thousand in H1 2022)[292] HOTEL PORTFOLIO This section describes the composition and characteristics of the company's hotel property portfolio - As of June 30, 2023, the company's portfolio included 100 hotel properties with 22,505 total rooms, of which 22,378 rooms were owned[293][294] - The portfolio consists primarily of full-service hotels, with a smaller number of select-service properties, across various brands like Embassy Suites, Hilton, Hampton Inn, Marriott, and Courtyard by Marriott[293][294] - The Le Meridien in Fort Worth, TX, is a full-service leasehold property under development, with the lease expiring in 2120[294] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, primarily focusing on changes in interest rates on its debt instruments. It quantifies the potential impact of interest rate fluctuations on its variable-rate debt and notes the use of interest rate caps to mitigate this exposure - As of June 30, 2023, $3.4 billion of the company's total $3.7 billion indebtedness was variable-rate debt[296] - A 25-basis point change in interest rates on variable-rate debt would impact results of operations by approximately $8.4 million per year[296] - The company uses various interest rate caps to limit its exposure to changes in interest rates[296] ITEM 4. CONTROLS AND PROCEDURES This section confirms that the company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2023, and concluded they were effective. It also states that there have been no material changes in internal controls over financial reporting - Disclosure controls and procedures were evaluated as effective as of June 30, 2023, ensuring timely and accurate reporting of information[298] - No material changes in internal controls over financial reporting occurred during the most recent fiscal quarter[299] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and other miscellaneous disclosures ITEM 1. LEGAL PROCEEDINGS This section details ongoing legal proceedings, including a class action lawsuit against one of the company's hotel management companies regarding California employment laws. It also covers other general legal matters and the company's assessment of potential losses - A class action lawsuit filed in December 2016 against a hotel management company alleges violations of California employment laws, affecting nine hotels[301] - The potential loss from this class action lawsuit is not reasonably estimable as of June 30, 2023, due to legal uncertainties and ongoing discovery[301] - Other legal proceedings, including employment, tax, and compliance matters, are not expected to have a material adverse effect on the company's financial position, results of operations, or cash flow[302] ITEM 1A. RISK FACTORS This section supplements the risk factors from the company's Annual Report on Form 10-K, specifically highlighting the risk of adverse effects on cash, cash equivalents, and investments if financial institutions holding them fail, referencing recent bank failures - The company's cash, cash equivalents, and investments could be adversely affected if financial institutions holding them fail[305] - The company maintains cash balances at third-party financial institutions in excess of FDIC insurance limits[305] - While the company has no direct exposure to recent bank failures (Silicon Valley Bank, New York Signature Bank, First Republic Bank), future failures could threaten access to funds[305] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section provides information on purchases and forfeitures of common stock by the issuer during the second quarter of 2023, primarily related to tax-withholding requirements for restricted shares Purchases of Equity Securities by the Issuer (Common Stock) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :------------------------------- | :--------------------------- | | April 1 to April 30 | 111 | $3.40 | | May 1 to May 31 | 6,961 | $3.79 | | June 1 to June 30 | — | — | | Total | 7,072 | $3.78 | - The shares purchased were primarily withheld to cover tax-withholding requirements related to the vesting of restricted common stock[306] - No shares were repurchased under the $200 million stock repurchase program during the second quarter of 2023[306] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section reports on any defaults related to the company's senior securities during the reporting period - No defaults upon senior securities were reported[307] ITEM 4. MINE SAFETY DISCLOSURES This section confirms whether any mine safety disclosures are required for the company's operations - No mine safety disclosures were reported[308] ITEM 5. OTHER INFORMATION This section details amendments to the company's Second Amended and Restated Bylaws, effective August 8, 2023, which enhance stockholder nomination and proposal procedures. It also confirms no Rule 10b5-1 trading agreements were adopted or terminated by directors or officers during the quarter - The board of directors approved amendments to the Second Amended and Restated Bylaws on August 8, 2023, enhancing advance notice and disclosure requirements for stockholder director nominations and proposals[309] - The amendments require stockholders to include Rule 14a-19(b) information for director nominations and comply with Rule 14a-19 for proxy solicitations[309] - No Rule 10b5-1 or non-Rule 10b5-1 trading agreements were adopted or terminated by directors or officers during the three months ended June 30, 2023[310] ITEM 6. EXHIBITS This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including various articles of amendment, supplementary articles, credit agreements, and certifications. It also specifies the formatting of XBRL-related information - The exhibits include Articles of Amendment and Restatement, Articles Supplementary for preferred stock, and various Credit Agreements and amendments[311][314] - Certifications of the Chief Executive Officer and Chief Financial Officer are filed/furnished as exhibits[314] - XBRL (Extensible Business Reporting Language) formatted financial statements and notes are included as Exhibit 101, which are not deemed 'filed' for Section 18 liability purposes[313] SIGNATURES This section contains the official signatures of the company's authorized officers, attesting to the accuracy of the report - The report is signed by J. Robison Hays, III, President and Chief Executive Officer, and Deric S. Eubanks, Chief Financial Officer, on August 9, 2023[318]