ASHFORD HOSPITALITY TRUST INC

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.”

The following table summarizes the changes in key line items from our consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):

All hotel properties held during the three and nine months ended September 30, 2024 and 2023 have been included in our results of operations during the respective periods in which they were held. Based on when a hotel property was acquired or disposed, operating results for certain hotel properties are not comparable for the three and nine months ended September 30, 2024 and 2023. 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 transactions affect the reporting comparability of our consolidated financial statements:

(1)Referred to as “Hotel Dispositions”

(2) Referred to as “KEYS A and B properties”

The following table illustrates the key performance indicators of the operating hotel properties and WorldQuest included in our results of operations:

The following table illustrates the key performance indicators of the 68 comparable hotel properties and four consolidated Stirling OP properties that were included in our results of operations for the full three and nine months ended September 30, 2024 and 2023, respectively:

Comparison of the Three Months Ended September 30, 2024 and 2023

Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $5.7 million, from $63.6 million for the three months ended September 30, 2023 (the “2023 quarter”) to $57.9 million for the three months ended September 30, 2024 (the “2024 quarter”) as a result of the factors discussed below.

Revenue. Rooms revenue from our hotel properties decreased $57.6 million, or 21.3%, to $213.0 million in the 2024 quarter compared to the 2023 quarter. This decrease is attributable to a decrease of $35.7 million from our Hotel Dispositions, $19.9 million from the KEYS A and B properties that went into receivership, $2.6 million from our comparable hotel properties, and $51,000 from the Stirling hotel properties, partially offset by higher rooms revenue of $611,000 from the Le Meridien that opened in August 2024. Our comparable hotel properties experienced an increase of 1.0% in room rates and a 186 basis point decrease in occupancy.

Food and beverage revenue decreased $5.8 million, or 11.2%, to $46.4 million. This decrease is attributable to a decrease of $6.0 million from our Hotel Dispositions and $582,000 from the KEYS A and B properties that went into receivership, partially offset by higher sales of food and beverage of $669,000 at our comparable hotel properties and $74,000 from the Le Meridien that opened in August 2024.

Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, decreased $2.9 million, or 14.7%, to $16.7 million. This decrease is primarily attributable to a decrease of $3.7 million from our Hotel Dispositions, $814,000 from the KEYS A and B properties that went into receivership, and $17,000 from the Stirling hotel properties, partially offset by an increase of $1.7 million at our comparable hotel properties and $43,000 from the Le Meridien that opened in August 2024. Other non-hotel revenue decreased $83,000, or 12.5%, to $582,000 in the 2024 quarter as compared to the 2023 quarter.

Hotel Operating Expenses. Hotel operating expenses decreased $37.8 million, or 16.2%, to $194.8 million. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses decreased $20.2 million in the 2024 quarter as compared to the 2023 quarter, which was primarily comprised of a decrease of $14.4 million from our Hotel Dispositions and $6.3 million from the KEYS A and B properties that went into receivership, partially offset by an increase of $311,000 from our comparable hotel properties and $197,000 from the Le Meridien that opened in August 2024. Direct expenses were 31.6% of total hotel revenue for the 2024 quarter and 31.4% for the 2023 quarter. Indirect expenses and management fees decreased $17.6 million in the 2024 quarter as compared to the 2023 quarter, which was primarily comprised of a decrease of $15.9 million from our Hotel Dispositions, $8.8 million from the KEYS A and B properties that went into receivership, partially offset by an increase of $6.8 million from our comparable hotel properties and $278,000 from the Le Meridien that opened in August 2024.

Property Taxes, Insurance and Other. Property taxes, insurance and other expense increased $717,000, or 4.1%, to $18.1 million during the 2024 quarter compared to the 2023 quarter, which was primarily due to an increase of $4.6 million from our comparable hotel properties, $93,000 from the Le Meridien that opened in August 2024, and $57,000 from our Stirling properties, partially offset by a decrease of $2.6 million from our Hotel Dispositions and $1.4 million from the KEYS A and B properties that went into receivership.

Depreciation and Amortization. Depreciation and amortization decreased $8.2 million, or 17.9%, to $37.7 million during the 2024 quarter compared to the 2023 quarter, which was primarily due to a decrease of $5.6 million from our Hotel Dispositions, $3.2 million from the KEYS A and B properties that went into receivership, and $142,000 from our comparable hotel properties primarily related to fully depreciated assets, partially offset by an increase of $408,000 from the Le Meridien that opened in August 2024 and $280,000 from our Stirling properties.

Advisory Services Fee. Advisory services fee decreased $539,000, or 4.3%, to $11.9 million in the 2024 quarter compared to the 2023 quarter. The advisory services fee represents fees incurred in connection with the advisory agreement between Ashford Inc. and the Company and between Ashford Inc. and Stirling OP. In the 2024 quarter, the advisory services fee was comprised of a base advisory fee of $8.2 million, equity-based compensation of $218,000 associated with equity grants of our common stock, PSUs, LTIP units and Performance LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $3.3 million and a performance participation fee of $111,000 associated with the Stirling OP advisory agreement with Ashford Inc. In the 2023 quarter, the advisory services fee was comprised of a base advisory fee of $8.1 million, equity-based compensation of $1.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of $2.9 million.

Corporate, General and Administrative. Corporate, general and administrative expense increased $1.2 million from $3.9 million in the 2023 quarter to $5.1 million in the 2024 quarter. The increase was primarily attributable to higher legal and professional costs of $450,000, higher reimbursed operating expenses of Ashford Securities of $723,000 and higher public company cost of $198,000, partially offset by lower miscellaneous expenses of $182,000.

Gain (Loss) on Consolidation of VIE and Disposition of Assets and Hotel Properties. Gain on consolidation of VIE and disposition of assets and hotel properties decreased $6.4 million from $6.4 million in the 2023 quarter to $9,000 in the 2024 quarter. The gain in the 2023 quarter primarily related to the sale of WorldQuest Resort in Orlando, Florida.

Gain (Loss) on Derecognition of Assets. Gain on derecognition of assets was $11.1 million in the 2024 quarter. The gain primarily represents the accrued interest expense associated with the default of the KEYS A and KEYS B loans, which resulted in a corresponding increase of the contract asset on our consolidated balance sheet as we expect to be released from this obligation upon final resolution with the lender. On July 2, 2024, the Courtyard Plano Legacy Park and the Residence Inn Plano were foreclosed on at a public auction. See note 7 to our consolidated financial statements.

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities decreased $5,000 during the 2024 quarter compared to the 2023 quarter. The 2024 quarter included equity in loss of $173,000 from OpenKey and equity in earnings of $40,000 from an investment in an entity that owns the Meritage Resort and Spa and the Grand Reserve at the Meritage in Napa, California. The 2023 quarter included equity in loss of $125,000 from OpenKey and $13,000 from an investment in an entity that owns the Meritage Resort and Spa and the Grand Reserve at the Meritage in Napa, California.

Interest Income. Interest income was $1.8 million and $1.9 million for the 2024 quarter and the 2023 quarter, respectively. The decrease in interest income in the 2024 quarter was primarily attributable to lower excess cash balances in the 2024 quarter compared to the 2023 quarter.

Other Income (Expense). Other income consisted of miscellaneous income of $36,000 in the 2024 quarter and $34,000 in the 2023 quarter.

Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs decreased $20.8 million, or 23.7%, to $66.8 million during the 2024 quarter compared to the 2023 quarter. The decrease is primarily due to a $10.8 million decrease on the Oaktree loan attributable to a lower principal balance and the Oaktree deferred loan costs becoming fully amortized, a decrease of $8.3 million from our Hotel Dispositions, and lower default interest and late charges recorded on mortgage loans previously in default of $4.3 million. These decreases were partially offset by higher interest expense of $2.0 million at our comparable hotel properties primarily due to higher interest rates on our variable rate debt, $337,000 from the Le Meridien and $308,000 at our Stirling properties related to a higher interest rate on the new loan. The average SOFR rates for the 2024 quarter and the 2023 quarter were 5.17% and 5.08%, respectively.

Interest Expense Associated with Hotels in Receivership. Interest expense associated with hotels in receivership decreased $629,000, from $11.7 million in 2023 quarter to $11.1 million in 2024 quarter. The decrease is due to lower interest rates, default charges and late fees on the KEYS Pool A and KEYS Pool B mortgage loans. On July 2, 2024, the Courtyard Plano Legacy Park and the Residence Inn Plano were foreclosed on at a public auction. See note 7 to our consolidated financial statements.

Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees decreased $1.2 million to $17,000 in the 2024 quarter compared to the 2023 quarter. In the 2024 quarter, we incurred fees of $17,000 related to loan refinances and modifications. In the 2023 quarter, we incurred fees of $1.3 million related to loan refinances and modifications.

Gain (Loss) on Extinguishment of Debt. Gain on extinguishment of debt in the 2024 quarter was $2.7 million. In June 2024, the Company was informed by its lender that the lender intended to exercise remedies for the maturity default on the Ashton Hotel in Fort Worth, Texas, which secured the Company’s $8.9 million mortgage loan. The Company and the lender agreed to a deed-in-lieu of foreclosure, which was completed on July 16, 2024 and resulted in a gain on extinguishment of debt of approximately $2.6 million.

Realized and Unrealized Gain (Loss) on Derivatives. Realized and unrealized loss on derivatives increased $3.5 million from $2.7 million in the 2023 quarter to $6.2 million in the 2024 quarter. In the 2024 quarter, we recognized an unrealized loss of $12.3 million associated with interest rate caps and an unrealized loss of $1.2 million from the revaluation of the embedded debt derivative in the Oaktree Agreement, partially offset by a realized gain of $7.3 million related to payments from counterparties on interest rate caps. In the 2023 quarter, we recognized an unrealized loss of $12.6 million associated with interest rate caps and an unrealized loss of $436,000 from the revaluation of the embedded debt derivative in the Oaktree Agreement, partially offset by a realized gain of $10.3 million related to payments from counterparties on interest rate caps.

Income Tax (Expense) Benefit. Income tax (expense) benefit changed $572,000, from expense of $127,000 in the 2023 quarter to a benefit of $445,000 in the 2024 quarter. This change was primarily due to a decrease in current state taxes in the 2024 quarter compared to the 2023 quarter.

(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partners in consolidated entities were allocated a loss of $477,000 in the 2024 quarter and $0 in the 2023 quarter.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated a net loss of $746,000 in the 2024 quarter and $889,000 in the 2023 quarter. Redeemable noncontrolling interests represented ownership interests of 1.17% and 1.28% in the operating partnership at September 30, 2024 and 2023, respectively.

Comparison of the Nine Months Ended September 30, 2024 and 2023

Net Income (Loss) Attributable to the Company. Net income (loss) attributable to the Company changed $213.0 million from a net loss of $149.1 million for the nine months ended September 30, 2023 (the “2023 period”) to net income of $63.9 million for the nine months ended September 30, 2024 (the “2024 period”) as a result of the factors discussed below.

Revenue. Rooms revenue from our hotel properties decreased $131.7 million, or 16.1%, to $685.8 million in the 2024 period compared to the 2023 period. This decrease is attributable to $85.0 million from our Hotel Dispositions, $49.3 million from the KEYS A and B properties that went into receivership, and $738,000 from the Stirling hotel properties, partially offset by higher rooms revenue of $2.7 million at our comparable hotel properties and $611,000 from the Le Meridien that opened in August 2024. Our comparable hotel properties experienced an increase of 1.3% in room rates and a decrease of 130 basis points in occupancy.

Food and beverage revenue decreased $13.9 million, or 8.1%, to $159.0 million in the 2024 period compared to the 2023 period. This decrease is attributable to $14.0 million from our Hotel Dispositions and $1.4 million from the KEYS A and B properties that went into receivership, partially offset by higher sales of food and beverage of $1.4 million at our comparable hotel properties and $74,000 from the Le Meridien that opened in August 2024.

Other hotel revenue, which consists mainly of Internet access, parking, and spa revenue, decreased $4.8 million, or 8.8%, to $50.3 million in the 2024 period compared to the 2023 period. This decrease is attributable to $7.8 million from our Hotel Dispositions, $2.0 million from the KEYS A and B properties that went into receivership, and $17,000 from the Stirling properties, partially offset by higher other revenue of $4.9 million from our comparable hotel properties and $43,000 from the Le Meridien that opened in August 2024. Other revenue decreased $190,000, or 9.1%, to $1.9 million in the 2024 period compared to the 2023 period.

Hotel Operating Expenses. Hotel operating expenses decreased $85.3 million, or 12.2%, to $613.2 million in the 2024 period compared to the 2023 period. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. Direct expenses decreased $43.8 million in the 2024 period compared to the 2023 period, comprised of a decrease of $32.1 million from our Hotel Dispositions, $14.7 million from the KEYS A and B properties that went into receivership, and $60,000 from the Stirling properties, partially offset by an increase of $2.9 million from our comparable hotel properties and $197,000 from the Le Meridien that opened in August 2024. Direct expenses were 30.9% of total hotel revenue for the 2024 period and 30.7% for the 2023 period. Indirect expenses and management fees decreased $41.5 million in the 2024 period compared to the 2023 period, comprised of a decrease of $37.4 million from our Hotel Dispositions, $21.0 million from the KEYS A and B properties that went into receivership, and $108,000 from the Stirling hotel properties, partially offset by an increase of $16.8 million from our comparable hotel properties and $278,000 from the Le Meridien that opened in August 2024.

Property Taxes, Insurance and Other. Property taxes, insurance and other expense decreased $545,000 or 1.0%, to $52.3 million in the 2024 period compared to the 2023 period, which was primarily due to a decrease of $5.3 million from our Hotel Dispositions and $3.0 million from the KEYS A and B properties that went into receivership, partially offset by an increase of $7.5 million from our comparable hotel properties, $127,000 from the Stirling hotel properties and $93,000 from the Le Meridien that opened in August 2024.

Depreciation and Amortization. Depreciation and amortization decreased $25.5 million or 18.1%, to $115.5 million in the 2024 period compared to the 2023 period, which consisted of lower depreciation of $15.6 million from our Hotel Dispositions, $7.9 million from the KEYS A and B properties that went into receivership, and $3.0 million from our comparable hotel properties, primarily related to fully depreciated assets, partially offset by an increase of $572,000 from our Stirling hotel properties and $408,000 from the Le Meridien that opened in August 2024.

Advisory Services Fee. Advisory services fee increased $881,000, or 2.3%, to $38.5 million in the 2024 period compared to the 2023 period. The advisory services fee represents fees incurred in connection with the advisory agreements between Ashford Inc. and the Company and between Ashford Inc. and Stirling OP. In the 2024 period, the advisory services fee was comprised of a base advisory fee of $24.4 million, equity-based compensation of $1.3 million associated with equity grants of our common stock, PSUs, LTIP units and Performance LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $12.6 million and a performance participation fee of $333,000 associated with the Stirling OP advisory agreement with Ashford Inc. In the 2023 period, the advisory services fee comprised of a base advisory fee of $24.8 million, equity-based compensation of $3.6 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and reimbursable expenses of $9.2 million.

Corporate, General and Administrative. Corporate, general and administrative expense increased $9.1 million, or 79.7%, to $20.5 million in the 2024 period compared to the 2023 period. The increase was primarily attributable to higher reimbursed operating expenses of Ashford Securities of $6.1 million, higher legal and professional fees of $2.9 million, and higher miscellaneous expenses of $158,000, partially offset by lower public company cost of $75,000.

Gain (Loss) on Consolidation of VIE and Disposition of Assets and Hotel Properties. Gain on consolidation of VIE and disposition of assets and hotel properties increased $87.0 million, from $7.4 million in the 2023 period to $94.4 million in the 2024 period. The gain in the 2024 period was primarily related to the sale of the Residence Inn in Salt Lake City, Utah, Hilton Boston Back Bay in Boston, Massachusetts, Hampton Inn Lawrenceville in Lawrenceville, Georgia, SpringHill Suites Kennesaw in Kennesaw, Georgia, Fairfield Inn Kennesaw in Kennesaw, Georgia, One Ocean in Atlantic Beach, Florida, and Courtyard Hartford Manchester in Manchester, Connecticut. The gain in the 2023 period was primarily related to a $1.1 million gain for the consolidation of the VIE, which is represented by the difference between the fair value of the assets and liabilities recognized, the fair value of the non-controlling interest and the previous carrying value of the Company’s investment in 815 Commerce MM and $6.4 million related to the sale of WorldQuest in Orlando, Florida.

Gain (Loss) on Derecognition of Assets. Gain on derecognition of assets was $156.7 million in the 2024 period. The gain includes the initial gain of $133.9 million related to the derecognition of assets related to the hotel properties securing the KEYS Pool A and KEYS Pool B mortgage loans that were placed into receivership in March 2024. Additionally, subsequent to the initial derecognition, we recorded an additional gain of approximately $22.8 million, which primarily represents the accrued interest expense associated with the default of the KEYS A and KEYS B loans accrued during the second and third quarters of 2024, which resulted in a corresponding increase of the contract asset on our consolidated balance sheet as we expect to be released from this obligation upon final resolution with the lender. On July 2, 2024, the Courtyard Plano Legacy Park and the Residence Inn Plano were foreclosed on at a public auction. See note 7 to our consolidated financial statements.

Equity in Earnings (Loss) of Unconsolidated Entities. Equity in loss of unconsolidated entities was $828,000 in the 2024 period, which consisted of equity in loss of $462,000 from OpenKey and $366,000 from an investment in an entity that owns the Meritage Resort and Spa and the Grand Reserve at the Meritage in Napa, California and $715,000 in the 2023 period which consisted of our share of loss of $427,000 in OpenKey and $288,000 in the Napa resort investment.

Interest Income. Interest income was $5.4 million and $6.8 million in the 2024 period and the 2023 period, respectively. The decrease in interest income in the 2024 period was primarily attributable to lower excess cash balances in the 2024 period compared to the 2023 period.

Other Income (Expense). In the 2024 period and the 2023 period we recorded miscellaneous income of $108,000 and $277,000, respectively.

Interest Expense and Amortization of Discounts and Loan Costs. Interest expense and amortization of discounts and loan costs decreased $33.9 million, or 13.9%, to $209.2 million in the 2024 period compared to the 2023 period. The decrease was primarily due to lower cash interest expense and amortization of loan costs of $21.5 million on the Oaktree loan attributable to a lower principal balance and the Oaktree deferred loan costs becoming fully amortized, $20.4 million from our Hotel Dispositions, and lower default interest and late charges recorded on mortgage loans previously in default of $946,000, partially offset by a $7.7 million increase in interest expense at our comparable hotel properties primarily due to higher interest rates on our variable rate debt, $337,000 from the Le Meridien and $911,000 at our Stirling properties related to the new loan with a higher interest rate. The average SOFR rates in the 2024 period and the 2023 period were 5.27% and 4.78%, respectively.

Interest Expense Associated with Hotels in Receivership. Interest expense associated with hotels in receivership increased $7.8 million, from $27.4 million in the 2023 period to $35.2 million in the 2024 period. The increase is due to higher average interest rates, default charges and late fees on the KEYS Pool A and KEYS Pool B mortgage loans. On July 2, 2024, the Courtyard Plano Legacy Park and the Residence Inn Plano were foreclosed on at a public auction. See note 7 to our consolidated financial statements.

Write-off of Premiums, Loan Costs and Exit Fees. Write-off of premiums, loan costs and exit fees increased $1.2 million to $3.8 million in the 2024 period compared to the 2023 period. In the 2024 period, we incurred fees of approximately $3.0 million related to loan refinances and modifications and wrote-off $817,000 of unamortized loan costs. In the 2023 period, we incurred fees of $2.6 million related to loan refinances and modifications

Gain (loss) on extinguishment of debt. Gain on extinguishment of debt in the 2024 period was $2.8 million. In June 2024, the Company was informed by its lender that the lender intended to exercise remedies for the maturity default on the Ashton Hotel in Fort Worth, Texas, which secured the Company’s $8.9 million mortgage loan. The Company and the lender agreed to a deed-in-lieu of foreclosure, which was completed on July 16, 2024 and resulted in a gain on extinguishment of debt of approximately $2.6 million. Gain on extinguishment of debt also included $45,000 in the 2024 period primarily related to the deed in lieu of foreclosure transaction for the KEYS Pool F mortgage loan.

Realized and Unrealized Gain (Loss) on Derivatives. Realized and unrealized gain (loss) on derivatives changed $4.6 million from a gain of $4.5 million in the 2023 period to a loss of $84,000 in the 2024 period. In the 2024 period, we recognized an unrealized loss of $24.7 million associated with interest rate caps, partially offset by a realized gain of $23.3 million related to payments from counterparties on interest rate caps and an unrealized gain of $1.3 million from the revaluation of the embedded debt derivative in the Oaktree Agreement. In the 2023 period, we recognized a realized gain of $30.8 million related to payments from counterparties on interest rate caps and an unrealized gain of $591,000 from the revaluation of the embedded debt derivative in the Oaktree Agreement, partially offset by an unrealized loss of $26.9 million associated with interest rate caps.

Income Tax (Expense) Benefit. Income tax expense increased $903,000, from $2.4 million in the 2023 period to $3.3 million in the 2024 period. This increase was primarily due to gains on property dispositions in the 2024 period.

(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Our noncontrolling interest partners in consolidated entities were allocated a loss of $494,000 in the 2024 period.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net income of $672,000 in the 2024 period and a net loss of $1.8 million in the 2023 period. Redeemable noncontrolling interests represented ownership interests of 1.17% and 1.28% in the operating partnership at September 30, 2024 and 2023, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As of September 30, 2024, the Company held cash and cash equivalents of $119.7 million and restricted cash of $114.3 million, the vast majority of which is comprised of lender and manager-held reserves. As of September 30, 2024, $26.7 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company’s managers and is available to fund hotel operating costs. At September 30, 2024, our net debt to gross assets was 66.3%.

The Company’s cash and cash equivalents are primarily comprised of corporate cash invested in short-term U.S. Treasury securities with maturity dates of less than 90 days and corporate cash held at commercial banks in Insured Cash Sweep (“ICS”) accounts, which are fully insured by the FDIC. The Company’s cash and cash equivalents also includes property-level operating cash deposited with commercial banks that have been designated as a Global Systemically Important Bank (“G-SIB”) by the Financial Stability Board (“FSB”) and a small amount deposited with other commercial banks.

Based on our current level of operations, our cash flow from operations, capital market activities, asset sales and our existing cash balances should be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity payments and paydowns for extension tests), 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. With respect to upcoming maturities, no assurances can be given that we will be able to refinance our upcoming maturities. Additionally, no assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy or may result in lender foreclosure.

Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well and are impacted by inflation.

Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotels declines below a threshold. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. During a cash trap, certain disbursements from these hotel operating cash receipts would require consent of our lenders. At September 30, 2024, 12 of our hotels were in cash traps and approximately $2.4 million of our restricted cash was subject to these cash traps. Our loans currently in cash traps may remain subject to cash trap provisions for a substantial period of time, which could limit our flexibility and adversely affect our financial condition or our qualification as a REIT.

We have extension options relating to certain property-level loans that will permit us to extend the maturity date of our loans if certain conditions are satisfied at the respective extension dates, including the achievement of debt yield targets required in order to extend such loans. To the extent we decide to extend the maturity date of the debt outstanding under the loans, we may be required to prepay a significant amount of the loans in order to meet the required debt yield targets. There can be no assurances that we will be able to meet the conditions for extensions pursuant to the respective terms of such loans.

If we violate covenants in our debt agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or Ashford Trust OP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or Ashford Trust OP.

Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.

We have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs, which include, but are not limited to, fraud, misrepresentation, willful misconduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, delinquency of trade payables and certain environmental liabilities. Certain of these guarantees represent a guaranty of material amounts, and if we are required to make payments under those guarantees, our liquidity could be adversely affected.

We are committed to an investment strategy where we will pursue hotel-related investments as suitable situations arise. Funds for future hotel-related investments are expected to be derived, in whole or in part, from cash on hand, future borrowings under a credit facility or other loans, or proceeds from additional issuances of common stock, preferred stock (including net proceeds from the sale of any shares of Series J Preferred Stock or Series K Preferred Stock), or other securities, asset sales, and joint ventures. However, we have no formal commitment or understanding to invest in additional assets, and there can be no assurance that we will successfully make additional investments. We may, when conditions are suitable, consider additional capital raising opportunities.

Our existing hotel properties are mostly located in developed areas with competing hotel properties. Future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties, home sharing companies or apartment operators offering short-term rentals in its market area. Competition could also affect the quality and quantity of future investment opportunities.

Debt Transactions

The Company continues to work with the lender of the KEYS A and KEYS B loan pools on a consensual transfer of ownership of those hotels to the lender, and the Company anticipates that transfer could occur in the second half of 2024. The original lenders previously transferred the loans to a securitization trust. On March 1, 2024, the Company received notice that the hotel properties securing the KEYS A and KEYS B loan pools have been transferred to a court-appointed receiver. Below is a summary of the hotel properties securing the KEYS Pool A loan and KEYS Pool B loan:

We derecognized the hotel properties securing the KEYS Pool A and KEYS Pool B loans from our consolidated balance sheet in March 2024, when the receiver took control of the hotel properties, and accordingly recognized a gain of $133.9 million, which is included in “gain (loss) on derecognition of assets” in our consolidated statements of operations and recorded a contract asset of $378.2 million, which represented the liabilities we expect to be released from upon final resolution with the lenders on the KEYS Pool A and KEYS Pool B mortgage loans in exchange for the transfer of ownership of the respective hotel properties.

During the three months ended June 30, 2024, we recognized an additional gain of $11.7 million, which is included in “gain (loss) on derecognition of assets” in our consolidated statements of operations that increased the contract asset by a corresponding amount. The additional gain primarily represents the additional accrued interest expense recorded during the three months ended June 30, 2024.

During the three months ended September 30, 2024, we recognized an additional gain of $11.1 million, which is included in “gain (loss) on derecognition of assets” in our consolidated statements of operations that increased the contract asset by a corresponding amount. The KEYS Pool A and the KEYS Pool B mortgage loans as well as all accrued and unpaid interest, default charges and late fees will remain liabilities until final resolution with the lenders is concluded, and thus is included in “indebtedness associated with hotels in receivership” and “accrued interest associated with hotels in receivership” on our consolidated balance sheets. On July 2, 2024, the Courtyard Plano Legacy Park and the Residence Inn Plano were foreclosed on at a public auction. As a result the contract asset and corresponding indebtedness associated with hotels in receivership and accrued interest associated with hotels in receivership were reduced for the amounts attributable to each hotel.

On March 6, 2024, the Company completed the sale of the Residence Inn in Salt Lake City, Utah for approximately $19.2 million. The Company repaid approximately $19 million of principal on its mortgage loan partially secured by the hotel property.

On March 11, 2024, we entered into Amendment No. 3 to the Oaktree Credit Agreement which, among other items, (i) extends the Credit Agreement to January 15, 2026, (ii) removes the $50 million minimum cash requirement, (iii) removes the 3% increase in the interest rate if cash is below $100 million, (iv) removes the provision in which a default under mortgage indebtedness is a default under the Credit Agreement, (v) increases the interest rate by 3.5% if the principal balance is not less than $100 million as of September 30, 2024 or not fully repaid by March 31, 2025, (vi) terminates all “delayed draw” term loan commitments and the unused fees thereon, (vii) provides for a mandatory prepayment of the Credit Agreement at the end of each calendar quarter in the amount by which unrestricted cash exceeds $75 million for the first three quarters of 2024, $50 million for the fourth quarter of 2024, and $25 million for each quarter thereafter, (viii) provides for a mandatory prepayment of the Credit Agreement in an amount equal to 50% of all net proceeds raised from the issuance of equity, including non-traded preferred stock (increased to 100% of such net proceeds if the principal balance is not less than $100 million as of September 30, 2024 or not fully repaid by March 31, 2025), (ix) removes the option to pay the exit fee in the form of common stock warrants, (x) requires the exit fee to be paid in the form of a 15% cash exit fee (payable entirely in cash), which exit fee shall be reduced to 12.5% if the Oaktree Credit Agreement is repaid on or before September 30, 2024, (xi) requires the Company to use commercially reasonable efforts to sell fifteen specified hotels, (xii) if the principal balance is not less than $100 million as of September 30, 2024 or not fully repaid by March 31, 2025, requires the Company to sell eight specified hotels at a minimum sales price within six months, with the net sales proceeds to be applied as a prepayment of the Credit Agreement, (xiii) requires the Company to use commercially reasonable efforts to refinance the Renaissance Nashville hotel property, and (xiv) limits the Company’s ability to perform discretionary capital expenditures.

On March 11, 2024, the Company and Ashford Trust OP, as borrower (the “Borrower”) entered into that certain Limited Waiver to Credit Agreement (the “Limited Waiver to Credit Agreement”) with the guarantors party thereto, the lenders party thereto (the "Lenders") and Oaktree Fund Administration, LLC, as administrative agent. Pursuant to the Limited Waiver to Credit Agreement, the Borrower, the other Loan Parties (as defined in the Oaktree Credit Agreement), the Lenders and the Administrative Agent acknowledged and agreed that:

(a) certain deferred cash grants were or are being awarded to employees and/or officers of the Advisor and/or their affiliates pursuant to equity compensation plans during 2022, 2023 and 2024, in aggregate amounts of $7,950,817 in 2022, $13,063,844 in 2023 and $14,880,846 in 2024 (i.e., $35,895,507 in the aggregate) (the “Specified Deferred Cash Grants”), which the parties agreed may be made (and were or are being made) in lieu of deferred stock grants that would otherwise be permitted and made under the terms of the Advisory Agreement;

(b) accordingly, (i) the departure from the terms of the Advisory Agreement in making the Specified Deferred Cash Grants as described in the foregoing clause (a) shall be deemed to be permitted under Section 7.13(b) of the Credit Agreement; provided, however, the Borrower and the other Loan Parties agree that actual cash payments made under the Specified Deferred Cash Grants, together with any other Restricted Payments (as defined in the Oaktree Credit Agreement) made pursuant to Section 7.06(f) of the Oaktree Credit Agreement, shall not exceed $30,000,000 in the aggregate unless and until the Borrower has repaid in full the principal amount of the Loans, including any Cash Exit Fee Loans (as such terms are defined in the Oaktree Credit Agreement); (ii) the Lenders and the Administrative Agent waive non-compliance with Section 7.13(b), if any, prior to March 11, 2024, which resulted or would result (absent the waiver) from the making of the Specified Deferred Cash Grants in accordance with the foregoing provisions of Section 2 of the Limited Waiver to Credit Agreement, and (iii) effective from March 11, 2024 Section 7.13(b) shall be deemed to be amended to permit the Specified Deferred Cash Grants in accordance with the foregoing provisions of Section 2 of the Limited Waiver to Credit Agreement; and

(c) the waiver contained in the Limited Waiver to Credit Agreement shall be effective only in this instance and for the specific purpose for which it was intended and shall not be deemed to be a consent to any other transaction or matter or waiver of compliance in the future, or a waiver of any preceding or succeeding breach of the same or any other covenant or provision of the Oaktree Credit Agreement.

On April 9, 2024, the Company sold the Hilton Boston Back Bay Hotel for $171 million in cash. The Company also repaid the $98 million mortgage loan secured by the hotel property and used the remaining net proceeds to pay down the Company’s Oaktree loan.

On May 9, 2024, the Company refinanced the $240 million mortgage loan that was secured by the Renaissance Hotel in Nashville, Tennessee and the Westin Hotel in Princeton, New Jersey. The new mortgage loan totals $267.2 million, and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of SOFR + 3.98%. As part of this refinancing, the Westin Princeton is now unencumbered and the Company has listed this property for sale. The Company plans to use the excess proceeds from the refinancing for general corporate purposes including paying down the Company’s strategic financing.

On May 30, 2024, the Company sold the Courtyard Manchester in Manchester, Connecticut for $8.0 million in cash. The Company also repaid the $5.5 million mortgage loan secured by the hotel property.

On June 10, 2024, the Company sold the SpringHill Suites Kennesaw and Fairfield Inn Kennesaw in Kennesaw, Georgia for $17.5 million in cash. The Company also repaid the $10.9 million mortgage loan secured by the hotel property.

On June 27, 2024, the Company sold the One Ocean Resort and Spa in Atlantic Beach, Florida for $87.0 million in cash. The Company also repaid $66.2 million on the mortgage loan of which One Ocean was one of five hotels securing the mortgage loan.

In June 2024, the Company was informed by its lender that the lender intended to exercise remedies for the maturity default on the Ashton Hotel in Fort Worth, Texas, which secures the Company’s $8.9 million mortgage loan. The Company and the lender agreed to a deed-in-lieu of foreclosure, which was completed on July 16, 2024. See note 7.

On November 6, 2024, the Company entered into Amendment No. 4 to the Oaktree Credit Agreement which, among other items, will reduce the exit fee from 15.0% to 12.5% of the original loan balance through December 15, 2024, provided that the outstanding loan balance has been reduced to $50 million or less by November 15, 2024. As of November 12, 2024, the Oaktree term loan balance has been reduced below $50 million triggering the reduced exit fee under the Oaktree Credit Agreement.

On November 7, 2024, the Company refinanced its mortgage loan secured by the Marriott Crystal Gateway Hotel located in Arlington, Virginia, which had a final maturity date in November 2026. The new, non-recourse mortgage loan totals $121.5 million and has a three-year initial term with two one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of SOFR + 4.86%. The refinancing resulted in approximately $31 million of excess proceeds that was used to pay down the Oaktree term loan.

On November 8, 2024, the Company entered into a 90-day forbearance agreement for its $409.8 million mortgage loan with a final maturity of November 9, 2024 and secured by 17 hotel properties. The Company is in active discussions with the lender regarding a multi-year extension of the mortgage loan, which the Company expects to finalize during the 90-day forbearance period.

Equity Transactions

On March 4, 2022, the Company filed an initial registration statement on Form S-3 with the SEC, as amended on April 29, 2022, related to the Company’s non-traded Series J Preferred Stock and Series K Preferred Stock. The registration statement was declared effective by the SEC on May 4, 2022, and contemplates the offering of up to (i) 20.0 million shares of Series J Preferred Stock or Series K Preferred Stock in a primary offering and (ii) 8.0 million shares of Series J Preferred Stock or Series K Preferred Stock pursuant to a dividend reinvestment plan. On May 5, 2022, we filed our prospectus for the offering with the SEC. Ashford Securities, a subsidiary of Ashford Inc., serves as the dealer manager for the offering. As of November 8, 2024, the Company has issued approximately 6.5 million shares (exclusive of the dividend reinvestment plan shares) of Series J Preferred Stock and received net proceeds of approximately $145.8 million and approximately 603,000 shares (exclusive of the dividend reinvestment plan shares) of Series K Preferred Stock and received net proceeds of approximately $14.6 million.

On April 6, 2022, the board of directors approved a stock repurchase program (the “Repurchase Program”) pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock and preferred stock having an aggregate value of up to $200 million. The board of directors’ authorization replaced the 2017 Repurchase Program that the board of directors authorized in December 2017. No shares have been repurchased under the Repurchase Program. The ability to make repurchases under the Repurchase Program is subject to the same financial factors that must be taken into account in declaring a dividend as discussed herein under “Distribution Policy.”

On April 11, 2022, the Company entered into the Virtu Equity Distribution Agreement with Virtu, to sell from time to time shares of the Company’s common stock having an aggregate offering price of up to $100 million. We will pay Virtu a commission of approximately 1% 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 8, 2024, the Company has issued approximately 809,000 shares of common stock for gross proceeds of approximately $10.9 million under the Virtu Equity Distribution Agreement.

Sources and Uses of Cash

Our principal sources of funds to meet our cash requirements include cash on hand, cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, dividends, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:

Net Cash Flows Provided by (Used in) Operating Activities. Net cash flows provided by (used in) operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were $(37.7) million and $36.0 million for the nine months ended September 30, 2024 and 2023, respectively. Cash flows provided by (used in) operations were impacted by changes in hotel operations, our hotel dispositions and derecognized assets, as well as the timing of collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers.

Net Cash Flows Provided by (Used in) Investing Activities. For the nine months ended September 30, 2024, net cash flows provided by investing activities were $211.9 million. Cash inflows consisted of $300.0 million of net proceeds from the disposition of assets and hotel properties, repayments of a note receivable of $2.5 million and $1.5 million from property insurance proceeds, partially offset by cash outflows of $87.5 million for capital improvements made to various hotel properties and $4.5 million from the issuance of a note receivable.

For the nine months ended September 30, 2023, net cash flows used in investing activities were $65.9 million. Cash outflows primarily consisted of $99.5 million for capital improvements made to various hotel properties $5.7 million from the issuance of a note receivable and $402,000 of payments for franchise fees, partially offset by cash inflows of $18.2 million related to restricted cash received from the initial consolidation of VIE, $14.5 million of net proceeds from disposition of a hotel property, $1.8 million related to proceeds from property insurance and $5.3 million of proceeds from the payment of a note receivable.

Net Cash Flows Provided by (Used in) Financing Activities. For the nine months ended September 30, 2024, net cash flows used in financing activities were $251.8 million. Cash outflows primarily consisted of $336.5 million for repayments of indebtedness, $16.7 million for payments of loan costs and exit fees, $14.7 million of payments for preferred dividends, $15.1 million of payments for derivatives and distributions to a non-controlling interest in a consolidated entity of $2.5 million, partially offset by $28.2 million of borrowing on indebtedness, $68.3 million of net proceeds from preferred stock offerings, $8.8 million of net proceeds from common stock offerings and $23.9 million from counterparty payments from in-the-money interest rate caps and $4.9 million of contributions from a non-controlling interest in a consolidated entity.

For the nine months ended September 30, 2023, net cash flows used in financing activities were $172.2 million. Cash outflows primarily consisted of $342.9 million for repayments of indebtedness, $10.5 million for payments of loan costs and exit fees, $10.6 million of payments for preferred dividends and $22.3 million of payments for derivatives, partially offset by $101.7 million of borrowings on indebtedness, $60.1 million of net proceeds from preferred stock offerings $5.2 million of contributions from noncontrolling interest in consolidated entities and $47.6 million from counterparty payments comprised of $31.7 million from in-the-money interest rate caps and $16.1 million from the sales of interest rate caps.

Dividend Policy. Distributions are authorized by our board of directors and declared by us based upon a variety of factors deemed relevant by our directors. The board of directors will continue to review our distribution policy on at least a quarterly basis. Our ability to pay distributions to our preferred or common stockholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect subsidiaries of our operating partnership, the management of our properties by our hotel managers and general business conditions. Distributions to our stockholders are generally taxable to our stockholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a non-taxable return of capital, to the extent of a stockholder’s tax basis in the stock. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings of Ashford TRS in that entity.

On December 5, 2023, our board of directors reviewed and approved our 2024 dividend policy. We do not anticipate paying any dividends on our outstanding common stock for any quarter during 2024 and expect to pay dividends on our outstanding preferred stock during 2024. Our board of directors will continue to review our dividend policy and make future announcements with respect thereto. We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may pay dividends in excess of our cash flow.

SEASONALITY

Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates 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 pandemics, 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 are insufficient during any quarter to enable us to make quarterly distributions to maintain our REIT status due to temporary or seasonal fluctuations in lease revenue, we expect to utilize cash on hand, borrowings and common stock to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 our 2023 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, 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 discounts and loan costs, net, income taxes, depreciation and amortization, as adjusted to reflect only the Company’s portion of EBITDA of unconsolidated entities. In addition, we exclude impairment on real estate, gain/loss on disposition of assets and hotel properties, gain/loss on derecognition of assets and gain/loss of unconsolidated entities to calculate EBITDAre, as defined by NAREIT.

We then further adjust EBITDAre to exclude certain additional items such as write-off of premiums, loan costs and exit fees, other income/expense, net, transaction and conversion costs, stock/unit-based compensation and non-cash items, such as amortization of unfavorable contract liabilities, realized and unrealized gains/losses on derivative instruments, gains/losses on extinguishment of debt, severance, as well as our portion of adjustments to EBITDAre of unconsolidated entities.

We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they are useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions. 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 (loss) or net income (loss) 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):

We calculate FFO and Adjusted FFO in the following table. 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 consolidation of VIE and disposition of assets, plus depreciation and amortization of real estate assets, impairment charges on real estate assets, and after adjustments for unconsolidated entities and noncontrolling interests in the operating partnership. Adjustments for unconsolidated entities are calculated to reflect FFO on the same basis. 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 write-off of premiums, loan costs and exit fees, other income/expense, net, transaction and conversion costs, legal, advisory and settlement costs, stock/unit-based compensation, gains/losses on insurance settlements and non-cash items such as deemed dividends on redeemable preferred stock, amortization of loan costs, amortization of credit facility exit fee, default interest and late fees, unrealized gains/losses on derivative instruments, gains/losses on extinguishment of debt and preferred stock, severance, and interest expense associated with hotels in receivership and our portion of adjustments to FFO related to unconsolidated entities. We exclude items from Adjusted FFO that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operating results. We present FFO and Adjusted FFO because we consider FFO and Adjusted FFO important supplemental measures of our operational performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and Adjusted FFO when reporting their results. FFO and Adjusted FFO are intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO and Adjusted FFO exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, FFO and Adjusted FFO provide performance measures that, when compared year over year, reflect the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. 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 we do. 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 (a) GAAP net income or loss as an indication of our financial performance or (b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it 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 the consolidated financial statements.

The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands):

HOTEL PORTFOLIO

The following table presents certain information related to our hotel properties as of September 30, 2024:

(1) The Company entered into a new franchise agreement with Marriott to convert the Le Pavillon in New Orleans, Louisiana to a Tribute Portfolio property. The agreement with Marriott calls for the hotel to be converted to a Tribute Portfolio property by December 31, 2024.

(2) The ground lease expires in 2084.

(3)The Company entered into a franchise agreement with Marriott to convert the La Concha Key West Hotel in Key West, Florida to an Autograph Collection property. The agreement with Marriott calls for the hotel to operate under Marriott White Label beginning on November 15, 2023 and to be converted to an Autograph property by April 1, 2025.

(4)The ground lease expires in 2083.

(5)The lease expires in 2054 and includes the lease of the land, hotel and conference center (including the building, improvements, furniture, fixtures and equipment).

(6) The lease expires in 2120 and includes the lease of the land and building.

(7) Property owned by Stirling OP, but consolidated by the Company.