Indebtedness, net

9 Months Ended

Sep. 30, 2023

Indebtedness consisted of the following (in thousands):


								September 30, 2023		December 31, 2022
Indebtedness	Collateral		Maturity	Interest Rate (1)			Default Rate (2)	Debt Balance			Debt Balance
Mortgage loan (5)	1	hotel	June 2023	LIBOR(3) +	2.45	%	n/a	$	—		$	73,450
Mortgage loan (6)	7	hotels	June 2023	SOFR(4) +	3.70	%	4.00%	180,720			180,720
Mortgage loan (7)	7	hotels	June 2023	SOFR(4) +	3.44	%	4.00%	174,400			174,400
Mortgage loan (8)	5	hotels	June 2023	SOFR(4) +	3.73	%	4.00%	215,120			215,120
Mortgage loan (5)	1	hotel	November 2023	SOFR(4) +	2.80	%	n/a	—			25,000
Mortgage loan (9) (10)	17	hotels	November 2023	SOFR(4) +	3.26	%	n/a	409,750			415,000
Mortgage loan (11)	1	hotel	December 2023	SOFR(4) +	2.85	%	n/a	15,175			15,290
Mortgage loan	1	hotel	January 2024		5.49	%	n/a	6,231			6,345
Mortgage loan	1	hotel	January 2024		5.49	%	n/a	9,093			9,261
Term loan (12)		Equity	January 2024		14.00	%	n/a	183,082			195,959
Mortgage loan (13)	8	hotels	February 2024	SOFR(4) +	3.28	%	n/a	345,000			395,000
Mortgage loan (14)	2	hotels	March 2024	SOFR(4) +	2.80	%	n/a	240,000			240,000
Mortgage loan (15)	19	hotels	April 2024	SOFR(4) +	3.51	%	n/a	862,027			907,030
Mortgage loan	1	hotel	May 2024		4.99	%	n/a	5,652			5,819
Mortgage loan (16)	1	hotel	June 2024	SOFR(4) +	2.00	%	n/a	8,881			8,881
Mortgage loan (17)	5	hotels	June 2024	SOFR(4) +	3.90	%	n/a	158,689			221,040
Mortgage loan (18)	5	hotels	June 2024	SOFR(4) +	4.17	%	n/a	237,061			262,640
Mortgage loan (19)	5	hotels	June 2024	SOFR(4) +	2.90	%	n/a	119,003			160,000
Mortgage loan	2	hotels	August 2024		4.85	%	n/a	10,986			11,172
Mortgage loan	3	hotels	August 2024		4.90	%	n/a	22,024			22,349
Mortgage loan (20)	1	hotel	November 2024	LIBOR(3) +	4.65	%	n/a	—			85,552
Mortgage loan (20)	1	hotel	November 2024	SOFR(4) +	4.76	%	n/a	86,000			—
Mortgage loan (21)	1	hotel	December 2024	SOFR(4) +	4.00	%	n/a	37,000			37,000
Mortgage loan	3	hotels	February 2025		4.45	%	n/a	45,999			46,918
Mortgage loan	1	hotel	March 2025		4.66	%	n/a	22,892			23,326
Mortgage loan (22)	1	hotel	August 2025	SOFR(4) +	3.91	%	n/a	98,000			98,000
Mortgage loan (5)	2	hotels	May 2026	SOFR(4) +	4.00	%	n/a	98,450			—
								3,591,235			3,835,272
Bridge loan (23) (26)	1	hotel	November 2023		5.00%		n/a	19,889			—
Environmental loan (26)	1	hotel	April 2024		10.00%		n/a	571			—
TIF loan (24) (26)	1	hotel	August 2025		8.25%		n/a	5,609			—
Construction loan (25) (26)	1	hotel	May 2033	SOFR(4) +	8.50%		n/a	12,622			—
								38,691			—
Total indebtedness								3,629,926			3,835,272
Premiums (discounts), net								(5,667)			(20,249)
Capitalized default interest and late charges								1,757			8,363
Deferred loan costs, net								(8,146)			(8,530)
Embedded debt derivative								23,096			23,687
Indebtedness, net								$	3,640,966		$	3,838,543

Indebtedness related to assets held for sale, net (10)	1	hotel	June 2024	SOFR(4) +	3.90%		n/a	9,247			—

								$	3,631,719		$	3,838,543

_____________________________

(1) Interest rates do not include default or late payment rates in effect on some mortgage loans.

(2) Default rates are presented for mortgage loans which were in default, in accordance with the terms and conditions of the applicable mortgage agreement, as of September 30, 2023. The default rate is accrued in addition to the stated interest rate.

(3) LIBOR rate was 4.392% December 31, 2022.

(4) SOFR rates were 5.320% and 4.358% at September 30, 2023 and December 31, 2022, respectively.

(5) On May 19, 2023, we refinanced this mortgage loan with a new $98.5 million mortgage loan with a three-year initial term and two one-year extension options, subject to satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of SOFR + 4.00% and has a SOFR floor of 0.50%.

(6) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period ended in June 2022. The paydown that was required in order to exercise the fourth one-year extension option was not made. As a result, effective June 9, 2023, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheet and statement of operations. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.65% to SOFR + 3.70%.

(7) This loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in June 2022. The paydown that was required in order to exercise the fourth one-year extension option was not made. As a result, effective June 9, 2023, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheet and statement of operations. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.39% to SOFR + 3.44%.

(8) This loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in June 2022. The paydown that was required in order to exercise the fourth one-year extension option was not made. As a result, effective June 9, 2023, this mortgage loan was in default under the terms and conditions of the mortgage loan agreement. Default interest has been accrued, in accordance with the terms of the mortgage loan agreement, and is reflected in the Company’s consolidated balance sheet and statement of operations. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.68% to SOFR + 3.73%.

(9) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began in November 2022. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.13% to SOFR + 3.26%. On July 14, 2023, we repaid $5.3 million of principal on this mortgage loan.

(10) A portion of this mortgage loan at September 30, 2023 relates to the Bucks County Sheraton. See note 5.

(11) This loan has two one-year extension options, subject to satisfaction of certain conditions. The first one-year extension period began in December 2022.

(12) This term loan has two one-year extension options, subject to satisfaction of certain conditions. Effective January 15, 2023, the interest rate decreased from 16% to 14% in accordance with the terms and conditions of the loan agreement. On August 1, 2023, we repaid $12.9 million of principal on this term loan.

(13) On February 9, 2023, we amended this mortgage loan. Terms of the amendment included a principal paydown of $50.0 million, and the variable interest rate changed from LIBOR + 3.07% to LIBOR + 3.17%. This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began in February 2023. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.17% to SOFR + 3.28%.

(14) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The third one-year extension period began in March 2023. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 2.75% to SOFR + 2.80%.

(15) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began in April 2023. In accordance with exercising the fourth one-year extension option, we repaid $45.0 million of principal and the variable interest rate changed from LIBOR + 3.20% to LIBOR + 3.47%. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.47% to SOFR + 3.51%.

(16) This mortgage loan has a SOFR floor of 2.00%.

(17) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began effective June 2023. In accordance with exercising the extension option, we repaid $62.4 million of principal and the variable interest rate changed from LIBOR + 3.73% to LIBOR + 3.86%. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 3.86% to SOFR + 3.90%.

(18) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began in June 2023. In accordance with exercising the extension option, the interest rate changed from LIBOR + 4.02% to LIBOR + 4.15%. On July 5, 2023, we repaid $25.6 million of principal, reducing the outstanding principal balance to $237.1 million, in accordance with exercising the fourth extension option. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 4.15% to SOFR + 4.17%.

(19) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions. The fourth one-year extension period began effective June 2023. In accordance with exercising the extension option, the interest rate changed from LIBOR + 2.73% to LIBOR + 2.85%. On July 7, 2023, we repaid $41.0 million of principal, reducing the outstanding principal balance to $119.0 million, in accordance with exercising the fourth extension option. This loan transitioned from LIBOR to SOFR in July 2023 and the variable interest rate changed from LIBOR + 2.85% to SOFR + 2.90%.

(20) On January 27, 2023, we drew the remaining $449,000 of the $2.0 million additional funding available to replenish restricted cash balances in accordance with the terms of the mortgage loan. Effective June 30, 2023, we replaced the variable interest rate of LIBOR + 4.65% with SOFR + 4.76% in accordance with the terms and conditions of the loan agreement. This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.

(21) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. This mortgage loan has a SOFR floor of 0.50%.

(22) This mortgage loan has one one-year extension option, subject to satisfaction of certain conditions.

(23) This loan has one six-month extension option, subject to satisfaction of certain conditions.

(24) On July 26, 2023, we amended this loan. Terms of the amendment included increasing the fixed rate of 4.75% to a fixed rate of 8.25%, and extending the maturity date from July 2024 to August 2025.

(25) Effective August 1, 2023, we amended this construction loan. Terms of the amendment included replacing the variable interest rate of LIBOR + 8.39% with SOFR + 8.50% and extending the term loan effective date from August 2023 to January 2024. Additionally, the term loan rate of a fixed rate of 6.81% plus the higher of the a) five-year swap rate and b) 0.94% was replaced with a fixed rate of 7.75% plus SOFR, less 1.85%. The final maturity date is May 2033.

(26) This loan is associated with 815 Commerce Managing Member, LLC. See discussion in notes 2, 4 and 8.

We recognized net premium (discount) amortization as presented in the table below (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Line Item	2023		2022		2023		2022
Interest expense and amortization of discounts and loan costs	$	(5,031)	$	(3,108)	$	(13,862)	$	(8,719)

The amortization of the net premium (discount) is computed using a method that approximates the effective interest method.

During the years ended December 31, 2021 and 2020 the Company entered into forbearance and other agreements which were evaluated to be considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges. As a result of the troubled debt restructurings all accrued default interest and late charges were capitalized into the applicable loan balances and are being amortized over the remaining term of the loan using the effective interest method. The amount of the capitalized principal that was amortized during the three and nine months ended September 30, 2023 and 2022, was $1.7 million and $6.6 million, and $3.8 million and $11.4 million, respectively. These amounts are included as a reduction to “interest expense and amortization of discounts and loan costs” in the consolidated statements of operations.

On June 21, 2023, the Company and Ashford Hospitality Limited Partnership (the “Borrower”), an indirect subsidiary of the Company, entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”) with certain funds and accounts managed by Oaktree Capital Management, L.P. (the “Lenders”) and Oaktree Fund Administration, LLC. Amendment No. 2, subject to the conditions set forth therein, provides that, among other things:

(i) the Delayed Draw Term Loan (“DDTL”) commitment expiration date will be July 7, 2023, or such earlier date that the Borrower makes an Initial DDTL draw to be used by the Borrower to prepay certain mortgage indebtedness;

(ii) notwithstanding the occurrence of the DDTL commitment expiration date, up to $100,000,000 of Initial DDTLs will be made available by the Lenders for a period of twelve (12) months ending July 7, 2024, subject to the Borrower paying an unused fee of 9% per annum on the undrawn amount;

(iii) Ashford Trust and the Borrower will be permitted to make certain restricted payments, including without limitation dividends on Ashford Trust’s preferred stock, without having to maintain unrestricted cash in an amount not less than the sum of (x) $100,000,000 plus (y) the aggregate principal amount of DDTLs advanced prior to the date thereof or contemporaneously therewith;

(iv) a default on certain pool mortgage loans will not be counted against the $400,000,000 mortgage debt threshold amount;

(v) for purposes of the mortgage debt threshold amount, a certain mortgage loan, with a current aggregate principal amount of $415,000,000, will be deemed to have a principal amount of $400,000,000; and

(vi) when payable by the Borrower under the Credit Agreement, at least 50% of the exit fee shall be paid as a cash exit fee.

The KEYS mortgage loans were entered into on June 13, 2018, each of which had a two-year initial term and five one-year extension options. In order to qualify for a one-year extension in June of 2023, each KEYS loan pool was required to achieve a certain debt yield test. The Company extended its KEYS Pool C loan with a paydown of approximately $62.4 million, its KEYS Pool D loan with a paydown of approximately $25.6 million, and its KEYS Pool E loan with a paydown of approximately $41.0 million. On June 9, 2023 the Company received a 30-day extension to satisfy the extension conditions in order to negotiate modifications to the respective extension tests. On July 7, 2023, the Company elected not to make the required paydowns to extend its KEYS Pool A loan ($180.7 million debt balance with a book value of collateral of $122.8 million), KEYS Pool B loan ($174.4 million debt balance with a book value of collateral of $115.1 million) and KEYS Pool F loan ($215.1 million debt balance with a book value of collateral of $157.6 million) as of September 30, 2023, thereby defaulting on such loans. Below is a summary of the hotel properties securing the KEYS mortgage loans:

KEYS A Loan Pool

Courtyard Columbus Tipton Lakes – Columbus, IN

Courtyard Old Town – Scottsdale, AZ

Residence Inn Hughes Center – Las Vegas, NV

Residence Inn Phoenix Airport – Phoenix, AZ

Residence Inn San Jose Newark – Newark, CA

SpringHill Suites Manhattan Beach – Hawthorne, CA

SpringHill Suites Plymouth Meeting – Plymouth Meeting, PA

KEYS B Loan Pool

Courtyard Basking Ridge – Basking Ridge, NJ

Courtyard Newark Silicon Valley – Newark, CA

Courtyard Oakland Airport – Oakland, CA

Courtyard Plano Legacy Park – Plano, TX

Residence Inn Plano – Plano, TX

SpringHill Suites BWI Airport – Baltimore, MD

TownePlace Suites Manhattan Beach – Hawthorne, CA

KEYS C Loan Pool

Hyatt Coral Gables – Coral Gables, FL

Hilton Ft. Worth – Fort Worth, TX

Hilton Minneapolis Airport – Bloomington, MN

Sheraton San Diego – San Diego, CA

Sheraton Bucks County, PA – Langhorne, PA

KEYS D Loan Pool

Marriott Beverly Hills – Los Angeles, CA

One Ocean Resort – Atlantic Beach, FL

Marriott Suites Dallas – Dallas, TX

Hilton Santa Fe – Santa Fe, NM

Embassy Suites Dulles – Herndon, VA

KEYS E Loan Pool

Marriott Fremont – Fremont, CA

Embassy Suites Philadelphia – Philadelphia, PA

Marriott Memphis – Memphis, TN

Sheraton Anchorage – Anchorage, AK

Lakeway Resort Austin – Lakeway, TX

KEYS F Loan Pool

Embassy Suites Flagstaff – Flagstaff, AZ

Embassy Suites Walnut Creek – Walnut Creek, CA

Marriott Bridgewater – Bridgewater, NJ

Marriott Research Triangle Park – Durham, NC

W Atlanta Downtown – Atlanta, GA

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.

Effective June 30, 2023, LIBOR is no longer published. Accordingly all variable interest rate mortgage loans held by the Company that used the LIBOR index transitioned to SOFR beginning on July 1, 2023. Not all lenders will execute loan amendment documents and instead will defer to original loan documents that dictate changes in index rates.

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. As of September 30, 2023, we were in compliance with all covenants related to mortgage loans, with the exception of the KEYS Pools A, KEYS Pool B and KEYS Pool F mortgage loans discussed above. We were also in compliance with all covenants under the senior secured term loan facility with Oaktree Capital Management L.P. (“Oaktree”). 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.

In conjunction with the development of the Le Meridien in Fort Worth, Texas, which was consolidated as of May 31, 2023, the Company recorded $1.0 million and $1.6 million of capitalized interest during the three and nine months ended September 30, 2023, which is included in “investment in hotel properties, net” in our consolidated balance sheets. The total amount of capitalized interest on the development was $7.0 million as of September 30, 2023. See note 4.