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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-31775
ASHFORD HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
  
86-1062192
(State or other jurisdiction of incorporation or organization)
  
(IRS employer identification number)
14185 Dallas Parkway, Suite 1100
Dallas, Texas
  
75254
(Address of principal executive offices)
  
(Zip code)
(972) 490-9600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common Stock
  
New York Stock Exchange
Preferred Stock, Series A
  
New York Stock Exchange
Preferred Stock, Series D
  
New York Stock Exchange
Preferred Stock, Series E
  
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ   Yes     ¨   No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨   Yes     þ   No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     þ   Yes           ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)     þ   Yes     ¨   No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
Large accelerated filer   þ
  
Accelerated filer   o
 
 
 
Non-accelerated filer   o
  
Smaller reporting company   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     þ   No
As of June 30, 2014 , the aggregate market value of 84,777,992 shares of the registrant’s common stock held by non-affiliates was approximately $978,338,000 .
As of February 26, 2015 , the registrant had 100,108,168 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement pertaining to the 2015 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this Form 10-K.
 

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ASHFORD HOSPITALITY TRUST, INC.
YEAR ENDED DECEMBER 31, 2014
INDEX TO FORM 10-K
 
 
 
Page
 
PART I
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
PART III
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
PART IV
 
 
 
Item 15.
 

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This Annual Report is filed by Ashford Hospitality Trust, Inc., a Maryland corporation (the “Company”). Unless the context otherwise requires, all references to the Company include those entities owned or controlled by the Company. In this report, the terms “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-K and documents incorporated herein by reference, we make forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include information about possible, estimated or assumed future results of our business, financial condition and liquidity, results of operations, plans, and objectives. Statements regarding the following subjects are forward-looking by their nature:
•
our business and investment strategy, including our ability to complete proposed business transactions described herein or the expected benefit of any such transactions;
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anticipated or expected purchases or sales of assets;
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our projected operating results;
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completion of any pending transactions;
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our ability to obtain future financing arrangements;
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our understanding of our competition;
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market trends;
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projected capital expenditures; and
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the impact of technology on our operations and business.
Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. Additionally, the following factors could cause actual results to vary from our forward-looking statements:
•
factors discussed in this Form 10-K, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;”
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general volatility of the capital markets and the market price of our common and preferred stock;
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changes in our business or investment strategy;
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availability, terms, and deployment of capital;
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availability of qualified personnel;
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changes in our industry and the market in which we operate, interest rates, or or local economic conditions
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the degree and nature of our competition;
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actual and potential conflicts of interest with our advisor, Remington Lodging & Hospitality, LLC, our executive officers and our non-independent directors;
•
changes in governmental regulations, accounting rules, tax rates and similar matters;
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legislative and regulatory changes, including changes to the Internal Revenue Code of 1986, as amended, and related rules, regulations and interpretations governing the taxation of REITs; and
•
limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes.
When we use words or phrases such as “will likely result,” “may,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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PART I
Item 1.
Business
GENERAL
Ashford Hospitality Trust, Inc., together with its subsidiaries, is an externally-advised real estate investment trust (“REIT”) focused on investing in the hospitality industry across all segments and in all methods including direct real estate, equity and debt. Additional information can be found on our website at www.ahtreit.com. We were formed as a Maryland corporation in May 2003 and commenced operations in August 2003, as a self-advised REIT. In November 2014, we completed the spin-off of our asset management business, forming Ashford Inc. as a separate publicly traded company, and we became advised by Ashford Inc. We continue to own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership (“Ashford Trust OP”), our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of the Company, serves as the sole general partner of our operating partnership.
Our hotels are primarily operated under the widely recognized upscale and upper upscale brands of Hilton, Hyatt, Marriott, Starwood and Intercontinental Hotels Group. Currently, all of our hotels are located in the United States. As of December 31, 2014 , we owned interests in the following:
•
87 consolidated hotel properties (“legacy hotel properties”), including 85 directly owned and two owned through majority-owned investments in consolidated entities, which represent 17,205 total rooms (or 17,178 net rooms excluding those attributable to our partners);
•
28 hotel properties owned through a 71.74% common equity interest and a 50.0% preferred equity interest in an unconsolidated joint venture (“PIM Highland JV”), which represent 8,084 total rooms (or 5,799 net rooms excluding those attributable to our joint venture partner);
•
10 hotel properties owned through a 14.9% interest in Ashford Hospitality Prime Limited Partnership (“Ashford Prime OP”);
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86 hotel condominium units at WorldQuest Resort in Orlando, Florida;
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a 30.1% ownership in Ashford Inc. with a carrying value of $7.1 million; and
•
a mezzanine loan with a carrying value of $3.6 million .
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. This distribution was comprised of common stock in Ashford Hospitality Prime, Inc. (“Ashford Prime”), a newly formed company. We contributed the portfolio interests into Ashford Hospitality Prime Limited Partnership ("Ashford Prime OP"), Ashford Prime's operating partnership. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such shareholder as of the close of business on November 8, 2013. Ashford Prime has qualifiied as a REIT for federal income tax purposes, and is listed on the New York Stock Exchange, under the symbol “AHP.” The transaction also included options for Ashford Prime to purchase the Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida. We sold the Pier House Resort to Ashford Prime on March 1, 2014, and Ashford Prime’s option to acquire the Crystal Gateway Marriott will expire on May 19, 2015.
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of December 31, 2014 , all of our 87 legacy hotel properties were leased or owned by our wholly-owned and majority- owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages eligible independent contractors to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. With respect to our unconsolidated joint venture, PIM Highland JV, the 28 hotels are leased to PIM Highland JV’s wholly-owned subsidiary, which is treated as a taxable REIT subsidiary for federal income tax purposes.
We do not operate any of our hotels directly; instead we employ hotel management companies to operate them for us under management contracts. Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), is one of our property managers, and is beneficially wholly-owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer, and Mr. Archie Bennett, Jr., our Chairman Emeritus. As of December 31, 2014 , Remington Lodging managed 55 of our 87 legacy hotel properties, while third-party management companies managed the remaining hotel properties. In addition, as of December 31, 2014 , Remington Lodging managed 21 of the 28 PIM Highland JV hotel properties and the WorldQuest condominium properties.

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SIGNIFICANT TRANSACTIONS IN 2014 AND RECENT DEVELOPMENTS
Refinanced our $164.4 Million Mortgage Loan - On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75%, with a LIBOR floor of 0.20%. The new loan continues to be secured by the same five hotels that secured the original loan, including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America. The refinance resulted in excess proceeds above closing costs and reserves of approximately $37.8 million.
Sale of the Pier House Resort - On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was $92.7 million. Ashford Prime assumed the $69.0 million mortgage and paid the balance of the purchase price in cash, in accordance with the option agreement. We recognized a gain of $3.5 million. We deferred a gain of $599,000 as a result of our retained interest in Ashford Prime.
Common Stock Offering - On April 8, 2014, we commenced a follow-on public offering of 7.5 million shares of common stock at $10.70 per share for gross proceeds of $80.3 million. The aggregate proceeds net of underwriting discount and other expenses were approximately $76.8 million. The offering settled on April 14, 2014. We granted the underwriters a 30-day option to purchase up to an additional 1.125 million shares of common stock. On May 9, 2014, the underwriters partially exercised their option and purchased an additional 850,000 shares of our common stock at a price of $10.70 per share less the underwriting discount resulting in additional net proceeds of approximately $8.7 million.
Refinanced our $5.1 Million Mortgage Loan - On May 1, 2014, we refinanced our $5.1 million loan due May 2014 with a $6.9 million loan due May 2024, with no extension options. The new loan provides for a fixed interest rate of 4.99%. The new loan continues to be secured by the same hotel property, the Courtyard Hartford-Manchester in Manchester, Connecticut.
Acquisition of the Ashton Hotel - On July 18, 2014, we acquired a 100% interest in the Ashton hotel in Fort Worth, Texas for total consideration of $8.0 million. The acquisition was funded with cash. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $66,000 . On July 31, 2014, to fund a portion of the acquisition, we completed the financing of a $5.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 3.75% (with a .25% LIBOR floor) for the first 18 months and a fixed rate of 4.0% thereafter. The stated maturity is July 2019, with no extension options. The mortgage loan is secured by the Ashton hotel.
Refinanced Three Mortgage Loans - $326.6 Million - On July 25, 2014, we refinanced three mortgage loans, including our $135.0 million mortgage loan due May 2015, our $102.3 million mortgage loan due December 2014, which had an outstanding balance of $101.1 million, and our $89.3 million mortgage loan due February 2016, which had an outstanding balance of $88.5 million. The new loans total $468.9 million. As a result of the refinancing, the Homewood Suites Mobile and the Hampton Inn Terre Haute, Indiana are now unencumbered by debt. Other than the properties noted above, the new loans continue to be secured by the same hotel properties. Homewood Suites Mobile was sold in November 2014.
Acquisition of Fremont Marriott Hotel - On August 6, 2014, we acquired a 100% interest in the Fremont Marriott Silicon Valley hotel in Fremont, California for total consideration of $50.0 million. The acquisition was funded with proceeds from a $37.5 million non-recourse mortgage loan and cash. The mortgage loan bears interest at a rate of LIBOR + 4.20%. The stated maturity is August 2016, with three one-year extension options. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $261,000 . The mortgage loan is secured by the Fremont Marriott Silicon Valley hotel.
Expiration of our Senior Credit Facility - Our senior credit facility expired in September 2014. We do not currently plan to replace it with another credit facility. Cash flows from operations, capital market activities and property refinancing proceeds have provided sufficient liquidity throughout the term of the credit facility. Additionally, we never drew on the credit facility. Accordingly, the absence of a credit facility is not expected to have a significant impact on our liquidity.

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Spin-off of Asset Management Business - On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. In connection with the spin-off we entered into a 20-year advisory agreement with Ashford Inc.
Acquisition of Remaining Interest in PIM Highland JV - We executed a Letter Agreement (the “Agreement”) dated December 14, 2014, with PRISA III Investments, LLC, a Delaware limited liability company (“Seller”). The Agreement was approved by the investment committee of Prudential Real Estate Investors, the investment manager of Seller, and fully executed and delivered to us on December 15, 2014. Pursuant to the Agreement, we agreed to purchase and Seller agrees to sell (the “Transaction”) all of Seller’s right, title and interest in and to its approximately 28.26% interest in PIM Highland JV. Prior to the consummation of the Transaction, we own approximately 71.74% of PIM Highland JV and Seller owns approximately 28.26% of PIM Highland JV. After the consummation of the Transaction, we will own 100% of PIM Highland JV.
Refinanced Two Mortgage Loans - $354.0 Million - On January 2, 2015, we refinanced two mortgage loans totaling $354.0 million. The refinance included the $211.0 million Goldman Sachs Floater loan due July 2015 and the $143.0 million Merrill Lynch 1 loan due July 2015. The new loans total $478 million in four loan pools. The new loans continue to be secured by the same hotel properties.
Acquisition of Lakeway Resort & Spa - On January 12, 2015, we announced that a definitive agreement had been signed to acquire the 168-room Lakeway Resort & Spa in Austin, Texas for total consideration of $33.5 million. The acquisition was completed February 6, 2015.
Acquisition of Memphis Marriott East Hotel - On January 20, 2015, we announced that a definitive agreement had been signed to acquire the 232-room Memphis Marriott East hotel in Memphis, Tennessee for total consideration of $43.5 million.
Common Stock Offering - On January 29, 2015, we commenced a follow-on public offering of 9.5 million shares of common stock. The offering priced on January 30, 2015, at $10.65 per share for gross proceeds of $101.2 million. We granted the underwriters a 30-day option to purchase up to an additional 1.425 million shares of common stock. On February 10, 2015, the underwriters partially exercised their option and purchased an additional 1.029 million shares of our common stock at a price of $10.65 per share.
Formation of Ashford Hospitality Select, Inc. - On January 29, 2015, we announced that our Board of Directors had approved the formation of Ashford Hospitality Select, Inc. (“Ashford Select”), a new privately-held company dedicated to investing primarily in existing premium branded, upscale and upper-midscale, select-service hotels, including extended stay hotels, in the United States. Upon launch, expected in the first quarter of 2015, we intend to contribute to Ashford Select 16 of our existing select-service hotels, comprised of 2,560 total guestrooms. On February 18, 2015, Ashford Trust OP entered into four agreements for the contribution or sale of the portfolio of 16 select-service hotels to Ashford Select and its subsidiaries, including its operating partnership Ashford Hospitality Select Limited Partnership (“Ashford Select OP”), for aggregate consideration of approximately $321.0 million, which will be payable through the assumption of approximately $232.5 million of aggregate property level debt, the payment of approximately $66.4 million in cash and the issuance of approximately $22.1 million in equity interests of Ashford Select. Additionally, the aggregate consideration may be increased by up to $10.0 million (payable 75% in cash and 25% in equity interests in Ashford Select), based on the performance of the entire 16-hotel portfolio. We also expect to grant Ashford Select a right of first offer to acquire any select-service hotels we decide to sell in the future, subject to any prior rights of the managers of the hotels or other third parties. Ashford Select intends to qualify as a REIT for federal income tax purposes.
BUSINESS STRATEGIES
Following the recession that commenced in 2008, the lodging industry has experienced improvement in fundamentals, which continued through 2013. Room rates, measured by the average daily rate (“ADR”), which typically lags occupancy growth in the early stage of a recovery, have shown upward growth. We believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come, and we will continue to seek ways to benefit from the cyclical nature of the hotel industry. We believe that in the prior cycle, hotel values and cash flows, for the most part, peaked in 2007, and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak.

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Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
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acquisition of hotel properties;
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disposition of non-core hotel properties;
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investing in securities;
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pursuing capital market activities to enhance long-term stockholder value;
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preserving capital, enhancing liquidity, and continuing current cost saving measures;
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implementing selective capital improvements designed to increase profitability;
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implementing effective asset management strategies to minimize operating costs and increase revenues;
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financing or refinancing hotels on competitive terms;
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utilizing hedges and derivatives to mitigate risks; and
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making other investments or divestitures that our Board of Directors deems appropriate.
Our current investment strategies focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have RevPAR generally less than twice the national average. Our Board of Directors has, subject to the closing of the Ashford Hospitality Select, Inc. transaction, modified our investment strategies to focus on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have RevPAR generally less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of new lodging-related investment opportunities as they may develop. Our Board of Directors may change our investment strategies at any time without stockholder approval or notice.
As the business cycle changes and the hotel markets continue to improve, we intend to continue to invest in a variety of lodging-related assets based upon our evaluation of diverse market conditions including our cost of capital and the expected returns from those investments. Our investments may include: (i) direct hotel investments; (ii) mezzanine financing through origination or acquisition; (iii) first-lien mortgage financing through origination or acquisition; and (iv) sale-leaseback transactions.
Our strategy is designed to take advantage of lodging industry conditions and adjust to changes in market circumstances over time. Our assessment of market conditions will determine asset reallocation strategies. While we seek to capitalize on favorable market fundamentals, conditions beyond our control may have an impact on overall profitability and our investment returns.
Our strategy of combining lodging-related equity and debt investments seeks, among other things, to:
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capitalize on both current yield and price appreciation, while simultaneously offering diversification of types of assets within the hospitality industry; and
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vary investments across an array of hospitality assets to take advantage of market cycles for each asset class.
To take full advantage of future investment opportunities in the lodging industry, we intend to invest according to the asset allocation strategies described below. However, due to ongoing changes in market conditions, we will continually evaluate the appropriateness of our investment strategies. Our Board of Directors may change any or all of these strategies at any time without stockholder approval or notice.
Direct Hotel Investments – In selecting hotels to acquire, we target hotels that offer either a high current return or the opportunity to increase in value through repositioning, capital investments, market-based recovery, or improved management practices. Our direct hotel acquisition strategy primarily targets full-service hotels with RevPAR less than twice the national average in primary, secondary, and resort markets, typically throughout the United States and will seek to achieve both current income and appreciation. In addition, we will continue to assess our existing hotel portfolio and make strategic decisions to sell certain under-performing or non-strategic hotels that do not fit our investment strategy or criteria due to micro or macro market changes or other reasons.

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Mezzanine Financing – Subordinated loans, or mezzanine loans, that we acquire or originate may relate to a diverse segment of hotels that are located across the U.S. These mezzanine loans are secured by junior mortgages on hotels or pledges of equity interests in entities owning hotels. As the global economic environment improves and the hotel industry stabilizes, we may refocus our efforts on the acquisition or origination of mezzanine loans. Given the greater repayment risks of these types of loans, to the extent we acquire or originate them in the future, we will have a more conservative approach in underwriting these assets. Mezzanine loans that we acquire in the future may be secured by individual assets as well as cross-collateralized portfolios of assets.
First Mortgage Financing – From time to time, we may acquire or originate first mortgages. As the dynamics in the capital markets and the hotel industry make first-mortgage investments more attractive, we may acquire, potentially at a discount to par, or originate loans secured by first priority mortgages on hotels. We may be subject to certain state-imposed licensing regulations related to commercial mortgage lenders, with which we intend to comply. However, because we are not a bank or a federally chartered lending institution, we are not subject to state and federal regulatory constraints imposed on such entities.
Sale-Leaseback Transactions – To date, we have not participated in any sale-leaseback transactions. However, if the lodging industry fundamentals shift such that sale-leaseback transactions become more attractive investments, we may purchase hotels and lease them back to their existing hotel owners.
Other Transactions - We may also invest in other lodging related assets or businesses that offer diversification, attractive risk adjusted returns, and/or capital allocation benefits.
BUSINESS SEGMENTS
We currently operate in one business segment within the hotel lodging industry: direct hotel investments. A discussion of our operating segment is incorporated by reference to Note 20 of Notes to Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.
FINANCING STRATEGY
We utilize debt to increase equity returns. When evaluating our future level of indebtedness and making decisions regarding the incurrence of indebtedness, our Board of Directors considers a number of factors, including:
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our leverage levels across the portfolio;
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the purchase price of our investments to be acquired with debt financing;
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impact on financial covenants;
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cost of debt;
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loan maturity schedule;
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the estimated market value of our investments upon refinancing;
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the ability of particular investments, and our Company as a whole, to generate cash flow to cover expected debt service; and.
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trailing twelve months net operating income of the hotel to be financed.
We may incur debt in the form of purchase money obligations to the sellers of properties, publicly or privately placed debt instruments, or financing from banks, institutional investors, or other lenders. Any such indebtedness may be secured or unsecured by mortgages or other interests in our properties. This indebtedness may be recourse, non-recourse, or cross-collateralized. If recourse, such recourse may include our general assets or be limited to the particular investment to which the indebtedness relates. In addition, we may invest in properties or loans subject to existing loans secured by mortgages or similar liens on the properties, or we may refinance properties acquired on a leveraged basis.
We may use the proceeds from any borrowings for working capital to:
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purchase interests in partnerships or joint ventures;
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finance the origination or purchase of debt investments; or
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finance acquisitions, expand, redevelop or improve existing properties, or develop new properties or other uses.

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In addition, if we do not have sufficient cash available, we may need to borrow to meet taxable income distribution requirements under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). 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. In addition, we may selectively pursue debt financing on our individual properties and debt investments.
DISTRIBUTION POLICY
In December 2013, the Board of Directors approved our dividend policy for 2014 with an annualized target of $0.48 per share. For the year ended December 31, 2014 , we have declared dividends of $0.48 per share. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. We may pay dividends in excess of our cash flow.
Distributions are authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our directors. No assurance can be given that our dividend policy will not change in the future. In December 2014, the Board of Directors approved our dividend policy for 2015 and we expect to pay a quarterly dividend of $0.12 per share during 2015 . The adoption of a dividend policy does not commit our Board of Directors to declare future dividends or the amount thereof. The Board of Directors will continue to review our dividend policy on a quarterly basis. Our ability to pay distributions to our 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, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers. 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.
Our charter allows us to issue preferred stock with a preference on distributions, such as our Series A, Series D and Series E preferred stock. The partnership agreement of our operating partnership also allows the operating partnership to issue units with a preference on distributions, such as our class B common units. The issuance of these series of preferred stock and units together with any similar issuance in the future, given the dividend preference on such stock or units, could limit our ability to make a dividend distribution to our common stockholders.
COMPETITION
The hotel industry is highly competitive and the hotels in which we invest are subject to competition from other hotels for guests. Competition is based on a number of factors, most notably convenience of location, availability of rooms, brand affiliation, price, range of services, guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our properties are located and includes competition from existing and new hotels. Increased competition could have a material adverse effect on the occupancy rate, average daily room rate and room revenue per available room of our hotels or may require us to make capital improvements that we otherwise would not have to make, which may result in decreases in our profitability.
Our principal competitors include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands. We face increased competition from providers of less expensive accommodations, such as select-service hotels or independent owner-managed hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates.
EMPLOYEES
We have no employees. Our appointed officers and employees are provided by Ashford Hospitality Advisors LLC (“Ashford LLC”), a subsidiary of Ashford Inc. (collectively, our “advisor”). Services which would otherwise be provided by employees are provided by Ashford LLC and by our executive officers. Ashford LLC has approximately 92 full-time employees. These employees directly or indirectly perform various acquisition, development, asset management, capital markets, accounting, tax, risk management, legal, redevelopment, and corporate management functions pursuant to the terms of our advisory agreement.

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ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person who arranges for the disposal of a hazardous substance or transports a hazardous substance for disposal or treatment from property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell the affected property or to borrow using the affected property as collateral. In connection with the ownership and operation of our properties, we, our operating partnership, or Ashford TRS may be potentially liable for any such costs. In addition, the value of any lodging property loan we originate or acquire would be adversely affected if the underlying property contained hazardous or toxic substances.
Phase I environmental assessments, which are intended to identify potential environmental contamination for which our properties may be responsible, have been obtained on substantially all of our properties. Such Phase I environmental assessments included:
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historical reviews of the properties;
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reviews of certain public records;
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preliminary investigations of the sites and surrounding properties;
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screening for the presence of hazardous substances, toxic substances, and underground storage tanks; and
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the preparation and issuance of a written report.
Such Phase I environmental assessments did not include invasive procedures, such as soil sampling or ground water analysis. Such Phase I environmental assessments have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations, or liquidity, and we are not aware of any such liability. To the extent Phase I environmental assessments reveal facts that require further investigation, we would perform a Phase II environmental assessment. However, it is possible that these environmental assessments will not reveal all environmental liabilities. There may be material environmental liabilities of which we are unaware, including environmental liabilities that may have arisen since the environmental assessments were completed or updated. No assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability, or (ii) the current environmental condition of our properties will not be affected by the condition of properties in the vicinity (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.
We believe our properties are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither we nor, to our knowledge, any of the former owners of our properties have been notified by any governmental authority of any material noncompliance, liability, or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties.
INSURANCE
We maintain comprehensive insurance, including liability, property, workers’ compensation, rental loss, environmental, terrorism, and, when available on commercially reasonable terms, flood and earthquake insurance, with policy specifications, limits, and deductibles customarily carried for similar properties. Certain types of losses (for example, matters of a catastrophic nature such as acts of war or substantial known environmental liabilities) are either uninsurable or require substantial premiums that are not economically feasible to maintain. Certain types of losses, such as those arising from subsidence activity, are insurable only to the extent that certain standard policy exceptions to insurability are waived by agreement with the insurer. We believe, however, that our properties are adequately insured, consistent with industry standards.
FRANCHISE LICENSES
We believe that the public’s perception of quality associated with a franchisor can be an important feature in the operation of a hotel. Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, and centralized reservation systems.

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As of December 31, 2014 , we owned interests in 126 hotels, 119 of which operated under the following franchise licenses or brand management agreements:
Embassy Suites is a registered trademark of Hilton Hospitality, Inc.
Hilton is a registered trademark of Hilton Hospitality, Inc.
Hilton Garden Inn is a registered trademark of Hilton Hospitality, Inc.
Hampton Inn is a registered trademark of Hilton Hospitality, Inc.
Marriott is a registered trademark of Marriott International, Inc.
SpringHill Suites is a registered trademark of Marriott International, Inc.
Residence Inn by Marriott is a registered trademark of Marriott International, Inc.
Courtyard by Marriott is a registered trademark of Marriott International, Inc.
Fairfield Inn by Marriott is a registered trademark of Marriott International, Inc.
TownePlace Suites is a registered trademark of Marriott International, Inc.
Renaissance is a registered trademark of Marriott International, Inc.
Ritz Carlton is a registered trademark of Marriott International, Inc.
Hyatt Regency is a registered trademark of Hyatt Corporation.
Sheraton is a registered trademark of Sheraton Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.
Westin is a registered trademark of Westin Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.
Crowne Plaza is a registered trademark of InterContinental Hotels Group.
One Ocean is a registered trademark of Remington Hotels LP.
Sofitel is a registered trademark of Accor SA.
Our management companies, including Remington Lodging, must operate each hotel pursuant to the terms of the related franchise or brand management agreement and must use their best efforts to maintain the right to operate each hotel pursuant to such terms. In the event of termination of a particular franchise or brand management agreement, our management companies must operate any affected hotels under another franchise or brand management agreement, if any, that we enter into. We anticipate that many of the additional hotels we acquire could be operated under franchise licenses or brand management agreements as well.
Our franchise licenses and brand management agreements generally specify certain management, operational, recordkeeping, accounting, reporting, and marketing standards and procedures with which the franchisee or brand operator must comply, including requirements related to:  
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training of operational personnel;
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safety;
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maintaining specified insurance;
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types of services and products ancillary to guestroom services that may be provided;
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display of signage; and
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type, quality, and age of furniture, fixtures, and equipment included in guestrooms, lobbies, and other common areas.

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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. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
ACCESS TO REPORTS AND OTHER INFORMATION
We maintain a website at www.ahtreit.com. On our website, we make available free-of-charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file or furnish such material with the SEC. In addition, our Code of Business Conduct and Ethics, Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, Corporate Governance Guidelines, and Board Committee Charters are also available free-of-charge on our website or can be made available in print upon request.
All reports filed with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, DC 20549-1090. Further information regarding the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, all of our filed reports can be obtained at the SEC’s website at www.sec.gov.

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Item 1A.
Risk Factors
RISKS RELATED TO OUR BUSINESS
The financial crisis and general economic slowdown, which began in late 2007, harmed the operating performance of the hotel industry generally. If these or similar events recur, we may be harmed by declines in occupancy, average daily room rates and/or other operating revenues.
The performance of the lodging industry has been closely linked with the performance of the general economy and, specifically, growth in the U.S. gross domestic product. A majority of our hotels are classified as upscale and upper-upscale. In an economic downturn, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates. This characteristic may result from the fact that upscale and upper-upscale hotels generally target business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting travel or seeking to reduce costs on their trips. Any economic recession will likely have an adverse effect on us.
Failure of the hotel industry to exhibit sustained improvement or to improve as expected may adversely affect us.
A substantial part of our business plan is based on our belief that the lodging markets in which we invest will experience improving economic fundamentals in the future, despite that fundamentals have already substantially improved over the last several years. In particular, our business strategy is dependent on our expectation that key industry performance indicators, especially RevPAR, will continue to improve. There can be no assurance as to whether or to what extent, hotel industry fundamentals will continue to improve. In the event conditions in the industry do not sustain improvement or improve as we expect, or deteriorate, we may be adversely affected.
The hotel industry is highly competitive and the hotels in which we invest are subject to competition from other hotels for guests.
The hotel business is highly competitive. Our hotel properties will compete on the basis of location, room rates, quality, amenities, reputation and reservations systems, among many factors. There are many competitors in the hotel industry, and many of these competitors may have substantially greater marketing and financial resources than we have. This competition could reduce occupancy levels and room revenue at our hotels. Over-building in the lodging industry may increase the number of rooms available and may decrease occupancy and room rates. In addition, in periods of weak demand, as may occur during a general economic recession, profitability is negatively affected by the fixed costs of operating hotels.
Because we depend upon our advisor and its affiliates to conduct our operations, any adverse changes in the financial condition of our advisor or its affiliates or our relationship with them could hinder our operating performance.
We depend on our advisor to manage our assets and operations. Any adverse changes in the financial condition of our advisor or its affiliates or our relationship with our advisor could hinder its ability to manage us successfully.
We depend on our advisor’s key personnel with long-standing business relationships. The loss of our advisor’s key personnel could threaten our ability to operate our business successfully.
Our future success depends, to a significant extent, upon the continued services of our advisor’s management team and the extent and nature of the relationships they have developed with hotel franchisors, operators, and owners and hotel lending and other financial institutions. The loss of services of one or more members of our advisor’s management team could harm our business and our prospects.

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The aggregate amount of fees and expense reimbursements paid to our advisor will exceed the average of internalized expenses of our industry peers (as identified in our advisory agreement), as a percentage of total market capitalization.
Pursuant to the advisory agreement between us and our advisor, we will pay our advisor a quarterly base fee (subject to a minimum fee described below), an annual incentive fee that will be based on our achievement of certain minimum performance thresholds and certain expense reimbursements. The minimum base management fee is currently equal to the greater of 0.70% or the G&A Ratio, multiplied by our total market capitalization as of the first trading day immediately following the effective day of the advisory agreement. The minimum base management fee for each quarter beginning after November 12, 2015 (one year from the effective date of our advisory agreement) will be equal to the greater of (i) 90% of the base fee paid for the same quarter in the prior year and (ii) the G&A Ratio multiplied by our total market capitalization for such quarter. The “G&A ratio” will be calculated as the simple average of the ratios of total general and administrative expenses paid in the applicable quarter by each member of a select peer group, divided by the total market capitalization of such peer group member. Since the base management fee is subject to this minimum amount and because a portion of such fees are contingent on our performance, the fees we pay to our advisor may fluctuate over time. However, regardless of our advisor’s performance, the total amount of fees and reimbursements paid to our advisor as a percentage of market capitalization will never be less than the average of internalized expenses of our industry peers (as identified in our advisory agreement), and there may be times when the total amount of fees and incentives paid to our advisor greatly exceeds the average of internalized expenses of our industry peers.
Our advisor’s entitlement to non-performance-based compensation, including the minimum base management fee, might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. Further, our incentive fee structure may induce our advisor to encourage us to acquire certain assets, including speculative or high risk assets, or to acquire assets with increased leverage, which could increase the risk to our portfolio.
Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturers.
We have in the past and may continue to co-invest with third parties through partnerships, joint ventures or other entities, acquiring controlling or non-controlling interests in, or sharing responsibility for, managing the affairs of a property, partnership, joint venture or other entity. In such event, we may not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt, suffer a deterioration in their financial condition or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, budgets, or financing, if neither we nor the partner or co-venturer has full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers or directors from focusing their time and effort on our business. Consequently, actions by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.
Our business strategy depends on our continued growth. We may fail to integrate recent and additional investments into our operations or otherwise manage our planned growth, which may adversely affect our operating results.
Our business plan contemplates a period of continued growth in the next several years. We cannot assure you that we will be able to adapt our management, administrative, accounting, and operational systems, or hire and retain sufficient operational staff to successfully integrate and manage any future acquisitions of additional assets without operating disruptions or unanticipated costs. Acquisitions of any additional portfolios of properties or mortgages would generate additional operating expenses for us. Any future acquisitions may also require us to enter into property improvement plans that will increase our operating expenses. As we acquire additional assets, we will be subject to the operational risks associated with owning those assets. Our failure to successfully integrate any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to our stockholders.
Because our board of directors and our advisor have broad discretion to make future investments, we may make investments that result in returns that are substantially below expectations or that result in net operating losses.
Our board of directors and our advisor have broad discretion, within the investment criteria established by our board of directors, to make additional investments and to determine the timing of such investments. In addition, our investment policies may be revised from time to time at the discretion of our board of directors, without a vote of our stockholders. Such discretion could result in investments with yield returns inconsistent with expectations.

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We may be unable to identify additional investments that meet our investment criteria or to acquire the properties we have under contract.
We cannot assure you that we will be able to identify real estate investments that meet our investment criteria, that we will be successful in completing any investment we identify, or that any investment we complete will produce a return on our investment. Moreover, we have broad authority to invest in any real estate investments that we may identify in the future. We also cannot assure you that we will acquire properties we currently have under firm purchase contracts, if any, or that the acquisition terms we have negotiated will not change.
Tax indemnification obligations that apply in the event that we sell certain properties could limit our operating flexibility.
We have acquired certain of our properties in exchange transactions in which we issued units in our operating partnership in exchange for hotel properties. In certain of these transactions, we agreed to ongoing indemnification obligations in the event we sell or transfer the related property and in some instances in the event we refinance the related property. Accordingly, we may be obligated to indemnify the contributors whom have substantial ownership interests, against the tax consequences of such transactions.
In general, our tax indemnities will be equal to the amount of the federal, state, and local income tax liability the contributor or its specified assignee incurs with respect to the gain allocated to the contributor. The terms of the contribution agreements also generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of the tax indemnity and this additional payment.
While the tax indemnities generally do not contractually limit our ability to conduct our business in the way we desire, we are less likely to sell any of the contributed properties for which we have agreed to the tax indemnities described above in a taxable transaction during the applicable indemnity period. Instead, we would likely either hold the property for the entire indemnity period or seek to transfer the property in a tax-deferred like-kind exchange. In addition, a condemnation of one of our properties could trigger our tax indemnification obligations.
Hotel franchise or license requirements or the loss of a franchise could adversely affect us.
We must comply with operating standards, terms, and conditions imposed by the franchisors of the hotel brands under which our hotels operate. Franchisors periodically inspect their licensed hotels to confirm adherence to their operating standards. The failure of a hotel to maintain standards could result in the loss or cancellation of a franchise license. With respect to operational standards, we rely on our property managers to conform to such standards. Franchisors may also require us to make certain capital improvements to maintain the hotel in accordance with system standards, the cost of which can be substantial. It is possible that a franchisor could condition the continuation of a franchise based on the completion of capital improvements that our advisor or board of directors determines is not economically feasible in light of general economic conditions, the operating results or prospects of the affected hotel or other circumstances. In that event, our advisor or board of directors may elect to allow the franchise to lapse or be terminated, which could result in a termination charge as well as a change in brand franchising or operation of the hotel as an independent hotel. In addition, when the term of a franchise expires, the franchisor has no obligation to issue a new franchise.
The loss of a franchise could have a material adverse effect on the operations and/or the underlying value of the affected hotel because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor.
Our investments are concentrated in particular segments of a single industry.
Nearly all of our business is hotel related. Our current long-term investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators, and participate in hotel sale-leaseback transactions. Adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to our stockholders.

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Our reliance on third party property managers, including Remington Lodging, to operate our hotels and for a substantial majority of our cash flow may adversely affect us.
Because U.S. federal income tax laws restrict REITs and their subsidiaries from operating or managing hotels, third parties must operate our hotels. A REIT may lease its hotels to taxable REIT subsidiaries in which the REIT can own up to a 100% interest. A taxable REIT subsidiary (“TRS”) pays corporate-level income tax and may retain any after-tax income. A REIT must satisfy certain conditions to use the TRS structure. One of those conditions is that the TRS must hire, to manage the hotels, an “eligible independent contractor” (“EIC”) that is actively engaged in the trade or business of managing hotels for parties other than the REIT. An EIC cannot (i) own more than 35% of the REIT, (ii) be owned more than 35% by persons owning more than 35% of the REIT, or (iii) provide any income to the REIT ( i.e. , the EIC cannot pay fees to the REIT, and the REIT cannot own any debt or equity securities of the EIC). Accordingly, while we may lease hotels to a TRS that we own, the TRS must engage a third-party operator to manage the hotels. Thus, our ability to direct and control how our hotels are operated is less than if we were able to manage our hotels directly.
We have entered into management agreements with Remington Lodging, which is owned 100% by Messrs. Archie and Monty J. Bennett, to manage 55 of our 87 legacy properties, 21 of the 28 PIM Highland JV hotel properties, and the WorldQuest condominium properties as of  December 31, 2014 . We have hired unaffiliated third-party property managers to manage our remaining properties. We do not supervise any of the property managers or their respective personnel on a day-to-day basis, and we cannot assure you that the property managers will manage our properties in a manner that is consistent with their respective obligations under the applicable management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our property managers will not be negligent in their performance, will not engage in criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. If any of the foregoing occurs, our relationships with any franchisors may be damaged, we may be in breach of our franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. In addition, from time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect us. We generally will attempt to resolve any such disputes through discussions and negotiations; however, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the expense of which may be material and the outcome of which may adversely affect us.
Our cash flow from the hotels may be adversely affected if our managers fail to provide quality services and amenities or if they or their affiliates fail to maintain a quality brand name. In addition, our managers or their affiliates may manage, and in some cases may own, invest in or provide credit support or operating guarantees, to hotels that compete with hotel properties that we own or acquire, which may result in conflicts of interest and decisions regarding the operation of our hotels that are not in our best interests. Any of these circumstances could adversely affect us.
Our management agreements could adversely affect our sale or financing of hotel properties.
We have entered into management agreements, and acquired properties subject to management agreements, that do not allow us to replace hotel managers on relatively short notice or with limited cost or contain other restrictive covenants, and we may enter into additional such agreements or acquire properties subject to such agreements in the future.  For example, the terms of a management agreement may restrict our ability to sell a property unless the purchaser is not a competitor of the manager, assumes the management agreement and meets other conditions.  Also, the terms of a long-term management agreement encumbering our property may reduce the value of the property.  When we enter into or acquire properties subject to any such management agreements, we may be precluded from taking actions in  our best interest and could incur substantial expense as a result of the agreements.
If we cannot obtain additional capital, our growth will be limited.
We are required to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains, each year to maintain our qualification as a REIT. As a result, our retained earnings available to fund acquisitions, development, or other capital expenditures are nominal. As such, we rely upon the availability of additional debt or equity capital to fund these activities. Our long-term ability to grow through acquisitions or development, which is an important strategy for us, will be limited if we cannot obtain additional financing or equity capital. Market conditions may make it difficult to obtain financing or equity capital, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain it on favorable terms.

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We compete with other hotels for guests and face competition for acquisitions and sales of hotel properties and of desirable debt investments.
The hotel business is competitive. Our hotels compete on the basis of location, room rates, quality, service levels, amenities, reputation and reservation systems, among many other factors. New hotels may be constructed and these additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available to meet debt service obligations, operating expenses and requisite distributions to our stockholders.
We compete for hotel acquisitions with entities that have similar investment objectives as we do. This competition could limit the number of suitable investment opportunities offered to us. It may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms or on the terms contemplated in our business plan. In addition, we compete to sell hotel properties. Availability of capital, the number of hotels available for sale and market conditions all affect prices. We may not be able to sell hotel assets at our targeted price.
We also compete for mortgage asset investments with numerous public and private real estate investment vehicles, such as mortgage banks, pension funds, other REITs, institutional investors, and individuals. Mortgages and other investments are often obtained through a competitive bidding process. In addition, competitors may seek to establish relationships with the financial institutions and other firms from which we intend to purchase such assets. Competition may result in higher prices for mortgage assets, lower yields, and a narrower spread of yields over our borrowing costs.
Some of our competitors are larger than us, may have access to greater capital, marketing, and other financial resources, may have personnel with more experience than our officers, may be able to accept higher levels of debt or otherwise may tolerate more risk than us, may have better relations with hotel franchisors, sellers or lenders, and may have other advantages over us in conducting certain business and providing certain services.
We face risks related to changes in the global and political economic environment, including capital and credit markets.
Our business may be impacted by global economic conditions, which recently have been volatile. Political crises in individual countries or regions, including sovereign risk related to a deterioration in the credit worthiness or a default by local governments, has contributed to this volatility. If the global economy experiences continued volatility or significant disruptions, such disruptions or volatility could hurt the U.S. economy and our business could be negatively impacted by reduced demand for business and leisure travel related to a slow-down in the general economy, by disruptions resulting from tighter credit markets, and by liquidity issues resulting from an inability to access credit markets to obtain cash to support operations. Our objective is to maintain access to capital and credit markets.
We are increasingly dependent on information technology, and potential cyber attacks, security problems or other disruption and expanding social media vehicles present new risks.
As do most companies, our advisor and our various hotel managers rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. Our advisor and our hotel managers purchase some of our information technology from vendors, on whom our systems depend, and our advisor relies on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts.
We often depend upon the secure transmission of this information over public networks. Our advisor’s and our hotel managers' networks and storage applications are subject to unauthorized access by hackers or others (through cyber attacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means) or may be breached due to operator error, malfeasance or other system disruptions. In some cases, it is difficult to anticipate or immediately detect such incidents and the damage caused thereby. Any significant breakdown, invasion, destruction, interruption or leakage of our advisor’s or our hotel managers’ systems could harm us.
In addition, the use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us, our hotel managers or our hotels on any social networking website could damage our or our hotels’ reputations. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks.

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Changes in laws, regulations, or policies may adversely affect our business.
The laws and regulations governing our business or the regulatory or enforcement environment at the federal level or in any of the states in which we operate may change at any time and may have an adverse effect on our business. For example, the Patient Protection and Affordable Care Act of 2010, as it is phased in over time, will significantly affect the administration of health care services and could significantly impact our cost of providing employees with health care insurance. We are unable to predict how this or any other future legislative or regulatory proposals or programs will be administered or implemented or in what form, or whether any additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occur in the future. Any such action could affect us in substantial and unpredictable ways and could have an adverse effect on our results of operations and financial condition. Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market and on our reputation generally. No assurance can be given that applicable laws or regulations will not be amended or construed differently or that new laws and regulations will not be adopted, either of which could materially adversely affect our business, financial condition or results of operations.
Our failure to qualify as a REIT would potentially give rise to a claim for damages from Ashford Prime.
In connection with the spin-off of Ashford Prime, which was completed in November 2013, we represented in the Separation and Distribution Agreement that we have no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT. We also covenanted in the Separation and Distribution Agreement to use our reasonable best efforts to maintain our REIT status for each of our taxable years ending on or before December 31, 2014 (unless we obtain an opinion from a nationally recognized tax counsel or a private letter ruling from the IRS to the effect that our failure to maintain our REIT status will not cause Ashford Prime to fail to qualify as a REIT under the successor REIT rules). In the event of a breach of this representation or covenant, Ashford Prime may be able to seek damages from us, which could have a significantly negative effect on our liquidity and results of operations.
RISKS RELATED TO OUR DEBT FINANCING
We are subject to various risks related to our use of, and dependence on, debt.
As of  December 31, 2014 , we had aggregated borrowings of approximately  $2.0 billion outstanding, including  $817.9 million  of variable interest rate debt. The interest we pay on variable-rate debt increases as interest rates increase above any floor rates, which may decrease cash available for distribution to our stockholders. We are also subject to the risk that we may not be able to meet our debt service obligations or refinance our debt as it becomes due. If we do not meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure. Changes in economic conditions or our financial results or prospects could (i) result in higher interest rates on variable-rate debt, (ii) reduce the availability of debt financing generally or debt financing at favorable rates, (iii) reduce cash available for distribution to our stockholders, (iv) increase the risk that we could be forced to liquidate assets or repay debt, either of which could have a material adverse effect on us, and (v) create other challenging situations for us.
Some of our debt agreements contain financial and other covenants. If we violate covenants in any debt agreements, including as a result of impairments of our hotel or mezzanine loan assets, 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. Violations of certain debt covenants may also prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes. Our governing instruments do not contain any limitation on our ability to incur indebtedness.
Mortgage debt obligations expose us to increased risk of property losses, which could harm our financial condition, cash flow, and ability to satisfy our other debt obligations and pay dividends.
Incurring mortgage debt increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on the foreclosure but would not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash for distributions to our stockholders of that income.
In addition, our default under any one of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our financial condition, cash flow, and ability to satisfy our other debt obligations or ability to pay dividends may be impaired.

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We voluntarily elected to cease making payments on the mortgages securing four of our hotels during the recent economic downturn, and we may voluntarily elect to cease making payments on additional mortgages in the future, which could reduce the number of hotels we own as well as our revenues and could affect our ability to raise equity or debt financing in the future or violate covenants in our debt agreements.
During the past economic crisis, we undertook a series of actions to manage the sources and uses of our funds in an effort to navigate through challenging market conditions while still pursuing opportunities to create long-term stockholder value. In this effort, we attempted to proactively address value and cash flow deficits among certain of our mortgaged hotels, with a goal of enhancing stockholder value through loan amendments, or in certain instances, consensual transfers of hotel properties to the lenders in satisfaction of the related debt, some of which resulted in impairment charges. The loans secured by these hotels, subject to certain customary exceptions, were non-recourse to us. We may continue to proactively address value and cash flow deficits in a similar manner as necessary and appropriate.
We had approximately  $2.0 billion of mortgage debt outstanding as of  December 31, 2014 . We may face issues with these loans or with other loans or borrowings that we incur in the future, some of which issues may be beyond our control, including our ability to service payment obligations from the cash flow of the applicable hotel, or the inability to refinance existing debt at the applicable maturity date. In such event, we may elect to default on the applicable loan and, as a result, the lenders would have the right to exercise various remedies under the loan documents, which would include foreclosure on the applicable hotels. Any such defaults, whether voluntary or involuntary, could result in a default under our other debt agreements, could have an adverse effect on our ability to raise equity or debt capital, could increase the cost of such capital or could otherwise have an adverse effect on our business, results of operations or financial condition.
Covenants, “cash trap” provisions or other terms in our loan agreements could limit our flexibility and adversely affect our financial condition or our qualification as a REIT.
Some of our loan agreements contain financial and other covenants. If we violate covenants in any 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. Violations of certain debt covenants may also prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes.
Some of our loan agreements also contain cash trap provisions triggered if the performance of our hotels decline. 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. Cash is not distributed to us at any time after the cash trap provisions have been triggered until we have cured performance issues. This could affect our liquidity and our ability to make distributions to our stockholders.
Our hedging strategies may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment.
We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. These instruments involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. These instruments may also generate income that may not be treated as qualifying REIT income. In addition, the nature and timing of hedging transactions may influence the effectiveness of our hedging strategies. Poorly designed strategies or improperly executed transactions could actually increase our risk and losses. Moreover, hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses that may reduce the overall return on your investment.

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RISKS RELATED TO HOTEL INVESTMENTS
We are subject to general risks associated with operating hotels.
Our hotels and hotels underlying our mortgage and mezzanine loans are subject to various operating risks common to the hotel industry, many of which are beyond our control, including, among others, the following:
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competition from other hotel properties in our markets;
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over-building of hotels in our markets, which results in increased supply and adversely affects occupancy and revenues at our hotels;
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dependence on business and commercial travelers and tourism;
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increases in operating costs due to inflation, increased energy costs and other factors that may not be offset by increased room rates;
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changes in interest rates and in the availability, cost and terms of debt financing;
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increases in assessed property taxes from changes in valuation or real estate tax rates;
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increases in the cost of property insurance;
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changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
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unforeseen events beyond our control, such as terrorist attacks, travel related health concerns which could reduce travel, including pandemics and epidemics such as H1N1 influenza (swine flu), avian flu and SARS, imposition of taxes or surcharges by regulatory authorities, travel-related accidents, travel infrastructure interruptions and unusual weather patterns, including natural disasters such as hurricanes, tsunamis or earthquakes;
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adverse effects of international, national, regional and local economic and market conditions and increases in energy costs or labor costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
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adverse effects of a downturn in the lodging industry; and
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risks generally associated with the ownership of hotel properties and real estate, as we discuss in more detail below.
These factors could adversely affect our hotel revenues and expenses, as well as the hotels underlying our mortgage and mezzanine loans, which in turn could adversely affect our financial condition, results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
We may have to make significant capital expenditures to maintain our hotel properties, and any development activities we undertake may be more costly than we anticipate.
Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. Managers or franchisors of our hotels also will require periodic capital improvements pursuant to the management agreements or as a condition of maintaining franchise licenses. Generally, we are responsible for the cost of these capital improvements. As part of our long-term growth strategy, we may also develop hotel properties, timeshare units or other alternate uses of portions of our existing properties, including the development of retail, office or apartments, including through joint ventures. Such renovation and development involves substantial risks, including:
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construction cost overruns and delays;
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the disruption of operations and displacement of revenue at operating hotels, including revenue lost while rooms, restaurants or meeting space under renovation are out of service;
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the cost of funding renovations or developments and inability to obtain financing on attractive terms;
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the return on our investment in these capital improvements or developments failing to meet expectations;
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governmental restrictions on the nature or size of a project;
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inability to obtain all necessary zoning, land use, building, occupancy, and construction permits;
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loss of substantial investment in a development project if a project is abandoned before completion;
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acts of God such as earthquakes, hurricanes, floods or fires that could adversely affect a project;
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environmental problems; and
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disputes with franchisors or property managers regarding compliance with relevant franchise agreements or management agreements.

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If we have insufficient cash flow from operations to fund needed capital expenditures, then we will need to obtain additional debt or equity financing   to fund future capital improvements, and e may not be able to meet the loan covenants in any financing obtained to fund the new development, creating default risks.
In addition, to the extent that developments are conducted through joint ventures, this creates additional risks, including the possibility that our partners may not meet their financial obligations or could have or develop business interests, policies or objectives that are inconsistent with ours. See “-Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturers.”
Any of the above factors could affect adversely our and our partners’ ability to complete the developments on schedule and along the scope that currently is contemplated, or to achieve the intended value of these projects. For these reasons, there can be no assurances as to the value to be realized by the company from these transactions or any future similar transactions.
The hotel business is seasonal, which affects our results of operations from quarter to quarter.
The hotel industry is seasonal in nature. This seasonality can cause quarterly fluctuations in our financial condition and operating results, including in any distributions on common stock. Our quarterly operating results may be adversely affected by factors outside our control, including weather conditions and poor economic factors in certain markets in which we operate. We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations. As a result, we may have to reduce distributions or enter into short-term borrowings in certain quarters in order to make distributions to our stockholders, and we can provide no assurances that such borrowings will be available on favorable terms, if at all.
The cyclical nature of the lodging industry may cause fluctuations in our operating performance, which could have a material adverse effect on us.
The lodging industry historically has been highly cyclical in nature. Fluctuations in lodging demand and, therefore, hotel operating performance, are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel room supply is an important factor that can affect the lodging industry’s performance, and overbuilding has the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus RevPAR, tend to increase when demand growth exceeds supply growth. We can provide no assurances regarding whether, or the extent to which, lodging demand will rebound or whether any such rebound will be sustained. An adverse change in lodging fundamentals could result in returns that are substantially below our expectations or result in losses, which could have a material adverse effect on us.
Many real estate costs are fixed, even if revenue from our hotels decreases.
Many costs, such as real estate taxes, insurance premiums and maintenance costs, generally are not reduced even when a hotel is not fully occupied, room rates decrease or other circumstances cause a reduction in revenues. In addition, newly acquired or renovated hotels may not produce the revenues we anticipate immediately, or at all, and the hotel's operating cash flow may be insufficient to pay the operating expenses and debt service associated with these new hotels. If we are unable to offset real estate costs with sufficient revenues across our portfolio, we may be adversely affected.
Our operating expenses may increase in the future which could cause us to raise our room rates, depleting room occupancy and thereby decreasing our cash flow and our operating results.
Operating expenses, such as expenses for fuel, utilities, labor and insurance, are not fixed and may increase in the future. To the extent such increases affect our room rates and therefore our room occupancy at our lodging properties, our cash flow and operating results may be negatively affected.
The increasing use of Internet travel intermediaries by consumers may adversely affect our profitability.
Some of our hotel rooms are booked through Internet travel intermediaries, including, but not limited to, Travelocity.com, Expedia.com and Priceline.com. As Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These intermediaries hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our properties are franchised. Although most of the business for our hotels is expected to be derived from traditional channels, if the amount of sales made through Internet intermediaries increases significantly, room revenues may be lower than expected, and we may be adversely affected.

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We may be adversely affected by increased use of business-related technology, which may reduce the need for business-related travel.
The increased use of teleconference and video-conference technology by businesses could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location. To the extent that such technologies play an increased role in day-to-day business and the necessity for business-related travel decreases, hotel room demand may decrease and we may be adversely affected.
Our hotels may be subject to unknown or contingent liabilities which could cause us to incur substantial costs.
The hotel properties that we own or may acquire are or may be subject to unknown or contingent liabilities for which we may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the hotel properties may not survive the closing of the transactions. While we will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with these hotels may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our financial condition, results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Future terrorist attacks or changes in terror alert levels could materially and adversely affect us.
Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries since 2001, often disproportionately to the effect on the overall economy. The extent of the impact that actual or threatened terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be determined, but any such attacks or the threat of such attacks could have a material adverse effect on travel and hotel demand, our ability to finance our business and our ability to insure our hotels, which could materially adversely affect us.
During  2014 , approximately 14.8% of our total hotel revenue was generated from 10 hotels located in the Washington D.C. and Baltimore areas, areas considered vulnerable to terrorist attack. Our financial and operating performance may be adversely affected by potential terrorist attacks. Terrorist attacks in the future may cause our results to differ materially from anticipated results. Hotels we own in other market locations may be subject to this risk as well.
We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor.
Our third-party managers are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage employees at our hotels, we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor. From time to time, hotel operations may be disrupted as a result of strikes, lockouts, public demonstrations or other negative actions and publicity. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. The resolution of labor disputes or re-negotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. We do not have the ability to affect the outcome of these negotiations.
RISKS RELATED TO CONFLICTS OF INTEREST
Our agreements with our external advisor , as well as our mutual exclusivity agreement and management agreements with Remington Lodging were not negotiated on an arm’s-length basis, and we may pursue less vigorous enforcement of their terms because of conflicts of interest with certain of our executive officers and directors and key employees of our advisor.
Because each of our executive officers are also key employees of our advisor or its affiliates and have ownership interests in our advisor and because our chief executive officer and chairman of our board has an ownership interest in Remington Lodging, advisory agreement as well as our mutual exclusivity agreement and master management agreement with Remington Lodging were not negotiated on an arm’s-length basis, and we did not have the benefit of arm’s-length negotiations of the type normally conducted with an unaffiliated third party. As a result, the terms, including fees and other amounts payable, may not be as favorable to us as an arm’s-length agreement. Furthermore, we may choose not to enforce, or to enforce less vigorously, our rights under these agreements because of our desire to maintain our ongoing relationship with our advisor and Remington Lodging.

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The termination fee payable to our advisor significantly increases the cost to us of terminating our advisory agreement, thereby effectively limiting our ability to terminate our advisor without causes and could make a change of control transaction less likely or the terms thereof less attractive to us and to our stockholders.
The initial term of our advisory agreement with our advisor is 20 years from the effective date of the advisory agreement, with automatic one-year renewal terms thereafter unless previously terminated. Our board will review our advisor’s performance and fees annually and, following the 20 year initial term the advisory agreement may be terminated by us with the payment of the termination fee described below and 180 days’ prior notice upon the affirmative vote of at least two-thirds of our independent directors based upon a good faith finding that either: (1) there has been unsatisfactory performance by our advisor that is materially detrimental to us and our subsidiaries taken as a whole, or (2) the base fee and/or incentive fee is not fair (and our advisor does not offer to negotiate a lower fee that a majority of our independent directors determines is fair). Additionally, if there is a change of control transaction, we will have the right to terminate the advisory agreement with the payment of the termination fee described below. If we terminate or do not renew the advisory agreement without cause, including pursuant to clauses (1) or (2) above (following a contractual renegotiation process in the case of clause (2) above) or upon a change of control, we will be required to pay our advisor a termination fee equal to either:
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if our advisor’s common stock is not publicly traded, 14 times the earnings of our advisor attributable to our advisory agreement less costs and expenses (the ‘‘net earnings’’) for the 12 months preceding termination of the advisory agreement; or
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if at the time of the termination notice, our advisor’s common stock is publicly traded, 1.1 multiplied by the greater of (i) 12 times the net earnings of our advisor attributable to our advisory agreement for the 12 months preceding the termination of the advisory agreement or (ii) the earnings multiple (based on net earnings after taxes) for our advisor’s common stock for the 12 months preceding the termination of the advisory agreement multiplied by the net earnings of our advisor attributable to our advisory agreement for the same 12 month period; or (iii) the simple average of the earnings multiples (based on net earnings after taxes) for our advisor’s common stock for each of the three fiscal years preceding the termination of the advisory agreement, multiplied by the net earnings of our advisor attributable to our advisory agreement for the 12 months preceding the termination of the advisory agreement; plus, in either case, a gross-up amount for federal and state tax liability, based on an assumed tax rate of 40%.
Any such termination fee will be payable on or before the termination date. The termination fee makes it more difficult for us to terminate our advisory agreement even if our board determines that there has been unsatisfactory performance or unfair fees. These provisions significantly increase the cost to us of terminating our advisory agreement, thereby limiting our ability to terminate our advisor without cause.
Our advisor manages other entities and may direct attractive investment opportunities away from us. If we change our investment guidelines, our advisor is not restricted from advising clients with similar investment guidelines.
Each of our executive officers also serve as key employees and as officers of our advisor and Ashford Prime, and will continue to do so. Furthermore, Mr. Monty J. Bennett, our chief executive officer and chairman, is also the chief executive officer and chairman of our advisor and Ashford Prime. Our advisory agreement requires our advisor to present investments that satisfy our investment guidelines to us before presenting them to Ashford Prime or any future client of our advisor. Additionally, in the future our advisor may advise other clients, some of which may have investment guidelines substantially similar to ours.
Some portfolio investment opportunities may include hotels that satisfy our investment objectives as well as hotels that satisfy the investment objectives of Ashford Prime or other entities advised by our advisor. If the portfolio cannot be equitably divided, our advisor will necessarily have to make a determination as to which entity will be presented with the opportunity. In such a circumstance, our advisory agreement requires our advisor to allocate portfolio investment opportunities between us, Ashford Prime or other entities advised by our advisor in a fair and equitable manner, consistent with our, Ashford Prime’s and such other entities’ investment objectives. In making this determination, our advisor, using substantial discretion, will consider the investment strategy and guidelines of each entity with respect to acquisition of properties, portfolio concentrations, tax consequences, regulatory restrictions, liquidity requirements and other factors deemed appropriate. In making the allocation determination, our advisor has no obligation to make any such investment opportunity available to us. Further, our advisor and Ashford Prime have agreed that any new investment opportunities that satisfy our investment guidelines will be presented to our board of directors; however, our board will have only ten business days to make a determination with respect to such opportunity prior to it being available to Ashford Prime. The above mentioned dual responsibilities may create conflicts of interest for our officers which could result in decisions or allocations of investments that may benefit one entity more than the other.

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Our advisor and its key employees, who are Ashford Prime’s and our executive officers, face competing demands relating to their time and this may adversely affect our operations.
We rely on our advisor and its employees for the day-to-day operation of our business. Each of the key employees of our advisor are executive officers of Ashford Prime and Ashford Inc. Because our advisor’s key employees have duties to Ashford Prime and Ashford Inc., as well as to our company, we do not have their undivided attention and they face conflicts in allocating their time and resources between our company, Ashford Prime and Ashford Inc. Our advisor may also manage other entities in the future. During turbulent market conditions or other times when we need focused support and assistance from our advisor, other entities for which our advisor also acts as an external advisor will likewise require greater focus and attention as well, placing competing high levels of demand on the limited time and resources of our advisor’s key employees. We may not receive the necessary support and assistance we require or would otherwise receive if we were internally managed by persons working exclusively for us.
We must pay a minimum advisory fee to our advisor regardless of our performance.
Our advisor is entitled to receive a quarterly base fee from us that is based on our total market capitalization (as defined in our advisory agreement), regardless of the performance of our portfolio, subject to a minimum amount. The minimum base management fee for each quarter will be equal to the greater of (i) 90% of the base fee paid for the same quarter in the prior year, and (ii) the “G&A ratio” multiplied by our total market capitalization. The “G&A ratio” will be calculated as the simple average of the ratios of total general and administrative expenses paid in the applicable quarter by each member of a select peer group, divided by the total market capitalization of such peer group member. Our advisor’s entitlement to nonperformance-based compensation, including the minimum base management fee, might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio.
Conflicts of interest could result in our management acting other than in our stockholders’ best interest.
Conflicts of interest in general and specifically relating to Remington Lodging may lead to management decisions that are not in the stockholders’ best interest. The Chairman of our Board of Directors and Chief Executive Officer, Mr. Monty J. Bennett, serves as the Chief Executive Officer of Remington Lodging and Mr. Archie Bennett, Jr., who is our Chairman Emeritus, serves as Chairman of the Board of Directors of Remington Lodging. Messrs. Archie and Monty J. Bennett beneficially own 100% of Remington Lodging, which, as of December 31, 2014 , managed  55 of our 87 legacy properties, 21 of the 28 PIM Highland JV hotel properties and the WorldQuest condominium properties; and provides related services, including property management services and project management services.
Messrs. Archie and Monty J. Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging, and Mr. Monty J. Bennett's management obligations to Remington Lodging reduces the time and effort he spends managing Ashford. Our Board of Directors has adopted a policy that requires all material approvals, actions or decisions to which we have the right to make under the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, all of our independent directors. However, given the authority and/or operational latitude to Remington Lodging under the management agreements to which we are a party, Messrs. Archie and Monty J. Bennett, as officers of Remington Lodging, could take actions or make decisions that are not in our stockholders’ best interest or that are otherwise inconsistent with their obligations under the management agreement or our obligations under the applicable franchise agreements.
Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Monty J. Bennett, Mr. David Brooks, our Chief Operating Officer and General Counsel, or Mr. Mark Nunneley, our Chief Accounting Officer, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us to sell, not sell, or refinance certain properties, even if such actions or inactions might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.
We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s services to our hotels, as well as any future hotels we may acquire that may or may not be managed by Remington Lodging. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Mr. Monty Bennett, and to a lesser extent, Mr. Archie Bennett, Jr., in his role as Chairman Emeritus, may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our stockholders to do so.

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Remington’s ability to exercise significant influence over the determination of the competitive set for any hotels managed by Remington could artificially enhance the perception of the performance of a hotel, making it more difficult to use managers other than Remington for future properties.
Our mutual exclusivity agreement with Remington requires us to engage Remington to manage all future properties that we acquire, to the extent we have the right or control the right to direct such matters, unless our independent directors either (i) unanimously vote not to hire Remington or (ii) based on special circumstances or past performance, by a majority vote, elect not to engage Remington because they have determined, in their reasonable business judgment, that it would be in our best interest not to engage Remington or that another manager or developer could perform the duties materially better. Under our master management agreement with Remington, we have the right to terminate Remington based on the performance of the applicable hotel, subject to the payment of a termination fee. The determination of performance is based on the applicable hotel’s gross operating profit margin and its RevPAR penetration index, which provides the relative revenue per room generated by a specified property as compared to its competitive set. For each hotel managed by Remington, its competitive set will consist of a small group of hotels in the relevant market that we and Remington believe are comparable for purposes of benchmarking the performance of such hotel. Remington will have significant influence over the determination of the competitive set for any of our hotels managed by Remington, and as such could artificially enhance the perception of the performance of a hotel by selecting a competitive set that is not performing well or is not comparable to the Remington-managed hotel, thereby making it more difficult for us to elect not to use Remington for future hotel management.
Under the terms of our mutual exclusivity agreement with Remington, Remington may be able to pursue lodging investment opportunities that compete with us.
Pursuant to the terms of our mutual exclusivity agreement with Remington, if investment opportunities that satisfy our investment criteria are identified by Remington or its affiliates, Remington will give us a written notice and description of the investment opportunity. We will have 10 business days to either accept or reject the investment opportunity. If we reject the opportunity, Remington may then pursue such investment opportunity, subject to a right of first refusal in favor of Ashford Prime, pursuant to an existing agreement between Ashford Prime and Remington, on materially the same terms and conditions as offered to us. If we were to reject such an investment opportunity, either Ashford Prime or Remington could pursue the opportunity and compete with us. In such a case, Mr. Monty J. Bennett, our chief executive officer and chairman, in his capacity as chairman and chief executive officer of Ashford Prime or Remington could be in a position of directly competing with us.
Our fiduciary duties as the general partner of our operating partnership could create conflicts of interest, which may impede business decisions that could benefit our stockholders.
We, as the general partner of our operating partnership, have fiduciary duties to the other limited partners in our operating partnership, the discharge of which may conflict with the interests of our stockholders. The limited partners of our operating partnership have agreed that, in the event of a conflict in the fiduciary duties owed by us to our stockholders and, in our capacity as general partner of our operating partnership, to such limited partners, we are under no obligation to give priority to the interests of such limited partners. In addition, those persons holding common units will have the right to vote on certain amendments to the operating partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we are unable to modify the rights of limited partners to receive distributions as set forth in the operating partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders.
In addition, conflicts may arise when the interests of our stockholders and the limited partners of our operating partnership diverge, particularly in circumstances in which there may be an adverse tax consequence to the limited partners. Tax consequences to holders of common units upon a sale or refinancing of our properties may cause the interests of the key employees of our advisor (who are also our executive officers and have ownership interests in our operating partnership) to differ from our stockholders.
Our conflicts of interest policy may not adequately address all of the conflicts of interest that may arise with respect to our activities.
In order to avoid any actual or perceived conflicts of interest with our directors or officers or our advisor’s employees, we adopted a conflicts of interest policy to address specifically some of the conflicts relating to our activities. Although under this policy the approval of a majority of our disinterested directors is required to approve any transaction, agreement or relationship in which any of our directors or officers or our advisor or its has an interest, there is no assurance that this policy will be adequate to address all of the conflicts that may arise or will address such conflicts in a manner that is favorable to us.

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RISKS RELATED TO DERIVATIVE TRANSACTIONS AND INVESTMENTS IN MARKETABLE SECURITIES AND OTHER AREAS
We have engaged in and may continue to engage in derivative transactions, which can limit our gains and expose us to losses.
We have entered into and may continue to enter into hedging transactions to (i) attempt to take advantage of changes in prevailing interest rates, (ii) protect our portfolio of mortgage assets from interest rate fluctuations, (iii) protect us from the effects of interest rate fluctuations on floating-rate debt, (iv) protect us from the risk of fluctuations in the financial and capital markets, or (v) preserve net cash in the event of a major downturn in the economy. Our hedging transactions may include entering into interest rate swap agreements, interest rate cap or floor agreements or flooridor and corridor agreements, credit default swaps and purchasing or selling futures contracts, purchasing or selling put and call options on securities or securities underlying futures contracts, or entering into forward rate agreements. Hedging activities may not have the desired beneficial impact on our results of operations or financial condition. Volatile fluctuations in market conditions could cause these instruments to become ineffective. Any gains or losses associated with these instruments are reported in our earnings each period. No hedging activity can completely insulate us from the risks inherent in our business.
Credit default hedging could fail to protect us or adversely affect us because if a swap counterparty cannot perform under the terms of our credit default swap, we may not receive payments due under such agreement and, thus, we may lose any potential benefit associated with such credit default swap. Additionally, we may also risk the loss of any collateral we have pledged to secure our obligations under such credit default swaps if the counterparty becomes insolvent or files for bankruptcy.
Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things:
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available interest rate hedging may not correspond directly with the interest rate risk for which protections is sought;
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the duration of the hedge may not match the duration of the related liability;
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the party owing money in the hedging transaction may default on its obligation to pay;
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the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and
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the value of derivatives used for hedging may be adjusted from time to time in accordance with generally accepted accounting principles ("GAAP") to reflect changes in fair value and such downward adjustments, or “mark-to-market loss,” would reduce our stockholders’ equity.
Hedging involves both risks and costs, including transaction costs, which may reduce our overall returns on our investments. These costs increase as the period covered by the hedging relationship increases and during periods of rising and volatile interest rates. These costs will also limit the amount of cash available for distributions to stockholders. We generally intend to hedge to the extent management determines it is in our best interest given the cost of such hedging transactions as compared to the potential economic returns or protections offered. The REIT qualification rules may limit our ability to enter into hedging transactions by requiring us to limit our income and assets from hedges. If we are unable to hedge effectively because of the REIT rules, we will face greater interest rate exposure than may be commercially prudent.
The assets associated with certain of our derivative transactions do not constitute qualified REIT assets and the related income will not constitute qualified REIT income. Significant fluctuations in the value of such assets or the related income could jeopardize our REIT status or result in additional tax liabilities.
We have entered into certain derivative transactions to protect against interest rate risks and credit default risks not specifically associated with debt incurred to acquire qualified REIT assets. The REIT provisions of the Internal Revenue Code limit our income and assets in each year from such derivative transactions. Failure to comply with the asset or income limitation within the REIT provisions of the Internal Revenue could result in penalty taxes or loss of our REIT status. If we elect to contribute the non-qualifying derivatives into a taxable REIT subsidiary to preserve our REIT status, such an action would result in any income from such transactions being subject to federal income taxation.
Our prior investment performance is not indicative of future results.
The performance of our prior investments is not necessarily indicative of the results that can be expected for the investments to be made by our newly-formed investment subsidiary. On any given investment, total loss of the investment is possible. Although our management team has experience and has had success in making investments in real estate-related lodging debt and hotel assets, the past performance of these investments is not necessarily indicative of the results of our future investments.

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Our investment portfolio will contain investments concentrated in a single industry and will not be fully diversified.
Our investment subsidiary was formed for the primary purpose of acquiring public securities and other investments of lodging-related entities. As such, our investment portfolio will contain investments concentrated in a single industry and may not be fully diversified by asset class, geographic region or other criteria, which will expose us to significant loss due to concentration risk. Investors have no assurance that the degree of diversification in our investment portfolio will increase at any time in the future.
The values of our investments are affected by the U.S. credit and financial markets and, as such, may fluctuate.
The U.S. credit and financial markets have recently experienced severe dislocations and liquidity disruptions. The values of our investments are likely to be sensitive to the volatility of the U.S. credit and financial markets, and, to the extent that turmoil in the U.S. credit and financial markets continues or intensifies, such volatility has the potential to materially affect the value of our investment portfolio.
We are subject to the risk of default or insolvency by the hospitality entities underlying our investments.
The leveraged capital structure of the hospitality entities underlying our investments will increase their exposure to adverse economic factors (such as rising interest rates, competitive pressures, downturns in the economy or deterioration in the condition of the real estate industry) and to the risk of unforeseen events. If an underlying entity cannot generate adequate cash flow to meet such entity’s debt obligations (which may include leveraged obligations in excess of its aggregate assets), it may default on its loan agreements or be forced into bankruptcy. As a result, we may suffer a partial or total loss of the capital we have invested in the securities and other investments of such entity.
The derivatives provisions of the Dodd-Frank Act and related rules could have an adverse effect on our ability to use derivative instruments to reduce the negative effect of interest rate fluctuations on our results of operations and liquidity, credit default risks and other risks associated with our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) establishes federal oversight and regulation of the over-the-counter derivatives market and entities, including us, that participate in that market. As required by the Dodd-Frank Act, the Commodities Futures Trading Commission (the “CFTC”), the SEC and other regulators have adopted certain rules implementing the swaps regulatory provisions of the Dodd-Frank Act and are in the process of adopting other rules to implement those provisions. Numerous provisions of the Dodd-Frank Act and the CFTC’s rules relating to derivatives that qualify as “swaps” thereunder apply or may apply to the derivatives to which we are or may become a counterparty. Under such statutory provisions and the CFTC’s rules, we must clear on a designated clearing organization any over-the-counter swap we enter into that is within a class of swaps designated for clearing by CFTC rule and execute trades in such cleared swap on an exchange if the swap is accepted for trading on the exchange unless such swap is exempt from such mandatory clearing and trade execution requirements. We may qualify for and intend to elect the end-user exception from those requirements for swaps we enter to hedge our commercial risks and that are subject to the mandatory clearing and trade execution requirements. If we are required to clear or voluntarily elect to clear any swaps we enter into, those swaps will be governed by standardized agreements and we will have to post margin with respect to such swaps. To date, the CFTC has designated only certain types of interest rate swaps and credit default swaps for clearing and trade execution. Although we believe that none of the interest rate swaps and credit default swaps to which we are currently party fall within those designated types of swaps, we may enter into swaps in the future that will be subject to the mandatory clearing and trade execution requirements and subject to the risks described.
The Dodd-Frank Act requires banking regulators and the CFTC to adopt new rules requiring the posting of margin with respect to uncleared swaps. Although the final rules have not been adopted, under the rules as currently proposed by the banking regulators that will govern the financial institutions they regulate, we would be required to post initial and variation margin with respect to any swap we enter into with such a financial institution after our counterparty’s date for compliance with such margin rules. The CFTC’s rules, as currently proposed, would not require us to post margin with respect to any uncleared swaps we enter into with any counterparty that is a “swap dealer” or “major swap participant” (as defined in the Dodd-Frank Act and the CFTC’s rules) and is not a financial institution regulated by such banking regulators.
The Dodd-Frank Act may also require the counterparties to our derivative instruments to spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties to our derivatives.
Numerous rules implementing the swaps-related provisions of the Dodd-Frank Act remain to be adopted, and the CFTC has, from time to time, issued and may in the future issue interpretations and no-action letters interpreting, and clarifying the application of, those provisions and the related rules or delaying compliance with those provisions and rules. . As a result, it is not possible at this time to predict with certainty the full effects of the Dodd-Frank Act and CFTC rules on us and the timing of such effects.

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The Dodd-Frank Act and the rules adopted thereunder could significantly increase the cost of derivative contracts (including from swap recordkeeping and reporting requirements and through requirements to post margin with respect to our swaps, which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the Dodd-Frank Act and the related rules, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures and to pay dividends to our shareholders. Any of these consequences could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
RISKS RELATED TO INVESTMENTS IN SECURITIES, MORTGAGES AND MEZZANINE LOANS
Our earnings are dependent, in part, upon the performance of our investment portfolio.
To the extent permitted by the Code, we may invest in and own securities of other public companies and REITs (including Ashford Inc. and Ashford Prime). To the extent that the value of those investments declines or those investments do not provide an attractive return, our earnings and cash flow could be adversely affected.
Debt investments that are not United States government insured involve risk of loss.
As part of our business strategy, we may originate or acquire lodging-related uninsured and mortgage assets, including mezzanine loans. While holding these interests, we are subject to risks of borrower defaults, bankruptcies, fraud and related losses, and special hazard losses that are not covered by standard hazard insurance. Also, costs of financing the mortgage loans could exceed returns on the mortgage loans. In the event of any default under mortgage loans held by us, we will bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the mortgage loan. We suffered significant impairment charges with respect to our investments in mortgage loans in 2009 and 2010. We may incur similar losses in the future for the remaining mezzanine loan of  $3.6 million at December 31, 2014 . The value and the price of our securities may be adversely affected.
We may invest in non-recourse loans, which will limit our recovery to the value of the mortgaged property.
Our mortgage and mezzanine loan assets have typically been non-recourse. With respect to non-recourse mortgage loan assets, in the event of a borrower default, the specific mortgaged property and other assets, if any, pledged to secure the relevant mortgage loan, may be less than the amount owed under the mortgage loan. As to those mortgage loan assets that provide for recourse against the borrower and its assets generally, we cannot assure you that the recourse will provide a recovery in respect of a defaulted mortgage loan greater than the liquidation value of the mortgaged property securing that mortgage loan.
Investment yields affect our decision whether to originate or purchase investments and the price offered for such investments.
In making any investment, we consider the expected yield of the investment and the factors that may influence the yield actually obtained on such investment. These considerations affect our decision whether to originate or purchase an investment and the price offered for that investment. No assurances can be given that we can make an accurate assessment of the yield to be produced by an investment. Many factors beyond our control are likely to influence the yield on the investments, including, but not limited to, competitive conditions in the local real estate market, local and general economic conditions, and the quality of management of the underlying property. Our inability to accurately assess investment yields may result in our purchasing assets that do not perform as well as expected, which may adversely affect the price of our securities.
Volatility of values of mortgaged properties may adversely affect our mortgage loans.
Lodging property values and net operating income derived from lodging properties are subject to volatility and may be affected adversely by a number of factors, including the risk factors described herein relating to general economic conditions, operating lodging properties, and owning real estate investments. In the event its net operating income decreases, one of our borrowers may have difficulty paying our mortgage loan, which could result in losses to us. In addition, decreases in property values will reduce the value of the collateral and the potential proceeds available to our borrowers to repay our mortgage loans, which could also cause us to suffer losses.
Mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.
We may continue to make and acquire mezzanine loans. These types of loans are considered to involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property due to a variety of factors, including the loan being entirely unsecured or, if secured, becoming unsecured as a result of foreclosure by the senior lender. We may not recover some or all of our investment in these loans. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans resulting in less equity in the property and increasing the risk of loss of principal.

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RISKS RELATED TO THE REAL ESTATE INDUSTRY
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our hotel properties and harm our financial condition.
Because real estate investments are relatively illiquid, our ability to sell promptly one or more hotel properties or mortgage loans in our portfolio for reasonable prices in response to changing economic, financial, and investment conditions is limited.
The real estate market is affected by many factors that are beyond our control, including:
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adverse changes in international, national, regional and local economic and market conditions;
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changes in interest rates and in the availability, cost, and terms of debt financing;
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the ongoing need for capital improvements, particularly in older structures;
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changes in operating expenses; and
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civil unrest, acts of war or terrorism, and acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured and underinsured losses.
We may decide to sell hotel properties or loans in the future. We cannot predict whether we will be able to sell any hotel property or loan for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property or loan. Because we intend to offer more flexible terms on our mortgage loans than some providers of commercial mortgage loans, we may have more difficulty selling or participating our loans to secondary purchasers than would these more traditional lenders.
We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These and other factors could impede our ability to respond to adverse changes in the performance of our hotel properties or a need for liquidity.
Increases in property taxes would increase our operating costs, reduce our income and adversely affect our ability to make distributions to our stockholders.
Each of our hotel properties will be subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. If property taxes increase, our financial condition, results of operations and our ability to make distributions to our stockholders could be materially and adversely affected and the market price of our common stock could decline.
The costs of compliance with or liabilities under environmental laws may harm our operating results.
Operating expenses at our hotels could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. In addition, our hotel properties and properties underlying our loan assets may be subject to environmental liabilities. An owner of real property, or a lender with respect to a property that exercises control over the property, can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:
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our knowledge of the contamination;
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the timing of the contamination;
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the cause of the contamination; or
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the party responsible for the contamination.
There may be environmental problems associated with our hotel properties or properties underlying our loan assets of which we are unaware. Some of our hotel properties or the properties underlying our loan assets use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products that could create a potential for release of hazardous substances. If environmental contamination exists on a hotel property, we could become subject to strict, joint and several liabilities for the contamination if we own the property or if we foreclose on the property or otherwise have control over the property.

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The presence of hazardous substances on a property we own or have made a loan with respect to may adversely affect our ability to sell, on favorable terms or at all, or foreclose on the property, and we may incur substantial remediation costs. The discovery of material environmental liabilities at our properties or properties underlying our loan assets could subject us to unanticipated significant costs.
We generally have environmental insurance policies on each of our owned properties, and we intend to obtain environmental insurance for any other properties that we may acquire. However, if environmental liabilities are discovered during the underwriting of the insurance policies for any property that we may acquire in the future, we may be unable to obtain insurance coverage for the liabilities at commercially reasonable rates or at all, and we may experience losses. In addition, we generally do not require our borrowers to obtain environmental insurance on the properties they own that secure their loans from us.
Numerous treaties, laws and regulations have been enacted to regulate or limit carbon emissions. Changes in the regulations and legislation relating to climate change, and complying with such laws and regulations, may require us to make significant investments in our hotels and could result in increased energy costs at our properties.
Our properties and the properties underlying our mortgage loans may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. Some of the properties in our portfolio may contain microbial matter such as mold and mildew. As a result, the presence of significant mold at any of our properties or the properties underlying our loan assets could require us or our borrowers to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, the presence of significant mold could expose us or our borrowers to liability from hotel guests, hotel employees, and others if property damage or health concerns arise.
Compliance with the Americans with Disabilities Act and fire, safety, and other regulations may require us or our borrowers to incur substantial costs.
All of our properties and properties underlying our mortgage loans are required to comply with the Americans with Disabilities Act of 1990, as amended (the “ADA”). The ADA requires that “public accommodations” such as hotels be made accessible to people with disabilities. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. In addition, we and our borrowers are required to operate our properties in compliance with fire and safety regulations, building codes, and other land use regulations as they may be adopted by governmental agencies and bodies and become applicable to our properties. Any requirement to make substantial modifications to our hotel properties, whether to comply with the ADA or other changes in governmental rules and regulations, could be costly.
We may obtain only limited warranties when we purchase a property and would have only limited recourse if our due diligence did not identify any issues that lower the value of our property, which could adversely affect our financial condition and ability to make distributions to our stockholders.
The seller of a property may sell such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all our invested capital in the property as well as the loss of income from that property.
We may experience uninsured or underinsured losses.
We have property and casualty insurance with respect to our hotel properties and other insurance, in each case, with loss limits and coverage thresholds deemed reasonable by our management team (and with the intent to satisfy the requirements of lenders and franchisors). In doing so, we have made decisions with respect to what deductibles, policy limits, and terms are reasonable based on management’s experience, our risk profile, the loss history of our property managers and our properties, the nature of our properties and our businesses, our loss prevention efforts, and the cost of insurance.

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Various types of catastrophic losses may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed. Accordingly, there can be no assurance that:
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the insurance coverage thresholds that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits);
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we will not incur large deductibles that will adversely affect our earnings;
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we will not incur losses from risks that are not insurable or that are not economically insurable; or
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current coverage thresholds will continue to be available at reasonable rates.
In the future, we may choose not to maintain terrorism insurance on any of our properties. As a result, one or more large uninsured or underinsured losses could have a material adverse effect on us.
Each of our current lenders requires us to maintain certain insurance coverage thresholds, and we anticipate that future lenders will have similar requirements. We believe that we have complied with the insurance maintenance requirements under the current governing loan documents and we intend to comply with any such requirements in any future loan documents. However, a lender may disagree, in which case the lender could obtain additional coverage thresholds and seek payment from us, or declare us in default under the loan documents. In the former case, we could spend more for insurance than we otherwise deem reasonable or necessary or, in the latter case, subject us to a foreclosure on hotels collateralizing one or more loans. In addition, a material casualty to one or more hotels collateralizing loans may result in the insurance company applying to the outstanding loan balance insurance proceeds that otherwise would be available to repair the damage caused by the casualty, which would require us to fund the repairs through other sources, or the lender foreclosing on the hotels if there is a material loss that is not insured.
RISKS RELATED TO OUR STATUS AS A REIT
If we do not qualify as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.
We conduct operations so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Due to the gain we recognized as a result of the spin-off of Ashford Prime, if Ashford Prime were to fail to qualify as a REIT for 2013, we may fail to qualify as a REIT for 2013. Furthermore, new tax legislation, administrative guidance, or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:
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we would be taxed as a regular domestic corporation, which, among other things, means being unable to deduct distributions to our stockholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate rates;
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we would also be subject to federal alternative minimum tax and, possibly, increased state and local taxes;
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any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and
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unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year that we lost our qualification, and, thus, our cash available for distribution to stockholders could be reduced for each of the years during which we did not qualify as a REIT.
If we fail to qualify as a REIT, we will not be required to make distributions to stockholders to maintain our tax status. As a result of all of these factors, our failure to qualify as a REIT could impair our ability to raise capital, expand our business, and make distributions to our stockholders and could adversely affect the value of our securities.

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Even if we qualify and remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we qualify and remain qualified for taxation as a REIT, we may be subject to certain federal, state, and local taxes on our income and assets. For example:
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We will be required to pay tax on undistributed REIT taxable income.
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We may be required to pay the “alternative minimum tax” on our items of tax preference.
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If we have net income from the disposition of foreclosure property held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay tax on that income at the highest corporate rate.
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If we sell a property in a “prohibited transaction,” our gain from the sale would be subject to a 100% penalty tax.
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Each of our taxable REIT subsidiaries is a fully taxable corporation and will be subject to federal and state taxes on its income.
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We may continue to experience increases in our state and local income tax burden. Over the past several years, certain state and local taxing authorities have significantly changed their income tax regimes in order to raise revenues. The changes enacted that have increased our state and local income tax burden include the taxation of modified gross receipts (as opposed to net taxable income), the suspension of and/or limitation on the use of net operating loss deduction, increases in tax rates and fees, the addition of surcharges, and the taxation of our partnership income at the entity level. Facing mounting budget deficits, more state and local taxing authorities have indicated that they are going to revise their income tax regimes in this fashion and/or eliminate certain federally allowed tax deductions such as the REIT dividends paid deduction.
Failure to make required distributions would subject us to U.S. federal corporate income tax.
We operate in a manner so as to allow us to continue to qualify as a REIT for U.S. federal income tax purposes. In order to continue to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under the Code.
Our TRS lessee structure increases our overall tax liability.
Our TRS lessees are subject to federal, state and local income tax on their taxable income, which consists of the revenues from the hotel properties leased by our TRS lessees, net of the operating expenses for such hotel properties and rent payments to us. Accordingly, although our ownership of our TRS lessees allows us to participate in the operating income from our hotel properties in addition to receiving fixed rent, the net operating income is fully subject to income tax. The after-tax net income of our TRS lessees is available for distribution to us.
We may be subject to taxes in the event our leases are held not to be on an arm’s-length basis.
In the event that leases between us and our taxable REIT subsidiaries are held not to be on an arm’s-length basis, we or our taxable REIT subsidiaries could be subject to taxes, and adjustments to the rents could cause us to fail to meet certain REIT income tests. In determining amounts payable by our taxable REIT subsidiaries under our leases, we engage a third party to prepare transfer pricing studies to ascertain whether the lease terms we establish are on an arm’s-length basis, but we may still be subject to challenge by the Internal Revenue Service (“IRS”).
In addition, if the IRS were to successfully challenge the terms of our leases with any of our taxable REIT subsidiaries for 2011 and later years, we or our taxable REIT subsidiaries could owe additional taxes and we could be required to pay penalty taxes if the effect of such challenges were to cause us to fail to meet certain REIT income tests, which could materially adversely affect us and the value of our securities.

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Our ownership of TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotels that are operated by eligible independent contractors pursuant to hotel management agreements. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
Our TRSs are subject to federal, foreign, state and local income tax on their taxable income, and their after-tax net income is available for distribution to us but is not required to be distributed to us. We believe that the aggregate value of the stock and securities of our TRSs is less than 25% of the value of our total assets (including our TRS stock and securities).
We monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we scrutinize all of our transactions with our TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. For example, in determining the amounts payable by our TRSs under our leases, we engage a third party to prepare transfer pricing studies to ascertain whether the lease terms we establish are on an arm’s-length basis as required by applicable Treasury Regulations. However the receipt of a transfer pricing study does not prevent the IRS from challenging the arm’s length nature of the lease terms between a REIT and its TRS lessees. Consequently, there can be no assurance that we will be able to avoid application of the 100% excise tax discussed above.
If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT.
Rent paid by a lessee that is a “related party tenant” of ours is not qualifying income for purposes of the two gross income tests applicable to REITs. We lease all of our hotels to our TRS lessees. A TRS lessee will not be treated as a “related party tenant,” and will not be treated as directly operating a lodging facility, which is prohibited, to the extent the TRS lessee leases properties from us that are managed by an “eligible independent contractor.”
We believe that the rent paid by our TRS lessees is qualifying income for purposes of the REIT gross income tests and that our TRSs qualify to be treated as TRSs for U.S. federal income tax purposes, but there can be no assurance that the IRS will not challenge this treatment or that a court would not sustain such a challenge. If the IRS were successful in challenging this treatment, it is possible that we would fail to meet the asset tests applicable to REITs and substantially all of our income would fail to qualify for the gross income tests. If we failed to meet either the asset or gross income tests, we would likely lose our REIT qualification for U.S. federal income tax purposes, unless certain relief provisions applied.
If our hotel managers do not qualify as “eligible independent contractors,” we would fail to qualify as a REIT. Each of the hotel management companies that enters into a management contract with our TRS lessees must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS lessees to be qualifying income for our REIT income test requirements. Among other requirements, in order to qualify as an eligible independent contractor a manager must not own more than 35% of our outstanding shares (by value) and no person or group of persons can own more than 35% of our outstanding shares and the ownership interests of the manager, taking into account only owners of more than 5% of our shares and, with respect to ownership interests in such managers that are publicly-traded, only holders of more than 5% of such ownership interests. Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor ownership of our shares by our property managers and their owners, there can be no assurance that these ownership levels will not be exceeded.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum U.S. federal income tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. Individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on dividends received from us. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

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If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our stockholders and suffer other adverse consequences.
We believe that our operating partnership qualifies to be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership is not subject to federal income tax on its income. Instead, each of its partners, including us, is required to pay tax on its allocable share of the operating partnership's income. No assurance can be provided, however, that the IRS will not challenge its status as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership as a corporation for tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of our operating partnership to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders, and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the Internal Revenue Code may limit our ability to hedge mortgage securities and related borrowings by requiring us to limit our income and assets in each year from certain hedges, together with any other income not generated from qualified real estate assets, to no more than 25% of our gross income. In addition, we must limit our aggregate income from nonqualified hedging transactions, from our provision of services, and from other non-qualifying sources to no more than 5% of our annual gross income. As a result, we may have to limit our use of advantageous hedging techniques. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. However, for transactions that we enter into to protect against interest rate risks on debt incurred to acquire qualified REIT assets and for which we identify as hedges for tax purposes, any associated hedging income is excluded from the 95% income test and the 75% income test applicable to a REIT. If we were to violate the 25% or 5% limitations, we may have to pay a penalty tax equal to the amount of income in excess of those limitations multiplied by a fraction intended to reflect our profitability. If we fail to satisfy the REIT gross income tests, unless our failure was due to reasonable cause and not due to willful neglect, we could lose our REIT status for federal income tax purposes.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffer adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
Complying with REIT requirements may force us to borrow to make distributions to our stockholders.
As a REIT, we must distribute at least 90% of our annual REIT taxable income, excluding net capital gains, (subject to certain adjustments) to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.

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From time to time, we may generate taxable income greater than our net income for financial reporting purposes or our taxable income may be greater than our cash flow available for distribution to our stockholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices, or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements.
We may in the future choose to pay dividends in our shares of our common stock instead of cash, in which case stockholders may be required to pay income taxes in excess of the cash dividends they receive.
We may distribute taxable dividends that are payable in cash and common stock at the election of each stockholder. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for U.S. federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in cash and common stock.
If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the shares of common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in shares of common stock. In addition, if we made a taxable dividend payable in cash and our common stock and a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. We do not currently intend to pay taxable dividends of our common stock and cash, although we may choose to do so in the future.
The prohibited transactions tax may limit our ability to dispose of our properties.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or may conduct such sales through our TRS, which would be subject to federal and state income taxation.
The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal and state and local income taxes on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on the total stockholder return to our stockholders.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our securities.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our stockholders. The maximum regular income tax rate applicable to individuals on dividend income from regular C corporations is 20%. This reduces substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) applicable to corporations that are not taxed as REITs. Generally, dividends from REITs will not qualify for such maximum rate, and dividends from REITs may be taxed at regular income tax rates as great as 39.6%. This difference in maximum tax rates could ultimately cause individual investors to view stocks of non-REIT corporations as more attractive relative to shares of REITs because the dividends paid by non-REIT corporations would be subject to lower tax rates. We cannot predict whether in fact this will occur or, if it occurs, what the impact will be on the value of our securities.

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If Ashford Prime failed to qualify as a REIT for 2013, it would significantly affect our ability to maintain our REIT status.
For federal income tax purposes, we recorded a gain of approximately $145.7 million as a result of the spin-off of Ashford Prime in November 2013. If Ashford Prime qualified for taxation as REIT for 2013, that gain was qualifying income for purposes of our 2013 REIT income tests. If, however, Ashford Prime failed to qualify as a REIT for 2013, that gain would be non-qualifying income for purposes of the 75% gross income test. Although Ashford Prime covenanted in the Separation and Distribution Agreement to use reasonable best efforts to qualify as a REIT in 2013, no assurance can be given that it so qualified. If Ashford Prime failed to qualify, we would have failed our 2013 REIT income tests, which would either result in our loss of our REIT status for 2013 and the following 4 taxable years or result in a significant tax in 2013 that has not been accrued or paid and thereby would materially negatively impact our business, financial condition and potentially impair our ability to continue operating in the future.
Your investment in our securities has various federal, state, and local income tax risks that could affect the value of your investment.
We strongly urge you to consult your own tax advisor concerning the effects of federal, state, and local income tax law on an investment in our securities because of the complex nature of the tax rules applicable to REITs and their stockholders.
RISKS RELATED TO OUR CORPORATE STRUCTURE
Our charter, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay or prevent a change of control transaction.
Our charter contains 9.8% ownership limits. For the purpose of preserving our REIT qualification, our charter prohibits direct or constructive ownership by any person of more than (i) 9.8% of the lesser of the total number or value (whichever is more restrictive) of the outstanding shares of our common stock or (ii) 9.8% of the total number or value (whichever is more restrictive) of the outstanding shares of any class or series of our preferred stock or any other stock of our company, unless our board of directors grants a waiver.
Our charter’s constructive ownership rules are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of any class or series of our stock by an individual or entity could nevertheless cause that individual or entity to own constructively in excess of 9.8% of a class or series of outstanding stock, and thus be subject to our charter’s ownership limit. Any attempt to own or transfer shares of our stock in excess of the ownership limit without the consent of our board of directors will be void, and could result in the shares being automatically transferred to a charitable trust.
Our board of directors may create and issue a class or series of preferred stock without stockholder approval.
Our charter authorizes our board of directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval. Our preferred stock issuances could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests.
Certain provisions in the partnership agreement for our operating partnership may delay or prevent unsolicited acquisitions of us.
Provisions in the partnership agreement for our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:
•
redemption rights of qualifying parties;
•
transfer restrictions on our common units;
•
the ability of the general partner in some cases to amend the partnership agreement without the consent of the limited partners; and
•
the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances.

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Because provisions contained in Maryland law and our charter may have an anti-takeover effect, investors may be prevented from receiving a “control premium” for their shares.
Provisions contained in our charter and Maryland general corporation law may have effects that delay, defer, or prevent a takeover attempt, which may prevent stockholders from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices.
These provisions include the following:
•
Ownership limit: The ownership limit in our charter limits related investors, including, among other things, any voting group, from acquiring over 9.8% of our common stock without our permission.
•
Classification of preferred stock: Our charter authorizes our Board of Directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval. Our preferred stock issuances could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests.
Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation are not required to act in certain takeover situations under the same standards as apply in Delaware and other corporate jurisdictions.
We depend on our operating partnership and its subsidiaries for cash flow and are effectively structurally subordinated in right of payment to the obligations of our operating partnership and its subsidiaries, which could adversely affect our ability to make distributions to our stockholders.
We have no business operations of our own. Our only significant asset is and will be the general and limited partnership interests of our operating partnership. We conduct, and intend to continue to conduct, all of our business operations through our operating partnership. Accordingly, our only source of cash to pay our obligations is distributions from our operating partnership and its subsidiaries of their net earnings and cash flows. We cannot assure our stockholders that our operating partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our operating partnership’s subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our operating partnership and its subsidiaries will be able to satisfy the claims of our stockholders only after all of our and our operating partnership and its subsidiaries liabilities and obligations have been paid in full.
Offerings of debt securities, which would be senior to our common stock and any preferred stock upon liquidation, or equity securities, which would dilute our existing stockholders’ holdings could be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock and any preferred stock.
We may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes, convertible securities, and classes of preferred stock or common stock or classes of preferred units. Upon liquidation, holders of our debt securities or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of shares of preferred stock or common stock. Furthermore, holders of our debt securities and preferred stock or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common or preferred stock or both. Our preferred stock or preferred units could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our securities and diluting their securities holdings in us.
Securities eligible for future sale may have adverse effects on the market price of our securities.
We cannot predict the effect, if any, of future sales of securities, or the availability of securities for future sales, on the market price of our outstanding securities. Sales of substantial amounts of common stock, or the perception that these sales could occur, may adversely affect prevailing market prices for our securities.

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We also may issue from time to time additional shares of our securities or units of our operating partnership in connection with the acquisition of properties and we may grant additional demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of our securities or the perception that such sales could occur may adversely affect the prevailing market price for our securities or may impair our ability to raise capital through a sale of additional debt or equity securities.
An increase in market interest rates may have an adverse effect on the market price of our securities.
A factor investors may consider in deciding whether to buy or sell our securities is our dividend rate as a percentage of our share or unit price relative to market interest rates. If market interest rates increase, prospective investors may desire a higher dividend or interest rate on our securities or seek securities paying higher dividends or interest. The market price of our securities is likely based on the earnings and return that we derive from our investments, income with respect to our properties, and our related distributions to stockholders and not from the market value or underlying appraised value of the properties or investments themselves. As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities. For instance, if interest rates rise without an increase in our dividend rate, the market price of our common or preferred stock could decrease because potential investors may require a higher dividend yield on our common or preferred stock as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable-rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.
Our board of directors can take many actions without stockholder approval.
Our board of directors has overall authority to oversee our operations and determine our major corporate policies. This authority includes significant flexibility. For example, our board of directors can do the following:
•
terminate our advisor under certain conditions pursuant to advisory agreement, subject to the payment of a termination fee;
•
amend or revise at any time and from time to time our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, subject to the limitations and restrictions provided in our advisory agreement and mutual exclusivity agreement;
•
amend our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements;
•
subject to the terms of our charter, prevent the ownership, transfer and/or accumulation of shares in order to protect our status as a REIT or for any other reason deemed to be in the best interests of us and our stockholders;
•
issue additional shares without obtaining stockholder approval, which could dilute the ownership of our then-current stockholders;
•
amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series, without obtaining stockholder approval;
•
classify or reclassify any unissued shares of our common stock or preferred stock and set the preferences, rights and other terms of such classified or reclassified shares, without obtaining stockholder approval;
•
employ and compensate affiliates;
•
direct our resources toward investments that do not ultimately appreciate over time; and
•
determine that it is no l in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
Any of these actions could increase our operating expenses, impact our ability to make distributions or reduce the value of our assets without giving you, as a stockholder, the right to vote.
The ability of our board of directors to change our major policies without the consent of stockholders may not be in our stockholders’ interest.
Our board of directors determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to stockholders. Our board of directors may amend or revise these and other policies and guidelines from time to time without the vote or consent of our stockholders, subject to certain limitations and restrictions provided in our advisory agreement. Accordingly, our stockholders will have limited control over changes in our policies and those changes could adversely affect our financial condition, results of operations, the market price of our stock and our ability to make distributions to our stockholders.

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Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter eliminates our directors’ and officers’ liability to us and our stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment to have been material to the cause of action. Our charter requires us to indemnify our directors and officers to the maximum extent permitted by Maryland law for liability actually incurred in connection with any proceeding to which they may be made, or threatened to be made, a party, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was either committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.
Item 1B.     Unresolved Staff Comments
None.

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Item 2.
Properties
OFFICES. We lease our headquarters located at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254.
HOTEL PROPERTIES. As of December 31, 2014 , we had ownership interests in 87 legacy hotel properties that were included in our consolidated operations, which included direct ownership in 85 hotel properties and 85% ownership in two hotel properties through equity investments with joint venture partners. Currently, all of our hotel properties are located in the United States. The following table presents certain information related to our hotel properties:
Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
 
Year Ended December 31, 2014
Occupancy
 
ADR
 
RevPAR
Fee Simple Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Embassy Suites
 
Austin, TX
 
Full service
 
150

 
100
%
 
150

 
79.84
%
 
$
157.37

 
$
125.64

Embassy Suites
 
Dallas, TX
 
Full service
 
150

 
100

 
150

 
74.76
%
 
$
127.87

 
$
95.59

Embassy Suites
 
Herndon, VA
 
Full service
 
150

 
100

 
150

 
73.89
%
 
$
147.50

 
$
108.98

Embassy Suites
 
Las Vegas, NV
 
Full service
 
220

 
100

 
220

 
84.86
%
 
$
119.46

 
$
101.37

Embassy Suites
 
Syracuse, NY
 
Full service
 
215

 
100

 
215

 
74.02
%
 
$
117.99

 
$
87.33

Embassy Suites
 
Flagstaff, AZ
 
Full service
 
119

 
100

 
119

 
82.42
%
 
$
132.97

 
$
109.60

Embassy Suites
 
Houston, TX
 
Full service
 
150

 
100

 
150

 
80.48
%
 
$
174.86

 
$
140.73

Embassy Suites
 
West Palm Beach, FL
 
Full service
 
160

 
100

 
160

 
76.95
%
 
$
130.53

 
$
100.44

Embassy Suites
 
Philadelphia, PA
 
Full service
 
263

 
100

 
263

 
75.31
%
 
$
143.98

 
$
108.43

Embassy Suites
 
Walnut Creek, CA
 
Full service
 
249

 
100

 
249

 
82.37
%
 
$
147.70

 
$
121.66

Embassy Suites
 
Arlington, VA
 
Full service
 
267

 
100

 
267

 
84.79
%
 
$
178.89

 
$
151.67

Embassy Suites
 
Portland, OR
 
Full service
 
276

 
100

 
276

 
84.44
%
 
$
194.30

 
$
164.07

Embassy Suites
 
Santa Clara, CA
 
Full service
 
257

 
100

 
257

 
79.56
%
 
$
205.52

 
$
163.50

Embassy Suites
 
Orlando, FL
 
Full service
 
174

 
100

 
174

 
84.03
%
 
$
126.60

 
$
106.38

Hilton Garden Inn
 
Jacksonville, FL
 
Select service
 
119

 
100

 
119

 
74.07
%
 
$
110.86

 
$
82.12

Hilton
 
Houston, TX
 
Full service
 
242

 
100

 
242

 
69.13
%
 
$
126.44

 
$
87.41

Hilton
 
St. Petersburg, FL
 
Full service
 
333

 
100

 
333

 
73.28
%
 
$
132.40

 
$
97.02

Hilton
 
Santa Fe, NM
 
Full service
 
158

 
100

 
158

 
71.24
%
 
$
153.61

 
$
109.43

Hilton
 
Bloomington, MN
 
Full service
 
300

 
100

 
300

 
82.21
%
 
$
127.95

 
$
105.18

Hilton
 
Costa Mesa, CA
 
Full service
 
486

 
100

 
486

 
85.54
%
 
$
119.98

 
$
102.63

Hampton Inn
 
Lawrenceville, GA
 
Select service
 
85

 
100

 
85

 
71.51
%
 
$
96.67

 
$
69.13

Hampton Inn
 
Evansville, IN
 
Select service
 
140

 
100

 
140

 
69.89
%
 
$
110.43

 
$
77.18

Hampton Inn
 
Terre Haute, IN
 
Select service
 
112

 
100

 
112

 
66.61
%
 
$
98.49

 
$
65.61

Hampton Inn
 
Buford, GA
 
Select service
 
92

 
100

 
92

 
79.52
%
 
$
113.02

 
$
89.87

Marriott
 
Durham, NC
 
Full service
 
225

 
100

 
225

 
65.07
%
 
$
142.97

 
$
93.03

Marriott
 
Arlington, VA
 
Full service
 
697

 
100

 
697

 
75.98
%
 
$
174.25

 
$
132.40

Marriott
 
Bridgewater, NJ
 
Full service
 
347

 
100

 
347

 
67.26
%
 
$
201.23

 
$
135.35

Marriott
 
Dallas, TX
 
Full service
 
265

 
100

 
265

 
70.80
%
 
$
127.16

 
$
90.03

Marriott
 
Fremont, CA
 
Full service
 
357

 
100

 
357

 
78.54
%
 
$
145.61

 
$
114.36

SpringHill Suites by Marriott
 
Jacksonville, FL
 
Select service
 
102

 
100

 
102

 
78.04
%
 
$
92.23

 
$
71.98

SpringHill Suites by Marriott
 
Baltimore, MD
 
Select service
 
133

 
100

 
133

 
78.25
%
 
$
106.16

 
$
83.07

SpringHill Suites by Marriott
 
Kennesaw, GA
 
Select service
 
90

 
100

 
90

 
77.79
%
 
$
104.16

 
$
81.03

SpringHill Suites by Marriott
 
Buford, GA
 
Select service
 
97

 
100

 
97

 
79.36
%
 
$
102.05

 
$
80.99

SpringHill Suites by Marriott
 
Gaithersburg, MD
 
Select service
 
162

 
100

 
162

 
72.91
%
 
$
100.76

 
$
73.47

SpringHill Suites by Marriott
 
Centreville, VA
 
Select service
 
136

 
100

 
136

 
71.45
%
 
$
86.15

 
$
61.55

SpringHill Suites by Marriott
 
Charlotte, NC
 
Select service
 
136

 
100

 
136

 
74.35
%
 
$
106.60

 
$
79.26

SpringHill Suites by Marriott
 
Durham, NC
 
Select service
 
120

 
100

 
120

 
76.64
%
 
$
95.07

 
$
72.86

SpringHill Suites by Marriott
 
Orlando, FL
 
Select service
 
400

 
100

 
400

 
75.62
%
 
$
96.77

 
$
73.17

SpringHill Suites by Marriott
 
Manhattan Beach, CA
 
Select service
 
164

 
100

 
164

 
83.36
%
 
$
137.29

 
$
114.45

SpringHill Suites by Marriott
 
Plymouth Meeting, PA
 
Select service
 
199

 
100

 
199

 
64.91
%
 
$
118.50

 
$
76.92

SpringHill Suites by Marriott
 
Glen Allen, VA
 
Select service
 
136

 
100

 
136

 
66.54
%
 
$
91.28

 
$
60.74

Fairfield Inn by Marriott
 
Kennesaw, GA
 
Select service
 
86

 
100

 
86

 
76.88
%
 
$
94.55

 
$
72.69

Fairfield Inn by Marriott
 
Orlando, FL
 
Select service
 
388

 
100

 
388

 
80.65
%
 
$
84.64

 
$
68.26

Courtyard by Marriott
 
Bloomington, IN
 
Select service
 
117

 
100

 
117

 
70.16
%
 
$
126.03

 
$
88.42


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Table of Contents

Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
 
Year Ended December 31, 2014
Occupancy
 
ADR
 
RevPAR
Courtyard by Marriott
 
Columbus, IN
 
Select service
 
90

 
100

 
90

 
63.33
%
 
$
95.85

 
$
60.71

Courtyard by Marriott
 
Louisville, KY
 
Select service
 
150

 
100

 
150

 
74.97
%
 
$
130.55

 
$
97.87

Courtyard by Marriott
 
Crystal City, VA
 
Select service
 
272

 
100

 
272

 
76.49
%
 
$
139.00

 
$
106.32

Courtyard by Marriott
 
Ft. Lauderdale, FL
 
Select service
 
174

 
100

 
174

 
81.63
%
 
$
112.55

 
$
91.88

Courtyard by Marriott
 
Overland Park, KS
 
Select service
 
168

 
100

 
168

 
68.63
%
 
$
103.14

 
$
70.78

Courtyard by Marriott
 
Palm Desert, CA
 
Select service
 
151

 
100

 
151

 
63.33
%
 
$
112.54

 
$
71.27

Courtyard by Marriott
 
Foothill Ranch, CA
 
Select service
 
156

 
100

 
156

 
77.16
%
 
$
115.29

 
$
88.96

Courtyard by Marriott
 
Alpharetta, GA
 
Select service
 
154

 
100

 
154

 
69.12
%
 
$
115.20

 
$
79.62

Courtyard by Marriott
 
Orlando, FL
 
Select service
 
312

 
100

 
312

 
78.62
%
 
$
99.06

 
$
77.88

Courtyard by Marriott
 
Oakland, CA
 
Select service
 
156

 
100

 
156

 
90.81
%
 
$
132.35

 
$
120.19

Courtyard by Marriott
 
Scottsdale, AZ
 
Select service
 
180

 
100

 
180

 
74.28
%
 
$
100.21

 
$
74.44

Courtyard by Marriott
 
Plano, TX
 
Select service
 
153

 
100

 
153

 
75.23
%
 
$
127.79

 
$
96.14

Courtyard by Marriott
 
Edison, NJ
 
Select service
 
146

 
100

 
146

 
77.78
%
 
$
115.41

 
$
89.77

Courtyard by Marriott
 
Newark, CA
 
Select service
 
181

 
100

 
181

 
76.83
%
 
$
130.52

 
$
100.28

Courtyard by Marriott
 
Manchester, CT
 
Select service
 
90

 
85

 
77

 
77.71
%
 
$
118.97

 
$
92.45

Courtyard by Marriott
 
Basking Ridge, NJ
 
Select service
 
235

 
100

 
235

 
67.80
%
 
$
181.25

 
$
122.88

Marriott Residence Inn
 
Lake Buena Vista, FL
 
Select service
 
210

 
100

 
210

 
84.57
%
 
$
117.31

 
$
99.21

Marriott Residence Inn
 
Evansville, IN
 
Select service
 
78

 
100

 
78

 
77.46
%
 
$
113.36

 
$
87.82

Marriott Residence Inn
 
Orlando, FL
 
Select service
 
350

 
100

 
350

 
84.00
%
 
$
114.05

 
$
95.80

Marriott Residence Inn
 
Falls Church, VA
 
Select service
 
159

 
100

 
159

 
81.12
%
 
$
139.88

 
$
113.47

Marriott Residence Inn
 
San Diego, CA
 
Select service
 
150

 
100

 
150

 
78.10
%
 
$
150.87

 
$
117.83

Marriott Residence Inn
 
Salt Lake City, UT
 
Select service
 
144

 
100

 
144

 
69.78
%
 
$
116.03

 
$
80.96

Marriott Residence Inn
 
Palm Desert, CA
 
Select service
 
130

 
100

 
130

 
70.74
%
 
$
127.46

 
$
90.16

Marriott Residence Inn
 
Las Vegas, NV
 
Select service
 
256

 
100

 
256

 
79.24
%
 
$
106.51

 
$
84.40

Marriott Residence Inn
 
Phoenix, AZ
 
Select service
 
200

 
100

 
200

 
67.39
%
 
$
105.85

 
$
71.33

Marriott Residence Inn
 
Plano, TX
 
Select service
 
126

 
100

 
126

 
78.42
%
 
$
105.14

 
$
82.45

Marriott Residence Inn
 
Newark, CA
 
Select service
 
168

 
100

 
168

 
82.71
%
 
$
140.26

 
$
116.01

Marriott Residence Inn
 
Manchester, CT
 
Select service
 
96

 
85

 
82

 
82.28
%
 
$
121.63

 
$
100.07

Marriott Residence Inn
 
Atlanta, GA
 
Select service
 
150

 
100

 
150

 
83.19
%
 
$
119.88

 
$
99.73

Marriott Residence Inn
 
Jacksonville, FL
 
Select service
 
120

 
100

 
120

 
83.11
%
 
$
103.26

 
$
85.83

TownePlace Suites by Marriott
 
Manhattan Beach, CA
 
Select service
 
144

 
100

 
144

 
82.67
%
 
$
123.73

 
$
102.29

One Ocean
 
Atlantic Beach, FL
 
Full service
 
193

 
100

 
193

 
65.83
%
 
$
219.16

 
$
144.27

Sheraton Hotel
 
Langhorne, PA
 
Full service
 
186

 
100

 
186

 
67.47
%
 
$
115.62

 
$
78.01

Sheraton Hotel
 
Minneapolis, MN
 
Full service
 
220

 
100

 
220

 
69.86
%
 
$
116.33

 
$
81.27

Sheraton Hotel
 
Indianapolis, IN
 
Full service
 
378

 
100

 
378

 
74.27
%
 
$
113.64

 
$
84.40

Sheraton Hotel
 
Anchorage, AK
 
Full service
 
370

 
100

 
370

 
70.77
%
 
$
140.80

 
$
99.64

Sheraton Hotel
 
San Diego, CA
 
Full service
 
260

 
100

 
260

 
76.67
%
 
$
120.30

 
$
92.23

Hyatt Regency
 
Coral Gables, FL
 
Full service
 
250

 
100

 
250

 
82.65
%
 
$
184.74

 
$
152.69

Crowne Plaza
 
Beverly Hills, CA
 
Full service
 
258

 
100

 
258

 
77.95
%
 
$
182.33

 
$
142.12

Annapolis Historic Inn
 
Annapolis, MD
 
Full service
 
124

 
100

 
124

 
62.00
%
 
$
145.86

 
$
90.44

The Ashton
 
Ft. Worth, TX
 
Select service
 
39

 
100

 
39

 
61.11
%
 
$
225.01

 
$
137.50

Ground Lease Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hilton
 
Ft. Worth, TX
 
Full service
 
294

 
100
%
 
294

 
73.89
%
 
$
156.40

 
$
115.56

Crowne Plaza
 
Key West, FL
 
Full service
 
160

 
100
%
 
160

 
86.55
%
 
$
258.07

 
$
223.36

Total
 
 
 
 
 
17,205

 
 
 
17,178

 
76.23
%
 
$
133.66

 
$
101.88

________
(a) The partial ground lease expires in 2040.
(b) The ground lease expires in 2084.

40
Table of Contents

Item 3.
Legal Proceedings
Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. This litigation involves a landlord tenant dispute from 2008 in which the landlord, Palm Beach Florida Hotel and Office Building Limited Partnership, a subsidiary of the Company, claimed that the tenant had violated various lease provisions of the lease agreement and was therefore in default. The tenant counterclaimed and asserted multiple claims including that it had been wrongfully evicted. The litigation was instituted by the plaintiff in November 2008 in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, Florida and proceeded to a jury trial on June 30, 2014. The jury entered its verdict awarding the tenant total claims of $10.8 million and ruling against the landlord on its claim of breach of contract. A final judgment was entered and the landlord has filed a notice of appeal. As a result of the jury verdict, we have recorded pre-judgement interest of $707,000 for the year ended December 31, 2014 . During October 2014, there was a hearing held regarding the plaintiff’s motion to recover legal fees. The court ruled that as the prevailing party, the plaintiff was entitled to recover legal fees. As of the year ended December 31, 2014 , an accrual of $400,000 has been made as a reasonable estimate of loss related to legal fees. Total expense was $11.9 million for the year ended December 31, 2014 . The charge is included in other expenses in the consolidated statements of operations for the year ended December 31, 2014 .
We are engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
Item 4.
Mine Safety Disclosures
Not Applicable
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
(a) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters
Market Price and Dividend Information
Our common stock is listed and traded on the New York Stock Exchange under the symbol “AHT.” On February 26, 2015 , there were 127 registered holders of record of our common stock. In order to comply with certain requirements related to our qualification as a REIT, our charter limits the number of shares of capital stock that may be owned by any single person or affiliated group without our permission to 9.8% of the outstanding shares of any class of our capital stock. We are aware of one Section 13G filer that presently holds in excess of 9.8% of our outstanding common shares, but our Board of Directors has granted a waiver which provides this holder with an exception to our ownership restrictions.

41
Table of Contents

The following table sets forth, for the indicated periods, the high and low sales prices for our common stock as traded on that exchange and cash distributions declared per share of common stock. The sales prices have not been adjusted for the impact of the Ashford Prime spin-off or the Ashford Inc. spin-off. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information on the spin-off transactions.
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
2014
 
 
 
 
 
 
 
High
$
12.00

 
$
11.57

 
$
12.03

 
$
11.70

Low
8.13

 
9.82

 
10.22

 
8.87

Close
11.27

 
11.54

 
10.22

 
10.48

Cash dividends declared per share
0.12

 
0.12

 
0.12

 
0.12

2013
 
 
 
 
 
 
 
High
$
12.69

 
$
14.26

 
$
12.77

 
$
13.70

Low
10.32

 
11.05

 
11.22

 
7.86

Close
12.36

 
11.45

 
12.34

 
8.28

Cash dividends declared per share
0.12

 
0.12

 
0.12

 
0.12

For the years ended December 31, 2014 and 2013 , we declared and paid dividends of $0.48 per share, paid at a rate of $0.12 per share per quarter. In December 2014 , the Board of Directors approved our dividend policy for 2015 , and we expect to pay a quarterly dividend of $0.12 per share for 2015 . The adoption of a dividend policy does not commit our Board of Directors to declare future dividends or the amount thereof. The Board of Directors will continue to review our dividend policy on a quarterly basis. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. To maintain our qualification as a REIT, we intend to make annual distributions to our stockholders of at least 90% of our REIT taxable income, excluding net capital gains (which does not necessarily equal net income as calculated in accordance with GAAP). Distributions will be authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our directors. Our ability to pay distributions to our 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, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers.

42
Table of Contents

Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. Distributions paid per share were characterized as follows:
 
 
2014
 
2013
 
2012
 
Amount
 
 
%
 
Amount
 
 
%
 
Amount
 
 
%
Common Stock (cash):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
—

 
 
—

 
0.1245

(1)  
 
26.49

 
—

 
 
—

Return of capital
0.4800

(1)  
 
100.00

 
0.3455

(1)  
 
73.51

 
0.4300

(1)  
 
100.00

Total
$
0.4800

 
 
100.00
%
 
$
0.4700

 
 
100.00
%
 
$
0.4300

 
 
100.00
%
Common Stock (stock):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
—

 
 
—

 
1.1310

 
 
26.49

 
—

 
 
—

Return of capital
0.6437

(1)  
 
100.00

 
3.1390

 
 
73.51

 
—

 
 
—

Total
$
0.6437

 
 
100.00
%
 
$
4.2700

 
 
100.00
%
 
$
—

 
 
—
%
Preferred Stock – Series A:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
—

 
 
—

 
2.6719

(1)  
 
100.00

 
—

 
 
—

Return of capital
1.6031

(1)  
 
100.00

 
—

 
 
—

 
2.1375

(1)  
 
100.00

Total
$
1.6031

 
 
100.00
%
 
$
2.6719

 
 
100.00
%
 
$
2.1375

 
 
100.00
%
Preferred Stock – Series D:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
—

 
 
—

 
2.6406

(1)  
 
100.00

 
—

 
 
—

Return of capital
1.5844

(1)  
 
100.00

 
—

 
 
—

 
2.1125

(1)  
 
100.00

Total
$
1.5844

 
 
100.00
%
 
$
2.6406

 
 
100.00
%
 
$
2.1125

 
 
100.00
%
Preferred Stock – Series E:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
—

 
 
—

 
2.8125

(1)  
 
100.00

 
—

 
 
—

Return of capital
1.6875

(1)  
 
100.00

 
—

 
 
—

 
2.2500

(1)  
 
100.00

Total
$
1.6875

 
 
100.00
%
 
$
2.8125

 
 
100.00
%
 
$
2.2500

 
 
100.00
%
 ____________________
(1)  
The fourth quarter 2012 preferred and common distributions paid January 15, 2013 are treated as 2013 distributions for tax purposes. The fourth quarter 2013 common distributions paid January 15, 2014 are treated as 2014 distributions for tax purposes.
The fourth quarter 2014 preferred and common distributions paid January 15, 2015 are treated as 2015 distributions for tax purposes.

43
Table of Contents

Equity Compensation Plan Information
The following table sets forth certain information with respect to securities authorized and available for issuance under our equity compensation plans as of December 31, 2014.  
 
Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights
 
Weighted-Average
Exercise Price
Of Outstanding
Options, Warrants,
And Rights
 
Number of
 Securities Remaining Available for Future Issuance
 
 
 
 
 
 
 
 
 
 
Equity compensation plans approved by security holders
None
 
N/A
 
5,943,742

 
(1)  
Equity compensation plans not approved by security holders
None
 
N/A
 
None

 
 
Total
None
 
N/A
 
5,943,742

 
 
____________________
(1)  
As of December 31, 2014 , there were 5,943,742 shares of our common stock, or securities convertible into 5,943,742 shares of our common stock that remained available for issuance under our Amended and Restated 2011 Stock Incentive Plan.
Performance Graph
The following graph compares the percentage change in the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Stock Index and the FTSE NAREIT Lodging & Resorts Index for the period from December 31, 2009 through December 31, 2014 , assuming an initial investment of $100 in stock on December 31, 2009 with reinvestment of dividends. The NAREIT Lodging Resorts Index is not a published index; however, we believe the companies included in this index provide a representative example of enterprises in the lodging resort line of business in which we engage. Stockholders who wish to request a list of companies in the FTSE NAREIT Lodging & Resorts Index may send written requests to Ashford Hospitality Trust, Inc., Attention: Stockholder Relations, 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254.

44
Table of Contents

The stock price performance shown below on the graph is not necessarily indicative of future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Ashford Hospitality Trust, Inc., the S&P Index and the FTSE NAREIT Lodging & Resorts Index
Purchases of Equity Securities by the Issuer
The following table provides the information with respect to purchases of shares of our common stock during each of the months in the fourth quarter of 2014 :
Period
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan (1)
 
Maximum Dollar
Value of Shares That
May Yet Be Purchased
Under the Plan
Common stock:
 
 
 
 
 
 
 
 
October 1 to October 31
 
5,208

 
$
2.55

 
—

 
$
200,000,000

November 1 to November 30
 
—

 
—

 
—

 
200,000,000

December 1 to December 31
 
4,510

 
2.48

 
—

 
200,000,000

Total
 
9,718

 
$
2.52

 
—

 
 
____________________
(1)  
In September 2011, our Board of Directors authorized the reinstatement of our 2007 share repurchase program and authorized an increase in repurchase plan authorization from the remaining $58.4 million to $200.0 million. The plan provides for: (i) the repurchase of shares of our common stock, Series A preferred stock, Series D preferred stock and Series E preferred stock, and /or (ii) discounted purchases of outstanding debt obligations, including debt secured by hotel assets. No shares of common or preferred stock have been repurchased under this program since September 2011and none are authorized for purchase without further authorization from our Board of Directors.

45
Table of Contents

Item 6.
Selected Financial Data
The following sets forth our selected consolidated financial and operating information on a historical basis and should be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto, which are included in “Item 8. Financial Statements and Supplementary Data.”
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(in thousands, except per share amounts)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenue
$
794,849

 
$
939,527

 
$
919,657

 
$
857,217

 
$
805,551

Total operating expenses
718,157

 
822,630

 
805,542

 
763,883

 
744,583

Operating income
76,692

 
116,897

 
114,115

 
93,334

 
60,968

Income (loss) from continuing operations
(41,731
)
 
(48,460
)
 
(58,760
)
 
7,419

 
(26,759
)
Income (loss) from discontinued operations
33

 
(98
)
 
(3,448
)
 
(7,536
)
 
(35,033
)
Net income (loss) attributable to the Company
(31,401
)
 
(41,283
)
 
(53,780
)
 
2,109

 
(51,740
)
Net loss attributable to common stockholders
(65,363
)
 
(75,245
)
 
(87,582
)
 
(44,767
)
 
(72,934
)
Diluted income (loss) per common share:
 
 
 
 
 
 
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.75
)
 
$
(1.00
)
 
$
(1.26
)
 
$
(0.61
)
 
$
(0.84
)
Income (loss) from discontinued operations attributable to common stockholders
—

 
—

 
(0.04
)
 
(0.12
)
 
(0.59
)
Net loss attributable to common stockholders
$
(0.75
)
 
$
(1.00
)
 
$
(1.30
)
 
$
(0.73
)
 
$
(1.43
)
Weighted average diluted common shares
87,622

 
75,155

 
67,533

 
61,954

 
51,159

 
 
 
 
 
 
 
 
 
 
 
At December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(in thousands)
Balance Sheets Data:
 
 
 
 
 
 
 
 
 
Investments in hotel properties, net
$
2,128,611

 
$
2,164,389

 
$
2,872,304

 
$
2,957,899

 
$
3,023,736

Cash and cash equivalents
215,063

 
128,780

 
185,935

 
167,609

 
217,690

Restricted cash
85,830

 
61,498

 
84,786

 
84,069

 
67,666

Notes receivable
3,553

 
3,384

 
11,331

 
11,199

 
20,870

Total assets
2,781,080

 
2,677,002

 
3,464,729

 
3,589,726

 
3,716,524

Indebtedness of continuing operations
1,954,103

 
1,818,929

 
2,339,410

 
2,362,458

 
2,518,164

Series B-1 preferred stock
—

 
—

 
—

 
—

 
72,986

Total stockholders’ equity of the Company
531,633

 
617,789

 
831,942

 
973,407

 
816,808


46

 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(in thousands, except per share amounts)
Other Data:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
111,319

 
$
145,457

 
$
130,635

 
$
74,593

 
$
82,647

Cash used in investing activities
(207,245
)
 
(353,998
)
 
(68,446
)
 
(47,774
)
 
(47,476
)
Cash provided by (used in) financing activities
182,209

 
151,386

 
(43,863
)
 
(76,900
)
 
17,351

Cash dividends declared per common share
$
0.48

 
$
0.48

 
$
0.44

 
$
0.40

 
$
—

EBITDA (unaudited) (1)
$
290,469

 
$
314,526

 
$
317,035

 
$
359,634

 
$
331,911

Funds From Operations (FFO) (unaudited) (1)
85,097

 
95,523

 
84,209

 
74,080

 
107,696

____________________
(1)  
A more detailed description and computation of FFO and EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
General
Following the recession that commenced in 2008, the lodging industry has experienced improvement in fundamentals, which continued through 2013. Room rates, measured by the ADR, which typically lag occupancy growth in the early stage of a recovery, have shown upward growth. We believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come, and we will continue to seek ways to benefit from the cyclical nature of the hotel industry. We believe that in the prior cycle, hotel values and cash flows, for the most part, peaked in 2007, and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak.
As of December 31, 2014 , we owned 85 hotel properties directly, and two hotel properties through majority-owned investments in consolidated entities, which represents 17,205 total rooms, or 17,178 net rooms excluding those attributable to our joint venture partners. Currently, all of our hotel properties are located in the United States. In March 2011, we acquired 96 hotel condominium units at WorldQuest Resort in Orlando, Florida for $12.0 million. Also in March 2011, with an investment of $150.0 million, we converted our interest in a joint venture that held a mezzanine loan into a 71.74% common equity interest and a $25.0 million preferred equity interest in a new joint venture (the “PIM Highland JV”) that holds 28 high quality full-service and select-service hotel properties with 8,084 total rooms, or 5,800 net rooms excluding those attributable to our joint venture partner.
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our stockholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such stockholder as of the close of business on November 8, 2013.
On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. In connection with the spin-off we entered into a 20-year advisory agreement with Ashford Inc.
At December 31, 2014 , we also wholly owned one mezzanine loan with a net carrying value of $3.6 million .

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Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•
acquisition of hotel properties;
•
disposition of non-core hotel properties;
•
investing in securities;
•
pursuing capital market activities to enhance long-term stockholder value;
•
preserving capital, enhancing liquidity, and continuing current cost saving measures;
•
implementing selective capital improvements designed to increase profitability;
•
implementing effective asset management strategies to minimize operating costs and increase revenues;
•
financing or refinancing hotels on competitive terms;
•
utilizing hedges and derivatives to mitigate risks; and
•
making other investments or divestitures that our Board of Directors deems appropriate.
Our current investment strategies focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have RevPAR generally less than twice the national average. Our Board of Directors has, subject to the closing of the Ashford Hospitality Select, Inc. transaction, modified our investment strategies to focus on full-service hotels in the upscale and upper-upscale segments in domestic and international markets that have RevPAR generally less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of new lodging-related investment opportunities as they may develop. Our Board of Directors may change our investment strategies at any time without stockholder approval or notice.
SIGNIFICANT TRANSACTIONS IN 2014 AND RECENT DEVELOPMENTS
Refinanced our $164.4 Million Mortgage Loan - On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75%, with a LIBOR floor of 0.20%. The new loan continues to be secured by the same five hotels that secured the original loan, including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America.The refinance resulted in excess proceeds above closing costs and reserves of approximately $37.8 million.
Sale of the Pier House Resort - On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was $92.7 million. Ashford Prime assumed the $69.0 million mortgage and paid the balance of the purchase price in cash, in accordance with the option agreement. We recognized a gain of $3.5 million. We deferred a gain of $599,000 as a result of our retained interest in Ashford Prime.
Common Stock Offering - On April 8, 2014, we commenced a follow-on public offering of 7.5 million shares of common stock at $10.70 per share for gross proceeds of $80.3 million. The aggregate proceeds net of underwriting discount and other expenses were approximately $76.8 million. The offering settled on April 14, 2014. We granted the underwriters a 30-day option to purchase up to an additional 1.125 million shares of common stock. On May 9, 2014, the underwriters partially exercised their option and purchased an additional 850,000 shares of our common stock at a price of $10.70 per share less the underwriting discount resulting in additional net proceeds of approximately $8.7 million.
Refinanced our $5.1 Million Mortgage Loan - On May 1, 2014, we refinanced our $5.1 million loan due May 2014 with a $6.9 million loan due May 2024, with no extension options. The new loan provides for a fixed interest rate of 4.99%. The new loan continues to be secured by the same hotel property, the Courtyard Hartford-Manchester in Manchester, Connecticut.
Acquisition of the Ashton Hotel - On July 18, 2014, we acquired a 100% interest in the Ashton hotel in Fort Worth, Texas for total consideration of $8.0 million. The acquisition was funded with cash. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $66,000 . On July 31, 2014, to fund a portion of the acquisition, we completed the financing of a $5.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 3.75% (with a .25% LIBOR floor) for the first 18 months and a fixed rate of 4.0% thereafter. The stated maturity is July 2019, with no extension options. The mortgage loan is secured by the Ashton hotel.

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Refinanced Three Mortgage Loans - $326.6 Million - On July 25, 2014, we refinanced three mortgage loans, including our $135.0 million mortgage loan due May 2015, our $102.3 million mortgage loan due December 2014, which had an outstanding balance of $101.1 million, and our $89.3 million mortgage loan due February 2016, which had an outstanding balance of $88.5 million. The new loans total $468.9 million. As a result of the refinancing, the Homewood Suites Mobile and the Hampton Inn Terre Haute, Indiana are now unencumbered by debt. Other than the properties noted above, the new loans continue to be secured by the same hotel properties. Homewood Suites Mobile was sold in November 2014.
Acquisition of Fremont Marriott Hotel - On August 6, 2014, we acquired a 100% interest in the Fremont Marriott Silicon Valley hotel in Fremont, California for total consideration of $50.0 million. The acquisition was funded with proceeds from a $37.5 million non-recourse mortgage loan and cash. The mortgage loan bears interest at a rate of LIBOR + 4.20%. The stated maturity is August 2016, with three one-year extension options. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $261,000 . The mortgage loan is secured by the Fremont Marriott Silicon Valley hotel.
Expiration of our Senior Credit Facility - Our senior credit facility expired in September 2014. We do not currently plan to replace it with another credit facility. Cash flows from operations, capital market activities and property refinancing proceeds have provided sufficient liquidity throughout the term of the credit facility. Additionally, we never drew on the credit facility. Accordingly, the absence of a credit facility is not expected to have a significant impact on our liquidity.
Spin-off of Asset Management Business - On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. In connection with the spin-off we entered into a 20-year advisory agreement with Ashford Inc.
Acquisition of Remaining Interest in PIM Highland JV - We executed a Letter Agreement (the “Agreement”) dated December 14, 2014, with PRISA III Investments, LLC, a Delaware limited liability company (“Seller”). The Agreement was approved by the investment committee of Prudential Real Estate Investors, the investment manager of Seller, and fully executed and delivered to us on December 15, 2014. Pursuant to the Agreement, we agreed to purchase and Seller agrees to sell (the “Transaction”) all of Seller’s right, title and interest in and to its approximately 28.26% interest in PIM Highland JV. Prior to the consummation of the Transaction, we own approximately 71.74% of PIM Highland JV and Seller owns approximately 28.26% of PIM Highland JV. After the consummation of the Transaction, we will own 100% of PIM Highland JV.
Refinanced Two Mortgage Loans - $356.3 Million - On January 2, 2015, we refinanced two mortgage loans totaling $356.3 million. The refinance included the $211.0 million Goldman Sachs Floater loan due November 2015 and the $145.3 million Merrill Lynch 1 loan due July 2015. The new loans total $478 million in four loan pools. The new loans continue to be secured by the same hotel properties.
Acquisition of Lakeway Resort & Spa - On January 12, 2015, we announced that a definitive agreement had been signed to acquire the 168-room Lakeway Resort & Spa in Austin, Texas for total consideration of $33.5 million. The acquisition was completed February 6, 2015.
Acquisition of Memphis Marriott East Hotel - On January 20, 2015, we announced that a definitive agreement had been signed to acquire the 232-room Memphis Marriott East hotel in Memphis, Tennessee for total consideration of $43.5 million.
Common Stock Offering - On January 29, 2015, we commenced a follow-on public offering of 9.5 million shares of common stock. The offering priced on January 30, 2015, at $10.65 per share for gross proceeds of $101.2 million. We granted the underwriters a 30-day option to purchase up to an additional 1.425 million shares of common stock. On February 10, 2015, the underwriters partially exercised their option and purchased an additional 1.029 million shares of our common stock at a price of $10.65 per share.

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Formation of Ashford Hospitality Select, Inc. - On January 29, 2015, we announced that our Board of Directors had approved the formation of Ashford Hospitality Select, Inc. (“Ashford Select”), a new privately-held company dedicated to investing primarily in existing premium branded, upscale and upper-midscale, select-service hotels, including extended stay hotels, in the United States. Upon launch, expected in the first quarter of 2015, we intend to contribute to Ashford Select 16 of our existing select-service hotels, comprised of 2,560 total guestrooms. On February 18, 2015, Ashford Trust OP entered into four agreements for the contribution or sale of the portfolio of 16 select-service hotels to Ashford Select and its subsidiaries, including its operating partnership Ashford Hospitality Select Limited Partnership (“Ashford Select OP”), for aggregate consideration of approximately $321.0 million, which will be payable through the assumption of approximately $232.5 million of aggregate property level debt, the payment of approximately $66.4 million in cash and the issuance of approximately $22.1 million in equity interests of Ashford Select. Additionally, the aggregate consideration may be increased by up to $10.0 million (payable 75% in cash and 25% in equity interests in Ashford Select), based on the performance of the entire 16-hotel portfolio. We also expect to grant Ashford Select a right of first offer to acquire any select-service hotels we decide to sell in the future, subject to any prior rights of the managers of the hotels or other third parties. Ashford Select intends to qualify as a REIT for federal income tax purposes.
The following table summarizes the operating results of the 16-hotel portfolio included in our results of operations (in thousands):
 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Total revenue
 
$
83,743

 
$
77,245

 
$
75,144

Total operating expenses
 
68,691

 
64,105

 
61,903

Operating income
 
15,052

 
13,140

 
13,241

Interest income
 
10

 
7

 
14

Interest expense and amortization of loan costs
 
(13,234
)
 
(13,245
)
 
(12,781
)
Write-off of loan costs and exit fees
 
(3,415
)
 
(127
)
 
—

Unrealized loss on derivatives
 
(44
)
 
—

 
—

Income (loss) before income taxes
 
$
(1,631
)
 
$
(225
)
 
$
474

The cash flows from operations generated by the16-hotel portfolio were approximately $14.6 million, $11.6 million and $12.9 million for the years ended December 31, 2014, 2013 and 2012, respectively. The absence of the cash flows from these 16 hotel properties could have a significant impact on our liquidity.
LIQUIDITY AND CAPITAL RESOURCES
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.
Certain of our loan agreements contain cash trap provisions that may get triggered if the performance of our hotels decline. 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. Cash is distributed to us only after certain items are paid, including deposits into ground leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and ground leasing expenses. This could affect our liquidity and our ability to make distributions to our stockholders.
Also, 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, 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. In connection with the Ashford Prime Spin-off, we are still jointly and severally liable under certain carve-out guarantees and environmental indemnities associated with three loans. Ashford Prime has indemnified us in the case that any of these guarantees are ever called.

50

Our senior credit facility expired in September 2014. We do not currently plan to replace it with another credit facility. Cash flows from operations, capital market activities and property refinancing proceeds have provided sufficient liquidity throughout the term of the credit facility. Additionally, we never drew on the credit facility. Accordingly, the absence of a credit facility is not expected to have a significant impact on our liquidity.
In September 2010, we entered into an at-the-market (“ATM”) program with an investment banking firm to offer for sale from time to time up to $50.0 million of our common stock at market prices. No shares have been sold under this ATM program since its inception. While the ATM program will remain in effect until such time that either party elects to terminate or the $50.0 million cap is reached, it is not available until such time that a new prospectus is filed.
In September 2011, we entered into an ATM program with an investment banking firm, pursuant to which we may issue up to 700,000 shares of 8.55% Series A Cumulative Preferred Stock and up to 700,000 shares of 8.45% Series D Cumulative Preferred Stock at market prices up to $30.0 million in total proceeds. While the ATM program remains in effect until such time that either party elects to terminate or the share or dollar thresholds are reached, it is not available until such time that a new prospectus is filed. Through December 31, 2014, we have issued 169,306 shares of 8.55% Series A Cumulative Preferred Stock for gross proceeds of $4.2 million and 501,909 shares of 8.45% Series D Cumulative Preferred Stock for gross proceeds of $12.3 million. During the years ended December 31, 2014 and 2013, no shares were issued.
On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one-year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75%, with a LIBOR floor of 0.20%. The new loan continues to be secured by the same five hotels that secured the original loan, including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America.
On April 8, 2014, we commenced a follow-on public offering of 7.5 million shares of common stock at $10.70 per share for gross proceeds of $80.3 million. The aggregate proceeds net of underwriting discount and other expenses were approximately $76.8 million. The offering settled on April 14, 2014. We granted the underwriters a 30-day option to purchase up to an additional 1.125 million shares of common stock. On May 9, 2014, the underwriters partially exercised their option and purchased an additional 850,000 shares of our common stock at a price of $10.70 per share less the underwriting discount resulting in additional net proceeds of approximately $8.7 million.
On May 1, 2014, we refinanced our $5.1 million loan due May 2014 with a $6.9 million loan due May 2024, with no extension options. The new loan provides for a fixed interest rate of 4.99%. The new loan continues to be secured by the same hotel property, the Courtyard Hartford-Manchester in Manchester, Connecticut.
On July 31, 2014, to fund a portion of the acquisition of the Ashton hotel, we completed the financing of a $5.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 3.75% (with a .25% LIBOR floor) for the first 18 months and a fixed rate of 4.0% thereafter. The stated maturity is July 2019, with no extension options.
On July 25, 2014, we refinanced three mortgage loans, including our $135.0 million mortgage loan due May 2015, our $102.3 million mortgage loan due December 2014, which had an outstanding balance of $101.1 million, and our $89.3 million mortgage loan due February 2016, which had an outstanding balance of $88.5 million. The new loans total $468.9 million. As a result of the refinancing, the Homewood Suites Mobile and the Hampton Inn Terre Haute, Indiana are now unencumbered by debt. Other than the properties noted above, the new loans continue to be secured by the same hotel properties.
On August 6, 2014, to fund a portion of the acquisition of the Fremont Marriott, we completed financing of a $37.5 million non-recourse mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 4.20%. The stated maturity is August 2016, with three one-year extension options.
Our principal sources of funds to meet our cash requirements include: cash on hand, positive 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, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:    

51

Net Cash Flows Provided by Operating Activities. Net cash flows provided by operating activities, pursuant to our consolidated statements of cash flows, which includes changes in balance sheet items, were $111.3 million and $145.5 million for the years ended December 31, 2014 and 2013 , respectively. Cash flows from operations are impacted by changes in hotel operations, including the effect of the 8-hotel properties included in the Ashford Prime spin-off, that were included in the 2013 results, but not the 2014 results, the effect of the Ashford Inc. spin-off, that was included in the 2013 results and is included for the period from January 1, 2014 through November 12, 2014, the results of the Pier House Resort which was acquired on May 14, 2013 and sold on March 1, 2014 and is included for the periods from May 14, 2013 through September 30, 2013 and January 1, 2014 through February 28, 2014, as well as changes in restricted cash due to the timing of cash deposits for certain loans as well as the timing of collecting receivables from hotel guests, paying vendors, settling with related parties and settling with hotel managers.
Net Cash Flows Used in Investing Activities. For the year ended December 31, 2014 , investing activities used net cash flows of $207.2 million , which consisted of cash outflows of $120.1 million for capital improvements made to various hotel properties, $71.6 million primarily attributable the purchase of the Ashton and Fremont hotel properties and a deposit for the acquisition of the remaining 28.26% interest in the PIM Highland JV and other hotel properties, $32.1 million related to cash contributed to Ashford Inc. in the previously discussed spin-off, $208,000 for franchise fees and $30.2 million of net deposits to restricted cash for capital expenditures. Previously, this cash was held in accounts in the name of a third-party hotel manager and included in “Due from third party hotel managers” as of December 31, 2013 on our consolidated balance sheet. As of December 31, 2014, this cash is held in accounts in our name and is classified as “Restricted cash” on our consolidated balance sheet. These outflows were partially offset by inflows of $30.3 million attributable to cash proceeds received from the sale of the Pier House Resort, Homewood Suites Mobile and five WorldQuest condominium units, $13.6 million of reimbursements from Ashford Prime related to transaction costs from the Ashford Prime spin-off, $1.7 million of proceeds from property insurance, $1.2 million of proceeds from the sale of a consolidated noncontrolling interest and $246,000 of cash payments received on previously impaired mezzanine loans. For the year ended December 31, 2013 , investing activities used net cash flows of $354.0 million , which primarily consisted of $162.8 million of cash contributed to Ashford Prime OP, $88.2 million for the purchase of the Pier House Resort and $96.3 million for capital improvements made to various hotel properties, and $13.6 million of transaction costs related to the Ashford Prime spin-off, offset by cash distributions of $6.0 million from Ashford Prime OP made in connection with the Ashford Prime spin-off, net proceeds of $654,000 attributable to the sale of four WorldQuest condominium units and $245,000 of cash payments received on previously impaired mezzanine loans.
Net Cash Flows Provided by Financing Activities. For the year ended December 31, 2014 , net cash flows provided by financing activities were $182.2 million . Cash inflows consisted primarily of $718.8 million in borrowings on indebtedness and proceeds of $85.8 million from issuance of treasury stock associated with our equity offering. Cash inflows were partially offset by cash outlays primarily consisting of $514.7 million for repayments of indebtedness, $85.4 million for dividend payments to common and preferred stockholders and unit holders, $1.2 million for distributions to noncontrolling interests in consolidated entities, $20.1 million for payments of loan costs and exit fees, $458,000 for purchase of treasury stock and $666,000 of payments for derivatives. For the year ended December 31, 2013 , net cash flows provided by financing activities were $151.4 million . Cash inflows consisted primarily of $287.1 million in borrowings on indebtedness, $140.1 million in proceeds from issuance of treasury stock and $7.9 million in proceeds from the counterparties of our interest rate derivatives. Cash inflows were partially offset by cash outlays primarily consisting of $184.8 million for repayments of indebtedness, $78.8 million for dividend payments to common and preferred stockholders and unit holders, $14.4 million for distributions to noncontrolling interests in consolidated entities and $5.4 million for payments of loan costs and exit fees.
We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Presently, our existing financial debt covenants primarily relate to maintaining minimum net worth and liquidity. As of December 31, 2014 , we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
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.
At December 31, 2014 , we no longer have a recourse obligation for the $165.0 million senior credit facility.

52

Based on our current level of operations, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt, working capital, and capital expenditures for the next 12 months. With respect to upcoming maturities, we will continue to proactively address our 2015 maturities. 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. In addition, we may selectively pursue debt financing on individual properties.
We are committed to an investment strategy where we will opportunistically 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, 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 hotels 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 in its market area. Competition could also affect the quality and quantity of future investment opportunities.
Dividend Policy . During each of the years ended December 31, 2014 and 2013 , the Board of Directors declared quarterly dividends of $0.12 per share of outstanding common stock. In December 2014 , the Board of Directors approved our 2015 dividend policy which anticipates a quarterly dividend payment of $0.12 per share for 2015 . However, the adoption of a dividend policy does not commit our Board of Directors to declare future dividends. The Board of Directors will continue to review our dividend policy on a quarterly basis. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. Alternatively, we may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. We may pay dividends in excess of our cash flow.
RESULTS OF OPERATIONS
Marriott International, Inc. (“Marriott”) manages 26 of our properties as of December 31, 2014 . There were eight additional hotel properties managed by Marriott until May 31, 2013 and six properties managed by Marriott were included in the Ashford Prime spin-off. For these 40 Marriott-managed hotels, the 2012 fiscal year reflects twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Beginning in 2013, the fiscal quarters end on March 31 st , June 30 th , September 30 th and December 31 st . For Marriott-managed hotels, the fourth quarters of 2014 , 2013 and 2012 ended December 31, 2014 , December 31, 2013 and December 28, 2012 , respectively. Prior results have not been adjusted.
RevPAR is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the ADR charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services 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 year). 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.

53

The following table summarizes the changes in key line items from our consolidated statements of operations for the years ended December 31, 2014 , 2013 and 2012 (in thousands):
 
Year Ended December 31,
 
Favorable (Unfavorable)
Change
 
2014
 
2013
 
2012
 
2014 to 2013
 
2013 to 2012
Total revenue
$
794,849

 
$
939,527

 
$
919,657

 
$
(144,678
)
 
$
19,870

Total hotel expenses
(507,024
)
 
(594,522
)
 
(588,582
)
 
87,498

 
(5,940
)
Property taxes, insurance and other
(38,499
)
 
(46,945
)
 
(44,779
)
 
8,446

 
(2,166
)
Depreciation and amortization
(110,653
)
 
(127,684
)
 
(133,571
)
 
17,031

 
5,887

Impairment charges
415

 
396

 
5,349

 
19

 
(4,953
)
Gain on insurance settlements
5

 
270

 
91

 
(265
)
 
179

Transaction acquisition and contract termination costs
(625
)
 
(1,324
)
 
—

 
699

 
(1,324
)
Advisory service fee
(4,533
)
 
—

 
—

 
(4,533
)
 
—

Corporate general and administrative
(57,243
)
 
(52,821
)
 
(44,050
)
 
(4,422
)
 
(8,771
)
Operating income
76,692

 
116,897

 
114,115

 
(40,205
)
 
2,782

Equity in earnings (loss) of unconsolidated entities
2,495

 
(23,404
)
 
(20,833
)
 
25,899

 
(2,571
)
Interest income
62

 
71

 
125

 
(9
)
 
(54
)
Other income
6,573

 
5,650

 
31,700

 
923

 
(26,050
)
Interest expense and amortization of loan costs
(114,502
)
 
(140,865
)
 
(144,339
)
 
26,363

 
3,474

Write-off of premiums, loan costs and exit fees
(10,353
)
 
(2,098
)
 
(3,998
)
 
(8,255
)
 
1,900

Unrealized gain (loss) on marketable securities
(332
)
 
5,115

 
2,502

 
(5,447
)
 
2,613

Unrealized gain (loss) on derivatives
(1,100
)
 
(8,315
)
 
(35,657
)
 
7,215

 
27,342

Income tax expense
(1,266
)
 
(1,511
)
 
(2,375
)
 
245

 
864

Loss from continuing operations
(41,731
)
 
(48,460
)
 
(58,760
)
 
6,729

 
10,300

Income (loss) from discontinued operations
33

 
(98
)
 
(3,448
)
 
131

 
3,350

Gain on sale of hotel property, net of tax
3,491

 
—

 
—

 
3,491

 
—

Net loss
(38,207
)
 
(48,558
)
 
(62,208
)
 
10,351

 
13,650

(Income) loss from consolidated entities attributable to noncontrolling interests
406

 
(908
)
 
(868
)
 
1,314

 
(40
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
6,400

 
8,183

 
9,296

 
(1,783
)
 
(1,113
)
Net loss attributable to the Company
(31,401
)
 
(41,283
)
 
(53,780
)
 
9,882

 
12,497


54

Comparison of Year Ended December 31, 2014 with Year Ended December 31, 2013
Income from continuing operations represents the operating results of 87 legacy hotel properties and WorldQuest included in continuing operations for the years ended December 31, 2014 and 2013 as well as the operating results from January 1, 2013 through November 18, 2013 of the eight hotel properties that were contributed to Ashford Prime OP in connection with the previously discussed Ashford Prime spin-off. Additionally, the operating results of the Ashton and Fremont hotels, which were acquired on July 18, 2014 and August 6, 2014, respectively, are included in continuing operations since their acquisition. The operating results of the Pier House Resort, which was acquired May 14, 2013 and sold on March 1, 2014, are included for the periods from May 14, 2013 through December 31, 2013 and January 1, 2014 through February 28, 2014. In connection with the previously discussed Ashford Inc. spin-off, operating results are included from January 1, 2014 through November 12, 2014.
The following table illustrates the key performance indicators of these hotels:
 
Year Ended
December 31,
 
2014
 
2013
RevPAR (revenue per available room)
$
102.30

 
$
102.92

Occupancy
76.25
%
 
74.26
%
ADR (average daily rate)
$
134.16

 
$
138.60

Revenue . Rooms revenue for the year ended December 31, 2014 (“ 2014 ”) de creased $106.3 million , or 14.2% , to $640.3 million from $746.6 million for the year ended December 31, 2013 (“ 2013 ”). We experienced a decrease in rooms revenue of $158.7 million as a result of the Ashford Prime spin-off and $5.5 million in rooms revenue from the Pier House Resort that was purchased in May 2013 and sold in March 2014; offset by a $51.1 million increase from our remaining 85 hotel properties and WorldQuest and $6.9 million from the acquisitions of the Ashton and Fremont hotels. Food and beverage revenue experienced a de crease of $40.9 million , or 26.6% , to $112.7 million of which food and beverage revenue decreased $46.1 million as a result of the spin-off and $1.2 million from the Pier House Resort. The remaining 85 hotel properties and the acquisitions of the Ashton and Fremont hotels resulted in an increase in food and beverage revenue of $4.0 million and $2.3 million, respectively. Other hotel revenue, which consists mainly of internet access, parking, and spa services, experienced a de crease of $10.8 million , which is primarily attributable to the Ashford Prime spin-off and the Pier House Resort. Advisory services revenue increased $9.7 million to $10.7 million from $1.0 million . The 2014 advisory services revenue from Ashford Prime represents the period from January 1, 2014 to November 12, 2014. In connection with the previously discussed spin-off of Ashford Inc., all future Ashford Prime advisory services revenue will be recorded by Ashford Inc. For 2013, advisory services revenue from Ashford Prime represents the period from November 19, 2013 to December 31, 2013. For 2014, the advisory services revenue consists of a base advisory fee of $7.5 million and reimbursable overhead and internal audit, insurance claims advisory and asset management services of $1.4 million . The advisory services revenue also includes advisory revenue for equity grants of Ashford Prime common stock and LTIP units awarded to our officers and employees of approximately $1.8 million . For 2013, advisory services revenue comprised of a base advisory fee of $878,000, reimbursable overhead of $53,000 and internal audit reimbursements of $116,000. No incentive management fee was earned in connection with the advisory agreement that was in place prior to the spin-off of Ashford Inc., for 2014 or 2013 . Other non-hotel revenue was $4.1 million and $526,000 for 2014 and 2013 , respectively. The increase in other non-hotel revenue is primarily attributable to expense reimbursements related to our managing the day-to-day operations and providing corporate administrative services such as accounting, insurance, marketing support, asset management, and other services to PIM Highland JV. These reimbursements were presented as credits in corporate, general and administrative expenses for the year ended December 31, 2013 .
Hotel Operating Expenses. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. We experienced decreases of $57.2 million in direct expenses and $30.3 million in indirect expenses and management fees in 2014 , which were primarily attributable to decreases in direct expenses and indirect expenses and management fees of $69.9 million and $60.4 million, respectively, as a result of the Ashford Prime spin-off. The increases from our remaining 85 hotel properties and WorldQuest are attributable to higher hotel revenues at those properties. We also recorded a charge in 2014 of $11.9 million for a jury verdict in legal proceedings. The charge consists of $10.8 million for the jury verdict, $707,000 for pre-judgment interest and $400,000 related to the recovery of legal fees. See Note 12 to our consolidated financial statements. Direct expenses were 30.3% and 31.3% of total hotel revenue for 2014 and 2013 , respectively.
Property Taxes, Insurance, and Other. Property taxes, insurance, and other de creased $8.4 million for 2014 to $38.5 million due to $10.0 million of property taxes, insurance, and other in 2013 associated with the properties included in the Ashford Prime spin-off and lower insurance premiums. This de crease was partially offset by higher property taxes at our remaining 85 properties and the acquisitions of the Ashton and Fremont hotels.

55

Depreciation and Amortization. Depreciation and amortization de creased $17.0 million for 2014 compared to 2013 due to $28.1 million of depreciation and amortization in 2013 associated with the properties included in the Ashford Prime spin-off and the Pier House Resort. The resulting increase of $11.1 million is attributable to capital expenditures that have occurred since December 31, 2013 and the acquisitions of the Ashton and Fremont hotels.
Impairment Charges. We recorded credits to impairment charges of $415,000 and $396,000 for 2014 and 2013 , respectively, for cash received and resulting valuation adjustments on previously impaired mezzanine loans.
Investments in hotel properties are reviewed for impairment for each reporting period. We take into account the latest operating cash flows and market conditions and their impact on future projections. For the properties that show indicators of impairment, we perform a recoverability analysis using the sum of each property’s estimated future undiscounted cash flows compared to the property’s carrying value. The estimates of future cash flows are based on assumptions about the future operating results including disposition of the property. In addition, the cash flow estimation periods used are based on the properties’ remaining useful lives to us (expected holding periods). For properties securing mortgage loans, the assumptions regarding holding periods considered our ability and intent to hold the property to or beyond the maturity of the related indebtedness.
In analyzing projected hotel properties’ operating cash flows, we factored in RevPAR growth based on data from third party sources. In addition, the projected hotel properties’ operating cash flows factored in our ongoing implementation of asset management strategies to minimize operating costs. After factoring in the expected revenue growth and the impact of company-specific strategies implemented to minimize operating costs, the hotel properties’ estimated future undiscounted cash flows were in excess of the properties’ carrying values. The analyses performed in 2014 and 2013 did not identify any properties with respect to which an impairment loss should be recognized.
Gain on Insurance Settlement. Gain on insurance settlement was $5,000 and $270,000 for 2014 and 2013 , respectively.
Transaction Costs. Transaction costs de creased $699,000 , from $1.3 million to $625,000 in 2014 . The 2014 transaction costs are attributable to the acquisitions of the Ashton and Fremont hotels while the 2013 transaction costs include $901,000 of costs related to the acquisition of the Pier House Resort and $423,000 related to costs associated with miscellaneous other items.
Advisory Service Fee. Advisory services fees represent fees paid in connection with the advisory agreement between Ashford Inc. and us for the period from November 13, 2014 to December 31, 2014. Prior to the spin-off of Ashford Inc. we were self-advised. For 2014, we recorded advisory service fees of $4.5 million , which was comprised of a base advisory fee of $4.0 million and reimbursable overhead and internal audit, insurance claims advisory and asset management services of $533,000. No advisory service fee was incurred in 2013.
Corporate, General, and Administrative. Corporate, general, and administrative expenses in creased $4.4 million to $57.2 million for 2014 compared to $52.8 million for 2013 . Corporate, general and administrative expense includes other corporate administrative expense and non-cash equity-based compensation. Other corporate, general and administrative expense increased $10.8 million which is primarily attributable to $4.1 million of administrative expenses associated with the previously discussed spin-off of Ashford Inc., $2.4 million of salaries and benefits for new employees and higher salaries during 2014 and $3.7 million of expense reimbursements in 2013 related to our managing the day-to-day operations and providing corporate administrative services such as accounting, insurance, marketing support, asset management, and other services to PIM Highland JV. These reimbursements were presented as credits in corporate, general and administrative expenses for the year ended December 31, 2013 and as other revenue for the year ended December 31, 2014. Additionally, we had an increase attributable to higher office expenses, professional fees and other miscellaneous expenses totaling approximately $2.1 million. These increases were partially offset by $1.5 million of transaction costs associated with the Ashford Prime spin-off recognized during 2013. Non-cash equity-based compensation decreased $6.4 million which is primarily attributable to lower expense of $2.4 million related to a change in the accounting for equity-based compensation related to the previously discussed spin-off of Ashford Inc. and $4.3 million recognized in 2013 as a result of a modification to the deferred compensation plan in connection with the Ashford Prime spin-off in which plan participants were granted additional shares of our stock. These decreases were partially offset by additional non-cash equity-based compensation for new employees and additional awards to our employees while we were self-advised.
Equity in Earnings (Loss) of Unconsolidated Entities. We recorded equity in earnings of unconsolidated entities of $2.5 million and equity in loss of $(23.4) million for 2014 and 2013 , respectively. The 2014 period includes equity in earnings in Ashford Prime and in PIM Highland JV of $258,000 and $5.5 million, respectively, and equity in loss in Ashford Inc. of $3.2 million. The 2013 period included our equity in loss in PIM Highland JV and in Ashford Prime of $(19.4) million and $(4.0) million, respectively.
Interest Income. Interest income was $62,000 and $71,000 for 2014 and 2013 , respectively.

56

Other Income. Other income was $6.6 million and $5.7 million for 2014 and 2013 , respectively. The increase in other income is attributable to realized gain on marketable securities of $5.8 million and dividends of $789,000 for 2014 compared to a realized loss on marketable securities of $1.2 million and dividends of $460,000 for 2013. The resulting loss in 2013 was offset by non-hedge interest rate swaps income in the first quarter of 2013 of $6.2 million. The non-hedge interest rate swaps expired in the first quarter of 2013 and provided no income for 2014.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs de creased $26.4 million to $114.5 million for 2014 from $140.9 million for 2013 . The de crease is primarily due to lower interest expense of $29.0 million resulting from lower debt balances associated with the Ashford Prime spin-off and lower average rates. The remaining increase is due to higher loan cost amortization and interest expense due to the acquisition of the Ashton and Fremont hotels and loan refinances. The average LIBOR rates for 2014 and 2013 were 0.15% and 0.19%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees were $10.4 million in 2014 compared to $2.1 million in 2013. In 2014 , we refinanced three mortgage loans, including our $135.0 million mortgage loan due May 2015, our $102.3 million mortgage loan due December 2014, which had an outstanding balance of $101.1 million, and our $89.3 million mortgage loan due February 2016, which had an outstanding balance of $88.5 million. The new loans total $468.9 million. As a result we wrote-off the unamortized loan costs of $209,000 and incurred defeasance and exit fees of $8.1 million. Additionally, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016. As a result, we wrote-off the unamortized loan costs of $251,000 and incurred exit fees of $397,000. We also wrote off loan costs of $1.4 million associated with the Pier House Resort loan that was assumed by Ashford Prime. In 2013 , we refinanced our $141.7 million mortgage loan, due August 2013 with a $199.9 million mortgage loan due February 2018. As a result, we wrote-off unamortized loan costs of $472,000 and incurred additional non-capitalizable loan costs of $1.5 million. Additionally, we refinanced our $6.5 million loan due April 2034 with a $10.8 million loan due January 2024. As a result, we wrote-off the unamortized loan costs of $64,000 and incurred additional loan costs of $63,000.
Unrealized Gain (Loss) on Marketable Securities. Unrealized loss on marketable securities of $332,000 and unrealized gain on marketable securities of $5.1 million for 2014 and 2013 , respectively, are based on changes in closing market prices during the period.
Unrealized Loss on Derivatives. For 2014 , we recorded an unrealized loss of $1,100,000 , consisting of a $484,000 loss related to interest rate derivatives and a $616,000 loss related to credit default swaps. The majority of our interest rate derivatives expired in the first quarter of 2013. In 2013 , we recorded an unrealized loss of $8.3 million , consisting of a $6.4 million loss related to interest rate derivatives and a $1.9 million loss related to credit default swaps. The fair value of interest rate derivatives is primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax Expense. We recorded income tax expense of $1.3 million and $1.5 million for 2014 and 2013 , respectively. The decrease in income tax expense is primarily due to decreased profitability in our TRS subsidiaries as a result of the Ashford Prime spin-off.
Income (Loss) from Discontinued Operations. Income (loss) from discontinued operations for 2014 and 2013 were income of $33,000 and loss of $98,000 , respectively, related to sale the Homewood Suites Mobile hotel in Mobile, Alabama in November 2014.
Gain on Sale of Hotel Property. We recognized a gain of $3.5 million in connection with the sale of the Pier House Resort to Ashford Prime. We deferred a gain of $599,000, in accordance with the applicable accounting guidance, as a result of our equity investment in Ashford Prime OP.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interests. Noncontrolling interest partners in consolidated entities were allocated losses of $406,000 and income of $908,000 during 2014 and 2013 , respectively.
Net Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net losses of $6.4 million and $8.2 million in 2014 and 2013 , respectively. Redeemable noncontrolling interests represented ownership interests of 13.01% and 12.72% in the operating partnership at December 31, 2014 and 2013 , respectively.

57

Comparison of Year Ended December 31, 2013 with Year Ended December 31, 2012
Income from continuing operations represents the operating results of 87 legacy hotel properties and WorldQuest included in continuing operations for the years ended December 31, 2013 and 2012 as well as the operating results from January 1, 2012 through November 18, 2013 of the eight hotel properties that were contributed to Ashford Prime OP in connection with the previously discussed Ashford Prime spin-off. See the "Executive Overview" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a summary of the operating results of these properties. Additionally, the operating results of the Pier House Resort are included since its acquisition in May 2013.
The following table illustrates the key performance indicators of these hotels:
 
Year Ended
December 31,
 
2013
 
2012
RevPAR (revenue per available room)
$
102.92

 
$
98.83

Occupancy
74.26
%
 
73.77
%
ADR (average daily rate)
$
138.60

 
$
133.96

Revenue . Rooms revenue for the year ended December 31, 2013 (“ 2013 ”) in creased $22.4 million , or 3.1% , to $746.6 million from $724.2 million for the year ended December 31, 2012 (“ 2012 ”). The in crease in rooms revenue was due to continued improvements in occupancy coupled with an increase in our ADR. During 2013, we experienced a 49 basis point increase in occupancy and a 3.5% increase in room rates. We also experienced higher rooms revenue of $9.0 million as a result of the Pier House Resort acquisition and lower rooms revenue as a result of the Ashford Prime spin-off. Food and beverage revenues experienced a de crease of $6.9 million , or 4.3% , due to events at certain hotels during 2012 that did not reoccur in 2013 as well as the Ashford Prime spin-off, all of which was slightly offset by $1.8 million of food and beverage revenue as a result of the Pier House Resort acquisition. Other hotel revenue, which consists mainly of internet access, parking and spa services, experienced an improvement of $3.1 million , of which $813,000 is attributable to the Pier House Resort acquisition, while other revenue was negatively impacted by the Ashford Prime spin-off when compared to 2012. We recorded advisory services revenue of $1.0 million from Ashford Prime which was comprised of a base advisory fee of $878,000, reimbursable overhead of $53,000 and internal audit reimbursements of $116,000. No incentive management fee was earned for 2013 in connection with the advisory agreement between one of our subsidiaries and Ashford Prime. Other non-hotel revenue was $526,000 and $305,000 for 2013 and 2012 , respectively.
Hotel Operating Expenses. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. We experienced increases of $1.1 million in direct expenses and $4.8 million in indirect expenses and management fees in 2013 . The increase in these expenses is primarily attributable to higher occupancy and higher management fees resulting from increased hotel revenue and higher sales and marketing expenses. In addition, the Pier House Resort acquisition contributed $3.5 million of direct expenses and $3.3 million in indirect expenses and management fees. The higher hotel operating expenses were offset by the impact of the Ashford Prime spin-off. Direct expenses were 31.3% and 31.9% of total hotel revenue for 2013 and 2012 , respectively.
Property Taxes, Insurance, and Other. Property taxes, insurance, and other in creased $2.2 million during 2013 to $46.9 million . The in crease is primarily due to higher property taxes as a result of increased property value assessments related to certain hotels, higher insurance costs and a credit to uninsured losses in 2012 , offset by lower costs as a result of the Ashford Prime spin-off when compared against 2012 .
Depreciation and Amortization. Depreciation and amortization de creased $5.9 million for 2013 compared to 2012 primarily due to lower depreciation for certain assets that became fully depreciated since December 31, 2012 and the impact of the Ashford Prime spin-off which was partially offset by the acquisition of the Pier House Resort.
Impairment Charges. We recorded credits to impairment charges of $396,000 and $5.3 million for 2013 and 2012 , respectively, for cash received and resulting valuation adjustments on previously impaired mezzanine loans.
Investments in hotel properties are reviewed for impairment for each reporting period. We take into account the latest operating cash flows and market conditions and their impact on future projections. For the properties that show indicators of impairment, we perform a recoverability analysis using the sum of each property’s estimated future undiscounted cash flows compared to the property’s carrying value. The estimates of future cash flows are based on assumptions about the future operating results including disposition of the property. In addition, the cash flow estimation periods used are based on the properties’ remaining

58

useful lives to us (expected holding periods). For properties securing mortgage loans, the assumptions regarding holding periods considered our ability and intent to hold the property to or beyond the maturity of the related indebtedness.
In analyzing projected hotel properties’ operating cash flows, we factored in RevPAR growth based on data from third party sources. In addition, the projected hotel properties’ operating cash flows factored in our ongoing implementation of asset management strategies to minimize operating costs. After factoring in the expected revenue growth and the impact of company-specific strategies implemented to minimize operating costs, the hotel properties’ estimated future undiscounted cash flows were in excess of the properties’ carrying values. The analyses performed in 2013 and 2012 did not identify any properties with respect to which an impairment loss should be recognized.
Gain on Insurance Settlement. Gain on insurance settlement was $270,000 and $91,000 for 2013 and 2012 , respectively.
Transaction Costs. We recorded transaction costs of $1.3 million for 2013 which included $901,000 related to the Pier House Resort acquisition and $423,000 related to costs associated with other miscellaneous items. There were no transaction costs in 2012 .
Corporate, General, and Administrative. Corporate, general, and administrative expenses in creased $8.8 million to $52.8 million for 2013 compared to $44.1 million for 2012 . Non-cash equity-based compensation experienced an increase of $8.1 million due to additional expense associated with accelerated vestings of LTIP units of our Chairman Emeritus as a result of his retirement as our Chairman and $4.3 million as a result of modifications to the deferred compensation plan in connection with the Ashford Prime spin-off in which plan participants were granted additional shares of our stock. Additionally, corporate, general, and administrative expenses increased $672,000 during 2013 compared to 2012 due to higher salaries and benefits of $2.1 million partially offset by lower professional fees.
Equity in Loss of Unconsolidated Entities. We recorded equity in loss of unconsolidated entities of $23.4 million and $20.8 million for 2013 and 2012 , respectively. Included in 2013 was our equity in loss of Ashford Prime since its spin-off on November 19, 2013 of $4.0 million and equity in loss of PIM Highland JV of $19.4 million.
Interest Income. Interest income was $71,000 and $125,000 for 2013 and 2012 , respectively.
Other Income. Other income was $5.7 million and $31.7 million for 2013 and 2012 , respectively. Other income primarily represents income from the non-hedge interest rate swaps of $6.2 million and $32.0 million in 2013 and 2012 , respectively, of which the de crease is primarily attributable to derivatives that have expired since December 31, 2012 . Other income also includes $1.2 million and $831,000, of realized losses on marketable securities and $460,000 and $484,000 of dividend income for 2013 and 2012 , respectively.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs de creased $3.5 million to $140.9 million for 2013 from $144.3 million for 2012 . The de crease is primarily due to lower interest expense resulting from a decrease in the weighted average interest rate of our debt in 2013 and the impact of the Ashford Prime spin-off. This de crease was partially offset by additional interest expense resulting from a new mortgage loan entered into in September 2013 associated with the Pier House Resort, which was previously unencumbered, and higher loan cost amortization of $1.6 million. The average LIBOR rates for 2013 and 2012 were 0.19% and 0.24%, respectively.
Write-off of Loan Costs and Exit Fees. In 2013 , we refinanced our $141.7 million loan, with an outstanding balance of $141.0 million, due August 2013 with a $199.9 million loan due February 2018. As a result, we wrote-off the unamortized loan costs of $472,000 and incurred additional loan costs of $1.5 million. Additionally, we refinanced our $6.5 million loan due April 2034 with a $10.8 million loan due January 2024. As a result, we wrote-off the unamortized loan costs of $64,000 and incurred additional loan costs of $63,000.
Unrealized Gain on Marketable Securities. Unrealized gain on marketable securities of $5.1 million and $2.5 million for 2013 and 2012 , respectively, are based on changes in closing market prices during the period.
Unrealized Loss on Derivatives. For 2013 , we recorded an unrealized loss of $8.3 million , consisting of $6.4 million related to interest-rate derivatives and $1.9 million related to credit default swaps. In 2012, we recorded an unrealized loss of $35.7 million related to losses of $31.7 million on interest-rate derivatives and an unrealized loss of $3.9 million related to credit default swaps entered into in 2011. The fair value of interest-rate derivatives is primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax Expense. We recorded income tax expense of $1.5 million and $2.4 million for 2013 and 2012 , respectively. The de crease in income tax expense in 2013 is primarily due to an increase in certain indirect expenses recognized by our TRS subsidiaries.

59

Loss from Discontinued Operations. For 2013, loss from discontinued operations was $98,000 related to the Homewood Suites Mobile hotel in Mobile, Alabama, disposed of in 2014. For 2012, loss from discontinued operations was $3.4 million related to two hotel properties disposed of in 2012 and one hotel disposed in 2014. The Hilton hotel in Tucson, Arizona was disposed of in December 2012. The Doubletree Guest Suites hotel in Columbus, Ohio was sold in November 2012 for net proceeds of $7.7 million. We recorded an impairment charge of $4.1 million related to the Hilton hotel and a net gain of $4.5 million upon disposition of these hotels. The Homewood Suites Mobile hotel in Mobile, Alabama was disposed of in November 2014.
Income from Consolidated Entities Attributable to Noncontrolling Interests. Noncontrolling interest partners in consolidated entities were allocated income of $908,000 and $868,000 during 2013 and 2012 , respectively. Two hotel properties held in a 75% owned consolidated entity were contributed to Ashford Prime in connection with the previously discussed Ashford Prime spin-off.
Net Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net losses of $8.2 million and $9.3 million in 2013 and 2012 , respectively. Redeemable noncontrolling interests represented ownership interests of 12.72% and 12.92% in the operating partnership at December 31, 2013 and 2012 , respectively.
INFLATION
We rely entirely on the performance of our properties and the ability of the properties’ managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates rather quickly, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, and utilities are subject to inflation as well.
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. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we form partnerships or joint ventures that operate certain hotels. We evaluate each partnership and joint venture to determine whether the entity is a Variable Interest Entity (“VIE”). If the entity is determined to be a VIE, we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion of the company’s VIEs, see Notes 2 and 5 to the Condensed Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The table below summarizes our future obligations for principal and estimated interest payments on our debt, future minimum lease payments on our operating and capital leases with regard to our continuing operations, each as of December 31, 2014 (in thousands):
 
Payments Due by Period
 
< 1 Year
 
1-3 Years
 
3-5 Years
 
> 5 Years
 
Total
Contractual obligations excluding extension options:
 
 
 
 
 
 
 
 
 
Long-term debt obligations
$
461,876

 
$
1,227,400

 
$
50,575

 
$
214,253

 
$
1,954,104

Operating lease obligations
871

 
1,380

 
1,080

 
32,931

 
36,262

Estimated interest obligations  (1)
102,271

 
79,627

 
27,876

 
33,342

 
243,116

Total contractual obligations
$
565,018

 
$
1,308,407

 
$
79,531

 
$
280,526

 
$
2,233,482

_________________________
(1)
For variable interest rate indebtedness, interest obligations are estimated based on the LIBOR interest rate as of December 31, 2014 .

60

In addition to the amounts discussed above, we also have management agreements which require us to pay monthly management fees, market service fees and other general fees, if required. These management agreements expire from 2015 through 2032 . See Note 12 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are fully described in Note 2 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.
Management Agreements – In connection with our acquisitions of the Crystal Gateway Marriott hotel in Arlington, Virginia, on July 13, 2006 and the 51-hotel CNL Portfolio on April 11, 2007, we assumed certain existing management agreements. Based on our review of these management agreements, we concluded that the terms of certain management agreements are more favorable to the respective managers than typical current market management agreements. As a result, we recorded unfavorable contract liabilities related to these management agreements of $23.4 million as of the respective acquisition dates based on the present value of expected cash outflows over the initial terms of the related agreements. Such unfavorable contract liabilities are being amortized as non-cash reductions to incentive management fees on a straight-line basis over the initial terms of the related agreements. In evaluating unfavorable contract liabilities, our analysis involves considerable management judgment and assumptions. An unfavorable management contract with a carrying value of $493,000 was contributed to Ashford Prime OP in connection with the Ashford Prime spin-off.
Income Taxes – At December 31, 2014 and 2013 , we recorded a valuation allowance of $29.3 million and $35.1 million , respectively, to fully reserve our deferred tax asset. As a result of consolidated losses in 2014 , 2013 and 2012 , and the limitation imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries, we believe that it is more likely than not our deferred tax asset will not be realized, and therefore, have provided a valuation allowance to reserve against the balances. At December 31, 2014 , Ashford TRS had net operating loss carryforwards for federal income tax purposes of $65.4 million , which begin to expire in 2022, and are available to offset future taxable income, if any, through 2032. Approximately $10.6 million of the $65.4 million of net operating loss carryforwards is attributable to acquired subsidiaries and subject to substantial limitation on its use. At December 31, 2014 , Ashford Hospitality Trust, Inc., our REIT, had net operating loss carryforwards for federal income tax purposes of $322.7 million , which begin to expire in 2023, and are available to offset future taxable income, if any, through 2034. The analysis utilized in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
The “Income Taxes” topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2011 through 2014 remain subject to potential examination by certain federal and state taxing authorities.
Investments in Hotel Properties – Hotel properties are generally stated at cost. However, the remaining four hotel properties contributed upon our formation in 2003 that are still owned by us (the “Initial Properties”) are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a noncontrolling interest partial step-up related to the acquisition of noncontrolling interests from third parties associated with four of the Initial Properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.

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Impairment of Investments in Hotel Properties – Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value, less cost to sell. During 2012 , we recorded impairment charges of $4.1 million on hotel properties. No impairment charges were recorded in 2014 and 2013 . See the detailed discussion in Notes 6 and 15 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Depreciation and Amortization Expense – Depreciation expense is based on the estimated useful life of the assets, while amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives which range from 7.5 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures, and equipment. While we believe our estimates are reasonable, a change in estimated lives could affect depreciation expense and net income (loss) as well as resulting gains or losses on potential hotel sales.
Assets Held For Sale and Discontinued Operations – We classify assets as held for sale when management has obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. In addition, we deconsolidate a property when it becomes subject to the control of a government, court, administrator or regulator and we effectively lose control of the property/subsidiary. When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received, the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated, and the carrying amount of the former property/subsidiary. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.
During 2012 , we recorded impairment charges of $4.1 million on hotel properties, all of which are included in the operating results of discontinued operations. See the detailed discussion in Notes 3, 6 and 15 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Notes Receivable – We provide mezzanine and first-mortgage financing in the form of notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Payments received on impaired nonaccrual loans are recorded as reductions to the note receivable balance. The net carrying amount of the impaired notes receivable is adjusted to reflect the net present value of the future cash flows with the adjustment recorded in impairment charges.
Our mezzanine and first-mortgage notes receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to the senior holders in the secured hotel properties. All such notes receivable are considered to be variable interests in the entities that own the related hotels. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary that has: (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the mezzanine loan VIEs’ activities and operations, we are not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, we do not consolidate the hotels for which we have provided financing. We assess our interests in those entities on an ongoing basis to determine whether such entities should be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.

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Impairment of Notes Receivable – We review notes receivable for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. See Notes 4 and 15 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Investments in Unconsolidated Entities – Investments in entities in which we have ownership interests ranging from 14.4% to 71.74% are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the entity’s net income (loss). We review the investments in our unconsolidated entities for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities. No such impairment was recorded in 2014 , 2013 or 2012 .
We adopted the equity accounting method for our investment in the PIM Highland JV due to the fact that we do not control the joint venture. Although we have the majority ownership of 71.74% in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. Our investment in the PIM Highland JV had a carrying value of $144.8 million at December 31, 2014 , which was based on our share of PIM Highland JV’s equity.
In connection with the previously discussed spin-off of Ashford Prime on November 19, 2013, we had an initial 20% ownership interest in Ashford Prime OP. We adopted the equity accounting method for our investment in Ashford Prime OP due to the fact that we exercise significant influence but do not control the entity. All major decisions related to Ashford Prime OP that most significantly impact Ashford Prime OP’s economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Prime OP General Partner LLC, its general partner. Our investment in Ashford Prime OP of 14.9% had a carrying value of $54.9 million at December 31, 2014 .
In connection with the previously discussed spin-off of Ashford Inc. on November 12, 2014, we have a 30.1% ownership interest in Ashford Inc. We adopted the equity accounting method for our investment in Ashford Inc. due to the fact that we exercise significant influence but do not control the entity. All major decisions related to Ashford Inc. that most significantly impact Ashford Inc.’s economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Inc.’s board of directors. Our investment in Ashford Inc. of 30.1% had a carrying value of $7.1 million at December 31, 2014 .
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these joint ventures on an ongoing basis and therefore such entities will not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Marketable Securities – Marketable securities, include U.S. treasury bills, stocks, and put and call options of certain publicly traded companies. All of these investments are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments has been determined based on the closing price as of the balance sheet date and is reported as “Marketable securities” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. Net investment income, including interest income (expense), dividends, investment costs, and realized gains or losses on the investments, is reported as a component of “Other income,” and unrealized gains and losses on marketable securities are reported as “Unrealized gain (loss) on marketable securities” in the consolidated statements of operations.

63

Derivative Financial Instruments and Hedges – We primarily use interest rate derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. Interest rate swaps (or reverse swaps) involve the exchange of fixed-rate payments for variable-rate payments (or vice versa) over the life of the derivative agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide us with interest rate protection above the strike rate of the cap and result in us receiving interest payments when actual rates exceed the cap strike. For interest rate floors, we pay our counterparty interest when the variable interest rate index is below the strike rate. The interest rate flooridor combines two interest rate floors, structured such that the purchaser simultaneously buys an interest rate floor at a strike rate X and sells an interest rate floor at a lower strike rate Y. The purchaser of the flooridor is paid when the underlying interest rate index (for example, LIBOR) resets below strike rate X during the term of the flooridor. Unlike a standard floor, the flooridor limits the benefit the purchaser can receive as the related interest rate index falls. Once the underlying index falls below strike rate Y, the sold floor offsets the purchased floor. The interest rate corridor involves purchasing an interest rate cap at strike rate X and selling an interest rate cap with a higher strike rate Y. The purchaser of the corridor is paid when the underlying interest rate index resets above the strike rate X during the term of the corridor. The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the strike rate Y. There is no additional liability to us other than the purchase price associated with the flooridor and corridor.
We also use credit default swaps to hedge financial and capital market risk. A credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation. The credit risk underlying the credit default swaps are referenced to the CMBX index. The CMBX is a group of indices that references underlying bonds from 25 Commercial Mortgage-Backed Securities (“CMBS”), tranched by rating class. The CMBX is traded via “pay-as-you-go” credit default swaps, which involve ongoing, two-way payments over the life of the contract between the buyer and the seller of protection. The reference obligations are CMBS bonds. The seller of protection assumes the credit risk of the reference obligation from the buyer of protection in exchange for payments of an annual premium. If there is a default or a loss, as defined in the credit default swap agreements, on the underlying bonds, then the buyer of protection, is protected against those losses.
All these derivatives are subject to master netting settlement arrangements and the credit default swaps are subject to credit support annexes. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance and reported as “Derivative assets” or “Derivative liabilities.” Accrued interest on the non-hedge designated interest rate derivatives is included in “Accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of “Accumulated Other Comprehensive Income (Loss)” (“OCI”) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For non-hedge designated interest rate derivatives, the credit default swap derivatives and all other derivatives, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.

64

RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, including disclosure of pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. Upon adoption of this standard in 2015, we will be required to evaluate whether a disposal meets the discontinued operations requirements under ASU 2014-08. We will make the additional disclosures upon adoption. Upon adoption, we anticipate that the operations of sold hotel properties through the date of their disposal will be included in continuing operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model, which requires a company to recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The update will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective in fiscal periods beginning after December 15, 2016. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method.
In August 2014, the FASB issued ASU 2014-15,  Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern  (“ASU 2014-15”), to provide guidance on management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not expect the adoption of this standard will have an impact on our financial position, results of operations or cash flows.
NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, Adjusted EBITDA, FFO and Adjusted FFO are made to help our investors in evaluating our operating performance.

EBITDA is defined as net loss attributable to the Company before interest expense and amortization of loan costs, interest income other than interest income from mezzanine loans, income taxes, depreciation and amortization, and noncontrolling interests in the operating partnership and after adjustments for unconsolidated joint ventures. We adjust EBITDA to exclude certain additional items such as gain on sales of properties, impairment of assets, write-off of loan costs and exit fees, transaction, acquisition and management conversion costs, transaction costs related to spin-off (net of reimbursements), other income, legal costs related to a litigation settlement, operating results of hotel properties in receivership, dead deal costs, software implementation costs, compensation adjustment related to modified employment terms, and non-cash items such as amortization of unfavorable management contract liabilities, equity-based compensation and unrealized gains and losses on marketable securities and derivative instruments, non-cash gain on insurance settlements, modification of rent terms, as well as the Company’s portion of adjustments to EBITDA of unconsolidated entities. We exclude items from Adjusted EBITDA that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operations. We present EBITDA and Adjusted EBITDA because we believe these measurements a) more accurately reflect the ongoing performance of our hotel assets and other investments, b) provide more useful information to investors as indicators of our ability to meet our future debt payment and working capital requirements, and c) provide an overall evaluation of our financial condition. EBITDA and Adjusted EBITDA as calculated by us may not be comparable to EBITDA and Adjusted EBITDA reported by other companies that do not define EBITDA and Adjusted EBITDA exactly as we define the terms. EBITDA and Adjusted EBITDA do not represent cash generated from operating activities determined in accordance with 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.

65

The following table reconciles net loss to EBITDA and Adjusted EBITDA (in thousands) (unaudited):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net loss
$
(38,207
)
 
$
(48,558
)
 
$
(62,208
)
(Income) loss from consolidated entities attributable to noncontrolling interests
406

 
(908
)
 
(868
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
6,400

 
8,183

 
9,296

Net income (loss) attributable to the Company
(31,401
)
 
(41,283
)
 
(53,780
)
Interest income
(63
)
 
(70
)
 
(124
)
Interest expense and amortization of loan costs
114,709

 
139,782

 
144,857

Depreciation and amortization
110,770

 
125,041

 
133,463

Income tax expense
1,278

 
1,511

 
2,352

Net loss attributable to redeemable noncontrolling interests in operating partnership
(6,400
)
 
(8,183
)
 
(9,296
)
Equity in (earnings) loss of unconsolidated entities
(2,495
)
 
23,404

 
20,833

Company’s portion of EBITDA of unconsolidated entities (Ashford Inc.)
(3,016
)
 
—

 
—

Company’s portion of EBITDA of unconsolidated entities (Ashford Prime OP)
11,643

 
(2,577
)
 
—

Company’s portion of EBITDA of unconsolidated entities (Highland)
95,444

 
76,901

 
78,730

EBITDA
290,469

 
314,526

 
317,035

Amortization of unfavorable management contract liability
(1,975
)
 
(2,245
)
 
(2,447
)
Impairment charges
(415
)
 
(396
)
 
(1,229
)
Gain on sale/disposition of properties
(3,503
)
 
—

 
(4,488
)
Non-cash gain on insurance settlements
(5
)
 
(270
)
 
(91
)
Write-off of loan costs and exit fees
10,353

 
2,098

 
4,117

Other income (1)
(6,573
)
 
(5,650
)
 
(31,700
)
Transaction, acquisition and management conversion costs
625

 
1,657

 
—

Transaction costs related to spin-off, net of reimbursements
4,231

 
1,548

 
—

Dead deal costs
—

 
—

 
869

Software implementation costs
320

 
—

 
—

Legal costs related to a litigation settlement
11,907

 
—

 
2,491

El Conquistador results since appointment of receiver
—

 
—

 
1,402

Unrealized (gain) loss on marketable securities
332

 
(5,115
)
 
(2,502
)
Unrealized loss on derivatives
1,100

 
8,315

 
35,657

Modification of rent terms
—

 
539

 
—

Compensation adjustment related to modified employment terms
2,997

 
—

 
—

Equity-based compensation
16,918

 
25,539

 
17,440

Company’s portion of adjustments to EBITDA of unconsolidated entities (Ashford Inc.)
3,427

 
—

 
—

Company’s portion of adjustments to EBITDA of unconsolidated entities (Ashford Prime OP)
634

 
2,781

 
—

Company’s portion of adjustments to EBITDA of unconsolidated entities (Highland)
(669
)
 
4,442

 
219

Adjusted EBITDA
$
330,173

 
$
347,769

 
$
336,773

_________________________
(1)
Other income, primarily consisting of income from interest rate derivatives and net realized gain/loss on marketable securities, is excluded from Adjusted EBITDA.


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We calculate Funds From Operations (“FFO”) and Adjusted FFO (“AFFO”) in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss), computed in accordance with GAAP, excluding gains or losses on sales of properties, and extraordinary items as defined by GAAP, plus depreciation and amortization of 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 (“AFFO”) excludes write-off of loan costs and exit fees, asset impairment adjustments, transaction, acquisition and management conversion costs, transaction costs related to spin-off (net of reimbursements), legal costs related to a litigation settlement, other income, operating results of hotel properties in receivership, dead deal costs, software implementation costs, compensation adjustment related to modified employment terms and non-cash items such as equity-based compensation adjustments related to modified employment terms, equity-based deferred compensation related to spin-off, modification of rent terms, non-cash gain on insurance settlements, and unrealized gains and losses on marketable securities and derivative instruments as well as our portion of adjustments to FFO related to unconsolidated entities. We exclude items from AFFO 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 consider FFO and AFFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and AFFO 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 AFFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.

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The following table reconciles net loss to FFO and Adjusted FFO (in thousands) (unaudited):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net loss
$
(38,207
)
 
$
(48,558
)
 
$
(62,208
)
(Income) loss from consolidated entities attributable to noncontrolling interests
406

 
(908
)
 
(868
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
6,400

 
8,183

 
9,296

Preferred dividends
(33,962
)
 
(33,962
)
 
(33,802
)
Net loss available to common stockholders
(65,363
)
 
(75,245
)
 
(87,582
)
Depreciation and amortization on real estate
110,465

 
124,611

 
133,246

Gain on sale/disposition of properties/note receivable
(3,503
)
 
—

 
(4,488
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
(6,400
)
 
(8,183
)
 
(9,296
)
Equity in (earnings) loss of unconsolidated entities
(2,495
)
 
23,404

 
20,833

Company’s portion of FFO of unconsolidated entities (Ashford Inc.)
(3,252
)
 
—

 
—

Company’s portion of FFO of unconsolidated entities (Ashford Prime OP)
5,897

 
(3,339
)
 
—

Company’s portion of FFO of unconsolidated entities (Highland)
49,748

 
34,275

 
31,496

FFO available to common stockholders
85,097

 
95,523

 
84,209

Write-off of loan costs and exit fees
10,353

 
2,098

 
4,117

Non-cash gain on insurance settlements
(5
)
 
(270
)
 
(91
)
Impairment charges
(415
)
 
(396
)
 
(1,229
)
Transaction, acquisition and management conversion costs
625

 
1,657

 
—

Transaction costs related to spin-off, net of reimbursements
4,231

 
1,548

 
—

Other income (1)
(6,573
)
 
565

 
340

Legal costs related to a litigation settlement
11,907

 
—

 
2,491

Dead deal costs
—

 
—

 
869

Software implementation costs
320

 
—

 
—

El Conquistador results, interest, and amortization of deferred loan costs since appointment of receiver
—

 
—

 
2,068

Modification of rent terms
—

 
539

 
—

Compensation adjustment related to modified employment terms
2,997

 
—

 
—

Equity-based compensation adjustment related to modified employment terms
—

 
4,678

 
480

Equity-based deferred compensation related to spin-off
—

 
4,313

 
—

Unrealized (gain) loss on marketable securities
332

 
(5,115
)
 
(2,502
)
Unrealized loss on derivatives
1,100

 
8,315

 
35,657

Company’s portion of adjustments to FFO of unconsolidated entities (Ashford Inc.)
2,558

 
—

 
—

Company’s portion of adjustments to FFO of unconsolidated entities (Ashford Prime OP)
398

 
2,716

 
—

Company’s portion of adjustments to FFO of unconsolidated entities (Highland)
(669
)
 
24

 
234

Adjusted FFO available to common stockholders
$
112,256

 
$
116,195

 
$
126,643

_________________________
(1) Other income, primarily consisting of net realized gain/loss on marketable securities, is excluded from Adjusted FFO.


68

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments, our derivatives portfolio and notes receivable that bear interest at variable rates that fluctuate with market interest rates. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
At December 31, 2014 , the total consolidated indebtedness of $2.0 billion included $817.9 million of variable-rate debt. The impact on the results of operations of a 25-basis point change in interest rate on the outstanding balance of variable-rate debt at December 31, 2014 would be approximately $2.0 million per year. Interest rate changes will have no impact on the remaining $1.2 billion of fixed rate debt. At December 31, 2013, the total consolidated indebtedness of $1.8 billion included $579.4 million of variable-rate debt. The impact on the results of operations of a 25-basis point change in interest rate on the outstanding balance of variable-rate debt at December 31, 2013 would be approximately $1.4 million per year. Interest rate changes will have no impact on the remaining $1.2 billion of fixed rate debt.
The above amounts were determined based on the impact of hypothetical interest rates on our borrowings and assume no changes in our capital structure. As the information presented above includes only those exposures that existed at December 31, 2014 , it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
In August 2011, we entered into credit default swap transactions for a notional amount of $100.0 million to hedge financial and capital market risk. A credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation. The credit risk underlying the credit default swaps are referenced to the CMBX index. The CMBX is a group of indices that references underlying bonds from 25 Commercial Mortgage-Backed Securities, tranched by rating class. The only liability for us, the buyer of protection, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For the CMBX trades that we have completed, we were the buyer of protection in all trades. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades is approximately $8.5 million .

69
Table of Contents

Item 8.
Financial Statements and Supplementary Data
Index to Audited Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 


70
Table of Contents

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Ashford Hospitality Trust, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Ashford Hospitality Trust, Inc. and subsidiaries (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ashford Hospitality Trust, Inc. and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (2013 framework) and our report dated March 2, 2015 expressed an unqualified opinion thereon.
/s/      Ernst & Young LLP
Dallas, Texas
March 2, 2015


71

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
December 31,
 
2014
 
2013
Assets
 
 
 
Cash and cash equivalents
$
215,063

 
$
128,780

Marketable securities
63,217

 
29,601

Total cash, cash equivalents and marketable securities
278,280

 
158,381

Investments in hotel properties, net
2,128,611

 
2,164,389

Restricted cash
85,830

 
61,498

Accounts receivable, net of allowance of $241 and $242, respectively
22,399

 
21,791

Inventories
2,104

 
1,946

Note receivable, net of allowance of $7,522 and $7,937, respectively
3,553

 
3,384

Investment in unconsolidated entities
206,790

 
195,545

Deferred costs, net
12,588

 
10,155

Prepaid expenses
7,017

 
7,519

Derivative assets, net
182

 
19

Other assets
17,116

 
4,303

Due from Ashford Prime OP, net
896

 
13,042

Due from affiliates
3,473

 
1,302

Due from third-party hotel managers
12,241

 
33,728

Total assets
$
2,781,080

 
$
2,677,002

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness
$
1,954,103

 
$
1,818,929

Capital leases payable
—

 
28

Accounts payable and accrued expenses
71,118

 
70,683

Dividends payable
21,889

 
20,735

Unfavorable management contract liabilities
5,330

 
7,306

Due to Ashford Inc., net
8,202

 
—

Due to related party, net
1,867

 
270

Due to third-party hotel managers
1,640

 
958

Liabilities associated with marketable securities and other
6,201

 
3,764

Other liabilities
1,233

 
1,286

Total liabilities
2,071,583

 
1,923,959

Commitments and contingencies (Note 12)

 

Redeemable noncontrolling interests in operating partnership
177,064

 
134,206

Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized:
 
 
 
Series A Cumulative Preferred Stock, 1,657,206 shares issued and outstanding at December 31, 2014 and 2013
17

 
17

Series D Cumulative Preferred Stock, 9,468,706 shares issued and outstanding at December 31, 2014 and 2013
95

 
95

Series E Cumulative Preferred Stock, 4,630,000 shares issued and outstanding at December 31, 2014 and 2013
46

 
46

Common stock, $0.01 par value, 200,000,000 shares authorized, 124,896,765 shares issued, 89,439,624 and 80,565,563 shares outstanding at December 31, 2014 and 2013, respectively
1,249

 
1,249

Additional paid-in capital
1,706,274

 
1,652,743

Accumulated other comprehensive loss
—

 
(197
)
Accumulated deficit
(1,050,323
)
 
(896,110
)
Treasury stock, at cost, 35,457,141 and 44,331,202 shares at December 31, 2014 and 2013, respectively
(125,725
)
 
(140,054
)
Total stockholders’ equity of the Company
531,633

 
617,789

Noncontrolling interests in consolidated entities
800

 
1,048

Total equity
532,433

 
618,837

Total liabilities and equity
$
2,781,080

 
$
2,677,002

See Notes to Consolidated Financial Statements.

72
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
Year Ended December 31,
 
2014
 
2013
 
2012
Revenue
 
 
 
 
 
Rooms
$
640,325

 
$
746,576

 
$
724,212

Food and beverage
112,701

 
153,602

 
160,488

Other
26,958

 
37,776

 
34,652

Total hotel revenue
779,984

 
937,954

 
919,352

Advisory services revenue
10,724

 
1,047

 
—

Other
4,141

 
526

 
305

Total revenue
794,849

 
939,527

 
919,657

Expenses
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
Rooms
143,751

 
170,393

 
166,026

Food and beverage
77,653

 
104,536

 
108,274

Other expenses
254,495

 
280,801

 
275,940

Management fees
31,125

 
38,792

 
38,342

Total hotel expenses
507,024

 
594,522

 
588,582

Property taxes, insurance and other
38,499

 
46,945

 
44,779

Depreciation and amortization
110,653

 
127,684

 
133,571

Impairment charges
(415
)
 
(396
)
 
(5,349
)
Gain on insurance settlement
(5
)
 
(270
)
 
(91
)
Transaction costs
625

 
1,324

 
—

Advisory services fee
4,533

 
—

 
—

Corporate, general and administrative
57,243

 
52,821

 
44,050

Total expenses
718,157

 
822,630

 
805,542

Operating income
76,692

 
116,897

 
114,115

Equity in earnings (loss) of unconsolidated entities
2,495

 
(23,404
)
 
(20,833
)
Interest income
62

 
71

 
125

Other income
6,573

 
5,650

 
31,700

Interest expense and amortization of loan costs
(114,502
)
 
(140,865
)
 
(144,339
)
Write-off of loan costs and exit fees
(10,353
)
 
(2,098
)
 
(3,998
)
Unrealized gain (loss) on marketable securities
(332
)
 
5,115

 
2,502

Unrealized loss on derivatives
(1,100
)
 
(8,315
)
 
(35,657
)
Loss from continuing operations before income taxes
(40,465
)
 
(46,949
)
 
(56,385
)
Income tax expense
(1,266
)
 
(1,511
)
 
(2,375
)
Loss from continuing operations
(41,731
)
 
(48,460
)
 
(58,760
)
Income (loss) from discontinued operations
33

 
(98
)
 
(3,448
)
Gain on sale of hotel properties, net of tax
3,491

 
—

 
—

Net loss
(38,207
)
 
(48,558
)
 
(62,208
)
(Income) loss from consolidated entities attributable to noncontrolling interests
406

 
(908
)
 
(868
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
6,400

 
8,183

 
9,296

Net loss attributable to the Company
(31,401
)
 
(41,283
)
 
(53,780
)
Preferred dividends
(33,962
)
 
(33,962
)
 
(33,802
)
Net loss available to common stockholders
$
(65,363
)
 
$
(75,245
)
 
$
(87,582
)
Income (loss) per share – basic and diluted:
 
 
 
 
 
Loss from continuing operations attributable to common stockholders
$
(0.75
)
 
$
(1.00
)
 
$
(1.26
)
Income (loss) from discontinued operations attributable to common stockholders
—

 
—

 
(0.04
)
Net loss attributable to common stockholders
$
(0.75
)
 
$
(1.00
)
 
$
(1.30
)
Weighted average common shares outstanding – basic and diluted
87,622

 
75,155

 
67,533

Dividends declared per common share
$
0.48

 
$
0.48

 
$
0.44

Amounts attributable to common stockholders:
 
 
 
 
 
Loss from continuing operations, net of tax
$
(31,430
)
 
$
(41,197
)
 
$
(50,751
)
Income (loss) from discontinued operations, net of tax
29

 
(86
)
 
(3,029
)
Preferred dividends
(33,962
)
 
(33,962
)
 
(33,802
)
Net loss attributable to common stockholders
$
(65,363
)
 
$
(75,245
)
 
$
(87,582
)
See Notes to Consolidated Financial Statements.


73
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net loss
$
(38,207
)
 
$
(48,558
)
 
$
(62,208
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in unrealized loss on derivatives
—

 
(3
)
 
(144
)
Reclassification to interest expense
100

 
101

 
32

Total other comprehensive income (loss)
100

 
98

 
(112
)
Total comprehensive loss
(38,107
)
 
(48,460
)
 
(62,320
)
Comprehensive (income) loss attributable to noncontrolling interests in consolidated entities
406

 
(908
)
 
(868
)
Comprehensive loss attributable to redeemable noncontrolling interests in operating partnership
6,497

 
8,170

 
9,310

Comprehensive loss attributable to the Company
$
(31,204
)
 
$
(41,198
)
 
$
(53,878
)
See Notes to Consolidated Financial Statements.


74
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
 
Preferred Stock
 
 
 
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income/(Loss)
 
 
 
 
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Redeemable Noncontrolling Interest in Operating Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
 
 
Treasury Stock
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
Balance at January 1, 2012
1,488

 
$
15

 
8,967

 
$
90

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,746,259

 
$
(609,272
)
 
$
(184
)
 
(56,864
)
 
$
(164,796
)
 
$
16,414

 
$
989,821

 
$
112,796

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(55
)
 
(499
)
 
—

 
(499
)
 
—

Equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,666

 
—

 
—

 
—

 
(73
)
 
—

 
2,593

 
14,847

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
72

 
—

 
—

 
(31
)
 
(72
)
 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(556
)
 
—

 
—

 
204

 
556

 
—

 
—

 
64

Issuances of preferred shares
169

 
2

 
502

 
5

 
—

 
—

 
—

 
—

 
15,975

 
—

 
—

 
—

 
—

 
—

 
15,982

 
—

Dividends declared - common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(29,993
)
 
—

 
—

 
—

 
—

 
(29,993
)
 
—

Dividends declared - preferred shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,516
)
 
—

 
—

 
—

 
—

 
(3,516
)
 
—

Dividends declared - preferred shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19,869
)
 
—

 
—

 
—

 
—

 
(19,869
)
 
—

Dividends declared - preferred shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,417
)
 
—

 
—

 
—

 
—

 
(10,417
)
 
—

Net unrealized loss on derivative instruments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(126
)
 
—

 
—

 
—

 
(126
)
 
(18
)
Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
28

 
—

 
—

 
—

 
28

 
4

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,924
)
 
(1,924
)
 
(9,086
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(43,620
)
 
—

 
—

 
—

 
—

 
(43,620
)
 
43,620

Unvested operating partnership units reclassified to equity
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,752

 
—

 
—

 
—

 
—

 
—

 
1,752

 
(1,752
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(53,780
)
 
—

 
—

 
—

 
868

 
(52,912
)
 
(9,296
)
Balance at December 31, 2012
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,766,168

 
$
(770,467
)
 
$
(282
)
 
(56,746
)
 
$
(164,884
)
 
$
15,358

 
$
847,300

 
$
151,179

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33
)
 
(401
)
 
—

 
(401
)
 
—

Equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,577

 
—

 
—

 
—

 
—

 
—

 
6,577

 
18,962

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
—

 
—

 
(1
)
 
(5
)
 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(540
)
 
—

 
—

 
198

 
540

 
—

 
—

 
69

Issuances of preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
244

 
—

 
—

 
—

 
—

 
—

 
244

 
—

Reissuance of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
115,415

 
—

 
—

 
12,251

 
24,696

 
—

 
140,111

 
—

Dividends declared - common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(37,054
)
 
—

 
—

 
—

 
—

 
(37,054
)
 
—

Dividends declared - preferred shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,542
)
 
—

 
—

 
—

 
—

 
(3,542
)
 
—

Dividends declared - preferred shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(20,002
)
 
—

 
—

 
—

 
—

 
(20,002
)
 
—

Dividends declared - preferred shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,418
)
 
—

 
—

 
—

 
—

 
(10,418
)
 
—

Net unrealized loss on derivative instruments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
—

Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
88

 
—

 
—

 
—

 
88

 
13

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(17,390
)
 
(17,390
)
 
(10,290
)
Ashford Prime spin-off
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(233,611
)
 
—

 
—

 
—

 
—

 
2,172

 
(231,439
)
 
(34,046
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(13,344
)
 
—

 
—

 
—

 
—

 
(13,344
)
 
13,344

Unvested operating partnership units reclassified to equity
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,158
)
 
—

 
—

 
—

 
—

 
—

 
(3,158
)
 
3,158

Deferred compensation to be settled in shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,643

 
—

 
—

 
—

 
—

 
—

 
1,643

 
—

Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(41,283
)
 
—

 
—

 
—

 
908

 
(40,375
)
 
(8,183
)
Balance at December 31, 2013
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,652,743

 
$
(896,110
)
 
$
(197
)
 
(44,331
)
 
$
(140,054
)
 
$
1,048

 
$
618,837

 
$
134,206

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(41
)
 
(458
)
 
—

 
(458
)
 
—

Equity-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,782

 
—

 
—

 
—

 
—

 
—

 
2,782

 
16,373

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
68

 
—

 
—

 
(18
)
 
(45
)
 
—

 
23

 
—


75
Table of Contents

 
Preferred Stock
 
 
 
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income/(Loss)
 
 
 
 
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Redeemable Noncontrolling Interest in Operating Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
 
 
Treasury Stock
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(993
)
 
—

 
—

 
423

 
993

 
—

 
—

 
50

Reissuance of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
72,243

 
—

 
—

 
8,350

 
13,597

 
—

 
85,840

 
—

Dividends declared - common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(41,894
)
 
—

 
—

 
—

 
—

 
(41,894
)
 
—

Dividends declared - preferred shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,542
)
 
—

 
—

 
—

 
—

 
(3,542
)
 
—

Dividends declared - preferred shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(20,002
)
 
—

 
—

 
—

 
—

 
(20,002
)
 
—

Dividends declared - preferred shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,418
)
 
—

 
—

 
—

 
—

 
(10,418
)
 
—

Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
197

 
—

 
—

 
—

 
197

 
(97
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(255
)
 
(255
)
 
(10,715
)
Sale of consolidated noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
640

 
—

 
—

 
—

 
—

 
560

 
1,200

 
—

Redemption/conversion of operating partnership units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,574

 
(401
)
 
—

 
160

 
242

 
—

 
1,415

 
(1,434
)
Ashford Inc. spin-off
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(18,413
)
 
—

 
—

 
—

 
—

 
(147
)
 
(18,560
)
 
(6,235
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(45,988
)
 
—

 
—

 
—

 
—

 
(45,988
)
 
45,988

Unvested operating partnership units reclassified to redeemable noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,328
)
 
—

 
—

 
—

 
—

 
—

 
(5,328
)
 
5,328

Deferred compensation to be settled in shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
958

 
(567
)
 
—

 
—

 
—

 
—

 
391

 
—

Net loss
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(31,401
)
 
—

 
—

 
—

 
(406
)
 
(31,807
)
 
(6,400
)
Balance at December 31, 2014
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,706,274

 
$
(1,050,323
)
 
$
—

 
(35,457
)
 
$
(125,725
)
 
$
800

 
$
532,433

 
$
177,064

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements.


76
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended December 31,
 
2014
 
2013
 
2012
Cash Flows from Operating Activities
 
 
 
 
 
Net loss
$
(38,207
)
 
$
(48,558
)
 
$
(62,208
)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
 
 
 
 
 
Depreciation and amortization
110,931

 
127,990

 
136,527

Impairment charges
(415
)
 
(396
)
 
(1,229
)
Bad debt expense
346

 
—

 
—

Equity in (earnings) loss of unconsolidated entities
(2,495
)
 
23,404

 
20,833

Distributions of earnings from unconsolidated entities
995

 
—

 
—

Income from financing derivatives
—

 
(6,215
)
 
(32,040
)
Gain on sale of properties/notes receivable, net
(3,731
)
 
(193
)
 
(4,486
)
Realized and unrealized gain on trading securities
(5,447
)
 
(3,978
)
 
(1,861
)
Purchases of trading securities
(169,605
)
 
(61,484
)
 
(46,239
)
Sales of trading securities
143,732

 
61,025

 
45,252

Gain on insurance settlement
(5
)
 
(270
)
 
(91
)
Net settlement of trading derivatives
(505
)
 
(1,694
)
 
(4,093
)
Amortization of loan costs and write-off of loan costs and exit fees
17,590

 
9,870

 
10,319

Unrealized loss on derivatives
1,100

 
8,315

 
35,657

Equity-based compensation
19,155

 
25,539

 
17,440

Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions, hotel disposition, Ashford Prime spin-off and Ashford Inc. spin-off:
 
 
 
 
 
Restricted cash
2,257

 
19,863

 
(1,075
)
Accounts receivable and inventories
(174
)
 
633

 
(8,757
)
Prepaid expenses and other assets
415

 
(129
)
 
1,001

Accounts payable and accrued expenses
12,445

 
4,582

 
11,671

Due to/from affiliates
(2,171
)
 
(134
)
 
144

Due to/from related party
1,630

 
(3,391
)
 
1,310

Due to/from third-party hotel managers
22,169

 
(5,683
)
 
13,936

Due to/from Ashford Prime
(1,699
)
 
—

 
—

Due to/from Ashford Inc.
1,518

 
—

 
—

Other liabilities
1,490

 
(3,639
)
 
(1,376
)
Net cash provided by operating activities
111,319

 
145,457

 
130,635

Cash Flows from Investing Activities
 
 
 
 
 
Proceeds from sale/payments of notes receivable
246

 
245

 
5,216

Cash contribution to Ashford Prime OP
—

 
(162,822
)
 
—

Acquisition of hotel property, net of cash acquired
(71,591
)
 
(88,204
)
 
—

Cash contribution to Ashford Inc.
(32,119
)
 
—

 
—

Distribution from Ashford Prime OP
—

 
6,049

 
—

Restricted cash related to improvements and additions to hotel properties
(30,243
)
 
—

 
—

Improvements and additions to hotel properties
(120,105
)
 
(96,285
)
 
(81,403
)
Net proceeds from sale of assets/properties
30,269

 
654

 
7,741

Due from Ashford Prime
13,635

 
(13,635
)
 
—

Payments of franchise fees
(208
)
 
—

 
—

Proceeds from sale of consolidated noncontrolling interest
1,200

 
—

 
—

Proceeds from property insurance
1,671

 
—

 
—

Net cash used in investing activities
(207,245
)
 
(353,998
)
 
(68,446
)
Cash Flows from Financing Activities
 
 
 
 
 
Borrowings on indebtedness
718,825

 
287,075

 
346,000

Repayments of indebtedness and capital leases
(514,657
)
 
(184,815
)
 
(353,409
)
Payments of loan costs and prepayment penalties
(20,054
)
 
(5,386
)
 
(10,375
)
Payments of dividends
(85,417
)
 
(78,829
)
 
(71,564
)
Purchases of treasury shares
(458
)
 
(401
)
 
(499
)
Payments for derivatives
(666
)
 
(184
)
 
(184
)
Cash income from derivatives
—

 
7,878

 
32,046

Proceeds from preferred stock offering
—

 
244

 
15,982

Issuances of treasury stock
85,840

 
140,111

 
—

Distributions to noncontrolling interests in consolidated entities
(1,235
)
 
(14,376
)
 
(1,924
)
Redemption of operating partnership units and other
31

 
69

 
64

Net cash provided by (used in) financing activities
182,209

 
151,386

 
(43,863
)
Net change in cash and cash equivalents
86,283

 
(57,155
)
 
18,326

Cash and cash equivalents at beginning of year
128,780

 
185,935

 
167,609

Cash and cash equivalents at end of year
$
215,063

 
$
128,780

 
$
185,935

Supplemental Cash Flow Information
 
 
 
 
 
Interest paid
$
108,013

 
$
135,452

 
$
139,382

Income taxes paid
1,159

 
1,294

 
836

 
 
 
 
 
 

77

 
Year Ended December 31,
 
2014
 
2013
 
2012
Supplemental Disclosure of Investing and Financing Activities
 
 
 
 
 
Non-cash deferred compensation
$
958

 
$
1,643

 
$
—

Dividend receivable from Ashford Prime
249

 
249

 
—

Distributions declared but not paid to a noncontrolling interest in a consolidated entity
—

 
980

 
—

Accrued but unpaid capital expenditures
2,774

 
2,998

 
4,709

Transfer of debt to Ashford Prime
69,000

 
—

 
—

Dividends declared but not paid
21,889

 
20,735

 
18,258

Net other liabilities acquired
396

 
1,691

 
—

Accrued interest added to principal of indebtedness
—

 
—

 
4,100

Assets transferred to receivership/lender
—

 
—

 
19,218

Liabilities transferred to receivership/lender
—

 
—

 
19,740

Net assets distributed to Ashford Prime OP (net of cash contributed)
—

 
102,662

 
—

Net liabilities distributed to Ashford Inc. (net of cash contributed)
7,324

 
—

 
—

See Notes to Consolidated Financial Statements.

78
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2014 , 2013 and 2012

1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford”), is a real estate investment trust (“REIT”) focused on investing in the hospitality industry across all segments and in all methods including direct real estate, securities, equity, and debt. We commenced operations in August 2003, as a self-advised REIT. In November 2014, we completed the spin-off of our asset management business, forming Ashford Inc. as a separate publicly-traded company, and we became advised by Ashford Inc. We continue to own our lodging investments and conduct our business through Ashford Trust OP, our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Hospitality Trust, Inc., serves as the sole general partner of our operating partnership. In this report, the terms “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8 -hotel portfolio, totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company. We contributed the portfolio interests into Ashford Prime OP, Ashford Prime’s operating partnership. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our stockholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such stockholder as of the close of business on November 8, 2013. Ashford Prime is a REIT for federal income tax purposes, and is listed on the New York Stock Exchange, under the symbol “AHP.” The transaction also included options for Ashford Prime to purchase the Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida. We sold the Pier House Resort to Ashford Prime on March 1, 2014, and Ashford Prime’s option to acquire the Crystal Gateway Marriott will expire on May 19, 2015.
With respect to the eight hotel properties that are now owned by Ashford Prime, the operating results for the period from January 1, 2013 through November 18, 2013 and the years ended December 31, 2012 are included in our consolidated statements of operations for the respective years ended December 31, 2013 and 2012, in accordance with the applicable accounting guidance.
On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. at the time of the spin-off. In connection with the spin-off, we entered into a 20 -year advisory agreement with Ashford Inc.
As of December 31, 2014 , we owned interests in the following assets:
•
87 consolidated hotel properties (“legacy hotel properties”), including 85 directly owned and two owned through a majority-owned investment in a consolidated entity, which represent 17,205 total rooms (or 17,178 net rooms excluding those attributable to our partners);
•
28 hotel properties owned through a 71.74% common equity interest and a 50.0% preferred equity interest in an unconsolidated entity (“PIM Highland JV”), which represent 8,084 total rooms (or 5,799 net rooms excluding those attributable to our partner);
•
10 hotel properties owned through a 14.9% interest in Ashford Hospitality Prime Limited Partnership (“Ashford Prime OP”);
•
86 hotel condominium units at WorldQuest Resort in Orlando, Florida;
•
a 30.1% ownership in Ashford Inc. with a carrying value of $7.1 million ; and
•
a mezzanine loan with a carrying value of $3.6 million .

79
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of December 31, 2014 , our 87 legacy hotel properties were leased or owned by our wholly owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. As of December 31, 2014 , the 28 hotel properties owned by our unconsolidated joint venture, PIM Highland JV, are leased to its wholly owned subsidiary that is treated as a taxable REIT subsidiary for federal income tax purposes.
As of December 31, 2014 , Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer, and Mr. Archie Bennett, Jr., our Chairman Emeritus, managed 55 of our 87 legacy hotel properties, 21 of the 28 PIM Highland JV hotel properties, one of the 10 Ashford Prime OP hotel properties and WorldQuest Resort. Third-party management companies managed the remaining hotel properties.
2. Significant Accounting Policies
Basis of Presentation – The accompanying consolidated financial statements include the accounts of Ashford Hospitality Trust, Inc., its majority-owned subsidiaries and its majority-owned joint ventures in which it has a controlling interest. All significant inter-company accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements.
Marriott International, Inc. (“Marriott”) manages 26 of our properties as of December 31, 2014 . There were eight additional hotel properties managed by Marriott until May 31, 2013 and six properties managed by Marriott included in the Ashford Prime spin-off. For these 40 Marriott-managed hotels, the 2012 fiscal year reflects twelve weeks of operations in the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Beginning in 2013, the fiscal quarters end on March 31 st , June 30 th , September 30 th and December 31 st . . For Marriott-managed hotels, the fourth quarters of 2014 , 2013 and 2012 ended December 31, 2014 , December 31, 2013, and December 28, 2012, respectively. Prior results have not been adjusted.
Use of Estimates – The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.
Restricted Cash – Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions. For purposes of the consolidated statements of cash flows, changes in restricted cash caused by using such funds for debt service, real estate taxes, and insurance are shown as operating activities. Changes in restricted cash caused by using such funds for furniture, fixtures, and equipment replacements are included in cash flows from investing activities.
Accounts Receivable – Accounts receivable consists primarily of meeting and banquet room rental and hotel guest receivables. We generally do not require collateral. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of guests to make required payments for services. The allowance is maintained at a level believed adequate to absorb estimated receivable losses. The estimate is based on past receivable loss experience, known and inherent credit risks, current economic conditions, and other relevant factors, including specific reserves for certain accounts.
Inventories – Inventories, which primarily consist of food, beverages, and gift store merchandise, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.
Investments in Hotel Properties – Hotel properties are generally stated at cost. However, the remaining four hotel properties contributed upon Ashford’s formation in 2003 that are still owned by Ashford (the “Initial Properties”) are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a noncontrolling interest partial step-up related to the acquisition of noncontrolling interests from third parties associated with the Initial Properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.

80
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Impairment of Investments in Hotel Properties – Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value, less cost to sell. During 2012, we recorded an impairment charge of $4.1 million on one hotel property, all of which is included the operating results of discontinued operations. No impairment charges were recorded for investments in hotel properties included in our continuing operations for 2014 , 2013 and 2012 .
Notes Receivable – We provide mezzanine loan financing, documented by notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly, are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due. Payments received on impaired nonaccrual loans are recorded as adjustments to impairment charges. No interest income was recorded for 2014 , 2013 and 2012 .
Variable interest entities, as defined by authoritative accounting guidance, must be consolidated by their controlling interest beneficiaries if the variable interest entities do not effectively disperse risks among the parties involved. Our remaining mezzanine note receivable at December 31, 2014 is secured by a hotel property and is subordinate to the controlling interest in the secured hotel property. The note receivable is considered to be a variable interest in the entity that owns the related hotel. However, we are not considered to be the primary beneficiary of the hotel property as a result of holding the loan. Therefore, we do not consolidate the hotel property for which we have provided financing. We will evaluate the interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating the variable interest entity, our analysis involves considerable management judgment and assumptions.
Impairment of Notes Receivable – We review notes receivable for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts recorded as assets on the balance sheet. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. No impairment charges were recorded for 2014 , 2013 and 2012 . Valuation adjustments of $415,000 , $396,000 and $5.3 million on previously impaired notes were credited to impairment charges during 2014 , 2013 and 2012 . See Notes 4 and 15.
Investments in Unconsolidated Entities – Investments in entities in which we have ownership interests ranging from 14.4% to 71.74% are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the joint venture’s net income (loss). We review the investments in our unconsolidated entities for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities. No such impairment was recorded in 2014 , 2013 and 2012 .
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these joint ventures on an ongoing basis and therefore such entities should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.

81
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


In 2011, we acquired a 71.74% ownership interest in PIM Highland JV through contributions made by various entities in which we had equity investments and an additional cash investment. We adopted the equity accounting method for our investment in the PIM Highland JV due to the fact that we exercise significant influence but do not control the joint venture. Although we have the majority ownership of 71.74% in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. Our investment in PIM Highland JV had a carrying value of $144.8 million and $139.3 million at December 31, 2014 and 2013 , respectively.
In connection with the previously discussed spin-off of Ashford Prime on November 19, 2013, we maintained a 20% ownership interest in Ashford Prime OP (subsequently reduced to a 15.0% ownership interest, as of December 31, 2014, primarily as the result of an additional equity raise by Ashford Prime). We adopted the equity accounting method for our investment in Ashford Prime OP due to the fact that we exercise significant influence but do not control the entity. All major decisions related to Ashford Prime OP that most significantly impact Ashford Prime OP’s economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Prime OP General Partner LLC, its general partner. Our investment in Ashford Prime had a carrying value of $54.9 million and $56.2 million at December 31, 2014 and 2013 , respectively.
On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. at the time of the spin-off. In connection with the spin-off, we entered into a 20 -year advisory agreement with Ashford Inc. Our ownership interest in Ashford Inc. was 30.1% and had a carrying value of $7.1 million at December 31, 2014 .
Assets Held for Sale and Discontinued Operations – We classify assets as held for sale when management has obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. In addition, we deconsolidate a property upon transfer of title . When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received, the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated, and the carrying amount of the former property/subsidiary. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.
Marketable Securities – Marketable securities include U.S. treasury bills and stocks, put and call options of certain publicly traded companies. All of these investments are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments has been determined based on the closing price as of the balance sheet date and is reported as “Marketable securities” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. The cost of securities sold is determined by using the high cost method. Net investment income, including interest income (expense), dividends, realized gains and losses, and costs of investment, is reported as a component of “Other income.” Unrealized gains and losses on these investments are reported as “Unrealized gain (loss) marketable securities” in the consolidated statements of operations.
Deferred Costs, net – Deferred loan costs are recorded at cost and amortized over the terms of the related indebtedness using the effective interest method. Deferred franchise fees are amortized on a straight-line basis over the terms of the related franchise agreements.
Intangible Asset, net – Intangible asset represents the market value related to a lease agreement obtained in connection with the CNL acquisition that was below the market rate at the date of the acquisition and is amortized over the remaining term of the lease. An intangible asset was contributed to Ashford Prime OP in connection with the Ashford Prime spin-off in 2013. For the years ended December 31, 2014, 2013 and 2012, amortization expense related to intangibles was zero , $79,000 and $89,000 , respectively.

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


Derivative Instruments and Hedging – We primarily use interest rate derivatives to hedge our risks and to capitalize on the historical correlation between changes in LIBOR and RevPAR. The interest rate derivatives include swaps, caps, floors, flooridors and corridors. Interest rate swaps (or reverse swaps) involve the exchange of fixed-rate payments for variable-rate payments (or vice versa) over the life of the derivative agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide us with interest rate protection above the strike rate on the cap and result in us receiving interest payments when actual rates exceed the cap strike. For interest rate floors, we pay our counterparty interest when the variable interest rate index is below the strike rate. The interest rate flooridor combines two interest rate floors, structured such that the purchaser simultaneously buys an interest rate floor at a strike rate X and sells an interest rate floor at a lower strike rate Y. The purchaser of the flooridor is paid when the underlying interest rate index (for example, LIBOR) resets below strike rate X during the term of the flooridor. Unlike a standard floor, the flooridor limits the benefit the purchaser can receive as the related interest rate index falls. Once the underlying index falls below strike rate Y, the sold floor offsets the purchased floor. The interest rate corridor involves purchasing of an interest rate cap at one strike rate X and selling an interest rate cap with a higher strike rate Y. The purchaser of the corridor is paid when the underlying interest rate index resets above the strike rate X during the term of the corridor. The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the strike rate Y. There is no liability to us other than the purchase price associated with the flooridor and corridor.
We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. We also use credit default swaps to hedge financial and capital market risk. All these derivatives are subject to master netting settlement arrangements and the credit default swaps are subject to credit support annexes. As the derivatives are subject to master netting settlement arrangements, we report derivatives with the same counterparty net on the consolidated balance sheets. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance. Interest rate derivatives and credit default swaps are reported as “Derivative assets, net” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. Accrued interest on non-hedge designated interest rate derivatives is included in “Accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges:
a)
the effective portion of changes in fair value is initially reported as a component of “Accumulated other comprehensive income (loss)” (“OCI”) in the equity section of the consolidated balance sheets and reclassified to interest expense in the consolidated statements of operations in the period during which the hedged transaction affects earnings, and
b)
the ineffective portion of changes in fair value is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For the years ended December 31, 2014 , 2013 and 2012 there was no ineffectiveness.
For non-hedge designated interest rate derivatives and credit default swaps, changes in fair value are recognized in earnings as “Unrealized loss on derivatives” in the consolidated statements of operations.
Due to/from Affiliates – Due to/from affiliates represents current receivables and payables resulting primarily from advances of shared costs incurred. Both due to and due from affiliates are generally settled within a period not exceeding one year .
Due to/from Related Party – Due to/from related party represents current receivables and payables resulting from transactions related to hotel management, project management and market services with a related party. Due to/from related party is generally settled within a period not exceeding one year .
Due to/from Ashford Prime – Due to/from Ashford Prime represents current receivables and payables resulting primarily from costs associated with the spin-off of Ashford Prime as well as receivables related to advisory fees. Both due to and due from Ashford Prime will generally be settled within a period not exceeding one year .
Due to/from Ashford Inc. – Due to/from Ashford Inc. represents current receivables and payables resulting primarily from costs associated with the spin-off of Ashford Inc. as well as payables related to advisory fees. Both due to and due from Ashford Inc. will generally be settled within a period not exceeding one year .
Due to/from Third-Party Hotel Managers – Due from third-party hotel managers primarily consists of amounts due from Marriott related to cash reserves held at the Marriott corporate level related to operating, capital improvements, insurance, real estate taxes, and other items. Due to/from third-party hotel managers also represents current receivables and payables resulting from transactions related to hotel management.

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


Unfavorable Management Contract Liabilities – Certain management agreements assumed in the acquisition of a hotel in 2006 and the CNL acquisition in 2007 had terms that were more favorable to the respective managers than typical market management agreements at the acquisition dates. As a result, we recorded unfavorable contract liabilities related to those management agreements totaling $23.4 million based on the present value of expected cash outflows over the initial terms of the related agreements. The unfavorable contract liabilities are amortized as reductions to incentive management fees on a straight-line basis over the initial terms of the related agreements. In evaluating unfavorable contract liabilities, our analysis involves considerable management judgment and assumptions. An unfavorable management contract with a carrying value of $493,000 was contributed to Ashford Prime OP in connection with the Ashford Prime spin-off.
Noncontrolling Interests – The redeemable noncontrolling interests in the operating partnership represent the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common unit holdings throughout the period plus distributions paid to these limited partners’ Class B unit holdings. The redeemable noncontrolling interests in our operating partnership is classified in the mezzanine section of the consolidated balance sheets as these redeemable operating units do not meet the requirements for equity classification prescribed by the authoritative accounting guidance because the redemption feature requires the delivery of cash or registered shares. The carrying value of the noncontrolling interests in the operating partnership is based on the greater of the accumulated historical cost or the redemption value.
The noncontrolling interests in consolidated entities represent ownership interests of 15% of two hotel properties held by one joint venture at December 31, 2014 . The noncontrolling interests in consolidated entities that represented ownership interest of 25% of two hotel properties held by one joint venture were contributed to Ashford Prime in connection with the previously discussed spin-off. At December 31, 2012, the noncontrolling interest in consolidated entities represented ownership interests ranging from 15% to 25% of four hotel properties held by two joint ventures. The noncontrolling interests in consolidated entities are reported in equity in the consolidated balance sheets.
Net income/loss attributable to redeemable noncontrolling interests in the operating partnership and income/loss from consolidated entities attributable to noncontrolling interests in our consolidated entities are reported as deductions/additions from/to net income/loss. Comprehensive income/loss attributable to these noncontrolling interests is reported as reductions/additions from/to comprehensive income/loss.
Guarantees – Upon acquisition of the 51 -hotel CNL Portfolio on April 11, 2007, we assumed certain guarantees, which represent funds provided by third-party hotel managers to guarantee minimum returns for certain hotel properties. As we are obligated to repay such amounts through increased incentive management fees through cash reimbursements, such guarantees are recorded as other liabilities. During 2013, payments were made to satisfy all guarantees and as a result there are no future obligations.
Revenue Recognition – Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, parking and space rentals, are recognized when services have been rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. Advisory services are recognized when services have been rendered. The quarterly base fee is equal to 0.70% per annum of the total market capitalization, as defined, of Ashford Prime, subject to certain minimums. The incentive fee is earned annually in each year that Ashford Prime’s total stockholder return exceeds the total stockholder return for Ashford Prime’s peer group, as defined. Reimbursements for overhead and internal audit services are recognized when services have been rendered. We also recorded advisory revenue for equity grants of Ashford Prime common stock and LTIP units awarded to our officers and employees in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period, as well an offsetting expense in an equal amount included in “Corporate, general and administrative” expense. As previously discussed, this agreement was transferred in connection with the Ashford Inc. spin-off. We are reimbursed by PIM Highland JV for costs associated with managing its day-to-day operations and providing corporate administrative services such as accounting, insurance, marketing support, asset management and other services. Beginning with the three months ended March 31, 2014, we changed the presentation to report such reimbursements as “Other” revenue as opposed to credits within “Corporate, general and administrative” expense. This change had no impact on our financial condition or results of operations. Interest income, representing interest on the mezzanine loan (including accretion of discounts on the mezzanine loan using the effective interest method), is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due. Asset management fees are recognized when services are rendered.
Other Expenses – Other expenses include Internet, telephone charges, guest laundry, valet parking, and hotel-level general and administrative fees, sales and marketing expenses, repairs and maintenance, franchise fees and utility costs. They are expensed as incurred.

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


Advertising Costs – Advertising costs are charged to expense as incurred. For 2014 , 2013 and 2012 , our continuing operations incurred advertising costs of $3.3 million , $4.1 million and $4.0 million , respectively. Advertising costs related to continuing operations are included in “Other expenses” in the accompanying consolidated statement of operations.
Equity-Based Compensation – Stock/unit-based compensation is accounted for at fair value based on the market price of the shares at the date of grant in accordance with applicable authoritative accounting guidance. The fair value is charged to compensation expense on a straight-line basis over the vesting period of the shares/units.
Depreciation and Amortization – Owned hotel properties are depreciated over the estimated useful life of the assets and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives ranging from 7.5 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures and equipment. While we believe our estimates are reasonable, a change in estimated useful lives could affect depreciation expense and net income (loss) as well as resulting gains or losses on potential hotel sales.
Income Taxes – As a REIT, we generally will not be subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However, Ashford TRS is treated as a taxable REIT subsidiary for federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related to Ashford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
The “Income Taxes” topic of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2011 through 2014 remain subject to potential examination by certain federal and state taxing authorities.
Income (Loss) Per Share – Basic income (loss) per common share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding during the period using the two-class method prescribed by applicable authoritative accounting guidance. Diluted income (loss) per common share is calculated using the two-class method, or the treasury stock method, if more dilutive. Diluted income/loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share.
Recently Issued Accounting Standards — In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, including disclosure of pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. ASU 2014-08 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2014. Upon adoption of this standard in 2015, we will be required to evaluate whether a disposal meets the discontinued operations requirements under ASU 2014-08. We will make the additional disclosures upon adoption. Upon adoption, we anticipate that the operations of sold hotel properties through the date of their disposal will be included in continuing operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model, which requires a company to recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The update will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective in fiscal periods beginning after December 15, 2016. Early adoption is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method.

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


In August 2014, the FASB issued ASU 2014-15,  Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern  (“ASU 2014-15”), to provide guidance on management's responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not expect the adoption of this standard will have an impact on our financial position, results of operations or cash flows.
3. Investments in Hotel Properties
Investments in hotel properties consisted of the following (in thousands):
 
December 31,
 
2014
 
2013
Land
$
358,514

 
$
410,148

Buildings and improvements
2,125,656

 
2,071,811

Furniture, fixtures and equipment
211,777

 
166,193

Construction in progress
11,704

 
11,956

Condominium properties
12,065

 
12,442

Total cost
2,719,716

 
2,672,550

Accumulated depreciation
(591,105
)
 
(508,161
)
Investments in hotel properties, net
$
2,128,611

 
$
2,164,389

The cost of land and depreciable property, net of accumulated depreciation, for federal income tax purposes was approximately $1.9 billion and $2.0 billion as of December 31, 2014 and 2013 .
For the years ended December 31, 2014 , 2013 and 2012 , we recognized depreciation expense, including depreciation of assets under capital leases and discontinued hotel properties, of $110.6 million , $127.5 million and $136.0 million , respectively.
The authoritative accounting guidance requires non-financial assets be measured at fair value when events or changes in circumstances indicate that the carrying amount of an asset will not be recoverable. An asset is considered impaired if the carrying value of the hotel property exceeds its estimated undiscounted cash flows and the impairment is calculated as the amount by which the carrying value of the hotel property exceeds its estimated fair value. Our investments in hotel properties are reviewed for impairment at each reporting period, taking into account the latest operating cash flows and market conditions and their impact on future projections. Management uses considerable subjective and complex judgments in determining the assumptions used to estimate the fair value and undiscounted cash flows, and believes these are assumptions that would be consistent with the assumptions of market participants.
Acquisitions
On July 18, 2014, we acquired a 100% interest in the Ashton hotel in Fort Worth, Texas (“Ashton”) for total consideration of $8.0 million . The acquisition was funded with cash, and we subsequently borrowed $5.5 million , secured by a mortgage on the property. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $66,000 . This valuation is considered a Level 3 valuation technique.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
800

Buildings and improvements
6,687

Furniture, fixtures, and equipment
500

 
7,987

The results of operations of the hotel property have been included in our results of operations since July 18, 2014. For the year ended December 31, 2014, we have included total revenue of $1.3 million and net loss of $31,000 in our consolidated statements of operations.

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


On July 31, 2014, to fund a portion of the acquisition of the Ashton hotel, we completed the financing of a $5.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 3.75% (with a .25% LIBOR floor) for the first 18 months and a fixed rate of 4.0% thereafter. The stated maturity is July 2019, with no extension options. The mortgage loan is secured by the Ashton hotel.
On August 6, 2014, we acquired a 100% interest in the Fremont Marriott Silicon Valley hotel in Fremont, California (“Fremont”) for total consideration of $50.0 million . The acquisition was funded with proceeds from a $37.5 million non-recourse mortgage loan and cash. We allocated the assets acquired and liabilities assumed using the estimated fair value information based on a third party appraisal. We are in the process of evaluating property level working capital balances, which amount to a net liability of $261,000 . This valuation is considered a Level 3 valuation technique.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
Land
$
5,800

Buildings and improvements
41,100

Furniture, fixtures, and equipment
3,100

 
50,000

The results of operations of the hotel property have been included in our results of operations since August 6, 2014. For the year ended December 31, 2014, we have included total revenue of $8.1 million and net income of $25,000 in our consolidated statements of operations.
On August 6, 2014, to fund a portion of the acquisition of the Fremont hotel, we completed the financing of a $37.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 4.20% . The stated maturity is August 2016, with three one -year extension options. The mortgage loan is secured by the Fremont Marriott Silicon Valley hotel.
On May 14, 2013, we acquired a 100% interest in the Pier House Resort in Key West, Florida, for a contractual purchase price of $90.0 million in cash. In connection with the acquisition, we incurred transaction costs of $901,000 , which are included in transaction costs on the consolidated statement of operations. The purchase price has been allocated to the assets acquired and liabilities assumed using the estimated fair value at the date of acquisition based on a third party appraisal. This valuation is considered a Level 3 valuation technique.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
 
 
Land
$
56,900

Buildings and improvements
26,925

Furniture, fixtures, and equipment
6,100

 
89,925

Net other assets and liabilities
(1,691
)
Total
$
88,234

The results of operations of the hotel property have been included in our results of operations from May 14, 2013 through February 28, 2014. For the year ended December 31, 2013, we have included revenues of $11.5 million and net income of $2.7 million , in the consolidated statements of operations.
See Note 24 for pro forma financial information.

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


4. Notes Receivable
Our mezzanine loan, which is secured by the Ritz Carlton Key Biscayne, had an original face amount of $38.0 million , of which our initial investment was $33.0 million . This loan was restructured in 2010 with a cash payment of $20.2 million and a $4.0 million face value note receivable which matures in June 2017, with an interest rate of 6.09% . At December 31, 2014 and 2013 , this mezzanine loan had a net carrying value of $3.6 million and $3.4 million , respectively, net of the balance in the valuation allowance of $7.5 million and $7.9 million , respectively. All required payments on this loan have been made and payments on this loan have been treated as a reduction of carrying values and the valuation allowance adjustments have been recorded as credits to impairment charges in accordance with applicable accounting guidance.
Principal and interest payments were not made since October 2008, on the $18.2 million junior participation note receivable secured by the Four Seasons hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. In 2009, we recorded an impairment charge to fully reserve this note receivable. In May 2010, the senior mortgage lender foreclosed on the loan. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property. Due to our junior status in the trust, we have not recorded any value for our beneficial interest at December 31, 2014 and 2013 .
In June 2009, Extended Stay Hotels, LLC (“ESH”), the issuer of our $164 million principal balance mezzanine loan receivable secured by 681 hotels with an initial maturity in June 2009, filed for Chapter 11 bankruptcy protection from its creditors. This mezzanine loan was originally purchased for $98.4 million . At the time of ESH’s bankruptcy filing, a discount of $11.4 million had been amortized to increase the carrying value of the note to $109.4 million . We anticipated that ESH, through its bankruptcy filing, would attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in earnings for the full amount of the book value of the note. In October 2010, the ESH bankruptcy proceedings were completed and settled with new owners. The full amount of the valuation allowance was charged off in 2010. In 2012, a valuation adjustment of $5.0 million on the previously impaired note was credited to impairment charges as a result of proceeds received in a confidential settlement.
5. Investment in Unconsolidated Entities
In March 2011, we acquired a 71.74% ownership interest in the PIM Highland JV and a $25.0 million preferred equity interest earning an accrued but unpaid 15% annual return with priority over common equity distributions. Additionally, in March 2011, PIM Highland JV through a debt restructuring and consensual foreclosure, acquired a 28 -hotel portfolio. We have determined that the PIM Highland JV is a variable interest entity as its total equity at risk was not sufficient to permit it to finance its activities without additional subordinated financial support provided by any parties, including its equity holders. Although we have the majority ownership interest and can exercise significant influence over the joint venture, we do not control the activities that most significantly impact the PIM Highland JV’s economic performance. All the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. As a result, we are not the primary beneficiary of PIM Highland JV and our investment in the joint venture is accounted for using the equity method. We had a carrying value of $144.8 million and $139.3 million at December 31, 2014 and 2013 , respectively, and our maximum exposure of loss is limited to our investment in PIM Highland JV except as discussed below.
We executed a Letter Agreement (the “Agreement”) dated December 14, 2014, with PRISA III Investments, LLC, a Delaware limited liability company (“Seller”). The Agreement was approved by the investment committee of Prudential Real Estate Investors, the investment manager of Seller, and fully executed and delivered to us on December 15, 2014. Pursuant to the Agreement, we agreed to purchase and Seller agrees to sell (the “Transaction”) all of Seller’s right, title and interest in and to its approximately 28.26% interest in PIM Highland JV. Prior to the consummation of the Transaction, we own approximately 71.74% of PIM Highland JV and Seller owns approximately 28.26% of PIM Highland JV. After the consummation of the Transaction, we will own 100% of PIM Highland JV.

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


The mortgage and mezzanine loans securing the Highland Portfolio are nonrecourse to the borrowers, except for customary exceptions, or carve-outs, that trigger recourse liability to the borrowers in certain limited instances. The recourse obligations typically include only the payment of costs and liabilities suffered by the lenders as a result of the occurrence of certain bad acts on the part of the borrower; however, in certain cases, the 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 the 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.
The following tables summarize the condensed balance sheets as of December 31, 2014 and 2013 and the condensed statement of operations for the years ended December 31, 2014 , 2013 and 2012 of the PIM Highland JV (in thousands):
PIM Highland JV
Condensed Consolidated Balance Sheets
 
December 31,
 
2014
 
2013
Total assets
$
1,394,806

 
$
1,390,782

Total liabilities
1,166,682

 
1,173,841

Members’ capital
228,124

 
216,941

Total liabilities and members’ capital
$
1,394,806

 
$
1,390,782

Our ownership interest in PIM Highland JV
$
144,784

 
$
139,302

PIM Highland JV
Condensed Consolidated Statements of Operations
 
Year Ended December 31,
 
2014
 
2013
 
2012
Total revenue
$
466,703

 
$
426,760

 
$
416,892

Total expenses
(391,779
)
 
(385,133
)
 
(377,453
)
Operating income
74,924

 
41,627

 
39,439

Interest income and other
53

 
69

 
102

Interest expense, amortization and write-offs of deferred loan costs, discounts and premiums and exit fees
(59,456
)
 
(64,316
)
 
(63,497
)
Other expenses
(44
)
 
—

 
(72
)
Income tax expense
(4,294
)
 
(1,345
)
 
(2,353
)
Net income (loss)
$
11,183

 
$
(23,965
)
 
$
(26,381
)
Our equity in earnings (loss) of PIM Highland JV
$
5,482

 
$
(19,392
)
 
$
(20,833
)
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8 -hotel portfolio, totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our common stockholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such stockholder as of the close of business on November 8, 2013. We had a 20% ownership interest in Ashford Prime OP at the time of the spin-off. Our ownership interest in Ashford Prime OP was 14.9% at December 31, 2014 . In connection with the Ashford Prime Spin-off, we are still jointly and severally liable under certain carve-out guarantees and environmental indemnities associated with three loans. Ashford Prime has indemnified us in the case that any of these guarantees are ever called.

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


The following tables summarize the condensed consolidated balance sheets as of December 31, 2014 and 2013 and the condensed consolidated and combined consolidated statements of operations for the years ended December 31, 2014 , 2013 and 2012 of Ashford Prime as well as our equity in earnings (loss) since November 19, 2013 (in thousands):
Ashford Hospitality Prime Limited Partnership
Condensed Consolidated Balance Sheets
 
December 31,
 
2014
 
2013
Total assets
$
1,229,508

 
$
962,407

Total liabilities
805,510

 
659,280

Partners’ capital
423,998

 
303,127

Total liabilities and partners’ capital
$
1,229,508

 
$
962,407

Our ownership interest in Ashford Prime OP
$
54,907

 
$
56,243

Ashford Hospitality Prime Limited Partnership
Condensed Consolidated and Combined Consolidated Statements of Operations
 
Year Ended December 31,
 
2014
 
2013
 
2012
Total revenue
$
307,308

 
$
233,496

 
$
221,188

Total expenses
(263,558
)
 
(214,086
)
 
(189,382
)
Operating income
43,750

 
19,410

 
31,806

Interest income
27

 
23

 
29

Interest expense and amortization and write-offs of loan costs
(39,031
)
 
(34,982
)
 
(31,244
)
Unrealized loss on derivatives
(111
)
 
(36
)
 
—

Income tax expense
(1,097
)
 
(2,343
)
 
(4,384
)
Net income (loss)
3,538

 
(17,928
)
 
(3,793
)
Income from consolidated entities attributable to noncontrolling interests
(1,103
)
 
(934
)
 
(752
)
Net income (loss) attributable to Ashford Prime OP
$
2,435

 
$
(18,862
)
 
$
(4,545
)
Our equity in earnings (loss) of Ashford Prime OP
$
258

 
$
(4,012
)
 
$
—

On February 27, 2014, we announced that our Board of Directors had approved a plan to spin-off our asset management business into a separate publicly traded company in the form of a taxable special distribution. The spin-off was completed on November 12, 2014, with a pro-rata taxable distribution of Ashford Inc.’s common stock to our stockholders of record as of November 11, 2014. The distribution was comprised of one share of Ashford Inc. common stock for every 87 shares of our common stock held by our stockholders. In addition for each common unit of our operating partnership the holder received a common unit of the operating limited liability company subsidiary of Ashford Inc. Each holder of common units of the operating limited liability company of Ashford Inc. could exchange up to 99% of those units for shares of Ashford Inc. stock at the rate of one share of Ashford Inc. common stock for every 55 common units. The distribution was made on November 12, 2014. Following the spin-off, we continue to hold approximately 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders, which represents an approximate 30.1% ownership interest in Ashford Inc. at the time of the spin-off. In connection with the spin-off, we entered into a 20 -year advisory agreement with Ashford Inc. The fair value of our ownership interest was $56.2 million at December 31, 2014.

90
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The following tables summarize the condensed consolidated and combined balance sheets as of December 31, 2014 and 2013 and the condensed combined consolidated statements of operations for the years ended December 31, 2014 , 2013 and 2012 of Ashford Inc. as well as our equity in loss since November 13, 2014 (in thousands):
Ashford Inc.
Condensed Consolidated and Combined Balance Sheets
 
December 31,
 
2014
 
2013
Total assets
$
49,230

 
$
2,322

Total liabilities
33,912

 
8,081

Owner’s equity (deficit)
15,318

 
(5,759
)
Total liabilities and owners’ equity (deficit)
$
49,230

 
$
2,322

Our ownership interest in Ashford Inc.
$
7,099

 
$
—

Ashford Inc.
Condensed Combined Consolidated and Combined Statements of Operations
 
Year Ended December 31,
 
2014
 
2013
 
2012
Total revenue
$
17,288

 
$
960

 
$
—

Total expenses
(63,586
)
 
(48,672
)
 
(38,182
)
Operating loss
(46,298
)
 
(47,712
)
 
(38,182
)
Income tax expense
(783
)
 
(7
)
 
—

Net loss
(47,081
)
 
(47,719
)
 
(38,182
)
Loss from consolidated entities attributable to noncontrolling interests
647

 
—

 
—

Net loss attributable to redeemable noncontrolling interests in Ashford LLC
24

 
—

 
—

Net loss attributable to Ashford Inc.
$
(46,410
)
 
$
(47,719
)
 
$
(38,182
)
Our equity in loss of Ashford Inc.
$
(3,245
)
 
$
—

 
$
—

Additionally, as of December 31, 2014 and 2013 , we had a 14.4% subordinated beneficial interest in a trust that holds the Four Seasons hotel property in Nevis, which had a zero carrying value.
6. Assets Held for Sale and Discontinued Operations
In November 2014, we completed the sale of the Homewood Suites hotel in Mobile, Alabama. The operating results of this hotel are reported as discontinued operations for all periods presented.
At December 31, 2010, the Hilton hotel property in Tucson, Arizona had a reasonable probability of being sold. Based on our assessment of the purchase price obtained from potential buyers, we recorded an impairment charge of $39.9 million during 2010. During the second quarter of 2012, we determined that this property was not to be held long-term as operating cash flows were not anticipated to cover principal and interest payments of the related debt secured by this hotel. In addition, regarding this loan, we ceased making principal and interest payments after July 31, 2012. Based on our assessment, which included marketing this hotel for sale, we concluded that the carrying value of this asset would not be recoverable. Consequently, in the second quarter of 2012, we recognized an additional impairment charge of $4.1 million related to this hotel, which reduced its carrying value to $19.7 million and represented our estimate of its fair value. The impairment charge was based on methodologies discussed in Note 2, which are considered Level 3 valuation techniques. Effective August 15, 2012, via a consensual foreclosure with our lender, a receiver appointed by Pima County Superior Court in Arizona completed taking possession and full control of this hotel. The hotel property was disposed of and deconsolidated in December 2012 when title passed to the lender. Additionally, we sold our Doubletree Guest Suites hotel in Columbus, Ohio in November 2012 for net proceeds of $7.7 million . The operating results of these properties are reported in discontinued operations for all periods presented.

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


The hotel properties included in discontinued operations were carried at lower of cost or estimated fair value less cost to sell at the date they were classified as assets held for sale. In accordance with applicable accounting guidance, the inputs used in determining the fair values are categorized into three levels: level 1 inputs are inputs obtained from quoted prices in active markets for identical assets, level 2 inputs are significant other inputs that are observable for the assets either directly or indirectly, and level 3 inputs are unobservable inputs for the asset and reflect our own assumptions about the assumptions that market participants would use in pricing the asset.
The following table presents our hotel properties measured at fair value aggregated by the level in the fair value hierarchy within which measurements fall on a non-recurring basis at December 31, 2014 , 2013 and 2012 , and related impairment charges recorded (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Impairment
Charges
 
2012
 
 
 
 
 
 
 
 
 
 
Hilton Tucson, AZ
—

 
—

 
—

 
—

 
$
4,120

(1)  
_________________________
(1)  
The impairment charge was taken in the quarter ended June 30, 2012, based on its estimated fair value of $19.7 million which we considered to be a level 3 fair value measure.
The following table summarizes the operating results of the discontinued operations (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Hotel revenues
$
2,479

 
$
2,733

 
$
32,347

Hotel operating expenses
(1,678
)
 
(1,791
)
 
(29,480
)
Operating income
801

 
942

 
2,867

Property taxes, insurance and other
(109
)
 
(130
)
 
(1,708
)
Depreciation and amortization
(278
)
 
(306
)
 
(2,956
)
Impairment charge
—

 
—

 
(4,120
)
Gain (loss) on disposal/sales of properties
(49
)
 
—

 
4,486

Interest expense and amortization of loan costs
(332
)
 
(604
)
 
(1,921
)
Write-off of loan costs and exit fees
—

 
—

 
(119
)
Income (loss) from discontinued operations before income taxes
33

 
(98
)
 
(3,471
)
Income tax benefit
—

 
—

 
23

Income (loss) from discontinued operations
33

 
(98
)
 
(3,448
)
(Income) loss from discontinued operations attributable to redeemable noncontrolling interests in operating partnership
(4
)
 
12

 
419

Income (loss) from discontinued operations attributable to the Company
$
29

 
$
(86
)
 
$
(3,029
)
7. Deferred Costs, net
Deferred costs, net consist of the following (in thousands):
 
December 31,
 
2014
 
2013
Deferred loan costs
$
22,131

 
$
27,049

Deferred franchise fees
3,168

 
4,037

Total costs
25,299

 
31,086

Accumulated amortization
(12,711
)
 
(20,931
)
Deferred costs, net
$
12,588

 
$
10,155


92
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


8. Indebtedness
Indebtedness of our continuing operations and the carrying values of related collateral were as follows at December 31, 2014 and 2013 (in thousands):
 
 
 
 
 
 
 
 
December 31, 2014
 
December 31, 2013
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
Debt
Balance
 
Book
Value of
Collateral
 
Debt
Balance
 
Book
Value of
Collateral
Mortgage loan (5)
 
5 hotels
 
March 2014
 
LIBOR (1)  + 4.50%
 
$
—

 
$
—

 
$
164,433

 
$
213,501

Mortgage loan (7)
 
1 hotel
 
May 2014
 
8.32%
 
—

 
—

 
5,075

 
8,994

Senior credit facility (4)
 
Various
 
September 2014
 
LIBOR  (1) + 2.75% to 3.50%
 
—

 
—

 
—

 
—

Mortgage loan (10)
 
5 hotels
 
November 2015
 
Greater of 6.40% or LIBOR (1)  + 6.15%
 
211,000

 
308,427

 
211,000

 
313,202

Mortgage loan (8)
 
8 hotels
 
December 2014
 
5.75%
 
—

 
—

 
102,348

 
82,314

Mortgage loan (6) (8)
 
9 hotels
 
May 2015
 
LIBOR (1)  + 6.50%
 
—

 
—

 
135,000

 
193,016

Mortgage loan
 
10 hotels
 
July 2015
 
5.22%
 
145,278

 
177,769

 
148,991

 
170,897

Mortgage loan (3)
 
1 hotel
 
September 2015
 
LIBOR  (1)  + 4.90%
 
—

 
—

 
69,000

 
88,836

Mortgage loan
 
8 hotels
 
December 2015
 
5.70%
 
92,772

 
75,959

 
94,899

 
77,733

Mortgage loan
 
5 hotels
 
February 2016
 
5.53%
 
105,164

 
128,380

 
107,737

 
127,073

Mortgage loan (8)
 
5 hotels
 
February 2016
 
5.53%
 
—

 
—

 
89,347

 
96,248

Mortgage loan
 
5 hotels
 
February 2016
 
5.53%
 
75,546

 
100,203

 
77,394

 
102,629

Mortgage loan (5)
 
5 hotels
 
February 2016
 
LIBOR  (1)  + 4.75%
 
200,000

 
210,974

 
—

 
—

Mortgage loan (2) (8)
 
7 hotels
 
August 2016
 
LIBOR  (1)  + 4.35%
 
301,000

 
190,072

 
—

 
—

Mortgage loan (2) (8)
 
5 hotels
 
August 2016
 
LIBOR  (1)  + 4.38%
 
62,900

 
99,539

 
—

 
—

Mortgage loan (2)
 
1 hotel
 
August 2016
 
LIBOR  (1)  + 4.20%
 
37,500

 
48,926

 
—

 
—

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
111,869

 
123,891

 
113,343

 
125,913

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
100,552

 
116,132

 
101,878

 
113,256

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
153,002

 
155,234

 
155,019

 
155,429

Mortgage loan
 
7 hotels
 
April 2017
 
5.95%
 
122,384

 
146,209

 
123,997

 
142,980

Mortgage loan (9)
 
1 hotel
 
July 2019
 
LIBOR  (1)  + 3.75%
 
5,525

 
7,742

 
—

 
—

Mortgage loan
 
1 hotel
 
November 2020
 
6.26%
 
99,780

 
112,278

 
101,268

 
113,927

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
10,673

 
16,460

 
10,800

 
17,223

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
7,313

 
9,161

 
7,400

 
8,624

Mortgage loan (7)
 
1 hotel
 
May 2024
 
4.99%
 
6,845

 
8,525

 
—

 
—

Mortgage loan (8)
 
3 hotels
 
August 2024
 
5.20%
 
67,520

 
47,706

 
—

 
—

Mortgage loan (8)
 
2 hotels
 
August 2024
 
4.85%
 
12,500

 
9,698

 
—

 
—

Mortgage loan (8)
 
3 hotels
 
August 2024
 
4.90%
 
24,980

 
16,132

 
—

 
—

Total
 
 
 
 
 
 
 
$
1,954,103

 
$
2,109,417

 
$
1,818,929

 
$
2,151,795

____________________________________
(1) LIBOR rates were 0.171% and 0.168% at December 31, 2014 and 2013 , respectively.
(2) This mortgage loan has three one -year extension options subject to satisfaction of certain conditions.
(3) This mortgage loan was assumed by Ashford Prime in connection with the sale of the Pier House Resort.
(4) The senior credit facility expired in September 2014 and was not extended.
(5) On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one -year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75% , with a LIBOR floor of 0.20% .
(6) This mortgage loan had three one -year extension options subject to satisfaction of certain conditions. The first one -year extension period began in May 2014.
(7) On May 1, 2014, we refinanced our $5.1 million loan due May 2014 with a $6.9 million loan due May 2024, with no extension options. The new loan provides for a fixed interest rate of 4.99% .
(8) On July 25, 2014, we refinanced our $135.0 million loan due May 2015, $102.3 million loan due December 2014, and $89.3 million loan due February 2016 with a $301.0 million loan due August 2016, a $62.9 million loan due August 2016, a $67.5 million loan due August 2024, a $12.5 million loan due August 2024 and a $25.0 million loan due August 2024.
(9) This mortgage loan provides for an interest rate of LIBOR + 3.75% with a .25% LIBOR floor for the first 18 months and is fixed at 4.0% thereafter.
(10) This mortgage loan had three one -year extension options subject to satisfaction of certain conditions. The first one -year extension period began in November 2014.

93
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Our senior credit facility expired in September 2014. We do not currently plan to replace it with another credit facility. Cash flows from operations, capital market activities and property refinancing proceeds have provided sufficient liquidity throughout the term of the credit facility. Additionally, we never drew on the credit facility. Accordingly, the absence of a credit facility is not expected to have a significant impact on our liquidity.
On August 6, 2014, to fund a portion of the acquisition of the Fremont Marriott Silicon Valley hotel, we completed the financing of a $37.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 4.20% . The stated maturity is August 2016, with three one -year extension options. The mortgage loan is secured by the Fremont Marriott Silicon Valley hotel.
On July 31, 2014, to fund a portion of the acquisition of the Ashton hotel, we completed the financing of a $5.5 million mortgage loan. The mortgage loan bears interest at a rate of LIBOR + 3.75% (with a .25% LIBOR floor) for the first 18 months and a fixed rate of 4.0% thereafter. The stated maturity is July 2019, with no extension options. The mortgage loan is secured by the Ashton hotel.
On July 25, 2014, we refinanced three mortgage loans, including our $135.0 million mortgage loan due May 2015, our $102.3 million mortgage loan due December 2014, which had an outstanding balance of $101.1 million , and our $89.3 million mortgage loan due February 2016, which had an outstanding balance of $88.5 million . The new loans total $468.9 million . As a result of the refinancing, the Homewood Suites Mobile and the Hampton Inn Terre Haute, Indiana are now unencumbered by debt. Other than the properties noted above, the new loans continue to be secured by the same hotel properties.
On May 1, 2014, we refinanced our $5.1 million loan due May 2014 with a $6.9 million loan due May 2024, with no extension options. The new loan provides for a fixed interest rate of 4.99% . The new loan continues to be secured by the same hotel property, the Courtyard Hartford-Manchester in Manchester, Connecticut.
On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one -year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75% , with a LIBOR floor of 0.20% . The new loan continues to be secured by the same five hotels that secured the original loan, including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America.
On December 20, 2013, we refinanced our $6.5 million loan due April 2034, with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% . The new loan continues to be secured by the Residence Inn Jacksonville. Additionally, we completed the financing for a $7.4 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% and is secured by the Residence Inn Manchester. We have an 85% ownership interest in the property, with Interstate Hotels & Resorts holding the remaining 15% . Our share of the excess loan proceeds were added to our unrestricted cash balance.
On September 10, 2013, we completed the financing for a $69.0 million loan due September 2015 and secured by the Pier House Resort. The new financing has a two -year term and three , one -year extension options with no test requirements for the first two extensions. The loan provides for a floating interest rate of LIBOR + 4.90% , with no LIBOR Floor. The loan proceeds, net of closing costs and reserves, were added to our unrestricted cash balance.
On February 26, 2013, we refinanced our $141.7 million loan due August 2013, which had an outstanding balance of $141.0 million , with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50% , with no LIBOR floor. The new loan continues to be secured by the Capital Hilton in Washington, DC and the Hilton La Jolla Torrey Pines in La Jolla, California. We had a 75% ownership interest in the properties, with Hilton holding the remaining 25% . The excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis. Our share of the excess loan proceeds was approximately $40.5 million , which was added to our unrestricted cash balance. These properties were included in the Ashford Prime spin-off.

94
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Maturities and scheduled amortizations of indebtedness of our continuing operations as of December 31, 2014 for each of the five following years are as follows (in thousands):
2015
$
461,876

2016
749,951

2017
477,449

2018
3,854

2019
46,720

Thereafter
214,253

Total
$
1,954,103

We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in us being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. The assets of certain of our subsidiaries listed on Exhibit 21.2 of this filing are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Trust or AHLP, our operating partnership, and the liabilities of such subsidiaries do not constitute the obligations of Ashford Trust or AHLP. Presently, our existing financial covenants are non-recourse and primarily relate to maintaining minimum debt coverage ratios, maintaining an overall minimum net worth, maintaining a maximum loan to value ratio, and maintaining an overall minimum total assets. As of December 31, 2014 , we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
9. Derivative Instruments and Hedging
Interest Rate Derivatives – We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage the risks, we primarily use interest rate derivatives to hedge our debt as a way to potentially improve cash flows. We also use non-hedge derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. The interest rate derivatives currently include interest rate caps. These derivatives are subject to master netting settlement arrangements. To mitigate the nonperformance risk, we routinely rely on a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.
In May 2011, we entered into an interest rate swap agreement for a notional amount of $1.18 billion to convert our existing floating-rate debt (including our 71.74% of the floating rate debt of the PIM Highland JV) to a fixed one-month LIBOR rate of 0.2675% . The swap was effective from June 13, 2011 and terminated on January 13, 2012 . There was no upfront cost to us for entering into this swap other than customary transaction costs. We made swap interest payments totaling $302,000 in 2011 under the agreement that is included in “Other income” in the accompanying consolidated statements of operations.
In October 2010, we converted our $1.8 billion interest rate swap into a fixed rate swap of 4.09% , resulting in locked-in annual interest savings of approximately $31.5 million through March 2013 at no cost to us. Under the previous swap, which we entered into in March 2008 and which expired in March 2013, we received a fixed rate of 5.84% and paid a variable rate of LIBOR plus 2.64% , subject to a LIBOR floor of 1.25% . Under the terms of the new swap transaction, we received a fixed rate of 5.84% , but paid a fixed rate of 4.09% .
During 2014 , 2013 and 2012 , we entered into interest rate caps with total notional amounts of $947.1 million , $268.9 million and $346.0 million , respectively, to cap the interest rates on our mortgage loans with maturities between May 2012 and August 2016, and strike rates between 1.50% and 6.25% , for total costs of $666,000 , $184,000 and $184,000 , respectively. These interest rate caps were designated as cash flow hedges, excluding two interest rate caps entered into in 2012 with a notional amount of $211.0 million and all the interest rate caps entered into in 2014 and 2013. At December 31, 2014 and 2013 , our floating interest rate mortgage loans, with principal balances of $812.4 million and $280.0 million , respectively, were capped by interest rate hedges. One interest rate cap entered into in 2013 with a notional amount of $199.9 million was transferred to Ashford Prime in connection with the previously discussed spin-off.
The cost basis of interest rate derivatives for federal income tax purposes was approximately $610,000 and $181,000 as of December 31, 2014 and 2013 .

95
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Credit Default Swap Derivatives – In August 2011, we entered into credit default swap transactions for a notional amount of $100.0 million to hedge financial and capital market risk for an upfront cost of $8.2 million that was subsequently returned to us as collateral by our counterparty. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades is approximately $8.5 million . Cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty when the change in market value is over $250,000 . The net carrying value of our credit default swaps was a liability of $184,000 and $73,000 as of December 31, 2014 and 2013 , respectively, which are included in “Liabilities associated with marketable securities and other”, respectively, in the consolidated balance sheets. For the years ended December 31, 2014 , 2013 and 2012 , we have recognized an unrealized loss of $616,000 , $1.9 million and $3.9 million , respectively, that is included in “Unrealized loss on derivatives” in the consolidated statements of operations.
Marketable Securities and Liabilities Associated with Marketable Securities and Other – We invest in public securities, including stocks and put and call options, which are considered derivatives. At December 31, 2014 , we had investments in these derivatives totaling $654,000 and liabilities of $997,000 . At December 31, 2013 , we had investments in these derivatives totaling $560,000 and liabilities of $561,000 .
10. Fair Value Measurements
Fair Value Hierarchy – Our financial instruments measured at fair value either on a recurring or a non-recurring basis are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:
•
Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. The fair values of interest rate caps, floors, flooridors and corridors are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rates of the floors or rise above the strike rates of the caps. The variable interest rates used in the calculation of projected receipts and payments on the swaps, caps, and floors are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (the Level 2 inputs). We also incorporate credit valuation adjustments (the Level 3 inputs) to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.

96
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The fair value of the credit default swaps is obtained from a third party who publishes various information including the index composition and price data (the Level 2 inputs). The fair value of the credit default swaps does not contain credit-risk related adjustments as the change in the fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
The fair value of marketable securities and liabilities associated with marketable securities and other, including stocks, put and call options and other are carried at fair market value based on their closing prices (the level 1 inputs).
We have determined that when a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counter-parties, which we consider significant ( 10% or more ) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at December 31, 2014 , the LIBOR interest rate forward curve (the Level 2 inputs) assumed an uptrend from 0.17% to 0.89% for the remaining term of our derivatives. The credit spreads (the Level 3 inputs) used in determining the fair values of the hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.

97
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
 
Quoted Market Prices (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Counter-party and Cash Collateral Netting (4)
 
Total
 
December 31, 2014:
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
$
—

 
$
182

 
$
—

 
$
—

 
$
182

(1)  
Equity put and call options
654

 
—

 
—

 
—

 
654

(2)  
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Equity securities
62,563

 
—

 
—

 
—

 
62,563

(2)  
Total
63,217

 
182

 
—

 
—

 
63,399

 
Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Credit default swaps
—

 
379

 
—

 
(563
)
 
(184
)
(3)  
Short equity put options
(216
)
 
—

 
—

 
—

 
(216
)
(3)  
Short equity call options
(781
)
 
—

 
—

 
—

 
(781
)
(3)  
Non-derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Short equity securities
(17
)
 
—

 
—

 
—

 
(17
)
(3)  
Margin account balance
(5,003
)
 
—

 
—

 
—

 
(5,003
)
(3)  
Total
(6,017
)
 
379

 
—

 
(563
)
 
(6,201
)
 
Net
$
57,200

 
$
561

 
$
—

 
$
(563
)
 
$
57,198

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
$
—

 
$
19

 
$
—

 
$
—

 
$
19

(1)  
Equity put and call options
560

 
—

 
—

 
—

 
560

(2)  
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Equity securities
29,041

 
—

 
—

 
—

 
29,041

(2)  
Total
29,601

 
19

 
—

 
—

 
29,620

 
Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Credit default swaps
—

 
995

 
—

 
(1,068
)
 
(73
)
(3)  
Short equity put options
(82
)
 
—

 
—

 
—

 
(82
)
(3)  
Short equity call options
(479
)
 
—

 
—

 
—

 
(479
)
(3)  
Non-derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Margin account balance
(3,130
)
 
—

 
—

 
—

 
(3,130
)
(3)  
Total
(3,691
)
 
995

 
—

 
(1,068
)
 
(3,764
)
 
Net
$
25,910

 
$
1,014

 
$
—

 
$
(1,068
)
 
$
25,856

 
_________________________
(1)  
Reported net as “Derivative assets, net” in the consolidated balance sheets.
(2)  
Reported as “Marketable securities” in the consolidated balance sheets.
(3)  
Reported as “Liabilities associated with marketable securities and other” in the consolidated balance sheets.
(4)  
Represents cash collateral posted by our counterparty.
 
 
 
 
 
 

98
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Effect of Fair Value Measured Assets and Liabilities on Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on the consolidated statement of operations (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassified from
 
Gain or (Loss)
Recognized in Income
 
Interest Savings or (Cost)
Recognized in Income
 
Accumulated OCI into Interest Expense
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
(484
)
 
$
(10,778
)
 
$
(48,827
)
 
$
—

 
$
10,639

 
$
54,199

 
$
100

 
$
101

 
$
32

Credit default swaps
—

 
—

 
(4,014
)
 
—

 
—

 
—

 
—

 
—

 
—

Equity call options and other
(3,942
)
 
(1,388
)
 
(3,644
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(4,426
)
 
(12,166
)
 
(56,485
)
 
—

 
10,639

 
54,199

 
100

 
101

 
32

Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity and US treasury securities
7,932

 
5,779

 
3,341

 
—

 
—

 
—

 
—

 
—

 
—

Total
3,506

 
(6,387
)
 
(53,144
)
 
—

 
10,639

 
54,199

 
100

 
101

 
32

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
—


4,400

 
17,091

 
—

 
(4,424
)
 
(22,159
)
 
—

 
—

 
—

Credit default swaps
(699
)
 
(2,025
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Short equity put options
1,111

 
(138
)
 
1,610

 
—

 
—

 
—

 
—

 
—

 
—

Short equity call options
429


(274
)
 
393

 
—

 
—

 
—

 
—

 
—

 
—

Total
841

 
1,963

 
19,094

 
—

 
(4,424
)
 
(22,159
)
 
—

 
—

 
—

Non-derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short equity securities
—


—

 
64

 
—

 
—

 
—

 
—

 
—

 
—

Total
841

 
1,963

 
19,158

 
—

 
(4,424
)
 
(22,159
)
 
—

 
—

 
—

Net
$
4,347

 
$
(4,424
)
 
$
(33,986
)
 
$
—

 
$
6,215

 
$
32,040

 
$
100

 
$
101

 
$
32

Total combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
(484
)
 
$
(6,378
)
 
$
(31,736
)
 
$
—

 
$
6,215

 
$
32,040

 
$
100

 
$
101

 
$
32

Credit default swaps
(616
)
 
(1,937
)
 
(3,921
)
 
—

 
—

 
—

 
—

 
—

 
—

Total derivatives
(1,100
)
(1)  
(8,315
)
(1)  
(35,657
)
(1)  
—

(2)  
6,215

(2)  
32,040

(2)  
100

 
101

 
32

Unrealized gain (loss) on marketable securities
(332
)
(3)  
5,115

(3)  
2,502

(3)  
—

 
—

 
—

 
—

 
—

 
—

Realized loss on marketable securities
5,779

(2) (4)  
(1,224
)
(2) (4)  
(831
)
(2) (4)  
—

 
—

 
—

 
—

 
—

 
—

Net
$
4,347

 
$
(4,424
)
 
$
(33,986
)
 
$
—

 
$
6,215

 
$
32,040

 
$
100

 
$
101

 
$
32

_________________________
(1)  
Reported as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.
(2)  
Included in “Other income” in the consolidated statements of operations.
(3)  
Reported as “Unrealized gain (loss) on marketable securities” in the consolidated statements of operations.
(4)  
Includes costs of $83 , $88 and $93 , respectively in 2014 , 2013 and 2012 associated with credit default swaps.
There was no change in fair value of our interest rate derivatives that were recognized in other comprehensive income (loss) for the twelve months ended December 31, 2014 . In 2013 and 2012 , the change in fair values of our interest rate derivatives that were recognized as change in other comprehensive income (loss) totaled $(3,000) and $(144,000) , respectively.
During the next twelve months, we expect no accumulated comprehensive income (loss) will be reclassified to interest expense.

99
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


11. Summary of Fair Value of Financial Instruments
Financial Instruments Measured at Fair Value on a Recurring basis
The carrying amounts and estimated fair values of financial instruments measured at fair value on a recurring basis were as follows (in thousands):
 
December 31, 2014
 
December 31, 2013
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets:
 
 
 
 
 
 
 
Marketable securities
$
63,217

 
$
63,217

 
$
29,601

 
$
29,601

Derivative assets
182

 
182

 
19

 
19

Liabilities associated with marketable securities and other
6,201

 
6,201

 
3,764

 
3,764

Marketable securities. Marketable securities consist of public equity securities and equity put and call options. The fair value of these investments is based on quoted market closing prices at the balance sheet date. See Notes 2, 9, and 10 for a complete description of the methodology and assumptions utilized in determining the fair values.
Derivative assets and Liabilities associated with marketable securities and other. Fair value of the interest rate derivatives are determined using the net present value of the expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of Ashford and the counterparties. Fair value of the credit default swap derivatives is obtained from a third party who publishes the CMBX index composition and price data. Liabilities associated with marketable securities and other consists of a margin account balance, short public equity securities and short equity put and call options. Fair value is determined based on the quoted market closing prices at the balance sheet date. See Notes 2, 9, and 10 for a complete description of the methodology and assumptions utilized in determining the fair values.
Financial Instruments Not Measured at Fair Value
Some of our financial instruments are not measured at fair value on a recurring basis. Determining the estimated fair values of certain financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments not measured at fair value were as follows (in thousands):
 
December 31, 2014
 
December 31, 2013
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets not measured at fair value:
 
 
 
 
 
 
 
Cash and cash equivalents
$
215,063

 
$
215,063

 
$
128,780

 
$
128,780

Restricted cash
85,830

 
85,830

 
61,498

 
61,498

Accounts receivable
22,399

 
22,399

 
21,791

 
21,791

Notes receivable
3,553

 
3,049 to 3,370

 
3,384

 
2,800 to 3,094

Due from affiliates
3,473

 
3,473

 
1,302

 
1,302

Due from Ashford Prime OP, net
896

 
896

 
13,042

 
13,042

Due from third-party hotel managers
12,241

 
12,241

 
33,728

 
33,728

 
 
 
 
 
 
 
 
Financial liabilities not measured at fair value:
 
 
 
 
 
 
 
Indebtedness of continuing operations
$
1,954,103

 
$1,905,801 to $2,106,413

 
$
1,818,929

 
$1,786,651 to $1,974,714

Accounts payable and accrued expenses
71,118

 
71,118

 
70,683

 
70,683

Dividends payable
21,889

 
21,889

 
20,735

 
20,735

Due to Ashford Inc., net
8,202

 
8,202

 
—

 
—

Due to related party, net
1,867

 
1,867

 
270

 
270

Due to third-party hotel managers
1,640

 
1,640

 
958

 
958


100
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days . The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Accounts receivable, accounts payable and accrued expenses, dividends payable, due to/from related party, due to/from affiliates, due to/from Ashford Prime OP, Due to/from Ashford Inc. and due to/from third-party hotel managers . The carrying values of these financial instruments approximate their fair values due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Notes receivable. Fair value of the notes receivable was determined by using similar loans with similar collateral. Since there is very little to no trading activity we had to rely on our internal analysis of what we believe a willing buyer would pay for these notes at December 31, 2014 and 2013 . We estimated the fair value of the notes receivable to be approximately 14.2% to 5.2% lower than the carrying value of $3.6 million at December 31, 2014 , and approximately 17.3% to 8.6% lower than the carrying value of $3.4 million at December 31, 2013 . This is considered a Level 2 valuation technique.
Indebtedness. Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. Cash flows are determined using a forward interest rate yield curve. The current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied, and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral. For the December 31, 2014 and 2013 indebtedness valuations, we used estimated future cash flows discounted at applicable index forward curves adjusted for credit spreads. We estimated the fair value of total indebtedness to be approximately 97.5% to 107.8% of the carrying value of $2.0 billion at December 31, 2014 and approximately 98.2% to 108.6% of the carrying value of $1.8 billion at December 31, 2013 . This is considered a Level 2 valuation technique.
12. Commitments and Contingencies
Restricted Cash – Under certain management and debt agreements for our hotel properties existing at December 31, 2014 , escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4% to 6% of gross revenues for capital improvements.
Franchise Fees – Under franchise agreements for our hotel properties existing at December 31, 2014 , we pay franchisor royalty fees between 4% and 6% of gross room revenue and, in some cases, food and beverage revenues. Additionally, we pay fees for marketing, reservations, and other related activities aggregating between 1% and 5% of gross room revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between 2015 and 2035 . When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to stockholders. In addition, if we breach the franchise agreement and the franchisor terminates a franchise prior to its expiration date, we may be liable for up to three times the average annual fees incurred for that property.
For the years ended December 31, 2014 , 2013 and 2012 , our continuing operations incurred franchise fees of $37.4 million , $32.0 million and $28.9 million , respectively, which are included in other expenses in the accompanying consolidated statements of operations.
Management Fees – Under management agreements for our hotel properties existing at December 31, 2014 , we pay a) monthly property management fees equal to the greater of $10,000 (CPI adjusted since 2003) or 3% of gross revenues, or in some cases 2% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on approved capital improvements, including project management fees of up to 4% of project costs, for certain hotels, and c) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2015 through 2032 , with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement.

101
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Leases – We lease land and facilities under non-cancelable operating leases, which expire between 2040 and 2084 , including two ground leases related to our hotel properties. Several of these leases are subject to base rent plus contingent rent based on the related property’s financial results and escalation clauses. For the years ended December 31, 2014 , 2013 and 2012 , our continuing operations recognized rent expense of $1.5 million , $4.5 million and $4.7 million , respectively, which included contingent rent of $712,000 , $898,000 and $1.4 million , respectively. Rent expense related to continuing operations is included in other expenses in the consolidated statements of operations. Future minimum rentals due under non-cancelable leases are as follows for each of the years ending December 31, (in thousands):
2015
$
871

2016
747

2017
633

2018
549

2019
531

Thereafter
32,931

Total
$
36,262

At December 31, 2014 , we had capital commitments of $46.6 million relating to general capital improvements that are expected to be paid in the next twelve months .
Litigation — Palm Beach Florida Hotel and Office Building Limited Partnership, et al. v. Nantucket Enterprises, Inc. This litigation involves a landlord tenant dispute from 2008 in which the landlord, Palm Beach Florida Hotel and Office Building Limited Partnership, a subsidiary of the Company, claimed that the tenant had violated various lease provisions of the lease agreement and was therefore in default. The tenant counterclaimed and asserted multiple claims including that it had been wrongfully evicted. The litigation was instituted by the plaintiff in November 2008 in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, Florida and proceeded to a jury trial on June 30, 2014. The jury entered its verdict awarding the tenant total claims of $10.8 million and ruling against the landlord on its claim of breach of contract. The landlord is preparing various post trial motions. A final judgment was entered and the landlord has filed a notice of appeal. As a result of the jury verdict, we have recorded pre-judgement interest of $707,000 for the year ended December 31, 2014 . During October 2014, there was a hearing held regarding the plaintiff’s motion to recover legal fees. The court ruled that as the prevailing party, the plaintiff was entitled to recover legal fees. As of the year ended December 31, 2014 , an accrual of $400,000 has been made as a reasonable estimate of loss related to legal fees. Total expense was $11.9 million for the year ended December 31, 2014 . The charge is included in other expenses in the consolidated statements of operations for the year ended December 31, 2014 .
We are engaged in other various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
Income Taxes – We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2011 through 2014 remain subject to potential examination by certain federal and state taxing authorities.

102
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


In September 2010, the Internal Revenue Service (“IRS”) completed an audit of one of our taxable REIT subsidiaries that leases two of our hotel properties for the tax year ended December 31, 2007. The IRS issued a notice of proposed adjustment based on Internal Revenue Code (IRC) Section 482 that reduced the amount of rent we charged the taxable REIT subsidiary (“TRS”). We owned a 75% interest in the hotel properties and the TRS at issue. In connection with the TRS audit, the IRS selected our REIT for audit for the same tax year. In October 2011, the IRS issued an income tax adjustment to the REIT as an alternative to the TRS proposed adjustment. The REIT adjustment was based on the REIT 100% federal excise tax on our share of the amount by which the rent was held to be greater than the arm’s length rate. We strongly disagreed with the IRS’s position and appealed our cases to the IRS Appeals Office. In determining amounts payable by our TRS subsidiaries under our leases, we engaged a third party to prepare a transfer pricing study which concluded that the lease terms were consistent with arms’ length terms as required by applicable Treasury regulations. We believe the IRS transfer pricing methodologies applied in the audits contained flaws and that the IRS adjustments to the rent charged were inconsistent with the U.S. federal tax laws related to REITs and true leases. The IRS Appeals Office reviewed our cases in 2012. In July 2013, the IRS Appeals Office issued “no-change letters” for the TRS and the REIT indicating that the 2007 tax returns were accepted as filed and the examinations resulted in no deficiencies. The statute of limitations for IRS assessments relating to the 2007 tax returns expired on March 31, 2014.
In June 2012, the IRS completed audits of the same TRS and our REIT for the tax years ended December 31, 2008 and 2009. With respect to the 2009 tax year, the IRS did not propose any adjustments to the TRS or the REIT. For the 2008 tax year, the IRS issued notices of proposed adjustments for both the REIT and the TRS. The REIT adjustment was for $3.3 million of U.S. federal excise taxes and represented the amount by which the IRS asserted that the rent charged to the TRS was greater than the arms’ length rate pursuant to IRC Section 482. The TRS adjustment was for $1.6 million of additional income which would have resulted in approximately $467,000 of additional U.S. federal income taxes and potential state income taxes of $83,000 , net of federal benefit. The TRS adjustment represented the IRS’ imputation of compensation to the TRS under IRC Section 482 for agreeing to be a party to the lessor entity’s bank loan agreement. We owned a 75% interest in the lessor entity through November 19, 2013, when our interest was contributed to Ashford Prime in connection with the November 19, 2013 spin-off. We strongly disagreed with both of the IRS adjustments for the reasons noted under the 2007 audits, and in addition, we believe the IRS misinterpreted certain terms of the lease, third party hotel management agreements, and bank loan agreements. We appealed our cases to the IRS Appeals Office and the IRS assigned the same Appeals team that oversaw our 2007 cases to our 2008 cases. Our representatives attended Appeals conferences for the 2008 cases in August 2013 and in February, April and May of 2014. In August 2014, we reached a final settlement with the IRS Appeals Office resolving all issues that arose in the 2008 audits of the TRS and the REIT. In connection with this settlement, we agreed to an adjustment to reduce the TRS rent expense and thereby increase the TRS’s taxable income by $660,000 . However, due to net operating losses available for utilization by the TRS in the 2008 tax year and the expiration of the statute of limitations for the 2009 TRS tax year, the IRS Appeals Office issued “no-change letters” for the TRS and the REIT indicating that the examinations resulted in no deficiencies. The statute of limitations for IRS assessments relating to the 2008 tax returns expired on December 31, 2014.
If we sell or transfer the Marriott Crystal Gateway in Arlington, Virginia prior to July 2016, we will be required to indemnify the entity from which we acquired the property if, as a result of such transactions, such entity would recognize a gain for federal tax purposes. In general, tax indemnities equal the federal, state, and local income tax liabilities the contributor or their specified assignee incurs with respect to the gain allocated to the contributor. The contribution agreements’ terms generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of such tax indemnities.
Potential Pension Liabilities – Upon our 2006 acquisition of a hotel property, certain employees of such hotel were unionized and covered by a multi-employer defined benefit pension plan. At that time, no unfunded pension liabilities existed. Subsequent to our acquisition, a majority of employees, who are employees of the hotel manager, Remington Lodging, petitioned the employer to withdraw recognition of the union. As a result of the decertification petition, Remington Lodging withdrew recognition of the union. At the time of the withdrawal, the National Retirement Fund, the union’s pension fund, indicated unfunded pension liabilities existed. The National Labor Relations Board (“NLRB”) filed a complaint against Remington Lodging seeking, among other things, that Remington Lodging’s withdrawal of recognition was unlawful. Pending the final determination of the NLRB complaint, including appeals, the pension fund entered into a settlement agreement with Remington Lodging on November 1, 2011, providing that (a) Remington Lodging will continue to make monthly pension fund payments pursuant to the collective bargaining agreement, and (b) if the withdrawal of recognition is ultimately deemed lawful, Remington Lodging will have an unfunded pension liability equal to $1.7 million minus the monthly pension payments made by Remington Lodging since the settlement agreement. To illustrate, if Remington Lodging - as of the date a final determination occurs - has made monthly pension payments equaling $100,000 , Remington Lodging’s remaining withdrawal liability shall be the unfunded pension liability of $1.7 million minus $100,000 (or $1.6 million ). This remaining unfunded pension liability shall be paid to the pension fund in annual installments of $84,000 (but may be made monthly or quarterly, at Remington Lodging’s election), which shall continue for the remainder of the twenty -( 20 )-year capped period, unless Remington Lodging elects to pay the unfunded pension liability amount earlier. We agreed to indemnify Remington Lodging for the payment of the unfunded pension liability, if any, as set forth in the settlement agreement.

103
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


13. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income/loss attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common units and the units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested throughout the period plus distributions paid to the limited partners with regard to the Class B units. Class B common units have a fixed dividend rate of 6.82% in years one to three and 7.2% thereafter, and have priority in payment of cash dividends over common units but otherwise have no preference over common units. Aside from the Class B units, all other outstanding units represent common units. Beginning one year after issuance, each common unit of limited partnership interest (including each Class B common unit) may be redeemed for either cash or, at our sole discretion, up to one share of our common stock. Beginning ten years after issuance, each Class B unit may be converted into a common unit at either party’s discretion. As a result of the Ashford Inc. spin-off, holders of our common stock were distributed one share of Ashford Inc. common stock for every 87 shares of our common stock, while our unit holders received one common unit of the operating limited liability company subsidiary of Ashford Inc. for each common unit of our operating partnership the holder held, and such holder then had the opportunity to exchange up to 99% of those units for shares of Ashford Inc. common stock at the rate of one share of Ashford Inc. common stock for every 55 common units. Following the spin-off, we continue to hold 598,000 shares of Ashford Inc. common stock for the benefit of our common stockholders. Each common unit is worth approximately 94% of one share of our common stock at December 31, 2014.
LTIP units, which are issued to certain executives and employees as compensation, have vesting periods ranging from three to five years. Additionally, certain independent members of the Board of Directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common partnership unit of the operating partnership which then can be redeemed for cash or, at our election, settled in our common stock. For the years ended December 31, 2014 , 2013 and 2012 , we issued 1.0 million , 1.4 million and 1.3 million LTIP units, respectively, with grant date fair values of $11.0 million , $16.4 million and $11.2 million , respectively. During 2014 , 2013 and 2012 , respectively, 1.6 million , 1.6 million and 1.4 million LTIP units vested. There were no forfeitures in 2014 , 2013 and 2012 . As of December 31, 2014 , we have issued 8.0 million LTIP units, of which all but 921,000 units issued in February 2014 , had reached full economic parity with the common units and are convertible into common partnership units. During 2014 , 2.0 million LTIP units were converted to common units, leaving 2.8 million outstanding LTIP units. All LTIP units issued had an aggregate value of $79.9 million at the date of grant which was amortized over their respective vesting periods through November 12, 2014. Compensation expense of $16.4 million , $19.0 million and $14.8 million was recognized for 2014 , 2013 and 2012 , respectively. In connection with the Ashford Inc. spin-off, all unvested LTIP units were transferred to Ashford Inc., in accordance with the applicable accounting guidance as all of Ashford Trust’s employees became employees of Ashford Inc. As a result no equity-based compensation expense was recorded subsequent to November 12, 2014.
During 2014 , 160,000 operating partnership units with a fair value of $1.8 million were converted to common shares at our election. Also during 2014, 2,000 operating partnership units with a fair value of $19,000 were redeemed for cash at our election. For 2013 and 2012 , no operating partnership units were presented for redemption or converted to shares of our common stock.
Redeemable noncontrolling interests, including vested LTIP units, in our operating partnership as of December 31, 2014 and 2013 were $177.1 million and $134.2 million , which represented ownership of 13.01% and 12.72% in our operating partnership, respectively. The carrying value of redeemable noncontrolling interests as of December 31, 2014 and 2013 had adjustments of $169.3 million and $123.3 million , respectively, to reflect the excess of redemption value over the accumulated historical costs. The carrying value of the redeemable noncontrolling interests at December 31, 2013 also reflected reclassifications of $5.3 million to equity of the historical accumulated costs of unvested LTIP units. As a result of the Ashford Inc. spin-off and the transfer of the employees from Ashford Trust to Ashford Inc., there is no longer a reclassification to equity of the historical accumulated costs of unvested LTIP units. For 2014 , 2013 and 2012 , we allocated net loss of $6.4 million , $8.2 million and $9.3 million to these redeemable noncontrolling interests, respectively. We declared cash distributions to operating partnership units of $10.7 million , $10.3 million and $9.1 million for the years ended December 31, 2014 , 2013 and 2012 respectively.

104
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


A summary of the activity of the operating partnership units is as follow (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Units outstanding at beginning of year
18,991

 
17,611

 
16,317

Units issued
1,007

 
1,380

 
1,294

Units redeemed for cash of $19 in 2014
(2
)
 
—

 
—

Units converted to common shares
(160
)
 
—

 
—

Units outstanding at end of year
19,836

 
18,991

 
17,611

Units convertible/redeemable at end of year
17,068

 
15,918

 
14,305

 
14. Equity
Equity Offering – On April 8, 2014, we commenced a follow-on public offering of 7.5 million shares of common stock at $10.70 per share for gross proceeds of $80.3 million . The aggregate proceeds net of underwriting discount and other expenses were approximately $76.8 million . The offering settled on April 14, 2014. We granted the underwriters a 30 -day option to purchase up to an additional 1.125 million shares of common stock. On May 9, 2014, the underwriters partially exercised their option and purchased an additional 850,000 shares of our common stock at a price of $10.70 per share less the underwriting discount resulting in additional net proceeds of approximately $8.7 million . As a result of this offering, 8.4 million shares were reissued from treasury stock during 2014.
On June 20, 2013, we commenced a follow-on public offering of 11.0 million shares of common stock at $12.00 per share for gross proceeds of $132.0 million . The aggregate proceeds net of underwriting discount and other expenses were approximately $125.9 million . The offering settled on June 26, 2013. We granted the underwriters a 30 -day option to purchase up to an additional 1.65 million shares of common stock. On July 24, 2013, the underwriters partially exercised their option and purchased an additional 1.25 million shares of our common stock at a price of $12.00 per share less the underwriting discount resulting in additional net proceeds of approximately $14.2 million . As a result of this offering, 12.3 million shares were reissued from treasury stock during 2013.
At December 31, 2014 and 2013 , there were 124.9 million shares of common stock issued, and 89.4 million and 80.6 million shares outstanding, respectively.
At-the-Market Preferred Stock Offering – In September 2011, we entered into an ATM program with an investment banking firm, pursuant to which we may issue up to 700,000 shares of 8.55% Series A Cumulative Preferred Stock and up to 700,000 shares of 8.45% Series D Cumulative Preferred Stock at market prices up to $30.0 million in total proceeds. While the ATM program remains in effect until such time that either party elects to terminate or the share or dollar thresholds are reached, it is not available until such time that a new prospectus is filed. Through December 31, 2014, we issued 169,306 shares of 8.55% Series A Cumulative Preferred Stock for gross proceeds of $4.2 million and 501,909 shares of 8.45% Series D Cumulative Preferred Stock for gross proceeds of $12.3 million . During the years ended December 31, 2014 and 2013 , no shares were issued.
Stock Repurchases – Beginning in November 2007, our Board of Directors has authorized management to purchase our common shares from time to time on the open market and in December 2008, we completed all of the $125.0 million repurchases authorized in 2007 and 2008. In January 2009, the Board of Directors approved an additional $200.0 million authorization under the same repurchase plan (excluding fees, commissions and all other ancillary expenses) and expanded the plan to include: (i) the repurchase of shares of our common stock, Series A preferred stock, Series B-1 preferred stock and Series D preferred stock and/or (ii) the prepayment of our outstanding debt obligations, including debt secured by our hotel assets and debt senior to our mezzanine or loan investments. In February 2010, the Board of Directors expanded the repurchase program further to include the potential repurchase of units of our operating partnership. As of June 2010, we ceased all repurchases under this plan indefinitely. In September 2011, our Board of Directors authorized the reinstatement of our 2007 share repurchase program and authorized an increase in our repurchase plan authority from $58.4 million to $200.0 million (excluding fees, commissions and all other ancillary expenses). Under this plan, the board has authorized: (i) the repurchase of shares of our common stock, Series A preferred stock, Series D preferred stock and Series E preferred stock, and/or (ii) discounted purchases of our outstanding debt obligations, including debt secured by our hotel assets. We intend to fund any repurchases or discounted debt purchases with the net proceeds from asset sales, cash flow from operations, existing cash on the balance sheet, and other sources. For the years ended December 31, 2014 , 2013 and 2012 , no shares of our common or preferred stock have been repurchased under the share repurchase program since its reinstatement.

105
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


In addition, we acquired 41,198 shares, 32,855 shares and 55,005 shares of our common stock in 2014 , 2013 and 2012 , respectively, to satisfy employees’ statutory minimum federal income tax obligations in connection with vesting of equity grants issued under our stock-based compensation plan.
Preferred Stock – In accordance with Ashford’s charter, we are authorized to issue 50 million shares of preferred stock, which currently includes Series A cumulative preferred stock, Series D cumulative preferred stock, and Series E cumulative preferred stock.
Series A Preferred Stock. At December 31, 2014 and 2013 , we had 1.7 million shares of 8.55% Series A cumulative preferred stock outstanding. Series A preferred stock has no maturity date, and we are not required to redeem these shares at any time. After September 22, 2009 , Series A preferred stock is redeemable at our option for cash, in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series A preferred stock dividends are payable quarterly, when and as declared, at the rate of 8.55%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.1375 per share). In general, Series A preferred stock holders have no voting rights.
Series D Preferred Stock. At December 31, 2014 and 2013 , we had 9.5 million shares of 8.45% Series D cumulative preferred stock outstanding. Series D preferred stock has no maturity date, and we are not required to redeem the shares at any time. Prior to July 18, 2012, Series D preferred stock was not redeemable, except in certain limited circumstances such as to preserve the status of our qualification as a REIT or in the event the Series D stock ceases to be listed on an exchange and we cease to be subject to the reporting requirements of the Securities Exchange Act, as described in Ashford’s charter. However, on and after July 18, 2012 , Series D preferred stock is redeemable at our option for cash, in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series D preferred stock quarterly dividends are set at the rate of 8.45%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.1125 per share). The dividend rate increases to 9.45%  per annum if these shares are no longer traded on a major stock exchange. In general, Series D preferred stock holders have no voting rights .
Series E Preferred Stock. At December 31, 2014 and 2013 , we had 4.6 million shares of our 9.00% Series E cumulative preferred stock outstanding. The Series E preferred stock has no maturity date, and we are not required to redeem the shares at any time. Prior to April 18, 2016, Series E preferred stock is not redeemable, except in certain limited circumstances such as to preserve the status of our qualification as a REIT or in the event a change of control occurs. If we choose not to redeem the Series E shares upon a change of control, each holder of Series E preferred stock can convert their shares into shares of our common stock based on a formula specified in the agreement. However, on and after April 18, 2016 , Series E preferred stock is redeemable at our option for cash, in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series E preferred stock quarterly dividends are set at the rate of 9.00%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.25 per share). In general, Series E preferred stock holders have no voting rights.
Dividends – A summary of dividends declared is as follows (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Common stock related:
 
 
 
 
 
Common shares
$
41,894

 
$
37,054

 
$
29,993

Preferred stocks:
 
 
 
 
 
Series A preferred stock
3,542

 
3,542

 
3,516

Series D preferred stock
20,002

 
20,002

 
19,869

Series E preferred stock
10,418

 
10,418

 
10,417

Total dividends declared
$
75,856

 
$
71,016

 
$
63,795


106
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Noncontrolling Interests in Consolidated Entitiess —Our noncontrolling entity partner, had an ownership interest of 15% in two hotel properties and a total carrying value of $800,000 and $1.0 million at December 31, 2014 and December 31, 2013 , respectively. Our ownership interest is reported in equity in the consolidated balance sheets. Through November 19, 2013, we held a 75% ownership interest in two hotel properties in which our partner held a 25% ownership interest. These two hotel properties were contributed to Ashford Prime in connection with the Ashford Prime spin-off. Noncontrolling interests in consolidated entities were allocated losses of $406,000 for the year ended December 31, 2014 , and income of $908,000 and $868,000 for the years ended December 31, 2013 and 2012 , respectively, which includes the results of the two spun-off properties through November 18, 2013.
15. Impairment Charges
Notes Receivable – In February 2010, the mezzanine loan secured by the Ritz-Carlton hotel property in Key Biscayne, Florida, with a principal amount of $38.0 million and a net carrying value of $23.0 million at December 31, 2009 was restructured. In connection with the restructuring, we received a cash payment of $20.2 million and a $4.0 million note receivable. We recorded a net impairment charge of $10.7 million in 2009 on the original mezzanine loan. The restructured note bears an interest rate of 6.09% and matures in June 2017 with interest only payments through maturity. The note was recorded at its net present value of $3.0 million at restructuring, based on its future cash flows. The interest payments are recorded as reductions of the principal of the note receivable, and the valuation adjustments to the net carrying amount of this note are recorded as a credit to impairment charges.
The following table summarizes the changes in allowance for losses for the years ended December 31, 2014 , 2013 and 2012 (in thousands):
 
2014
 
2013
 
2012
Balance at beginning of period
$
7,937

 
$
8,333

 
$
8,711

Impairment charges
—

 
—

 
—

Valuation adjustments (credits to impairment charges)
(415
)
 
(396
)
 
(378
)
Charge-offs
—

 
—

 
—

Balance at end of period
$
7,522

 
$
7,937

 
$
8,333

In June 2009, Extended Stay Hotels, LLC (“ESH”), the issuer of our $164 million principal balance mezzanine loan receivable secured by 681 hotels with initial maturity in June 2009, filed for Chapter 11 bankruptcy protection from its creditors. This mezzanine loan was originally purchased for $98.4 million . At the time of ESH’s bankruptcy filing, a discount of $11.4 million had been amortized to increase the carrying value of the note to $109.4 million . We anticipated that ESH, through its bankruptcy filing, would attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in earnings for the full amount of the book value of the note. In October 2010, the ESH bankruptcy proceedings were completed and settled with new owners. The full amount of the valuation allowance was charged off in 2010. In 2012, a valuation adjustment of $5.0 million on the previously impaired note was credited to impairment charges as a result of proceeds received from a confidential settlement.
Principal and interest payments were not made since October 2008, on the $18.2 million junior participation note receivable secured by the Four Seasons hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. We discontinued recording interest on this note beginning in October 2008. In 2009, we recorded an impairment charge to fully reserve this note receivable. In May 2010, the senior mortgage lender foreclosed on the loan. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property. Due to our junior status in the trust, we have not recorded any value for our beneficial interest at December 31, 2014 and 2013 .
Discontinued Operations – As fully discussed in Note 6, we recorded an impairment charge on one hotel property included in discontinued operations of $4.1 million in 2012 to write down that property to its estimated fair value less cost to sell.

107
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


16. Stock-Based Compensation
Under the Amended and Restated 2011 Stock Incentive Plan approved by stockholders, we are authorized to grant 11.5 million restricted shares of our common stock as incentive stock awards. At December 31, 2014 , 5.9 million shares were available for future issuance under the Amended and Restated 2011 Stock Incentive Plan. A summary of our restricted stock activity is as follows (shares in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
Restricted Shares
 
Weighted Average Price at Grant
 
Restricted Shares
 
Weighted Average Price at Grant
 
Restricted Shares
 
Weighted Average Price at Grant
Outstanding at beginning of year
418

 
$
10.55

 
487

 
$
9.15

 
900

 
$
6.14

Restricted shares granted
423

 
11.04

 
198

 
11.87

 
204

 
8.87

Restricted shares vested
(228
)
 
10.47

 
(266
)
 
8.97

 
(586
)
 
4.44

Restricted shares forfeited
(18
)
 
11.07

 
(1
)
 
9.81

 
(31
)
 
9.13

Outstanding at end of year
595

 
10.92

 
418

 
10.55

 
487

 
9.15

At December 31, 2014 , the outstanding restricted stock had vesting schedules between January 2015 and February 2017 . Stock-based compensation expense of $2.8 million , $2.3 million and $2.7 million was recognized for the years ended December 31, 2014 , 2013 and 2012 , respectively. The restricted stock that vested during 2014 had a fair value of $2.5 million at the date of vesting. In connection with the Ashford Inc. spin-off, all unvested restricted stock was transferred to Ashford Inc., in accordance with the applicable accounting guidance as all of Ashford Trust’s employees became employees of Ashford Inc. As a result, no equity-based compensation expense was recorded subsequent to November 12, 2014.
17. Employee Benefit Plans
401(k) Plan – Effective January 1, 2006, we established our 401(k) Plan, a qualified defined contribution retirement plan that covers employees 21 years of age or older who have completed one year of service and work a minimum of 1,000 hours annually. The 401(k) Plan allows eligible employees to contribute subject to IRS imposed limitations, to various investment funds. We make matching cash contributions of 50% of each participant’s contributions, based on participant contributions of up to 6% of compensation. Participant contributions vest immediately whereas company matches vest 25% annually. For the years ended December 31, 2014 , 2013 and 2012 , we incurred matching expense of $260,000 , $211,000 , and $211,000 , respectively. In connection with spin-off of Ashford Inc. on November 12, 2014, the 401(k) Plan will now be administered by Ashford Inc.
Employee Savings and Incentive Plan (ESIP) – Our ESIP, a nonqualified compensation plan that covers employees who work at least 25 hours per week, allows eligible employees to contribute up to 100% of their compensation to various investment funds. We match 25% of the first 10% each employee contributes. Matches are only made for employees not participating in the 401(k) Plan. Employee contributions vest immediately whereas company contributions vest 25% annually. For the years ended December 31, 2014 , 2013 and 2012 , we incurred matching expenses of $13,000 , $70,000 and $4,000 , respectively. In connection with spin-off of Ashford Inc. on November 12, 2014, the ESIP will now be administered by Ashford Inc.
Deferred Compensation Plan – Effective January 1, 2008, we established a nonqualified deferred compensation plan for certain executive officers. The plan allows participants to defer up to 100% of their base salary, bonus and stock awards and select an investment fund for measurement of the deferred compensation liability. Included in the 44.3 million shares of treasury stock at December 31, 2013, were 1.5 million shares under a deferred compensation plan that would be settled in our shares. In connection with the spin-off of Ashford Inc., the $11.5 million of deferred compensation obligation included in additional paid-in-capital was transferred to Ashford Inc. There was no balance for deferred compensation liability at December 31, 2014. During 2013, we recorded stock-based compensation expense of $4.3 million , included in “Corporate, general and administrative” expense, as a result of modifications to the deferred compensation plan in connection with the Ashford Prime spin-off in which plan participants were granted additional shares of our stock.

108
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


18. Income Taxes
For federal income tax purposes, we elected to be treated as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income.
At December 31, 2014 , all of our 87 legacy hotel properties were leased or owned by Ashford TRS (our taxable REIT subsidiaries). Ashford TRS recognized net book income of $17.3 million , $22.6 million and $31.5 million for the years ended December 31, 2014 , 2013 and 2012 , respectively.
The following table reconciles the income tax expense at statutory rates to the actual income tax (expense) benefit recorded (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Income tax expense at federal statutory income tax rate of 35%
$
(6,041
)
 
$
(7,907
)
 
$
(11,508
)
State income tax expense, net of federal income tax benefit
(528
)
 
(469
)
 
(2,710
)
Permanent differences
(558
)
 
(761
)
 
(607
)
State and local income tax (expense) benefit on pass-through entity subsidiaries
(19
)
 
(34
)
 
10

Gross receipts and margin taxes
(700
)
 
(631
)
 
(749
)
Interest and penalties
(10
)
 
(20
)
 
(18
)
Valuation allowance
6,590

 
8,311

 
13,207

Income tax expense for income from continuing operations
(1,266
)
 
(1,511
)
 
(2,375
)
Income tax benefit for income from discontinued operations
—

 
—

 
23

Income tax expense for gain on sale of hotel property
(12
)
 
—

 
—

Total income tax expense
$
(1,278
)
 
$
(1,511
)
 
$
(2,352
)
The components of income tax (expense) benefit from continuing operations are as follows (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$
(416
)
 
$
(919
)
 
$
(1,537
)
State
(721
)
 
(684
)
 
(757
)
Total current
(1,137
)
 
(1,603
)
 
(2,294
)
Deferred:
 
 
 
 
 
Federal
—

 
157

 
7

State
(129
)
 
(65
)
 
(88
)
Total deferred
(129
)
 
92

 
(81
)
Total income tax expense
$
(1,266
)
 
$
(1,511
)
 
$
(2,375
)
For the years ended December 31, 2014 , 2013 and 2012 income tax expense includes interest and penalties paid to taxing authorities of $10,000 , $20,000 and $18,000 , respectively. At December 31, 2014 and 2013 , we determined that there were no amounts to accrue for interest and penalties due to taxing authorities.

109
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


At December 31, 2014 and 2013 , our deferred tax asset (liability) and related valuation allowance consisted of the following (in thousands):
 
December 31,
 
2014
 
2013
Allowance for doubtful accounts
$
94

 
$
94

Unearned income
317

 
344

Unfavorable management contract liability
2,088

 
2,838

Federal and state net operating losses
25,046

 
31,360

Accrued expenses
1,310

 
1,350

Prepaid expenses
(4,046
)
 
(4,391
)
Alternative minimum tax credit
1,347

 
972

Tax property basis less than book basis
(2,031
)
 
(2,175
)
Tax derivatives basis greater than book basis
3,042

 
2,787

Deferred gain
1,757

 
1,685

Other
411

 
282

Deferred tax asset
29,335

 
35,146

Valuation allowance
(29,335
)
 
(35,146
)
Net deferred tax asset
$
—

 
$
—

At December 31, 2014 and 2013 , we recorded a valuation allowance of $29.3 million and $35.1 million , respectively, to fully reserve our deferred tax asset. As a result of consolidated losses in 2014 , 2013 and 2012 , and the limitation imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries, we believe that it is more likely than not our deferred tax asset will not be realized, and therefore, have provided a valuation allowance to reserve against the balances. At December 31, 2014 , Ashford TRS had net operating loss carryforwards for federal income tax purposes of $65.4 million , which begin to expire in 2022, and are available to offset future taxable income, if any, through 2032. Approximately $10.6 million of the $65.4 million of net operating loss carryforwards is attributable to acquired subsidiaries and subject to substantial limitation on its use. At December 31, 2014 , Ashford Hospitality Trust, Inc., our REIT, had net operating loss carryforwards for federal income tax purposes of $322.7 million , which begin to expire in 2023, and are available to offset future taxable income, if any, through 2034.
The following table summarizes the changes in the valuation allowance (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Balance at beginning of year
$
35,146

 
$
45,398

 
$
58,081

Additions charged to other
1,855

 
4,315

 
4,481

Deductions
(7,666
)
 
(14,567
)
 
(17,164
)
Balance at end of year
$
29,335

 
$
35,146

 
$
45,398

 

110
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


19. Loss Per Share
The following table reconciles the amounts used in calculating basic and diluted loss per share (in thousands, except per share amounts):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Loss attributable to common stockholders – Basic and diluted:
 
 
 
 
 
Income (loss) from continuing operations attributable to the Company
$
(31,430
)
 
$
(41,197
)
 
$
(50,751
)
Less: Dividends on preferred stocks
(33,962
)
 
(33,962
)
 
(33,802
)
Less: Dividends on common stock
(41,592
)
 
(36,841
)
 
(29,724
)
Less: Dividends on unvested restricted shares
(302
)
 
(213
)
 
(269
)
Undistributed loss from continuing operations allocated to common stockholders
(107,286
)
 
(112,213
)
 
(114,546
)
Add back: Dividends on common stock
41,592

 
36,841

 
29,724

Distributed and undistributed loss from continuing operations - basic and diluted
$
(65,694
)
 
$
(75,372
)
 
$
(84,822
)
 
 
 
 
 
 
Income (loss) from discontinued operations allocated to common stockholders:
 
 
 
 
 
Income (loss) from discontinued operations attributable to the Company
$
29

 
$
(86
)
 
$
(3,029
)
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
87,622

 
75,155

 
67,533

 
 
 
 
 
 
Loss per share – basic and diluted:
 
 
 
 
 
Loss from continuing operations allocated to common stockholders per share
$
(0.75
)
 
$
(1.00
)
 
$
(1.26
)
Loss from discontinued operations allocated to common stockholders per share
—

 
—

 
(0.04
)
Net loss allocated to common stockholders per share
$
(0.75
)
 
$
(1.00
)
 
$
(1.30
)
Due to their anti-dilutive effect, the computation of diluted loss per share does not reflect the adjustments for the following items (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Loss from continuing operations allocated to common stockholders is not adjusted for:
 
 
 
 
 
Income allocated to unvested restricted shares
$
302

 
$
213

 
$
269

Loss attributable to redeemable noncontrolling interests in operating partnership
(6,404
)
 
(8,171
)
 
(8,877
)
Total
$
(6,102
)
 
$
(7,958
)
 
$
(8,608
)
 
 
 
 
 
 
Weighted average diluted shares are not adjusted for:
 
 
 
 
 
Effect of unvested restricted shares
174

 
128

 
195

Effect of assumed conversion of operating partnership units
19,447

 
18,699

 
17,353

Total
19,621

 
18,827

 
17,548

 
20. Segment Reporting
We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refer to owning hotels through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. As of December 31, 2014 and 2013 , all of our hotel properties were domestically located.

111
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


21. Related Party Transactions
We have management agreements with parties owned by our Chairman and Chief Executive Officer and our Chairman Emeritus. Under the agreements, we pay the related party a) monthly property management fees equal to the greater of $10,000 (CPI adjusted since 2003) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria are met, b) project management fees of up to 4% of project costs, c) market service fees including purchasing, design and construction management not to exceed 16.5% of project budget cumulatively, including project management fees, and d) through November 12, 2014, the date of the Ashford Inc. spin-off, other general and administrative expense reimbursements, approved by our independent directors, including rent, payroll, office supplies, travel, and accounting. This related party allocates such charges to us based on various methodologies, including headcount and actual amounts incurred.
At December 31, 2014 , the related party managed 55 of our 87 hotels and the WorldQuest condominium properties included in continuing operations and we incurred the following fees (including discontinued operations) related to the management agreements with the related party (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Property management fees, including incentive property management fees
$
17,800

 
$
14,299

 
$
13,947

Market service fees
13,494

 
9,439

 
7,624

Corporate general and administrative and fixed asset reimbursements
7,689

 
4,299

 
4,075

Total
$
38,983

 
$
28,037

 
$
25,646

Management agreements with the related party include exclusivity clauses that require us to engage such related party, unless our independent directors either (i) unanimously vote to hire a different manager or developer or (ii) by a majority vote elect not to engage such related party because either special circumstances exist such that it would be in the best interest of our Company not to engage such related party, or, based on the related party’s prior performance, it is believed that another manager or developer could perform the management, development or other duties materially better.
Upon formation, we also agreed to indemnify certain related parties, including our Chairman and Chief Executive Officer and our Chairman Emeritus, who contributed hotel properties in connection with our initial public offering in exchange for operating partnership units, against the income tax such related parties may incur if we dispose of one or more of those contributed properties under the terms of the agreement.
In addition, at December 31, 2014 , the related party managed 21 of the 28 hotels held by the PIM Highland JV in return for a base management fee of 3% of gross revenues, and an incentive management fee equal to the lesser of 1% of gross revenues or the amount by which Actual House Profit exceeds House Profit set forth in the Annual Operating Budget, as defined. During 2014 , 2013 and 2012 , the related party received from PIM Highland JV base management fees of $8.5 million , $7.8 million and $7.6 million , respectively, $2.3 million , $1.0 million and $1.7 million , respectively, of incentive management fees, $4.6 million , $7.0 million and $3.6 million , respectively, of market service fees, respectively, including purchasing, design and construction management, and $1.7 million , $1.6 million and $1.6 million , respectively, of corporate general and administrative expense reimbursements.
In connection with the previously discussed spin-off of Ashford Inc., we entered into an advisory agreement with Ashford LLC, a subsidiary of Ashford Inc., in which it acts as our external advisor, and as a result, we pay advisory fees to Ashford LLC. We are required to pay Ashford LLC a quarterly base fee equal to 0.70% per annum of our total market capitalization, subject to a minimum quarterly base fee, as payment for managing our day-to-day operations in accordance with our investment guidelines. We are also required to pay Ashford LLC an incentive fee that is based on our total return performance as compared to our peer group as well as to reimburse Ashford LLC for certain expenses, including employment and travel expenses of employees of Ashford LLC providing internal audit services, as specified in the advisory agreement.
For the 2014 period noted above, we incurred an advisory service fee of $4.5 million , which was comprised of a base advisory fee of $4.0 million and reimbursable overhead and internal audit, insurance claims advisory and asset management services of $534,000 . No advisory service fee was incurred in 2013. No incentive management fee was earned for 2014 or 2013. At December 31, 2014 , we have a payable of $8.2 million , included in due to Ashford Inc., net, associated with reimbursable expenses in connection with the spin-off and the fees discussed above.

112
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


In connection with the spin-off of Ashford Prime in 2013, our former subsidiary Ashford LLC entered into an advisory agreement with Ashford Prime, in which it acted as its external advisor, and as a result, we received advisory fees from Ashford Prime from the periods from January 1, 2014 through November 12, 2014 and from November 19, 2013 to December 31, 2013 for 2014 and 2013, respectively. Upon the previously discussed spin-off of Ashford Inc. on November 12, 2014, our subsidiary Ashford LLC, was contributed to Ashford Inc. Ashford Prime is required to pay Ashford LLC a quarterly base fee equal to 0.70% per annum of the total market capitalization of Ashford Prime, subject to a minimum quarterly base fee, as payment for managing the day-to-day operations of Ashford Prime and its subsidiaries in conformity with Ashford Prime’s investment guidelines. Ashford Prime is also required to pay Ashford LLC an incentive fee that is based on Ashford Prime’s total return performance as compared to Ashford Prime’s peer group as well as to reimburse Ashford LLC for certain expenses, including, equity-based compensation, employment and travel expenses of employees of Ashford LLC providing internal audit services, as specified in the advisory agreement.
For the 2014 period noted above, we received advisory service revenues of $10.7 million from Ashford Prime. These revenues were comprised of a base advisory fee of $7.5 million , reimbursable overhead and internal audit, insurance claims advisory and asset management services of $1.4 million and advisory revenue for equity grants of Ashford Prime common stock and LTIP units awarded to our officers and employees of $1.8 million . For the 2013 period noted above, we received advisory service revenue of $1.0 million from Ashford Prime. These revenues were comprised of a base advisory fee of $878,000 , reimbursable overhead of $53,000 and internal audit reimbursements of $116,000 . No incentive management fee was earned for 2014 or 2013. At December 31, 2014 , we have a receivable of $896,000 , included in due from Ashford Prime OP, net, associated with reimbursable expenses in connection with the fees discussed above.
22. Concentration of Risk
Our investments are primarily concentrated within the hotel industry. Our investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, and invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators. At present, all of our hotels are located domestically. During 2014 , approximately 14.8% of our total hotel revenue was generated from 10 hotels located in the Washington D.C. and Baltimore areas. In addition, all hotels securing our loans receivable are also located domestically at December 31, 2014 . Our remaining mezzanine loan is collateralized by income-producing real property. Accordingly, adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to stockholders.
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions, U.S. government treasury bill holdings and amounts due or payable under our derivative contracts. At December 31, 2014 , we have exposure risk related to our derivative contracts. Our counterparties are investment grade financial institutions.

113
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


23. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2014 and 2013 (in thousands, except per share data):
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Full
Year
2014
 
 
 
 
 
 
 
 
 
Total revenue
$
194,861

 
$
208,163

 
$
201,457

 
$
190,368

 
$
794,849

Total operating expenses
168,468

 
190,698

 
182,189

 
176,802

 
718,157

Operating income
26,393

 
17,465

 
19,268

 
13,566

 
76,692

Loss from continuing operations
(6,787
)
 
(2,375
)
 
(16,266
)
 
(16,303
)
 
(41,731
)
Loss from continuing operations attributable to the Company
(2,391
)
 
(1,605
)
 
(13,550
)
 
(13,884
)
 
(31,430
)
Loss from continuing operations attributable to common stockholders
(10,881
)
 
(10,096
)
 
(22,040
)
 
(22,375
)
 
(65,392
)
Diluted loss from continuing operations attributable to common stockholders per share
$
(0.13
)
 
$
(0.11
)
 
$
(0.24
)
 
$
(0.25
)
 
$
(0.75
)
Weighted average diluted common shares
81,690

 
88,781

 
90,322

 
89,589

 
87,622

2013
 
 
 
 
 
 
 
 
 
Total revenue
$
231,287

 
$
257,772

 
$
241,323

 
$
209,145

 
$
939,527

Total operating expenses
206,101

 
216,444

 
213,277

 
186,808

 
822,630

Operating income
25,186

 
41,328

 
28,046

 
22,337

 
116,897

Income (loss) from continuing operations
(18,097
)
 
7,548

 
(19,386
)
 
(18,525
)
 
(48,460
)
Income (loss) from continuing operations attributable to the Company
(14,636
)
 
7,062

 
(16,321
)
 
(17,302
)
 
(41,197
)
Income (loss) from continuing operations attributable to common stockholders
(23,126
)
 
(1,429
)
 
(24,811
)
 
(25,793
)
 
(75,159
)
Diluted income (loss) from continuing operations attributable to common stockholders per share
$
(0.34
)
 
$
(0.02
)
 
$
(0.31
)
 
$
(0.32
)
 
$
(1.00
)
Weighted average diluted common shares
67,682

 
68,489

 
79,898

 
81,383

 
75,155

24. Pro Forma Financial Information
As discussed in Note 3, on July 18, 2014, we acquired a 100% interest in the Ashton hotel in Fort Worth, Texas for total consideration of $8.0 million . The acquisition was funded with cash, and we subsequently borrowed $5.5 million , secured by a mortgage on the property. The table below reflects the unaudited pro forma results of operations as if the acquisition had occurred on January 1, 2012, reflecting the addition of the Ashton hotel operating results, the assumption of debt and the removal of $212,000 of transaction costs for the year ended December 31, 2014.
On August 6, 2014, we acquired a 100% interest in the Fremont Marriott Silicon Valley hotel in Fremont, California for total consideration of $50.0 million . The acquisition was funded with proceeds from a $37.5 million non-recourse mortgage loan and cash. The table below reflects the unaudited pro forma results of operations as if the acquisition had occurred on January 1, 2012, reflecting the addition of the Fremont Marriott Silicon Valley hotel operating results, the assumption of debt and the removal of $393,000 of transaction costs for the year ended December 31, 2014.
Also, as discussed in Note 25, on January 12, 2015, we announced that a definitive agreement had been signed to acquire the 168 -room Lakeway Resort & Spa in Austin, Texas for total consideration of $33.5 million . The acquisition was completed on February 6, 2015. The results of operations of the hotel property will be included in our results of operations beginning February 6, 2015. The table below reflects the unaudited pro forma results of operations as if the transaction had occurred on January 1, 2012, reflecting the addition of the Lakeway Resort & Spa from January 1, 2012 through December 31, 2014.

114
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


On January 20, 2015, we announced that a definitive agreement had been signed to acquire the 232 -room Memphis Marriott East hotel in Memphis, Tennessee for total consideration of $43.5 million . The acquisition was completed on February 25, 2015. The results of operations of the hotel property will be included in our results of operations beginning February 25, 2015. The table below reflects the unaudited pro forma results of operations as if the transaction had occurred on January 1, 2012, reflecting the addition of the Memphis Marriott East hotel from January 1, 2012 through December 31, 2014
The following table reflects the unaudited pro forma results of operations as if the aforementioned transactions had occurred on January 1, 2012, (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
(unaudited)
Total revenue
$
834,207

 
$
981,688

 
$
951,783

Loss from continuing operations
$
(36,707
)
 
$
(50,496
)
 
$
(64,010
)
Net loss
$
(33,183
)
 
$
(50,594
)
 
$
(67,458
)
25. Subsequent Events (Unaudited)
On January 2, 2015, we refinanced two mortgage loans totaling $356.3 million . The refinance included our $211.0 million mortgage loan due November 2015 and the $145.3 million mortgage loan due July 2015. The new loans total $478 million in four loan pools. The new loans continue to be secured by the same 15 hotel properties.
On January 12, 2015, we announced that a definitive agreement had been signed to acquire the 168 -room Lakeway Resort & Spa in Austin, Texas for total consideration of $33.5 million . The acquisition was completed on February 6, 2015. The results of operations of the hotel property will be included in our results of operations beginning February 6, 2015.
On January 20, 2015, we announced that a definitive agreement had been signed to acquire the 232 -room Memphis Marriott East hotel in Memphis, Tennessee for total consideration of $43.5 million . The acquisition was completed on February 25, 2015. The results of operations of the hotel property will be included in our results of operations beginning February 25, 2015.
The the unaudited pro forma results of operations as if both acquisitions had occurred on January 1, 2012 is included in Note 24.
On January 29, 2015, we commenced a follow-on public offering of 9.5 million shares of common stock. The offering priced on January 30, 2015, at $10.65 per share for gross proceeds of $101.2 million . We granted the underwriters a 30 -day option to purchase up to an additional 1.425 million shares of common stock. On February 10, 2015, the underwriters partially exercised their option and purchased an additional 1.029 million shares of our common stock at a price of $10.65 per share.
On January 29, 2015, we announced that our Board of Directors had approved the formation of Ashford Hospitality Select, Inc. (“Ashford Select”), a new privately-held company dedicated to investing primarily in existing premium branded, upscale and upper-midscale, select-service hotels, including extended stay hotels, in the United States. Upon launch, expected in the first quarter of 2015, we intend to contribute to Ashford Select 16 of our existing select-service hotels, comprised of 2,560 total guestrooms. On February 18, 2015, Ashford Trust OP entered into four agreements for the contribution or sale of the portfolio of 16 select-service hotels to Ashford Select and its subsidiaries, including its operating partnership Ashford Hospitality Select Limited Partnership (“Ashford Select OP”), for aggregate consideration of approximately $321.0 million , which will be payable through the assumption of approximately $232.5 million of aggregate property level debt, the payment of approximately $66.4 million in cash and the issuance of approximately $22.1 million in equity interests of Ashford Select. Additionally, the aggregate consideration may be increased by up to $10.0 million (payable 75% in cash and 25% in equity interests in Ashford Select), based on the performance of the entire 16 -hotel portfolio. We also expect to grant Ashford Select a right of first offer to acquire any select-service hotels we decide to sell in the future, subject to any prior rights of the managers of the hotels or other third parties. Ashford Select intends to qualify as a REIT for federal income tax purposes.


115

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2014 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting. The internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and our expenditures are being made only in accordance with authorizations of management and our directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014 . In making the assessment of the effectiveness of our internal control over financial reporting, management has utilized the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (2013 framework), (“COSO”).
Based on management’s assessment of these criteria, we concluded that, as of December 31, 2014 , our internal control over financial reporting is effective. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears in this Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


116
Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Ashford Hospitality Trust, Inc. and subsidiaries

We have audited Ashford Hospitality Trust, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). Ashford Hospitality Trust, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Ashford Hospitality Trust, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements and financial statement schedules of Ashford Hospitality Trust, Inc. and subsidiaries and our report dated March 2, 2015 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP
Dallas, Texas
March 2, 2015

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Table of Contents

Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officer, and Corporate Governance
The required information is incorporated by reference from the Proxy Statement pertaining to our 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of December 31, 2014 , under the captions “Proposal Number One-Election of Directors,” “Board of Directors and Committee Membership,” “Corporate Governance Principles,” “Executive Officers” and “Security Ownership of Management and Certain Beneficial Owners - Compliance with Section 16(a) of the Securities Exchange Act of 1934.”
Item 11.
Executive Compensation
The required information is incorporated by reference from the Proxy Statement pertaining to our 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of December 31, 2014 , under the captions “Board of Directors and Committee Membership - Compensation Committee Interlocks and Insider Participation,” “Board of Directors and Committee Membership - Board Member Compensation,” “Compensation Discussion & Analysis,” “Compensation Committee Report,” “Summary Compensation Table,” “Grant of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year End,” “Equity Awards Vested During 2014 ,” “ 2014  Nonqualified Deferred Compensation” and “Potential Payments Upon Termination of Employment or Change of Control.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The required information is incorporated by reference from the Proxy Statement pertaining to our 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of December 31, 2014 , under the caption “Security Ownership of Management and Certain Beneficial Owners.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The required information is incorporated by reference from the Proxy Statement pertaining to our 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of December 31, 2014 , under the captions “Board of Directors and Committee Membership - Board Member Independence” and “Certain Relationships and Related Party Transactions”
Item 14.
Principal Accountant Fees and Services
The required information is incorporated by reference from the Proxy Statement pertaining to our 2015 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of December 31, 2014 , under the caption “Proposal Number Two - Ratification of the Appointment of Ernst & Young LLP as our Independent Auditors.”

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Table of Contents

PART IV

Item 15.
Exhibits, Financial Statement and Schedules
(a)
Financial Statements and Schedules
See Item 8, “Financial Statements and Supplementary Data,” on pages 70 through 115 hereof, for a list of our consolidated financial statements and report of independent registered public accounting firm.
The following financial statement schedules are included herein on pages 121 through 125 hereof.
Schedule III – Real Estate and Accumulated Depreciation
Schedule IV – Mortgage Loans on Real Estate
All other financial statement schedules have been omitted because such schedules are not required under the related instructions, such schedules are not significant, or the required information has been disclosed elsewhere in the consolidated financial statements and related notes thereto.
(b)
Exhibits
Exhibits required by Item 601 of Regulation S-K: The exhibits filed in response to this item are listed in the Exhibit Index on pages 126 through 131.


119
Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 2, 2015 .  
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
By:
/s/ MONTY J. BENNETT
 
 
Monty J. Bennett
 
 
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.
Signature
 
Title
 
Date
 
 
 
/s/  MONTY J. BENNETT
 
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
 
March 2, 2015
Monty J. Bennett
 
 
 
 
 
 
 
/s/ DOUGLAS A. KESSLER
 
President
 
March 2, 2015
Douglas A. Kessler
 
 
 
 
 
 
 
 
 
/s/  DERIC S. EUBANKS
 
Chief Financial Officer (Principal Financial Officer)
 
March 2, 2015
Deric S. Eubanks

 
 
 
 
 
 
 
/s/  MARK L. NUNNELEY
 
Chief Accounting Officer (Principal Accounting Officer)
 
March 2, 2015
Mark L. Nunneley
 
 
 
 
 
 
 
/s/  BENJAMIN J. ANSELL, M.D.
 
Director
 
March 2, 2015
Benjamin J. Ansell, M.D.
 
 
 
 
 
 
 
/s/  THOMAS E. CALLAHAN
 
Director
 
March 2, 2015
Thomas E. Callahan
 
 
 
 
 
 
 
/s/  AMISH GUPTA
 
Director
 
March 2, 2015
Amish Gupta
 
 
 
 
 
 
 
/s/  KAMAL JAFARNIA
 
Director
 
March 2, 2015
Kamal Jafarnia
 
 
 
 
 
 
 
 
 
/s/  PHILLIP S. PAYNE
 
Director
 
March 2, 2015
Philip S. Payne
 
 
 
 
 
 
 
 
 
/s/  ALAN L. TALLIS
 
Director
 
March 2, 2015
Alan L. Tallis
 
 
 
 


120
Table of Contents

SCHEDULE III
ASHFORD HOSPITALITY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(dollars in thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
 
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
Embassy Suites
 
Austin, TX
 
$
13,187

 
$
1,204

 
$
9,388

 
$
193

 
$
5,602

 
$
1,397

 
$
14,990

 
$
16,387

 
$
6,701

 
08/1998
 
 
 
(1),(2),(3)
Embassy Suites
 
Dallas, TX
 
7,793

 
1,878

 
8,907

 
238

 
6,187

 
2,116

 
15,094

 
17,210

 
6,700

 
12/1998
 
 
 
(1),(2),(3)
Embassy Suites
 
Herndon, VA
 
17,700

 
1,303

 
9,837

 
277

 
6,068

 
1,580

 
15,905

 
17,485

 
6,232

 
12/1998
 
 
 
(1),(2),(3)
Embassy Suites
 
Las Vegas, NV
 
29,679

 
3,307

 
16,952

 
397

 
4,918

 
3,704

 
21,870

 
25,574

 
9,288

 
05/1999
 
 
 
(1),(2),(3)
Embassy Suites
 
Syracuse, NY
 
19,599

 
2,839

 
9,778

 
—

 
6,868

 
2,839

 
16,646

 
19,485

 
5,487

 
 
 
10/2003
 
(1),(2),(3)
Embassy Suites
 
Flagstaff, AZ
 
11,039

 
1,267

 
4,278

 
—

 
6,038

 
1,267

 
10,316

 
11,583

 
3,998

 
 
 
10/2003
 
(1),(2),(3)
Embassy Suites
 
Houston, TX
 
11,867

 
1,799

 
10,404

 
—

 
4,001

 
1,799

 
14,405

 
16,204

 
4,623

 
 
 
03/2005
 
(1),(2),(3)
Embassy Suites
 
West Palm Beach, FL
 
16,846

 
3,277

 
13,950

 
—

 
6,020

 
3,277

 
19,970

 
23,247

 
5,459

 
 
 
03/2005
 
(1),(2),(3)
Embassy Suites
 
Philadelphia, PA
 
34,513

 
5,791

 
34,819

 
—

 
7,004

 
5,791

 
41,823

 
47,614

 
10,241

 
 
 
12/2006
 
(1),(2),(3)
Embassy Suites
 
Walnut Creek, CA
 
36,342

 
7,452

 
25,334

 
—

 
5,151

 
7,452

 
30,485

 
37,937

 
7,448

 
 
 
12/2006
 
(1),(2),(3)
Embassy Suites
 
Arlington, VA
 
46,209

 
36,065

 
41,588

 
—

 
8,823

 
36,065

 
50,411

 
86,476

 
12,039

 
 
 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Portland, OR
 
51,273

 
11,110

 
60,049

 
—

 
7,459

 
11,110

 
67,508

 
78,618

 
14,542

 
 
 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Santa Clara, CA
 
45,365

 
8,948

 
46,238

 
—

 
3,451

 
8,948

 
49,689

 
58,637

 
10,833

 
 
 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Orlando, FL
 
15,614

 
5,674

 
21,593

 
—

 
2,056

 
5,674

 
23,649

 
29,323

 
5,049

 
 
 
04/2007
 
(1),(2),(3)
Hilton Garden Inn
 
Jacksonville, FL
 
10,237

 
1,751

 
9,164

 
—

 
1,417

 
1,751

 
10,581

 
12,332

 
3,241

 
 
 
11/2003
 
(1),(2),(3)
Hilton
 
Ft. Worth, TX
 
51,202

 
4,539

 
13,922

 
 
 
14,541

 
4,539

 
28,463

 
33,002

 
9,115

 
 
 
03/2005
 
(1),(2),(3)
Hilton
 
Houston, TX
 
14,391

 
2,200

 
13,247

 
—

 
11,553

 
2,200

 
24,800

 
27,000

 
9,249

 
 
 
03/2005
 
(1),(2),(3)
Hilton
 
St. Petersburg, FL
 
17,792

 
2,991

 
13,907

 
—

 
13,413

 
2,991

 
27,320

 
30,311

 
8,083

 
 
 
03/2005
 
(1),(2),(3)
Hilton
 
Santa Fe, NM
 
17,972

 
7,004

 
10,689

 
—

 
13,093

 
7,004

 
23,782

 
30,786

 
8,538

 
 
 
12/2006
 
(1),(2),(3)
Hilton
 
Bloomington, MN
 
52,644

 
5,685

 
59,139

 
—

 
9,725

 
5,685

 
68,864

 
74,549

 
14,939

 
 
 
04/2007
 
(1),(2),(3)
Hilton
 
Costa Mesa, CA
 
52,539

 
12,917

 
91,791

 
—

 
17,875

 
12,917

 
109,666

 
122,583

 
24,748

 
 
 
04/2007
 
(1),(2),(3)
Hampton Inn
 
Lawrenceville, GA
 
5,743

 
697

 
3,808

 
—

 
840

 
697

 
4,648

 
5,345

 
1,394

 
 
 
11/2003
 
(1),(2),(3)
Hampton Inn
 
Evansville, IN
 
6,600

 
1,301

 
5,034

 
—

 
3,961

 
1,301

 
8,995

 
10,296

 
3,179

 
 
 
09/2004
 
(1),(2),(3)
Hampton Inn
 
Terre Haute, IN
 
—

 
700

 
7,520

 
—

 
3,776

 
700

 
11,296

 
11,996

 
3,077

 
 
 
09/2004
 
(1),(2),(3)
Hampton Inn
 
Buford, GA
 
9,150

 
1,168

 
5,338

 
—

 
1,101

 
1,168

 
6,439

 
7,607

 
1,911

 
 
 
07/2004
 
(1),(2),(3)
Marriott
 
Durham, NC
 
25,144

 
1,794

 
25,056

 
—

 
3,832

 
1,794

 
28,888

 
30,682

 
7,094

 
 
 
02/2006
 
(1),(2),(3)
Marriott
 
Arlington, VA
 
99,780

 
20,637

 
101,376

 
—

 
19,385

 
20,637

 
120,761

 
141,398

 
29,120

 
 
 
07/2006
 
(1),(2),(3)
Marriott
 
Bridgewater, NJ
 
72,957

 
5,059

 
89,267

 
—

 
4,561

 
5,059

 
93,828

 
98,887

 
20,723

 
 
 
04/2007
 
(1),(2),(3)
Marriott
 
Dallas, TX
 
26,072

 
2,701

 
30,893

 
—

 
2,591

 
2,701

 
33,484

 
36,185

 
7,126

 
 
 
04/2007
 
(1),(2),(3)
Marriott
 
Fremont, CA
 
37,500

 
5,800

 
44,200

 
—

 
215

 
5,800

 
44,415

 
50,215

 
1,289

 
 
 
8/2014
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Jacksonville, FL
 
7,534

 
1,348

 
7,111

 
—

 
837

 
1,348

 
7,948

 
9,296

 
2,424

 
 
 
11/2003
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Baltimore, MD
 
14,417

 
2,502

 
13,206

 
—

 
1,715

 
2,502

 
14,921

 
17,423

 
4,298

 
 
 
05/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Kennesaw, GA
 
7,005

 
1,106

 
5,021

 
—

 
667

 
1,106

 
5,688

 
6,794

 
1,687

 
 
 
07/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Buford, GA
 
10,084

 
1,132

 
6,089

 
—

 
1,872

 
1,132

 
7,961

 
9,093

 
2,608

 
 
 
07/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Gaithersburg, MD
 
9,429

 
2,200

 
19,746

 
—

 
1,473

 
2,200

 
21,219

 
23,419

 
5,354

 
 
 
06/2005
 
(1),(2),(3)

121
Table of Contents

Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
 
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
SpringHill Suites by Marriott
 
Centerville, VA
 
6,101

 
1,806

 
11,712

 
—

 
990

 
1,806

 
12,702

 
14,508

 
3,367

 
 
 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Charlotte, NC
 
5,703

 
1,235

 
6,818

 
—

 
1,945

 
1,235

 
8,763

 
9,998

 
2,662

 
 
 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Durham, NC
 
4,888

 
1,090

 
3,991

 
—

 
2,134

 
1,090

 
6,125

 
7,215

 
2,108

 
 
 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Orlando, FL
 
29,238

 
8,620

 
27,699

 
—

 
8,846

 
8,620

 
36,545

 
45,165

 
7,120

 
 
 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Manhattan Beach, CA
 
21,212

 
5,726

 
21,187

 
—

 
3,019

 
5,726

 
24,206

 
29,932

 
5,778

 
 
 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Plymouth Meeting, PA
 
19,354

 
3,210

 
24,578

 
—

 
3,018

 
3,210

 
27,596

 
30,806

 
6,353

 
 
 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Glen Allen, VA
 
14,793

 
2,045

 
15,802

 
—

 
2,290

 
2,045

 
18,092

 
20,137

 
4,322

 
 
 
04/2007
 
(1),(2),(3)
Fairfield Inn by Marriott
 
Kennesaw, GA
 
5,495

 
840

 
4,359

 
—

 
1,536

 
840

 
5,895

 
6,735

 
2,143

 
 
 
07/2004
 
(1),(2),(3)
Fairfield Inn by Marriott
 
Orlando, FL
 
15,416

 
6,507

 
9,895

 
—

 
2,471

 
6,507

 
12,366

 
18,873

 
3,123

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Bloomington, IN
 
11,367

 
900

 
10,741

 
—

 
1,697

 
900

 
12,438

 
13,338

 
3,251

 
 
 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Columbus, IN
 
5,070

 
673

 
4,804

 
—

 
1,781

 
673

 
6,585

 
7,258

 
1,770

 
 
 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Louisville, KY
 
19,203

 
1,352

 
12,266

 
—

 
2,909

 
1,352

 
15,175

 
16,527

 
5,073

 
 
 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Crystal City, VA
 
31,378

 
5,411

 
38,610

 
—

 
4,501

 
5,411

 
43,111

 
48,522

 
11,642

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Ft. Lauderdale, FL
 
21,681

 
2,244

 
18,520

 
—

 
2,511

 
2,244

 
21,031

 
23,275

 
5,454

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Overland Park, KS
 
11,424

 
1,868

 
14,030

 
—

 
3,302

 
1,868

 
17,332

 
19,200

 
4,502

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Palm Desert, CA
 
10,274

 
2,722

 
11,995

 
—

 
2,443

 
2,722

 
14,438

 
17,160

 
3,661

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Foothill Ranch, CA
 
12,731

 
2,447

 
16,005

 
—

 
1,698

 
2,447

 
17,703

 
20,150

 
4,672

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Alpharetta, GA
 
9,821

 
2,244

 
12,345

 
—

 
2,597

 
2,244

 
14,942

 
17,186

 
4,032

 
 
 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Orlando, FL
 
28,248

 
7,389

 
26,817

 
—

 
3,953

 
7,389

 
30,770

 
38,159

 
6,735

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Oakland, CA
 
23,227

 
5,112

 
19,429

 
—

 
2,298

 
5,112

 
21,727

 
26,839

 
4,881

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Scottsdale, AZ
 
22,299

 
3,700

 
22,134

 
—

 
2,485

 
3,700

 
24,619

 
28,319

 
5,626

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Plano, TX
 
19,053

 
2,115

 
22,360

 
—

 
3,377

 
2,115

 
25,737

 
27,852

 
5,900

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Edison, NJ
 
12,232

 
2,147

 
11,865

 
—

 
1,530

 
2,147

 
13,395

 
15,542

 
3,207

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Newark, CA
 
6,026

 
2,863

 
10,722

 
—

 
3,303

 
2,863

 
14,025

 
16,888

 
3,075

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Manchester, CT
 
6,845

 
1,301

 
7,430

 
—

 
2,432

 
1,301

 
9,862

 
11,163

 
2,637

 
 
 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Basking Ridge, NJ
 
41,264

 
5,419

 
45,304

 
—

 
2,722

 
5,419

 
48,026

 
53,445

 
9,969

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Lake Buena Vista, FL
 
26,637

 
2,555

 
20,367

 
—

 
2,378

 
2,555

 
22,745

 
25,300

 
6,868

 
 
 
03/2004
 
(1),(2),(3)
Marriott Residence Inn
 
Evansville, IN
 
6,375

 
960

 
5,972

 
—

 
1,305

 
960

 
7,277

 
8,237

 
1,926

 
 
 
09/2004
 
(1),(2),(3)
Marriott Residence Inn
 
Orlando, FL
 
33,013

 
6,554

 
40,539

 
—

 
3,189

 
6,554

 
43,728

 
50,282

 
11,249

 
 
 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Falls Church, VA
 
21,688

 
2,752

 
34,979

 
—

 
1,864

 
2,752

 
36,843

 
39,595

 
9,145

 
 
 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
San Diego, CA
 
19,438

 
3,156

 
29,514

 
—

 
5,411

 
3,156

 
34,925

 
38,081

 
8,541

 
 
 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Salt Lake City, UT
 
13,307

 
1,897

 
16,357

 
—

 
4,566

 
1,897

 
20,923

 
22,820

 
5,330

 
 
 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Palm Desert, CA
 
10,636

 
3,280

 
10,463

 
—

 
4,384

 
3,280

 
14,847

 
18,127

 
3,872

 
 
 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Las Vegas, NV
 
27,884

 
18,177

 
39,569

 
—

 
2,881

 
18,177

 
42,450

 
60,627

 
8,907

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Phoenix, AZ
 
22,403

 
4,100

 
23,187

 
—

 
5,910

 
4,100

 
29,097

 
33,197

 
5,456

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Plano, TX
 
14,284

 
2,045

 
16,869

 
—

 
3,574

 
2,045

 
20,443

 
22,488

 
4,383

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Newark, CA
 
10,761

 
3,272

 
11,705

 
—

 
4,621

 
3,272

 
16,326

 
19,598

 
3,368

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Manchester, CT
 
7,313

 
1,462

 
8,306

 
—

 
1,642

 
1,462

 
9,948

 
11,410

 
2,249

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Atlanta, GA
 
15,419

 
1,901

 
16,749

 
—

 
4,596

 
1,901

 
21,345

 
23,246

 
4,668

 
 
 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Jacksonville, FL
 
10,673

 
1,997

 
16,084

 
—

 
3,255

 
1,997

 
19,339

 
21,336

 
4,877

 
 
 
05/2007
 
(1),(2),(3)

122
Table of Contents

Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
 
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
TownePlace Suites by Marriott
 
Manhattan Beach, CA
 
19,577

 
4,805

 
17,543

 
—

 
1,514

 
4,805

 
19,057

 
23,862

 
4,151

 
 
 
04/2007
 
(1),(2),(3)
One Ocean
 
Atlantic Beach, FL
 
32,688

 
5,815

 
14,817

 
—

 
25,227

 
5,815

 
40,044

 
45,859

 
15,647

 
 
 
04/2004
 
(1),(2),(3)
Sheraton Hotel
 
Langhorne, PA
 
17,789

 
2,037

 
12,424

 
—

 
9,104

 
2,037

 
21,528

 
23,565

 
6,727

 
 
 
07/2004
 
(1),(2),(3)
Sheraton Hotel
 
Minneapolis, MN
 
17,720

 
2,953

 
14,280

 
—

 
10,028

 
2,953

 
24,308

 
27,261

 
6,220

 
 
 
03/2005
 
(1),(2),(3)
Sheraton Hotel
 
Indianapolis, IN
 
24,758

 
3,100

 
22,040

 
—

 
20,585

 
3,100

 
42,625

 
45,725

 
11,993

 
 
 
03/2005
 
(1),(2),(3)
Sheraton Hotel
 
Anchorage, AK
 
47,316

 
4,023

 
39,363

 
—

 
10,682

 
4,023

 
50,045

 
54,068

 
12,782

 
 
 
12/2006
 
(1),(2),(3)
Sheraton Hotel
 
San Diego, CA
 
29,185

 
7,294

 
36,382

 
—

 
10,399

 
7,294

 
46,781

 
54,075

 
11,860

 
 
 
12/2006
 
(1),(2),(3)
Hyatt Regency
 
Coral Gables, FL
 
63,600

 
4,805

 
50,820

 
—

 
6,905

 
4,805

 
57,725

 
62,530

 
12,661

 
 
 
04/2007
 
(1),(2),(3)
Crowne Plaza
 
Beverly Hills, CA
 
98,240

 
6,510

 
22,061

 
—

 
18,332

 
6,510

 
40,393

 
46,903

 
8,298

 
 
 
03/2005
 
(1),(2),(3)
Crowne Plaza
 
Key West, FL
 
26,681

 
—

 
27,513

 
—

 
18,883

 
—

 
46,396

 
46,396

 
12,690

 
 
 
03/2005
 
(1),(2),(3)
Annapolis Inn
 
Annapolis, MD
 
11,632

 
3,028

 
7,833

 
—

 
4,945

 
3,028

 
12,778

 
15,806

 
4,203

 
 
 
03/2005
 
(1),(2),(3)
Ashton
 
Ft. Worth, TX
 
5,525

 
800

 
7,187

 
—

 
36

 
800

 
7,223

 
8,023

 
281

 
 
 
07/2014
 
(1),(2),(3)
WorldQuest Resort
 
Orlando, FL
 
—

 
1,432

 
9,870

 
(45
)
 
871

 
1,387

 
10,741

 
12,128

 
1,853

 
 
 
03/2011
 
(1),(2),(3)
Total
 
 
 
$
1,954,103

 
$
358,842

 
$
1,892,850

 
$
1,060

 
$
466,964

 
$
359,902

 
$
2,359,814

 
$
2,719,716

 
$
591,105

 
 
 
 
 
 
_________________________
(1) Estimated useful life for buildings is 39 years .
(2) Estimated useful life for building improvements is 7.5 years .
(3) Estimated useful life for furniture and fixtures is 3 to 5 years.


123
Table of Contents

 
 
Year Ended December 31,
 
 
2014
 
2013
 
2012
Investment in Real Estate:
 
 
 
 
 
 
Beginning balance
 
$
2,671,002

 
$
3,509,744

 
$
3,560,198

Additions
 
171,542

 
184,106

 
81,083

Reclassification
 
—

 
622

 
—

Impairment/write-offs
 
(22,286
)
 
(99,460
)
 
(95,713
)
Sales/disposals
 
(100,542
)
 
(924,010
)
 
(35,824
)
Ending balance
 
2,719,716

 
2,671,002

 
3,509,744

Accumulated Depreciation:
 
 
 
 
 
 
Beginning balance
 
507,208

 
637,840

 
602,749

Depreciation expense
 
110,464

 
127,273

 
135,850

Reclassification
 
—

 
373

 
—

Impairment/write-offs
 
(22,286
)
 
(99,460
)
 
(91,594
)
Sales/disposals
 
(4,281
)
 
(158,818
)
 
(9,165
)
Ending balance
 
591,105

 
507,208

 
637,840

Investment in Real Estate, net
 
$
2,128,611

 
$
2,163,794

 
$
2,871,904




124
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SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
December 31, 2014
(in thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
Description
 
Prior Liens
 
Balance at
December 31,
2014
 
Delinquent
Principal
December 31,
2014
 
Being
Foreclosed at
December 31,
2014
 
Accrued
Interest at
December 31,
2014
 
Interest Income
During the
Year Ended
December 31,
2014
Ritz Carlton
 
Key Biscayne, FL
 
—

 
11,075

 
—

 
—

 
—

 
—

Valuation allowance
 
 
 
 
 
(7,522
)
 
—

 
 
 
 
 
 
Net carrying value
 
 
 
 
 
$
3,553

 
$
—

 
 
 
 
 
 
 
Year Ended December 31,
 
2014
 
2013
 
2012
Investment in Mortgage Loans:
 
 
 
 
 
Balance at January 1
$
3,384

 
$
3,233

 
$
3,101

Principal payments
(246
)
 
(245
)
 
(246
)
Amortization of discounts/deferred income
—

 
—

 
—

Valuation allowance adjustments
415

 
396

 
378

Balance at December 31
$
3,553

 
$
3,384

 
$
3,233



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EXHIBIT INDEX
Exhibit
 
Description
2.1
 
Separation and Distribution Agreement, dated October 31, 2014, by and between Ashford Hospitality Trust, Inc., Ashford OP Limited Partner LLC, Ashford Hospitality Limited Partnership, Ashford Inc. and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 2.1 to Form 8-K, filed on November 6, 2014, for the event dated October 31, 2014)
3.1
 
Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 of Form S-11/A, filed on July 31, 2003)
3.2
 
Second Amended and Restated Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K, filed on October 29, 2014)
4.1
 
Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of Form S-11/A, filed on August 20, 2003)
4.1.1
 
Articles Supplementary for Series A Cumulative Preferred Stock, dated September 15, 2004 (incorporated by reference to Exhibit 4.1.1 of Form 10-K, filed on February 28, 2012)
4.1.2
 
Form of Certificate of Series A Cumulative Preferred Stock (incorporated by reference to Exhibit 4.1.2 of Form 10-K, filed on February 28, 2012)
4.2.1
 
Articles Supplementary for Series D Cumulative Preferred Stock, dated July 17, 2007 (incorporated by reference to Exhibit 3.5 to the Registrant’s Form 8-A, filed July 17, 2007)
4.2.2
 
Form of Certificate of Series D Cumulative Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-A, filed July 17, 2007)
4.3.1
 
Articles Supplementary for Series E Cumulative Preferred Stock, dated April 15, 2011 (incorporated by reference to Exhibit 3.6 to the Registrant’s Form 8-A, filed April 18, 2011)
4.3.2
 
Form of Certificate of Series E Cumulative Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-A, filed April 18, 2011)
10.1
 
Sixth Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on October 15, 2014)
10.2
 
Registration Rights Agreement among Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.2 of Form S-11/A, filed on July 31, 2003)
10.3.1
 
Amended and Restated Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan, dated March 31, 2008 (incorporated by reference to Exhibit 10.3.1 of Form 10-K, filed on March 3, 2014)
10.3.1.1
 
First Amendment to the Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan, dated December 31, 2008 (incorporated by reference to Exhibit 10.3.1.1 of Form 10-K, filed on March 3, 2014)
10.3.2
 
2011 Incentive Stock Plan of Ashford Hospitality Trust, Inc. dated May 17, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on May 17, 2011, for the event dated May 17, 2011)
10.3.3
 
Form of LTIP Unit Award Agreement, dated March 21, 2008 (incorporated by reference to Exhibit 10.3.3 of Form 10-K, filed on March 3, 2014)
10.4
 
Non-Compete/Services Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and Archie Bennett, Jr. (incorporated by reference to Exhibit 10.4 of Form 10-K, filed on March 3, 2014)
10.5.1
 
Employment Agreement, dated as of June 13, 2014, between Ashford Hospitality Trust, Inc. and Deric Eubanks (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on June 19, 2014)
10.5.2
 
Chairman Emeritus Agreement, dated January 7, 2013, between Ashford Hospitality Trust, Inc. Ashford Hospitality Limited Partnership, and Archie Bennett, Jr. (incorporated by reference to Exhibit 10.1 of Form 8-K filed on January 9, 2013)
10.6
 
Form of Management Agreement between Remington Lodging and Ashford TRS Corporation (incorporated by reference to Exhibit 10.10 of Form S-11/A, filed on July 31, 2003)
10.6.1
 
Hotel Management Agreement between Remington Management, L.P. and Ashford TRS companies (incorporated by reference to Exhibit 10.6.1 of Form 10-K, filed on February 28, 2012)
10.6.2
 
Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and PHH TRS Corporation (incorporated by reference to Exhibit 10.6.2 of Form 10-K, filed on February 28, 2012)
10.6.3
 
First Amendment to Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and Ashford TRS Corporation dated August 29, 2003, effective November 19, 2013 (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.6.4
 
First Amendment to Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and Ashford TRS Corporation dated September 29, 2006, effective November 19, 2013 (incorporated by reference to Exhibit 10.3 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.7
 
Form of Lease Agreement between Ashford Hospitality Limited Partnership and Ashford TRS Corporation (incorporated by reference to Exhibit 10.11 of Form S-11/A, filed on July 31, 2003)

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Exhibit
 
Description
10.10.1
 
Mutual Exclusivity Agreement by and between Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., Remington Hotel Corporation and Remington Lodging and Hospitality, L.P. (incorporated by reference to Exhibit 10.22 of Form S-11/A, filed on July 31, 2003)
10.10.2
 
First Amendment to the Mutual Exclusivity Agreement between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership and Remington Lodging and Hospitality LLC, dated November 19, 2013 (incorporated by reference to Exhibit 10.4 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.11
 
Tax Indemnification Agreement between Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.25 of Form S-11/A, filed on July 31, 2003)
10.12
 
Contribution and Purchase and Sale Agreement, dated December 27, 2004, between the Registrant and FGSB Master Corp. (incorporated by reference to Exhibit 10.12 of Form 10-K, filed on March 1, 2013)
10.13
 
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13 of Form 10-K, filed on February 28, 2012)
10.13.1
 
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.1 of Form 10-K, filed on February 28, 2012)
10.13.2
 
Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.2 of Form 10-K, filed on February 28, 2012)
10.13.3
 
Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.3 of Form 10-K, filed on February 28, 2012)
10.13.4
 
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.4 of Form 10-K, filed on February 28, 2012)
10.13.5
 
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.5 of Form 10-K, filed on February 28, 2012)
10.13.6
 
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.6 of Form 10-K, filed on February 28, 2012)
10.13.7
 
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.7 of Form 10-K, filed on February 28, 2012)
10.13.8
 
Amended and Restated Loan Agreement, dated as of December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.8 of Form 10-K, filed on February 28, 2012)
10.13.9
 
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.9 of Form 10-K, filed on February 28, 2012)
10.14
 
Mortgage Loan Agreement (Pool 1), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.14 of Form 10-K, filed on February 28, 2012)
10.14.1
 
Mortgage Loan Agreement (Pool 2), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.14.1 of Form 10-K, filed on February 28, 2012)
10.14.2
 
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.14.2 of Form 10-K, filed on February 28, 2012)
10.14.3
 
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.14.3 of Form 10-K, filed on February 28, 2012)
10.14.4
 
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.14.4 of Form 10-K, filed on February 28, 2012)
10.14.5
 
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.14.5 of Form 10-K, filed on February 28, 2012)
10.21
 
Purchase and Sale Agreement, dated May 18, 2006, between the Registrant and EADS Associates Limited Partnership (incorporated by reference to Exhibit 10.21 of Form 10-K, filed on February 28, 2012)
10.23.1
 
Loan Agreement, dated December 7, 2006, between the Registrant and Countrywide Commercial Real Estate Finance, Inc. (incorporated by reference to Exhibit 10.23.1 of Form 10-K, filed on February 28, 2012)
10.23.2
 
MIP Loan Extension Agreement, dated December 9, 2011, between the Registrant and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.23.2 of Form 10-K, filed on February 28, 2012)
10.25.1.1*
 
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Edison LP, as Borrower to Wachovia Bank, National Association, as Lender, dated April 11, 2007, with respect to Courtyard Edison, Edison, New Jersey

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Exhibit
 
Description
10.25.1.1a*
 
Schedule of Agreements omitted pursuant to Instruction 2 to Item 601 of Regulation S-K
10.25.1.2*
 
Guaranty for Fixed-Rate Pool 1, executed as of April 11, 2007 by the Registrant, for the benefit of Wachovia Bank, National Association
10.25.1.2a*
 
Schedule of Agreements omitted pursuant to Instruction 2 to Item 601 of Regulation S-K
10.25.1.3
 
Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of Wells Fargo Bank, National Association, dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.11 of Form 10-K, filed on February 28, 2012)
10.25.1.4
 
Mezzanine 1 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.15 of Form 10-K, filed on February 28, 2012)
10.25.1.5
 
Mezzanine 2 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.16 of Form 10-K, filed on February 28, 2012)
10.25.1.6
 
Mezzanine 3 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.17 of Form 10-K, filed on February 28, 2012)
10.25.1.7
 
Mezzanine 4 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of GSRE III, Ltd. dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.18 of Form 10-K, filed on February 28, 2012)
10.27
 
ISDA Master Agreement between Ashford Hospitality Limited Partnership and Wachovia Bank, National Association, dated March 12, 2008 (incorporated by reference to Exhibit 10.27 of Form 10-K, filed on March 3, 2014)
10.27.1
 
Schedule to the Master Agreement between Ashford Hospitality Limited Partnership and Wachovia Bank, National Association, dated March 12, 2008 (incorporated by reference to Exhibit 10.27.1 of Form 10-K, filed on March 3, 2014)
10.30.1
 
Confirmation of Amended and Restated Swap Transaction, dated November 4, 2010, related to the trade of an interest rate swap by Ashford Hospitality Limited Partnership from Wells Fargo Bank, N.A. as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.7 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.30.2
 
Confirmation of Termination of Swap Transaction, dated November 4, 2010, related to the termination of an interest rate swap by Ashford Hospitality Limited Partnership from Wells Fargo Bank, N.A. as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.8 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.30.3
 
Confirmation of Trade, dated November 19, 2010, related to the trade of an interest rate swap by Ashford Hospitality Limited Partnership from Credit Agricole Corporate and Investment Bank New York Branch as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.9 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.32
 
Release and Waiver Agreement, Dated March 31, 2011, by and between Ashford Hospitality Trust, Inc. and Mr. Alan Tallis, former Executive Vice President of Ashford Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on April 6, 2011, for the event dated April 11, 2011)
10.33
 
Stock Repurchase Agreement, dated April 11, 2011, by and between Ashford Hospitality Trust, Inc. and Security Capital Preferred Growth Incorporated (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on April 11, 2011, for the event dated April 11, 2011)
10.34
 
Indemnity Agreement dated March 10, 2011, between the Registrant and Remington Lodging & Hospitality, LLC (incorporated by reference to Exhibit 10.31 to the Registrant’s Form 10-Q, filed on May 10, 2011)
10.35
 
Credit Agreement, dated September 26, 2011, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets and KeyBank, National Association (incorporated by reference to Exhibit 10 to the Registrant’s Form 8-K, filed on September 30, 2011, for the event dated September 26, 2011)
10.35.1
 
First Amendment to Credit Agreement, dated February 21, 2012, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets, and KeyBank, National Association (incorporated by reference to Exhibit 10.36.1 of Form 10-Q, filed on May 8, 2012)
10.35.2
 
Second Amendment to Credit Agreement, dated December 21, 2012, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets, and KeyBank, National Association (incorporated by reference to Exhibit 10.35.2 of Form 10-K, filed on March 1, 2013)
10.36.1
 
Amended and Restated Mezzanine 1 Loan Agreement, dated March 10, 2011, between HH Swap A LLC, HH Swap C LLC, HH Swap C-1 LLC, HH Swap D LLC, HH Swap F LLC, HH Swap F-1 LLC, HH Swap G LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.1 of Form 10-K, filed on February 28, 2012)
10.36.1.1
 
Omnibus Agreement and Consent, dated December 17, 2012, by and among (i) American Equity Investment Life Insurance Company, Athene Annuity & Life Assurance Company, Newcastle CDO VIII 1, Limited, Newcastle CDO IX 1, Limited, Principal Life Insurance Company, (ii) HH SWAP A LLC, HH SWAP C LLC, HH SWAP C-1 LLC, HH SWAP D LLC, HH SWAP F LLC, HH SWAP F-1 LLC, and HH SWAP G LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.1.1 of Form 10-K, filed on March 1, 2013)

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Exhibit
 
Description
10.36.1.2
 
Consent Agreement, dated December 27, 2012, by and among (i) American Equity Investment Life Insurance Company, Athene Annuity & Life Assurance Company, Newcastle CDO VIII 1, Limited, Newcastle CDO IX 1, Limited, Principal Life Insurance Company, (ii) HH SWAP A LLC, HH SWAP C LLC, HH SWAP C-1 LLC, HH SWAP D LLC, HH SWAP F LLC, HH SWAP F-1 LLC, and HH SWAP G LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.1.2 of Form 10-K, filed on March 1, 2013)
10.36.2
 
Amended and Restated Mezzanine 2 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, HH Mezz Borrower G-2 LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.2 of Form 10-K, filed on February 28, 2012)
10.36.2.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) Starwood Property Mortgage SUB-10-A, L.L.C., (ii) HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, and HH Mezz Borrower G-2 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.2.1 of Form 10-K, filed on March 1, 2013)
10.36.2.2
 
Consent Agreement dated December 27, 2012, by and among (i) Starwood Property Mortgage SUB-10-A, L.L.C., (ii) HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, and HH Mezz Borrower G-2 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.2.2 of Form 10-K, filed on March 1, 2013)
10.36.3
 
Amended and Restated Mezzanine 3 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, HH Mezz Borrower G-3 LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.3 of Form 10-K, filed on February 28, 2012)
10.36.3.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) LVS I SPE II LLC, (ii) HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, and HH Mezz Borrower G-3 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.3.1 of Form 10-K, filed on March 1, 2013)
10.36.3.2
 
Consent Agreement dated December 27, 2012, by and among (i) LVS I SPE II, LLC, (ii) HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, and HH Mezz Borrower G-3 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.3.2 of Form 10-K, filed on March 1, 2013)
10.36.4
 
Amended and Restated Mezzanine 4 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, HH Mezz Borrower G-4 LLC, collectively as Borrower, and GSRE III, LTD, as Lender (incorporated by reference to Exhibit 10.35.4 of Form 10-K, filed on February 28, 2012)
10.36.4.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) GSR3LP, LLC, (ii) HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, and HH Mezz Borrower G-4 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.4.1 of Form 10-K, filed on March 1, 2013)
10.36.4.2
 
Consent Agreement dated December, 2012, by and among (i) GSR3LP, LLC, (ii) HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, and HH Mezz Borrower G-4 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.4.2 of Form 10-K, filed on March 1, 2013)
10.36.5
 
Amended and Restated Mortgage Loan Agreement, dated March 10, 2011, between Entities set forth on Schedule I and II, collectively as Borrower, and Wells Fargo Bank, National Association and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.5 of Form 10-K, filed on February 28, 2012)
10.37
 
Second Amended and Restated Advisory Agreement between Ashford Hospitality Prime, Inc., Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Advisors LLC, dated November 3, 2014 (incorporated by reference to Exhibit 10.7 of Form 10-Q, filed on November 7, 2014)
10.38
 
Right of First Offer Agreement between Ashford Hospitality Trust, Inc. and Ashford Hospitality Prime, Inc., dated November 19, 2013 (incorporated by reference to Exhibit 10.6 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.39
 
Option Agreement Pier House Resort by and between Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Limited Partnership with respect to the Properties Entities, and Ashford TRS Corporation and Ashford Prime TRS Corporation with respect to the TRS Entity, dated November 19, 2013 (incorporated by reference to Exhibit 10.7 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.40
 
Option Agreement Crystal Gateway Marriott by and between Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Limited Partnership with respect to the Properties Entities, and Ashford TRS Corporation and Ashford Prime TRS Corporation with respect to the TRS Entity, dated November 19, 2013 (incorporated by reference to Exhibit 10.8 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)

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Exhibit
 
Description
10.41
 
Registration Rights Agreement by and between Ashford Hospitality Prime, Inc., Ashford Hospitality Limited Partnership and Ashford Hospitality Advisors LLC, dated November 19, 2013 (incorporated by reference to Exhibit 10.9 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.42
 
Assignment, Assumption and Admission Agreement, dated as of September 10, 2014, by and between Ashford Hospitality Advisors LLC and Monty Bennett, regarding the sale of Class B company interests of AIM Management Holdco, LLC (incorporated by reference to Exhibit 10.3 of Form 8-K, filed on September 10, 2014, for the event dated September 10, 2014)
10.43
 
Assignment, Assumption and Admission Agreement, dated as of September 10, 2014, by and between Ashford Hospitality Advisors LLC and Rob Hays, regarding the sale of Class B company interests of AIM Management Holdco, LLC (incorporated by reference to Exhibit 10.4 of Form 8-K, filed on September 10, 2014, for the event dated September 10, 2014)
10.44
 
Assignment, Assumption and Admission Agreement, dated as of September 10, 2014, by and between Ashford Hospitality Advisors LLC and Monty Bennett, regarding the sale of Class B limited partnership interests of AIM Performance Holdco, LP (incorporated by reference to Exhibit 10.5 of Form 8-K, filed on September 10, 2014, for the event dated September 10, 2014)
10.45
 
Assignment, Assumption and Admission Agreement, dated as of September 10, 2014, by and between Ashford Hospitality Advisors LLC and Rob Hays, regarding the sale of Class B limited partnership interests of AIM Performance Holdco, LP (incorporated by reference to Exhibit 10.6 of Form 8-K, filed on September 10, 2014, for the event dated September 10, 2014)
10.46
 
Amended and Restated Limited Liability Company Agreement of Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on October 15, 2014)
10.47
 
Third Amended and Restated Limited Partnership Agreement of AIM Performance Holdco, LP (incorporated by reference to Exhibit 10.1 of Form 8-K, filed on November 6, 2014, for the event dated November 5, 2014)
10.48
 
Second Amended and Restated Limited Liability Company Operating Agreement of AIM Management Holdco, LLC (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on November 6, 2014, for the event dated November 5, 2014)
10.49
 
Tax Matters Agreement, dated October 31, 2014, between Ashford Inc., Ashford Hospitality Advisors LLC, Ashford Hospitality Trust, Inc. and Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.1 to Form 8-K, filed on November 6, 2014, for the event dated October 31, 2014)
10.50
 
Advisory Agreement, dated as of November 12, 2014 by and between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.1 to Form 8-K, filed on November 18, 2014, for the event dated November 12, 2014)
10.51
 
Assignment and Assumption Agreement, dated as of November 12, 2014 by and between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.2 to Form 8-K, filed on November 18, 2014, for the event dated November 12, 2014)
10.52
 
Licensing Agreement, dated as of November 12, 2014 by and between Ashford Hospitality Advisors LLC, Ashford Hospitality Trust, Inc. and Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.3 to Form 8-K, filed on November 18, 2014, for the event dated November 12, 2014)
10.53
 
Letter Agreement dated December 14, 2014, between PRISA III Investments, LLC, a Delaware limited liability company and Ashford Hospitality Limited Partnership, a Delaware limited partnership (incorporated by reference to Exhibit 10.1 to Form 8-K, filed on December 19, 2014)
12.0*
 
Statement Regarding Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1*
 
Registrant’s Subsidiaries Listing as of December 31, 2014
21.2*
 
Registrant’s Special-Purpose Entities Listing as of December 31, 2014
23.1*
 
Consent of Ernst & Young LLP
31.1*
 
Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
 
Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
 
Certification of the Chief Executive Officer required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with SEC Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
32.2*
 
Certification of the Chief Financial Officer required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with SEC Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
 
 
 

130
Table of Contents

The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 are formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements Comprehensive Income (Loss); (iii) Consolidated Statements of Changes in Equity;(iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

101.INS
 
XBRL Instance Document
 
Submitted electronically with this report.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
Submitted electronically with this report.
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document.
 
Submitted electronically with this report.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
Submitted electronically with this report.
101.LAB
 
XBRL Taxonomy Label Linkbase Document.
 
Submitted electronically with this report.
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
 
Submitted electronically with this report.
_________________________
* Filed herewith.

131


EXHIBIT 10.25.1.1
Ashford

(Pool 1)
ASHFORD EDISON LP,
as Borrower
to
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Lender
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND FIXTURE FILING
Dated: April 11, 2007
PREPARED BY AND UPON RECORDATION RETURN TO:
Proskauer Rose llp

1585 Broadway

New York, New York 10036
Attention: David J. Weinberger, Esq.
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE FILING (the “ Security Instrument ”) is made as of the 11th day of April, 2007, by the party set forth as Borrower on the signature page hereof, having their chief executive office at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254-4308 (hereinafter referred to as “ Borrower ”), to WACHOVIA BANK, NATIONAL ASSOCIATION, having an address at Wachovia Bank, National Association, Commercial Real Estate Services, 8739 Research Drive URP 4, NC 1075, Charlotte, North Carolina 28262 (hereinafter referred to as “ Lender ”).
W I T N E S S E T H:
WHEREAS, Lender has authorized a loan (hereinafter referred to as the “ Loan ”) to the Cross-collateralized Borrowers in the maximum principal sum of ONE HUNDRED THREE MILLION NINE HUNDRED SIX THOUSAND and NO/100 DOLLARS ($103,906,000.00) (hereinafter referred to as the “ Loan Amount ”), which Loan is evidenced by that certain promissory note, dated the date hereof (together with any supplements, amendments, modifications or extensions thereof, hereinafter referred to as the “ Note ”) given by the Cross-collateralized Borrowers, as maker, to Lender, as payee;
WHEREAS, in consideration of the Loan, the Cross-collateralized Borrowers have agreed to make payments in amounts sufficient to pay and redeem, and provide for the payment and redemption of the principal of, premium, if any, and interest on the Note when due;
WHEREAS, Borrower desires by this Security Instrument to provide for, among other things, the issuance of the Note and for the deposit, deed and pledge by Borrower with, and the creation of a security interest in favor of, Lender, as security for the Cross-collateralized Borrowers’ obligations to Lender from time to time pursuant to the Note and the other Loan Documents;
WHEREAS, Borrower and Lender intend these recitals to be a material part of this Security Instrument; and
WHEREAS, all things necessary to make this Security Instrument the valid and legally binding obligation of Borrower in accordance with its terms, for the uses and purposes herein set forth, have been done and performed.
NOW THEREFORE, to secure the payment of the principal of, prepayment premium (if any) and interest on the Note and all other obligations, liabilities or sums due or to become due under this Security Instrument, the Note or any other Loan Documents, including, without limitation, interest on said obligations, liabilities or sums (said principal, premium, interest and other sums being hereinafter referred to as the “ Debt ”), and the performance of all other covenants, obligations and liabilities of the Cross-collateralized Borrowers pursuant to the Loan Documents, Borrower has executed and delivered this Security Instrument; and Borrower has irrevocably granted, and by these presents and by the execution and delivery hereof does hereby




irrevocably grant, bargain, sell, alien, demise, release, convey, assign, transfer, deed, hypothecate, pledge, set over, warrant, mortgage and confirm to Lender, forever with power of sale, all right, title and interest of Borrower in and to all of the following property, rights, interests and estates:
(a) the plot(s), piece(s) or parcel(s) of real property described in Exhibit A attached hereto and made a part hereof (individually and collectively, hereinafter referred to as the “ Premises ”);
(b) (i) all buildings, foundations, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements of every kind or nature now or hereafter located on the Premises (hereinafter collectively referred to as the “ Improvements ”); and (ii) to the extent permitted by law and the Management Agreement, the Franchise Agreement, the name or names, if any, as may now or hereafter be used for any of the Improvements, and the goodwill associated therewith;
(c) all easements, servitudes, rights-of-way, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, ditches, ditch rights, reservoirs and reservoir rights, air rights and development rights, lateral support, drainage, gas, oil and mineral rights, tenements, hereditaments and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Premises or the Improvements and the reversion and reversions, remainder and remainders, whether existing or hereafter acquired,
and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Premises to the center line thereof and any and all sidewalks, drives, curbs, passageways, streets, spaces and alleys adjacent to or used in connection with the Premises and/or Improvements and all the estates, rights, titles, interests, property, possession, claim and demand whatsoever, both in law and in equity, of Borrower of, in and to the Premises and Improvements and every part and parcel thereof, with the appurtenances thereto;
(d) all machinery, equipment, systems, fittings, apparatus, appliances, furniture, furnishings, tools, fixtures, Inventory (as hereinafter defined) and articles of personal property and accessions thereof and renewals, replacements thereof and substitutions therefor (including, but not limited to, all plumbing, lighting and elevator fixtures, office furniture, beds, bureaus, chiffonniers, chests, chairs, desks, lamps, mirrors, bookcases, tables, rugs, carpeting, drapes, draperies, curtains, shades, venetian blinds, wall coverings, screens, paintings, hangings, pictures, divans, couches, luggage carts, luggage racks, stools, sofas, chinaware, flatware, linens, pillows, blankets, glassware, foodcarts, cookware, dry cleaning facilities, dining room wagons, keys or other entry systems, bars, bar fixtures, liquor and other drink dispensers, icemakers, radios, television sets, intercom and paging equipment, electric and electronic equipment, dictating equipment, telephone systems, computerized accounting systems, engineering equipment, vehicles, medical equipment, potted plants, heating, lighting and plumbing fixtures, fire prevention and extinguishing apparatus, theft prevention equipment, cooling and air-conditioning systems, elevators, escalators, fittings, plants, apparatus, stoves, ranges, refrigerators, laundry machines, tools, machinery, engines, dynamos, motors, boilers, incinerators, switchboards, conduits, compressors, vacuum cleaning systems, floor cleaning, waxing and polishing equipment, call systems, brackets, signs, bulbs, bells, ash and fuel, conveyors, cabinets, lockers, shelving, spotlighting equipment, dishwashers, garbage disposals, washers and dryers), other customary hotel equipment, inventory and other property of every kind and nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon, or in, or used in connection with the Premises or the Improvements, or appurtenant thereto, and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon, or in, or used in connection with the Premises or the Improvements or appurtenant thereto, (hereinafter, all of the foregoing items described in this paragraph (d) are collectively called the “ Equipment ”), all of which, and any replacements, modifications, alterations and additions thereto, to the extent permitted by applicable law, shall be deemed to constitute fixtures (the “ Fixtures ”), and are part of the real estate and security for the payment of the Debt and the performance of Borrower’s obligations. To the extent any portion of the Equipment is not real property or fixtures under applicable law, it shall be deemed to be personal property, and this Security Instrument shall constitute a security agreement creating a security interest therein in favor of Lender under the UCC;
(e) all awards or payments, including interest thereon, which may hereafter be made with respect to the Premises, the Improvements, the Fixtures, or the Equipment, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of said right), or for a change of grade, or for any other injury to or decrease in the value of the Premises, the Improvements or the Equipment or refunds with respect to the payment of property taxes and assessments, and all other proceeds of the conversion, voluntary or involuntary, of the Premises, Improvements, Equipment, Fixtures or any other Property or part thereof into cash or liquidated claims;
(f) all leases, tenancies, franchises (to the extent not prohibited in the Franchise Agreement), licenses and permits, Property Agreements and other agreements affecting the use, enjoyment or occupancy of the Premises, the Improvements, the Fixtures, or the Equipment or any portion thereof now or hereafter entered into, whether before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code and all reciprocal easement agreements, license agreements and other agreements, including, without limitation the existing Operating Lease (hereinafter collectively referred to as the “ Leases ”),




together with all receivables, revenues, rentals, credit card receipts, receipts and all payments received which relate to the rental, lease, franchise and use of space at the Premises and rental and use of guest rooms or meeting rooms or banquet rooms or recreational facilities or bars, beverage or food sales, vending machines, mini-bars, room service, telephone, video and television systems, electronic mail, internet connections, guest laundry, bars, the provision or sale of other goods and services, and all other payments received from guests or visitors of the Premises, and other items of revenue, receipts or income as identified in the Uniform System of Accounts (as hereinafter defined), all cash or security deposits, lease termination payments, advance rentals and payments of similar nature and guarantees or other security held by, or issued in favor of, Borrower in connection therewith to the extent of Borrower’s right or interest therein and all
remainders, reversions and other rights and estates appurtenant thereto, and all base, fixed, percentage or additional rents, and other rents, oil and gas or other mineral royalties, and bonuses, issues, profits and rebates and refunds or other payments made by any Governmental Authority from or relating to the Premises, the Improvements, the Fixtures or the Equipment plus all rents, common area charges and other payments now existing or hereafter arising, whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code (the “ Rents ”) and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt;
(g) all proceeds of and any unearned premiums on any insurance policies covering the Premises, the Improvements, the Fixtures, the Rents or the Equipment, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Premises, the Improvements, the Fixtures or the Equipment and all refunds or rebates of Impositions, and interest paid or payable with respect thereto;
(h) all deposit accounts, securities accounts, funds or other accounts maintained or deposited with Lender, or its assigns, in connection herewith, including, without limitation, the Escrow Accounts, the Central Account, the Collection Account, and the Sub-Accounts and all monies and investments deposited or to be deposited in such accounts;
(i) all accounts receivable, contract rights, franchises (to the extent not prohibited in the Franchise Agreement), interests, estate or other claims, both at law and in equity, now existing or hereafter arising, and relating to the Premises, the Improvements, the Fixtures or the Equipment, not included in Rents;
(j) all now existing or hereafter arising claims against any Person with respect to any damage to the Premises, the Improvements, the Fixtures or the Equipment, including, without limitation, damage arising from any defect in or with respect to the design or construction of the Improvements, the Fixtures or the Equipment and any damage resulting therefrom;
(k) all deposits or other security or advance payments, including rental payments now or hereafter made by or on behalf of Borrower to others, with respect to (i) insurance policies, (ii) utility services, (iii) cleaning, maintenance, repair or similar services, (iv) refuse removal or sewer service, (v) parking or similar services or rights and (vi) rental of Equipment, if any, relating to or otherwise used in the operation of the Premises, the Improvements, the Fixtures or the Equipment;
(l) all intangible property (to the extent assignable) now or hereafter relating to the Premises, the Improvements, the Fixtures or the Equipment or its operation, including, without limitation, software, letter of credit rights, trade names, trademarks (including, without limitation, any licenses of or agreements to license trade names or trademarks now or hereafter entered into by Borrower), logos, building names and goodwill;
(m) all now existing or hereafter arising advertising material, guaranties, warranties, building permits, other permits, licenses, plans and specifications, shop and working drawings, soil tests, appraisals and other documents, materials and/or personal property of any kind now or hereafter existing in or relating to the Premises, the Improvements, the Fixtures, and the Equipment;
(n) all now existing or hereafter arising drawings, designs, plans and specifications prepared by architects, engineers, interior designers, landscape designers and any other consultants or professionals for the design, development, construction, repair and/or improvement of the Property, as amended from time to time;
(o) the right, in the name of and on behalf of Borrower, to appear in and defend any now existing or hereafter arising action or proceeding brought with respect to the Premises, the Improvements, the Fixtures or the Equipment and to commence any action or proceeding to protect the interest of Lender in the Premises, the Improvements, the Fixtures or the Equipment;
(p) in the event Borrower is a tenancy-in-common, all rights of TICs under the TIC Agreement including, without limitation, any rights of first refusal, options to purchase and similar rights and any rights of first refusal arising under Section 363(i) of the Bankruptcy Code; and
(q) all proceeds, products, substitutions and accessions (including claims and demands therefor) of each of the foregoing.
All of the foregoing items (a) through (q), together with all of the right, title and interest of Borrower therein, are collectively referred to as the “ Property ”.




TO HAVE AND TO HOLD the above granted and described Property unto Lender, and the successors and assigns of Lender in fee simple, forever.
PROVIDED, ALWAYS, and these presents are upon this express condition, if Borrower shall well and truly pay and discharge the Debt and perform and observe the terms, covenants and conditions set forth in the Loan Documents, then these presents and the estate hereby granted shall cease and be void.
AND Borrower covenants with and warrants to Lender that:
ARTICLE I: DEFINITIONS
Section 1.01. Certain Definitions .
For all purposes of this Security Instrument, except as otherwise expressly provided or unless the context clearly indicates a contrary intent:
(i) the capitalized terms defined in this Section have the meanings assigned to them in this Section, and include the plural as well as the singular;
(ii) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and
(iii) the words “herein”, “hereof”, and “hereunder” and other words of similar import refer to this Security Instrument as a whole and not to any particular Section or other subdivision.
“ Adjusted Net Cash Flow ” shall mean Net Operating Income for the twelve (12)-month period prior to the date of calculation less, without duplication, (a) the Recurring Replacement Reserve Monthly Installment (assuming for purposes of this definition that the definition of Recurring Replacement Reserve Monthly Installment only includes the first sentence thereof) multiplied by twelve (12) and (b) extraordinary capital improvements projected by Lender, in its reasonable discretion, for the subsequent twelve (12) month period for which sums were not deposited into the Recurring Replacement Reserve Escrow Account. The Adjusted Net Cash Flow shall be calculated by Borrower and shall be subject to the reasonable review and approval of Lender.
“ Affiliate ” of any specified Person shall mean any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such specified Person.
“ Aggregate Debt Service Coverage ” shall mean the quotient obtained by dividing the aggregate Adjusted Net Cash Flow for all of the Cross-collateralized Properties for a specified period by the sum of the (a) aggregate payments of interest, principal and all other sums due under the Note for such specified period (determined as of the date the calculation of Aggregate Debt Service Coverage is required or requested hereunder and assuming during any period of time during which the Loan Amount is not amortizing pursuant to the terms of the Note, a thirty year amortization schedule of level payments utilizing an interest rate equal to the Interest Rate and a 360 day year consisting of twelve (12) thirty day months) and (b) aggregate payments of interest, principal and all other sums due for such specified period pursuant to the terms of subordinate or mezzanine financing, if any, then affecting or
related to the Cross-collateralized Properties or, if Aggregate Debt Service Coverage is being calculated in connection with a request for consent to any subordinate financing, then proposed.
“ Allocated Loan Amount ” shall mean the Initial Allocated Loan Amount of each Cross-collateralized Property as such amount may be adjusted from time to time as hereinafter set forth. Upon each adjustment of the Principal Amount (each a “ Total Adjustment ”), whether as a result of amortization, defeasance or prepayment or as otherwise expressly provided herein or in any other Loan Document, each Allocated Loan Amount shall be increased or decreased, as the case may be, by an amount equal to the product of (a) the Total Adjustment, and (b) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the Principal Amount prior to the adjustment to the Principal Amount which results in the recalculation of the Allocated Loan Amount. However, when the Principal Amount is reduced as a result of Lender’s receipt of (a) a Release Price or, in connection with a Release, funds sufficient to prepay a portion of the Principal Amount in the amount of the Release Price, the Allocated Loan Amount for the Cross-collateralized Property being released and discharged from the encumbrance of the applicable Cross-collateralized Mortgage and related Loan Documents shall be reduced to zero (the amount by which such Allocated Loan Amount is reduced being referred to as the “ Released Allocated Amount ”), and each other Allocated Loan Amount shall be decreased by an amount equal to the product of (i) the excess of (A) the Release Price over (B) the Released Allocated Amount and (ii) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the aggregate of all of the Allocated Loan Amounts other than the Allocated Loan Amount applicable to the Cross-collateralized Property for which the Release Price was paid, or (b) Net Proceeds, the Allocated Loan Amount for




the Cross-collateralized Property with respect to which the Net Proceeds were received shall be reduced to zero (the amount by which such Allocated Loan Amount is reduced being referred to as the “ Foreclosed Allocated Amount ”) and each other Allocated Loan Amount shall (A) if the Net Proceeds exceed the Foreclosed Allocated Amount (such excess being referred to as the “ Surplus Net Proceeds ”), be decreased by an amount equal to the product of (i) the Surplus Net Proceeds and (ii) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the aggregate of all of the Allocated Loan Amounts (prior to the adjustment in question) other than the Allocated Loan Amount applicable to the Cross-collateralized Property with respect to which the Net Proceeds were received (such fraction being referred to as the “ Net Proceeds Adjustment Fraction ”), (B) if the Foreclosed Allocated Amount exceeds the Net Proceeds (such excess being referred to as the “ Net Proceeds Deficiency ”), be increased by an amount equal to the product of (i) the Net Proceeds Deficiency and (ii) the Net Proceeds Adjustment Fraction, or (C) if the Net Proceeds equal the Foreclosed Allocated Amount, remain unadjusted, or (c) Loss Proceeds or partial prepayments or defeasances, as applicable, made in accordance with Section 15.01 hereof, the Allocated Loan Amount for the Cross-collateralized Property with respect to which the Loss Proceeds or partial prepayments or defeasances, as applicable, were received shall be decreased by an amount equal to the sum of (i) with respect to Loss Proceeds, Loss Proceeds which are applied towards the reduction of the Principal Amount as set forth in Article III hereof, if any, and (ii) with respect to partial prepayments or defeasances, as applicable, the amount of any such partial prepayment which is applied towards the reduction of the Principal Amount in accordance with the provisions of the Note, if any, but in no event shall the Allocated Loan Amount for the Cross-collateralized Property with respect to which the Loss Proceeds or partial prepayments were received be reduced to an amount less than zero (the amount by which such Allocated Loan Amount is reduced being referred to as the “ Loss Proceeds or Prepayment Allocated Amount ”) and each other Allocated Loan Amount shall be decreased by an amount equal to the product of (i) the excess of (A) the Loss Proceeds or such partial prepayments or defeasances, as applicable, over (B) the Loss Proceeds or Prepayment Allocated Amount, and (ii) a fraction, the numerator of which is the applicable Allocated Loan Amount (prior to the adjustment in question) and the denominator of which is the aggregate of all of the Allocated Loan Amounts (prior to the adjustment in question) other than the Allocated Loan Amount applicable to the Cross-collateralized Property to which such Loss Proceeds or partial prepayments or defeasances, as applicable, were applied.
“ Annual Budget ” shall mean an annual budget submitted by Borrower to Lender in accordance with the terms of Section 2.09 hereof.
“ Appraisal ” shall mean the appraisal of the Property and all supplemental reports or updates thereto previously delivered to Lender in connection with the Loan.
“ Appraiser ” shall mean the Person who prepared the Appraisal.
“ Approved Annual Budget ” shall mean each Annual Budget approved by Lender in accordance with the terms hereof.
“ Approved Franchisor ” shall mean the Franchisors listed on Exhibit F attached hereto and made a part hereof and any flag operated thereby.
“ Approved Letter of Credit ” shall mean an irrevocable, unconditional, transferable, clean sight draft letter of credit in favor of Lender and its successors and/or assigns, the obligation to reimburse draws made in connection with which are those of a Person other than Borrower, with a term of not less than one (1) year and which is drawable in whole or in part by sight draft in New York City, issued by a bank having a long-term unsecured debt rating of not less than “AA” (or its equivalent) and a short-term unsecured debt rating of not less than “A-1” (or its equivalent) by each Rating Agency and otherwise reasonably acceptable to Lender.
“ Approved Manager ” shall mean (a) the Manager as of the Closing Date or (b) the property managers listed on Exhibit F attached hereto and made a part hereof (or an Affiliate 51% or more of the legal and beneficial interest of which is owned by the managers listed on Exhibit F attached hereto), provided that each such property manager continues to be Controlled by substantially the same persons Controlling such property manager as of the Closing Date (or if such manager is a publicly traded company, such manager continues to be traded on a national stock exchange or quoted on the NASDAQ Stock Market) and such additional management companies as are reasonably approved by Lender, which approval may, subsequent to a Securitization, be conditioned upon, among other things, confirmation from each Rating Agency that any rating issued by the Rating Agency in connection with a Securitization will not, as a result of the proposed change of Manager, be downgraded from the current ratings thereof, qualified or withdrawn.
“ Approved Manager Standard ” shall mean the standard of business operations, practices and procedures customarily employed by entities having a senior executive with at least seven (7) years’ experience in the management of hotels of the same class and quality (as of the Closing Date) as the Improvements which manage not less than five (5) such hotel properties having an aggregate number of hotel rooms of not less than five thousand (5,000) hotel rooms.
“ Architect ” shall have the meaning set forth in Section 3.04(b)(i) hereof.




“ Assignment ” shall mean the Assignment of Leases and Rents and Security Deposits of even date herewith relating to the Property given by Borrower to Lender, as the same may be modified, amended or supplemented from time to time.
“ Bank ” shall mean the bank, trust company, savings and loan association or savings bank designated by Lender, in its sole and absolute discretion, in which the Central Account shall be located.
“ Bankruptcy Code ” shall mean 11 U.S.C. §101 et seq., as amended from time to time.
“ Basic Carrying Costs ” shall mean the sum of the following costs associated with the Property: (a) Real Estate Taxes and (b) insurance premiums.
“ Basic Carrying Costs Escrow Account ” shall mean the Escrow Account maintained pursuant to Section 5.06 hereof.
“ Basic Carrying Costs Monthly Installment ” shall mean Lender’s estimate of one-twelfth (1/12th) of the annual amount for Basic Carrying Costs. “Basic Carrying Costs Monthly Installment” shall also include, if required by Lender, a sum of money which, together with such monthly installments, will be sufficient to make the payment of each such Basic Carrying Cost at least thirty (30) days prior to the date initially due. Should such Basic Carrying Costs not be ascertainable at the time any monthly deposit is required to be made, the Basic Carrying Costs Monthly Installment shall be determined by Lender in its reasonable discretion on the basis of the aggregate Basic Carrying
Costs for the prior Fiscal Year or month or the prior payment period for such cost. As soon as the Basic Carrying Costs are fixed for the then current Fiscal Year, month or period, the next ensuing Basic Carrying Costs Monthly Installment shall be adjusted to reflect any deficiency or surplus in prior monthly payments. If at any time during the term of the Loan Lender determines that there will be insufficient funds in the Basic Carrying Costs Escrow Account to make payments when they become due and payable, Lender shall have the right to adjust the Basic Carrying Costs Monthly Installment such that there will be sufficient funds to make such payments. Notwithstanding the foregoing, provided that no Event of Default exists, if Borrower is depositing a sum with Manager on a monthly basis pursuant to the Management Agreement to be used for the payment of Basic Carrying Costs, such sums are controlled by Manager, and Borrower shall have delivered, or caused to be delivered to Lender proof that the Basic Carrying Costs with respect to which Manager is receiving deposits are paid not less than five (5) Business Days prior to the date upon which any fine, penalty, interest or cost for nonpayment is imposed, the Basic Carrying Costs Monthly Installment shall be reduced by the amount of Basic Carrying Costs which are deposited with Manager.
“ Basic Carrying Costs Sub-Account ” shall mean the Sub-Account of the Central Account established pursuant to Section 5.02 into which the Basic Carrying Costs Monthly Installments shall be deposited.
“ Borrower ” shall mean Borrower named herein and any successor to the obligations of Borrower.
“ Business Day ” shall mean any day other than (a) a Saturday or Sunday, or (b) a day on which banking and savings and loan institutions in the State of New York or the State of North Carolina are authorized or obligated by law or executive order to be closed, or at any time during which the Loan is an asset of a Securitization, the cities, states and/or commonwealths used in the comparable definition of “Business Day” in the Securitization documents.
“ Capital Expenditures ” shall mean for any period, the amount expended for items capitalized under GAAP including expenditures for building improvements or major repairs, leasing commissions and tenant improvements.
“ Cash Expenses ” shall mean for any period, the operating expenses (excluding Capital Expenditures) for the Property as set forth in an Approved Annual Budget to the extent that such expenses are actually incurred by Borrower minus payments into the Basic Carrying Costs Sub-Account, the Debt Service Payment Sub-Account and the Recurring Replacement Reserve Sub-Account (to the extent such sums are for the payment of sums set forth as operating expenses in the Approved Annual Budget).
“ Central Account ” shall mean an Eligible Account, maintained at the Bank, in the name of Lender or its successors or assigns (as secured party) as may be designated by Lender.
“ Closing Date ” shall mean the date of the Note.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto.
“ Collection Account ” shall mean one or more Eligible Accounts maintained in a bank acceptable to Lender in the joint names of Borrower and Lender or such other name as Lender may designate in writing.
“ Condemnation Proceeds ” shall mean all of the proceeds in respect of any Taking or purchase in lieu thereof.
“ Contractual Obligation ” shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of the property owned by it is bound.




“ Control ” means, when used with respect to any specific Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person whether through ownership
of voting securities, beneficial interests, by contract or otherwise. The definition is to be construed to apply equally to variations of the word “Control” including “Controlled,” “Controlling” or “Controlled by.”
“ CPI ” shall mean “The Consumer Price Index (New Series) (Base Period 1982-84=100) (all items for all urban consumers)” issued by the Bureau of Labor Statistics of the United States Department of Labor (the “ Bureau ”). If the CPI ceases to use the 1982-84 average equaling 100 as the basis of calculation, or if a change is made in the term, components or number of items contained in said index, or if the index is altered, modified, converted or revised in any other way, then the index shall be adjusted to the figure that would have been arrived at had the change in the manner of computing the index in effect at the date of this Security Instrument not been made. If at any time during the term of this Security Instrument the CPI shall no longer be published by the Bureau, then any comparable index issued by the Bureau or similar agency of the United States issuing similar indices shall be used in lieu of the CPI.
“ Cross-collateralization Agreement ” shall mean that certain Cross-collateralization Agreement of even date herewith between Borrower, the other Cross-collateralized Borrowers and Lender.
“ Cross-collateralized Borrowers ” shall mean each Person which has executed the Note.
“ Cross-collateralized Mortgage ” shall mean each mortgage, deed of trust, deed to secure debt, security agreement, assignment of rents and fixture filing as originally executed or as same may hereafter from time to time be supplemented, amended, modified or extended by one or more indentures supplemental thereto granted by a Cross-collateralized Borrower to Lender as security for the Note.
“ Cross-collateralized Property ” shall mean each parcel or parcels of real property encumbered by a Cross-collateralized Mortgage as identified on Exhibit C attached hereto and made a part hereof; provided, however, at such time, if any, that a Cross-collateralized Mortgage is released by Lender, the property which was encumbered by such Cross-collateralized Property shall no longer constitute a Cross-collateralized Property.
“ Curtailment Reserve Escrow Account ” shall mean the Escrow Account maintained pursuant to Section 5.11 hereof into which sums shall be deposited during an O&M Operative Period.
“ Curtailment Reserve Sub-Account ” shall mean the Sub-Account of the Central Account established pursuant to Section 5.02 hereof into which excess cash flow shall be deposited pursuant to Section 5.05.
“ Debt ” shall have the meaning set forth in the Recitals hereto.
“ Debt Service ” shall mean the amount of interest and principal payments due and payable in accordance with the Note during an applicable period.
“ Debt Service Coverage ” shall mean the quotient obtained by dividing Adjusted Net Cash Flow by the sum of the (a) aggregate payments of interest, principal and all other sums due for such specified period which are allocable to a principal portion of the Note equal to the Allocated Loan Amount (determined as of the date the calculation of Debt Service Coverage is required or requested hereunder and assuming during any period of time during which the Loan Amount is not amortizing pursuant to the terms of the Note, a thirty year amortization schedule of level payments utilizing an interest rate equal to the Interest Rate and a 360 day year consisting of twelve (12) thirty day months) and (b) aggregate payments of interest, principal and all other sums due for such specified period pursuant to the terms of subordinate or mezzanine financing (to the extent allocable to the Property, as determined by Lender in its reasonable discretion), if any, then affecting or related to the Property or, if Debt Service Coverage is being calculated in connection with a request for consent to any subordinate or mezzanine financing, then proposed.
“ Debt Service Payment Sub-Account ” shall mean the Sub-Account of the Central Account established pursuant to Section 5.02 hereof into which the Required Debt Service Payment shall be deposited.
“ Debt Yield ” shall mean Adjusted Net Cash Flow for all of the Cross-collateralized Properties divided by the sum of (a) the unpaid Principal Amount and (b) the outstanding principal balance of any subordinate or mezzanine financing then affecting or related to the Property or any interest therein (determined as of the date of the calculation of Debt Yield).
“ Default ” shall mean any Event of Default or event which would constitute an Event of Default if all requirements in connection therewith for the giving of notice, the lapse of time, and the happening of any further condition, event or act, had been satisfied.
“ Default Management Period ” shall mean any period of time during the term hereof when the Property is not being managed by an Approved Manager pursuant to the terms hereof.




“ Default Rate ” shall mean the lesser of (a) the highest rate allowable at law and (b) five percent (5%) above the interest rate set forth in the Note.
“ Default Rate Interest ” shall mean, to the extent the Default Rate becomes applicable, interest in excess of the interest which would have accrued on (a) the Principal Amount and (b) any accrued but unpaid interest, if the Default Rate was not applicable.
“ Defeasance Deposit ” shall mean an amount equal to the total cost incurred or to be incurred in the purchase on behalf of Borrower of Federal Obligations necessary to meet the Scheduled Defeasance Payments.
“ Defeased Note ” shall have the meaning set forth in Section 15.01 hereof.
“ Development Laws ” shall mean all applicable subdivision, zoning, environmental protection, wetlands protection, or land use laws or ordinances, and any and all applicable rules and regulations of any Governmental Authority promulgated thereunder or related thereto.
“ Disclosure Document ” shall mean a prospectus, prospectus supplement, private placement memorandum, or similar offering memorandum or offering circular, in each case in preliminary or final form, used to offer securities in connection with a Securitization.
“ Dollar ” and the sign “$” shall mean lawful money of the United States of America.
“ Eligible Account ” shall mean a segregated account which is either (a) an account or accounts maintained with a federal or state chartered depository institution or trust company the long term unsecured debt obligations of which are rated by each of the Rating Agencies (or, if not rated by Fitch, Inc. (“ Fitch ”), otherwise acceptable to Fitch, as confirmed in writing that such account would not, in and of itself, result in a downgrade, qualification or withdrawal of the then current ratings assigned to any certificates issued in connection with a Securitization) in its second highest rating category at all times (or, in the case of the Basic Carrying Costs Escrow Account, the long term unsecured debt obligations of which are rated at least “AA” (or its equivalent)) by each of the Rating Agencies (or, if not rated by Fitch, otherwise acceptable to Fitch, as confirmed in writing that such account would not, in and of itself, result in a downgrade, qualification or withdrawal of the then current ratings assigned to any certificates issued in connection with a Securitization) or, if the funds in such account are to be held in such account for less than thirty (30) days, the short term obligations of which are rated by each of the Rating Agencies (or, if not rated by Fitch, otherwise acceptable to Fitch, as confirmed in writing that such account would not, in and of itself, result in a downgrade, qualification or withdrawal of the then current ratings assigned to any certificates issued in connection with a Securitization) in its second highest rating category at all times or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution is subject to regulations substantially similar to 12 C.F.R. § 9.10(b), having in either case a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by federal and state authority, or otherwise acceptable (as evidenced by a written confirmation from each Rating Agency that such account would not, in and of itself, cause a downgrade, qualification or withdrawal of the then current ratings assigned to any certificates issued in connection with a Securitization) to each Rating Agency, which may be an account maintained by Lender or its agents. Eligible
Accounts may bear interest. The title of each Eligible Account shall indicate that the funds held therein are held in trust for the uses and purposes set forth herein.
“ Engineer ” shall have the meaning set forth in Section 3.04(b)(i) hereof.
“ Engineering Escrow Account ” shall mean an Escrow Account established and maintained pursuant to Section 5.12 hereof relating to payments for any Required Engineering Work.
“ Environmental Problem ” shall mean any of the following:
(a) the presence of any Hazardous Material on, in, under, or above all or any portion of the Property in violation of any Environmental Statute;
(b) the release of any Hazardous Material from or onto the Property to the extent such release is required to be reported pursuant to Environmental Statutes;
(c) the violation or threatened violation of any Environmental Statute with respect to the Property; or
(d) the failure to obtain or to abide by the terms or conditions of any permit or approval required under any Environmental Statute with respect to the Property.
A condition described above shall be an Environmental Problem regardless of whether or not any Governmental Authority has taken any action in connection with the condition and regardless of whether that condition was in existence on or before the date hereof.




“ Environmental Report ” shall mean the environmental audit report for the Property and any supplements or updates thereto, previously delivered to Lender in connection with the Loan.
“ Environmental Statute ” shall mean any federal, state or local statute, ordinance, rule or regulation, any judicial or administrative order (whether or not on consent) or judgment applicable to Borrower or the Property including, without limitation, any judgment or settlement based on common law theories, and any provisions or conditions of any permit, license or other authorization binding on Borrower relating to (a) the protection of the environment, the safety and health of persons (including employees) or the public welfare from actual or potential exposure (or effects of exposure) to any actual or potential release, discharge, disposal or emission (whether past or present) of any Hazardous Materials or (b) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“ CERCLA ”), as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §9601 et seq. , the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. §6901 et seq. , the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. §1251 et seq. , the Toxic Substances Control Act of 1976, 15 U.S.C. §2601 et seq. , the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §1101 et seq. , the Clean Air Act of 1966, as amended, 42 U.S.C. §7401 et seq. , the National Environmental Policy Act of 1975, 42 U.S.C. §4321, the Rivers and Harbors Act of 1899, 33 U.S.C. §401 et seq. , the Endangered Species Act of 1973, as amended, 16 U.S.C. §1531 et seq. , the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §651 et seq. , and the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. §300(f) et seq. , and all rules, regulations and guidance documents promulgated or published thereunder.
“ Equipment ” shall have the meaning set forth in granting clause (d) of this Security Instrument.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Security Instrument and, as of the relevant date, any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.
“ ERISA Affiliate ” shall mean any corporation or trade or business that is a member of any group of organizations (a) described in Section 414(b) or (c) of the Code of which Borrower or Guarantor is a member and (b) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which Borrower or Guarantor is a member.
“ Escrow Account ” shall mean each of the Engineering Escrow Account, the Basic Carrying Costs Escrow Account, the Recurring Replacement Reserve Escrow Account, the Operation and Maintenance Expense Escrow Account and the Curtailment Reserve Escrow Account, each of which shall be an Eligible Account or book entry sub-account of an Eligible Account.
“ Event of Default ” shall have the meaning set forth in Section 13.01 hereof.
“ Extraordinary Expense ” shall mean an extraordinary operating expense or capital expense not set forth in the Approved Annual Budget or allotted for in the Recurring Replacement Reserve Sub-Account.
“ Federal Obligations ” shall mean non-callable direct obligations of, or obligations fully guaranteed as to payment of principal and interest by, the United States of America or any agency or instrumentality thereof provided that such obligations are backed by the full faith and credit of the United States of America or, provided, that Lender has received written confirmation from each Rating Agency that the defeasance of the Loan with other “governmental securities” within the meaning of §2(a)(16) of the Investment Company Act of 1940, as amended, is acceptable and such securities are permitted pursuant to the rules and regulations relating to REMICs (as defined in Section 15.01 hereof) or other governmental securities, in each case as chosen by Borrower.
“ Fiscal Year ” shall mean the twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of this Security Instrument, or such other fiscal year of Borrower as Borrower may select from time to time with the prior written consent of Lender.
“ Fixtures ” shall have the meaning set forth in granting clause (d) of this Security Instrument.
“ Force Majeure ” shall mean acts of god, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes or work stoppages which are industry-wide and not aimed at Borrower nor its Affiliates, or other causes beyond the reasonable control of Borrower and/or its Affiliates, but Borrower’s lack of funds in and of itself shall not be deemed a cause beyond the control of Borrower.




“ Franchise Agreement ” shall mean any franchise or license agreement relating to the branding or operation of the Premises or any other agreement pursuant to which a franchise system, reservation system or brand affiliation is made available to the hotel operator of the Premises, together with all renewals and replacements thereof.
“ GAAP ” shall mean generally accepted accounting principles in the United States of America, as of the date of the applicable financial report, consistently applied.
“ General Partner ” shall mean, if Borrower or Operating Tenant is a partnership, each general partner of Borrower or Operating Tenant, as applicable, and, if Borrower or Operating Tenant is a limited liability company, each managing member, if any, of Borrower or Operating Tenant, as applicable, and in each case, if applicable, each general partner or managing member of such general partner or managing member. In the event that Borrower or Operating Tenant or any General Partner is a single member limited liability company with a managing member, the term “General Partner” shall include such single member.
“ Governmental Authority ” shall mean, with respect to any Person, any federal or State government or other political subdivision thereof and any entity, including any regulatory or administrative authority or court, exercising executive, legislative, judicial, regulatory or administrative or quasi-administrative functions of or pertaining to government, and any arbitration board or tribunal, in each case having jurisdiction over such applicable Person or such Person’s property and any stock exchange on which shares of capital stock of such Person are listed or admitted for trading.
“ Guarantor ” shall mean any Person guaranteeing, in whole or in part, the obligations of Borrower under the Loan Documents.
“ Hazardous Material ” shall mean any flammable, explosive or radioactive materials, hazardous materials or wastes, hazardous or toxic substances, pollutants or related materials, asbestos or any material containing asbestos, molds, spores and fungus which may pose a risk to human health or the environment or any other substance or material as defined in or regulated by any Environmental Statutes.
“ Impositions ” shall mean all taxes (including, without limitation, all real estate, ad valorem, sales (including those imposed on lease rentals), use, single business, gross receipts, value added, intangible, transaction, privilege or license or similar taxes), assessments (including, without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not commenced or completed within the term of this Security Instrument), ground rents, water, sewer or other rents and charges, excises, levies, fees (including, without limitation, license, permit, inspection, authorization and similar fees), and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Property and/or any Rent (including all interest and penalties thereon), which at any time prior to, during or in respect of the term hereof may be assessed or imposed on or in respect of or be a lien upon (a) Borrower (including, without limitation, all franchise, single business or other taxes imposed on Borrower for the privilege of doing business in the jurisdiction in which the Property or any other collateral delivered or pledged to Lender in connection with the Loan is located) or Lender, (b) the Property or any part thereof or any Rents therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on, or in connection with the Property, or any part thereof, or the leasing or use of the Property, or any part thereof, or the acquisition or financing of the acquisition of the Property, or any part thereof, by Borrower. Impositions shall not include any taxes imposed on Lender’s income and franchise taxes imposed on Lender by the law or regulation of any Governmental Authority.
“ Improvements ” shall have the meaning set forth in granting clause (b) of this Security Instrument.
“ Indemnified Parties ” shall have the meaning set forth in Section 12.01 hereof.
“ Independent ” shall mean, when used with respect to any Person, a Person who (a) is in fact independent, (b) does not have any direct financial interest or any material indirect financial interest in Borrower, or in any Affiliate of Borrower or any constituent partner, shareholder, member or beneficiary of Borrower, (c) is not connected with Borrower or any Affiliate of Borrower or any constituent partner, shareholder, member or beneficiary of Borrower as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions and (d) is not a member of the immediate family of a Person defined in (b) or (c) above. Whenever it is herein provided that any Independent Person’s opinion or certificate shall be provided, such opinion or certificate shall state that the Person executing the same has read this definition and is Independent within the meaning hereof.
“ Initial Allocated Loan Amount ” shall mean the portion of the Loan Amount allocated to each Cross-collateralized Property as set forth on Exhibit C annexed hereto and made a part hereof.
“ Initial Engineering Deposit ” shall equal the amount set forth on Exhibit B attached hereto and made a part hereof.
“ Institutional Lender ” shall mean any of the following Persons: (a) any bank, savings and loan association, savings institution, trust company or national banking association, acting for its own account or in a fiduciary capacity, (b) any charitable foundation, (c) any insurance company or pension and/or annuity company, (d) any fraternal benefit society, (e) any




pension, retirement or profit sharing trust or fund within the meaning of Title I of ERISA or for which any bank, trust company, national banking association or investment adviser registered under the Investment Advisers Act of 1940, as amended, is acting as trustee or agent, (f) any investment company or business development company, as defined in the Investment Company Act of 1940, as amended, (g) any small business investment company licensed under the Small Business Investment Act of 1958, as amended, (h) any broker or dealer registered under the Securities Exchange Act of 1934, as amended, or any investment adviser
registered under the Investment Adviser Act of 1940, as amended, (i) any government, any public employees’ pension or retirement system, or any other government agency supervising the investment of public funds, or (j) any other entity all of the equity owners of which are Institutional Lenders; provided that each of said Persons shall have net assets in excess of $1,000,000,000 and a net worth in excess of $500,000,000, be in the business of making commercial mortgage loans, secured by properties of like type, size and value as the Property and have a long term credit rating which is not less than “BBB-” (or its equivalent) from each Rating Agency.
“ Insurance Proceeds ” shall mean all of the proceeds received under the insurance policies required to be maintained by Borrower pursuant to Article III hereof.
“ Insurance Requirements ” shall mean all terms of any insurance policy required by this Security Instrument, all requirements of the issuer of any such policy, and all regulations and then current standards applicable to or affecting the Property or any use or condition thereof, which may, at any time, be recommended by the Board of Fire Underwriters, if any, having jurisdiction over the Property, or such other Person exercising similar functions.
“ Interest Accrual Period ” shall mean each one (1) month period, which shall commence on the eleventh (11th) day of each calendar month and end on and include the tenth (10th) day of the next occurring calendar month.
“ Interest Rate ” shall have the meaning set forth in the Note.
“ Interest Shortfall ” shall mean any shortfall in the amount of interest required to be paid with respect to the Loan Amount on any Payment Date.
“ Inventory ” shall have the meaning as such term is defined in the Uniform Commercial Code applicable in the State in which the Property is located, including, without limitation, provisions in storerooms, refrigerators, pantries and kitchens, beverages in wine cellars and bars, other merchandise for sale, fuel, mechanical supplies, stationery and other expenses, supplies and similar items, as defined in the Uniform System of Accounts.
“ Late Charge ” shall have the meaning set forth in Section 13.09 hereof.
“ Leases ” shall have the meaning set forth in granting clause (f) of this Security Instrument.
“ Legal Requirement ” shall mean as to any Person, the certificate of incorporation, by-laws, certificate of limited partnership, agreement of limited partnership or other organization or governing documents of such Person, and any law, statute, order, ordinance, judgement, decree, injunction, treaty, rule or regulation (including, without limitation, Environmental Statutes, Development Laws and Use Requirements) or determination of an arbitrator or a court or other Governmental Authority and all covenants, agreements, restrictions and encumbrances contained in any instruments, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“ Lender ” shall mean the Lender named herein and its successors or assigns.
“ Loan ” shall have the meaning set forth in the Recitals hereto.
“ Loan Amount ” shall have the meaning set forth in the Recitals hereto.
“ Loan Documents ” shall mean this Security Instrument, the Note, the Assignment, and any and all other agreements, instruments, certificates or documents executed and delivered by Borrower, any of the Cross-collateralized Borrowers or any Affiliate of Borrower in connection with the Loan, together with any supplements, amendments, modifications or extensions thereof.
“ Loan Year ” shall mean each 365 day period (or 366 day period if the month of February in a leap year is included) commencing on the first day of the month following the Closing Date (provided, however, that the first
Loan Year shall also include the period from the Closing Date to the end of the month in which the Closing Date occurs).
“ Lockout Expiration Date ” shall have the meaning set forth in Section 15.01 hereof.
“ Loss Proceeds ” shall mean, collectively, all Insurance Proceeds and all Condemnation Proceeds.
“ Major Space Lease ” shall mean any Space Lease of a tenant or Affiliate of such tenant where such tenant, together with such Affiliate, leases, in the aggregate, 10,000 square feet or more and each restaurant, bar and/or casino lease.
“ Management Agreement ” shall have the meaning set forth in Section 7.02 hereof.




“ Manager ” shall mean the Person, other than Borrower and/or Operating Tenant, which manages the Property on behalf of Borrower.
“ Material Adverse Effect ” shall mean any event or condition that has a material adverse effect on (a) the Property, (b) the business, prospects, profits, management, operations or condition (financial or otherwise) of Borrower, (c) the enforceability, validity, perfection or priority of the lien of any Loan Document or (d) the ability of Borrower to perform any obligations under any Loan Document.
“ Maturity ”, when used with respect to the Note, shall mean the Maturity Date set forth in the Note or such other date pursuant to the Note on which the final payment of principal, and premium, if any, on the Note becomes due and payable as therein or herein provided, whether at Stated Maturity or by declaration of acceleration, or otherwise.
“ Maturity Date ” shall mean the Maturity Date set forth in the Note.
“ Multiemployer Plan ” shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been, or were required to have been, made by Borrower, Guarantor or any ERISA Affiliate and which is covered by Title IV of ERISA.
“ Net Capital Expenditures ” shall mean for any period the amount by which Capital Expenditures during such period exceed reimbursements for such items during such period from any fund established pursuant to the Loan Documents.
“ Net Operating Income ” shall mean in each Fiscal Year or portion thereof during the term hereof, Operating Income less Operating Expenses.
“ Net Proceeds ” shall mean the excess of (a)(i) the purchase price (at foreclosure or otherwise) actually received by Lender with respect to the Property as a result of the exercise by Lender of its rights, powers, privileges and other remedies after the occurrence of an Event of Default, or (ii) in the event that Lender (or Lender’s nominee) is the purchaser at foreclosure by credit bid, then the amount of such credit bid, in either case, over (b) all costs and expenses, including, without limitation, all attorneys’ fees and disbursements and any brokerage fees, if applicable, incurred by Lender in connection with the exercise of such remedies, including the sale of such Property after a foreclosure against the Property.
“ Note ” shall have the meaning set forth in the Recitals hereto.
“ O&M Operative Period ” shall mean the period of time (a) commencing upon the earlier to occur of (i) an Event of Default and (ii) determination by Lender that the Aggregate Debt Service Coverage (tested quarterly except during the continuance of an O&M Operative Period, in which event the Aggregate Debt Service Coverage shall be tested monthly and shall be calculated based upon information contained in the reports furnished to Lender pursuant to Section 2.09 hereof) is less than 1.10:1 and (b) and terminating (i) if the O&M Operative Period commenced pursuant to clause (a)(i) above, upon the cure of all Events of Default, provided that Lender accepts the
cure of all Events of Default, the Loan has not been accelerated and Lender has not moved for the appointment of a receiver with respect to one or more Cross-collateralized Properties nor commenced foreclosure proceedings with respect to any Cross-collateralized Properties, and (ii) if the O&M Operative Period commenced pursuant to clause (a)(ii) above, on the Payment Date next succeeding the date upon which Lender determines that the Aggregate Debt Service Coverage for three (3) consecutive months is 1.10:1 or greater.
“ OFAC List ” shall mean the list of specially designated nationals and blocked persons subject to financial sanctions that is maintained by the U.S. Treasury Department, Office of Foreign Assets Control and accessible through the internet website www.treas.gov/ofac/t11sdn.pdf .
“ Officer’s Certificate ” shall mean a certificate delivered to Lender by Borrower which is signed on behalf of Borrower by an authorized representative of Borrower which states that the items set forth in such certificate are true, accurate and complete in all respects.
“ Operating Expenses ” shall mean, in each Fiscal Year or portion thereof during the term hereof, all expenses directly attributable to the operation, repair and/or maintenance of the Property including, without limitation, (a) Impositions, (b) insurance premiums, (c) management fees, whether or not actually paid, equal to the greater of the actual management fees and four percent (4%) of annual gross operating income and (d) costs attributable to the operation, repair and maintenance of the systems for heating, ventilating and air conditioning the Improvements and actually paid for by Borrower. Operating Expenses shall not include interest, principal and premium, if any, due under the Note or otherwise in connection with the Debt, income taxes, extraordinary capital improvement costs, any non-cash charge or expense such as depreciation or amortization or any item of expense otherwise includable in Operating Expenses which is paid directly by any tenant except real estate taxes paid directly to any taxing authority by any tenant.
“ Operating Income ” shall mean, in each Fiscal Year or portion thereof during the term hereof, all revenue derived by Borrower or Operating Tenant (or by Manager for the Account of Borrower or Operating Tenant) arising from the Property




including, without limitation, room revenues, vending machines revenues, beverage revenues, food revenues, and packaging revenues, rental revenues (whether denominated as basic rent, additional rent, escalation payments, electrical payments or otherwise) and other fees and charges payable pursuant to Leases or otherwise in connection with the Property, and business interruption, rent or other similar insurance proceeds. Operating Income shall not include (a) Insurance Proceeds (other than proceeds of rent, business interruption or other similar insurance allocable to the applicable period) and Condemnation Proceeds (other than Condemnation Proceeds arising from a temporary taking or the use and occupancy of all or part of the applicable Property allocable to the applicable period), or interest accrued on such Condemnation Proceeds, (b) proceeds of any financing, (c) proceeds of any sale, exchange or transfer of the Property or any part thereof or interest therein, (d) capital contributions or loans to Borrower or an Affiliate of Borrower, (e) any item of income otherwise includable in Operating Income but paid directly by any tenant to a Person other than Borrower except for real estate taxes paid directly to any taxing authority by any tenant, (f) any other extraordinary, non-recurring revenues, (g) Rent paid by or on behalf of any lessee under an Operating Lease or Space Lease which is the subject of any proceeding or action relating to its bankruptcy, reorganization or other arrangement pursuant to the Bankruptcy Code or any similar federal or state law or which has been adjudicated a bankrupt or insolvent unless such Operating Lease or Space Lease, as applicable, has been affirmed by the trustee in such proceeding or action, (h) Rent paid by or on behalf of any lessee under a Lease the demised premises of which are not occupied either by such lessee or by a sublessee thereof for sixty (60) or more days unless the lessee has a long term unsecured debt rating of not less than “A” (or its equivalent) from each Rating Agency; (i) Rent paid by or on behalf of any lessee under a Lease in whole or partial consideration for the termination of any Lease, or (j) sales tax rebates from any Governmental Authority.
“ Operating Lease ” shall mean any Lease of the entire Property pursuant to which a Person other than Borrower assumes responsibility for the operation and management of the Property, as the same may be amended from time to time.
“ Operating Tenant ” shall mean the tenant under the Operating Lease.
“ Operation and Maintenance Expense Escrow Account ” shall mean the Escrow Account maintained pursuant to Section 5.09 hereof relating to the payment of Operating Expenses (exclusive of Basic Carrying Costs).
“ Operation and Maintenance Expense Sub-Account ” shall mean the Sub-Account of the Central Account established pursuant to Section 5.02 hereof into which sums allocated for the payment of Cash Expenses, Net Capital Expenditures and approved Extraordinary Expenses shall be deposited.
“ Payment Date ” shall mean, with respect to each month, the eleventh (11th) calendar day in such month, or if such day is not a Business Day, the next following Business Day.
“ PBGC ” shall mean the Pension Benefit Guaranty Corporation established under ERISA, or any successor thereto.
“ Permitted Encumbrances ” shall have the meaning set forth in Section 2.05(a) hereof.
“ Permitted Liens ” shall mean (a) the lien of any Equipment leases and Equipment financing permitted in accordance with the terms of this Security Instrument, (b) the liens created by the Loan Documents, (c) liens, if any, for Impositions not yet due or delinquent or being contested in accordance with the terms of this Security Instrument, (d) any and all governmental, public utility and private restrictions, covenants, reservations, easements, licenses or other similar agreements which may hereafter be granted by Borrower in the ordinary course of business and which may not reasonably be expected to have a Material Adverse Effect, (e) rights of existing and future tenants, licensees and concessionaries pursuant to Leases in effect as of the date hereof or entered into in accordance with the terms of the Loan Documents, and (f) the Operating Lease and any renewal or replacement thereof in accordance with the terms of this Security Agreement at the expiration thereof.
“ Permitted Transfer ” shall mean, (a) Permitted Liens; (b) all transfers of Equipment and other items of personal property as expressly permitted in the Loan Documents; (c) transfers of direct and indirect interests in Borrower (other than interests held by a General Partner) and/or in General Partner to one or more Affiliates of Borrower; (d) transfers, issuances, conversions, pledges and redemptions of capital stock and partnership interests convertible into capital stock in Ashford Hospitality Trust, Inc., a Maryland corporation or Ashford Hospitality Limited Partnership, a Delaware limited partnership (or their respective successors) in the ordinary course of business and not in connection with a tender offer, merger or sale of such Persons and (e) the merger or consolidation of Ashford Hospitality Trust, Inc., Ashford OP General Partner LLC, Ashford OP Limited Partner LLC or Ashford Hospitality Limited Partnership (or their respective successors) whereby such entity is the surviving entity in such merger or consolidation, provided that, subsequent to a Securitization, each Rating Agency shall have delivered written confirmation that any ratings issued by the Rating Agency in connection with a Securitization will not, as a result of the proposed merger or consolidation, be downgraded from the then current ratings thereof, qualified or withdrawn, provided in each of the foregoing events, (a) ultimate Control of Borrower remains with the same Persons which ultimately Controlled Borrower as of the Closing Date, (b) in the event that any Person which as of the Closing Date does not own 49% or more of the director or indirect interest in Borrower or Operating Tenant, if applicable, obtains a 49% or greater direct or indirect




interest in Borrower or Operating Partnership, Borrower shall deliver a substantive non-consolidation opinion to Lender in form and substance and from counsel reasonably acceptable to Lender and (c) no Transfer may be to a Prohibited Person.
“ Person ” shall mean any individual, corporation, limited liability company, partnership, joint venture, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.
“ Plan ” shall mean an employee benefit or other plan established or maintained by Borrower, Guarantor or any ERISA Affiliate during the five-year period ended prior to the date of this Security Instrument or to which Borrower, Guarantor or any ERISA Affiliate makes, is obligated to make or has, within the five year period ended prior to the date of this Security Instrument, been required to make contributions (whether or not covered by Title IV of ERISA or Section 302 of ERISA or Section 401(a) or 412 of the Code), other than a Multiemployer Plan.
“ Premises ” shall have the meaning set forth in granting clause (a) of this Security Instrument.
“ Principal Amount ” shall mean the Loan Amount as such amount may be reduced from time to time pursuant to the terms of this Security Instrument, the Note or the other Loan Documents.
“ Principal Payments ” shall mean all payments of principal made pursuant to the terms of the Note.
“ Prohibited Person ” shall mean any Person and/or any Affiliate thereof identified on the OFAC List or any other Person or foreign country or agency thereof with whom a U.S. Person may not conduct business or transactions by prohibition of Federal law or Executive Order of the President of the United States of America.
“ Property ” shall have the meaning set forth in the granting clauses of this Security Instrument.
“ Property Agreements ” shall mean all agreements, grants of easements and/or rights-of-way, reciprocal easement agreements, permits, declarations of covenants, conditions and restrictions, disposition and development agreements, planned unit development agreements, parking agreements, party wall agreements or other instruments affecting the Property, but not including any brokerage agreements, Management Agreements, Operating Leases, Franchise Agreements, service contracts, Space Leases or the Loan Documents.
“ Property Available Cash ” shall mean all amounts payable to Borrower and/or Operating Tenant pursuant to the Management Agreement.
“ Rating Agency ” shall mean each of Standard & Poor’s Ratings Services, a division of The McGraw-Hill Company, Inc. (“ Standard & Poor’s ”), Fitch, Inc., and Moody’s Investors Service, Inc. (“ Moody’s ”) and any successor to any of them; provided, however, that at any time after a Securitization, “Rating Agency” shall mean those of the foregoing rating agencies that from time to time rate the securities issued in connection with such Securitization.
“ Real Estate Taxes ” shall mean all real estate taxes, assessments (including, without limitation, all assessments for public improvements or benefits, whether or not commenced or completed prior to the date hereof and whether or not commenced or completed within the term of this Security Instrument), water, sewer or other rents and charges, and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Property (including all interest and penalties thereon), which at any time prior to, during or in respect of the term hereof may be assessed or imposed on or in respect of or be a lien upon the Property or any part thereof or any estate, right, title or interest therein.
“ Realty ” shall have the meaning set forth in Section 2.05(b) hereof.
“ Recurring Replacement Expenditures ” shall mean expenditures related to capital repairs, replacements and improvements performed at the Property from time to time.
“ Recurring Replacement Reserve Escrow Account ” shall mean the Escrow Account maintained pursuant to Section 5.08 hereof relating to the payment of Recurring Replacement Expenditures.
“ Recurring Replacement Reserve Monthly Installment ” shall mean the amount per month set forth on Exhibit B attached hereto and made a part hereof (the “ Initial Recurring Installments ”) until the end of 2007 and an amount per month in each subsequent year or portion thereof occurring prior to the Maturity Date equal to four percent (4%) (or such lesser amount as is required to be reserved for replacements pursuant to the Management Agreement (but in no event less than three (3%) percent of the total revenues of the Property) of the total revenues of the Property for the prior calendar year divided by twelve (12). Notwithstanding the foregoing, if Borrower has delivered evidence reasonably satisfactory to Lender on or before the Payment Date occurring in March of each year that Borrower has deposited with Manager on account of the prior year pursuant to the Management Agreement a sum equal to the Recurring Replacement Reserve Monthly Installment described in the first sentence of this definition multiplied by twelve (12) (the “ Minimum Replacement Expenditure ”) to be used for Recurring Replacement Expenditures or that Borrower and/or Manager on behalf of Borrower has incurred and paid a sum which when added to the




amounts on deposit with Manager are equal to or greater than the Minimum Replacement Expenditure during the prior calendar year, the Recurring Replacement Reserve Monthly Installment shall be zero
and, if the sum of the amounts on deposit with manager to be used for Recurring Replacement Expenditures pursuant to the Management Agreement together with the sums that Borrower and/or Manager on behalf of Borrower has incurred and paid for Recurring Replacement Expenditures are less than the Minimum Replacement Expenditure, the Recurring Replacement Reserve Monthly Installment shall be the lesser of the amount described in the first sentence of this definition and the amount by which the amount described in the first sentence of this definition exceeds one-twelfth of the difference between the Minimum Replacement Expenditure and the sum of the amounts actually on deposit with manager to be used for Recurring Replacement Expenditures pursuant to the Management Agreement together with the sums that Borrower and/or Manager on behalf of Borrower has incurred and paid for Recurring Replacement Expenditures but in no event more than the sums on deposit in the Central Account on such Payment Date less sums allocated pursuant to clause (i) — (iv) of Section 5.05(a) hereof (the “ Required RRE Shortfall ”).
“ Recurring Replacement Reserve Sub-Account ” shall mean the Sub-Account of the Central Account established pursuant to Section 5.02 hereof into which the Recurring Replacement Reserve Monthly Installment shall be deposited.
“ Regulation AB ” shall mean Regulation AB under the Securities Act and the Securities Exchange Act of 1934 (as amended).
“ Release ” shall have the meaning set forth in Section 15.02 hereof.
“ Release Price Percentage ” shall mean the percentage for each Cross-collateralized Property set forth on Exhibit C annexed hereto and made a part hereof.
“ Rents ” shall have the meaning set forth in granting clause (f) of this Security Instrument.
“ Rent Roll ” shall have the meaning set forth in Section 2.05 (o) hereof.
“ Required Debt Service Coverage ” shall mean a Debt Service Coverage of not less than 1.0:1.
“ Required Debt Service Payment ” shall mean, as of any Payment Date, the amount of interest and principal then due and payable pursuant to the Note, together with any other sums due thereunder, including, without limitation, any prepayments required to be made or for which notice has been given (and not revoked in writing in accordance with Section 15.01 hereof) under this Security Instrument, Default Rate Interest and premium, if any, paid in accordance therewith.
“ Required Engineering Work ” shall mean the immediate engineering and/or environmental remediation work set forth on Exhibit D attached hereto and made a part hereof.
“ Retention Amount ” shall have the meaning set forth in Section 3.04(b)(vii) hereof.
“ RevPAR ” shall mean the average revenues per available room per day.
“ RevPAR Yield Index ” shall mean the percentage amount determined by dividing the RevPAR of the Property by the RevPAR of the Property’s Competitive Set as determined by Smith Travel Research (“ STR ”) or if STR is no longer publishing, a successor reasonably acceptable to Lender.
“ Scheduled Defeasance Payments ” shall mean:
(a) with respect to a defeasance of the Loan in whole, payments on or prior to, but as close as possible to (i) each scheduled Payment Date, after the date of defeasance and through and including the Lockout Expiration Date, upon which interest payments or interest and Principal Payments are required under the Loan Documents and in amounts equal to the scheduled payments due on such dates under the Loan Documents and (ii) the Lockout Expiration Date, of the Principal Amount and any accrued and unpaid interest thereon; or
(b) with respect to any defeasance of the Loan in part, payments on or prior to, but as close as possible to, (i) each scheduled Payment Date after the date of defeasance through and including the Lockout Expiration Date, of a proportionate share (based on the percentage of outstanding principal prior to the defeasance represented by the amount of principal defeased) of the monthly installments of principal and interest due on such dates under the Loan Documents and (ii) the Lockout Expiration Date, of the unpaid portion of the portion of the Principal Amount so defeased and any accrued and unpaid interest thereon.
(c) with respect to any defeasance of the Loan in part which is made in connection with a Release pursuant to Section 15.02 hereof, payments on or prior to, but as close as possible to, (i) each scheduled Payment Date after the date of defeasance through and including the Lockout Expiration Date, of a proportionate share (based on the percentage of outstanding principal prior to the defeasance represented by the Release Price) of the monthly installments of principal and




interest due on such dates under the Loan Documents and (ii) the Lockout Expiration Date, of the Release Price and any accrued and unpaid interest thereon.
“ Securities Act ” shall mean the Securities Act of 1933, as the same shall be amended from time to time.
“ Securitization ” shall mean a public or private offering of securities by Lender or any of its Affiliates or their respective successors and assigns which are collateralized, in whole or in part, by this Security Instrument.
“ Security Agreement ” shall have the meaning set forth in Section 15.01 hereof.
“ Security Instrument ” shall mean this Security Instrument as originally executed or as it may hereafter from time to time be supplemented, amended, modified or extended by one or more indentures supplemental hereto.
“ Significant Obligor ” shall have the meaning set forth in Item 1101(k) of Regulation AB.
“ Single Purpose Entity ” shall mean a corporation, partnership, joint venture, limited liability company, trust or unincorporated association, which is formed or organized solely for the purpose of holding, directly, an ownership interest in the Property or, with respect to General Partner, holding an ownership interest in and managing a Person which holds an ownership interest in the Property, or, with respect to Operating Tenant, holding a interest in the Property, does not engage in any business unrelated to, with respect to Borrower, the Property and, with respect to General Partner, its interest in Borrower or, in the case of a General Partner of the Operating Tenant, its interest in the Operating Tenant, does not have any assets other than those related to, with respect to Borrower, its interest in the Property and, with respect to General Partner, its interest in Borrower, in the case of a General Partner of the Operating Tenant, its interest in the Operating Tenant, or any indebtedness other than as permitted by this Security Instrument or the other Loan Documents, has its own separate books and records and has its own accounts, in each case which are separate and apart from the books and records and accounts of any other Person, holds itself out as being a Person separate and apart from any other Person and which otherwise satisfies the criteria of the Rating Agency, as in effect on the Closing Date, for a special-purpose bankruptcy-remote entity.
“ Solvent ” shall mean, as to any Person, that (a) the sum of the assets of such Person, at a fair valuation, exceeds its liabilities, including contingent liabilities, (b) such Person has sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (c) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, “ debt ” means any liability on a claim, and “ claim ” means (a) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (b) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed in accordance with GAAP at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability.
“ Space Leases ” shall mean any Lease or sublease thereunder (including, without limitation, any Major Space Lease) creating a leasehold right of possession for the use and occupancy of a portion of the Property as a tenant together with any supplements, renewals, amendments, modifications or extensions thereof excluding room reservations and other functions held at the Property, and excluding the Operating Lease.
“ State ” shall mean any of the states which are members of the United States of America.
“ Stated Maturity ” when used with respect to the Note or any installment of interest and/or principal payment thereunder, shall mean the date specified in the Note as the fixed date on which a payment of all or any portion of principal and/or interest is due and payable.
“ Sub-Accounts ” shall have the meaning set forth in Section 5.02 hereof.
“ Substantial Casualty ” shall have the meaning set forth in Section 3.04 hereof.
“ Taking ” shall mean a condemnation or taking pursuant to the lawful exercise of the power of eminent domain.
“ TIC ” shall have the meaning set forth in Section 2.12.
“ TIC Agreement ” shall have the meaning set forth in Section 2.12.
“ Transfer ” shall mean the conveyance, assignment, sale, mortgaging, encumbrance, pledging, hypothecation, granting of a security interest in, granting of options with respect to, or other disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) all or any portion of any legal or beneficial interest (a) in all or any portion of the Property; (b) if Borrower is a corporation or, if Borrower is a partnership and any General Partner is a corporation, in the stock of Borrower or any General Partner; (c) in Borrower (or any trust of which Borrower is a trustee); or (d) if Borrower is a limited or general partnership, joint venture, limited liability company,




trust, nominee trust, tenancy in common or other unincorporated form of business association or form of ownership interest, in any Person having a legal or beneficial ownership in Borrower, excluding any legal or beneficial interest in any constituent limited partner, if Borrower is a limited partnership, or in any non-managing member, if Borrower is a limited liability company, unless such interest would, or together with all other direct or indirect interests in Borrower which were previously transferred, aggregate 49% or more of the partnership or membership, as applicable, interest in Borrower or would result in any Person who, as of the Closing Date, did not own, directly or indirectly, 49% or more of the partnership or membership, as applicable, interest in Borrower, owning, directly or indirectly, 49% or more of the partnership or membership, as applicable, interest in Borrower and excluding any legal or beneficial interest in any General Partner unless such interest would, or together with all other direct or indirect interest in the General Partner which were previously transferred, aggregate 49% or more of the partnership or membership, as applicable, interest in the General Partner (or result in a change in control of the management of the General Partner from the individuals exercising such control immediately prior to the conveyance or other disposition of such legal or beneficial interest) and shall also include, without limitation to the foregoing, the following: an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof or any interest therein for a price to be paid in installments; an agreement by Borrower leasing all or substantially all of the Property to one or more Persons pursuant to a single or related transactions, or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower’s right, title and interest in and to any Leases or any Rent; any instrument subjecting the Property to a condominium regime or transferring ownership to a cooperative corporation; and the dissolution or termination of Borrower or the merger or consolidation of Borrower with any other Person.
“ UCC ” shall mean the Uniform Commercial Code as in effect on the date hereof in the State in which the Realty is located; provided, however, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection or priority of the security interest in any item or portion of the collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State in which the Realty is located (“ Other UCC State ”), “ UCC ” means the Uniform Commercial Code as in effect in such Other UCC State for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or priority.
“ Undefeased Note ” shall have the meaning set forth in Section 15.01 hereof.
“ Uniform System of Accounts ” shall mean the Uniform System of Accounts for the Lodging Industry, 10th Revised Edition, Educational Institute of the American Hotel and Motel Association and Hotel Association of New York City (2006), as from time to time amended.
“ Unscheduled Payments ” shall mean (a) all Loss Proceeds that Borrower has elected or is required to apply to the repayment of the Debt pursuant to this Security Instrument, the Note or any other Loan Documents, (b) any funds representing a voluntary or involuntary principal prepayment other than scheduled Principal Payments and (c) any Net Proceeds.
“ Use Requirements ” shall mean any and all building codes, permits, certificates of occupancy or compliance, laws, regulations, or ordinances (including, without limitation, health, pollution, fire protection, medical and day-care facilities, waste product and sewage disposal regulations), restrictions of record, easements, reciprocal easements, declarations or other agreements affecting the use of the Property or any part thereof.
“ Welfare Plan ” shall mean an employee welfare benefit plan as defined in Section 3(1) of ERISA established or maintained by Borrower, Guarantor or any ERISA Affiliate or that covers any current or former employee of Borrower, Guarantor or any ERISA Affiliate.
“Work” shall have the meaning set forth in Section 3.04(a)(i) hereof.
ARTICLE II: REPRESENTATIONS, WARRANTIES
AND COVENANTS OF BORROWER
Section 2.01. Payment of Debt . Borrower will pay the Debt at the time and in the manner provided in the Note and the other Loan Documents, all in lawful money of the United States of America in immediately available funds.
Section 2.02. Representations, Warranties and Covenants of Borrower . Borrower represents and warrants to and covenants with Lender:
(a) Organization and Authority . Borrower (i) is a limited liability company, general partnership, limited partnership or corporation, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation, (ii) has all requisite power and authority and all necessary licenses and permits to own and operate the Property and to carry on its business as now conducted and as presently proposed to be conducted and (iii) is duly qualified, authorized to do business and in good standing in the jurisdiction where the Property is located and in each other jurisdiction where the conduct of its business or the nature of its activities makes such qualification necessary. If Borrower is a limited liability company,




limited partnership or general partnership, each general partner or managing member, as applicable, of Borrower which is a corporation is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.
(b) Power . Borrower and, if applicable, each General Partner has full power and authority to execute, deliver and perform, as applicable, the Loan Documents to which it is a party, to make the borrowings thereunder, to execute and deliver the Note and to grant to Lender a first, prior, perfected and continuing lien on and security interest in the Property, subject only to the Permitted Encumbrances.
(c) Authorization of Borrowing . The execution, delivery and performance of the Loan Documents to which Borrower is a party, the making of the borrowings thereunder, the execution and delivery of the Note, the grant of the liens on the Property pursuant to the Loan Documents to which Borrower is a party and the consummation of the Loan are within the powers of Borrower and have been duly authorized by Borrower and, if applicable, the General Partners, by all requisite action (and Borrower hereby represents that no approval or action which has not already been obtained of any member, limited partner or shareholder, as applicable, of Borrower is
required to authorize any of the Loan Documents to which Borrower is a party) and will constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with their terms, except as enforcement may be stayed or limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (whether considered in proceedings at law or in equity) and will not (i) violate any provision of its partnership agreement or partnership certificate or certificate of incorporation or by-laws, or operating agreement, certificate of formation or articles of organization, as applicable, or, to its knowledge, any law, judgment, order, rule or regulation of any court, arbitration panel or other Governmental Authority, domestic or foreign, or other Person affecting or binding upon Borrower or the Property, or (ii) violate any provision of any indenture, agreement, mortgage, deed of trust, contract or other instrument to which Borrower or, if applicable, any General Partner is a party or by which any of their respective property, assets or revenues are bound, or be in conflict with, result in an acceleration of any obligation or a breach of or constitute (with notice or lapse of time or both) a default or require any payment or prepayment under, any such indenture, agreement, mortgage, deed of trust, contract or other instrument, or (iii) result in the creation or imposition of any lien, except those in favor of Lender as provided in the Loan Documents to which it is a party.
(d) Consent . Neither Borrower nor, if applicable, any General Partner, is required to obtain any consent, approval or authorization from, or to file any declaration or statement with, any Governmental Authority or other agency in connection with or as a condition to the execution, delivery or performance of this Security Instrument, the Note or the other Loan Documents which has not been so obtained or filed.
(e) Interest Rate . The rate of interest paid under the Note and the method and manner of the calculation thereof do not violate any usury or other law or applicable Legal Requirement.
(f) Other Agreements . Borrower is not a party to nor is otherwise bound by any agreements or instruments which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect. Neither Borrower nor, if applicable, any General Partner, is in violation of its organizational documents or other restriction or any agreement or instrument by which it is bound, or any judgment, decree, writ, injunction, order or award of any arbitrator, court or Governmental Authority, or any Legal Requirement, in each case, applicable to Borrower or the Property, except for such violations that would not have a Material Adverse Effect.
(g) Maintenance of Existence . (i) Borrower is familiar with the criteria of the Rating Agency required to qualify as a special-purpose bankruptcy-remote entity and Borrower, Operating Tenant and, if applicable, each General Partner at all times since their formation have been duly formed and existing at all times and at all times have preserved and shall preserve and has kept and shall keep in full force and effect their existence as a Single Purpose Entity.
(ii) Borrower, Operating Tenant and, if applicable, each General Partner, at all times since their organization have complied, and will continue to comply in all material respects, with the provisions of its certificate of limited partnership and agreement of limited partnership or certificate of incorporation and by-laws or articles of organization, certificate of formation and operating agreement, as applicable, and the laws of its jurisdiction of organization relating to partnerships, corporations or limited liability companies, as applicable.
(iii) Borrower, Operating Tenant and, if applicable, each General Partner have done or caused to be done and will do all things reasonably necessary to observe organizational formalities and preserve their existence and Borrower, Operating Tenant and, if applicable, each General Partner will not hereafter amend, modify or otherwise change the certificate of limited partnership and agreement of limited partnership or certificate of incorporation and by-laws or articles of organization, certificate of formation and operating agreement, as applicable, or other organizational documents of Borrower, Operating Tenant and, if applicable, each General Partner, except for non-material amendments which do not modify the Single Purpose Entity provisions.




(iv) Borrower, Operating Tenant and, if applicable, each General Partner, have at all times accurately maintained, and will continue to accurately maintain in all material respects, their respective
financial statements, accounting records and other partnership, company or corporate documents separate from those of any other Person and Borrower, Operating Tenant and/or, if applicable, General Partner, have filed and will file its own tax returns or, if Borrower, Operating Tenant and/or, if applicable, General Partner is part of a consolidated group for purposes of filing tax returns, Borrower, Operating Tenant and, General Partner, as applicable, have been shown and will be shown as separate members of such group. Borrower, Operating Tenant and, if applicable, each General Partner have not at any time since their formation commingled, and will not commingle, their respective assets with those of any other Person and each has maintained and will maintain their assets in such a manner such that it will not be costly or difficult to segregate, ascertain or identify their individual assets from those of any other Person. Borrower, Operating Tenant and, if applicable, each General Partner has not permitted and will not permit any Affiliate independent access to their bank accounts. Borrower, Operating Tenant and, if applicable, each General Partner have at all times since their formation accurately maintained and utilized, and will continue to accurately maintain and utilize, their own separate bank accounts, payroll and separate books of account, stationery, invoices and checks.
(v) Borrower, Operating Tenant and, if applicable, each General Partner, have at all times paid, and will continue to pay, their own liabilities from their own separate assets and each has allocated and charged and shall each allocate and charge fairly and reasonably any overhead which Borrower, Operating Tenant and, if applicable, any General Partner, shares with any other Person, including, without limitation, for office space and services performed by any employee of another Person.
(vi) Borrower, Operating Tenant and, if applicable, each General Partner, have at all times identified themselves, and will continue to identify themselves, in all dealings with the public, under their own names and as separate and distinct entities and have corrected and shall correct any known misunderstanding regarding their status as separate and distinct entities. Borrower, Operating Tenant and, if applicable, each General Partner, have not at any time identified themselves, and will not identify themselves, as being a division of any other Person.
(vii) Borrower, Operating Tenant and, if applicable, each General Partner, have been at all times, and will continue to be, adequately capitalized in light of the nature of their respective businesses.
(viii) Borrower, Operating Tenant and, if applicable, each General Partner, (A) have not owned, do not own and will not own any assets or property other than, with respect to Borrower, the Property and any incidental personal property necessary for the ownership, management or operation of the Property or, with respect to Operating Tenant, its leasehold interest in the Property, and, with respect to General Partner, if applicable, its interest in Borrower or, with respect to a General Partner of Operating Tenant, its interest in Operating Tenant, (B) have not engaged and will not engage in any business other than, with respect to Borrower, the ownership, management and operation of the Property, or with respect to Operating Tenant, its interest in the Property, or, with respect to General Partner, if applicable, its interest in Borrower or, with respect to a General Partner of Operating Tenant, its interest in Operating Tenant, (C) have not incurred any outstanding debt as of the date hereof, and will not incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than, with respect to Borrower, (W) the Loan, (X) unsecured trade and operational debt which (1) is not evidenced by a note, (2) is incurred in the ordinary course of the operation of the Property, (3) does not, together with any equipment financing incurred pursuant to clause (Y) hereof exceed in the aggregate two percent (2%) of the Allocated Loan Amount for the Property and (4) is, unless being contested in accordance with the terms of this Security Instrument, paid prior to the earlier to occur of the sixtieth (60th) day after the date incurred and the date when due, (Y) equipment financing relating to equipment used in connection with the operation of the Property which (1) is incurred in the ordinary course of the operation of the Property and (2) does not, together with any unsecured trade and operational debt incurred pursuant to clause (X) hereof, exceed in the aggregate two percent (2%) of the Allocated Loan Amount and (Z) contingent obligations to repay customer, membership and security deposits held in the ordinary course of Borrower’s business, (D) have not pledged (other than pledges which have been released which were given in connection with obligations which have been paid in full) and will not pledge their assets for the benefit of any other
Person, and (E) have not made and will not make any loans or advances to any Person (including any Affiliate).
(ix) None of Borrower, Operating Tenant nor, if applicable, any General Partner will hereafter change its name or principal place of business.
(x) None of Borrower, Operating Tenant nor, if applicable, any General Partner has, and neither of such Persons will have, any subsidiaries (other than, with respect to General Partner, Borrower or, with respect to General Partner of Operating Tenant, Operating Tenant).
(xi) Borrower has preserved and maintained and will preserve and maintain its existence as a Delaware limited partnership or a Delaware limited liability company, as applicable, and all material rights, privileges, tradenames and franchises and Operating Tenant has preserved and maintained and will preserve and maintain its existence as a Delaware limited partnership and all material rights, privileges, tradenames and franchises. General Partner, if applicable, has preserved and




maintained and will preserve and maintain its existence as a Delaware limited liability company and all material rights, privileges, tradenames and franchises.
(xii) None of Borrower, Operating Tenant nor, if applicable, any General Partner, has merged or consolidated with, and none will merge or consolidate with, and none has sold all or substantially all of its respective assets to any Person, and none will sell all or substantially all of its respective assets to any Person, and none has liquidated, wound up or dissolved itself (or suffered any liquidation, winding up or dissolution) and none will liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution). None of Borrower, Operating Tenant nor, if applicable, any General Partner has acquired nor will acquire any business or assets from, or capital stock or other ownership interest of, or be a party to any acquisition of, any Person (other than, with respect to General Partner, if applicable, its interest in Borrower and Operating Tenant).
(xiii) Borrower, Operating Tenant and, if applicable, each General Partner, have not at any time since their formation assumed, guaranteed or held themselves out to be responsible for, and will not assume, guarantee or hold themselves out to be responsible for the liabilities or the decisions or actions respecting the daily business affairs of their partners, shareholders or members or any predecessor company, corporation or partnership, each as applicable, any Affiliates, or any other Persons other than the Loan and other loans which have been paid in full, and liens granted thereunder fully discharged, prior to the date hereof. None of Borrower, Operating Tenant nor, if applicable, each General Partner, have at any time since its formation acquired, and will not acquire, obligations or securities of its partners or shareholders, members or any predecessor company, corporation or partnership, each as applicable, or any Affiliates (other than, with respect to General Partner, its interest in Borrower or, with respect to General Partner of Operating Tenant, its interest in Operating Tenant). Borrower, Operating Tenant and, if applicable, each General Partner, have not at any time since their formation made, and will not make, loans to its partners, members or shareholders or any predecessor company, corporation or partnership, each as applicable, or any Affiliates of any of such Persons. Borrower, Operating Tenant and, if applicable, each General Partner, have no known material contingent liabilities nor do they have any material financial liabilities under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Person is a party or by which it is otherwise bound other than under the Loan Documents.
(xiv) Neither Borrower nor Operating Tenant nor, if applicable, General Partner, has at any time since its formation entered into and was not a party to, and, will not enter into or be a party to, any transaction with its Affiliates, members, partners or shareholders, as applicable, or any Affiliates thereof except in the ordinary course of business of such Person on terms which are no less favorable to such Person than would be obtained in a comparable arm’s length transaction with an unrelated third party.
(xv) If Borrower or Operating Tenant is a limited partnership, the General Partner shall be a corporation or limited liability company whose sole asset is its interest in Borrower or Operating Tenant, as
applicable, and the General Partner will at all times comply, and will cause Borrower or Operating Tenant, as applicable, to comply, with each of the representations, warranties, and covenants contained in this Section 2.02(g) as if such representation, warranty or covenant was made directly by such General Partner.
(xvi) Borrower and Operating Tenant shall at all times cause there to be at least two duly appointed members of the board of directors or board of managers or other governing board or body, as applicable (each, an “ Independent Director ”), of, if Borrower or Operating Tenant is a corporation, Borrower or Operating Tenant, as applicable, if Borrower or Operating Tenant is a limited partnership, of the General Partner, and if Borrower or Operating Tenant is a limited liability company, of the General Partner or of Borrower or Operating Tenant, as applicable, reasonably satisfactory to Lender who shall not have been at the time of such individual’s appointment, and may not be or have been at any time (A) a shareholder, officer, director, attorney, counsel, partner, member or employee of Borrower, Operating Tenant or any of the foregoing Persons or Affiliates thereof, (B) a customer or creditor of, or supplier or service provider to, Borrower or any of its shareholders, partners, members or their Affiliates, (C) a member of the immediate family of any Person referred to in (A) or (B) above or (D) a Person Controlling, Controlled by or under common Control with any Person referred to in (A) through (C) above. A natural person who otherwise satisfies the foregoing definition except for being the Independent Director of a Single Purpose Entity Affiliated with Borrower, Operating Tenant or General Partner shall not be disqualified from serving as an Independent Director if such individual is at the time of initial appointment, or at any time while serving as the Independent Director, an Independent Director of a Single Purpose Entity Affiliated with Borrower, Operating Tenant or General Partner if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors.
(xvii) Borrower, Operating Tenant and, if applicable, each General Partner, shall not cause or permit the board of directors or board of managers or other governing board or body, as applicable, of Borrower, Operating Tenant or, if applicable, each General Partner, to take any action which, under the terms of any certificate of incorporation, by-laws, limited liability company agreement, operating agreement, certificate of formation or articles of organization requires a vote of the board of directors or board of managers or other governing board or body of Borrower, Operating Tenant, or, if applicable, the General




Partner and also requires the vote of the Independent Directors therewith, unless at the time of such action there shall be at least two members who are Independent Directors.
(xviii) Borrower, Operating Tenant and, if applicable, each General Partner has paid and shall pay the salaries of their own employees and has maintained and shall maintain a sufficient number of employees in light of their contemplated business operations.
(xvix) Borrower and Operating Tenant shall, and shall cause its Affiliates to, and Borrower and Operating Tenant have and have caused their Affiliates to, conduct its business so that the assumptions made with respect to Borrower, Operating Tenant and, if applicable, each General Partner, in that certain opinion letter relating to substantive non-consolidation dated the date hereof (the “ Insolvency Opinion ”) delivered in connection with the Loan has been and shall be true and correct in all respects.
Notwithstanding anything to the contrary contained in this Section 2.02(g), provided Borrower or Operating Tenant, as applicable, is a Delaware single member limited liability company which satisfies the single purpose bankruptcy remote entity requirements of each Rating Agency for a single member limited liability company, the foregoing provisions of this Section 2.02(g) shall not apply to the General Partner.
(h)  No Defaults . No Event of Default or, to Borrower’s knowledge, Default has occurred and is continuing or would occur as a result of the consummation of the transactions contemplated by the Loan Documents. Borrower is not in default in the payment or performance of any of its Contractual Obligations in any material respect.
(i)  Consents and Approvals . Borrower and, if applicable, each General Partner, have obtained or made all necessary (i) consents, approvals and authorizations, and registrations and filings of or with all
Governmental Authorities and (ii) consents, approvals, waivers and notifications of partners, stockholders, members, creditors, lessors and other nongovernmental Persons, in each case, which are required to be obtained or made by Borrower or, if applicable, the General Partner, in connection with the execution and delivery of, and the performance by Borrower of its obligations under, the Loan Documents.
(j)  Investment Company Act Status, etc . Borrower is not (i) an “investment company,” or a company “controlled” by an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended, (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.
(k)  Compliance with Law . To Borrower’s knowledge, Borrower is in compliance with all Legal Requirements to which it or the Property is subject, including, without limitation, all Environmental Statutes (except as previously disclosed in the Environmental Report), the Americans with Disabilities Act (except as previously disclosed in the engineering report relating to the Property delivered to Lender in connection with the origination of the Loan), the Occupational Safety and Health Act of 1970 and ERISA. No portion of the Property has been or will be purchased, improved, fixtured, equipped or furnished with proceeds of any illegal activity and, to the best of Borrower’s knowledge, no illegal activities are being conducted at or from the Property.
(l)  Financial Information . All financial data that has been delivered by Borrower to Lender (i) is true, complete and correct in all material respects, (ii) accurately represents the financial condition and results of operations in all material respects of the Persons covered thereby as of the date on which the same shall have been furnished, and (iii) in the case of audited financial statements, has been prepared in accordance with GAAP and the Uniform System of Accounts (or such other accounting basis as is reasonably acceptable to Lender) throughout the periods covered thereby. As of the date hereof, neither Borrower nor, if applicable, any General Partner, has any material contingent liability, material liability for taxes or other unusual or forward commitment not reflected in such financial statements delivered to Lender. Since the date of the last financial statements delivered by Borrower to Lender except as otherwise disclosed in such financial statements or notes thereto, there has been no change in the assets, liabilities or financial position of Borrower nor, if applicable, any General Partner, or in the results of operations of Borrower which would have a Material Adverse Effect. Neither Borrower nor, if applicable, any General Partner, has incurred any obligation or liability, contingent or otherwise not reflected in such financial statements which would have a Material Adverse Effect.
(m)  Transaction Brokerage Fees . Borrower has not dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Security Instrument. All brokerage fees, commissions and other expenses payable in connection with the transactions contemplated by the Loan Documents have been paid in full by Borrower contemporaneously with the execution of the Loan Documents and the funding of the Loan. Borrower hereby agrees to indemnify and hold Lender harmless for, from and against any and all claims, liabilities, costs and expenses of any kind in any way relating to or arising from (i) a claim by any Person that such Person acted on behalf of Borrower in




connection with the transactions contemplated herein or (ii) any breach of the foregoing representation. The provisions of this subsection (m) shall survive the repayment of the Debt.
(n)  Federal Reserve Regulations . No part of the proceeds of the Loan will be used for the purpose of “purchasing” or “carrying” any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulations T, U or X or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of the Loan Documents.
(o)  Pending Litigation . There are no actions, suits or proceedings pending or, to the best knowledge of Borrower, threatened against or affecting Borrower or the Property in any court or before any Governmental Authority which if adversely determined either individually or collectively has or is reasonably likely to have a Material Adverse Effect.
(p)  Solvency; No Bankruptcy . Each of Borrower and, if applicable, the General Partner, (i) is and has at all times been Solvent and will remain Solvent immediately upon the consummation of the transactions contemplated by the Loan Documents and (ii) is free from bankruptcy, reorganization or arrangement proceedings or a general assignment for the benefit of creditors and is not contemplating the filing of a petition under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of such Person’s assets or property and Borrower has no knowledge of any Person contemplating the filing of any such petition against it or, if applicable, the General Partner. None of the transactions contemplated hereby will be or have been made with an intent to hinder, delay or defraud any present or future creditors of Borrower and Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Borrower’s assets do not, and immediately upon consummation of the transaction contemplated in the Loan Documents will not, constitute unreasonably small capital to carry out its business as presently conducted or as proposed to be conducted. Borrower does not intend to, nor believes that it will, incur debts and liabilities beyond its ability to pay such debts as they may mature.
(q)  Use of Proceeds . The proceeds of the Loan shall be applied by Borrower to, inter alia , (i) purchase the Property and, if applicable, satisfy certain mortgage loans presently encumbering all or a part of the Property and (ii) pay certain transaction costs incurred by Borrower in connection with the Loan. No portion of the proceeds of the Loan will be used for family, personal, agricultural or household use.
(r)  Tax Filings . Borrower and, if applicable, each General Partner, have filed all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by Borrower and, if applicable, the General Partners. Borrower and, if applicable, the General Partners, believe that their respective tax returns properly reflect the income and taxes of Borrower and said General Partner, if any, for the periods covered thereby, subject only to reasonable adjustments required by the Internal Revenue Service or other applicable tax authority upon audit.
(s)  Not Foreign Person . Borrower is not a “foreign person” within the meaning of §1445(f)(3) of the Code.
(t)  ERISA . (i) Neither Borrower nor Guarantor is, or is acting on behalf of: (a) an “employee benefit plan” within the meaning of Section 3(3) of ERISA, that is subject to Part 4 of Title I of ERISA; (b) a “plan” within the meaning of section 4975(e)(1) of the Code that is subject to section 4975 of the Code or (c) any other entity that is deemed under applicable law to hold the assets of a plan described in (a) or (b) and this representation shall be deemed to be continuing in nature for all periods that this Security Instrument is in effect. Each Plan is in compliance with, and has been administered in all material respects in compliance with, its terms and the applicable provisions of ERISA, the Code and any other applicable Legal Requirement, except to the extent the foregoing could not have a Material Adverse Effect, and no event or condition has occurred and is continuing as to which Borrower would be under an obligation to furnish a report to Lender under clause (ii)(A) of this Section. With respect to each Plan maintained or contributed to by Borrower, Guarantor or any ERISA Affiliate thereof (a) there is no actual or contingent material liability of Borrower, Guarantor or any ERISA Affiliate under Title IV of ERISA or Section 412 of the Code to any person or entity, including the Pension Benefit Guaranty Corporation, IRS, any such Plan or participants (or their beneficiaries) in any such Plan (other than the obligation to pay routine benefit claims when due under the terms of such Plan), (b) the assets of Borrower or Guarantor have not been subject to a lien under ERISA or the Code and (c) there is no basis for such material liability or the assertion of any such lien with respect to the assets of Borrower or Guarantor as the result of or after the consummation of the transactions contemplated by this Security Instrument. Except to the extent the following could not have a Material Adverse Effect, no Welfare Plan provides or will provide benefits, including, without limitation, death or medical benefits (whether or not insured) with respect to any current or former employee of Borrower or Guarantor beyond his or her retirement or other termination of service other than (A) coverage mandated by applicable law, (B) death or disability benefits that have been fully provided for by fully paid up insurance or (C) severance benefits.
(ii) Borrower will furnish to Lender as soon as possible, and in any event within ten (10) days after Borrower knows or has reason to believe that any of the events or conditions specified below with respect to any Plan, Welfare Plan or Multiemployer Plan has occurred or exists, an Officer’s




Certificate setting forth details respecting such event or condition and the action, if any, that Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC (or any other relevant Governmental Authority)) by Borrower or an ERISA Affiliate with respect to such event or condition, if such report or notice is required to be filed with the PBGC or any other relevant Governmental Authority:
(A) any reportable event, as defined in Section 4043 of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code and of Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), and any request for a waiver under Section 412(d) of the Code for any Plan;
(B) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by Borrower or an ERISA Affiliate to terminate any Plan;
(C) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan;
(D) the complete or partial withdrawal from a Multiemployer Plan by Borrower or any ERISA Affiliate that results in material liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA;
(E) the institution of a proceeding by a fiduciary of any Multiemployer Plan against Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within thirty (30) days;
(F) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if Borrower or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections;
(G) the imposition of a lien or a security interest in connection with a Plan; or
(H) Borrower or Guarantor permits any Welfare Plan to provide benefits, including without limitation, medical benefits (whether or not insured), with respect to any current or former employee of Borrower or Guarantor beyond his or her retirement or other termination of service other than (1) coverage mandated by applicable law, (2) death or disability benefits that have been fully provided for by paid up insurance or otherwise or (3) severance benefits.
(iii) Borrower shall not knowingly engage in or permit any transaction in connection with which Borrower or Guarantor could be subject to either a material civil penalty or tax assessed pursuant to Section 502(i) or 502(l) of ERISA or Section 4975 of the Code, to the extent it could have a Material Adverse Effect, permit any Welfare Plan to provide benefits, including without limitation, medical benefits (whether or not insured), with respect to any current or former employee of Borrower or Guarantor beyond
his or her retirement or other termination of service other than (A) coverage mandated by applicable law, (B) death or disability benefits that have been fully provided for by paid up insurance or otherwise or (C) severance benefits, permit the assets of Borrower or Guarantor to become “plan assets”, as defined under ERISA Section 3(42) and regulations promulgated thereunder or, to the extent it could have a Material Adverse Effect, adopt, amend (except as may be required by applicable law) or increase the amount of any benefit or amount payable under, or permit any ERISA Affiliate to adopt, amend (except as may be required by applicable law) or increase the amount of any benefit or amount payable under, any employee benefit plan (including, without limitation, any employee welfare benefit plan) or other plan, policy or arrangement, except for normal increases in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits expense to Borrower, Guarantor or any ERISA Affiliate.
(u)  Labor Matters . No organized work stoppage or labor strike is pending or threatened by employees or other laborers at the Property and neither Borrower nor Manager (i) is involved in or threatened with any labor dispute, grievance or litigation relating to labor matters involving any employees and other laborers at the Property, including, without limitation, violation of any federal, state or local labor, safety or employment laws (domestic or foreign) and/or charges of unfair labor practices or discrimination complaints; (ii) has engaged in any unfair labor practices within the meaning of the National Labor Relations Act or the Railway Labor Act; or (iii) except to the extent previously disclosed to Lender in writing, is a party to, or bound by, any collective bargaining agreement or union contract with respect to employees and other laborers at the Property and no such agreement or contract is currently being negotiated by Borrower, Manager or any of their Affiliates.




(v)  Borrower’s Legal Status . Borrower’s exact legal name that is indicated on the signature page hereto, organizational identification number and place of business or, if more than one, its chief executive office, as well as Borrower’s mailing address, if different, which were identified by Borrower to Lender and contained in this Security Instrument, are true, accurate and complete. Borrower (i) will not change its name, its place of business or, if more than one place of business, its chief executive office, or its mailing address or organizational identification number if it has one without giving Lender at least thirty (30) days prior written notice of such change, (ii) if Borrower does not have an organizational identification number and later obtains one, Borrower shall promptly notify Lender of such organizational identification number and (iii) will not change its type of organization, jurisdiction of organization or other legal structure.
(w)  Compliance with Anti-Terrorism, Embargo and Anti-Money Laundering Laws . (i) None of Borrower, General Partner, any Guarantor, or any Person who owns any equity interest in or Controls Borrower, General Partner or any Guarantor currently is identified on the OFAC List or otherwise qualifies as a Prohibited Person, and Borrower has implemented procedures, approved by Borrower and, if applicable, General Partner, to ensure that no Person who now or hereafter owns an equity interest in Borrower or General Partner is a Prohibited Person or Controlled by a Prohibited Person, (ii) no proceeds of the Loan will be used to fund any operations in, finance any investments or activities in or make any payments to, Prohibited Persons, and (iii) none of Borrower, General Partner, or any Guarantor is in violation of any Legal Requirements relating to anti-money laundering or anti-terrorism, including, without limitation, Legal Requirements related to transacting business with Prohibited Persons or the requirements of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, U.S. Public Law 107-56, and the related regulations issued thereunder, including temporary regulations, all as amended from time to time. Notwithstanding the foregoing, with respect to the holders of shares in publicly traded corporations which hold an equity interest in Borrower, General Partner or Guarantor and which holders of shares in publicly traded corporations do not Control Borrower, General Partner or Guarantor, the representations contained in clauses (i) and (iii) of the preceding sentence are made to the knowledge of Borrower. No tenant at the Property currently is identified on the OFAC List or otherwise qualifies as a Prohibited Person, and, to the best of Borrower’s knowledge, no tenant at the Property is owned or Controlled by a Prohibited Person. Borrower has determined that Manager has implemented procedures, approved by Borrower, to ensure that no tenant at the Property is a Prohibited Person or owned or Controlled by a Prohibited Person.
Section 2.03. Further Acts, etc . Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages or deeds of
trust, as applicable, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument and, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments to evidence more effectively the lien hereof upon the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of protecting, perfecting, preserving and realizing upon the interests granted pursuant to this Security Instrument and to effect the intent hereof, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that Lender shall lawfully do or cause to be done by virtue hereof; provided, however, that Lender shall not exercise such power of attorney unless and until Borrower fails to take the required action within the five (5) Business Day time period stated above unless the failure to so exercise, could, in Lender’s reasonable judgment, result in a Material Adverse Effect. Upon (a) receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any other Loan Document which is not of public record, (b) receipt of an indemnity of Lender related to losses resulting solely from the issuance of a replacement note or other applicable Loan Document and (c) in the case of any such mutilation, upon surrender and cancellation of such Note or other applicable Loan Document, Borrower will issue, in lieu thereof, a replacement Note or other applicable Loan Document, dated the date of such lost, stolen, destroyed or mutilated Note or other Loan Document in the same principal amount thereof and otherwise of like tenor.
Section 2.04. Recording of Security Instrument, etc . Borrower forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument, and any security instrument creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully protect the lien or security interest hereof upon, and the interest of Lender in, the Property. Borrower will pay all filing, registration or recording fees, and all expenses incident to the preparation, execution and acknowledgment of this Security Instrument, any mortgage or deed of trust, as applicable, supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and all federal, state, county and municipal, taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any




mortgage or deed of trust, as applicable, supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, except where prohibited by law to do so, in which event Lender may declare the Debt to be immediately due and payable. Borrower shall hold harmless and indemnify Lender and its successors and assigns, against any liability incurred as a result of the imposition of any tax on the making and recording of this Security Instrument.
Section 2.05. Representations, Warranties and Covenants Relating to the Property . Borrower represents and warrants to and covenants with Lender with respect to the Property as follows:
(a)  Lien Priority . This Security Instrument is a valid and enforceable first lien on the Property, free and clear of all encumbrances and liens having priority over the lien of this Security Instrument, except for the items set forth as exceptions to or subordinate matters in the title insurance policy insuring the lien of this Security Instrument, none of which, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by this Security Instrument, materially affect the value or marketability of the Property, impair the use or operation of the Property for the use currently being made thereof or impair Borrower’s ability to pay its obligations in a timely manner (such items being the “ Permitted Encumbrances ”).
(b)  Title . Borrower has, subject only to the Permitted Encumbrances, good, insurable and marketable fee simple title to the Premises, Improvements and Fixtures (collectively, the “ Realty ”) and to all easements and rights benefiting the Realty and has the right, power and authority to mortgage, encumber, give, grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign, and hypothecate the Property. Borrower will preserve its interest in and title to the Property, subject to the Permitted Encumbrances and will forever warrant and defend the same to
Lender against any and all other claims made by, through or under Borrower and will forever warrant and defend the validity and priority of the lien and security interest created herein against the claims of all Persons whomsoever claiming by, through or under Borrower. The foregoing warranty of title shall survive the foreclosure of this Security Instrument and shall inure to the benefit of and be enforceable by Lender in the event Lender acquires title to the Property pursuant to any foreclosure. In addition, there are no outstanding options or rights of first refusal to purchase the Property or Borrower’s ownership thereof.
(c)  Taxes and Impositions . All taxes and other Impositions and governmental assessments due and owing in respect of, and affecting, the Property have been paid. Borrower has paid all Impositions which constitute special governmental assessments in full, except for those assessments which are permitted by applicable Legal Requirements to be paid in installments, in which case all installments which are due and payable have been paid in full. There are no pending, or to Borrower’s best knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments.
(d)  Casualty; Flood Zone . The Realty is in good repair and free and clear of any damage, destruction or casualty (whether or not covered by insurance) that would materially affect the value of the Realty or the use for which the Realty was intended, there exists no structural or other material defects or damages in or to the Property and Borrower has not received any written notice from any insurance company or bonding company of any material defect or inadequacies in the Property, or any part thereof, which would materially and adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond. Except as disclosed on the survey of the Premises delivered to Lender in connection with the origination of the Loan, no portion of the Premises is located in an “area of special flood hazard,” as that term is defined in the regulations of the Federal Insurance Administration, Department of Housing and Urban Development, under the National Flood Insurance Act of 1968, as amended (24 CFR § 1909.1) or Borrower has obtained the flood insurance required by Section 3.01(a)(vi) hereof. The Premises either does not lie in a 100 year flood plain that has been identified by the Secretary of Housing and Urban Development or any other Governmental Authority or, if it does, Borrower has obtained the flood insurance required by Section 3.01(a)(vi) hereof.
(e)  Completion; Encroachment . All Improvements necessary for the efficient use and operation of the Premises, including, without limitation, all Improvements which were included for purposes of determining the appraised value of the Property in the Appraisal, have been completed and, except as disclosed on the survey of the Premises delivered to Lender in connection with the origination of the Loan, none of said Improvements lie outside the boundaries and building restriction lines of the Premises. Except as disclosed on the survey of the Premises delivered to Lender in connection with the origination of the Loan and as set forth in the title insurance policy insuring the lien of this Security Instrument, no improvements on adjoining properties encroach upon the Premises.
(f)  Separate Lot . The Premises are taxed separately without regard to any other real estate and constitute a legally subdivided lot under all applicable Legal Requirements (or, if not subdivided, no subdivision or platting of the Premises is required under applicable Legal Requirements), and for all purposes may be mortgaged, encumbered, conveyed or otherwise dealt with as an independent parcel. The Property does not benefit from any tax abatement or exemption.
(g)  Use . Except as previously disclosed in the zoning report relating to the Premises delivered to Lender in connection with the origination of the Loan, the existence of all Improvements, the present use and operation thereof and the access of the




Premises and the Improvements to all of the utilities and other items referred to in paragraph (k) below are in compliance in all material respects with all Leases affecting the Property. Borrower has not received any notice from any Governmental Authority alleging any uncured violation relating to the Property of any applicable Legal Requirements.
(h)  Licenses and Permits . Borrower currently holds and will continue to hold all certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals of any Governmental Authority or any other Person which are material for the lawful occupancy and operation of the Realty or which are material to
the ownership or operation of the Property or the conduct of Borrower’s business. All such certificates of occupancy, licenses, registrations, permits, consents, franchises and approvals are current and in full force and effect.
(i)  Environmental Matters . Borrower has received and reviewed the Environmental Report and has no reason to believe that the Environmental Report contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein or herein, in light of the circumstances under which such statements were made, not misleading.
(j)  Property Proceedings . There are no actions, suits or proceedings pending or, to Borrower’s best knowledge, threatened in any court or before any Governmental Authority or arbitration board or tribunal (i) relating to (A) the zoning of the Premises or any part thereof, (B) any certificates of occupancy, licenses, registrations, permits, consents or approvals issued with respect to the Property or any part thereof, (C) the condemnation of the Property or any part thereof, or (D) the condemnation or relocation of any roadways abutting the Premises required for access or the denial or limitation of access to the Premises or any part thereof from any point of access to the Premises, (ii) asserting that (A) any such zoning, certificates of occupancy, licenses, registrations, permits, consents and/or approvals do not permit the operation of any material portion of the Realty as presently being conducted, (B) any material improvements located on the Property or any part thereof cannot be located thereon or operated with their intended use or (C) the operation of the Property or any part thereof is in violation in any material respect of any Environmental Statutes, Development Laws or other Legal Requirements or Space Leases or Property Agreements or (iii) which might (A) affect the validity or priority of any Loan Document or (B) have a Material Adverse Effect. Borrower is not aware of any facts or circumstances which may give rise to any actions, suits or proceedings described in the preceding sentence.
(k)  Utilities . The Premises has all necessary legal access to water, gas and electrical supply, storm and sanitary sewerage facilities, other required public utilities (with respect to each of the aforementioned items, by means of either a direct connection to the source of such utilities or through connections available on publicly dedicated roadways directly abutting the Premises or through permanent insurable easements benefiting the Premises), fire and police protection, parking, and means of direct access between the Premises and public highways over recognized curb cuts (or such access to public highways is through private roadways which may be used for ingress and egress pursuant to permanent insurable easements).
(l)  Mechanics’ Liens . The Property is free and clear of any mechanics’ liens or liens in the nature thereof, and no rights are outstanding that under law could give rise to any such liens, any of which liens are or may be prior to, or equal with, the lien of this Security Instrument, except those which are insured against by the title insurance policy insuring the lien of this Security Instrument.
(m)  Title Insurance . Lender has received a lender’s title insurance policy insuring this Security Instrument as a first lien on the Realty subject only to Permitted Encumbrances.
(n)  Insurance . The Property is insured in accordance with the requirements set forth in Article III hereof.
(o)  Space Leases .
(i) To Borrower’s best knowledge, Borrower has delivered a true, correct and complete schedule of all Space Leases as of the date hereof, which accurately and completely sets forth in all material respects, for each such Space Lease, the following (collectively, the “ Rent Roll ”): the name and address of the tenant; the lease expiration date, extension and renewal provisions; the base rent and percentage rent payable; and the security deposit held thereunder.
(ii) Each Space Lease constitutes the legal, valid and binding obligation of Borrower or, the Operating Tenant, as applicable, and, to the knowledge of Borrower, is enforceable against the tenant
thereof. No default exists, or with the passing of time or the giving of notice would exist, which would, in the aggregate, have a Material Adverse Effect.
(iii) To Borrower’s best knowledge, no tenant under any Major Space Lease has, as of the date hereof, paid Rent more than thirty (30) days in advance, and the Rents under such Major Space Leases have not been waived, released, or otherwise discharged or compromised.
(iv) To Borrower’s best knowledge, except as disclosed in writing to Lender, all work to be performed by Borrower under the Space Leases has been substantially performed, all contributions to be made by Borrower to the tenants thereunder




have been made except for any held-back amounts, and all other conditions precedent to each such tenant’s obligations thereunder have been satisfied.
(v) To Borrower’s best knowledge, except as previously disclosed to Lender in writing or contained in the Space Leases, there are no options to terminate any Space Lease.
(vi) To Borrower’s best knowledge, each tenant under a Major Space Lease or such tenant’s authorized subtenant is currently occupying the space demised by such Major Space Lease.
(vii) To Borrower’s best knowledge, Borrower has delivered to Lender true, correct and complete copies of all Space Leases described in the Rent Roll.
(viii) No Space Lease has been assigned or, to Borrower’s best knowledge, modified, supplemented or amended in any way.
(ix) To Borrower’s best knowledge, each tenant under each Space Lease is free from bankruptcy, reorganization or arrangement proceedings or a general assignment for the benefit of creditors.
(x) To Borrower’s best knowledge, no Space Lease provides any party with the right to obtain a lien or encumbrance upon the Property superior to the lien of this Security Instrument.
(p)  Property Agreements .
(i) Borrower has delivered to Lender true, correct and complete copies of all Property Agreements of record or which could bind any owner of the Property other than Borrower.
(ii) No Property Agreement provides any party with the right to obtain a lien or encumbrance upon the Property superior to the lien of this Security Instrument.
(iii) No default exists or with the passing of time or the giving of notice or both would exist under any Property Agreement which would, individually or in the aggregate, have a Material Adverse Effect.
(iv) Borrower has not received or given any written communication which alleges that a default exists or, with the giving of notice or the lapse of time, or both, would exist under the provisions of any Property Agreement.
(v) No condition currently exists whereby Borrower or any future owner of the Property may be required to purchase any other parcel of land which is subject to any Property Agreement or which gives any Person a right to purchase, or right of first refusal with respect to, the Property.
(vi) To the best knowledge of Borrower, no offset or any right of offset exists respecting continued contributions to be made by any party to any Property Agreement except as expressly set forth
therein. Except as previously disclosed to Lender in writing, no material exclusions or restrictions on the utilization, leasing or improvement of the Property (including non-compete agreements) exists in any Property Agreement.
(vii) Except as previously disclosed in writing to Lender, all work, if any, required to be performed by Borrower prior to the date hereof under each of the Property Agreements has been substantially performed, all contributions to be made by Borrower to any party to such Property Agreements have been made, and all other conditions to such party’s obligations thereunder have been satisfied.
(q)  Personal Property . Except as previously disclosed in writing to Lender, Borrower represents that it or Operating Tenant has good and marketable title to all personal property used in connection with the operation of the Property, free and clear of any liens, except for liens created under the Loan Documents and liens which describe the equipment and other personal property owned by tenants and upon termination of any Operating Lease any personal property owned by Operating Tenant will be transferred free and clear of any liens to Borrower.
(r)  Leasing Brokerage and Management Fees . Except as previously disclosed to Lender in writing, there are no brokerage fees or commissions payable by Borrower with respect to the leasing of space at the Property.
(s)  Security Deposits . Borrower is in compliance with all Legal Requirements relating to such security deposits as to which failure to comply might, individually or in the aggregate, have a Material Adverse Effect.
(t)  Loan to Value Ratio . To the best knowledge of Borrower, based on the substantial real estate expertise of Borrower, Borrower’s familiarity with the Property, and the Appraisal (which Borrower believes to contain a reasonable assessment of the fair market value of the Property), the Initial Allocated Loan Amount does not exceed one hundred twenty-five percent (125%) of the fair market value of the Property. For the purposes of this clause (t), the term “fair market value” shall be reduced by (i) the amount of any indebtedness secured by a lien affecting the Property that is prior to, or on a parity with, the lien of this




Security Instrument, and (ii) the value of any property that is not “real property” within the meaning of Treas. Reg. §§ 1.860G-2 and 1.856-3(d).
(u)  Representations Generally . The representations and warranties contained in this Security Instrument, and the review and inquiry made on behalf of Borrower therefor, have all been made by Persons having the requisite expertise and knowledge to provide such representations and warranties. No representation, warranty or statement of fact made by or on behalf of Borrower in this Security Instrument or in any certificate, document or schedule furnished to Lender pursuant hereto, contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein or herein not misleading (which may be to Borrower’s best knowledge where so provided herein). There are no facts presently known to Borrower which have not been disclosed to Lender which would, individually or in the aggregate, have a Material Adverse Effect nor as far as Borrower can foresee might, individually or in the aggregate, have a Material Adverse Effect.
(v)  Liquor License . All licenses, permits, approvals and consents which are required for the sale and service of alcoholic beverages on the Premises have been obtained from the applicable Governmental Authorities.
Section 2.06. Removal of Lien . (a) Borrower shall, at its expense, maintain this Security Instrument as a first lien on the Property and shall keep the Property free and clear of all liens and encumbrances of any kind and nature other than the Permitted Encumbrances. Borrower shall, within thirty (30) days following receipt of knowledge of any lien, promptly discharge of record, by bond or otherwise, any such liens and, promptly upon request by Lender, shall deliver to Lender evidence reasonably satisfactory to Lender of the discharge thereof.
(b) Without limitation to the provisions of Section 2.06(a) hereof, Borrower shall (i) pay, from time to time when the same shall become due, all claims and demands of mechanics, materialmen, laborers, and others which, if unpaid, might result in, or permit the creation of, a lien on the Property or any part thereof, (ii) cause to be
removed of record (by payment or posting of bond or settlement or otherwise) any mechanics’, materialmens’, laborers’ or other lien on the Property, or any part thereof, or on the revenues, rents, issues, income or profit arising therefrom, and (iii) in general, do or cause to be done, without expense to Lender, everything reasonably necessary to preserve in full the lien of this Security Instrument. If Borrower fails to comply with the requirements of this Section 2.06(b), then, upon five (5) Business Days’ prior notice to Borrower, Lender may, but shall not be obligated to, pay any such lien, and Borrower shall, within five (5) Business Days after Lender’s demand therefor, reimburse Lender for all sums so expended, together with interest thereon at the Default Rate from the date advanced, all of which shall be deemed part of the Debt. Nothing contained herein shall be deemed a consent or request of Lender, express or implied, by inference or otherwise, to the performance of any alteration, repair or other work by any contractor, subcontractor or laborer or the furnishing of any materials by any materialmen in connection therewith.
(c) Notwithstanding the foregoing, Borrower may contest any lien (other than a lien relating to non-payment of Impositions, the contest of which shall be governed by Section 4.04 hereof) of the type set forth in subparagraph (b)(ii) of this Section 2.06 provided that, following prior notice to Lender (i) Borrower is contesting the validity of such lien with due diligence and in good faith and by appropriate proceedings, without cost or expense to Lender or any of its agents, employees, officers, or directors, (ii) Borrower shall preclude the collection of, or other realization upon, any contested amount from the Property or any revenues from or interest in the Property, (iii) neither the Property nor any part thereof nor interest therein, shall be in any danger of being sold, forfeited or lost by reason of such contest by Borrower, (iv) such contest by Borrower shall not affect the ownership, use or occupancy of the Property, (v) such contest by Borrower shall not subject Lender or Borrower to the risk of civil or criminal liability (other than the civil liability of Borrower for the amount of the lien in question), (vi) such lien is subordinate to the lien of this Security Instrument, (vii) Borrower has not consented to such lien, (viii) Borrower has given Lender prompt notice of the filing of such lien and the bonding thereof by Borrower and, upon request by Lender from time to time, notice of the status of such contest by Borrower and/or confirmation of the continuing satisfaction of the conditions set forth in this Section 2.06(c), (ix) Borrower shall promptly pay the obligation secured by such lien upon a final determination of Borrower’s liability therefor, and (x) Borrower shall deliver to Lender cash, a bond or other security acceptable to Lender equal to 125% of the contested amount pursuant to collateral arrangements reasonably satisfactory to Lender.
Section 2.07. Cost of Defending and Upholding this Security Instrument Lien . If any action or proceeding is commenced to which Lender is made a party relating to the Loan Documents and/or the Property or Lender’s interest therein or in which it becomes necessary to defend or uphold the lien of this Security Instrument or any other Loan Document, Borrower shall, on demand, reimburse Lender for all expenses (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Lender in connection therewith, and such sum, together with interest thereon at the Default Rate from and after such demand until fully paid, shall constitute a part of the Debt.
Section 2.08. Use of the Property . Borrower will use, or cause to be used, the Property for such use as is permitted pursuant to applicable Legal Requirements including, without limitation, under the certificate of occupancy applicable to the Property, and which is required by the Loan Documents. Borrower shall not suffer or permit the Property or any portion thereof to be used by the public, any tenant, or any Person not subject to a Lease, in a manner as is reasonably likely to impair Borrower’s




title to the Property, or in such manner as may give rise to a claim or claims of adverse usage or adverse possession by the public, or of implied dedication of the Property or any part thereof.
Section 2.09. Financial Reports . (a) Borrower will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with GAAP and The Uniform System of Accounts (or such other accounting basis reasonably acceptable to Lender) consistently applied, proper and accurate books, tax returns, records and accounts reflecting (i) all of the financial affairs of Borrower and Guarantor and (ii) all items of income and expense in connection with the operation of the Property or in connection with any services, equipment or furnishings provided in connection with the operation thereof, whether such income or expense may be realized by Borrower or by any other Person whatsoever, excepting lessees unrelated to and unaffiliated with Borrower who have leased from Borrower portions of the Premises for the purpose of occupying the same. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice to examine such books, tax
returns, records and accounts at the office of Borrower or other Person maintaining such books, tax returns, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence of an Event of Default, Borrower shall pay any costs and expenses incurred by Lender to examine Borrower’s and Guarantor’s accounting records with respect to the Property, as Lender shall determine to be necessary or appropriate in the protection of Lender’s interest.
(b) Borrower will furnish Lender (i) annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrower and (ii) on a quarterly basis, within forty-five (45) days following the end of each fiscal quarter of Borrower, with a complete copy of Borrower’s financial statement consistently applied covering (i) all of the financial affairs of Borrower and (ii) the operation of the Property for such Fiscal Year or fiscal quarters, as applicable, and containing a statement of revenues and expenses, a statement of assets and liabilities and a statement of Borrower’s equity. Each annual financial statement shall be accompanied by audited financial statements of Ashford Hospitality Trust Inc. which are audited by a nationally recognized Independent certified public accountant that is acceptable to Lender in accordance with GAAP and The Uniform System of Accounts (or such other accounting basis reasonably acceptable to Lender). Together with the financial statements required to be furnished pursuant to this Section 2.09(b), Borrower shall furnish to Lender (A) an Officer’s Certificate certifying as of the date thereof (1) that the financial statements accurately represent the results of operations and financial condition of Borrower and the Property all in accordance with GAAP and The Uniform System of Accounts (or such other accounting basis reasonably acceptable to Lender) consistently applied, and (2) whether there exists a Default under the Note or any other Loan Document executed and delivered by Borrower, and if such event or circumstance exists, the nature thereof, the period of time it has existed and the action then being taken to remedy such event or circumstance and (B) together with the financial statements delivered pursuant to Section 2.09(b)(ii) above, a statement showing (1) projected Net Operating Income for the subsequent twelve (12) month period adjusted to reflect the Adjusted Net Cash Flow (subject to verification by Lender in its reasonable discretion) and (2) the calculation of the Aggregate Debt Service Coverage.
(c) During the continuance of an O&M Operative Period and when requested by Lender, Borrower will furnish Lender monthly, within twenty (20) days following the end of each month, with a true, complete and correct cash flow statement with respect to the Property in the form required to be delivered pursuant to the Management Agreement and made a part hereof or such other form acceptable to Lender, showing (i) all cash receipts of any kind whatsoever and all cash payments and disbursements, (ii) year-to-date summaries of such cash receipts, payments and disbursements, and (iii) during an O&M Operative Period, a calculation of the Aggregate Debt Service Coverage, together with a certification of Manager stating that such cash flow statement is true, complete and correct and a list of all litigation and proceedings affecting Borrower or the Property in which the amount involved is $250,000 or more, if not covered by insurance (or $1,000,000 or more whether or not covered by insurance).
(d) Intentionally Omitted.
(e) At any time during which (i) an O&M Operative Period exists or (ii) the Rent under Space Leases exceeds five percent (5%) of the annual Operating Income, Borrower will furnish Lender annually, within twenty (20) days following the end of each year and within twenty (20) days following receipt of such request therefor, with a true, complete and correct rent roll for the Property which includes the information contained on the Rent Roll, including a list of which tenants are in default under their respective Major Space Leases, dated as of the date of Lender’s request, identifying each tenant that has filed a bankruptcy, insolvency, or reorganization proceeding since delivery of the last such rent roll, and the arrearages for such tenant, if any, and, if requested by Lender, a summary of the material terms of the Major Space Leases, including, without limitation, the dates of occupancy, the dates of expiration, any Rent concessions, work obligations or other inducements granted to the tenants thereunder, and any renewal options, and such rent roll shall be accompanied by an Officer’s Certificate, dated as of the date of the delivery of such rent roll, certifying that such rent roll is true, correct and complete in all material respects as of its date.




(f) Borrower shall furnish to Lender, within thirty (30) days after Lender’s request therefor, with such further detailed information with respect to the operation of the Property and the financial affairs of Borrower as may be reasonably requested by Lender.
(g) Borrower shall cause Manager to furnish to Lender, within twenty (20) days following the end of each year, a schedule of tenant security deposits to the extent such security deposits aggregate $1,000,000 or more.
(h) Borrower will furnish Lender annually, within ninety (90) days after the end of each Fiscal Year, with a report setting forth (i) the average occupancy rate of the Property during such Fiscal Year, and (ii) the capital repairs, replacements and improvements performed at the Property during such Fiscal Year and the aggregate Recurring Replacement Expenditures made in connection therewith.
(i) Borrower will furnish Lender monthly, within thirty (30) days following the end of each month, an occupancy summary for the Property setting forth the occupancy rates, average daily room rates, advance booking information (excluding customer names), RevPAR Yield Index, RevPAR and room revenues for each month of the preceding calendar year, as well as annual averages of the same, and such other information as may customarily be reflected thereon or reasonably requested by Lender, together with all franchise inspection reports and STR Reports received by Borrower during the preceding month.
(j) Borrower shall and shall cause Guarantor to furnish to Lender annually, within thirty (30) days of filing its respective tax return, a copy of such tax return.
(k) Borrower shall submit to Lender for Lender’s written approval (provided that such approval shall only be required in the event that Borrower or any Affiliate of Borrower has the right to approve any such budget pursuant to the terms of the Management Agreement) not to be unreasonably withheld, an Annual Budget within ten (10) Business Days after receipt thereof from Manager, in form satisfactory to Lender setting forth in reasonable detail budgeted monthly operating income and monthly operating capital and other expenses for the Property. In the event Lender shall have the right to approve such Annual Budget and Lender objects to the proposed Annual Budget submitted by Borrower, Lender shall advise Borrower of such objections within fifteen (15) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall, within three (3) days after receipt of notice of any such objections, revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrower of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrower a reasonably detailed description of such objections) and Borrower shall revise the same in accordance with the process described herein until Lender approves an Annual Budget, provided, however, that if Lender shall not advise Borrower of its objections to any proposed Annual Budget within the applicable time period set forth in this Section, then such proposed Annual Budget shall be deemed approved by Lender. If Lender has the right to approve the Annual Budget pursuant to the terms of the Management Agreement, until such time that Lender approves a proposed Annual Budget, the most recently Approved Annual Budget shall, except as otherwise provided in the Management Agreement, apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual increases in Basic Carrying Costs and utilities expenses and to delete any non-recurring expenses. In the event that Borrower must incur an Extraordinary Expense, then Borrower shall promptly deliver to Lender a reasonably detailed explanation of such proposed Extraordinary Expense which, if Borrower has the right to approve such expenditures pursuant to the terms of the Management Agreement, shall be subject to Lender’s approval, which approval may be granted or denied in Lender’s reasonable discretion.
(l) In the event that Borrower fails to deliver any of the financial statements, reports or other information required to be delivered to Lender pursuant to this Section 2.09 on or prior to their due dates, if any such failure shall continue for ten (10) days following notice thereof from Lender, Borrower shall pay to Lender on each Payment Date for each month or portion thereof that any such financial statement, report or other information remains undelivered, an administrative fee in the amount of Two Thousand Five Hundred Dollars ($2,500) in the aggregate for all failures occurring in any applicable month. Borrower agrees that such administrative fee (i) is a fair and reasonable fee necessary to compensate Lender for its additional administrative costs and increased costs relating to Borrower’s failure to deliver the aforementioned statements, reports or other items as and when required hereunder and (ii) is not a penalty.
Section 2.10. Litigation . Borrower will give prompt written notice to Lender of any litigation or governmental proceedings pending or threatened (in writing) against Borrower which might have a Material Adverse Effect.
Section 2.11. Updates of Representations . Borrower shall deliver to Lender within ten (10) Business Days of the request of Lender an Officer’s Certificate updating all of the representations and warranties contained in this Security Instrument and the other Loan Documents and certifying that all of the representations and warranties contained in this Security Instrument and the other Loan Documents, as updated pursuant to such Officer’s Certificate, are true, accurate and complete in all material respects as of the date of such Officer’s Certificate or shall set forth the exceptions to representations and/or warranties in reasonable detail, as applicable, and, upon Lender’s request for further information with respect to such exceptions, shall provide Lender such additional information as Lender may reasonably request




Section 2.12. Tenancy-in-Common . In the event that title to the Property is held by tenants-in-common, Borrower has delivered a true and complete written tenancy-in-common agreement (the “ TIC Agreement ”) which has been duly executed by each tenant-in-common having an interest in the Property (each, a “ TIC ”). The TIC Agreement provides, or, if not otherwise provided for in the TIC Agreement, each TIC agrees, that (a) each TIC irrevocably waives any and all rights of partition available at law, in equity or by contract, (b) each TIC shall at all times be a Single Purpose Entity all of the legal and beneficial interest in which is owned by an “Accredited Investor” as defined in Regulation D, as promulgated under the Securities Act, (c) each TIC irrevocably waives any and all rights it may have at law or in equity to obtain a lien on any tenant-in-common interest in the Property, (d) each TIC agrees that (i) any liens, security interests, judgment liens, charges or other encumbrances upon the Property or any interest of another TIC in the Property and (ii) any options to purchase or rights of first refusal or similar rights with respect to another TIC’s interest in the Property shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Debt, regardless of whether such liens, security interests, judgment liens, charges or other encumbrances, rights or options presently exist or are hereafter created or attach and that no TIC shall (i) exercise or enforce any creditor’s right it may have against Borrower or any other TIC or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, security interests, judgment liens, charges or other encumbrances on assets of Borrower or any other TIC, (e) at no time shall there be more than three (3) TICs with respect to the Property, (f) the minimum investment in the Property of each TIC shall be $500,000 and (g) Lender is a third-party beneficiary to the provisions relating to the items set forth in (a) through (f) above. Borrower shall not amend, modify or terminate the TIC Agreement.
ARTICLE III: INSURANCE AND CASUALTY RESTORATION
Section 3.01. Insurance Coverage . Borrower shall, at its expense, maintain or cause to be maintained the following insurance coverages with respect to the Property during the term of this Security Instrument:
(a) (i) Insurance against loss or damage by fire, casualty and other hazards included in an “all-risk” coverage endorsement or its equivalent (which, in the case of insurance during the time of any construction work (“ Construction ”) shall be in “builder’s risk completed value non-reporting form” together with rents, earnings and extra expense insurance covering loss due to delay in completion of the Improvements), with such endorsements as Lender may from time to time reasonably require and which are customarily required by Institutional Lenders of similar properties similarly situated, including, without limitation, if the Property constitutes a legal non-conforming use, an ordinance of law coverage endorsement which contains “Demolition Cost”, “Loss Due to Operation of Law” and “Increased Cost of Construction” coverages, covering the Property in an amount not less than the greater of (A) 100% of the insurable replacement value of the Property (exclusive of the Premises and footings and foundations) and (B) such other amount as is necessary to prevent any reduction in such policy by reason of and to prevent Borrower, Lender or any other insured thereunder from being deemed to be a co-insurer. Not less frequently than once every three (3) years, Borrower, at its option, shall either (A) have the Appraisal updated or obtain a new appraisal of
the Property, (B) have a valuation of the Property made by or for its insurance carrier conducted by an appraiser experienced in valuing properties of similar type to that of the Property which are in the geographical area in which the Property is located or (C) provide such other evidence as will, in Lender’s sole judgment, enable Lender to determine whether there shall have been an increase in the insurable value of the Property and Borrower shall deliver such updated Appraisal, new appraisal, insurance valuation or other evidence acceptable to Lender, as the case may be, and, if such updated Appraisal, new appraisal, insurance valuation, or other evidence acceptable to Lender reflects an increase in the insurable value of the Property, the amount of insurance required hereunder shall be increased accordingly and Borrower shall deliver evidence satisfactory to Lender that such policy has been so increased.
(ii) Commercial general liability insurance against claims for personal and bodily injury and/or death to one or more persons or property damage, occurring on, in or about the Property (including the adjoining streets, sidewalks and passageways therein) in such amounts as Lender may from time to time reasonably require (but in no event shall Lender’s requirements be increased more frequently than once during each twelve (12) month period) and which are customarily required by Institutional Lenders for similar properties similarly situated, but not less than $1,000,000 per occurrence and $2,000,000 general aggregate on a per location basis and, in addition thereto, not less than $50,000,000, or such lesser amount as is required by the term of the Management Agreement (but in no event less than $10,000,000) excess and/or umbrella liability insurance shall be maintained for any and all claims.
(iii) Business interruption, rent loss or other similar insurance with an unlimited indemnity period (A) with loss payable to Lender, (B) covering all risks required to be covered by the insurance provided for in Section 3.01(a)(i) hereof and (C) in an amount not less than 100% of the projected total revenues derived from the Property for the succeeding twenty-four (24) month period based on an occupancy rate taking into account historical and projected occupancy. The amount of such insurance shall be determined upon the execution of this Security Instrument, and not more frequently than once each calendar year thereafter




based on Borrower’s reasonable estimate of projected total revenues derived from the Property for the next succeeding twenty-four (24) months together with a six (6) month extended period of indemnity. In the event the Property shall be damaged or destroyed, Borrower shall and hereby does assign to Lender all payment of claims under the policies of such insurance, and all amounts payable thereunder, and all net amounts, shall be collected by Lender under such policies and shall be applied in accordance with this Security Instrument.
(iv) Intentionally Omitted.
(v) Insurance against loss or damages from (A) leakage of sprinkler systems and (B) explosion of steam boilers, air conditioning equipment, pressure vessels or similar apparatus now or hereafter installed at the Property, in such amounts as Lender may from time to time reasonably require and which are then customarily required by Institutional Lenders of similar properties similarly situated.
(vi) Flood insurance in an amount equal to the full insurable value of the Property or the maximum amount available, whichever is less, if the Improvements are located in an area designated by the Secretary of Housing and Urban Development as being “an area of special flood hazard” under the National Flood Insurance Program ( i.e. , having a one percent or greater chance of flooding), and if flood insurance is available under the National Flood Insurance Act.
(vii) Worker’s compensation insurance or other similar insurance which may be required by Governmental Authorities or Legal Requirements.
(viii) Insurance against loss resulting from mold, spores or fungus on or about the Premises.
(ix) Insurance against damage resulting from acts of terrorism, or an insurance policy without an exclusion for damages resulting from terrorism, on terms consistent with the commercial property insurance policy required under subsections (i), (ii) and (iii) above.
(x) At all times during Construction, contractor’s liability insurance to a limit of not less than $25,000,000 on a per occurrence basis covering each contractor’s construction operation at the Premises.
(xi) Such other insurance as may from time to time be required by Lender and which is then customarily required by Institutional Lenders for similar properties similarly situated, against other insurable hazards, including, but not limited to, malicious mischief, vandalism, sinkhole and mine subsidence, acts of terrorism, war risk, windstorm and/or earthquake, due regard to be given to the size and type of the Premises, Improvements, Fixtures and Equipment and their location, construction and use. Additionally, Borrower shall carry such insurance coverage as Lender may from time to time require if the failure to carry such insurance may result in a downgrade, qualification or withdrawal of any class of securities issued in connection with a Securitization or, if the Loan is not yet part of a Securitization, would result in an increase in the subordination levels of any class of securities anticipated to be issued in connection with a proposed Securitization.
(xii) If Borrower, any of its Affiliates or Manager holds a liquor license for the Premises, liquor liability insurance in the amount of no less than $10,000,000.
(xiii) Automobile liability insurance covering owned, hired and not owned vehicles in an amount of not less than $1,000,000 per accident.
(b) Borrower shall cause any Manager of the Property to maintain fidelity insurance in an amount equal to or greater than the Operating Income of the Property for the six (6) month period immediately preceding the date on which the premium for such insurance is due and payable or such lesser amount as Lender shall approve.
Section 3.02. Policy Terms . (a) All insurance required by this Article III shall be in the form (other than with respect to Sections 3.01(a)(vi) and (vii) above when insurance in those two sub-sections is placed with a governmental agency or instrumentality on such agency’s forms) and amount and with deductibles as, from time to time, shall be reasonably acceptable to Lender, under valid and enforceable policies issued by financially responsible insurers authorized to do business in the State where the Property is located, with a general policyholder’s service rating of not less than A and a financial rating of not less than XIII as rated in the most currently available Best’s Insurance Reports (or the equivalent, if such rating system shall hereafter be altered or replaced) and shall have a claims paying ability rating and/or financial strength rating, as applicable, of not less than “AA” (or its equivalent), or such lower claims paying ability rating and/or financial strength rating, as applicable, as Lender shall, in its sole and absolute discretion, consent to, from a Rating Agency (one of which after a Securitization in which Standard & Poor’s rates any securities issued in connection with such Securitization, shall be Standard & Poor’s). Upon request of Lender originals or certified copies of all insurance policies shall be delivered to and held by Lender. All such policies (except policies for worker’s compensation) shall name Lender, its successors and/or assigns as an additional insured or, with respect to the insurance required pursuant to Section 3.01(a)(iii) above, shall provide for loss payable to Lender, its successors and/or assigns and shall contain (or have attached): (i) standard “non-contributory mortgagee” endorsement or its equivalent relating, inter alia , to recovery by Lender notwithstanding the negligent or willful acts or omissions of Borrower; (ii) a waiver of subrogation endorsement as to Lender; (iii) an endorsement indicating that neither Lender nor Borrower shall be




or be deemed to be a co-insurer with respect to any casualty risk insured by such policies and shall provide for a deductible per loss of an amount not more than $25,000, and (iv) a provision that such policies shall not be canceled, terminated, denied renewal or amended, including, without limitation, any amendment reducing the scope or limits of coverage, without at least thirty (30) days’ prior written notice to Lender in each instance. Not less than thirty (30) days prior to the expiration dates of the insurance policies obtained pursuant to this Security Instrument, certificates evidencing such renewals bearing notations evidencing the payment of premiums or accompanied by other reasonable evidence of such payment (which premiums shall not be paid by Borrower through or by any financing arrangement which would entitle an insurer to terminate a policy) shall be delivered by Borrower to Lender. Borrower shall not carry separate insurance, concurrent in kind or form or contributing in the event of loss, with any insurance required under this Article III.
(b) If Borrower fails to maintain and deliver to Lender the original policies or certificates of insurance required by this Security Instrument, or if there are insufficient funds in the Basic Carrying Costs Escrow Account to pay the premiums for same, Lender may, at its option, procure such insurance, and Borrower shall pay, or as the case may be, reimburse Lender for, all premiums thereon promptly, upon demand by Lender, with interest thereon at the Default Rate from the date paid by Lender to the date of repayment and such sum shall constitute a part of the Debt.
(c) Borrower shall notify Lender of the renewal premium of each insurance policy and Lender shall be entitled to pay such amount on behalf of Borrower from the Basic Carrying Costs Escrow Account.
(d) The insurance required by this Security Instrument may, at the option of Borrower, be effected by blanket and/or umbrella policies issued to Borrower or Manager covering the Property provided that, in each case, the policies otherwise comply with the provisions of this Security Instrument and allocate to the Property, from time to time (but in no event less than once a year), the coverage specified by this Security Instrument, without possibility of reduction or coinsurance by reason of, or damage to, any other property (real or personal) named therein. If the insurance required by this Security Instrument shall be effected by any such blanket or umbrella policies, Borrower shall furnish to Lender (i) an original certificate of insurance together with reasonable access to the original of such policy to review such policy’s coverage of the Property, with schedules attached thereto showing the amount of the insurance provided under such policies applicable to the Property and (ii) an Officer’s Certificate setting forth (A) the number of properties covered by such policy, (B) the location by city (if available, otherwise, county) and state of the properties, (C) the average square footage of the properties, (D) a brief description of the typical construction type included in the blanket policy and (E) such other information as Lender may reasonably request.
Section 3.03. Assignment of Policies . (a) Borrower hereby assigns to Lender the proceeds of all insurance (other than worker’s compensation and liability insurance) obtained pursuant to this Security Instrument, all of which proceeds shall be payable to Lender as collateral and further security for the payment of the Debt and the performance of the Cross-collateralized Borrowers’ obligations hereunder and under the other Loan Documents, and Borrower hereby authorizes and directs the issuer of any such insurance to make payment of such proceeds directly to Lender. Except as otherwise expressly provided in Section 3.04 or elsewhere in this Article III, Lender shall have the option, in its discretion, and without regard to the adequacy of its security, to apply all or any part of the proceeds it may receive pursuant to this Article in such manner as Lender may elect to any one or more of the following: (i) the payment of the Debt, whether or not then due, in any proportion or priority as Lender, in its discretion, may elect, (ii) the repair or restoration of the Property, (iii) the cure of any Default or (iv) the reimbursement of the costs and expenses of Lender incurred pursuant to the terms hereof in connection with the recovery of the Insurance Proceeds. Nothing herein contained shall be deemed to excuse Borrower from repairing or maintaining the Property as provided in this Security Instrument or restoring all damage or destruction to the Property, regardless of the sufficiency of the Insurance Proceeds, and the application or release by Lender of any Insurance Proceeds shall not cure or waive any Default or notice of Default.
(b) In the event of the foreclosure of this Security Instrument or any other transfer of title or assignment of all or any part of the Property in extinguishment, in whole or in part, of the Debt, all right, title and interest of Borrower in and to all policies of insurance required by this Security Instrument shall inure to the benefit of the successor in interest to Borrower or the purchaser of the Property. If, prior to the receipt by Lender of any proceeds, the Property or any portion thereof shall have been sold on foreclosure of this Security Instrument or by deed in lieu thereof or otherwise, or any claim under such insurance policy arising during the term of this Security Instrument is not paid until after the extinguishment of the Debt, and Lender shall not have received the entire amount of the Debt outstanding at the time of such extinguishment, whether or not a deficiency judgment on this Security Instrument shall have been sought or recovered or denied, then, the proceeds of any such insurance to the extent of the amount of the Debt not so received, shall be paid to and be the property of Lender, together with interest thereon at the Default Rate, and the reasonable attorney’s fees, costs and disbursements incurred by Lender in connection with the collection of the proceeds which shall be paid to Lender and Borrower hereby assigns, transfers and sets over to Lender all of Borrower’s right, title and interest in and to such proceeds. Notwithstanding any provisions of this Security Instrument to the contrary, Lender shall not be deemed to be a trustee or other fiduciary with respect to its receipt of any such proceeds, which may be commingled with any other monies of




Lender; provided, however, that Lender shall use such proceeds for the purposes and in the manner permitted by this Security Instrument. Any proceeds deposited with Lender shall be held by Lender in an interest-bearing account, but Lender makes no representation or warranty as to the rate or amount of interest, if any, which may accrue on such deposit and shall have no liability in connection therewith. Interest accrued, if any, on the proceeds shall be deemed to constitute a part of the proceeds for purposes of this Security Instrument. The provisions of this Section 3.03(b) shall survive the termination of this Security Instrument by foreclosure, deed in lieu thereof or otherwise as a consequence of the exercise of the rights and remedies of Lender hereunder after a Default.
Section 3.04. Casualty Restoration . (a) (i) In the event of any damage to or destruction of the Property the cost to repair which could reasonably be expected to be in excess of $250,000 in the aggregate, Borrower shall give prompt written notice to Lender (which notice shall set forth Borrower’s good faith estimate of the cost of repairing or restoring such damage or destruction, or if Borrower cannot reasonably estimate the anticipated cost of restoration, Borrower shall nonetheless give Lender prompt notice of the occurrence of such damage or destruction, and will diligently proceed to obtain estimates to enable Borrower to quantify the anticipated cost and time required for such restoration, whereupon Borrower shall promptly notify Lender of such good faith estimate) and, provided that restoration does not violate any Legal Requirements, Borrower shall promptly commence and diligently prosecute to completion the repair, restoration or rebuilding of the Property so damaged or destroyed to a condition such that the Property shall be at least equal in value to that immediately prior to the damage to the extent practicable, in full compliance with all Legal Requirements and the provisions of all Leases, and in accordance with Section 3.04(b) below. Such repair, restoration or rebuilding of the Property are sometimes hereinafter collectively referred to as the “ Work ”.
(ii) Borrower shall not adjust, compromise or settle any claim for Insurance Proceeds without the prior written consent of Lender, which shall not be unreasonably withheld or delayed and Lender shall have the right, at Borrower’s sole cost and expense, to participate in any settlement or adjustment of Insurance Proceeds; provided, however, that, except during the continuance of an Event of Default, Lender’s consent shall not be required with respect to the adjustment, compromising or settlement of any claim for Insurance Proceeds in an amount less than $1,000,000.
(iii) Subject to Section 3.04(a)(iv), Lender shall apply any Insurance Proceeds which it may receive towards the Work in accordance with Section 3.04(b) and the other applicable sections of this Article III.
(iv) If (A) an Event of Default shall have occurred, (B) Lender is not reasonably satisfied that the Debt Service Coverage, after substantial completion of the Work, will be at least equal to the Required Debt Service Coverage, (C) more than thirty percent (30%) of the reasonably estimated fair market value of the Property is damaged or destroyed, (D) Lender is not reasonably satisfied that the Work can be completed six (6) months prior to Maturity or (E) Lender is not reasonably satisfied that the Work can be completed within twelve (12) months of the damage to or destruction of the Property (each, a “ Substantial Casualty ”), Lender shall have the option, in its sole discretion to apply any Insurance Proceeds it may receive pursuant to this Security Instrument (less any cost to Lender of recovering and paying out such proceeds incurred pursuant to the terms hereof and not otherwise reimbursed to Lender, including, without limitation, reasonable attorneys’ fees and expenses) to the payment of the Debt, without any prepayment fee or charge of any kind, or to allow such proceeds to be used for the Work pursuant to the terms and subject to the conditions of Section 3.04(b) hereof and the other applicable sections of this Article III.
(v) In the event that Lender elects or is obligated hereunder to allow Insurance Proceeds to be used for the Work, any excess proceeds remaining after completion of such Work shall be applied to the payment of the Debt without any prepayment fee or charge of any kind.
(vi) If any Insurance Proceeds are applied to the payment of the Debt, provided that no Event of Default exists, Borrower may prepay the balance of the Release Price with respect to the Property in connection with obtaining a Release of the Property without any prepayment fee or charge of any kind.
(b) If any Condemnation Proceeds in accordance with Section 6.01(a), or any Insurance Proceeds in accordance with Section 3.04(a), are to be applied to the repair, restoration or rebuilding of the Property, then such proceeds shall be deposited into a segregated interest-bearing bank account at the Bank, which shall be an Eligible Account, held by Lender and shall be paid out from time to time to Borrower as the Work progresses (less any cost to Lender of recovering and paying out such proceeds, including, without limitation, reasonable attorneys’ fees and costs allocable to inspecting the Work and the plans and specifications therefor) subject to Section 5.13 hereof and to all of the following conditions:
(i) An Independent architect or engineer selected by Borrower and reasonably acceptable to Lender (an “ Architect ” or “ Engineer ”) or a Person otherwise reasonably acceptable to Lender, shall have delivered to Lender a certificate estimating the cost of completing the Work, and, if the amount set forth therein is more than the sum of the amount of Insurance Proceeds then being held by Lender in connection with a casualty and amounts agreed or reasonably expected to be agreed to be paid as part of a final settlement under the insurance policy upon or before completion of the Work, Borrower shall have delivered to Lender (A) cash collateral in an amount equal to such excess, (B) an unconditional, irrevocable, clean sight draft letter of credit, in form, substance and issued by a bank reasonably acceptable to Lender, in the amount of such excess and draws on




such letter of credit shall be made by Lender to make payments pursuant to this Article III following exhaustion of the Insurance Proceeds therefor or (C) a completion bond in form, substance and issued by a surety company reasonably acceptable to Lender.
(ii) If the cost of the Work is reasonably estimated by an Architect or Engineer in a certification reasonably acceptable to Lender to be equal to or exceed five percent (5%) of the Allocated Loan Amount, such Work shall be performed under the supervision of an Architect or Engineer, it being understood that the plans and specifications with respect thereto shall provide for Work so that, upon completion thereof, the Property shall be at least equal in replacement value and general utility to the Property prior to the damage or destruction.
(iii) Each request for payment shall be made on not less than ten (10) days’ prior notice to Lender and shall be accompanied by a certificate of an Architect or Engineer, or, if the Work is not required to be supervised by an Architect or Engineer, by an Officer’s Certificate stating (A) that payment is for Work completed substantially in compliance with the plans and specifications, if required under clause (ii) above, (B) that the sum requested is required to reimburse Borrower for payments by Borrower to date, or is due to the contractors, subcontractors, materialmen, laborers, engineers, architects or other Persons rendering services or materials for the Work (giving a brief description of such services and materials), and that when added to all sums previously paid out by Lender does not exceed the value of the Work done to the date of such certificate, (C) if the sum requested is to cover payment relating to repair and restoration of personal property required or relating to the Property, that title to the personal property items covered by the request for payment is vested in Borrower (unless Borrower is lessee of such personal property), and (D) that the Insurance Proceeds and other amounts deposited by Borrower held by Lender after such payment is more than the estimated remaining cost to complete such Work; provided, however, that if such certificate is given by an Architect or Engineer, such Architect or Engineer shall certify as to clause (A) above, and such Officer’s Certificate shall certify as to the remaining clauses above, and provided, further, that Lender shall not be obligated to disburse such funds if Lender determines, in Lender’s reasonable discretion, that Borrower shall not be in compliance with this Section 3.04(b). Additionally, each request for payment shall contain a statement signed by Borrower stating that the requested payment is for Work satisfactorily done to date.
(iv) Each request for payment shall be accompanied by waivers of lien, in customary form and substance, covering that part of the Work for which payment has been made pursuant to any previous request for payment and, if required by Lender, a search prepared by a title company or licensed abstractor, or by other evidence reasonably satisfactory to Lender that there has not been filed with respect to the Property any mechanic’s or other lien or instrument for retention of title relating to any part of the Work not discharged of record. Additionally, as to any personal property covered by the request for payment, Lender shall be furnished with evidence of Borrower having incurred a payment obligation therefor and
such further evidence reasonably satisfactory to assure Lender that UCC filings therefor provide a valid first lien on the personal property in favor of Lender.
(v) Lender shall have the right to inspect the Work at all reasonable times upon reasonable prior notice and may condition any disbursement of Insurance Proceeds upon satisfactory compliance by Borrower with the provisions hereof. Neither the approval by Lender of any required plans and specifications for the Work nor the inspection by Lender of the Work shall make Lender responsible for the preparation of such plans and specifications, or the compliance of such plans and specifications of the Work, with any applicable law, regulation, ordinance, covenant or agreement.
(vi) Insurance Proceeds shall not be disbursed more frequently than once every thirty (30) days.
(vii) Until such time as the Work has been substantially completed, Lender shall not be obligated to disburse to Borrower an amount (the “ Retention Amount ”) up to (A) until fifty percent (50%) of the Work has been completed (as reasonably determined by Lender), ten percent (10%) of the cost of the Work and (B) after fifty percent (50%) of the Work has been completed (as reasonably determined by Lender), five percent (5%) of the cost of the Work. Upon substantial completion of the Work, Borrower shall send notice thereof to Lender and, subject to the conditions of Section 3.04(b)(i)-(iv), Lender shall disburse one-half of the Retention Amount to Borrower; provided, however, that the remaining one-half of the Retention Amount shall be disbursed to Borrower when Lender shall have received copies of any and all final certificates of occupancy or other certificates, licenses and permits required for the ownership, occupancy and operation of the Property in accordance with all Legal Requirements. Borrower hereby covenants to diligently seek to obtain any such certificates, licenses and permits.
(viii) Upon failure on the part of Borrower promptly to commence the Work or to proceed diligently and continuously to completion of the Work, subject to Force Majeure, not to exceed sixty (60) days, which failure shall continue after notice for thirty (30) days, Lender may apply any Insurance Proceeds or Condemnation Proceeds it then or thereafter holds to the payment of the Debt in accordance with the provisions of the Note; provided, however, that Lender shall be entitled to apply at any time all or any portion of the Insurance Proceeds or Condemnation Proceeds it then holds to the extent necessary to cure any Event of Default.




(c) If Borrower (i) within ninety (90) days (plus, if all approvals from Governmental Authorities have not been obtained within such period and Borrower has continuously and expeditiously attempted to obtain such approvals within such time period, such additional period of time required to obtain approvals from all Governmental Authorities up to one hundred eighty (180) days in total, provided Borrower deposits with Lender an amount, as reasonably determined by Lender, equal to the Required Debt Service Payment for each additional thirty (30) day period) after the occurrence of any damage to the Property or any portion thereof (or such shorter period as may be required under any Major Space Lease) shall fail to submit to Lender for approval plans and specifications for the Work (approved by the Architect and by all Governmental Authorities whose approval is required), (ii) after any such plans and specifications are approved by all Governmental Authorities, the Architect and Lender, shall fail to promptly commence such Work or (iii) shall fail to diligently prosecute such Work to completion, then, in addition to all other rights available hereunder, at law or in equity, Lender, or any receiver of the Property or any portion thereof, upon five (5) days’ prior notice to Borrower (except in the event of emergency in which case no notice shall be required), may (but shall have no obligation to) perform or cause to be performed such Work, and may take such other steps as it reasonably deems advisable. Borrower hereby waives, for Borrower, any claim, other than for gross negligence or willful misconduct, against Lender and any receiver arising out of any act or omission of Lender or such receiver pursuant hereto, and Lender may apply all or any portion of the Insurance Proceeds (without the need to fulfill any other requirements of this Section 3.04) to reimburse Lender and such receiver, for all costs not reimbursed to Lender or such receiver upon demand together with interest thereon at the Default Rate from the date such amounts are advanced until the same are paid to Lender or the receiver.
(d) If the Insurance Proceeds are greater than $1,000,000 or an Event of Default exists Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to collect and receive any Insurance Proceeds paid with respect to any portion of the Property or the insurance policies required to be maintained hereunder, and to endorse any checks, drafts or other instruments representing any Insurance Proceeds whether payable by reason of loss thereunder or otherwise.
(e) Notwithstanding the foregoing provisions of this Section 3.04, upon the occurrence of any damage to or destruction of the Property, provided that such damage or destruction is not a Substantial Casualty, if in Lender’s reasonable judgment the cost of repair of or restoration to the Property required as a result of any damage or destruction is less than $1,000,000 in the aggregate and the Work can be completed in less than one hundred twenty (120) days (but in no event beyond the date which is six (6) months prior to the Maturity Date), then Lender, upon request by Borrower, shall permit Borrower to apply for and receive the Insurance Proceeds directly from the insurer (and Lender shall advise the insurer to pay over such Insurance Proceeds directly to Borrower), to the extent required to pay for any such Work, with any excess thereof to be promptly paid by Borrower to Lender to be applied against the Debt.
Section 3.05. Compliance with Insurance Requirements . Borrower promptly shall comply with, and shall cause the Property to comply with, all Insurance Requirements, even if such compliance requires structural changes or improvements or would result in interference with the use or enjoyment of the Property or any portion thereof provided Borrower shall have a right to contest in good faith and with diligence such Insurance Requirements provided (a) no Event of Default shall exist during such contest and such contest shall not subject the Property or any portion thereof to any lien or affect the priority of the lien of this Security Instrument, (b) failure to comply with such Insurance Requirements will not subject Lender or any of its agents, employees, officers or directors to any civil or criminal liability, (c) such contest will not cause any reduction in insurance coverage, (d) such contest shall not affect the ownership, use or occupancy of the Property, (e) the Property or any part thereof or any interest therein shall not be in any danger of being sold, forfeited or lost by reason of such contest by Borrower, (f) Borrower has given Lender prompt notice of such contest and, upon request by Lender from time to time, notice of the status of such contest by Borrower and/or information of the continuing satisfaction of the conditions set forth in clauses (a) through (e) of this Section 3.05, (g) upon a final determination of such contest, Borrower shall promptly comply with the requirements thereof, and (h) prior to and during such contest, Borrower shall furnish to Lender security satisfactory to Lender, in its reasonable discretion, against loss or injury by reason of such contest or the non-compliance with such Insurance Requirement (and if such security is cash, Lender shall deposit the same in an interest-bearing account and interest accrued thereon, if any, shall be deemed to constitute a part of such security for purposes of this Security Instrument, but Lender (i) makes no representation or warranty as to the rate or amount of interest, if any, which may accrue thereon and shall have no liability in connection therewith and (ii) shall not be deemed to be a trustee or fiduciary with respect to its receipt of any such security and any such security may be commingled with other monies of Lender). If Borrower shall use the Property or any portion thereof in any manner which could permit the insurer to cancel any insurance required to be provided hereunder, Borrower immediately shall obtain a substitute policy which shall satisfy the requirements of this Security Instrument and which shall be effective on or prior to the date on which any such other insurance policy shall be canceled. Borrower shall not by any action or omission invalidate any insurance policy required to be carried hereunder unless such policy is replaced as aforesaid, or materially increase the premiums on any such policy above the normal premium charged for such policy. Borrower shall cooperate with Lender in obtaining for Lender the benefits of any Insurance Proceeds lawfully or equitably payable to Lender in connection with the transaction contemplated hereby.




Section 3.06. Event of Default During Restoration . Notwithstanding anything to the contrary contained in this Security Instrument including, without limitation, the provisions of this Article III, if, at the time of any casualty affecting the Property or any part thereof, or at any time during any Work, or at any time that Lender is holding or is entitled to receive any Insurance Proceeds pursuant to this Security Instrument, a Default exists and is continuing (whether or not it constitutes an Event of Default), Lender shall then have no obligation to make such proceeds available for Work and Lender shall have the right and option, to be exercised in its sole and absolute discretion and election, with respect to the Insurance Proceeds, either to retain and apply such proceeds in reimbursement for the actual costs, fees and expenses incurred by Lender in accordance with the terms hereof in connection with the adjustment of the loss and, after the occurrence of an Event of Default, any balance toward
payment of the Debt in such priority and proportions as Lender, in its sole discretion, shall deem proper, or towards the Work, upon such terms and conditions as Lender shall determine, or to cure such Event of Default, or to any one or more of the foregoing as Lender, in its sole and absolute discretion, may determine. If Lender shall receive and retain such Insurance Proceeds, the lien of this Security Instrument shall be reduced only by the amount thereof received, after reimbursement to Lender of expenses of collection, and actually applied by Lender in reduction of the principal sum payable under the Note in accordance with the Note.
Section 3.07. Application of Proceeds to Debt Reduction . (a) No damage to the Property, or any part thereof, by fire or other casualty whatsoever, whether such damage be partial or total, shall relieve Borrower from its liability to pay in full the Debt and to perform its obligations under this Security Instrument and the other Loan Documents.
(b) If any Insurance Proceeds are applied to reduce the Debt, Lender shall apply the same in accordance with the provisions of the Note.
ARTICLE IV: IMPOSITIONS
Section 4.01. Payment of Impositions, Utilities and Taxes, etc . (a) Borrower shall pay or cause to be paid all Impositions at least five (5) days prior to the date upon which any fine, penalty, interest or cost for nonpayment is imposed, and furnish to Lender, upon request, receipted bills of the appropriate taxing authority or other documentation reasonably satisfactory to Lender evidencing the payment thereof. If Borrower shall fail to pay any Imposition in accordance with this Section and is not contesting or causing a contesting of such Imposition in accordance with Section 4.04 hereof, or if there are insufficient funds in the Basic Carrying Costs Escrow Account to pay any Imposition, Lender shall have the right, but shall not be obligated, to pay that Imposition, and Borrower shall repay to Lender, on demand, any amount paid by Lender, with interest thereon at the Default Rate from the date of the advance thereof to the date of repayment, and such amount shall constitute a portion of the Debt secured by this Security Instrument and the other Cross-collateralized Mortgages.
(b) Borrower shall, prior to the date upon which any fine, penalty, interest or cost for the nonpayment is imposed, pay or cause to be paid all charges for electricity, power, gas, water and other services and utilities in connection with the Property. If Borrower shall fail to pay any amount required to be paid by Borrower pursuant to this Section 4.01 and is not contesting such charges in accordance with Section 4.04 hereof, Lender shall have the right, but shall not be obligated, to pay that amount, and Borrower will repay to Lender, on demand, any amount paid by Lender with interest thereon at the Default Rate from the date of the advance thereof to the date of repayment, and such amount shall constitute a portion of the Debt secured by this Security Instrument and the other Cross-collateralized Mortgages.
(c) Borrower shall pay all taxes, charges, filing, registration and recording fees, excises and levies imposed upon Lender by reason of or in connection with its ownership of any Loan Document or any other instrument related thereto, or resulting from the execution, delivery and recording of, or the lien created by, or the obligation evidenced by, any of them, other than income, franchise and other similar taxes imposed on Lender and shall pay all corporate stamp taxes, if any, and other taxes, required to be paid on the Loan Documents. If Borrower shall fail to make any such payment within ten (10) days after written notice thereof from Lender, Lender shall have the right, but shall not be obligated, to pay the amount due, and Borrower shall reimburse Lender therefor, on demand, with interest thereon at the Default Rate from the date of the advance thereof to the date of repayment, and such amount shall constitute a portion of the Debt secured by this Security Instrument and the other Cross-collateralized Mortgages.
Section 4.02. Deduction from Value . In the event of the passage after the date of this Security Instrument of any Legal Requirement deducting from the value of the Property for the purpose of taxation, any lien thereon or changing in any way the Legal Requirements now in force for the taxation of this Security Instrument, the other Cross-collateralized Mortgages and/or the Debt for federal, state or local purposes, or the manner of the operation of any such taxes so as to adversely affect the interest of Lender, or imposing any tax or other charge on any Loan Document, then Borrower will pay such tax, with interest and penalties thereon, if any, within the
statutory period. In the event the payment of such tax or interest and penalties by Borrower would be unlawful, or taxable to Lender or unenforceable or provide the basis for a defense of usury, then in any such event, Lender shall have the option, by




written notice of not less than thirty (30) days, to declare the Debt (or, if Lender determines in its sole and absolute discretion, that no Material Adverse Effect may result therefrom, the Release Price with respect to the Property) immediately due and payable, with no prepayment fee or charge of any kind.
Section 4.03. No Joint Assessment . Borrower shall not consent to or initiate the joint assessment of the Premises or the Improvements (a) with any other real property constituting a separate tax lot and Borrower represents and covenants that the Premises and the Improvements are and shall remain a separate tax lot or (b) with any portion of the Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to the Property as a single lien.
Section 4.04. Right to Contest . Borrower shall have the right, after prior notice to Lender, at its sole expense, to contest by appropriate legal proceedings diligently conducted in good faith, without cost or expense to Lender or any of its agents, employees, officers or directors, the validity, amount or application of any Imposition, provided that (a) no Event of Default shall exist during such proceedings and such contest shall not (unless Borrower shall comply with clause (d) of this Section 4.04) subject the Property or any portion thereof to any lien or affect the priority of the lien of this Security Instrument, (b) failure to pay such Imposition or charge will not subject Lender or any of its agents, employees, officers or directors to any civil or criminal liability, (c) the contest suspends enforcement of the Imposition or charge (unless Borrower first pays the Imposition or charge), (d) prior to and during such contest, Borrower shall furnish to Lender security satisfactory to Lender, in its reasonable discretion, against loss or injury by reason of such contest or the non-payment of such Imposition or charge (and if such security is cash, Lender may deposit the same in an interest-bearing account and interest accrued thereon, if any, shall be deemed to constitute a part of such security for purposes of this Security Instrument, but Lender (i) makes no representation or warranty as to the rate or amount of interest, if any, which may accrue thereon and shall have no liability in connection therewith and (ii) shall not be deemed to be a trustee or fiduciary with respect to its receipt of any such security and any such security may be commingled with other monies of Lender), (e) such contest shall not affect the ownership, use or occupancy of the Property, (f) the Property or any part thereof or any interest therein shall not be in any danger of being sold, forfeited or lost by reason of such contest by Borrower, (g) Borrower has given Lender notice of the commencement of such contest and upon request by Lender, from time to time, notice of the status of such contest by Borrower and/or confirmation of the continuing satisfaction of clauses (a) through (f) of this Section 4.04, and (h) upon a final determination of such contest, Borrower shall promptly comply with the requirements thereof. Upon completion of any contest, Borrower shall immediately pay the amount due, if any, and deliver to Lender proof of the completion of the contest and payment of the amount due, if any, following which Lender shall return the security, if any, deposited with Lender pursuant to clause (d) of this Section 4.04, provided that Lender shall, so long as no Event of Default exists, disburse to Borrower any sums held by Lender pursuant to clause (d) hereof to pay any contested Impositions. Borrower shall not pay any Imposition in installments unless permitted by applicable Legal Requirements, and shall, upon the request of Lender, deliver copies of all notices and bills relating to any Imposition or other charge covered by this Article IV to Lender.
Section 4.05. No Credits on Account of the Debt . Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Impositions assessed against the Property or any part thereof and no deduction shall otherwise be made or claimed from the taxable value of the Property, or any part thereof, by reason of this Security Instrument or the Debt. In the event such claim, credit or deduction shall be required by Legal Requirements, Lender shall have the option, by written notice of not less than thirty (30) days, to declare the Debt (or, if Lender determines in its sole and absolute discretion, that no Material Adverse Effect may result therefrom, the Release Price with respect to the Property) immediately due and payable, and Borrower hereby agrees to pay such amounts not later than thirty (30) days after such notice.
Section 4.06. Documentary Stamps . If, at any time, the United States of America, any State or Commonwealth thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Security Instrument or any other Loan Document, or impose any other tax or charges on the same, Borrower will pay the same, with interest and penalties thereon, if any.
ARTICLE V: CENTRAL CASH MANAGEMENT
Section 5.01. Cash Flow . All payments constituting Rent shall be delivered to Manager. Manager shall collect all Rent and shall deposit in the Collection Account, the name and address of the bank in which such account is located and the account number of which to be identified in writing by Borrower to Lender, all Property Available Cash. Pursuant to the Collection Account Agreement of even date herewith, the bank in which the Collection Account is located has been instructed that all collected funds deposited in the Collection Account shall be automatically transferred through automated clearing house funds (“ ACH ”) or by Federal wire to the Central Account prior to 3:00 p.m. (New York City time) on the Business Day immediately prior to each Payment Date or, if an O&M Operative Period has occurred and is continuing, on a daily basis. Within two (2) Business Days of the Closing Date, Borrower shall deliver to Lender a copy of the irrevocable notice which Borrower delivered to the bank in which the Rent Account is located pursuant to the provisions of this Section 5.01, the receipt of which is acknowledged in writing by such bank. Lender may elect to change the financial institution in which the Central Account




shall be maintained; however , Lender shall give Borrower and the bank in which the Collection Account is located not fewer than five (5) Business Days’ prior notice of such change. Neither Borrower nor Manager shall change such bank or the Collection Account without the prior written consent of Lender. All fees and charges of the bank(s) in which the Collection Account and the Central Account are located shall be paid by Borrower.
Section 5.02. Establishment of Accounts . Lender has established the Escrow Accounts and the Central Account in the name of Lender and the Collection Account in the joint name of Borrower and Lender, as secured party. The Escrow Accounts , the Collection Account and the Central Account shall be under the sole dominion and control of Lender and funds held therein shall not constitute trust funds. Borrower hereby irrevocably directs and authorizes Lender to withdraw funds from the Collection Account, and to deposit into and withdraw funds from the Central Account and the Escrow Accounts, all in accordance with the terms and conditions of this Security Instrument. Borrower shall have no right of withdrawal in respect of the Collection Account, the Central Account or the Escrow Accounts except as specifically provided herein. Each transfer of funds to be made hereunder shall be made only to the extent that funds are on deposit in the Collection Account, the Central Account or the affected Sub-Account or Escrow Account, and Lender shall have no responsibility to make additional funds available in the event that funds on deposit are insufficient. The Central Account shall contain the Basic Carrying Costs Sub-Account, the Debt Service Payment Sub-Account, the Recurring Replacement Reserve Sub-Account, the Operation and Maintenance Expense Sub-Account and the Curtailment Reserve Sub-Account, each of which accounts shall be Eligible Accounts or book-entry sub-accounts of an Eligible Account (each a “ Sub-Account ” and collectively, the “ Sub-Accounts ”) to which certain funds shall be allocated and from which disbursements shall be made pursuant to the terms of this Security Instrument. Sums held in the Escrow Accounts may be commingled with other monies held by Lender.
Section 5.03. Intentionally Omitted .
Section 5.04. Servicer . At the option of Lender, the Loan may be serviced by a servicer (the “ Servicer ”) selected by Lender and Lender may delegate all or any portion of its responsibilities under this Security Instrument to the Servicer.
Section 5.05. Monthly Funding of Sub-Accounts and Escrow Accounts . (a) On or before each Payment Date during the term of the Loan, commencing on the first (1st) Payment Date occurring after the month in which the Loan is initially funded, Borrower shall pay or cause to be paid to the Central Account all sums required to be deposited in the Sub-Accounts pursuant to this Section 5.05(a) and all funds transferred or deposited into the Central Account shall be allocated among the Sub-Accounts as follows and in the following priority:
(i) first, to the Basic Carrying Costs Sub-Account, until an amount equal to the Basic Carrying Costs Monthly Installment for such Payment Date has been allocated to the Basic Carrying Costs Sub-Account;
(ii) second, to the Debt Service Payment Sub-Account, until an amount equal to the Required Debt Service Payment for such Payment Date has been allocated to the Debt Service Payment Sub-Account;
(iii) third, but only during any Default Management Period, to the Operation and Maintenance Expense Sub-Account in an amount equal to the Cash Expenses, other than management fees payable to Affiliates of Borrower, for the Interest Accrual Period ending immediately prior to such Payment Date pursuant to the related Approved Annual Budget;
(iv) fourth, but only during any Default Management Period, to the Operation and Maintenance Expense Sub-Account in an amount equal to the amount, if any, of the Net Capital Expenditures for the Interest Accrual Period ending immediately prior to such Payment Date pursuant to the related Approved Annual Budget;
(v) fifth, to the Recurring Replacement Reserve Sub-Account, but only until an amount equal to the Recurring Replacement Reserve Monthly Installment for such Payment Date has been allocated to the Recurring Replacement Reserve Sub-Account;
(vi) sixth, but only during any Default Management Period, to the Operation and Maintenance Expense Sub-Account in an amount equal to the amount, if any, of the Extraordinary Expenses approved by Lender for the Interest Accrual Period ending immediately prior to such Payment Date; and
(vii) seventh, but only during an O&M Operative Period, the balance, if any, to the Curtailment Reserve Sub-Account.
Provided that no Event of Default has occurred and is continuing, Lender agrees that in each Interest Accrual Period any amounts deposited into or remaining in the Central Account after the Sub-Accounts have been funded as set forth in this Section 5.05(a) with respect to such Interest Accrual Period and any periods prior thereto, shall be disbursed by Lender to Borrower on each Payment Date and on the 15th day of each month (or if such date is not a Business Day, the first Business Day after such date) applicable to such Interest Accrual Period. The balance of the funds distributed to Borrower after payment of all Operating Expenses by or on behalf of Borrower may be retained by Borrower. After the occurrence, and during the continuance, of an Event of Default, no funds held in the Central Account shall be distributed to, or withdrawn by, Borrower, and Lender shall have the right to apply all or any portion of the funds held in the Central Account or any Sub-Account or any Escrow Account to the Debt in Lender’s sole discretion.




(b) On each Payment Date, (i) sums held in the Basic Carrying Costs Sub-Account shall be transferred to the Basic Carrying Costs Escrow Account, (ii) sums held in the Debt Service Payment Sub-Account, together with any amounts deposited into the Central Account that are either (x) Loss Proceeds that Lender has elected to apply to reduce the Debt in accordance with the terms of Article III hereof or (y) excess Loss Proceeds remaining after the completion of any restoration required hereunder, shall be transferred to Lender to be applied towards the Required Debt Service Payment, (iii) sums held in the Recurring Replacement Reserve Sub-Account shall be transferred to the Recurring Replacement Reserve Escrow Account, (iv) sums held in the Operation and Maintenance Expense Sub-Account shall be transferred to the Operation and Maintenance Expense Escrow Account and (v) sums held in the Curtailment Reserve Sub-Account shall be transferred to the Curtailment Reserve Escrow Account.
Section 5.06. Payment of Basic Carrying Costs . Borrower hereby agrees to pay all Basic Carrying Costs (without regard to the amount of money in the Basic Carrying Costs Sub-Account or the Basic Carrying Costs Escrow Account). At least ten (10) Business Days prior to the due date of any Basic Carrying Costs, and not more frequently than once each month, Borrower may notify Lender in writing and request that Lender pay such Basic Carrying Costs on behalf of Borrower on or prior to the due date thereof, and, provided that no Event of Default has occurred and is continuing and that there are sufficient funds available in the Basic Carrying Costs Escrow Account, Lender shall make such payments out of the Basic Carrying Costs Escrow Account before same shall be delinquent.
Together with each such request, Borrower shall furnish Lender with bills and all other documents necessary, as reasonably determined by Lender, for the payment of the Basic Carrying Costs which are the subject of such request. Borrower’s obligation to pay (or cause Lender to pay) Basic Carrying Costs pursuant to this Security Instrument shall include, to the extent permitted by applicable law, Impositions resulting from future changes in law which impose upon Lender an obligation to pay any property taxes or other Impositions or which otherwise adversely affect Lender’s interests.
Provided that no Event of Default shall have occurred and is continuing, all funds deposited into the Basic Carrying Costs Escrow Account shall be held by Lender pursuant to the provisions of this Security Instrument and shall be applied in payment of Basic Carrying Costs in accordance with the terms hereof. Should an Event of Default occur, the sums on deposit in the Basic Carrying Costs Sub-Account and the Basic Carrying Costs Escrow Account may be applied by Lender in payment of any Basic Carrying Costs or may be applied to the payment of the Debt or any other charges affecting all or any portion of the Cross-collateralized Properties as Lender in its sole discretion may determine; provided , however , that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided.
Section 5.07. Intentionally Omitted .
Section 5.08. Recurring Replacement Reserve Escrow Account . (a) Borrower hereby agrees to pay all Recurring Replacement Expenditures with respect to the Property (without regard to the amount of money then available in the Recurring Replacement Reserve Sub-Account or the Recurring Replacement Reserve Escrow Account). Provided that Lender has received written notice from Borrower at least five (5) Business Days prior to the due date of any payment relating to Recurring Replacement Expenditures and not more frequently than once each month, and further provided that no Event of Default has occurred and is continuing, that there are sufficient funds available in the Recurring Replacement Reserve Escrow Account and Borrower shall have theretofore furnished Lender with lien waivers (if the cost incurred in connection therewith is greater than $25,000), copies of bills, invoices and other reasonable documentation as may be required by Lender to establish that the Recurring Replacement Expenditures which are the subject of such request represent amounts due for completed or partially completed capital work and improvements performed at the Property, Lender shall make such payments out of the Recurring Replacement Reserve Escrow Account.
(b) In lieu of making deposits into the Recurring Replacement Reserve Sub-Account, Borrower may deliver an Approved Letter of Credit to Lender in the amount of the Required RRE Shortfall (as the same may be amended, replaced, extended or drawn down upon pursuant to the provisions of this Section 5.08, the “ Delivered Letter of Credit ”). The Delivered Letter of Credit shall be held in accordance with this Section 5.08 and otherwise constitute security for the payment of the Debt. On or prior to the thirtieth (30 th ) day prior to the expiration of any Delivered Letter of Credit, Borrower shall provide Lender with a replacement to such Delivered Letter of Credit which shall be an Approved Letter of Credit, and otherwise in the same form and amount as the Delivered Letter of Credit being replaced or such other form reasonably approved by Lender. In the event (i) Borrower shall fail to provide Lender with a replacement Delivered Letter of Credit on or prior to the thirtieth (30 th ) day prior to the expiration of any previously existing Delivered Letter of Credit or (ii) the long-term unsecured debt rating or the short-term unsecured debt rating of the bank issuing the Delivered Letter of Credit shall be downgraded below “AA-” (or its equivalent) or “A-1” (or its equivalent), respectively, withdrawn or qualified by any Rating Agency and the letter of credit required to be delivered hereunder is not replaced within thirty (30) days of receipt of notice of such downgrading, withdrawal or qualification, Lender may draw on the Delivered Letter of Credit, deposit all sums received in connection with such draw into the Recurring Replacement Reserve Sub-Account, and disburse such sums in accordance with Section 5.08 above. Provided no Event of Default shall have occurred and is continuing, upon Lender’s receipt of a written request from Borrower together with such other documentation as may be reasonably requested by Lender, Lender shall draw on all or a portion of the




Delivered Letter of Credit, deposit any sums received in connection with such draw into the Recurring Replacement Reserve Sub-Account, and apply such sums towards the reimbursement of Borrower for the cost of any Recurring Replacement Expenditures in accordance with the provisions of Section 5.08 hereof. Upon the occurrence of an Event of Default, Lender may draw on the Delivered Letter of Credit and apply the sums received towards the payment of Recurring Replacement Expenditures or towards payment of the Debt or any other charges affecting all or any portion of the Property, as Lender in its sole discretion may determine; provided , however , that no such application shall be deemed to have
been made by operation of law or otherwise until actually made by Lender as herein provided. Provided that no Event of Default shall have occurred and is continuing, Borrower may deliver to Lender Dollars in the amount of any Delivered Letter of Credit and, upon receipt of such Dollars, Lender will return to Borrower the Delivered Letter of Credit.
(c) Provided that no Event of Default shall have occurred and is continuing, all funds deposited into the Recurring Replacement Reserve Escrow Account shall be held by Lender pursuant to the provisions of this Security Instrument and shall be applied in payment of Recurring Replacement Expenditures. Should an Event of Default occur, the sums on deposit in the Recurring Replacement Reserve Sub-Account and the Recurring Replacement Reserve Escrow Account may be applied by Lender in payment of any Recurring Replacement Expenditures or may be applied to the payment of the Debt or any other charges affecting all or any portion of the Cross-collateralized Properties, as Lender in its sole discretion may determine; provided , however , that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided.
Section 5.09. Operation and Maintenance Expense Escrow Account . Borrower hereby agrees to pay or cause to be paid all Operating Expenses and extraordinary capital improvement costs with respect to the Property (without regard to the amount of money then available in the Operation and Maintenance Expense Sub-Account or the Operation and Maintenance Expense Escrow Account). All funds allocated to the Operation and Maintenance Expense Escrow Account shall be held by Lender pursuant to the provisions of this Security Instrument. Any sums held in the Operation and Maintenance Expense Escrow Account shall be disbursed to Borrower within five (5) Business Days of receipt by Lender from Borrower of (a) a written request for such disbursement which shall indicate the Operating Expenses (exclusive of Basic Carrying Costs and any management fees payable to Borrower, or to any Affiliate of Borrower) and/or extraordinary capital improvement costs approved in writing by Lender for which the requested disbursement is to pay and (b) an Officer’s Certificate stating that no Operating Expenses with respect to the Property are more than sixty (60) days past due; provided , however , in the event that Borrower legitimately disputes any invoice for an Operating Expense and/or extraordinary capital improvement costs approved in writing by Lender, and (i) no Event of Default has occurred and is continuing hereunder, (ii) Borrower shall have set aside adequate reserves for the payment of such disputed sums together with all interest and late fees thereon, (iii) Borrower has complied with all the requirements of this Security Instrument relating thereto, and (iv) the contesting of such sums shall not constitute a default under any other instrument, agreement, or document to which Borrower is a party, then Borrower may, after certifying to Lender as to items (i) through (iv) hereof, contest such invoice. Together with each such request, Borrower shall furnish Lender with bills and all other documents necessary for the payment of the Operating Expenses and/or extraordinary capital improvement costs approved in writing by Lender which are the subject of such request. Borrower may request a disbursement from the Operation and Maintenance Expense Escrow Account no more than one (1) time per calendar month. Should an Event of Default occur and be continuing, the sums on deposit in the Operation and Maintenance Expense Sub-Account or the Operation and Maintenance Expense Escrow Account may be applied by Lender in payment of any Operating Expenses and/or extraordinary capital improvement costs for the Cross-collateralized Properties or may be applied to the payment of the Debt or any other charges affecting all or any portion of the Property as Lender, in its sole discretion, may determine; provided , however , that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided.
Section 5.10. Intentionally Omitted .
Section 5.11. Curtailment Reserve Escrow Account . Funds deposited into the Curtailment Reserve Escrow Account shall be held by Lender in the Curtailment Reserve Escrow Account as additional security for the Loan until the Loan has been paid in full. Provided that no Event of Default has occurred and is continuing, and no O&M Operative Period has existed for three (3) consecutive calendar months, Lender shall, upon written request from Borrower, release all sums contained in the Curtailment Reserve Escrow Account and the Operation and Maintenance Expense Escrow Account to Borrower. Should an Event of Default occur, the sums on deposit in the Curtailment Reserve Sub-Account and the Curtailment Reserve Escrow Account may be applied by Lender to the payment of the Debt or other charges affecting all or any portion of the Cross-collateralized Properties, as Lender, in
its sole discretion, may determine; provided, however, that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided.
Section 5.12. Performance of Engineering Work . (a) Borrower shall promptly commence and diligently thereafter pursue to completion (without regard to the amount of money then available in the Engineering Escrow Account) the Required




Engineering Work prior to the six (6) month anniversary of the Closing Date. After Borrower completes an item of Required Engineering Work, Borrower may submit to Lender an invoice therefor with lien waivers and a statement from the Engineer, reasonably acceptable to Lender, indicating that the portion of the Required Engineering Work in question has been completed substantially in compliance with all Legal Requirements, and Lender shall, within twenty (20) days thereafter, although in no event more frequently than once each month, reimburse such amount to Borrower from the Engineering Escrow Account; provided , however , that Borrower shall not be reimbursed more than the amount set forth on Exhibit D hereto as the amount allocated to the portion of the Required Engineering Work for which reimbursement is sought.
(b) From and after the date all of the Required Engineering Work is completed, Borrower may submit a written request, which request shall be delivered together with final lien waivers and a statement from the Engineer, as the case may be, reasonably acceptable to Lender, indicating that all of the Required Engineering Work has been completed substantially in compliance with all Legal Requirements, and Lender shall, within twenty (20) days thereafter, disburse any balance of the Engineering Escrow Account to Borrower. Should an Event of Default occur, the sums on deposit in the Engineering Escrow Account may be applied by Lender in payment of any Required Engineering Work or may be applied to the payment of the Debt or any other charges affecting all or any portion of the Cross-collateralized Properties, as Lender in its sole discretion may determine; provided , however , that no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender as herein provided.
Section 5.13. Loss Proceeds . In the event of a casualty to the Property, unless Lender elects, or is required pursuant to Article III hereof to make all of the Insurance Proceeds available to Borrower for restoration, Lender and Borrower shall cause all such Insurance Proceeds to be paid by the insurer directly to the Central Account, whereupon Lender shall, after deducting Lender’s costs of recovering and paying out such Insurance Proceeds, including without limitation, reasonable attorneys’ fees, apply same to reduce the Debt in accordance with the terms of the Note; provided , however , that if Lender elects, or is deemed to have elected, to make the Insurance Proceeds available for restoration, all Insurance Proceeds in respect of rent loss, business interruption or similar coverage shall be maintained in the Central Account, to be applied by Lender in the same manner as Rent received with respect to the operation of the Property; provided , further , however , that in the event that the Insurance Proceeds with respect to such rent loss, business interruption or similar insurance policy are paid in a lump sum in advance, Lender shall hold such Insurance Proceeds in a segregated interest-bearing escrow account, which shall be an Eligible Account, shall estimate, in Lender’s reasonable discretion, the number of months required for Borrower to restore the damage caused by the casualty, shall divide the aggregate rent loss, business interruption or similar Insurance Proceeds by such number of months, and shall disburse from such bank account into the Central Account each month during the performance of such restoration such monthly installment of said Insurance Proceeds minus, if the sum which otherwise would be required to be deposited into the Operation and Maintenance Expense Sub-Account if a Default Management Period existed, which sum shall be remitted by Lender to Manager to pay Operating Expenses. In the event that Insurance Proceeds are to be applied toward restoration, Lender shall hold such funds in a segregated bank account at the Bank, which shall be an Eligible Account, and shall disburse same in accordance with the provisions of Section 3.04 hereof. Unless Lender elects, or is required pursuant to Section 6.01 hereof to make all of the Condemnation Proceeds available to Borrower for restoration, Lender and Borrower shall cause all such Condemnation Proceeds to be paid to the Central Account, whereupon Lender shall, after deducting Lender’s costs of recovering and paying out such Condemnation Proceeds, including without limitation, reasonable attorneys’ fees, apply same to reduce the Debt in accordance with the terms of the Note; provided , however , that any Condemnation Proceeds received in connection with a temporary Taking shall be maintained in the Central Account, to be applied by Lender in the same manner as Rent received with respect to the operation of the Property; provided , further , however , that in the event that the Condemnation Proceeds of any such temporary Taking are paid in a lump sum in advance, Lender shall hold such Condemnation Proceeds in a segregated interest-bearing bank account, which shall be an Eligible Account, shall estimate, in Lender’s reasonable discretion, the number of months that the Property shall be affected by such temporary Taking, shall divide the aggregate Condemnation Proceeds in
connection with such temporary Taking by such number of months, and shall disburse from such bank account into the Central Account each month during the pendency of such temporary Taking such monthly installment of said Condemnation Proceeds. In the event that Condemnation Proceeds are to be applied toward restoration, Lender shall hold such funds in a segregated bank account at the Bank, which shall be an Eligible Account, and shall disburse same in accordance with the provisions of Section 3.04 hereof. If any Loss Proceeds are received by Borrower, such Loss Proceeds shall be received in trust for Lender, shall be segregated from other funds of Borrower, and shall be forthwith paid into the Central Account, or paid to Lender to hold in a segregated bank account at the Bank, in each case to be applied or disbursed in accordance with the foregoing. Any Loss Proceeds made available to Borrower for restoration in accordance herewith, to the extent not used by Borrower in connection with, or to the extent they exceed the cost of, such restoration, shall be deposited into the Central Account, whereupon Lender shall apply the same to reduce the Debt in accordance with the terms of the Note.
Section 5.14. Intentionally Omitted .




ARTICLE VI: CONDEMNATION
Section 6.01. Condemnation . (a) Borrower shall notify Lender promptly of the commencement or threat of any Taking of the Property or any portion thereof. Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain the proceeds of any such Taking and to make any compromise or settlement in connection with such proceedings (subject to Borrower’s reasonable approval, except after the occurrence of an Event of Default, in which event Borrower’s approval shall not be required), subject to the provisions of this Security Instrument; provided, however, that Borrower may participate in any such proceedings and shall be authorized and entitled to compromise or settle any such proceeding with respect to Condemnation Proceeds in an amount less than five percent (5%) of the Allocated Loan Amount. Borrower shall execute and deliver to Lender any and all instruments reasonably required in connection with any such proceeding promptly after request therefor by Lender. Except as set forth above, Borrower shall not adjust, compromise, settle or enter into any agreement with respect to such proceedings without the prior consent of Lender. All Condemnation Proceeds are hereby assigned to and shall be paid to Lender. With respect to Condemnation Proceeds in an amount in excess of five percent (5%) of the Allocated Loan Amount, (subject to Borrower’s reasonable approval, except after the occurrence of an Event of Default, in which event Borrower’s approval shall not be required), Borrower hereby authorizes Lender to compromise, settle, collect and receive such Condemnation Proceeds, and to give proper receipts and acquittance therefor. Subject to the provisions of this Article VI, Lender may apply such Condemnation Proceeds (less any cost to Lender of recovering and paying out such proceeds, including, without limitation, reasonable attorneys’ fees and disbursements and costs allocable to inspecting any repair, restoration or rebuilding work and the plans and specifications therefor) toward the payment of the Debt or to allow such proceeds to be used for the Work.
(b) “ Substantial Taking ” shall mean (i) a Taking of such portion of the Property that would, in Lender’s reasonable discretion, leave remaining a balance of the Property which would not under then current economic conditions, applicable Development Laws and other applicable Legal Requirements, permit the restoration of the Property so as to constitute a complete, rentable facility of the same sort as existed prior to the Taking, having adequate ingress and egress to the Property, capable of producing a projected Net Operating Income (as reasonably determined by Lender) yielding a projected Debt Service Coverage therefrom for the next two (2) years of not less than the Required Debt Service Coverage, (ii) a Taking which occurs less than two (2) years prior to the Maturity Date, (iii) a Taking which Lender is not reasonably satisfied could be restored within twelve (12) months and at least six (6) months prior to the Maturity Date or (iv) a Taking of more than fifteen percent (15%) of the reasonably estimated fair market value of the Property.
(c) In the case of a Substantial Taking, Condemnation Proceeds shall be payable to Lender in reduction of the Debt but without any prepayment fee or charge of any kind and, provided that no Event of Default exists, if Borrower elects to apply any Condemnation Proceeds it may receive pursuant to this Security Instrument to the payment of the Debt, Borrower may prepay the balance of the Release Price with respect to the Property without any prepayment fee or charge of any kind.
(d) In the event of a Taking which is less than a Substantial Taking, Borrower at its sole cost and expense (whether or not the award shall have been received or shall be sufficient for restoration) shall proceed diligently to restore, or cause the restoration of, the remaining Improvements not so taken, to maintain a complete, rentable, self-contained fully operational facility of the same sort as existed prior to the Taking in as good a condition as is reasonably possible. In the event of such a Taking, Lender shall receive the Condemnation Proceeds and shall pay over the same:
(i) first, provided no Event of Default shall have occurred, to Borrower to the extent of any portion of the award as may be necessary to pay the reasonable cost of restoration of the Improvements remaining, and
(ii) second, to Lender, in reduction of the Debt without any prepayment premium or charge of any kind.
If one or more Takings in the aggregate create a Substantial Taking, then, in such event, the sections of this Article VI above applicable to Substantial Takings shall apply.
(e) In the event Lender is obligated to or elects to make Condemnation Proceeds available for the restoration or rebuilding of the Property, such proceeds shall be disbursed in the manner and subject to the conditions set forth in Section 3.04(b) hereof. If, in accordance with this Article VI, any Condemnation Proceeds are used to reduce the Debt, they shall be applied in accordance with the provisions of the Note. Borrower shall promptly execute and deliver all instruments requested by Lender for the purpose of confirming the assignment of the Condemnation Proceeds to Lender. Application of all or any part of the Condemnation Proceeds to the Debt shall be made in accordance with the provisions of Sections 3.06 and 3.07 hereof. No application of the Condemnation Proceeds to the reduction of the Debt shall have the effect of releasing the lien of this Security Instrument until the remainder of the Debt has been paid in full. In the case of any Taking, Lender, to the extent that Lender has not been reimbursed by Borrower, shall be entitled, as a first priority out of any Condemnation Proceeds, to reimbursement for all reasonable costs, fees and expenses reasonably incurred in the determination and collection of any Condemnation Proceeds. All Condemnation Proceeds deposited with Lender pursuant to this Section, until expended or applied as provided herein, shall be held in accordance with Section 3.04(b) hereof and shall constitute additional security for the payment of the Debt and the payment and performance of Borrower’s obligations, but Lender shall not be deemed a trustee or other fiduciary with respect to




its receipt of such Condemnation Proceeds or any part thereof. All awards so deposited with Lender shall be held by Lender in an Eligible Account, but Lender makes no representation or warranty as to the rate or amount of interest, if any, which may accrue on any such deposit and shall have no liability in connection therewith. For purposes hereof, any reference to the award shall be deemed to include interest, if any, which has accrued thereon.
ARTICLE VII: LEASES AND RENTS
Section 7.01. Assignment . (a) Borrower does hereby bargain, sell, assign and set over unto Lender, all of Borrower’s interest in the Leases and Rents. The assignment of Leases and Rents in this Section 7.01 is an absolute, unconditional and present assignment from Borrower to Lender and not an assignment for security and the existence or exercise of Borrower’s revocable license to collect Rent shall not operate to subordinate this assignment to any subsequent assignment. The exercise by Lender of any of its rights or remedies pursuant to this Section 7.01 shall not be deemed to make Lender a mortgagee-in-possession. In addition to the provisions of this Article VII, Borrower shall comply with all terms, provisions and conditions of the Assignment.
(b) So long as there shall exist and be continuing no Event of Default, Borrower shall have a revocable license to take all actions with respect to all Leases and Rents, present and future, including the right to collect and use the Rents, subject to the terms of this Security Instrument and the Assignment.
(c) In a separate instrument Borrower shall, as requested from time to time by Lender, assign to Lender or its nominee by specific or general assignment, any and all Leases, such assignments to be in form and
content reasonably acceptable to Lender, but subject to the provisions of Section 7.01(a) and (b) hereof. Borrower agrees to deliver to Lender, within thirty (30) days after Lender’s request, a true and complete copy of every Lease.
(d) The rights of Lender contained in this Article VII, the Assignment or any other assignment of any Lease shall not result in any obligation or liability of Lender to Borrower or any lessee under a Lease or any party claiming through any such lessee.
(e) At any time during the continuance of an Event of Default, the license granted hereinabove may be revoked by Lender, and Lender or a receiver appointed in accordance with this Security Instrument may enter upon the Property, and collect, retain and apply the Rents toward payment of the Debt in such priority and proportions as Lender in its sole discretion shall deem proper.
(f) In addition to the rights which Lender may have herein, during the continuance of any Event of Default, Lender, at its option, may require Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be used and occupied by Borrower and may require Borrower to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Borrower may be evicted by summary proceedings or otherwise.
Section 7.02. Management of Property . (a) Borrower shall manage the Property or cause the Property to be managed in a manner which is consistent with the Approved Manager Standard. All Space Leases shall provide for rental rates comparable to then existing local market rates and terms and conditions which constitute good and prudent business practice and are consistent with prevailing market terms and conditions, and shall be arms-length transactions. All Space Leases entered into after the date hereof shall provide that they are subordinate to this Security Instrument and that the lessees thereunder attorn to Lender. Borrower shall deliver copies of all Leases, amendments, modifications and renewals thereof to Lender. All proposed Leases for the Property shall be subject to the prior written approval of Lender, not to be unreasonably withheld, conditioned or delayed, provided, however that Borrower may enter into new leases with unrelated third parties without obtaining the prior consent of Lender provided that: (i) the proposed leases conform with the requirements of this Section 7.02; (ii) the proposed Space Lease is not a Major Space Lease and the space to be leased pursuant to such proposed lease together with any space leased or to be leased to an Affiliate of the tenant thereunder does not exceed 10,000 square feet; and (iii) the term of the proposed lease inclusive of all extensions and renewals, does not exceed ten (10) years.
(b) Borrower (i) shall or shall cause Operating Tenant to observe and perform all of its material obligations under the Leases pursuant to applicable Legal Requirements and shall not do or permit to be done anything to impair the value of the Major Space Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which Borrower shall receive under the Major Space Leases; (iii) shall, consistent with the Approved Manager Standard, enforce all of the terms, covenants and conditions contained in the Leases to be observed or performed; (iv) shall not collect any of the Rents under the Major Space Leases more than one (1) month in advance (except that Borrower may collect in advance such security deposits as are permitted pursuant to applicable Legal Requirements and are commercially reasonable in the prevailing market); (v) shall not execute any other assignment of lessor’s interest in the Leases or the Rents except as otherwise expressly permitted pursuant to this Security Instrument; (vi) shall not cancel or terminate any of the Leases or accept a surrender thereof in any manner inconsistent with the Approved Manager Standard; (vii) shall not convey, transfer or suffer or permit a conveyance or transfer of all or any part of the Premises or the Improvements or of any interest therein so as to effect a merger




of the estates and rights of, or a termination or diminution of the obligations of, lessees thereunder; (viii) shall not alter, modify or change the terms of any guaranty of any Major Space Lease or cancel or terminate any such guaranty in a manner inconsistent with the Approved Manager Standard; (ix) shall, in accordance with the Approved Manager Standard, make all reasonable efforts to seek lessees for space as it becomes vacant and enter into Leases in accordance with the terms hereof; (x) shall not cancel or terminate or materially modify, alter or amend any Major Space Lease or Property Agreement without Lender’s consent, which consent will not be unreasonably withheld or delayed; and (xi) shall, without limitation to any other provision hereof, execute and deliver at the request of Lender all such further assurances, confirmations and assignments in connection with the Property as are required herein and as Lender shall from time to time reasonably require.
(c) All security deposits shall be held in accordance with all Legal Requirements. Following the occurrence and during the continuance of any Event of Default, Borrower shall, upon Lender’s request, if permitted by applicable Legal Requirements, turn over the security deposits (and any interest thereon) to Lender to be held by Lender in accordance with the terms of the Leases and all Legal Requirements.
(d) If requested by Lender, Borrower shall furnish, or shall cause the applicable lessee to furnish, to Lender financial data and/or financial statements in accordance with Regulation AB for any lessee of the Property if, in connection with a Securitization, Lender expects there to be, with respect to such lessee or any group of affiliated lessees, a concentration within all of the mortgage loans included or expected to be included, as applicable, in such Securitization such that such lessee or group of affiliated lessees would constitute a Significant Obligor; provided, however, that in the event the related Space Lease does not require the related lessee to provide the foregoing information, Borrower shall use commercially reasonable efforts to cause the applicable lessee to furnish such information.
(e) Borrower covenants and agrees with Lender that (i) the Property will be managed at all times by an Approved Manager pursuant to the management agreement approved by Lender (the “ Management Agreement ”), such approval not to be unreasonably withheld or delayed, (ii) after Borrower has knowledge of a fifty percent (50%) or more change in control of the ownership of Manager, Borrower will promptly give Lender notice thereof (a “ Manager Control Notice ”) and (iii) the Management Agreement may be terminated by Lender at any time (A) for cause to the extent provided in the Management Agreement (including, but not limited to, Manager’s gross negligence, misappropriation of funds, willful misconduct or fraud) following the occurrence of an Event of Default of the type set forth in Section 13.01(a) through (c), or (B) to the extent provided in the Management Agreement, following the receipt of a Manager Control Notice and a substitute Approved Manager shall be appointed by Borrower. Notwithstanding the foregoing, transfers of publicly traded stock of Manager on a national stock exchange or on the NASDAQ Stock Market in the normal course of business and not in connection with a tender offer or sale of Manager or substantially all of the assets of Manager shall not require the giving of a Manager Control Notice. Borrower may from time to time appoint a successor manager to manage the Property, provided that any such successor manager shall be an Approved Manager. Borrower further covenants and agrees that Borrower shall require Manager (or any successor managers) to maintain at all times during the term of the Loan worker’s compensation insurance as required by Governmental Authorities.
(f) Borrower shall not enter into any new or replacement Franchise Agreement without obtaining the prior written consent of Lender, such consent not to be unreasonably withheld, conditioned or delayed (provided that any Franchise Agreement which is on a form in all material respects (including, without limitation, all fees due thereunder) the same as the form of any Franchise Agreement which is contained in the uniform franchise offering circular for any Approved Franchisor shall be deemed an acceptable form), and shall (i) pay or shall cause to be paid all sums required to be paid by Borrower under any Franchise Agreement and Operating Lease, (ii) diligently perform and observe all of the material terms, covenants and conditions of any Franchise Agreement on the part of Borrower to be performed and observed to the end that all things shall be done which are necessary to keep unimpaired the rights of Borrower under any Franchise Agreement and Operating Lease, (iii) promptly notify Lender of the giving of any notice to Borrower of any material default by Borrower in the performance or observance of any of the terms, covenants or conditions of and Franchise Agreement or Operating Lease on the part of Borrower to be performed and observed and deliver to Lender a true copy of each such notice, and (iv) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, report and estimate received by it under the Franchise Agreement or the Management Agreement or the Operating Lease. Borrower shall not, without the prior consent of the Lender, such consent not to be unreasonably withheld, conditioned or delayed, surrender any Franchise Agreement or Operating Lease or terminate or cancel any Franchise Agreement or modify, change, supplement, alter or amend any Franchise Agreement or Operating Lease, in any material respect, either orally or in writing, and Borrower hereby assigns to Lender as further security for the payment of the Debt and for the performance and observance of the terms, covenants and conditions of this Security Instrument, all the rights, privileges and prerogatives of Borrower to surrender any Franchise Agreement or Operating Lease or to terminate, cancel, modify, change, supplement, alter or amend any Franchise Agreement or Operating Lease in any respect, and any such surrender of any Franchise Agreement or termination, cancellation, modification, change, supplement, alteration or amendment of any Franchise Agreement or Operating Lease without the prior consent of




Lender shall be void and of no force and effect, provided, however, Borrower may terminate any Franchise Agreement if Borrower enters into a new Franchise Agreement with an Approved Franchisor pursuant to a Franchise Agreement which is reasonably acceptable to Lender. Notwithstanding the foregoing, Borrower may renew or replace any Operating Lease, provided such renewal or replacement shall be upon the same terms and conditions as the Operating Lease being renewed or replaced, except rent payable thereunder may be adjusted to the extent necessary to comply with the then-current requirements of the Code for real estate investment trusts. If Borrower shall default in the performance or observance of any material term, covenant or condition of any Franchise Agreement or Operating Lease on the part of Borrower to be performed or observed, then, without limiting the generality of the other provisions of this Security Instrument, and without waiving or releasing Borrower from any of its obligations hereunder, Lender shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all the terms, covenants and conditions of any Franchise Agreement or Operating Lease on the part of Borrower to be performed or observed to be promptly performed or observed on behalf of Borrower, to the end that the rights of Borrower in, to and under any Franchise Agreement and Operating Lease shall be kept unimpaired and free from default. Lender and any Person designated by Lender shall have, and are hereby granted, the right to enter upon the Property at any time and from time to time for the purpose of taking any such action. If the franchisor under any Franchise Agreement or lessee under an Operating Lease shall deliver to Lender a copy of any notice sent to Borrower of default under any Franchise Agreement or Operating Lease, as applicable, such notice shall constitute full protection to Lender for any action to be taken by Lender in good faith, in reliance thereon. Borrower shall, from time to time, use its best efforts to obtain from the franchisor or lessee under any Franchise Agreement such certificates of estoppel with respect to compliance by Borrower with the terms of any Franchise Agreement as may be requested by Lender. Borrower shall exercise each individual option, if any, to extend or renew the term of any Franchise Agreement within four (4) months of the last day upon which any such option may be exercised, unless Lender consents to the non-renewal of such Franchise Agreement in writing, and Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to exercise any such option in the name of and upon behalf of Borrower, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest, provided, however, that Lender shall not exercise such power of attorney unless and until Borrower fails to take the actions required herein.
(g) Intentionally Omitted.
(h) Borrower shall fund and operate, or shall cause Manager to fund and operate, the Property in a manner consistent with a hotel of the same type and category as the Property and in compliance in all material respects with any Franchise Agreement and Operating Lease.
(i) Borrower shall maintain or cause Operating Tenant to cause Manager to maintain Inventory in kind and amount sufficient to meet hotel industry standards for hotels comparable to the hotel located at the Premises and at levels sufficient for the operation of the hotel located at the Premises at historic occupancy levels.
(j) Borrower shall deliver to Lender all notices of default or termination received by Borrower, Operating Tenant or Manager with respect to any licenses and permits, contracts, Property Agreements or insurance policies within three (3) Business Days of receipt of the same.
(k) Borrower shall not permit any Equipment or other personal property to be removed from the Property unless the removed item is consumed or sold in the ordinary course of business, removed temporarily for maintenance and repair, or, if removed permanently, replaced by an article of equivalent suitability and not materially less value, owned by Borrower free and clear of any lien.
ARTICLE VIII: MAINTENANCE AND REPAIR
Section 8.01. Maintenance and Repair of the Property; Alterations; Replacement of Equipment . Borrower hereby covenants and agrees:
(a) Borrower shall not (i) desert or abandon the Property, (ii) change the use of the Property or cause or permit the use or occupancy of any part of the Property to be discontinued if such discontinuance or use change
would violate any zoning or other law, ordinance or regulation; (iii) consent to or seek any lowering of the zoning classification, or greater zoning restriction affecting the Property; or (iv) take any steps whatsoever to convert the Property, or any portion thereof, to a condominium or cooperative form of ownership.
(b) Borrower shall, or shall cause Operating Tenant to, at its expense, (i) take good care of the Property including grounds generally, and utility systems and sidewalks, roads, alleys, and curbs therein, and shall keep the same in good, safe and insurable condition and in compliance with all applicable Legal Requirements, (ii) promptly make all necessary repairs to the Property, above grade and below grade, interior and exterior, structural and nonstructural, ordinary and extraordinary, unforeseen and foreseen, and maintain the Property in a manner appropriate for the facility and (iii) not commit or suffer to be committed any waste of the Property or do or suffer to be done anything which will impair the value of the Property or increase




in any respect the risk of fire or other hazard to the Property. Borrower shall keep the sidewalks, vaults, gutters and curbs comprising, or adjacent to, the Property, clean and free from dirt, snow, ice, rubbish and obstructions. All repairs made by Borrower shall be made with first-class materials, in a good and workmanlike manner, shall be equal or better in quality and class to the original work and shall comply with all applicable Legal Requirements and Insurance Requirements. To the extent any of the above obligations are obligations of tenants under Space Leases or other Persons under Property Agreements, Borrower may fulfill its obligations hereunder by causing such tenants or other Persons, as the case may be, to perform their obligations thereunder. As used herein, the terms “repair” and “repairs” shall be deemed to include all necessary replacements.
(c) Borrower shall not demolish, remove, construct, or, except as otherwise expressly provided herein, restore, or alter the Property or any portion thereof, nor consent to or permit any such demolition, removal, construction, restoration, addition or alteration, which would diminish the value of the Property without Lender’s prior written consent in each instance, which consent shall not be unreasonably withheld or delayed.
(d) Borrower represents and warrants to Lender that together with Equipment owned by Operating Tenant and Manager (i) there are no fixtures, machinery, apparatus, tools, equipment or articles of personal property attached or appurtenant to, or located on, or used in connection with the management, operation or maintenance of the Property, except for the Equipment and equipment leased by Borrower and/or Operating Tenant and/or Manager for the management, operation or maintenance of the Property in accordance with the Loan Documents; (ii) the Equipment and the leased equipment constitute all of the fixtures, machinery, apparatus, tools, equipment and articles of personal property necessary to the proper operation and maintenance of the Property; and (iii) all of the Equipment is free and clear of all liens, except for the lien of this Security Instrument and the Permitted Encumbrances. All right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals and appurtenances to the Property hereafter acquired by, or released to, Borrower or constructed, assembled or placed by Borrower in the Property, and all changes and substitutions of the security constituted thereby, shall be and, in each such case, without any further mortgage, encumbrance, conveyance, assignment or other act by Lender or Borrower, shall become subject to the lien and security interest of this Security Instrument as fully and completely, and with the same effect, as though now owned by Borrower and specifically described in this Security Instrument, but at any and all times Borrower shall execute and deliver to Lender any documents Lender may reasonably deem necessary or appropriate for the purpose of specifically subjecting the same to the lien and security interest of this Security Instrument.
(e) Notwithstanding the provisions of this Security Instrument to the contrary, Borrower shall have the right, at any time and from time to time, to remove and dispose of Equipment which may have become obsolete or unfit for use or which is no longer useful in the management, operation or maintenance of the Property. Borrower shall promptly replace any such Equipment so disposed of or removed with other Equipment of equal value and utility, free of any security interest or superior title, liens or claims; except that, if by reason of technological or other developments, replacement of the Equipment so removed or disposed of is not necessary or desirable for the proper management, operation or maintenance of the Property, Borrower shall not be required to replace the same. All such replacements or additional equipment shall be deemed to constitute “Equipment” and shall be covered by the security interest herein granted.
ARTICLE IX: TRANSFER OR ENCUMBRANCE OF THE PROPERTY
Section 9.01. Other Encumbrances . Borrower shall not further encumber or permit the further encumbrance in any manner (whether by grant of a pledge, security interest or otherwise) of the Property or any part thereof or interest therein, including, without limitation, of the Rents therefrom. In addition, except for a Permitted Encumbrance, Borrower shall not further encumber and shall not permit the further encumbrance in any manner (whether by grant of a pledge, security interest or otherwise) of Borrower or any direct or indirect interest in Borrower except as expressly permitted pursuant to this Security Instrument.
Section 9.02. No Transfer . Borrower acknowledges that Lender has examined and relied on the expertise of Borrower and, if applicable, each General Partner, in owning and operating properties such as the Property in agreeing to make the Loan and will continue to rely on Borrower’s ownership of the Property as a means of maintaining the value of the Property as security for repayment of the Debt and Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property. Borrower shall not Transfer, other than Permitted Transfers, nor permit any Transfer, other than Permitted Transfers, without the prior written consent of Lender, which consent Lender may withhold in its sole and absolute discretion. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Transfer without Lender’s consent. This provision shall apply to every Transfer regardless of whether voluntary or not, or whether or not Lender has consented to any previous Transfer.
Section 9.03. Due on Sale . Lender may declare the Debt immediately due and payable upon any Transfer, other than Permitted Transfers, or further encumbrance without Lender’s consent without regard to whether any impairment of its security or any increased risk of default hereunder can be demonstrated. This provision shall apply to every Transfer or further encumbrance of the Property or any part thereof or interest in the Property or in Borrower regardless of whether voluntary or




not, or whether or not Lender has consented to any previous Transfer or further encumbrance of the Property or interest in Borrower.
ARTICLE X: CERTIFICATES
Section 10.01. Estoppel Certificates . (a) After request by Lender, Borrower, within fifteen (15) days and at its expense, will furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, and the unpaid principal amount of the Note, (ii) the rate of interest of the Note, (iii) the date payments of interest and/or principal were last paid, (iv) any offsets or defenses to the payment of the Debt that Borrower shall have knowledge of, and if any are alleged, the nature thereof, (v) that the Note, this Security Instrument and the other Loan Documents have not been modified or if modified, giving particulars of such modification and (vi) that to Borrower’s best knowledge, there has occurred and is then continuing no Default or if such Default exists, the nature thereof, the period of time it has existed, and the action being taken to remedy such Default.
(b) Within fifteen (15) days after written request by Borrower, Lender shall furnish to Borrower a written statement confirming the amount of the Debt, the maturity date of the Note and the date to which interest has been paid.
(c) At Lender’s request Borrower shall use all reasonable efforts to obtain estoppel certificates from tenants in form and substance reasonably acceptable to Lender.
ARTICLE XI: NOTICES
Section 11.01. Notices . Any notice, demand, statement, request or consent made hereunder shall be in writing and delivered personally or sent to the party to whom the notice, demand or request is being made by Federal Express or other nationally recognized overnight delivery service, as follows and shall be deemed given (a) when delivered personally, (b) on the date of sending by telefax if sent during normal business hours on a Business Day (otherwise on the next Business Day) provided that any notice given by telefax is also given by at least one
other method provided herein, or (c) one (1) Business Day after being deposited with Federal Express or such other nationally recognized delivery service:




 
 
 
 
 
 
 
If to Lender:
 
Wachovia Bank, National Association
 
 
 
 
Commercial Real Estate Services
 
 
 
 
8739 Research Drive URP 4 
 
 
 
 
NC 1075
 
 
 
 
Charlotte, North Carolina 28262
 
 
 
 
Loan Number: 502860049
 
 
 
 
Attention: Portfolio Management
 
 
 
 
Fax No.: (704) 715-0036
 
 
 
 
 
 
 
with a copy to:
 
Proskauer Rose llp
 
 
 
 
1585 Broadway 
 
 
 
 
New York, New York 10036
 
 
 
 
Attn: David J. Weinberger, Esq.
 
 
 
 
Fax No.: (212) 969-2900
 
 
 
 
 
 
 
If to Borrower:
 
c/o Ashford Hospitality Trust, Inc.
 
 
 
 
14185 Dallas Parkway, Suite 1100 
 
 
 
 
Dallas, Texas 75254-4308
 
 
 
 
Attn: David Brooks
 
 
 
 
Facsimile: (972) 778-9270
 
 
 
 
E-mail: dbrooks@ahreit.com
 
 
 
 
 
 
 
with a copy to:
 
Akin Gump Strauss Hauer & Feld LLP
 
 
 
 
590 Madison Avenue 
 
 
 
 
New York, New York 10022-2524
 
 
 
 
Attn: Peter Miller, Esq.
 
 
 
 
Facsimile: (212) 872-1002
 
 
 
 
E-mail: pamiller@akingump.com,
or such other address as either Borrower or Lender shall hereafter specify by not less than ten (10) days prior written notice as provided herein; provided, however, that notwithstanding any provision of this Article to the contrary, such notice of change of address shall be deemed given only upon actual receipt thereof. Rejection or other refusal to accept or the inability to deliver because of changed addresses of which no notice was given as herein required shall be deemed to be receipt of the notice, demand, statement, request or consent.
ARTICLE XII: INDEMNIFICATION
Section 12.01. Indemnification Covering Property . In addition, and without limitation, to any other provision of this Security Instrument or any other Loan Document, Borrower shall protect, indemnify and save harmless Lender and its successors and assigns, and each of their agents, employees, officers, directors, stockholders, partners and members (collectively, “ Indemnified Parties ”) for, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, whether incurred or imposed within or outside the judicial process, including, without limitation, reasonable attorneys’ fees and disbursements imposed upon or incurred by or asserted against any of the Indemnified Parties by reason of (a) ownership of this Security Instrument, the Assignment, the Property or any part thereof or any interest therein or receipt of any Rents; (b) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways; (c) any use, nonuse or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, the Property or any part thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways; (d) any failure on the part of Borrower to perform or comply with any of the terms of this Security Instrument or the Assignment; (e) performance of any labor or services or the furnishing of any
materials or other property in respect of the Property or any part thereof; (f) any claim by brokers, finders or similar Persons claiming to be entitled to a commission in connection with any Lease or other transaction involving the Property or any part




thereof; (g) any Imposition including, without limitation, any Imposition attributable to the execution, delivery, filing, or recording of any Loan Document, Lease or memorandum thereof; (h) any lien or claim arising on or against the Property or any part thereof under any Legal Requirement or any liability asserted against any of the Indemnified Parties with respect thereto; (i) any claim arising out of or in any way relating to any tax or other imposition on the making and/or recording of this Security Instrument, the Note or any of the other Loan Documents; (j) a Default under Sections 2.02(f), 2.02(g), 2.02(k), 2.02(t) or 2.02(w) hereof, (k) the failure of any Person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with the Loan, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the Loan; (l) the claims of any lessee or any Person acting through or under any lessee or otherwise arising under or as a consequence of any Lease or (m) the failure to pay any insurance premiums. Notwithstanding the foregoing provisions of this Section 12.01 to the contrary, Borrower shall have no obligation to indemnify the Indemnified Parties pursuant to this Section 12.01 for liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses relative to the foregoing which result from Lender’s, and its successors’ or assigns’, willful misconduct or gross negligence or with respect to matters which first occur after Lender has taken title to the Property through a foreclosure or delivery of a deed in lieu thereof. Any amounts payable to Lender by reason of the application of this Section 12.01 shall constitute a part of the Debt secured by this Security Instrument and the other Loan Documents and shall become immediately due and payable and shall bear interest at the Default Rate from the date the liability, obligation, claim, cost or expense is sustained by Lender, as applicable, until paid. The provisions of this Section 12.01 shall survive the termination of this Security Instrument whether by repayment of the Debt, foreclosure or delivery of a deed in lieu thereof, assignment or otherwise. In case any action, suit or proceeding is brought against any of the Indemnified Parties by reason of any occurrence of the type set forth in (a) through (m) above, Borrower shall, at Borrower’s expense, resist and defend such action, suit or proceeding or will cause the same to be resisted and defended by counsel at Borrower’s expense for the insurer of the liability or by counsel designated by Borrower (unless reasonably disapproved by Lender promptly after Lender has been notified of such counsel); provided , however , that nothing herein shall compromise the right of Lender (or any other Indemnified Party) to appoint its own counsel at Borrower’s expense for its defense with respect to any action which, in the reasonable opinion of Lender or such other Indemnified Party, as applicable, presents a conflict or potential conflict between Lender or such other Indemnified Party that would make such separate representation advisable. Any Indemnified Party will give Borrower prompt notice after such Indemnified Party obtains actual knowledge of any potential claim by such Indemnified Party for indemnification hereunder. The Indemnified Parties shall not settle or compromise any action, proceeding or claim as to which it is indemnified hereunder without notice to Borrower. Notwithstanding the foregoing, so long as no Default has occurred and is continuing and Borrower is resisting and defending such action, suit or proceeding as provided above in a prudent and commercially reasonable manner, in order to obtain the benefit of this Section 12.01 with respect to such action, suit or proceeding, Lender and the Indemnified Parties agree that they shall not settle such action, suit or proceeding without obtaining Borrower’s consent which Borrower agrees not to unreasonably withhold, condition or delay; provided , however , (x) if Borrower is not diligently defending such action, suit or proceeding in a prudent and commercially reasonable manner as provided above and Lender has provided Borrower with thirty (30) days’ prior written notice, or shorter period if mandated by the requirements of the applicable law, and Borrower has failed to correct such failure, or (y) failure to settle could, in Lender’s reasonable judgment, expose Lender to criminal liability, Lender may settle such action, suit or proceeding without the consent of Borrower and be entitled to the benefits of this Section 12.01 with respect to the settlement of such action, suit or proceeding.
ARTICLE XIII: DEFAULTS
Section 13.01. Events of Default . The Debt shall become immediately due at the option of Lender upon any one or more of the following events (“ Event of Default ”):
(a) if the final payment or prepayment premium, if any, due under the Note shall not be paid on Maturity;
(b) if any monthly payment of interest and/or principal due under the Note (other than the sums described in (a) above) shall not be fully paid on the date upon which the same is due and payable thereunder; provided, that the failure of any such amount to be paid when due shall not be an Event of Default if adequate funds were on deposit in the relevant Sub-Account (or would have been on deposit therein if Lender had timely allocated such funds thereto from the Central Account and/or the Collection Account in accordance with the provisions of Article V hereof);
(c) if payment of any sum (other than the sums described in (a) above or (b) above) required to be paid pursuant to the Note, this Security Instrument or any other Loan Document shall not be paid within five (5) Business Days after Lender delivers written notice to Borrower that same is due and payable thereunder or hereunder;
(d) if Borrower, Operating Tenant, Guarantor or, if Borrower, Operating Tenant or Guarantor is a partnership, any general partner of Borrower, Operating Tenant or Guarantor, or, if Borrower, Operating Tenant or Guarantor is a limited liability company, any managing member of Borrower, Operating Tenant or Guarantor, shall institute or cause to be instituted any proceeding for the termination or dissolution of Borrower, Operating Tenant, Guarantor or any such general partner or member;




(e) if (i) Borrower fails to deliver to Lender the original insurance policies or certificates as herein provided (provided, however, that if the insurance policies required by this Security Instrument are maintained in full force and effect, then Borrower shall have five (5) Business Days after notice from Lender of Borrower’s failure to deliver the original policies or certificates (whichever has not been delivered as required) to deliver same to Lender before such failure becomes an Event of Default) or (ii) if the insurance policies required hereunder are not kept in full force and effect as herein provided (no notice or cure period applies to this item (ii));
(f) if Borrower or Guarantor attempts to assign its rights under this Security Instrument or any other Loan Document or any interest herein or therein, or if any Transfer occurs other than in accordance with the provisions hereof;
(g) if any representation or warranty of Borrower or Guarantor made herein or in any other Loan Document or in any certificate, report, financial statement or other instrument or agreement furnished to Lender shall prove false or misleading in any material respect as of the date made; provided, however, that if such representation or warranty which was false or misleading in any material respect is, by its nature, curable and is not reasonably likely to have a Material Adverse Effect, and such representation or warranty was not, to the best of Borrower’s knowledge, false or misleading in any material respect when made, then the same shall not constitute an Event of Default unless Borrower has not cured the same within five (5) Business Days after receipt by Borrower of notice from Lender in writing of such breach;
(h) if Borrower, Operating Tenant, Guarantor or any general partner of Borrower, Operating Tenant or Guarantor shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due;
(i) if a receiver, liquidator or trustee of Borrower, Operating Tenant, Guarantor or any general partner of Borrower, Operating Tenant or Guarantor shall be appointed or if Borrower, Operating Tenant, Guarantor or their respective general partners shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in, by Borrower, Operating Tenant, Guarantor or their respective general partners or if any proceeding for the dissolution or liquidation of Borrower, Operating Tenant, Guarantor or their respective general partners shall be instituted; however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Borrower, Operating Tenant, Guarantor or their respective general partners, as applicable, upon the same not being discharged, stayed or dismissed within ninety (90) days or if Borrower, Operating Tenant, Guarantor or their respective general partners shall generally not be paying its debts as they become due;
(j) if Borrower shall be in default beyond any notice or grace period, if any, under any other mortgage or deed of trust or security agreement covering any part of the Property without regard to its priority relative to this Security Instrument; provided, however, this provision shall not be deemed a waiver of the provisions of Article IX prohibiting further encumbrances affecting the Property or any other provision of this Security Instrument;
(k) if the Property becomes subject (i) to any lien which is superior to the lien of this Security Instrument, other than a lien for real estate taxes and assessments not due and payable, or (ii) to any mechanic’s, materialman’s or other lien which is or is asserted to be superior to the lien of this Security Instrument, and such lien shall remain undischarged (by payment, bonding, or otherwise) for fifteen (15) days unless contested in accordance with the terms hereof;
(l) if Borrower discontinues the operation of the Property or any material part thereof for reasons other than repair or restoration arising from a casualty or condemnation or any renovation project for ten (10) days or more;
(m) except as permitted in this Security Instrument, any material alteration, demolition or removal of any of the Improvements without the prior consent of Lender;
(n) if Borrower consummates a transaction which would cause this Security Instrument or Lender’s rights under this Security Instrument, the Note or any other Loan Document to constitute a non-exempt prohibited transaction under ERISA or result in a violation of a state statute regulating government plans subjecting Lender to liability for a violation of ERISA or a state statute;
(o) if a default by Borrower beyond applicable notice and grace periods, if any, occurs under the Franchise Agreement or Operating Lease, or if the Franchise Agreement or Operating Lease is terminated, or if, without Lender’s prior written consent, there is a material change to the Franchise Agreement or Operating Lease unless, with respect to any default under or termination of the Franchise Agreement, Borrower enters into a replacement Franchise Agreement within thirty (30) days of the termination or receipt of notice of any such default, as applicable, in accordance with the terms hereof;
(p) if an Event of Default shall occur and be continuing under any of the other Cross-collateralized Mortgages;
(q) if Borrower is a tenancy-in-common, if any TIC brings a partition action without first offering its interest to the other TICs or if, upon the making of such offer, one or more of the TICs does not purchase the tenant-in-common interest of the TIC which desires to bring a partition action;




(r) if Borrower is a tenancy-in-common, if the TIC Agreement is modified without the prior written consent of Lender or if the Person appointed in the TIC Agreement as manager is replaced or removed without obtaining the prior written consent of Lender; or
(s) if a default shall occur under any of the other terms, covenants or conditions of the Note, this Security Instrument or any other Loan Document, other than as set forth in (a) through (r) above, for ten (10) days after notice from Lender in the case of any default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other default or an additional ninety (90) days if Borrower is diligently and continuously effectuating a cure of a curable non-monetary default, other than as set forth in (a) through (r) above.
Section 13.02. Remedies . (a) Upon the occurrence and during the continuance of any Event of Default, Lender may, in addition to any other rights or remedies available to it hereunder or under any other Loan Document, at law or in equity, take such action, without notice or demand, as it reasonably deems advisable to protect and enforce its rights against Borrower or any one or more of the Cross-collateralized Borrowers and in and to the Property or any one or more of the Cross-collateralized Properties including, but not limited to, the following
actions, each of which may be pursued singly, concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting any other rights and remedies of Lender hereunder, at law or in equity: (i) declare all or any portion of the unpaid Debt to be immediately due and payable; provided, however, that upon the occurrence of any of the events specified in Section 13.01(i), the entire Debt will be immediately due and payable without notice or demand or any other declaration of the amounts due and payable; or (ii) bring an action to foreclose this Security Instrument and without applying for a receiver for the Rents, but subject to the rights of the tenants under the Leases, enter into or upon the Property or any part thereof, either personally or by its agents, nominees or attorneys, and dispossess Borrower and its agents and servants therefrom, and thereupon Lender may (A) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat, (B) make alterations, additions, renewals, replacements and improvements to or on the Property or any part thereof, (C) exercise all rights and powers of Borrower with respect to the Property or any part thereof, whether in the name of Borrower or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all earnings, revenues, rents, issues, profits and other income of the Property and every part thereof, and (D) apply the receipts from the Property or any part thereof to the payment of the Debt, after deducting therefrom all expenses (including, without limitation, reasonable attorneys’ fees and disbursements) reasonably incurred in connection with the aforesaid operations and all amounts necessary to pay the Impositions, insurance and other charges in connection with the Property or any part thereof, as well as just and reasonable compensation for the services of Lender’s third-party agents; or (iii) have an appraisal or other valuation of the Property or any part thereof performed by an Appraiser (and Borrower covenants and agrees it shall cooperate in causing any such valuation or appraisal to be performed) and any cost or expense incurred by Lender in connection therewith shall constitute a portion of the Debt and be secured by this Security Instrument and shall be immediately due and payable to Lender with interest, at the Default Rate, until the date of receipt by Lender; or (iv) sell the Property or institute proceedings for the complete foreclosure of this Security Instrument, or take such other action as may be allowed pursuant to Legal Requirements, at law or in equity, for the enforcement of this Security Instrument in which case the Property or any part thereof may be sold for cash or credit in one or more parcels; or (v) with or without entry, and to the extent permitted and pursuant to the procedures provided by applicable Legal Requirements, institute proceedings for the partial foreclosure of this Security Instrument, or take such other action as may be allowed pursuant to Legal Requirements, at law or in equity, for the enforcement of this Security Instrument for the portion of the Debt then due and payable, subject to the lien of this Security Instrument continuing unimpaired and without loss of priority so as to secure the balance of the Debt not then due; or (vi) sell the Property or any part thereof and any or all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale or otherwise, at one or more sales, in whole or in parcels, in any order or manner, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law, at the discretion of Lender, and in the event of a sale, by foreclosure or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien on the remaining portion of the Property; or (vii) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained in the Loan Documents, or any of them; or (viii) recover judgment on the Note or any guaranty either before, during or after (or in lieu of) any proceedings for the enforcement of this Security Instrument; or (ix) apply, ex parte , for the appointment of a custodian, trustee, receiver, keeper, liquidator or conservator of the Property or any part thereof, irrespective of the adequacy of the security for the Debt and without regard to the solvency of Borrower or of any Person liable for the payment of the Debt, to which appointment Borrower does hereby consent and such receiver or other official shall have all rights and powers permitted by applicable law and such other rights and powers as the court making such appointment may confer, but the appointment of such receiver or other official shall not impair or in any manner prejudice the rights of Lender to receive the Rent with respect to any of the Property pursuant to this Security Instrument or the Assignment; or (x) require, at Lender’s option, Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of any portion of the Property occupied by Borrower and may require Borrower to vacate and surrender possession




to Lender of the Property or to such receiver and Borrower may be evicted by summary proceedings or otherwise; or (xi) without notice to Borrower (A) apply all or any portion of the cash collateral in any Sub-Account and Escrow Account, including any interest and/or earnings therein, to carry out the obligations of Borrower under this Security Instrument and the other Loan Documents, to protect and preserve the Property and for any other purpose permitted under this Security Instrument and the other Loan Documents and/or (B) have all or any portion of such cash collateral immediately paid to Lender to be applied against the Debt in the order and priority set forth in the Note; or (xii) pursue any or all such other rights or remedies as Lender may have under applicable law or
in equity; provided, however, that the provisions of this Section 13.02(a) shall not be construed to extend or modify any of the notice requirements or grace periods provided for hereunder or under any of the other Loan Documents. Borrower hereby waives, to the fullest extent permitted by Legal Requirements, any defense Borrower might otherwise raise or have by the failure to make any tenants parties defendant to a foreclosure proceeding and to foreclose their rights in any proceeding instituted by Lender.
(b) Any time after an Event of Default Lender shall have the power to sell the Property or any part thereof at public auction, in such manner, at such time and place, upon such terms and conditions, and upon such public notice as Lender may deem best for the interest of Lender, or as may be required or permitted by applicable law, consisting of advertisement in a newspaper of general circulation in the jurisdiction and for such period as applicable law may require and at such other times and by such other methods, if any, as may be required by law to convey the Property in fee simple by Lender’s deed with special warranty of title to and at the cost of the purchaser, who shall not be liable to see to the application of the purchase money. The proceeds or avails of any sale made under or by virtue of this Section 13.02, together with any other sums which then may be held by Lender under this Security Instrument, whether under the provisions of this Section 13.02 or otherwise, shall be applied as follows:
First: To the payment of the third-party costs and expenses reasonably incurred in connection with any such sale and to advances, fees and expenses, including, without limitation, reasonable fees and expenses of Lender’s legal counsel as applicable, and of any judicial proceedings wherein the same may be made, and of all expenses, liabilities and advances reasonably made or incurred by Lender under this Security Instrument, together with interest as provided herein on all such advances made by Lender, and all Impositions, except any Impositions or other charges subject to which the Property shall have been sold;
Second: To the payment of the whole amount then due, owing and unpaid under the Note for principal and interest thereon, with interest on such unpaid principal at the Default Rate from the date of the occurrence of the earliest Event of Default that formed a basis for such sale until the same is paid;
Third: To the payment of any other portion of the Debt required to be paid by Borrower pursuant to any provision of this Security Instrument, the Note, or any of the other Loan Documents; and
Fourth: The surplus, if any, to Borrower unless otherwise required by Legal Requirements.
Lender and any receiver or custodian of the Property or any part thereof shall be liable to account for only those rents, issues, proceeds and profits actually received by it.
(c) Lender may adjourn from time to time any sale by it to be made under or by virtue of this Security Instrument by announcement at the time and place appointed for such sale or for such adjourned sale or sales and, except as otherwise provided by any applicable provision of Legal Requirements, Lender, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned.
(d) Upon the completion of any sale or sales made by Lender under or by virtue of this Section 13.02, Lender, or any officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient instrument, or good and sufficient instruments, granting, conveying, assigning and transferring all estate, right, title and interest in and to the property and rights sold. Lender is hereby irrevocably appointed the true and lawful attorney-in-fact of Borrower (coupled with an interest), in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the property and rights so sold and for that purpose Lender may execute all necessary instruments of conveyance, assignment, transfer and delivery, and may substitute one or more Persons with like power, Borrower hereby ratifying and confirming all that its said attorney-in-fact or such substitute or substitutes shall lawfully do by virtue hereof. Nevertheless, Borrower, if so requested by Lender, shall ratify and confirm any such sale or sales by executing and delivering to Lender, or to such purchaser or purchasers all such instruments as may be advisable, in the sole judgement of Lender, for such purpose, and as may be designated in such request. Any such sale or sales made under or by virtue of this Section 13.02, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or a judgment or decree of foreclosure and sale, shall operate to divest all the estate, right, title, interest, claim and




demand whatsoever, whether at law or in equity, of Borrower in and to the property and rights so sold, and shall, to the fullest extent permitted under Legal Requirements, be a perpetual bar, both at law and in equity against Borrower and against any and all Persons claiming or who may claim the same, or any part thereof, from, through or under Borrower.
(e) In the event of any sale made under or by virtue of this Section 13.02 (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or a judgment or decree of foreclosure and sale), the entire Debt immediately thereupon shall, anything in the Loan Documents to the contrary notwithstanding, become due and payable.
(f) Upon any sale made under or by virtue of this Section 13.02 (whether made under the power of sale herein granted or under or by virtue of judicial proceedings or a judgment or decree of foreclosure and sale), Lender may bid for and acquire the Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Debt the net sales price after deducting therefrom the expenses of the sale and the costs of the action.
(g) No recovery of any judgment by Lender and no levy of an execution under any judgment upon the Property or any part thereof or upon any other property of Borrower shall release the lien of this Security Instrument upon the Property or any part thereof, or any liens, rights, powers or remedies of Lender hereunder, but such liens, rights, powers and remedies of Lender shall continue unimpaired until all amounts due under the Note, this Security Instrument and the other Loan Documents are paid in full.
(h) Upon the exercise by Lender of any power, right, privilege, or remedy pursuant to this Security Instrument which requires any consent, approval, registration, qualification, or authorization of any Governmental Authority, Borrower agrees to execute and deliver, or will cause the execution and delivery of, all applications, certificates, instruments, assignments and other documents and papers that Lender or any purchaser of the Property may be required to obtain for such governmental consent, approval, registration, qualification, or authorization and Lender is hereby irrevocably appointed the true and lawful attorney-in-fact of Borrower (coupled with an interest), in its name and stead, to execute all such applications, certificates, instruments, assignments and other documents and papers.
Section 13.03. Payment of Debt After Default . If, following the occurrence of any Event of Default, Borrower shall tender payment of an amount sufficient to satisfy the Debt in whole or in part at any time prior to a foreclosure sale of the Property, and if at the time of such tender prepayment of the principal balance of the Note is not permitted by the Note or this Security Instrument, Borrower shall, in addition to the entire Debt, also pay to Lender a sum equal to (a) all accrued interest on the Note and all other fees, charges and sums due and payable hereunder, (b) all costs and expenses in connection with the enforcement of Lender’s rights hereunder, and (c) a prepayment charge (the “ Prepayment Charge ”) equal to the greater of (i) 1% of the Principal Amount and (ii) the present value of a series of payments each equal to the Payment Differential (as hereinafter defined) and payable on each Payment Date over the remaining original term of the Note and on the Payment Date occurring two months prior to the Maturity Date, discounted at the Reinvestment Yield (as hereinafter defined) for the number of months remaining as of the date of such prepayment to each such Payment Date and the Payment Date occurring two months prior to the Maturity Date. The term “Payment Differential” shall mean an amount equal to (i) the Interest Rate less the Reinvestment Yield, divided by (ii) twelve (12) and multiplied by (iii) the Principal Amount after application of the constant monthly payment due under the Note on the date of such prepayment, provided that the Payment Differential shall in no event be less than zero. The term “Reinvestment Yield” shall mean an amount equal to the lesser of (i) the yield on the U.S. Treasury issue (primary issue) with a maturity date closest to the Payment Date occurring two months prior to the Maturity Date, or (ii) the yield on the U.S. Treasury issue (primary issue) with a term equal to the remaining average life of the indebtedness evidenced by the Note, with each such yield being based on the bid price for such issue as published in the Wall Street Journal on the date that is fourteen (14) days prior to the date of such prepayment set forth in the notice of prepayment (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. In addition to the amounts described above, if, during the first (1st) Loan Year, Borrower shall tender payment of an amount sufficient to satisfy the Debt in whole or in part following the
occurrence of any Event of Default, Borrower shall, in addition to the entire Debt, also pay to Lender a sum equal to three percent (3%) of the Principal Amount. Failure of Lender to require any of these payments shall not constitute a waiver of the right to require the same in the event of any subsequent default or to exercise any other remedy available to Lender hereunder, under any other Loan Document or at law or in equity. In the event that any prepayment charge is due hereunder, Lender shall deliver to Borrower a statement setting forth the amount and determination of the prepayment fee, and, provided that Lender shall have in good faith applied the formula described above, Borrower shall not have the right to challenge the calculation or the method of calculation set forth in any such statement in the absence of manifest error, which calculation may be made by Lender on any day during the fifteen (15) day period preceding the date of such prepayment. Lender shall not be obligated or required to have actually reinvested the prepaid principal balance at the Reinvestment Yield or otherwise as a condition to receiving the prepayment charge. If at the time of such tender, prepayment of the principal balance of the Note is permitted, such tender by Borrower shall be deemed to be a voluntary prepayment of the principal balance of the Note, and Borrower shall, in addition to the entire Debt, also pay to Lender the applicable prepayment consideration specified in the Note and this Security Instrument.




Section 13.04. Possession of the Property . Upon the occurrence of any Event of Default and the acceleration of the Debt or any portion thereof, Borrower, if an occupant of the Property or any part thereof, upon demand of Lender, shall immediately surrender possession of the Property (or the portion thereof so occupied) to Lender, and if Borrower is permitted to remain in possession, the possession shall be as a month-to-month tenant of Lender and, on demand, Borrower shall pay to Lender monthly, in advance, a reasonable rental for the space so occupied and in default thereof Borrower may be dispossessed. The covenants herein contained may be enforced by a receiver of the Property or any part thereof. Nothing in this Section 13.04 shall be deemed to be a waiver of the provisions of this Security Instrument making the Transfer of the Property or any part thereof without Lender’s prior written consent an Event of Default.
Section 13.05. Interest After Default . If any amount due under the Note, this Security Instrument or any of the other Loan Documents is not paid within any applicable notice and grace period after same is due, whether such date is the stated due date, any accelerated due date or any other date or at any other time specified under any of the terms hereof or thereof, then, in such event, Borrower shall pay interest on the amount not so paid from and after the date on which such amount first becomes due at the Default Rate; and such interest shall be due and payable at such rate until the earlier of the cure of all Events of Default or the payment of the entire amount due to Lender, whether or not any action shall have been taken or proceeding commenced to recover the same or to foreclose this Security Instrument. All unpaid and accrued interest shall be secured by this Security Instrument as part of the Debt. Nothing in this Section 13.05 or in any other provision of this Security Instrument shall constitute an extension of the time for payment of the Debt.
Section 13.06. Borrower’s Actions After Default . After the happening of any Event of Default and immediately upon the commencement of any action, suit or other legal proceedings by Lender to obtain judgment for the Debt, or of any other nature in aid of the enforcement of the Loan Documents, Borrower will (a) after receipt of notice of the institution of any such action, waive the issuance and service of process and enter its voluntary appearance in such action, suit or proceeding, and (b) if required by Lender, consent to the appointment of a receiver or receivers of the Property or any part thereof and of all the earnings, revenues, rents, issues, profits and income thereof.
Section 13.07. Control by Lender After Default . Notwithstanding the appointment of any custodian, receiver, liquidator or trustee of Borrower, or of any of its property, or of the Property or any part thereof, to the extent permitted by Legal Requirements, Lender shall be entitled to obtain possession and control of all property now and hereafter covered by this Security Instrument and the Assignment in accordance with the terms hereof.
Section 13.08. Right to Cure Defaults . (a) Upon the occurrence of any Event of Default, Lender or its agents may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender and its agents are authorized to enter upon the Property or any part thereof for such purposes, or appear in, defend, or bring any action or proceedings to protect Lender’s interest in
the Property or any part thereof or to foreclose this Security Instrument or collect the Debt, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with interest as provided in this Section 13.08, shall constitute a portion of the Debt and shall be immediately due and payable to Lender upon demand. All such costs and expenses incurred by Lender or its agents in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall bear interest at the Default Rate, for the period from the date so demanded to the date of payment to Lender. All such costs and expenses incurred by Lender or its agents together with interest thereon calculated at the above rate shall be deemed to constitute a portion of the Debt and be secured by this Security Instrument.
(b) If Lender makes any payment or advance that Lender is authorized by this Security Instrument to make in the place and stead of Borrower (i) relating to the Impositions or tax liens asserted against the Property, Lender may do so according to any bill, statement or estimate procured from the appropriate public office without inquiry into the accuracy of the bill, statement or estimate or into the validity of any of the Impositions or the tax liens or claims thereof; (ii) relating to any apparent or threatened adverse title, lien, claim of lien, encumbrance, claim or charge, Lender will be the sole judge of the legality or validity of same; or (iii) relating to any other purpose authorized by this Security Instrument but not enumerated in this Section 13.08, Lender may do so whenever, in its judgment and discretion, the payment or advance seems necessary or desirable to protect the Property and the full security interest intended to be created by this Security Instrument. In connection with any payment or advance made pursuant to this Section 13.08, Lender has the option and is authorized, but in no event shall be obligated, to obtain a continuation report of title prepared by a title insurance company. The payments and the advances made by Lender pursuant to this Section 13.08 and the cost and expenses of said title report will be due and payable by Borrower on demand, together with interest at the Default Rate, and will be secured by this Security Instrument.
Section 13.09. Late Payment Charge . If any portion of the Debt (other than the principal portion of the Debt due on Maturity) is not paid in full on or before the day on which it is due and payable hereunder, Borrower shall pay to Lender an amount equal to five percent (5%) of such unpaid portion of the Debt (“ Late Charge ”) to defray the expense incurred by Lender in handling and processing such delinquent payment, and such amount shall constitute a part of the Debt.




Section 13.10. Recovery of Sums Required to Be Paid . Lender shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due and payable hereunder (after the expiration of any grace period or the giving of any notice herein provided, if any), without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Lender thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Borrower existing at the time such earlier action was commenced.
Section 13.11. Marshalling and Other Matters . Borrower hereby waives, to the fullest extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement, redemption (both equitable and statutory) and homestead laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Nothing herein or in any other Loan Document shall be construed as requiring Lender to resort to any particular Cross-collateralized Property for the satisfaction of the Debt in preference or priority to any other Cross-collateralized Property but Lender may seek satisfaction out of all the Cross-collateralized Properties or any part thereof in its absolute discretion. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, whether equitable or statutory and on behalf of each and every Person acquiring any interest in or title to the Property or any part thereof subsequent to the date of this Security Instrument and on behalf of all Persons to the fullest extent permitted by applicable law.
Section 13.12. Tax Reduction Proceedings . After an Event of Default, Borrower shall be deemed to have appointed Lender as its attorney-in-fact to seek a reduction or reductions in the assessed valuation of the Property for real property tax purposes or for any other purpose and to prosecute any action or proceeding in connection therewith. This power, being coupled with an interest, shall be irrevocable for so long as any part of the Debt remains unpaid and any Event of Default shall be continuing.
Section 13.13. General Provisions Regarding Remedies .
(a)  Right to Terminate Proceedings . Lender may terminate or rescind any proceeding or other action brought in connection with its exercise of the remedies provided in Section 13.02 at any time before the conclusion thereof, as determined in Lender’s sole discretion and without prejudice to Lender.
(b)  No Waiver or Release . The failure of Lender to exercise any right, remedy or option provided in the Loan Documents shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation contained in the Loan Documents. No acceptance by Lender of any payment after the occurrence of an Event of Default and no payment by Lender of any payment or obligation for which Borrower is liable hereunder shall be deemed to waive or cure any Event of Default. No sale of all or any portion of the Property, no forbearance on the part of Lender, and no extension of time for the payment of the whole or any portion of the Debt or any other indulgence given by Lender to Borrower or any other Person, shall operate to release or in any manner affect the interest of Lender in the Property or the liability of Borrower to pay the Debt. No waiver by Lender shall be effective unless it is in writing and then only to the extent specifically stated.
(c)  No Impairment; No Releases . The interests and rights of Lender under the Loan Documents shall not be impaired by any indulgence, including (i) any renewal, extension or modification which Lender may grant with respect to any of the Debt; (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Lender may grant with respect to the Property or any portion thereof; or (iii) any release or indulgence granted to any maker, endorser, guarantor or surety of any of the Debt.
(d)  Effect on Judgment . No recovery of any judgment by Lender and no levy of an execution under any judgment upon any Property or any portion thereof shall affect in any manner or to any extent the lien of the other Cross-collateralized Mortgages upon the remaining Cross-collateralized Properties or any portion thereof, or any rights, powers or remedies of Lender hereunder or thereunder. Such lien, rights, powers and remedies of Lender shall continue unimpaired as before.
ARTICLE XIV: COMPLIANCE WITH REQUIREMENTS
Section 14.01. Compliance with Legal Requirements . (a) Borrower shall promptly comply with all present and future Legal Requirements, foreseen and unforeseen, ordinary and extraordinary, whether requiring structural or nonstructural repairs or alterations including, without limitation, all zoning, subdivision, building, safety and environmental protection, land use and development Legal Requirements, all Legal Requirements which may be applicable to the curbs adjoining the Property or to the use or manner of use thereof, and all rent control, rent stabilization and all other similar Legal Requirements relating to rents charged and/or collected in connection with the Leases. Borrower represents and warrants that the Property is in compliance in all respects with all Legal Requirements as of the date hereof, no notes or notices of violations of any Legal Requirements have been entered or received by Borrower and there is no basis for the entering of such notes or notices.
(b) Borrower shall have the right to contest by appropriate legal proceedings diligently conducted in good faith, without cost or expense to Lender, the validity or application of any Legal Requirement and to suspend compliance therewith if permitted under applicable Legal Requirements, provided (i) failure to comply therewith may not subject Lender to any civil or criminal liability, (ii) prior to and during such contest, Borrower shall furnish to Lender security reasonably satisfactory to




Lender, in its reasonable discretion, against loss or injury by reason of such contest or non-compliance with such Legal Requirement, (iii) no Event of Default shall exist during such proceedings and such contest shall not otherwise violate any of the provisions of any of the Loan Documents, (iv) such contest shall not (unless Borrower shall comply with the provisions of clause (ii) of this Section 14.01(b)) subject the Property to any lien or encumbrance the enforcement of which is not suspended or otherwise affect the priority of the lien of this Security Instrument; (v) such contest shall not affect the ownership, use or occupancy of the Property; (vi) the Property or any part thereof or any interest therein shall not be in any immediate danger of being sold, forfeited or lost by reason of such contest by Borrower; (vii) Borrower shall give Lender prompt notice of the commencement of such proceedings and, upon request by Lender, notice of the status of such proceedings and/or confirmation of the continuing satisfaction of the conditions set forth in clauses (i) — (vi) of this Section
14.01(b); and (viii) upon a final determination of such proceeding, Borrower shall take all steps necessary to comply with any requirements arising therefrom.
(c) Borrower shall at all times comply with all applicable Legal Requirements with respect to the construction, use and maintenance of any vaults adjacent to the Property. If by reason of the failure to pay taxes, assessments, charges, permit fees, franchise taxes or levies of any kind or nature, the continued use of the vaults adjacent to Property or any part thereof is discontinued, Borrower nevertheless shall, with respect to any vaults which may be necessary for the continued use of the Property, take such steps (including the making of any payment) to ensure the continued use of vaults or replacements.
Section 14.02. Compliance with Recorded Documents; No Future Grants . Borrower shall promptly perform and observe or cause to be performed and observed, all of the terms, covenants and conditions of all Property Agreements and all things necessary to preserve intact and unimpaired any and all appurtenances or other interests or rights affecting the Property.
ARTICLE XV: DEFEASANCE; PREPAYMENT
Section 15.01. Defeasance; Prepayment . (a) Except as set forth in this Section 15.01, no prepayment or defeasance of the Debt may be made by or on behalf of Borrower in whole or in part.
(b) Borrower may defease the Loan at any time subsequent to the earlier to occur of (x) the second (2nd) anniversary of a Securitization or (y) the third (3rd) anniversary of the date hereof and prior to the calendar month immediately preceding the Maturity Date, in whole or, from time to time, in part, as of the last day of an Interest Accrual Period, it being acknowledged that Borrower may defease the Loan on a day other than the last day of an Interest Accrual Period, provided that Borrower pays all interest which would otherwise be due to Lender through the end of such Interest Accrual Period, in accordance with the following provisions:
(i) Lender shall have received from Borrower, not less than thirty (30) days’, nor more than ninety (90) days’, prior written notice specifying the date proposed for such defeasance and the amount which is to be defeased, which proposed date shall be as of a Payment Date (which notice shall be revocable by Borrower three (3) times during the term of the Loan by giving Lender not less than two (2) Business Days prior written notice of such revocation, provided that Borrower shall remain obligated to pay Lender’s costs and expenses including, without limitation, breakage costs incurred by Lender in connection with such revocation).
(ii) Borrower shall also pay to Lender all interest due through and including the last day of the Interest Accrual Period ending on the day prior to the Payment Date in which such defeasance is being made, together with any and all other amounts due and owing pursuant to the terms of the Note, this Security Instrument or the other Loan Documents, including, without limitation, any costs incurred in connection with a defeasance.
(iii) No Event of Default shall have occurred and be continuing.
(iv) Borrower shall (A) either pay the Defeasance Deposit, or if Borrower shall elect, purchase the Federal Obligations and (B) deliver to Lender (1) a security agreement, in form and substance reasonably satisfactory to Lender, creating a first priority lien on the Defeasance Deposit (if applicable) and the Federal Obligations purchased by or on behalf of Borrower in accordance with the terms of this Section 15.01(b)(iv) (the “ Security Agreement ”); (2) an Officer’s Certificate certifying that the requirements set forth in this Section 15.01(b)(iv) have been satisfied; (3) an opinion of counsel for Borrower in form and substance reasonably satisfactory to Lender stating, among other things, that (x) Lender has a perfected security interest in the Defeasance Deposit (if applicable) and a first priority perfected security interest in the Federal Obligations purchased by Lender on behalf of Borrower or by Borrower, as applicable, (y) the contemplated defeasance will not result in any deemed exchange pursuant to Section 1001 of the Code of
the Note and will not adversely affect the Note’s or, if applicable, the undefeased Note’s status as indebtedness for Federal income tax purposes and (z) any trust formed as a “real estate mortgage investment conduit” within the meaning of Section 860D of the Code (“ REMIC ”) in connection with a Securitization will not fail to maintain its status as a REMIC as a result of such defeasance; (4) in the event that only a portion of the Loan is being defeased, Borrower shall execute and deliver




all necessary documents to split the Note into two substitute notes, one having a principal balance equal to the defeased portion of the Note (the “ Defeased Note ”) and one note having a principal balance equal to the undefeased portion of the Note (the “ Undefeased Note ”), the amortization schedule for which notes shall be calculated, in the case of a Defeased Note, or recalculated, in the case of an Undefeased Note, to amortize the respective principal balances of each on the same schedule as the Note (including, without limitation, the payment of the Principal Amount due on the Maturity Date); (5) a certificate, in form and substance reasonably satisfactory to Lender from a nationally recognized Independent certified public accountant confirming that the requirements of this Section 15.01(b) have been satisfied; and (6) such other certificates, documents, opinions or instruments as Lender may reasonably request. Borrower reserves the right to purchase Federal Obligations with and in lieu of making the Defeasance Deposit which provide Scheduled Defeasance Payments, and, if Borrower shall deliver the Defeasance Deposit to Lender, appoints Lender as its agent and attorney-in-fact, coupled with an interest (which appointment will not be exercised if Borrower notifies Lender in writing in the notice provided for in Section 15.01(b)(i) that Borrower will purchase the Federal Obligations), for the purpose of using the Defeasance Deposit to purchase Federal Obligations which provide Scheduled Defeasance Payments, and Lender shall, upon receipt of the Defeasance Deposit, purchase such Federal Obligations on behalf of Borrower. Borrower, pursuant to the Security Agreement or other appropriate document, shall authorize and direct that the payments received from the Federal Obligations shall be made directly to Lender and applied to satisfy the obligations of Borrower under the Defeased Note. The Defeased Note and the Undefeased Note shall have identical terms as the Note, except for the principal balance. A Defeased Note cannot be the subject of a further defeasance.
(v) The Rating Agencies shall have confirmed in writing that any rating issued by the Rating Agencies in connection with the Securitization will not, as a result of the proposed defeasance, be downgraded, from the then current ratings thereof, qualified or withdrawn.
(vi) If the Loan is to be defeased and Borrower is requesting a release of the Property in connection with such defeasance, such defeasance shall be to facilitate the disposition or refinancing of the Property or in connection with any other customary transaction within the meaning of Treas. Reg. 1.860G-(2)(a)(8)(iii).
(vii) If Borrower shall continue to own any assets other than the Defeasance Deposit, Borrower shall establish or designate a special-purpose bankruptcy-remote successor entity reasonably acceptable to Lender (the “ Successor Borrower ”), with respect to which a substantive nonconsolidation opinion satisfactory in form and substance reasonably satisfactory to Lender has been delivered to Lender and Borrower shall transfer and assign to the Successor Borrower all obligations, rights and duties under the Note and the Security Agreement, together with the pledged Defeasance Deposit. The Successor Borrower shall assume the obligations of Borrower under the Note and the Security Agreement and Borrower shall be relieved of its obligations hereunder and thereunder. Borrower shall pay Ten and No/100 Dollars ($10.00) to the Successor Borrower as consideration for assuming such Borrower obligations.
(viii) In the event the Loan is defeased in full in accordance with the terms hereof, Lender shall release all reserves, escrows and guaranties relating to the Loan to Borrower and in the event the Loan is defeased in part in connection with a Release in accordance with the terms hereof, Lender shall release to Borrower all reserves and escrows relating to the Property subject to the Release.
(c) At any time subsequent to the Payment Date occurring in February, 2017 (the “ Lockout Expiration Date ”), Borrower may prepay the Loan, in whole, but not in part, as of the last day of an Interest Accrual
Period, it being acknowledged that Borrower may prepay the Loan on a day other than the last day of an Interest Accrual Period, provided that Borrower pays all interest which would otherwise be due to Lender through the end of such Interest Accrual Period, in accordance with the following provisions:
(i) Lender shall have received from Borrower not less than thirty (30) days , nor more than ninety (90) days, prior written notice specifying the date proposed for such prepayment and the amount which is to be prepaid (which notice shall be revocable by Borrower up to two (2) times during the term of the Loan by giving Lender not less than one (1) Business Day prior written notice of such revocation, provided that Borrower shall remain obligated to pay Lender’s costs and expenses including, without limitation, breakage costs incurred by Lender in connection with such revocation).
(ii) Borrower shall also pay to Lender all interest due through and including the last day of the Interest Accrual Period in which such prepayment is being made, together with any and all other amounts due and owing pursuant to the terms of the Note, this Security Instrument or the other Loan Documents.
(iii) Any partial prepayment shall be in a minimum amount not less than $25,000 and shall be in whole multiples of $1,000 in excess thereof.
(iv) No Event of Default shall have occurred and be continuing.




(v) Any partial prepayment of the Principal Amount, including, without limitation, Unscheduled Payments, shall be applied to the installments of principal last due hereunder and shall not release or relieve Borrower from the obligation to pay the regularly scheduled installments of principal and interest becoming due under the Note.
Section 15.02. Release of Property . If Borrower prepays or defeases all or a portion of the Loan pursuant to Section 15.01 hereof or if Lender applies Loss Proceeds from the Property towards the repayment of the Debt or towards a defeasance, Lender shall, promptly upon satisfaction of all the following terms and conditions execute, acknowledge and deliver to Borrower a release of this Security Instrument (a “ Release ”) in recordable form with respect to the Property:
(a) If such prepayment or defeasance, as applicable, is a prepayment or defeasance, as applicable, in part, but not in whole, Lender shall have received on the date proposed for such prepayment or defeasance, as applicable, an amount equal to the greater of (i) the amount which is necessary to defease a portion of the Loan Amount equal to the Release Price Percentage multiplied by the Allocated Loan Amount with respect to the Cross-collateralized Property which is the subject of the Release, (ii) such amount as would cause the Debt Yield subsequent to the contemplated Release to be equal to or greater than the Debt Yield prior to the contemplated Release and (iii) such amount as would cause the Debt Yield subsequent to the contemplated Release to be no less than the Debt Yield as of the Closing Date (the “ Release Price ”).
(b) Borrower shall, at its sole expense, prepare any and all documents and instruments necessary to effect the Release, all of which shall be subject to the reasonable approval of Lender, and Borrower shall pay all costs reasonably incurred by Lender (including, but not limited to, reasonable attorneys’ fees and disbursements, title search costs or endorsement premiums) in connection with the review, execution and delivery of the Release.
(c) No Event of Default has occurred and is continuing.
ARTICLE XVI: ENVIRONMENTAL COMPLIANCE
Section 16.01. Covenants, Representations and Warranties . (a) Borrower has not, at any time, and, to Borrower’s best knowledge after due inquiry and investigation, except as set forth in the Environmental Report, no other Person has at any time, handled, buried, stored, retained, refined, transported, processed, manufactured,
generated, produced, spilled, allowed to seep, leak, escape or leach, or pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or otherwise disposed of or dealt with Hazardous Materials on, to or from the Premises or any other real property owned and/or occupied by Borrower, and Borrower does not intend to and shall not use the Property or any part thereof or any such other real property for the purpose of handling, burying, storing, retaining, refining, transporting, processing, manufacturing, generating, producing, spilling, seeping, leaking, escaping, leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping, transferring or otherwise disposing of or dealing with Hazardous Materials, except for use and storage for use of heating oil, cleaning fluids, pesticides and other substances customarily used in the operation of properties that are being used for the same purposes as the Property is presently being used, provided such use and/or storage for use is in compliance with the requirements hereof and the other Loan Documents and does not give rise to liability under applicable Legal Requirements or Environmental Statutes or be the basis for a lien against the Property or any part thereof. In addition, without limitation to the foregoing provisions, Borrower represents and warrants that, to the best of its knowledge, after due inquiry and investigation, except as previously disclosed in writing to Lender or in the Environmental Report, there is no asbestos in, on, over, or under all or any portion of the fire-proofing or any other portion of the Property.
(b) Borrower, after due inquiry and investigation, knows of no seepage, leak, escape, leach, discharge, injection, release, emission, spill, pumping, pouring, emptying or dumping of Hazardous Materials into waters on, under or adjacent to the Property or any part thereof or any other real property owned and/or occupied by Borrower, or onto lands from which such Hazardous Materials might seep, flow or drain into such waters, except as disclosed in the Environmental Report or as permitted by applicable Legal Requirements.
(c) Borrower shall not permit any Hazardous Materials to be handled, buried, stored, retained, refined, transported, processed, manufactured, generated, produced, spilled, allowed to seep, leak, escape or leach, or to be pumped, poured, emitted, emptied, discharged, injected, dumped, transferred or otherwise disposed of or dealt with on, under, to or from the Property or any portion thereof at any time, except for use and storage for use of heating oil, ordinary cleaning fluids, pesticides and other substances customarily used in the operation of properties that are being used for the same purposes as the Property is presently being used, provided such use and/or storage for use is in compliance with the requirements hereof and the other Loan Documents and does not give rise to liability under applicable Legal Requirements or be the basis for a lien against the Property or any part thereof.
(d) Borrower represents and warrants that no actions, suits, or proceedings have been commenced, or are pending, or to the best knowledge of Borrower, are threatened with respect to any Legal Requirement governing the use, manufacture, storage, treatment, transportation, or processing of Hazardous Materials with respect to the Property or any part thereof. Borrower has received no notice of, and, except as disclosed in the Environmental Report, after due inquiry, has no knowledge of any fact,




condition, occurrence or circumstance which with notice or passage of time or both would give rise to a claim under or pursuant to any Environmental Statute pertaining to Hazardous Materials on, in, under or originating from the Property or any part thereof or any other real property owned or occupied by Borrower or arising out of the conduct of Borrower, including, without limitation, pursuant to any Environmental Statute.
(e) Borrower has not waived any Person’s liability with regard to Hazardous Materials in, on, under or around the Property, nor has Borrower retained or assumed, contractually or by operation of law, any other Person’s liability relative to Hazardous Materials or any claim, action or proceeding relating thereto.
(f) In the event that there shall be filed a lien against the Property or any part thereof pursuant to any Environmental Statute pertaining to Hazardous Materials, Borrower shall, within sixty (60) days or, in the event that the applicable Governmental Authority has commenced steps to cause the Premises or any part thereof to be sold pursuant to the lien, within fifteen (15) days, from the date that Borrower receives notice of such lien, either (i) pay the claim and remove the lien from the Property, or (ii) furnish (A) a bond reasonably satisfactory to Lender in the amount of the claim out of which the lien arises, (B) a cash deposit in the amount of the claim out of which the lien arises, or (C) other security reasonably satisfactory to Lender in an amount sufficient to discharge the claim out of which the lien arises.
(g) Borrower represents and warrants that (i) except as disclosed in the Environmental Report, Borrower has no knowledge of any violation of any Environmental Statute or any Environmental Problem in connection with the Property, nor has Borrower been requested or required by any Governmental Authority to perform any remedial activity or other responsive action in connection with any Environmental Problem and (ii) to Borrower’s knowledge and except as disclosed in the Environmental Report neither the Property nor any other property owned by Borrower is included or, to Borrower’s best knowledge, after due inquiry and investigation, proposed for inclusion on the National Priorities List issued pursuant to CERCLA by the United States Environmental Protection Agency (the “ EPA ”) or on the inventory of other potential “Problem” sites issued by the EPA or has been identified by the EPA as a potential CERCLA site or included or, to Borrower’s knowledge, after due inquiry and investigation, proposed for inclusion on any list or inventory issued pursuant to any other Environmental Statute, if any, or issued by any other Governmental Authority. Borrower covenants that Borrower will comply with all Environmental Statutes affecting or imposed upon Borrower or the Property.
(h) Borrower covenants that it shall promptly notify Lender of the presence and/or release of any Hazardous Materials in amounts which are required by applicable Legal Requirements to be reported to and Governmental Authority and of any request for information or any inspection of the Property or any part thereof by any Governmental Authority with respect to any Hazardous Materials and provide Lender with copies of such request and any response to any such request or inspection. Borrower covenants that it shall, in compliance with applicable Legal Requirements, conduct and complete all investigations, studies, sampling and testing (and promptly shall provide Lender with copies of any such studies and the results of any such test) and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials in, on, over, under, from or affecting the Property or any part thereof in accordance with all such Legal Requirements applicable to the Property or any part thereof to the satisfaction of Lender.
(i) Following the occurrence of an Event of Default hereunder, and without regard to whether Lender shall have taken possession of the Property or a receiver has been requested or appointed or any other right or remedy of Lender has or may be exercised hereunder or under any other Loan Document, Lender shall have the right (but no obligation) to conduct such investigations, studies, sampling and/or testing of the Property or any part thereof as Lender may, in its discretion, determine to conduct, relative to Hazardous Materials. All costs and expenses incurred in connection therewith including, without limitation, consultants’ fees and disbursements and laboratory fees, shall constitute a part of the Debt and shall, upon demand by Lender, be immediately due and payable and shall bear interest at the Default Rate from the date so demanded by Lender until reimbursed. Borrower shall, at its sole cost and expense, fully and expeditiously cooperate in all such investigations, studies, samplings and/or testings including, without limitation, providing all relevant information and making knowledgeable people available for interviews.
(j) Borrower represents and warrants that except in accordance with all applicable Environmental Statutes and as disclosed in the Environmental Report, (i) no underground treatment or storage tanks or pumps or water, gas, or oil wells are or, to Borrower’s knowledge, have been located about the Property, (ii) no PCBs or transformers, capacitors, ballasts or other equipment that contain dielectric fluid containing PCBs are located about the Property, (iii) no insulating material containing urea formaldehyde is located about the Property and (iv) no asbestos-containing material is located about the Property.
Section 16.02. Environmental Indemnification . Borrower shall defend, indemnify and hold harmless the Indemnified Parties for, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, whether incurred or imposed within or outside the judicial process, including, without limitation, reasonable attorneys’ and consultants’ fees and disbursements and investigations and laboratory fees arising out of, or in any way related to any Environmental Problem, including without limitation:




(a) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threat of release of any Hazardous Materials in, on, over, under, from or affecting the Property or any part thereof whether or not disclosed by the Environmental Report;
(b) any personal injury (including wrongful death, disease or other health condition related to or caused by, in whole or in part, any Hazardous Materials) or property damage (real or personal) arising out of or related to any Hazardous Materials in, on, over, under, from or affecting the Property or any part thereof whether or not disclosed by the Environmental Report;
(c) any action, suit or proceeding brought or threatened, settlement reached, or order of any Governmental Authority relating to such Hazardous Material whether or not disclosed by the Environmental Report; and/or
(d) any violation of the provisions, covenants, representations or warranties of Section 16.01 hereof or of any Legal Requirement which is based on or in any way related to any Hazardous Materials in, on, over, under, from or affecting the Property or any part thereof including, without limitation, the cost of any work performed and materials furnished in order to comply therewith whether or not disclosed by the Environmental Report.
Notwithstanding the foregoing provisions of this Section 16.02 to the contrary, Borrower shall have no obligation to indemnify Lender for liabilities, claims, damages, penalties, causes of action, costs and expenses relative to the foregoing which result directly from (A) Lender’s willful misconduct or gross negligence, or (B) Hazardous Materials initially placed in, on or under the Property after Lender takes title to the Property after foreclosure or delivery of a deed in lieu thereof. Any amounts payable to Lender by reason of the application of this Section 16.02 shall be secured by this Security Instrument and shall, upon demand by Lender, become immediately due and payable and shall bear interest at the Default Rate from the date so demanded by Lender until paid.
This indemnification shall survive the termination of this Security Instrument whether by repayment of the Debt, foreclosure or deed in lieu thereof, assignment, or otherwise. The indemnity provided for in this Section 16.02 shall not be included in any exculpation of Borrower from personal liability provided for in this Security Instrument or in any of the other Loan Documents. Nothing in this Section 16.02 shall be deemed to deprive Lender of any rights or remedies otherwise available to Lender, including, without limitation, those rights and remedies provided elsewhere in this Security Instrument or the other Loan Documents.
ARTICLE XVII: ASSIGNMENTS
Section 17.01. Participations and Assignments . Lender shall have the right to assign this Security Instrument and/or any of the Loan Documents, and to transfer, assign or sell participations and subparticipations (including blind or undisclosed participations and subparticipations) in the Loan Documents and the obligations hereunder to any Person; provided, however, that no such participation shall increase, decrease or otherwise affect either Borrower’s or Lender’s obligations under this Security Instrument or the other Loan Documents.
ARTICLE XVIII: MISCELLANEOUS
Section 18.01. Right of Entry . Lender and its agents shall have the right to enter and inspect the Property or any part thereof at all reasonable times, and, except in the event of an emergency, upon reasonable notice and to inspect Borrower’s books and records and to make abstracts and reproductions thereof.
Section 18.02. Cumulative Rights . The rights of Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated but shall be entitled, subject to the terms of this Security Instrument, to every right and remedy now or hereafter afforded by law.
Section 18.03. Liability . If Borrower consists of more than one Person, the obligations and liabilities of each such Person hereunder shall be joint and several.
Section 18.04. Exhibits Incorporated . The information set forth on the cover hereof, and the Exhibits annexed hereto, are hereby incorporated herein as a part of this Security Instrument with the same effect as if set forth in the body hereof.
Section 18.05. Severable Provisions . If any term, covenant or condition of the Loan Documents including, without limitation, the Note or this Security Instrument, is held to be invalid, illegal or unenforceable in any respect, such Loan Document shall be construed without such provision.
Section 18.06. Duplicate Originals . This Security Instrument may be executed in any number of duplicate originals and each such duplicate original shall be deemed to constitute but one and the same instrument.




Section 18.07. No Oral Change . The terms of this Security Instrument, together with the terms of the Note and the other Loan Documents, constitute the entire understanding and agreement of the parties hereto and supersede all prior agreements, understandings and negotiations between Borrower and Lender with respect to the Loan. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.
Section 18.08. Waiver of Counterclaim, Etc . BORROWER HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM BORROWER MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER OR ITS AGENTS, AGAINST BORROWER, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS SECURITY INSTRUMENT OR THE DEBT.
Section 18.09. Headings; Construction of Documents; etc . The table of contents, headings and captions of various paragraphs of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. Borrower acknowledges that it was represented by competent counsel in connection with the negotiation and drafting of this Security Instrument and the other Loan Documents and that neither this Security Instrument nor the other Loan Documents shall be subject to the principle of construing the meaning against the Person who drafted same.
Section 18.10. Sole Discretion of Lender . Whenever Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide that arrangements or terms are satisfactory or not satisfactory shall be in the sole discretion of Lender and shall be final and conclusive, except as may be otherwise specifically provided herein.
Section 18.11. Waiver of Notice . Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which the Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice.
Section 18.12. Covenants Run with the Land . All of the grants, covenants, terms, provisions and conditions herein shall run with the Premises, shall be binding upon Borrower and shall inure to the benefit of Lender, subsequent holders of this Security Instrument and their successors and assigns. Without limitation to any provision hereof, the term “Borrower” shall include and refer to the borrower named herein, any subsequent owner of the Property, and its respective heirs, executors, legal representatives, successors and assigns. The representations, warranties and agreements contained in this Security Instrument and the other Loan Documents are intended solely for the benefit of the parties hereto, shall confer no rights hereunder, whether legal or equitable, in any other Person and no other Person shall be entitled to rely thereon.
Section 18.13. Applicable Law . THIS SECURITY INSTRUMENT WAS NEGOTIATED IN NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE NOTE WERE DISBURSED FROM NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. THIS SECURITY INSTRUMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, PRIORITY, ENFORCEMENT AND FORECLOSURE OF THE LIENS AND SECURITY INTERESTS CREATED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE PREMISES ARE LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS, AND THE DEBT OR OBLIGATIONS ARISING HEREUNDER.
Section 18.14. Security Agreement . (a) (i) This Security Instrument is both a real property mortgage, deed to secure debt or deed of trust, as applicable, and a “security agreement” within the meaning of the UCC. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. This Security Instrument is filed as a fixture filing and covers goods which are or are to become fixtures on the Property. Borrower by executing and delivering this Security Instrument has granted to Lender, as security for the Debt, a security interest in the Property to the full extent that the Property may be subject to the UCC (said portion of the Property so subject to the UCC




being called in this Section 18.14 the “ Collateral ”). If an Event of Default shall occur, Lender, in addition to any other rights and remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the UCC, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Lender following an Event of Default, Borrower shall, at its expense, assemble the Collateral and make it available to Lender at a convenient place acceptable to Lender. Borrower shall pay to Lender on demand any and all expenses, including reasonable legal expenses and attorneys’ fees, incurred or paid by Lender in protecting its interest in the Collateral and in enforcing its rights hereunder with respect to the Collateral. Any disposition pursuant to the UCC of so much of the Collateral as may constitute personal property shall be considered commercially reasonable if made pursuant to a public sale which is advertised at least twice in a newspaper in which sheriff’s sales are advertised in the county where the Premises is located. Any notice of sale, disposition or other intended action by Lender with respect to the Collateral given to Borrower in accordance with the provisions hereof at least ten (10) days prior to such action, shall constitute reasonable notice to Borrower. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. It is not necessary that the Collateral be present at any disposition thereof. Lender shall have no obligation to clean-up or otherwise prepare the Collateral for disposition.
(ii) The mention in a financing statement filed in the records normally pertaining to personal property of any portion of the Property shall not derogate from or impair in any manner the intention of this Security Instrument. Lender hereby declares that all items of Collateral are part of the real property encumbered hereby to the fullest extent permitted by law, regardless of whether any such item is physically attached to the Improvements or whether serial numbers are used for the better identification of certain items. Specifically, the mention in any such financing statement of any items included in the Property shall not be construed to alter, impair or impugn any rights of Lender as determined by this Security Instrument or the priority of Lender’s lien upon and security interest in the Property in the event that notice of Lender’s priority of interest as to any portion of the Property is required to be filed in accordance with the UCC to be effective against or take priority over the interest of any particular class of persons, including the federal government or any subdivision or instrumentality thereof. No portion of the Collateral constitutes or is the proceeds of “Farm Products”, as defined in the UCC.
(iii) If Borrower is at any time a beneficiary under a letter of credit now or hereafter issued in favor of Borrower, Borrower shall promptly notify Lender thereof and, at the request and option of Lender, Borrower shall, pursuant to an agreement in form and substance satisfactory to Lender, either (A) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Lender of the proceeds of any drawing under the letter of credit or (B) arrange for Lender to become the transferee beneficiary of the letter of credit, with Lender agreeing, in each case, that the proceeds of any drawing under the letter to credit are to be applied as provided in this Security Instrument.
(iv) Borrower and Lender acknowledge that for the purposes of Article 9 of the UCC, the law of the State of New York shall be the law of the jurisdiction of the bank in which the Central Account is located.
(v) Lender may comply with any applicable Legal Requirements in connection with the disposition of the Collateral, and Lender’s compliance therewith will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(vi) Lender may sell the Collateral without giving any warranties as to the Collateral. Lender may specifically disclaim any warranties of title, possession, quiet enjoyment or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(vii) If Lender sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Lender and applied to the indebtedness of Borrower. In the event the purchaser of the Collateral fails to fully pay for the Collateral, Lender may resell the Collateral and Borrower will be credited with the proceeds of such sale.
(b) Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Lender, as secured party, or, to the extent permitted under the UCC, unsigned, in connection with the Collateral covered by this Security Instrument.
Section 18.15. Actions and Proceedings . Lender has the right to appear in and defend any action or proceeding brought with respect to the Property in its own name or, if required by Legal Requirements or, if in Lender’s reasonable judgment, it is necessary, in the name and on behalf of Borrower, which Lender believes will adversely affect the Property or this Security Instrument and to bring any action or proceedings, in its name or in the name and on behalf of Borrower, which Lender, in its discretion, decides should be brought to protect its interest in the Property.
Section 18.16. Usury Laws . This Security Instrument and the Note are subject to the express condition, and it is the expressed intent of the parties, that at no time shall Borrower be obligated or required to pay interest on the principal balance due under the Note at a rate which could subject the holder of the Note to either civil or criminal liability as a result of being in




excess of the maximum interest rate which Borrower is permitted by law to contract or agree to pay. If by the terms of this Security Instrument or the Note, Borrower is at any time required or obligated to pay interest on the principal balance due under the Note at a rate in excess of such maximum rate, such rate of interest shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Note. No application to the principal balance of the Note pursuant to this Section 18.16 shall give rise to any requirement to pay any prepayment fee or charge of any kind due hereunder, if any.
Section 18.17. Remedies of Borrower . In the event that a claim or adjudication is made that Lender has acted unreasonably or unreasonably delayed acting in any case where by law or under the Note, this Security Instrument or the Loan Documents, it has an obligation to act reasonably or promptly, Lender shall not be liable for any monetary damages, and Borrower’s remedies shall be limited to injunctive relief or declaratory judgment.
Section 18.18. Offsets, Counterclaims and Defenses . Any assignee of this Security Instrument, the Assignment and the Note shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to the Note, the Assignment or this Security Instrument which Borrower may otherwise have against any assignor of this Security Instrument, the Assignment and the Note and no such unrelated counterclaim or defense shall be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon this Security Instrument, the Assignment or the Note and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 18.19. No Merger . If Borrower’s and Lender’s estates become the same including, without limitation, upon the delivery of a deed by Borrower in lieu of a foreclosure sale, or upon a purchase of the Property by Lender in a foreclosure sale, this Security Instrument and the lien created hereby shall not be destroyed or terminated by the application of the doctrine of merger and in such event Lender shall continue to have and enjoy all of the rights and privileges of Lender as to the separate estates; and, as a consequence thereof, upon the foreclosure of the lien created by this Security Instrument, any Leases or subleases then existing and created by Borrower shall not be destroyed or terminated by application of the law of merger or as a result of such foreclosure unless Lender or any purchaser at any such foreclosure sale shall so elect. No act by or on behalf of Lender or any such purchaser shall constitute a termination of any Lease or sublease unless Lender or such purchaser shall give written notice thereof to such lessee or sublessee.
Section 18.20. Restoration of Rights . In case Lender shall have proceeded to enforce any right under this Security Instrument by foreclosure sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then, in every such case, Borrower and Lender shall be restored to their former positions and rights hereunder with respect to the Property subject to the lien hereof.
Section 18.21. Waiver of Statute of Limitations . The pleadings of any statute of limitations as a defense to any and all obligations secured by this Security Instrument are hereby waived to the full extent permitted by Legal Requirements.
Section 18.22. Advances . This Security Instrument shall cover any and all advances made pursuant to the Loan Documents, rearrangements and renewals of the Debt and all extensions in the time of payment thereof, even though such advances, extensions or renewals be evidenced by new promissory notes or other instruments hereafter executed and irrespective of whether filed or recorded. Likewise, the execution of this Security Instrument shall not impair or affect any other security which may be given to secure the payment of the Debt, and all such additional security shall be considered as cumulative. The taking of additional security, execution of partial releases of the security, or any extension of time of payment of the Debt shall not diminish the force, effect or lien of this Security Instrument and shall not affect or impair the liability of Borrower and shall not affect or impair the liability of any maker, surety, or endorser for the payment of the Debt.
Section 18.23. Application of Default Rate Not a Waiver . Application of the Default Rate shall not be deemed to constitute a waiver of any Default or Event of Default or any rights or remedies of Lender under this Security Instrument, any other Loan Document or applicable Legal Requirements, or a consent to any extension of time for the payment or performance of any obligation with respect to which the Default Rate may be invoked.
Section 18.24. Intervening Lien . To the fullest extent permitted by law, any agreement hereafter made pursuant to this Security Instrument shall be superior to the rights of the holder of any intervening lien.
Section 18.25. No Joint Venture or Partnership . Borrower and Lender intend that the relationship created hereunder be solely that of mortgagor and mortgagee or grantor and beneficiary or borrower and lender, as the case may be. Nothing herein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor to grant Lender any interest in the Property other than that of mortgagee, beneficiary or lender.
Section 18.26. Time of the Essence . Time shall be of the essence in the performance of all obligations of Borrower hereunder.




Section 18.27. Borrower’s Obligations Absolute . Borrower acknowledges that Lender and/or certain Affiliates of Lender are engaged in the business of financing, owning, operating, leasing, managing, and brokering real estate and in other business ventures which may be viewed as adverse to or competitive with the business, prospect, profits, operations or condition (financial or otherwise) of Borrower. Except as set forth to the contrary in the Loan Documents, all sums payable by Borrower hereunder shall be paid without notice or demand, counterclaim, set-off, deduction or defense and without abatement, suspension, deferment, diminution or reduction, and the obligations and liabilities of Borrower hereunder shall in no way be released, discharged, or otherwise affected (except as expressly provided herein) by reason of: (a) any damage to or destruction of or any Taking of the Property or any portion thereof or any other Cross-collateralized Property; (b) any restriction or prevention of or interference with any use of the Property or any portion thereof or any other Cross-collateralized Property; (c) any title defect or encumbrance or any eviction from the Premises or any portion thereof by title paramount or otherwise; (d) any bankruptcy proceeding relating to Borrower, any General Partner, or any guarantor or indemnitor, or any action taken with respect to this Security Instrument or any other Loan Document by any trustee or receiver of Borrower or any other Cross-collateralized Borrower or any such General Partner, guarantor or indemnitor, or by any court, in any such proceeding; (e) any claim which Borrower has or might have against Lender; (f) any default or failure on the part of Lender to perform or comply with any of the terms hereof or of any other agreement with Borrower or any other Cross-collateralized Borrower; or (g) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Borrower shall have notice or knowledge of any of the foregoing.
Section 18.28. Publicity . All promotional news releases, publicity or advertising by Manager, Borrower or their respective Affiliates through any media intended to reach the general public shall not refer to the Loan Documents or the financing evidenced by the Loan Documents, or to Lender or to any of its Affiliates without the prior written approval of Lender or such Affiliate, as applicable, in each instance, such approval not to be unreasonably withheld or delayed. Notwithstanding anything herein to the contrary, Borrower shall be authorized to provide information relating to the Loan Documents or the financing evidenced by the Loan Documents, or to Lender or to any of its Affiliates, to rating agencies, underwriters, potential securities investors, auditors, regulatory authorities and to any Persons which may be entitled to such information by operation of law and without limiting the foregoing to issue press releases and make Form 8-K and other securities filings containing the above-described information as it or its counsel reasonably deems required by law. Lender shall be authorized to provide information relating to the Property, the Loan and matters relating thereto to rating agencies, underwriters, potential securities investors, auditors, regulatory authorities and to any Persons which may be entitled to such information by operation of law and may use basic transaction information (including, without limitation, the name of Borrower, the name and address of the Property and the Loan Amount) in press releases or other marketing materials.
Section 18.29. Securitization Opinions . In the event the Loan is included as an asset of a Securitization by Lender or any of its Affiliates, Borrower shall, within ten (10) Business Days after Lender’s written request therefor, at Lender’s sole cost and expense, deliver opinions in form and substance and delivered by counsel reasonably acceptable to Lender and each Rating Agency, as may be reasonably required by Lender and/or the Rating Agency in connection with such securitization. Borrower’s failure to deliver the opinions required hereby within such ten (10) Business Day period shall constitute an “Event of Default” hereunder.
Section 18.30. Cooperation with Rating Agencies; etc . Borrower covenants and agrees that in the event the Loan is to be included as an asset of a Securitization, Borrower shall, at the sole cost and expense of Lender, (a) gather any information reasonably required by each Rating Agency in connection with such a Securitization, (b) at Lender’s request, meet with representatives of each Rating Agency to discuss the business and operations of the Property, and (c) cooperate with the reasonable requests of each Rating Agency and Lender in connection with all of the foregoing as well as in connection with all other matters and the preparation of any offering documents with respect thereto, including, without limitation, entering into any amendments or modifications to this Security Instrument or to any other Loan Document which may be requested by Lender to conform to Rating Agency or market standards for a Securitization provided that no such modification shall modify (a) the interest rate payable under the Note, (b) the stated maturity of the Note, (c) the amortization of principal under the Note, (d) Section
18.32 hereof, (e) any other material economic term of the Loan or (f) any provision, the effect of which would materially increase Borrower’s obligations or materially decrease Borrower’s rights under the Loan Documents. Borrower acknowledges that the information provided by Borrower to Lender may be incorporated into the offering documents for a Securitization and to the fullest extent permitted, Borrower irrevocably waives all rights, if any, to prohibit such disclosures including, without limitation, any right of privacy. Lender and each Rating Agency shall be entitled to rely on the information supplied by, or on behalf of, Borrower and Borrower indemnifies and holds harmless the Indemnified Parties, their Affiliates and each Person who controls such Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as same may be amended from time to time, for, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, whether incurred or imposed within or outside the judicial process, including, without limitation, reasonable attorneys’ fees and disbursements that arise out of or are based upon any untrue statement or alleged untrue statement of any material fact




contained in such information supplied by or on behalf of Borrower or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in such information supplied by or on behalf of Borrower or necessary in order to make the statements in such information, or in light of the circumstances under which they were made, not misleading.
Section 18.31. Securitization Financials . Borrower covenants and agrees that, upon Lender’s written request therefor in connection with a Securitization, Borrower shall, at Lender’s sole cost and expense, deliver as soon as is reasonably practicable (a) audited financial statements and related documentation prepared by an Independent certified public accountant that satisfy securities laws and requirements for use in a public registration statement (which may include up to three (3) years of historical audited financial statements) and (b) if, at the time one or more Disclosure Documents are being prepared in connection with a Securitization, Lender expects that Borrower alone or Borrower and one or more of its Affiliates collectively, or the Property alone or the Property and any other parcel(s) of real property, together with improvements thereon and personal property related thereto, that is “related”, within the meaning of the definition of Significant Obligor, to the Property (a “ Related Property ”) collectively, will be a Significant Obligor, Borrower shall furnish to Lender upon request (i) the selected financial data or, if applicable, net operating income, required under Item 1112(b)(1) of Regulation AB and meeting the requirements thereof, if Lender expects that the principal amount of the Loan, together with any loans made to an Affiliate of Borrower or secured by a Related Property that is included in a Securitization with the Loan (a “ Related Loan ”), as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mortgage loans included or expected to be included, as applicable, in the Securitization or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB and meeting the requirements thereof, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed twenty percent (20%) of the aggregate principal amount of all mortgage loans included or expected to be included, as applicable, in the Securitization. Such financial data or financial statements shall be furnished to Lender as soon as reasonably practicable but in all events within twenty(20) Business Days after notice from Lender in connection with the preparation of Disclosure Documents for the Securitization and, with respect to the data or financial statements required pursuant to clause (b) hereof, (A) not later than thirty (30) days after the end of each fiscal quarter of Borrower and (B) not later than seventy-five (75) days after the end of each Fiscal Year; provided, however, that Borrower shall not be obligated to furnish financial data or financial statements pursuant to clauses (A) or (B) of this sentence with respect to any period for which a filing pursuant to the Securities Exchange Act of 1934 in connection with or relating to the Securitization is not required.
Section 18.32. Exculpation. Notwithstanding anything in this Security Instrument or in any other Loan Document to the contrary, except as otherwise set forth in this Section 18.32 to the contrary, Lender shall not enforce the liability and obligation of Borrower or any Person holding a direct or indirect interest in Borrower or (a) if Borrower or any of its direct or indirect owners is a partnership, its or their direct or indirect constituent partners or any of their respective partners, (b) if Borrower or any of its direct or indirect owners is a trust, its or their beneficiaries or any of their respective Partners (as hereinafter defined), (c) if Borrower or any of its direct or
indirect owners is a corporation, any of its or their direct or indirect shareholders, directors, principals, officers or employees, or (d) if Borrower or any of its direct or indirect owners is a limited liability company, any of its or their direct or indirect members (the Persons described in the foregoing clauses (a) — (d), as the case may be, are hereinafter referred to as the “ Partners ”) to perform and observe the obligations contained in this Security Instrument or any of the other Loan Documents by any action or proceeding, including, without limitation, any action or proceeding wherein a money judgment shall be sought against Borrower or the Partners, except that Lender may bring a foreclosure action, action for specific performance, or other appropriate action or proceeding (including, without limitation, an action to obtain a deficiency judgment) against Borrower solely for the purpose of enabling Lender to realize upon (i) Borrower’s interest in the Property, (ii) the Rent to the extent received by Borrower during the existence of an Event of Default (all Rent covered by this clause (ii) being hereinafter referred to as the “ Recourse Distributions ”) and not applied towards Debt Service or the operation or maintenance of the Property and (iii) any other collateral then subject to the Loan Documents (the collateral described in the foregoing clauses (i) — (iii) is hereinafter referred to as the “ Default Collateral ”); provided , however, that any judgment in any such action or proceeding shall be enforceable against Borrower and the Partners only to the extent of any such Default Collateral. The provisions of this Section shall not, however, (a) impair the validity of the Debt evidenced by the Note or in any way affect or impair the lien of this Security Instrument or any of the other Loan Documents or the right of Lender to foreclose this Security Instrument during the existence of an Event of Default the cure of which has not been accepted by Lender; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Security Instrument; (c) affect the validity or enforceability of the Note, this Security Instrument, or any of the other Loan Documents, or impair the right of Lender to seek a personal judgment against Guarantor to the extent and for the obligations guaranteed in the Guaranty;




(d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of the Assignment; (f) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to fraud or material misrepresentation by Borrower, or any Affiliate of Borrower in connection with this Security Instrument, the Note or the other Loan Documents, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor to the extent of Guarantor’s liability under the Guaranty delivered by Guarantor with respect to same; (g) impair the right of Lender to bring suit for a monetary judgment to obtain the Recourse Distributions received by Borrower including, without limitation, the right to bring suit for a monetary judgement to proceed against any Guarantor to the extent of Guarantor’s liability under any guaranty delivered by Guarantor and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor with respect to same; (h) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to Borrower’s misappropriation of tenant security deposits or Rent, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor to the extent of Guarantor’s liability under any guaranty delivered by Guarantor with respect to same; (i) impair the right of Lender to obtain Loss Proceeds due to Lender pursuant to this Security Instrument; (j) impair the right of Lender to enforce the provisions of Sections 2.02(g) (other than the provisions of clause (vii) thereof), 12.01, 16.01 or 16.02, 18.29, 18.30 or 18.31, inclusive of this Security Instrument, even after repayment in full by Borrower of the Debt or to bring suit for a monetary judgment against Borrower with respect to any obligation set forth in said Sections; (k) prevent or in any way hinder Lender from exercising, or constitute a defense, or counterclaim, or other basis for relief in respect of the exercise of, any other remedy against any or all of the collateral securing the Note as provided in the Loan Documents; (l) impair the right of Lender to bring suit for a monetary judgment against Borrower with respect to any misapplication or conversion of Loss Proceeds, and the foregoing provisions shall not modify, diminish or discharge the liability of Borrower or Guarantor to the extent of Guarantor’s liability under any guaranty delivered by Guarantor with respect to same; (m) impair the right of Lender to sue for, seek or demand a deficiency judgment against Borrower solely for the purpose of foreclosing the Property or any part thereof, or realizing upon the Default Collateral; provided , however , that any such deficiency judgment referred to in this clause (m) shall be enforceable against Borrower and Guarantor only to the extent of any of the Default Collateral; (n) impair the ability of Lender to bring suit for a monetary judgment against Borrower with respect to arson or physical waste to or of the Property or damage to the Property resulting from the gross negligence or willful misconduct of Borrower or, to the extent that there is sufficient cash flow, failure to pay any Imposition, or in lieu thereof, deposit a sum equal to any Impositions into the Basic Carrying Costs Sub-Account; (o) impair the right of Lender to bring a suit for a monetary judgment against Borrower in the event of the exercise of any right or remedy under any federal, state or local forfeiture laws resulting in the loss of the lien of this Security Instrument, or the priority thereof, against the Property; (p) be deemed a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to
secure all of the Debt; (q) impair the right of Lender to bring suit for monetary judgment against Borrower with respect to any losses resulting from any claims, actions or proceedings initiated by Borrower (or any Affiliate of Borrower) alleging that the relationship of Borrower and Lender is that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor; (r) impair the right of Lender to bring suit for a monetary judgment against Borrower in the event of a Transfer in violation of the provisions of Article IX hereof; (s) impair the right of Lender to bring suit for a monetary judgment in the event that Borrower moves its principal place of business or its books and records relating to the Property which are governed by the UCC, or changes its name, its jurisdiction of organization, type of organization or other legal structure or, if it has one, organizational identification number, without first giving Lender thirty (30) days prior written notice; (t) in the event Borrower is a tenancy-in-common, impair the right of Lender to bring suit for monetary judgment against any TIC which commences a partition action; (u) in the event Borrower is a tenancy-in-common, impair the right of Lender to bring suit for monetary judgment against any TIC or Guarantor in the event the TIC Agreement is modified or amended without obtaining the prior written consent of Lender or if the Person appointed in the TIC Agreement as manager is replaced or removed without the prior written consent of Lender; or (v) impair the right of Lender to bring suit for a monetary judgment in the event that Borrower changes its name or otherwise does anything which would make the information set forth in any UCC Financing Statements relating to the Property materially misleading without giving Lender thirty (30) days prior written notice thereof. The provisions of this Section 18.32 shall be inapplicable to Borrower if (a) any proceeding, action, petition or filing under the Bankruptcy Code, or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts, shall be (A) filed by Borrower or Guarantor or (B) filed against Borrower or Guarantor and consented to or acquiesced in by Borrower or Guarantor or if any Affiliate of Borrower or Guarantor, or if Borrower or Guarantor or any Affiliate of either of them shall institute any proceeding for Borrower’s dissolution or liquidation, or Borrower or Guarantor shall make an assignment for the benefit of creditors, or (b) Borrower or any Affiliate contests in bad faith or in any material way interferes with in bad faith, directly or indirectly (collectively, a “ Contest ”), any foreclosure action, UCC sale or other material remedy exercised by Lender upon the occurrence of an Event of Default whether by making any motion, bringing any counterclaim (other than a compulsory counterclaim), claiming any defense, seeking any injunction or other restraint, commencing any action, or otherwise in bad faith (provided that if any such Person obtains a non-appealable order successfully asserting a Contest, Borrower shall have no liability under this




clause (b)), in which event Lender shall have recourse against all of the assets of Borrower including, without limitation, any right, title and interest of Borrower in and to the Property.
Section 18.33. Intentionally Omitted .
Section 18.34. Intentionally Omitted .
Section 18.35. Mezzanine Loan Option . (a) Lender shall have the right at any time to divide the Loan into two or more parts (the “ Mezzanine Option ”): a “mortgage loan” and one or more “mezzanine loans.” The principal amount of the mortgage loan plus the principal amount of the mezzanine loan(s) shall equal the outstanding principal balance of the Loan immediately prior to the creation of the mortgage loan and the mezzanine loan(s). In effectuating the foregoing, Lender will make one or more loans to one or more entities that will be the direct or indirect equity owner(s) of Borrower as described in Section 18.35(b) (collectively, the “ Mezzanine Borrower ”). The Mezzanine Borrower will contribute the amount of the mezzanine loan(s) to Borrower (in its capacity as borrower under the mortgage loan, “mortgage borrower”) and the mortgage borrower will apply the contribution to pay down the Loan to the mortgage loan amount. The mortgage loan and the mezzanine loan(s) will be on the same terms and subject to the same conditions set forth in the Loan Documents except as follows. The mezzanine loan(s) shall be made pursuant to Lender’s standard mezzanine loan documents.
(b) Lender shall have the right to establish different interest rates and debt service payments for the mortgage loan and the mezzanine loan(s) and to require the payment of the mortgage loan and the mezzanine loan(s) in such order of priority as may be designated by Lender; provided, that (i) the total loan amounts for the mortgage loan and the mezzanine loan(s) shall equal the amount of the Loan immediately prior to the creation of the mortgage loan and the mezzanine loan(s), (ii) the weighted average interest rate of the mortgage loan and the mezzanine loan(s) shall on the date created equal the interest rate which was applicable to the Loan immediately prior to
creation of the mortgage loan and mezzanine loan(s) and (iii) the debt service payments on the mortgage loan note and the mezzanine loan note(s) shall on the date created equal the debt service payment which was due under the Loan immediately prior to creation of a mortgage loan and a mezzanine loan(s).
(c) The Mezzanine Borrower shall be a special purpose, bankruptcy remote entity pursuant to applicable Rating Agency criteria and shall own directly or indirectly one hundred percent (100%) of the mortgage borrower. The security for the mezzanine loan(s) shall be a pledge of one hundred percent (100%) of the direct and indirect ownership interests in the mortgage borrower.
(d) Borrower shall cooperate with all reasonable requests of Lender in order to convert the Loan into a mortgage loan and one or more mezzanine loans and shall execute and deliver such documents as shall reasonably be required by Lender in connection therewith, including, without limitation, the delivery of non-consolidation, enforceability, authorization and execution opinions and an “Eagle 9” or “UCC plus” (or equivalent) UCC insurance policy and the modification of organizational documents and loan documents and the transfer of the membership interest in Borrower to the Mezzanine Borrower.
It shall be an Event of Default if Borrower fails to cooperate in all reasonable respects in effectuating any of the terms, covenants or conditions of this Section 18.35 after expiration of ten (10) Business Days notice of non-cooperation.
Section 18.36. Component Notes . Lender, without in any way limiting Lender’s other rights hereunder, in its sole and absolute discretion, shall have the right at any time to require Borrower to execute and deliver “component” notes (including senior and junior notes), which notes may be paid in such order of priority as may be designated by Lender, provided that (a) the aggregate principal amount of such “component” notes shall equal the outstanding principal balance of the Loan immediately prior to the creation of such “component” notes, (b) the weighted average interest rate of all such “component” notes shall on the date created equal the interest rate which was applicable to the Loan immediately prior to the creation of such “component” notes (it being acknowledged by Borrower that if an Event of Default occurs during the term of the Loan, whether or not it is subsequently cured, the weighted average interest rates of the “component” notes may increase (i.e. the Loan may have “rate creep”)), (c) the debt service payments on all such “component” notes shall on the date created equal the debt service payment which was and would be due under the Loan immediately prior to the creation of such component notes (it being acknowledged by Borrower that if an Event of Default occurs during the term of the Loan, whether or not it is subsequently cured, the weighted average interest rates of the “component” notes may increase (i.e. the Loan may have “rate creep”)) and (d) the other terms and provisions of each of the “component” notes shall be identical in substance and substantially similar in form to the Loan Documents. Borrower shall cooperate with all reasonable requests of Lender in order to establish the “component” notes and shall execute and deliver such documents as shall reasonably be required by Lender in connection therewith, all in form and substance reasonably satisfactory to Lender, including, without limitation, the severance of security documents if requested. It shall be an Event of Default if Borrower fails to comply with any of the terms, covenants or conditions of this Section 18.36 after the expiration of ten (10) Business Days after notice thereof.
Section 18.37. Intentionally Omitted .




Section 18.38. Certain Matters Relating to Property located in the State of Florida . With respect to the Property which is located in the State of Florida, notwithstanding anything contained herein to the contrary:
(a) It is agreed that, in addition to existing indebtedness, any future advances made by the then holder of the Note to or for the benefit of Borrower or Borrower’s permitted assignees, whether such advances are obligatory or are made at the option of Lender, or otherwise, at any time within twenty (20) years from the date of this Security Instrument, with interest thereon at the rate agreed upon at the time of each additional loan or advance, shall be equally secured with and have the same priority as the Debt and be subject to all of the terms and provisions of this Security Instrument, whether or not such additional loan or advance is evidenced by a promissory note of Borrower and whether or not identified by a recital that it is secured by this Security Instrument; provided that, although the total amount of the indebtedness that may be secured may decrease to zero from time to time or may
increase from time to time, the aggregate amount of outstanding Debt so secured at any one time shall not exceed the sum of the Loan Amount multiplied by two (2), plus interest and disbursements made for the payment of taxes, levies or insurance on the Property with interest on such disbursements. It is understood and agreed that this future advance provision shall not be construed to obligate Lender to make any such additional loans or advances. It is further agreed that any additional note or notes executed and delivered under this future advance provision shall be included in the words “Note” or “Debt” wherever either appears in the context of this Security Instrument. Borrower, for itself and its successors in title and its successors and permitted assigns, hereby expressly waives and relinquishes any rights granted under Section 697.04 of the Florida Statutes, or otherwise, to limit the amount of indebtedness that may be secured by this Security Instrument at any time during the term of this Security Instrument. Borrower further covenants not to file for record any notice limiting the maximum principal amount that may be secured by this Security Instrument and agrees that any such notice, if filed, shall be null and void; and except as hereinafter provided, of no effect. In the event that, notwithstanding the foregoing covenant, Borrower or its successor in title files for record any notice limiting the maximum principal amount that may be secured by this Security Instrument in violation of the foregoing covenant, the Debt shall, at the option of Lender, become immediately due and payable.
(b) Notwithstanding anything to the contrary contained in this Security Instrument, Lender shall comply with the requirements of Section 501.137. Florida Statutes, as applicable, with respect to the payment of Impositions and insurance premiums from the Basic Carrying Costs Sub-Account so that the maximum tax discount available may be obtained with regard to the Premises and so that insurance coverage on the Property does not lapse.
(c) The assignment of leases and rents contained in this Security Instrument is intended to provide Lender with all the rights and remedies of lenders pursuant to Section 697.07 of the Florida Statutes (hereinafter “Section 697.07”), as may be amended from time to time. However, in no event shall this reference diminish, alter, impair, or affect any other rights and remedies of Lender, including but not limited to, the appointment of a receiver as provided herein, nor shall any provision in this Section diminish, alter, impair or affect any rights or powers of the receiver in law or equity or as set forth herein. In addition, this assignment shall be fully operative without regard to value of the Property or without regard to the adequacy of the Property to serve as security for the obligations owed by Borrower to Lender, and shall be in addition to any rights arising under Section 697.07. Further, except for the notices required hereunder, if any, Borrower waives any notice of default or demand for turnover of rents by Lender, together with any rights under Section 697.07 to apply to a court to deposit the Rents into the registry of the court or such other depository as the court may designate.
Section 18.39. Certain Matters Relating to Property Located in the State of Georgia . With respect to the Property which is located in the State of Georgia, notwithstanding anything contained herein to the contrary:
(a) The terms “mortgage” and “hypothecate” which are contained in the “NOW THEREFORE” paragraph of the first page hereof and in Sections 2.02(q), 2.03, 2.05(b), 2.05(f), 8.01(d), 15.02 and 18.14 hereof shall be deleted.
(b) The terms “Borrower” and “Lender” contained in this Security Instrument shall be deemed to be “Grantor” and “Grantee”, respectively.
(c) The “PROVIDED ALWAYS” paragraph on page 5 hereof shall be deleted in its entirety and the following provisions shall be inserted in its place:
Grantor covenants that Grantor is lawfully seized and possessed of the Premises as aforesaid, has good right to convey the same, and that the same are unencumbered except for the Permitted Encumbrances. Grantor warrants and will forever defend the title to the Premises against the claims of all persons whomsoever, except as to the Permitted Encumbrances.
This Deed is intended to operate and is to be construed as a deed passing the title to the Premises to Lender and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage, and is given to secure the payment of the Note, the final payment on
which is due on Maturity, unless otherwise extended pursuant to the terms of the Note, together with any and all renewals, modifications, consolidations and extensions of the indebtedness evidenced thereby, together with the Debt, and together with




any and all additional advances made by Lender to protect or preserve the Property or the security interests created hereby on the Property, or for taxes, assessments or insurance premiums as hereinafter provided or for the performance of any of Grantor’s obligations hereunder or for any other purpose provided herein (whether or not the original Grantor remains the owner of the Property at the time of such advances).
Should the Debt be paid according to the tenor and effect thereof when the same become due and payable, and should Grantor perform all covenants contained in this Deed in a timely manner, then Grantee shall cancel and surrender this Deed of record.
(d) The definition of “Security Instrument” in Section 1.01 hereof shall be deleted in its entirety and the following shall be inserted in its place:
“Security Instrument” means this Deed to Secure Debt, Security Instrument and Assignment of Rents as originally executed or as it may hereafter from time to time be supplemented, amended, modified or extended by one or more indentures supplemental hereto.
(e) The phrase “first mortgage” found in Section 2.06 hereof shall be deleted and the phrase “first deed to secure debt” shall be inserted in its place.
(f) Subsection 13.02(a)(vi) shall be deleted in its entirety and the following shall be inserted in its place:
(vi) sell the Property or any part of the Property at one or more public sale or sales before the door of the courthouse of the county in which the Property or any part of the Property is situated, to the highest bidder for cash, in order to pay the Debt, and all expenses of sale and of all proceedings in connection therewith, including reasonable attorney’s fees, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff’s sales are advertised in said county. At any such public sale, Grantee may execute and deliver to the purchaser a conveyance of the Premises or any part of the Premises in fee simple, with full warranties of title and, to this end, Grantor hereby constitutes and appoints Grantee the agent and attorney-in-fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title and equity that Grantor may have in and to the Premises and to vest the same in the purchaser of purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for the collection of the Debt, and shall not be exhausted by one exercise thereof, but may be exercised until full payment of all of the Debt. In the event of any sale under this Security Instrument by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceedings or otherwise, the Premises may be sold as an entirety or in separate parcels and in such manner or order as Lender, in its sole discretion, may elect, and if Grantee so elects, Grantee may sell the personal property covered by this Security Instrument at one or more separate sales in any manner permitted by the Uniform Commercial Code, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Property are sold or the Debt is paid in full.
(g) As this instrument is a deed passing legal title pursuant to the laws of the State of Georgia, and is not a mortgage, whenever reference herein is made to the “lien of this Security Instrument”, or words of similar import, such words shall be construed as meaning the security title and interest created and conveyed by this Deed.
(h) Whenever reference is made herein to “reasonable attorney’s fees” or similar words, such reference shall mean attorney’s fees computed based upon the attorney’s normal hourly rates and the amount of time expended, and not the statutory attorney’s fees provided by Official Code of Georgia Annotated § 13-1-11.
(i) GRANTOR EXPRESSLY WAIVES THE FOLLOWING: (A) ANY RIGHT GRANTOR MAY HAVE UNDER THE CONSTITUTION OF THE STATE OF GEORGIA OR THE CONSTITUTION OF THE UNITED STATES OF AMERICA TO NOTICE OR TO A JUDICIAL HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR REMEDY PROVIDED TO GRANTEE BY THIS “SECURITY INSTRUMENT” AND GRANTOR WAIVES GRANTOR’S RIGHTS, IF ANY, TO SET ASIDE OR INVALIDATE ANY SALE UNDER POWER DULY CONSUMMATED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECURITY INSTRUMENT ON THE GROUND (IF SUCH BE THE CASE) THAT THE SALE WAS CONSUMMATED WITHOUT PRIOR NOTICE OR JUDICIAL HEARING OR BOTH. ALL WAIVERS BY GRANTOR HEREIN HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY BY GRANTOR, AFTER GRANTOR HAS BEEN AFFORDED THE OPPORTUNITY TO BE INFORMED BY COUNSEL OF GRANTOR’S CHOICE AS TO POSSIBLE ALTERNATIVE RIGHTS AND THE EFFECT OF SAID WAIVERS. GRANTOR’S EXECUTION OF THIS SECURITY INSTRUMENT SHALL BE CONCLUSIVE EVIDENCE OF THE MAKING OF SUCH WAIVERS AND THAT SUCH WAIVERS HAVE BEEN VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY MADE.
(j) The Maturity Date is the Payment Date occurring in April, 2017.




Section 18.40. Intentionally Omitted .
Section 18.41. Intentionally Omitted .
Section 18.42. Certain Matters Relating to Property Located in the State of New Jersey . With respect to the Property which is located in the State of New Jersey, notwithstanding anything contained herein to the Contrary:
(a) Borrower represents and warrants that (i) all filings and submissions or other action required pursuant to the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. , as modified (“ ISRA ”), if any, in connection with the Loan, have been made or taken and (ii) the Property is not located within a “freshwater wetlands” or a “transition area,” each as defined by N.J.S.A. 13:9B-3, and is not subject to the terms of the New Jersey Freshwater Wetlands Protection Act, as amended, N.J.S.A. 13:9B-1 et . seq ., or the rules and regulations promulgated thereunder.
(b) This Security Instrument shall be governed by and construed in accordance with the laws of the State of New York, provided, however, that (i) matters of title to the Property located in New Jersey, (ii) matters of creation, perfection and priority of the lien of this Security Instrument and (iii) those procedural issues of foreclosure, deed in lieu of foreclosure or sale, which are required to be governed by the laws of the State of New Jersey shall be governed by the laws of New Jersey and construed in accordance therewith.
(c) Borrower shall not conduct or cause or permit to be conducted on the Property any activity which constitutes an Industrial Establishment (as such term is defined in ISRA) without the prior written consent of Lender. In the event that the provisions of ISRA become applicable to the Property subsequent to the date hereof, Borrower shall give prompt written notice thereof to Lender and shall take immediate requisite action to insure full compliance therewith. Borrower shall deliver to Lender copies of all correspondence, notices and submissions that it sends to or receives from the New Jersey Department of Environmental Protection in connection with such ISRA compliance. Borrower’s obligation to comply with ISRA shall, notwithstanding its general applicability, also specifically apply to sale, transfer, closure or termination of operations associated with any foreclosure action, including, without limitation, a foreclosure action brought with respect to this Security Instrument. In connection with the purchase of the Property, Borrower required that the seller of the Property comply with the provisions of ISRA and the seller did comply therewith.
(d) The Property has not been and is not now being used as a Major Facility (as defined in the Environmental Statutes), and Borrower shall not use the Property as a Major Facility in the future without the prior written consent of Lender. If Borrower ever becomes an owner or operator of a Major Facility, then Borrower shall furnish the New Jersey Department of Environmental Protection with all the information required by N.J.S.A. 58:10-23.11d, and shall duly file with the Director of the Division of Taxation in the New Jersey Department of the Treasury a tax report or return, and shall pay all taxes due therewith, in accordance with N.J.S.A. 58:10-23, 11b.
(e) This Security Instrument is subject to “modification” as such term is defined in P.L. 1985 c.353 (N.J.S.A. 46:9-8.1 et seq .) (the “ Mortgage Modification Act ”) and shall be subject to the priority provisions of the Mortgage Modification Act.
(f) Borrower represents and warrants that the loans or other financial accommodations included as obligations secured by this Security Instrument were obtained solely for the purpose of carrying on or acquiring a business or commercial investment and not for residential, consumer or household purposes.
Section 18.43. Intentionally Omitted .
Section 18.44. Intentionally Omitted .
Section 18.45. Certain Matters Relating to Property Located in the Commonwealth of Pennsylvania . With respect to the Property which is located in the Commonwealth of Pennsylvania, notwithstanding anything contained herein to the contrary:
(a) FOR THE PURPOSE OF OBTAINING POSSESSION OF THE PROPERTY AND EXERCISING THE OTHER REMEDIES PROVIDED IN THIS SECTION, IN THE EVENT OF ANY DEFAULT HEREUNDER OR UNDER THE NOTE, BORROWER HEREBY AUTHORIZES THE PROTHONOTARY OR ANY ATTORNEY OF THE COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR BORROWER TO FILE AN AGREEMENT FOR ENTERING IN ANY COURT OF COMPETENT JURISDICTION ACTION FOR CONFESSION OF JUDGMENT IN EJECTMENT AGAINST BORROWER AND ALL PERSONS CLAIMING UNDER BORROWER FOR POSSESSION OF THE PROPERTY, FOR WHICH THIS SECURITY INSTRUMENT OR A TRUE CORRECT COPY THEREOF SHALL BE A SUFFICIENT WARRANT, WHEREUPON, IF LENDER SO DESIRES, A WRIT OF POSSESSION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDINGS WHATSOEVER, AND PROVIDED THAT IF FOR ANY REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED THE SAME SHALL BE TERMINATED AND POSSESSION REMAIN IN OR BE RESTORED TO BORROWER, LENDER SHALL HAVE THE RIGHT UPON ANY SUBSEQUENT DEFAULT OR DEFAULTS TO BRING ONE OR MORE ACTION OR ACTIONS AS HEREINBEFORE SET FORTH TO RECOVER POSSESSION BY CONFESSION OF JUDGMENT AS AFORESAID. THE AUTHORITY AND POWER TO APPEAR AND CONFESS JUDGMENT IN EJECTMENT AGAINST BORROWER




SHALL NOT BE EXHAUSTED BY THE INITIAL EXERCISE THEREOF AND MAY BE EXERCISED AS OFTEN AS LENDER SHALL FIND IT NECESSARY AND DESIRABLE AND THIS SECURITY INSTRUMENT SHALL BE A SUFFICIENT WARRANT THEREFORE. IN THE EVENT OF ANY JUDGMENT CONFESSED AGAINST BORROWER HEREUNDER IS STRICKEN OR OPENED UPON APPLICATION BY OR ON THE COMPANY’S BEHALF FOR ANY REASON, LENDER IS HEREBY AUTHORIZED AND EMPOWERED TO AGAIN APPEAR FOR AND CONFESS JUDGMENT IN EJECTMENT AGAINST BORROWER, AS PROVIDED FOR HEREIN, IF DOING SO WILL CURE ANY ERRORS OR DEFECTS IN SUCH PRIOR PROCEDURES.
BY SIGNING THIS INSTRUMENT, BORROWER HEREBY ACKNOWLEDGES THAT BORROWER HAS READ THIS SECURITY INSTRUMENT (INCLUDING WITHOUT LIMITATION THE CONFESSION SET FORTH HEREIN), HAS HAD THE OPPORTUNITY TO HAVE THE SAME REVIEWED BY LEGAL COUNSEL, UNDERSTANDS THE SAME, AND AGREES TO THE PROVISIONS CONTAINED HEREIN, INCLUDING, WITHOUT LIMITATION, THE CONFESSION OF JUDGMENT PROVISIONS AND UNDERSTANDS THAT A CONFESSION OF JUDGMENT CONSTITUTES A WAIVER OR RIGHTS
BORROWER OTHERWISE WOULD HAVE TO PRIOR NOTICE AND A HEARING BEFORE A JUDGMENT IS ENTERED AGAINST BORROWER AND WHICH MAY RESULT IN A COURT JUDGMENT AGAINST BORROWER WITHOUT PRIOR NOTICE OR HEARING.
BORROWER HEREBY AUTHORIZES AND EMPOWERS THE PROTHONOTARY OR ANY ATTORNEY OR ANY COURT OF RECORDS OR THE SHERIFF (OR THE LAWFUL DESIGNEE OF THE SHERIFF) WITHIN ANY COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE, TO TAKE ALL ACTION ALLOWED BY OR PROVIDED FOR IN THE PENNSYLVANIA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE RULES OF CIVIL PROCEDURE TO EXECUTE ON ANY JUDGMENT ENTERED AGAINST BORROWER PURSUANT TO THE CONFESSION OF JUDGMENT SET FORTH ABOVE WITHOUT PRIOR NOTICE OR HEARING OF ANY NATURE WHATSOEVER, WAIVING ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY FROM EXECUTION TO THE EXTENT THAT SUCH LAWS MAY LAWFULLY BE WAIVED. NO SINGLE EXERCISE OF THE FOREGOING POWER TO EXECUTE ON JUDGMENTS WITHOUT A HEARING SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE AGENT SHALL ELECT.
 
 
 
 
 
 
 
DAB
 
 
 
 
 
 
 
 
 
[ Borrower’s Initials ]                      
 
 
(b) This Security Instrument is an Open-End Mortgage. This Security Instrument secures, and the Debt include, future advances. All advances and indebtedness arising and occurring from time to time under this Security Instrument shall be secured hereby. The maximum amount of indebtedness (as defined in 42 Pa. Stat. §8143, which term excludes interest and excludes advances and expenses made by Lender to protect its interest in the Property) outstanding at any time which is secured by this Security Instrument is the Loan Amount multiplied by two (2). Borrower hereby covenants and agrees that it will not exercise, and hereby waives, its right under 42 Pa. Stat. §8143(c) to limit the indebtedness secured by this Security Instrument.
(c) This Security Instrument secures, and the Debt include, (i) all advances made by Lender with respect to any of the Property for the payment of Basic Carrying Costs or other costs incurred for the protection of any of the Property or the lien of this Security Instrument, (ii) all expenses incurred by Lender by reason of an Event of Default hereunder and (iii) all advances made by Lender to enable completion of construction of the Property. As provided in 42 Pa. Stat. §8144, this Security Instrument shall constitute a lien on the Property from the time this Security Instrument is left of record (or, if this is a purchase money mortgage, from the time of delivery hereof to Lender) for, among other things, all such advances and expenses, plus interest thereon, regardless of the time when such advances are made or such expenses are incurred. All notices to be given to Lender pursuant to 42 Pa. Stat. §8143 shall be given as set forth in Section 11.01 hereof.
(d) Borrower further waives the right of inquisition on all Property levied upon to collect the indebtedness hereby secured and does voluntarily condemn the same and authorizes a Prothonotary of the Commonwealth of Pennsylvania to enter into such condemnation.
* * * * *
IN WITNESS WHEREOF, Borrower has duly executed this Security Instrument the day and year first above written.




 
 
 
 
 
 
 
 
 
Borrower’s Organizational Identification Number: 4306910
 
BORROWER:
 
 
 
 
ASHFORD EDISON LP, a Delaware limited partnership
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
Ashford Sapphire V GP LLC, a Delaware
limited liability company, its general
partner
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ David A. Brooks
 
 
 
 
 
 
 
 
 
Name: David A. Brooks
 
 
 
 
 
 
 
 
Title: Vice President
 
 
EXHIBIT A
LEGAL DESCRIPTION OF PREMISES
EXHIBIT B
SUMMARY OF RESERVES
See Cross-collateralization Agreement between Borrower and Lender of even date herewith.
EXHIBIT C
CROSS-COLLATERALIZED PROPERTIES, INITIAL ALLOCATED LOAN AMOUNTS AND RELEASE

PRICE PERCENTAGE
See Cross-collateralization Agreement between Borrower and Lender of even date herewith.
EXHIBIT D
REQUIRED ENGINEERING WORK
See Cross-collateralization Agreement between Borrower and Lender of even date herewith.
EXHIBIT E
Intentionally Omitted.
EXHIBIT F
APPROVED MANAGERS
Starwood Hotels and Resorts Worldwide Inc.
Marriott International, Inc.
Hilton Hotels Corporation
Hyatt
Interstate Hotels and Resorts
Remington
APPROVED FRANCHISERS
Starwood Hotels and Resorts Worldwide Inc.
Marriott International, Inc.
Hilton Hotels Corporation
Hyatt





EXHIBIT 10.25.1.1a
Schedule of Omitted Mortgage Agreements

(Fixed Rate Pools)
The agreements listed below are substantially identical in all material respects to the Mortgage Security Agreement, Assignment of Rents and Fixture Filing from Ashford Edison LP, as Borrower to Wachovia Bank, National Association, as Lender, filed as Exhibit 10.25.4.4, except as to the name of the borrower, the name and legal description of the property and certain state-specific requirements or conventions related to the name of the document, the mechanics of perfection of a security interest in real property in the applicable state and state-specific remedies available to lender. These agreements are not being filed as exhibits in reliance on Instruction 2 to Item 601 of Regulation S-K.

•
Deed to Secure Debt, Security Agreement and Assignment of Rents from Ashford Atlanta Buckhead LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Basking Ridge LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Bridgewater Hotel Partnership LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Open-End Mortgage, Security Agreement, Financing Statement and Assignment of Rents from Ashford Bucks County LLC, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Market Center LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Flagstaff LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Richmond LP, as Borrower to Alexander Title Agency Incorporated, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Manhattan Beach LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Hawthorne LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Newark LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford San Jose LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Oakland LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB C-Hotel Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB F-Inn Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB SHS Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Open-End Mortgage, Security Agreement, Financing Statement and Assignment of Rents from Ashford Philadelphia Annex, LLC, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Phoenix Airport LP, as Borrower to Chicago Title Insurance Company as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Plano-C LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007




•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Plano-M LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Plano-R LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Open-End Mortgage, Security Agreement, Financing Statement and Assignment of Rents from Ashford Plymouth Meeting LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Durham I LLC and Ashford Durham II LLC, as tenants-in-common collectively, as Borrower to Chicago Title Insurance Company as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford San Francisco II LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Scottsdale LP, as Borrower to Chicago Title Insurance Company, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Seattle Downtown LP, as Borrower to Chicago Title Insurance Company, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Seattle Waterfront LP, as Borrower to Chicago Title Insurance Company, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
•
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Tampa International Hotel, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007




EXHIBIT 10.25.1.2

 
 
 
Ashford
 
 
Loan No. 502860049
 
Pool 1
GUARANTY
THIS GUARANTY (“ Guaranty ”) is executed as of April 11, 2007, by ASHFORD HOSPITALITY LIMITED PARTNERSHIP and ASHFORD HOSPITALITY TRUST INC. (hereinafter collectively referred to as “ Guarantor ”), for the benefit of WACHOVIA BANK, NATIONAL ASSOCIATION (“ Lender ”).
A. The Persons set forth on Exhibit A (collectively “ Borrower ”) is indebted to Lender with respect to a loan (“ Loan ”) pursuant to a certain promissory note dated of even date herewith, payable to the order of Lender in the aggregate original principal amount of ONE HUNDRED FIFTEEN MILLION SIX HUNDRED THOUSAND and NO/100 DOLLARS ($115,600,000.00) (together with all renewals, modifications, increases and extensions thereof, the “ Note ”), which is secured by the liens and security interests created by certain deed of trusts, security agreements, assignments of rents and fixture filings, and/or mortgages, security agreements, assignments of rents and fixture filings and/or deeds to secure debt, security agreements, assignments of rents and fixture filings (collectively, the “ Security Instrument ”), between Lender and Borrower, dated of even date herewith and further evidenced, secured or governed by the other Loan Documents (as defined in the Security Instrument); and
B. Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as hereinafter defined); and
C. Guarantor is the owner of a direct or indirect interest in Borrower, and Guarantor will directly benefit from Lender’s making the Loan to Borrower.
NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower thereunder, and to extend such additional credit as Lender may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
ARTICLE I.

NATURE AND SCOPE OF GUARANTY
Section 1.1. Guaranty of Obligation . Guarantor hereby absolutely, irrevocably and unconditionally guarantees to Lender (and its successors and assigns), jointly and severally, the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether upon demand by Lender or by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby absolutely, irrevocably and unconditionally covenants and agrees that it is liable, jointly and severally, for the Guaranteed Obligations as a primary obligor, and that each Guarantor shall fully perform, jointly and severally, each and every term and provision hereof.
Section 1.2. Definition of Guaranteed Obligations . As used herein, the term “ Guaranteed Obligations ” shall mean, and Guarantor shall be liable for, and shall indemnify, defend and hold Lender and each other Indemnified Party harmless from and against, any and all
Losses (as hereinafter defined) incurred or suffered by Lender or any other Indemnified Party arising out of or in connection with the matters listed below:
(a) fraud or intentional misrepresentation by Borrower, Guarantor or any Affiliate of Borrower or Guarantor or the failure to state a material fact in the written information provided to Lender by or on behalf of Borrower or any of its Affiliates in connection with the Security Instrument, the Note or the other Loan Documents;
(b) the misappropriation by Borrower, Guarantor or any Affiliate of Borrower or Guarantor of any tenant security deposits or Rent;
(c) the misapplication or conversion of Loss Proceeds;




(d) any act of arson, intentional physical damage or waste of or to the Property by Borrower, Guarantor or any Affiliate of Borrower or Guarantor;
(e) Borrower’s failure to comply with the provisions of Sections 2.02(g) 12.01, 16.01, 16.02, 18.29, 18.30 or 18.31 , inclusive, of the Security Instrument;
(f) the exercise of any right or remedy under any federal, state or local forfeiture laws resulting in the loss or impairment of the lien of the Security Instrument, or the priority thereof, against the Property;
(g) any modification, termination or amendment to a Ground Lease which was not consented to by Lender;
(h) any claims, actions or proceedings initiated by Borrower or any Affiliate of Borrower alleging that the relationship of Borrower and Lender is that of joint venturers, partners, tenants in common, joint tenants or any relationship other than that of debtor and creditor; or
(i) any Transfer in violation of the provisions of Article XI of the Security Instrument.
In addition, in the event any proceeding, action, petition or filing under the Bankruptcy Code, or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts of Borrower, Operating Tenant or Guarantor, shall be filed by, consented to or acquiesced in by Borrower, Operating Tenant or Guarantor or any of their Affiliates commences any proceeding, action, petition or filing under the Bankruptcy Code or any similar state or federal law now or hereafter in effect relating to bankruptcy, reorganization or insolvency, or the arrangement or adjustment of debts with respect to Borrower, Operating Tenant or Guarantor, or if Borrower, Operating Tenant or Guarantor or any Affiliates of Borrower, Operating Tenant or Guarantor shall institute any proceeding for Borrower’s, Guarantor’s or Operating Tenant’s dissolution or liquidation, or shall make an assignment for the benefit of creditors (provided the Guarantor’s liability under this sentence shall in no event exceed the Cap Amount (as set forth on Exhibit B attached hereto)), then the Guaranteed Obligations shall also include the unpaid balance of the Debt.
For purposes of this Guaranty, the term “Losses” includes any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages, foreseeable and unforeseeable consequential damages, of whatever kind or nature (including but not limited to reasonable attorneys’ fees and other costs of defense).
Section 1.3. Nature of Guaranty . This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance, is joint and several and is not a guaranty of collection. This Guaranty shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural Person) Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs). The obligations of Guarantor under this Guaranty shall survive any foreclosure proceeding, any foreclosure sale and delivery of any deed in lieu of foreclosure, and any release of record of the Security Instrument. The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.
Section 1.4. Guaranteed Obligations Not Reduced by Offset . The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other Person, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.
Section 1.5. Payment by Guarantor . If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at maturity or earlier by acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.
Section 1.6. No Duty to Pursue Others . It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce this Guaranty against Guarantor, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other Person, (ii) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in




any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining
payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.
Section 1.7. Waivers . Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note or of any other Loan Documents, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Property, (v) the occurrence of any breach by Borrower or Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.
Section 1.8. Payment of Expenses . In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. The covenant contained in this section shall survive the payment and performance of the Guaranteed Obligations.
Section 1.9. Effect of Bankruptcy . In the event that, pursuant to any insolvency, . bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s performance of such obligations and then only to the extent of such performance.
Section 1.10. Deferral of Rights of Subrogation, Reimbursement and Contribution .
(a) Notwithstanding any payment or payments made by any Guarantor hereunder, unless and until payment in full of the Debt (and including interest accruing on the Note after the commencement of a proceeding by or against Borrower under the Bankruptcy Code which interest the parties agree shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in cases under the Bankruptcy Code) (i) no Guarantor will assert or exercise any right of Lender or of such Guarantor against Borrower to recover the amount of any payment made by such Guarantor to Lender by way of subrogation, reimbursement, contribution, indemnity, or otherwise arising by contract or operation of law, and such Guarantor shall not have any right of recourse to or any claim against assets or property of Borrower; and (ii) each Guarantor agrees not to seek contribution or indemnity or other recourse from any other Guarantor.
(b) Until payment in full of the Debt (and including interest accruing on the Note after the commencement of a proceeding by or against Borrower under the Bankruptcy Code which interest the parties agree shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in cases under the Bankruptcy Code), Guarantor agrees not to accept any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor and hereby assigns such indebtedness to Lender, including the right to file proof of claim and to vote thereon in connection with any such proceeding under the Bankruptcy Code, including the right to vote on any plan of reorganization. If any amount of the type more particularly described in the first sentence of this Section 1.10(b) shall nevertheless be paid to a Guarantor by Borrower or another Guarantor prior to payment in full of all sums owed to Lender under the Loan Documents (the “ Obligations ”), such amount shall be held in trust for the benefit of Lender and shall forthwith be paid to Lender to be credited and applied to the Guaranteed Obligations, whether matured or unmatured.
(c) The provisions of this Section 1.10 shall survive the termination of this Guaranty, and any satisfaction and discharge of Borrower by virtue of any payment, court order or any applicable law.
Section 1.11. “Borrower" . The term “ Borrower ” as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, limited liability company, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower.






ARTICLE II.

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING

GUARANTOR’S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:
Section 2.1. Modifications . Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, Note, Loan Documents, or other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action.
Section 2.2. Adjustment . Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor.
Section 2.3. Condition of Borrower or Guarantor . The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other Person at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor.
Section 2.4. Invalidity of Guaranteed Obligations . The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations, or any part thereof, exceed the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof, is ultra vires, (iii) the officers or representatives executing the Note or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note or any of the other Loan Documents has been forged or otherwise is irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason.
Section 2.5. Release of Obligors . Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other Person, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.
Section 2.6. Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.
Section 2.7. Release of Collateral . Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security, at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.
Section 2.8. Care and Diligence . The failure of Lender or any other Person to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations, (ii) to foreclose, or initiate any action to foreclose, or, once




commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.
Section 2.9. Unenforeceability . The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.
Section 2.10. Merger . The reorganization, merger or consolidation of Borrower into or with any other corporation or entity.
Section 2.11. Preference . Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else.
Section 2.12. Other Actions Taken or Omitted . Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether or not contemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.
ARTICLE III.

REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows:
Section 3.1. Benefit . Guarantor is an Affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.
Section 3.2. Familiarity and Reliance . Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; provided, however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.
Section 3.3. No Representation by Lender . Neither Lender nor any other Person has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty.
Section 3.4. Guarantor’s Financial Condition . As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, Solvent.
Section 3.5. Legality . The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.
Section 3.6. Survival . All representations and warranties made by Guarantor herein shall survive the execution hereof.
Section 3.7. Review of Documents . Guarantor has examined the Note and all of the Loan Documents.
Section 3.8. Litigation . Except as otherwise disclosed to Lender, there are no proceedings pending or, so far as Guarantor knows, threatened before any court or administrative agency which, if decided adversely to Guarantor, would materially adversely affect the financial condition of Guarantor or the authority of Guarantor to enter into, or the validity or enforceability of this Guaranty.
Section 3.9. Tax Returns . Guarantor has filed all required federal, state and local tax returns and has paid all taxes as shown on such returns as they have become due. No claims have been assessed and are unpaid with respect to such taxes.




ARTICLE IV.

SUBORDINATION OF CERTAIN INDEBTEDNESS
Section 4.1. Subordination of All Guarantor Claims . As used herein, the term “ Guarantor Claims ” shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon are direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include, without limitation, all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations to the extent the provisions of Section 1.10 hereof are unenforceable. Upon the occurrence of an Event of Default or the occurrence of an event which would, with the giving of notice or the passage of time, or both, constitute an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other Person any amount upon the Guarantor Claims.
Section 4.2. Claims in Bankruptcy . In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as
to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that portion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.
Section 4.3. Payments Held in Trust . In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender.
Section 4.4. Liens Subordinate . Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.
ARTICLE V.

MISCELLANEOUS
Section 5.1. No Waiver; Remedies Cumulative . No failure or delay on the part of Lender in exercising any right, remedy, power or privilege hereunder or under the other Loan Documents and no course of dealing between Guarantor and Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under the other Loan Documents preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege hereunder or thereunder. The rights and remedies provided herein and in the other Loan Documents are cumulative and not exclusive of any rights or remedies provided by law. The giving of notice to or demand on Guarantor which notice or demand is not required hereunder or under the other Loan Documents shall not entitle Guarantor to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights, remedies, powers or privileges of Lender in any circumstances not requiring notice or demand.




Section 5.2. Notices . All notices, requests and other communications to any party hereunder or under the Note shall be given in the manner set forth in Article XI of the Security Instrument, and to each addressee at the address set forth below:
 
 
 
 
 
 
 
Guarantor:
 
c/o Ashford Hospitality Trust, Inc.
 
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
 
 
Dallas, Texas 75254-4308
 
 
 
 
Attn: David Brooks
 
 
 
 
Facsimile: (972) 778-9270
 
 
 
 
 
 
 
With a copy to:
 
Akin Gump Strauss Hauer & Feld LLP
 
 
 
 
590 Madison Avenue
 
 
 
 
New York, New York 10022-2524
 
 
 
 
Attn: Peter Miller, Esq.
 
 
 
 
Facsimile: (212) 872-1002
 
 
 
 
E-mail: pamiller@akingump.com
 
 
 
 
 
 
 
Lender:
 
Wachovia Bank, National Association
 
 
 
 
Commercial Real Estate Services
 
 
 
 
8739 Research Drive URP 4
 
 
 
 
NC 1075
 
 
 
 
Charlotte, North Carolina 28262
 
 
 
 
Facsimile No,: (704) 715-0056
 
 
 
 
 
 
 
With a copy to:
 
Proskauer Rose LLP
 
 
 
 
1585 Broadway
 
 
 
 
New York, New York 10036
 
 
 
 
Attn: David J. Weinberger, Esq.
 
 
 
 
Facsimile No.: (212)969-2900
or such other address as Guarantor or Lender shall hereafter specify by not less than ten (10) days prior written notice as provided herein; provided, however, that notwithstanding any provision of this Section to the contrary, such notice of change of address shall be deemed given only upon actual receipt thereof. Rejection or other refusal to accept or the inability to deliver because of changed addresses of which no notice was given as herein required shall be deemed to be receipt of the notice, demand, statement, request or consent.
Section 5.3. Governing Law; Jurisdiction . This Guaranty shall be governed by and construed in accordance with the laws of the State of New York and the applicable laws of the United States of America. Guarantor hereby irrevocably submits to the jurisdiction of any court of competent jurisdiction located in the State of New York in connection with any proceeding out of or relating to this Guaranty.
Section 5.4. Invalid Provisions . If any provision of this Guaranty is held to be invalid, illegal or unenforceable in any respect, this Guaranty shall be construed without such provision.
Section 5.5. Amendments . The terms of this Guaranty, together with the terms of the other Loan Documents, constitute the entire understanding and agreement of the parties hereto and supersede all prior agreements, understandings and negotiations between Guarantor and Lender with respect to the Guaranteed Obligations. This Guaranty, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act on the part of Guarantor or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.
Section 5.6. Parties Bound; Assignment . This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder.
Section 5.7. Headings : Construction of Documents, Definitions. The headings and captions of various sections of this Guaranty are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or




intent of the provisions hereof. Guarantor acknowledges that it was represented by competent counsel in connection with the negotiation and drafting of this Guaranty and the other Loan Documents and that neither this Guaranty nor the other Loan Documents shall be subject to the principle of construing the meaning against the Person who drafted same. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Security Instrument.
Section 5.8. Recitals . The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.
Section 5.9. Counterparts . To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all Persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages.
Section 5.10. Cumulative Rights . The rights of Lender under this Guaranty shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled, subject to the terms of this Guaranty, to every right and remedy now or hereafter afforded by law.
Section 5.11. Waiver of Counterclaim and Right To Trial By Jury . GUARANTOR HEREBY WAIVES THE RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY LENDER OR ITS AGENTS, AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR IN ANY COUNTERCLAIM GUARANTOR MAY BE PERMITTED TO ASSERT HEREUNDER OR WHICH MAY BE ASSERTED BY LENDER OR ITS AGENTS AGAINST GUARANTOR, OR IN ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY, THE DEBT OR THE GUARANTEED OBLIGATIONS.
* * * * *
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the day and year first above written.
 
 
 
 
 
 
 
 
 
 
 
GUARANTOR:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED
PARTNERSHIP, a Delaware limited partnership
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
Ashford OP General Partner LLC, a Delaware
 
 
 
 
 
limited liability company, its general partner
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By: 
/s/ David A. Brooks
 
 
 
 
 
 
 
Name: David A. Brooks
 
 
 
 
 
 
Title: Vice President
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC., a Maryland corporation
 
 
By:  
/s/ David A. Brooks 
 
 
 
Name:  
David A. Brooks 
 
 
 
Title:  
Vice President 
 
 





Exhibit A
Borrower
 
 
 
Property
 
Owner
Courtyard Dallas Plano in Legacy Park
 
Ashford Plano-C LP
6840 N. Dallas Parkway
 
 
Plano, TX 75024-3499
 
 
 
 
 
Courtyard Scottsdale Old Town
 
Ashford Scottsdale LP
3311 N. Scottsdale Road
 
 
Scottsdale, AZ 85251-6427
 
 
 
 
 
Courtyard Oakland Airport
 
Ashford Oakland LP
350 Hegenberger Road
 
 
Oakland, CA 94621-1445
 
 
 
 
 
Courtyard Basking Ridge
 
Ashford Basking Ridge LP
595 Martinsville Road
 
 
Basking Ridge, N7 07920-2800
 
 
 
 
 
Courtyard Newark — Silicon Valley
 
Ashford Newark LP
34905 Newark Bled.
 
 
Newark, CA 94560-1215
 
 
Exhibit B
Cap Amount: $19,475,000.00





EXHIBIT 10.25.1.2a
Schedule of Omitted Guaranties

(Fixed Rate Pools)
The agreements listed below are substantially identical in all material respects to the Guaranty for Fixed Rate Pool 1, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association (the “Form Guaranty”), except as to the identity of the borrowers of the underlying debt, the principal amount of the underlying debt and the maximum amount payable by the guarantor. The following table specifically identifies each of these differences. There are no other material differences between any of the agreements listed below and the Form Guaranty. These agreements are not being filed as exhibits in reliance on Instruction 2 to Item 601 of Regulation S-K.
 
 
 
 
Principal
Balance of
Borrowers’
 
Maximum
Guaranteed
Omitted Agreement
 
Borrowers
 
Debt
 
Amount
Guaranty for Fixed Rate Pool 2, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford Phoenix Airport LP
Ashford Plano-R LP
Ashford San Jose LP
Ashford Richmond LP
Ashford Plymouth Meeting LP
Ashford Hawthorne LP
Ashford Manhattan Beach LP
 
$
126,466,000

 
$
21,300,000

Guaranty for Fixed Rate Pool 3, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford San Francisco II LP
Ashford Seattle Downtown LP
 
$
128,408,000

 
$
21,650,000

Guaranty for Fixed Rate Pool 4, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford LLB C-Hotel
Management, LP
Ashford LLB SHS Management, LP
Ashford LLB F-Inn
Management, LP
Ashford Edison LP
Ashford Atlanta Buckhead LP
 
$
103,906,000

 
$
17,500,000

Guaranty for Fixed Rate Pool 5, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford Durham I LLC
Ashford Durham II LLC
Ashford Bucks County LLC
Ashford Flagstaff LP
Ashford Market Center LP
Ashford Bridgewater Hotel
Partnership, LP
 
$
158,105,000

 
$
26,650,000

Guaranty for Fixed Rate Pool 6, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford Plano-M LP
Ashford Seattle Waterfront LP
Ashford Tampa International
Hotel Partnership, LP
 
$
260,980,000

 
$
43,975,000

Guaranty for Courtyard Philadelphia, executed as of April 11, 2007, by the Registrant for the benefit of Wachovia Bank, National Association
 
Ashford Philadelphia Annex LLC
 
$
35,000,000

 
$
5,900,000








EXHIBIT 12.0

ASHFORD HOSPITALITY TRUST, INC.
STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
(dollars in thousands)

 
 Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 Earnings
 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before provision for income taxes and redeemable noncontrolling interests
$
(40,465
)
 
$
(46,949
)
 
$
(56,385
)
 
$
9,039

 
$
(26,914
)
 Amount recorded for (earnings) loss in unconsolidated entities
(2,495
)
 
23,404

 
20,833

 
(14,528
)
 
20,265

 Add:
 
 
 
 
 
 
 
 
 
 Distributions from equity investment in unconsolidated entities
995

 
—

 
—

 
—

 
492

 Interest on indebtedness
107,598

 
133,697

 
140,066

 
134,585

 
143,264

 Amortization of debt expense and premium
7,237

 
7,772

 
6,194

 
4,648

 
5,838

 Interest component of operating leases
115

 
341

 
354

 
385

 
525

 
$
72,985

 
$
118,265

 
$
111,062

 
$
134,129

 
$
143,470

 
 
 
 
 
 
 
 
 
 
 Fixed charges
 
 
 
 
 
 
 
 
 
 Interest on indebtedness
$
107,598

 
$
133,697

 
$
140,066

 
$
134,585

 
$
143,264

 Amortization of debt expense and premium
7,237

 
7,772

 
6,194

 
4,648

 
5,838

 Interest component of operating leases
115

 
341

 
354

 
385

 
525

 Dividends to Class B unit holders
2,879

 
2,943

 
2,943

 
2,943

 
2,943

 
$
117,829

 
$
144,753

 
$
149,557

 
$
142,561

 
$
152,570

 Preferred stock dividends
 
 
 
 
 
 
 
 
 
 Preferred Series A
$
3,542

 
$
3,542

 
$
3,516

 
$
3,180

 
$
3,180

 Preferred Series B-1
—

 
—

 
—

 
1,374

 
4,143

 Preferred Series D
20,002

 
20,002

 
19,869

 
18,940

 
13,871

 Preferred Series E
10,418

 
10,418

 
10,417

 
6,019

 
—

 
$
33,962

 
$
33,962

 
$
33,802

 
$
29,513

 
$
21,194

 
 
 
 
 
 
 
 
 
 
 Combined fixed charges and preferred stock dividends
$
151,791

 
$
178,715

 
$
183,359

 
$
172,074

 
$
173,764

 
 
 
 
 
 
 
 
 
 
 Deficit (Fixed charges)
$
44,844

 
$
26,488

 
$
38,495

 
$
8,432

 
$
9,100

 
 
 
 
 
 
 
 
 
 
 Deficit (Combined fixed charges and preferred stock dividends)
$
78,806

 
$
60,450

 
$
72,297

 
$
37,945

 
$
30,294

 
 
 
 
 
 
 
 
 
 




EXHIBIT 21.1
SUBSIDIARIES LISTING AS OF DECEMBER 31, 2014
All the subsidiaries listed below are incorporated in Delaware except that Ashford Hospitality Trust, Inc. is incorporated in Maryland
AH Tenant Corporation
APHM – ND, L.P.
APHM North Dallas – GP, LLC
Ashford 1031 GP LLC
Annapolis Hotel GP LLC
Annapolis Maryland Hotel Limited Partnership
Ashford Alpharetta Limited Partnership
Ashford Anchorage GP LLC
Ashford Anchorage LP
Ashford Ashton GP LLC
Ashford Ashton LP
Ashford Atlanta Buckhead LP
Ashford Atlantic Beach LP
Ashford Austin LP
Ashford Basking Ridge LP
Ashford Birmingham LP
Ashford Bloomington LP
Ashford Bridgewater Hotel Partnership, LP
Ashford Bucks County LLC
Ashford Buena Vista LP
Ashford Buford I LP
Ashford Buford II LP
Ashford BWI Airport LP
Ashford Canada Trust
Ashford Capital Advisors LLC
Ashford Centerville Limited Partnership
Ashford Charlotte Limited Partnership
Ashford CM GP LLC
Ashford CM Partners LP
Ashford Columbus GP LLC
Ashford Columbus LP
Ashford Coral Gables LP
Ashford Credit Holding LLC
Ashford Crystal City Limited Partnership
Ashford Crystal City GP LLC
Ashford Crystal City Partners LP
Ashford Crystal Gateway GP LLC
Ashford Crystal Gateway LP
Ashford Curtis GP LLC
Ashford Curtis LP
Ashford Dallas LP
Ashford Dearborn GP LLC




Ashford Dulles LP
Ashford Durham I LLC
Ashford Durham II LLC
Ashford Edison LP
Ashford Eight General Partner LLC
Ashford Evansville I LP
Ashford Evansville III LP
Ashford Falls Church Limited Partnership
Ashford Five Junior Holder LLC
Ashford Five Junior Mezz LLC
Ashford Five Senior Mezz LLC
Ashford Flagstaff LP
Ashford Fremont GP LLC
Ashford Fremont LP
Ashford Fremont Senior Mezz LLC
Ashford Ft. Lauderdale Weston I LLC
Ashford Ft. Lauderdale Weston II LLC
Ashford Ft. Lauderdale Weston III LLC
Ashford Gaithersburg Limited Partnership
Ashford Gateway TRS Corporation
Ashford GCH Beverage, Inc.
Ashford Hawthorne LP
Ashford HHC LLC
Ashford HHC II LLC
Ashford HHC Partners LP
Ashford HHC Partners II LP
Ashford HI Beverage, Inc.
Ashford Hospitality Finance General Partner LLC
Ashford Hospitality Finance LP
Ashford Hospitality Limited Partnership
Ashford Hospitality Servicing LLC
Ashford IHC LLC
Ashford IHC Partners, LP
AHT SMA GP, LLC
AHT SMA, LP
Ashford Irvine Spectrum Foothill Ranch Limited Partnership
Ashford Jacksonville I LP
Ashford Jacksonville II LP
Ashford Jacksonville III GP LLC
Ashford Jacksonville III LP
Ashford Jacksonville IV GP LLC
Ashford Jacksonville IV LP
Ashford Kennesaw I LP
Ashford Kennesaw II LP
Ashford Lakeway GP LLC
Ashford Lakeway LP




Ashford Las Vegas LP
Ashford Lawrenceville LP                               
Ashford Lee Vista GP LLC
Ashford Lee Vista Partners LP
Ashford LLB C-Hotel Management, LP
Ashford LLB SHS Management, LP
Ashford LLB F-Inn Management, LP
Ashford LMND LLC
Ashford Louisville LP
Ashford LV Hughes Center LP
Ashford Manhattan Beach LP
Ashford Market Center LP
Ashford Memphis GP LLC
Ashford Memphis LP
Ashford Mezz Borrower LLC
Ashford Minneapolis Airport GP LLC
Ashford Minneapolis Airport LP
Ashford Mira Mesa San Diego Limited Partnership
Ashford Mobile LP
Ashford MV San Diego GP LLC
Ashford MV San Diego LP
Ashford Newark LP
Ashford Nickel Junior Mezz LLC
Ashford Nickel Senior Mezz LLC
Ashford Oakland LP
Ashford OP General Partner LLC
Ashford OP Limited Partner LLC
Ashford Orlando Sea World Limited Partnership
Ashford Overland Park Limited Partnership
Ashford PH GP LLC
Ashford PH Partners LP
Ashford Philly GP LLC
Ashford Philly LP                                             
Ashford Phoenix Airport LP
Ashford Plano-C LP
Ashford Plano-R LP
Ashford Plymouth Meeting LP
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford Pool A GP LLC
Ashford Pool A Junior Holder LLC
Ashford Pool A Junior Mezz LLC
Ashford Pool A Senior Mezz LLC
Ashford Pool B GP LLC
Ashford Pool B Junior Holder LLC
Ashford Pool B Junior Mezz LLC




Ashford Pool B Senior Mezz LLC
Ashford Pool C1 GP LLC
Ashford Pool C1 Junior Holder LLC
Ashford Pool C1 Junior Mezz LLC
Ashford Pool C1 Senior Mezz LLC
Ashford Pool C2 GP LLC
Ashford Pool C2 Junior Holder LLC
Ashford Pool C2 Junior Mezz LLC
Ashford Pool C2 Senior Mezz LLC
Ashford Pool C3 GP LLC
Ashford Pool C3 Junior Holder LLC
Ashford Pool C3 Junior Mezz LLC
Ashford Pool C3 Senior Mezz LLC
Ashford Properties General Partner LLC
Ashford Raleigh Limited Partnership
Ashford Richmond LP
Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership
Ashford San Jose LP
Ashford Santa Clara GP LLC
Ashford Santa Clara Partners LP
Ashford Santa Fe LP
Ashford Sapphire I GP LLC
Ashford Sapphire II GP LLC
Ashford Sapphire V GP LLC
Ashford Sapphire VI GP LLC
Ashford Sapphire Acquisition LLC
Ashford Sapphire GP LLC            
Ashford Sapphire Junior Holder I LLC
Ashford Sapphire Junior Holder II LLC
Ashford Sapphire Junior Mezz I LLC
Ashford Sapphire Junior Mezz II LLC
Ashford Sapphire Senior Mezz I LLC               
Ashford Sapphire Senior Mezz II LLC
Ashford Scottsdale LP
Ashford Senior General Partner LLC
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC
Ashford Senior General Partner IV LLC
Ashford Seven General Partner LLC
Ashford Six General Partner LLC
Ashford Syracuse LP                                       
Ashford Terre Haute LP
Ashford Tipton Lakes LP
Ashford Torrance LP




Ashford TRS V LLC
Ashford TRS VI Corporation
Ashford TRS Anaheim LLC
Ashford TRS Ashton Holder LLC
Ashford TRS Ashton LLC
Ashford TRS Canada Corporation
Ashford TRS CM LLC
Ashford TRS Columbus LLC
Ashford TRS Corporation
Ashford TRS Crystal City LLC
Ashford TRS Curtis LLC
Ashford TRS Eight LLC
Ashford TRS Five Junior Holder I LLC
Ashford TRS Five Junior Holder II LLC
Ashford TRS Five Junior Holder III LLC
Ashford TRS Five Junior Holder IV LLC
Ashford TRS Five Junior Holder V LLC
Ashford TRS Five Junior Mezz  I LLC
Ashford TRS Five Junior Mezz II LLC
Ashford TRS Five Junior Mezz III LLC
Ashford TRS Five Junior Mezz IV LLC
Ashford TRS Five Junior Mezz V LLC
Ashford TRS Five LLC
Ashford TRS Five Senior Mezz I LLC
Ashford TRS Five Senior Mezz II LLC
Ashford TRS Five Senior Mezz III LLC
Ashford TRS Five Senior Mezz IV LLC
Ashford TRS Five Senior Mezz V LLC
Ashford TRS Fremont LLC
Ashford TRS Fremont Senior Mezz LLC
Ashford TRS Investment Management GP LLC
Ashford TRS Investment Management LP
Ashford TRS Jacksonville III LLC
Ashford TRS Jacksonville IV LLC
Ashford TRS Lakeway Holding LLC
Ashford TRS Lakeway LLC
Ashford TRS Lee Vista LLC
Ashford TRS Lessee LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee III LLC
Ashford TRS Lessee IV LLC
Ashford TRS Memphis LLC
Ashford TRS Nickel Junior Mezz LLC
Ashford TRS Nickel LLC
Ashford TRS Nickel Senior Mezz LLC




Ashford TRS PH LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Pool A LLC
Ashford TRS Pool A Junior Holder LLC
Ashford TRS Pool A Junior Mezz LLC
Ashford TRS Pool A Senior Mezz LLC
Ashford TRS Pool B LLC
Ashford TRS Pool B Junior Holder LLC
Ashford TRS Pool B Junior Mezz LLC
Ashford TRS Pool B Senior Mezz LLC
Ashford PH GP LLC
Ashford PH Partners LP
Ashford Philly GP LLC
Ashford Philly LP
Ashford Phoenix Airport LP
Ashford Plano-C LP
Ashford Plano-R LP
Ashford Plymouth Meeting LP
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford Pool A GP LLC
Ashford Pool A Junior Holder LLC
Ashford Pool A Junior Mezz LLC
Ashford Pool A Senior Mezz LLC
Ashford Pool B GP LLC
Ashford Pool B Junior Holder LLC
Ashford Pool B Junior Mezz LLC
Ashford Pool B Senior Mezz LLC
Ashford Pool C1 GP LLC
Ashford Pool C1 Junior Holder LLC
Ashford Pool C1 Junior Mezz LLC
Ashford Pool C1 Senior Mezz LLC
Ashford Pool C2 GP LLC
Ashford Pool C2 Junior Holder LLC
Ashford Pool C2 Junior Mezz LLC
Ashford Pool C2 Senior Mezz LLC
Ashford Pool C3 GP LLC
Ashford Pool C3 Junior Holder LLC
Ashford Pool C3 Junior Mezz LLC
Ashford Pool C3 Senior Mezz LLC
Ashford Properties General Partner LLC
Ashford Raleigh Limited Partnership
Ashford Richmond LP
Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership




Ashford San Jose LP
Ashford Santa Clara GP LLC
Ashford Santa Clara Partners LP
Ashford Santa Fe LP
Ashford Sapphire I GP LLC
Ashford Sapphire II GP LLC
Ashford Sapphire V GP LLC
Ashford Sapphire VI GP LLC
Ashford Sapphire Acquisition LLC
Ashford Sapphire GP LLC
Ashford Sapphire Junior Holder I LLC
Ashford Sapphire Junior Holder II LLC
Ashford Sapphire Junior Mezz I LLC
Ashford Sapphire Junior Mezz II LLC
Ashford Sapphire Senior Mezz I LLC
Ashford Sapphire Senior Mezz II LLC
Ashford Scottsdale LP
Ashford Senior General Partner LLC
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC
Ashford Senior General Partner IV LLC
Ashford Seven General Partner LLC
Ashford Six General Partner LLC
Ashford Syracuse LP
Ashford Terre Haute LP
Ashford Tipton Lakes LP
Ashford Torrance LP
Ashford TRS V LLC
Ashford TRS VI Corporation
Ashford TRS Anaheim LLC
Ashford TRS Ashton Holder LLC
Ashford TRS Ashton LLC
Ashford TRS Canada Corporation
Ashford TRS CM LLC
Ashford TRS Columbus LLC
Ashford TRS Corporation
Ashford TRS Crystal City LLC
Ashford TRS Curtis LLC
Ashford TRS Eight LLC
Ashford TRS Five Junior Holder I LLC
Ashford TRS Five Junior Holder II LLC
Ashford TRS Five Junior Holder III LLC
Ashford TRS Five Junior Holder IV LLC
Ashford TRS Five Junior Holder V LLC
Ashford TRS Five Junior Mezz I LLC




Ashford TRS Five Junior Mezz II LLC
Ashford TRS Five Junior Mezz III LLC
Ashford TRS Five Junior Mezz IV LLC
Ashford TRS Five Junior Mezz V LLC
Ashford TRS Five LLC
Ashford TRS Five Senior Mezz I LLC
Ashford TRS Five Senior Mezz II LLC
Ashford TRS Five Senior Mezz III LLC
Ashford TRS Five Senior Mezz IV LLC
Ashford TRS Five Senior Mezz V LLC
Ashford TRS Fremont LLC
Ashford TRS Fremont Senior Mezz LLC
Ashford TRS Investment Management GP LLC
Ashford TRS Investment Management LP
Ashford TRS Jacksonville III LLC
Ashford TRS Jacksonville IV LLC
Ashford TRS Lakeway Holding LLC
Ashford TRS Lakeway LLC
Ashford TRS Lee Vista LLC
Ashford TRS Lessee LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee III LLC
Ashford TRS Lessee IV LLC
Ashford TRS Memphis LLC
Ashford TRS Nickel Junior Mezz LLC
Ashford TRS Nickel LLC
Ashford TRS Nickel Senior Mezz LLC
Ashford TRS PH LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Pool A LLC
Ashford TRS Pool A Junior Holder LLC
Ashford TRS Pool A Junior Mezz LLC
Ashford TRS Pool A Senior Mezz LLC
Ashford TRS Pool B LLC
Ashford TRS Pool B Junior Holder LLC
Ashford TRS Pool B Junior Mezz LLC
Ashford TRS Pool B Senior Mezz LLC





EXHIBIT 21.2
SPECIAL PURPOSE ENTITIES LIST AS OF DECEMBER 31, 2014
                                    
                                    
Annapolis Maryland Hotel Limited Partnership
Ashford Alpharetta Limited Partnership
Ashford Anchorage LP
Ashford Atlanta Buckhead LP    
Ashford Atlantic Beach LP
Ashford Austin LP
Ashford Basking Ridge LP
Ashford Bloomington LP
Ashford Bridgewater Hotel Partnership, LP
Ashford Bucks County LLC
Ashford Buena Vista LP
Ashford Buford I LP
Ashford Buford II LP
Ashford BWI Airport LP
Ashford Centerville Limited Partnership
Ashford Charlotte Limited Partnership
Ashford CM Partners LP
Ashford Coral Gables LP
Ashford Crystal City Partners LP
Ashford Crystal City Limited Partnership
Ashford Crystal Gateway LP
Ashford Dallas LP
Ashford Dulles LP
Ashford Durham I LLC
Ashford Durham II LLC
Ashford Edison LP
Ashford Evansville I LP
Ashford Evansville III LP
Ashford Falls Church Limited Partnership
Ashford Flagstaff LP
Ashford Irvine Spectrum Foothill Ranch Limited Partnership
Ashford Ft. Lauderdale Weston I LLC
Ashford Ft. Lauderdale Weston II LLC




Ashford Ft. Lauderdale Weston III LLC
Ashford Gaithersburg Limited Partnership
Ashford Gateway TRS Corporation
Ashford Hawthorne LP
Ashford Jacksonville I LP
Ashford Jacksonville II LP
Ashford LLB SHS Management, LP
Ashford Jacksonville IV LP
Ashford Kennesaw I LP
Ashford Kennesaw II LP
Ashford LLB C-Hotel Management, LP
Ashford LLB F-Inn Management, LP
Ashford Las Vegas LP
Ashford Lawrenceville LP
Ashford Lee Vista Partners LP
Ashford Louisville LP
Ashford LV Hughes Center LP
Ashford Manhattan Beach LP
Ashford Market Center LP
Ashford Minneapolis Airport LP
Ashford Mira Mesa San Diego Limited Partnership
Ashford MV San Diego LP
Ashford Newark LP
Ashford Oakland LP
Ashford Orlando Sea World Limited Partnership
Ashford Overland Park Limited Partnership
Ashford Philly LP
Ashford Phoenix Airport LP
Ashford PH Partners LP
Ashford Plano-C LP
Ashford Plano-R LP
Ashford Plymouth Meeting LP
Ashford Raleigh Limited Partnership
Ashford Richmond LP
Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership
Ashford San Jose LP




Ashford Santa Clara Partners LP
Ashford Santa Fe LP
Ashford Scottsdale LP
Ashford Syracuse LP
Ashford Terre Haute LP
Ashford Tipton Lakes LP
Ashford Walnut Creek LP
Bucks County Member LLC
CY Manchester Hotel Partners, LP
Key West Florida Hotel Limited Partnership
Minnetonka Minnesota Hotel Limited Partnership
New Beverly Hills Hotel Limited Partnership
New Clear Lake Hotel Limited Partnership
New Fort Tower I Hotel Limited Partnership
New Houston Hotel Limited Partnership
New Indianapolis Downtown Hotel Limited Partnership
Palm Beach Florida Hotel and Office Building Limited Partnership
St. Petersburg Florida Hotel Limited Partnership
Ashford Sapphire I GP LLC
Ashford Sapphire II GP LLC
Ashford Sapphire V GP LLC
Ashford Sapphire VI GP LLC
Ashford TRS CM LLC
Ashford TRS Crystal City LLC
Ashford TRS Jacksonville IV LLC
Ashford TRS Lee Vista LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee IV LLC
Ashford TRS Nickel LLC
Ashford TRS PH LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Santa Clara LLC
Ashford TRS Sapphire I LLC
Ashford TRS Sapphire II LLC
Ashford TRS Sapphire V LLC




Ashford TRS Sapphire VI LLC
CY Manchester Tenant Corporation
Annapolis Hotel GP LLC
Ashford Anchorage GP LLC
Ashford CM GP LLC
Ashford Crystal City GP LLC
Ashford Crystal Gateway GP LLC
Ashford Jacksonville IV GP LLC
Ashford Lee Vista GP LLC
Ashford Minneapolis Airport GP LLC
Ashford MV San Diego GP LLC
Ashford Philly GP LLC
Ashford PH GP LLC
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford Santa Clara GP LLC
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC
Ashford Senior General Partner IV LLC
Ashford Walnut Creek GP LLC
CY-CIH Manchester Parent LLC
Key West Hotel GP LLC
Minnetonka Hotel GP LLC
New Clear Lake GP LLC
New Houston GP LLC
New Indianapolis Downtown Hotel GP LLC
Palm Beach GP LLC
St. Petersburg GP LLC
Ashford Five Junior Mezz LLC
Ashford Five Senior Mezz LLC
Ashford TRS Five Junior I LLC
Ashford TRS Five Junior II LLC
Ashford TRS Five Junior III LLC
Ashford TRS Five Junior IV LLC
Ashford TRS Five Senior I LLC
Ashford TRS Five Senior II LLC




Ashford TRS Five Senior III LLC
Ashford TRS Five Senior IV LLC
Ashford TRS Nickel Senior Mezz LLC
Ashford TRS Nickel Junior Mezz LLC
Ashford Nickel Senior Mezz LLC
Ashford Nickel Junior Mezz LLC
Ashford Pool A Junior Holder LLC
Ashford Pool A Junior Mezz LLC
Ashford Pool A Senior Mezz LLC
Ashford Pool A GP LLC
Ashford TRS Pool A Junior Holder LLC
Ashford TRS Pool A Junior Mezz LLC
Ashford TRS Pool A Senior Mezz LLC
Ashford TRS Pool A LLC
Ashford Pool B Junior Holder LLC
Ashford Pool B Junior Mezz LLC
Ashford Pool B Senior Mezz LLC
Ashford Pool B GP LLC
Ashford TRS Pool B Junior Holder LLC
Ashford TRS Pool B Junior Mezz LLC
Ashford TRS Pool B Senior Mezz LLC
Ashford TRS Pool B LLC
Ashford Pool C1 Junior Holder LLC
Ashford Pool C1 Junior Mezz LLC
Ashford Pool C1 Senior Mezz LLC
Ashford Pool C1 GP LLC
Ashford TRS Pool C1 Junior Holder LLC
Ashford TRS Pool C1 Junior Mezz LLC
Ashford TRS Pool C1 Senior Mezz LLC
Ashford TRS Pool C1 LLC
Ashford Pool C2 Junior Holder LLC
Ashford Pool C2 Junior Mezz LLC
Ashford Pool C2 Senior Mezz LLC
Ashford Pool C2 GP LLC
Ashford TRS Pool C2 Junior Holder LLC
Ashford TRS Pool C2 Junior Mezz LLC
Ashford TRS Pool C2 Senior Mezz LLC




Ashford TRS Pool C2 LLC
Ashford Pool C3 Junior Holder LLC
Ashford Pool C3 Junior Mezz LLC
Ashford Pool C3 Senior Mezz LLC
Ashford Pool C3 GP LLC
Ashford TRS Pool C3 Junior Holder LLC
Ashford TRS Pool C3 Junior Mezz LLC
Ashford TRS Pool C3 Senior Mezz LLC
Ashford TRS Pool C3 LLC
RI-CIH Manchester Parent, LLC
RI Manchester Hotel Partners LP
RI Manchester Tenant Corporation
Ashford Ashton LP
Ashford Ashton GP LLC
Ashford TRS Ashton LLC
Ashford TRS Ashton Holder LLC
Ashford Fremont LP
Ashford Fremont GP LLC
Ashford Fremont Senior Mezz LLC
Ashford TRS Fremont LLC
Ashford TRS Fremont Senior Mezz LLC
Ashford Pool 1 GP LLC
Ashford TRS Pool 1 LLC






EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Forms S-3 No. 333-118746, No. 333-124105, No. 333-125423 and No. 333-181499 and Forms S-8 No. 333-164428, No. 333-174448, No. 333-108335, and No. 333-132440) of Ashford Hospitality Trust, Inc., and in the related Prospectuses of our reports dated March 2, 2015, with respect to the consolidated financial statements and schedules of Ashford Hospitality Trust, Inc. and subsidiaries, and the effectiveness of internal control over financial reporting of Ashford Hospitality Trust, Inc. and subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2014.

/s/ Ernst & Young LLP
Dallas, Texas
March 2, 2015





EXHIBIT 31.1
CERTIFICATION
I, Monty J. Bennett, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ashford Hospitality Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2015

/s/ MONTY J. BENNETT
 
Monty J. Bennett
 
Chief Executive Officer
 




EXHIBIT 31.2
CERTIFICATION
I, Deric S. Eubanks, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ashford Hospitality Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2015

/s/ DERIC S. EUBANKS
 
Deric S. Eubanks
 
Chief Financial Officer
 




EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Monty J. Bennett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 2, 2015

/s/  MONTY J. BENNETT
 
Monty J. Bennett
 
Chief Executive Officer
 




EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deric S. Eubanks, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 2, 2015

/s/  DERIC S. EUBANKS
 
Deric S. Eubanks
 
Chief Financial Officer