Acquisitions

Remington

On November 6, 2019, we completed the acquisition of Remington Lodging’s hotel management business and Marietta for $275 million in consideration in the form of 11,000,000 shares of Series D Convertible Preferred Stock of Ashford Inc. Remington provides hotel management services primarily to hotels owned by Ashford Trust and Braemar. Hotel management services consist of hotel operations, sales and marketing, revenue management, budget oversight, guest service, asset maintenance (not involving capital expenditures) and related services. The results of operations of Remington are included in our condensed consolidated financial statements from the date of acquisition.

Marietta leases a single hotel and convention center property in Marietta, Georgia, from the City of Marietta and earns revenues from the operation of this hotel property. The hotel property is managed by Remington as part of the Hilton brand of hotels and offers hotel and conference center services. Marietta’s revenue and operating expenses are included in “other” revenue and “other” operating expenses, respectively, in the condensed consolidated statements of operations. The lease, which expires on December 31, 2054, was classified as a finance lease. The right-of-use asset was adjusted at the acquisition date by approximately $4.2 million for favorable lease terms compared to market terms. The results of operations of Marietta are included in our condensed consolidated financial statements from the date of acquisition.

The acquisition of Remington was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Remington and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill.

As of March 31, 2020, we have finalized the valuation of the acquired assets and liabilities associated with the acquisition. The final fair value analysis resulted in a $40.9 million adjustment to reduce the value of the acquired management contracts to their estimated fair value and a corresponding increase to goodwill on our consolidated balance sheet during the first quarter of 2020. We also recorded an adjustment of approximately $10.3 million to reduce the deferred tax liability and a corresponding decrease to goodwill. Additionally, the purchase price adjustment related to working capital was finalized and paid in the first quarter of 2020 resulting in a $1.3 million increase in the fair value of the purchase price.

The fair value of the purchase price and final allocation of the purchase price are as follows (in thousands):



Series D Convertible Preferred Stock	$	275,000
Preferred stock discount	(2,550		)
Working capital adjustments	1,341
Total fair value of purchase price	$	273,791



	Fair Value		Estimated Useful Life
Current assets including cash	$	27,661
Assets acquired under finance leases ⁽¹⁾	44,294		35 years
Property and equipment, net	466
Operating lease right-of-use assets	24,649
Goodwill	175,653
Trademarks	10,400
Management contracts	107,600		22 years
Total assets acquired	390,723
Current liabilities	23,740
Finance lease liabilities, current	331
Operating lease liabilities, current	2,038
Deferred tax liability	28,439
Finance lease liabilities, non-current	39,773
Operating lease liabilities, non-current	22,611
Total assumed liabilities	116,932
Net assets acquired	$	273,791

⁽¹⁾Assets acquired under finance leases are included in “property and equipment, net.”

We do not expect any of the goodwill balance to be deductible for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to growth opportunities to expand Remington’s hotel management services to third-party owners in the hospitality industry.

Results of Remington

The results of operations of Remington have been included in our results of operations since the acquisition date. Our condensed consolidated statement of operations for the three months ended March 31, 2020 include total revenues from Remington of $70.5 million. In addition, our condensed consolidated statement of operations for the three months ended March 31, 2020 include net loss from Remington of $127.3 million which includes goodwill impairment of $121.0 million and impairment of trademarks of $5.5 million . The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”

Sebago

On July 18, 2019, RED completed the acquisition of substantially all of the assets of Sebago, a leading provider of watersports activities and excursion services based in Key West, Florida. After giving effect to the transaction, Ashford Inc. owns an approximately 84% interest in the common equity of RED.

The purchase price consisted of approximately $2.5 million in cash (excluding transaction costs and working capital adjustments) funded by new RED term loans and $4.5 million in the form of Ashford Inc. common stock consisting of 135,366 shares issued on July 18, 2019, subject to a six month stock consideration collar which the Company settled in the first quarter of 2020 with a cash payment of $1.0 million to the sellers of Sebago. The issued Ashford Inc. shares were determined using a 30-Day VWAP of $33.24 and had an estimated fair value of approximately $4.5 million as of the acquisition date.

The acquisition of Sebago was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of Sebago and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill.

We have allocated the purchase price to the assets acquired and liabilities assumed on a preliminary basis using estimated fair value information currently available. We are in the process of evaluating the values assigned to marine vessels and intangible assets. Thus, the balances reflected below are subject to change, and any such changes could result in adjustments to the allocation.

The fair value of the purchase price and preliminary allocation of the purchase price is as follows (in thousands):



Cash	$	2,500
Less working capital adjustments	(74		)
Fair value of Ashford Inc. common stock issued	4,547
Purchase price consideration	$	6,973



	Fair Value		Estimated Useful Life
Current assets	$	76
Marine vessels	2,220		20 years
FF&E	1,530		20 years
Operating lease right-of-use assets	391
Goodwill	1,235
Trademarks	490
Boat slip rights	3,100		20 years
Total assets acquired	9,042
Current liabilities	291
Noncurrent liabilities	1,778
Total assumed liabilities	2,069
Net assets acquired	$	6,973

We expect approximately $1.2 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding Sebago’s operations through our relationship with RED.

Results of Sebago

The results of operations of Sebago have been included in our results of operations since the acquisition date. Our condensed consolidated statements of operations for the three months ended March 31, 2020, include total revenues from Sebago of $1.4 million. In addition, our condensed consolidated statements of operations for the three months ended March 31, 2020, include net loss from Sebago of $9,000. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”

BAV

On March 1, 2019, JSAV acquired a privately-held company, BAV. BAV is an audio visual rental, staging, and production company focused on meeting and special event services. As a result of the acquisition, our ownership interest in JSAV, which we consolidate under the voting interest model, increased from 85% to approximately 88%.

Pursuant to the asset purchase agreement, as amended on September 24, 2019, the purchase price consisted of: (i) $5.0 million in cash (excluding working capital adjustments) funded by an existing JSAV term loan; (ii) $3.5 million in the form of Ashford Inc. common stock consisting of 61,387 shares issued on March 1, 2019, which was determined based on a 30-Day VWAP of $57.01 and had an estimated fair value of approximately $3.7 million as of the acquisition date; (iii) $500,000 payable in cash or Ashford Inc. common stock at our sole discretion to be issued 18 months after the acquisition date, subject to certain conditions; and (iv) contingent consideration related to the achievement of certain performance targets with an estimated fair value of approximately $1.4 million, payable, if earned, 12 to 18 months after the acquisition date. In the first quarter of 2020, BAV achieved the maximum contingent consideration related performance target allowed resulting in a liability of $3.0 million being recorded in “other liabilities” in our condensed consolidated balance sheets. Additionally, the transaction included a stock consideration collar with potential settlements at 12 months, 15 months and 18 months after the acquisition date dependent upon the 30-Day VWAP of Ashford Inc.’s common stock on each respective settlement date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved, with changes in fair value recognized in earnings within “other” operating expenses in our consolidated statements of operations. See notes 7 and 17 for further discussion of the Company’s liabilities related to acquisition-related contingent consideration.

The acquisition of BAV was recorded using the acquisition method of accounting in accordance with the authoritative guidance for business combinations, and the purchase price allocation is based on our valuation of the fair value of the tangible and intangible assets acquired and liabilities assumed at the date of acquisition. The fair values of the assets acquired were determined using various valuation techniques, including an income approach. The fair value measurements were primarily based on significant inputs that are not directly observable in the market and are considered Level 3 under the fair value measurements and disclosure framework. Key assumptions include cash flow projections of BAV and the discount rate applied to those cash flows. The excess of the purchase price over the estimated fair values of the identifiable net assets acquired was recorded as goodwill. As of March 31, 2020, we have finalized the valuation of the acquired assets and liabilities associated with the acquisition.

The fair value of the purchase price and final allocation of the purchase price is as follows (in thousands):



Term loan	$	5,000
Less working capital adjustments	(733		)
Fair value of Ashford Inc. common stock issued	3,748
Consideration payable	500
Fair value of contingent consideration	1,384
Purchase price consideration	$	9,899



	Fair Value		Estimated Useful Life
Current assets	$	754
FF&E	1,983		5 years
Operating lease right-of-use assets	165
Goodwill	4,827
Trademarks	440
Customer relationships	2,800		15 years
Total assets acquired	10,969
Current liabilities	639
Noncurrent liabilities	431
Total assumed liabilities	1,070
Net assets acquired	$	9,899

We expect approximately $4.8 million of the goodwill balance to be deductible by Ashford Inc. for tax purposes. The qualitative factors that make up the recorded goodwill include value associated with an assembled workforce and value attributable to expanding BAV’s operations through our relationship with JSAV.

Results of BAV

The results of operations of BAV have been included in our results of operations since the acquisition date. Our condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, include total revenues from BAV of $2.8 million and $1.7 million, respectively. In addition, our condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, include net income from BAV of $606,000 and $253,000, respectively. The unaudited pro forma results of operations, as if the acquisition had occurred on January 1, 2019, are included below under “Pro Forma Financial Results.”

Pro Forma Financial Results

The following table reflects the unaudited pro forma results of operations as if the Remington, Sebago and BAV acquisitions had occurred and the indebtedness associated with those acquisitions was incurred on January 1, 2019, and the removal of $406,000 and $750,000 of transaction costs directly attributable to the acquisitions for the three months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
	2020			2019
Total revenue	$	133,842		$	146,790
Net income (loss)	(177,834		)	1,085
Net income (loss) attributable to common stockholders	(185,919		)	(7,639		)