In accordance with our advisory agreement, our advisor,the Advisor, or entities in which our advisorthe Advisor has an interest, have a right to provide products or services to our hotels at market rates, provided such transactions are evaluated and approved by our independent directors. We believe that this arrangement gives us a competitive advantage, as our advisor’sadvisor's relationships with such product and service providers often results in preferred pricing, premium service, and other benefits for our hotels. We also anticipate that this arrangement will facilitate better long-term quality control and accountability.
If our advisorthe Advisor is requested, by our independent directors, to perform services outside the scope of the advisory agreement, we are obligated to pay separately for such services.
On September 27, 2022, an agreement was entered into by Ashford Inc., Ashford Trust and Braemar pursuant to which the Advisor is to implement the REITs cash management strategies. This will include actively managing the REITs excess cash by primarily investing in short-term U.S. Treasury securities. The annual fee is 20 basis points (“bps”) of the average daily balance of the funds managed by the advisor and is payable monthly in arrears.
On January 14, 2021, we entered into the Second Amended and Restated Advisory Agreement with Ashford LLC (the “Second Amended and Restated Advisory Agreement”). The Second Amended and Restated Advisory Agreement amends and restates the terms of the Amended and Restated Advisory Agreement, dated June 10, 2015, as amended by the Enhanced Return Funding Program Agreement (the"ERFP Agreement") and Amendment No. 1 to the Amended and Restated Advisory Agreement, dated as of June 26, 2018 to, among other items: (i) revise the term and termination rights; (ii) fix the percentage used to calculate the base fee thereunder at 0.70% per annum; (iii) update the list of peer group members; (iv) suspend the requirement that we maintain a minimum Consolidated Tangible Net Worth (as defined in the Second Amended and Restated Advisory Agreement) until the first fiscal quarter beginning after June 30, 2023; and (v) revise the criteria that would constitute a Company Change of Control (as defined in the Second Amended and Restated Advisory Agreement) in order to provide us additional flexibility to dispose of underperforming assets. In connection with the transactions contemplated by the Oaktree Credit Agreement on January 15, 2021, we entered into a Subordination and Non-Disturbance Agreement with Ashford Inc. and Oaktree pursuant to which we agreed to subordinate to the prior repayment in full of all obligations under the Oaktree Credit Agreement: (1) prior to the later of: (i) the second anniversary of the Oaktree Credit Agreement; and (ii) the date accrued interest “in kind” is paid in full, advisory fees (other than reimbursable expenses) in excess of 80% of such fees paid during the fiscal year ended December 31, 2019; (2) any termination fee or liquidated damages amounts under the advisory agreement, or any amount owed under the enhanced return funding program in connection with the termination of the advisory agreement or sale or foreclosure of assets financed thereunder; and (3) any payments to Lismore in connection with the transactions contemplated by the Oaktree Credit Agreement.
On March 15, 2022, we entered into a Limited Waiver Under Advisory Agreement (the “2022 Limited Waiver”) with Ashford Trust OP, Ashford TRS, Ashford Inc. and Ashford LLC. The Company, Ashford Trust OP, Ashford TRS and the Advisor are parties to the Second Amended and Restated Advisory Agreement, which (i) allocates responsibility for certain employee costs between us and our advisor and (ii) permits our board of directors to issue annual equity awards in the Company or Ashford Trust OP to employees and other representatives of our advisor based on achievement by the Company of certain financial or other objectives or otherwise as our board of directors sees fit. Pursuant to the 2022 Limited Waiver, the Company, Ashford Trust OP, Ashford TRS and the Advisor waived the operation of any provision in the advisory agreement that would otherwise have limited our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2022 cash incentive compensation to employees and other representatives of our advisor; provided that such awarded cash incentive compensation does not exceed $8.5 million, in the aggregate, during the waiver period.
On March 2, 2023, we entered into a second Limited Waiver Under Advisory Agreement (the “2023 Limited Waiver”) with Ashford Trust OP, Ashford TRS, Ashford Inc. and Ashford LLC. Pursuant to the 2023 Limited Waiver, the Company, Ashford Trust OP, Ashford TRS and the Advisor waived the operation of any provision in the advisory agreement that would otherwise limit our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2023 cash incentive compensation to employees and other representatives of our advisor; provided that such awarded cash incentive compensation does not exceed $13.1 million, in the aggregate, during the waiver period.
On March 11, 2024, we entered into a Limited Waiver Under Advisory Agreement with Ashford Inc. and Ashford LLC (the “2024 Limited Waiver”). Pursuant to the 2024 Limited Waiver, the Company, Ashford Trust OP, Ashford TRS and the Advisor waive the operation of any provision in our advisory agreement that would otherwise limit the ability of the Company in its discretion, at the Company’s cost and expense, to award during calendar year 2024, cash incentive compensation to employees and other representatives of the Advisor.
On March 12, 2024, we entered into the Third Amended and Restated Advisory Agreement with Ashford LLC (the “Third Amended and Restated Advisory Agreement”). The Third Amended and Restated Advisory Agreement amends and restates the terms of the Second Amended and Restated Advisory Agreement, dated January 14, 2021, to, among other items: (i) require the Company pay the Advisor the Portfolio Company Fee (as defined in the Third Amended and Restated Advisory Agreement) upon certain specified defaults under the Company’s loan agreements resulting in the foreclosure of the Company’s hotel properties, (ii) provide that there
shall be no additional payments to the advisor from the amendments to the master hotel management agreement with Remington Hospitality and the master project management agreement with Premier until the Oaktree Credit Agreement is paid in full, and limits, for a period of two years thereafter, the incremental financial impact to no more than $2 million per year in additional payments to the advisor from such amendments, (iii) reduces the Consolidated Tangible Net Worth covenant (as defined in the Third Amended and Restated Advisory Agreement) to $750 million (plus 75% of net equity proceeds received) from $1 billion (plus 75% of net equity proceeds received), (iv) revise the criteria that would constitute a Company Change of Control, (v) revise the definition of termination fee to provide for a minimum amount of such termination fee and (vi) revise the criteria that would constitute a voting control event.
Stirling Contribution Agreement
On December 6, 2023 (the “Closing”), Ashford Hospitality Limited Partnership and Ashford TRS Corporation, each a subsidiary of the Company (together, the “Contributor”), entered into a Contribution Agreement with Stirling REIT OP, LP (the “Stirling Operating Partnership”), a subsidiary of Stirling Hotels & Resorts, Inc. (“Stirling Inc.”). Stirling Operating Partnership is also a consolidated subsidiary of the Company for GAAP purposes. Pursuant to the terms of the Contribution Agreement, the Contributor contributed its equity interests, and the associated debt and other obligations, in four hotel assets (the “Initial Portfolio”) to the Stirling Operating Partnership in exchange for 1,400,943 Class I units of the Stirling Operating Partnership. The net contribution value of the Initial Portfolio was approximately $35 million, which represents the appraised value of the Initial Portfolio as provided by an independent third-party appraiser of $56.2 million, the assumption of $30.2 million of existing indebtedness and approximately $9 million of net working capital and reserves.
Pursuant to the Contribution Agreement, the Contributor entered into lock-up agreements with respect to its Class I units that restrict the assignment, sale, and transfer of the units for a period of one year following the Closing. In addition, the Contributor is prohibited from redeeming its Class I units for a period of three years following the Closing. At the end of the three-year period, the Class I units may be redeemed pursuant to the terms of the Amended and Restated Limited Partnership Agreement of the Stirling Operating Partnership and any Class I units converted to shares of Stirling’s Class I common stock may be repurchased by Stirling pursuant to the terms and conditions of its share repurchase plan. In addition, the Contributor has agreed not to withdraw as a participant in the distribution reinvestment plan of the Stirling Operating Partnership, and thereby will automatically reinvest any distributions paid on its Class I units into additional Class I units, through at least December 31, 2024.
In the Contribution Agreement, the Contributor and the Stirling Operating Partnership each made certain customary representations and warranties to one another, including representations relating to its organization, power, and authorization, its execution and delivery of the Contribution Agreement, and the enforceability of the Contribution Agreement. In addition, the Contributor made certain representations and warranties relating to the Initial Portfolio and occupancy agreements applicable to properties contained in the Initial Portfolio, and the Stirling Operating Partnership made certain representations and warranties relating to the Class I units of the Stirling Operating Partnership. The Contribution Agreement also contains customary covenants made by the Contributor and the Stirling Operating Partnership. In addition, the Stirling Operating Partnership is prohibited from selling, transferring or otherwise disposing any portion of the real and personal property in the Initial Portfolio, subject to certain exceptions and limitations, for a period of three years following the Closing.
Under the Contribution Agreement, each of the Contributor and the Stirling Operating Partnership agree to indemnify one another for any breaches of its representations, warranties, covenants and agreements along with any claims relating to the Initial Portfolio that occur during a party’s ownership of such portfolio. The Contribution Agreement also contains a provision requiring the Stirling Operating Partnership to indemnify the Contributor for any third-party claims relating to, arising out of, or in connection with the existing debt documents related to the Initial Portfolio, including any guarantees or environmental-related indemnities therein. In connection with the foregoing, the indemnification obligations of each party are subject to customary limitations and exceptions.
Advisory Agreement with Stirling Operating Partnership
Stirling REIT Advisors, LLC (“Stirling Advisor”), a subsidiary of Ashford Inc., acts as the advisor to the Stirling Operating Partnership. The Advisory Agreement was effective December 6, 2023.
Stirling Advisor is paid an annual management fee (payable monthly in arrears) of 1.25% of aggregate NAV represented by the Class T, Class S, Class D and Class I shares of Stirling Inc. Additionally, to the extent the Stirling Operating Partnership issues Class T, Class S, Class D or Class I operating partnership units to parties other than Stirling Inc., the Stirling Operating Partnership will pay Stirling Advisor a management fee equal to 1.25% of the aggregate NAV of the Stirling Operating Partnership attributable to such Class T, Class S, Class D and Class I operating partnership units not held by Stirling Inc. per annum payable monthly in arrears. No management fee will be paid with respect to Class E shares of Stirling Inc. or Class E units of the Stirling Operating Partnership. The management fee is allocated on a class-specific basis and borne by all holders of the applicable class. The management fee will be paid, at Stirling Advisor’s election, in cash, Class E shares of Stirling Inc. or Class E units of Stirling OP. If Stirling Advisor elects to receive any portion of its management fee in Class E shares or Class E units of the Stirling Operating Partnership, Stirling Inc. may be obligated to repurchase such Class E shares of Stirling Inc. or Class E units of the Stirling Operating Partnership from Stirling Advisor at a later date. Such repurchases will be outside Stirling Inc.’s share repurchase plan and thus will not be subject to the repurchase limits of the share repurchase plan or any early repurchase deduction. For the year ended December 31, 2023, the Stirling Operating Partnership paid the Stirling Advisor a base fee of approximately $67,000.
The Stirling Operating Partnership does not intend to pay Stirling Advisor any acquisition or other similar fees in connection with making investments. The Stirling Operating Partnership will, however, reimburse Stirling Advisor for out-of-pocket expenses in connection with the selection and acquisition of properties and real estate related debt, whether or not such investments are acquired,
and make payments to third parties in connection with making investments. In addition to organization and offering expense and acquisition expense reimbursements, the Stirling Operating Partnership will reimburse Stirling Advisor for out-of-pocket costs and expenses it incurs in connection with the services it provides to Stirling Inc., including, but not limited to, (i) the actual cost of goods and services used by the Stirling Operating Partnership and obtained from third parties, including fees paid to administrators, consultants, attorneys, technology providers and other service providers, and brokerage fees paid in connection with the purchase and sale of investments, (ii) expenses of managing and operating the Stirling Operating Partnership’s properties, whether payable to an affiliate or a non-affiliated person, and (iii) expenses related to personnel of Stirling Advisor performing services for the Stirling Operating Partnership other than those who provide investment advisory services or serve as executive officers of Stirling Inc. For the year ended December 31, 2023, Stirling Operating Partnership reimbursed the Stirling Advisor for expenses paid or incurred on our behalf totaling approximately $10,000.
Stirling Advisor Support
Through December 31, 2024, Stirling Advisor will advance on behalf of Stirling Inc. and Stirling Operating Partnership all expenses in connection with the formation and raising of capital for Stirling Inc. and Stirling Operating Partnership and for certain general and administrative expenses of Stirling Inc. and Stirling Operating Partnership. Stirling Inc. and Stirling Operating Partnership will reimburse Stirling Advisor for all such advanced expenses ratably over the 60 months commencing January 1, 2025. We have agreed with Stirling Advisor to fund 50% of these advanced expenses and will be reimbursed accordingly over the same period of time. As of December 31, 2023, such advanced expenses funded by the Company total approximately $1 million.
Enhanced Return Funding Program Agreement
On June 26, 2018, we entered into the ERFP Agreement with our advisor. The independent members of our Board and the independent directors of the board of directors of Ashford Inc., with the assistance of separate and independent legal counsel, engaged to negotiate the ERFP Agreement on our behalf and Ashford Inc.’s's behalf, respectively. Under the ERFP Agreement, Ashford Inc. agreed to provide $50 million to us in connection with our acquisition of hotels recommended by Ashford Inc., with the option to increase the funding commitment to up to $100100 million upon mutual agreement by the parties. Ashford Inc. is obligated to provide us 10% of the acquired hotel’shotel's purchase price in exchange for furniture, fixtures and equipment (“("FF&E”&E"), which is subsequently leased to us rent-free. In connection with our acquisition of the Hilton Old Town Alexandria and La Posada de Santa Fe in 2018, and subject to the terms of the ERFP Agreement, Ashford Inc. was obligated to provide us with approximately $16.1 million in exchange for FF&E at our properties. The $16.1 million of FF&E in respect of the Hilton Old Town Alexandria and La Posada de Santa Fe acquisitions was purchased by Ashford Inc. and leased to us with an effective date of December 31, 2018. In connection with our acquisitions of the Hilton Santa Cruz/Scotts Valley on February 26, 2019 we received $5.0 million from Ashford LLC in exchange for purchases of hotel FF&E at Ashford Trust properties that was leased to us by Ashford LLC rent free. In connection with our acquisition of the Embassy Suites New York Midtown Manhattan on January 23, 2019, Ashford LLC became obligated to provide us with approximately $19.5 million in exchange for FF&E at our properties. As of March 13, 2020 we had received $8.1 million of cash with respect to thesecertain acquisitions in exchange for FF&E that was subsequently leased back to us rent-free under the ERFP Agreement. As a result of the acquisitions of the Hilton Alexandria Old Town, La Posada de Santa Fe, the Embassy Suites New York Manhattan Times Square and the Hilton Santa Cruz/Scotts Valley, Ashford Inc. has a remaining commitment to provide approximately $9.4 million in ERFP fundings to us in respect of its initial $50 million commitment. As of March 13, 2020, $8.1 million had been funded and $11.4 million remains unfunded. Pursuant to an Extension Agreement, dated March 13, 2020, the original obligation to provide the remaining $11.4 million in funding by January 22, 2021 has beenwas extended to December 31, 2022. On August 19, 2020, the Embassy Suites New York Manhattan Times Square was sold. The hotel contained FF&E that was previously sold to Ashford LLC under the ERFP program. On November 5, 2020, the independent members of the board of directors of Ashford Inc. waived the requirement of the Company to provide replacement FF&E. On November 25, 2020, the independent members of our Board granted Ashford Inc., in its sole and absolute discretion, the right to set-off against the Embassy Suites New York Manhattan Times Square remaining ERFP balance, the fees pursuant to our advisory agreement and the Lismore Agreement (as defined below) that have been or may be deferred by Ashford Inc.
On April 20, 2021, the Company delivered written notice of its intention not to renew the ERFP Agreement. As a result, the ERFP Agreement terminated in accordance with its terms on June 26, 2021.
Although the ERFP Agreement terminated in accordance with its terms on June 26, 2021, Ashford LLC remained committed to provide Ashford TRS with approximately $11.4 million related to the Company's acquisition of the Embassy Suites Manhattan hotel (the "ES Manhattan ERFP Balance"), which such hotel constituted an Enhanced Return Hotel Asset (as defined in the ERFP Agreement). On December 16, 2022, the Company entered into a Side Letter with Ashford TRS and our Advisor, pursuant to which the parties agreed that our Advisor would transfer to the Company all right, title and interest held by our Advisor and its subsidiaries in the Hilton Marietta and, in exchange therefor, the Company would forgive, cancel and discharge in full the outstanding ES Manhattan ERFP Balance. On December 16, 2022, our operating partnership entered into an Agreement of Purchase and Sale with Ashford LLC, pursuant to which, effective as of December 16, 2022, our operating partnership acquired one hundred percent (100%) of the equity interests in (i) Marietta Leasehold LP (the "Lessee"), the lessee of the Marietta Hotel, and (ii) Marietta Leasehold GP LLC, the sole general partner of the Lessee and, in exchange therefor, the Company forgave, cancelled and discharged in full the outstanding ES Manhattan ERFP Balance.
In the first quarter of 2023, we purchased FF&E with a net book value of $1.5 million from Ashford Inc. at the fair market value of $450,000 upon expiration of the underlying leases of the FF&E under the ERFP Agreement.
In the fourth quarter of 2023, we purchased FF&E with a net book value of $2.4 million from Ashford Inc. at the fair market value of $630,000 upon expiration of the underlying leases of the FF&E under the ERFP Agreement.
Lismore Agreement
On March 20, 2020, Lismore Capital II LLC (“Lismore”(formerly known as Lismore Capital LLC) ("Lismore"), a subsidiary of Ashford Inc., entered into an agreement with the Company to seek modifications, forbearances or refinancings of the Company’sCompany's loans (the “Lismore Agreement”). Pursuant to the Lismore Agreement, Lismore shall, during the agreement term, negotiate the refinancing, modification or forbearance of the existing mortgage debt(as amended and restated on the Company’s hotels. For the purposes of the Lismore Agreement, financing shall include, without limitation, senior or subordinate loan financing, provided in any single transaction or a combination of transactions, including, mortgage loan financing, mezzanine loan financing, or subordinate loan financing encumbering the applicable hotel or unsecured loan financing.
On July 1, 2020, the Company amended and restated the"Lismore Agreement"). The Lismore Agreement with an effective date ofexpired on April 6, 2020 (the “Amended and Restated Lismore Agreement”). Pursuant to the Amended and Restated Lismore Agreement, the term of the Lismore Agreement was extended to 24 months following the commencement date. In connection with the services provided by Lismore under Amended and Restated Lismore Agreement, Lismore is entitled to receive a fee of approximately $2.6 million in three equal installments of approximately $857,000 per month beginning July 20, 2020, and ending on September 20, 2020. Lismore is also entitled to receive a fee that is calculated and payable as
