UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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: 001-35972

BRAEMAR HOTELS & RESORTS INC.

(Exact name of registrant as specified in its charter)

Maryland
 
46-2488594
(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)

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share
 
32,505,238
(Class)
 
Outstanding at May 7, 2018


BRAEMAR HOTELS & RESORTS INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2018

TABLE OF CONTENTS

 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS (unaudited)

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
 
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Investments in hotel properties, gross
 
$
1,406,476

 
$
1,403,110

Accumulated depreciation
 
(258,173
)
 
(257,268
)
Investments in hotel properties, net
 
1,148,303

 
1,145,842

Cash and cash equivalents
 
95,223

 
137,522

Restricted cash
 
63,385

 
47,820

Accounts receivable, net of allowance of $77 and $94, respectively
 
19,692

 
14,334

Insurance receivable
 
14,203

 
8,825

Inventories
 
1,429

 
1,425

Note receivable
 
8,098

 
8,098

Deferred costs, net
 
566

 
656

Prepaid expenses
 
5,943

 
3,670

Investment in Ashford Inc., at fair value
 
18,652

 
18,124

Investment in unconsolidated entity
 
1,997

 
—

Derivative assets
 
1,004

 
594

Other assets
 
15,400

 
9,426

Intangible assets, net
 
22,476

 
22,545

Due from related party, net
 
873

 
349

Due from third-party hotel managers
 
5,748

 
4,589

Total assets
 
$
1,422,992

 
$
1,423,819

LIABILITIES AND EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Indebtedness, net
 
$
821,053

 
$
820,959

Accounts payable and accrued expenses
 
57,468

 
56,803

Dividends and distributions payable
 
8,374

 
8,146

Due to Ashford Inc.
 
267

 
1,703

Due to third-party hotel managers
 
2,231

 
1,709

Intangible liability, net
 
3,555

 
3,569

Other liabilities
 
1,681

 
1,628

Total liabilities
 
894,629

 
894,517

Commitments and contingencies (note 16)
 

 

5.50% Series B cumulative convertible preferred stock, $0.01 par value, 4,965,850 shares issued and outstanding at March 31, 2018 and December 31, 2017
 
106,123

 
106,123

Redeemable noncontrolling interests in operating partnership
 
46,259

 
46,627

Equity:
 
 
 
 
Common stock, $0.01 par value, 200,000,000 shares authorized, 32,517,295 and 32,120,210 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
 
325

 
321

Additional paid-in capital
 
472,220

 
469,791

Accumulated deficit
 
(91,769
)
 
(88,807
)
Total stockholders’ equity of the Company
 
380,776

 
381,305

Noncontrolling interest in consolidated entities
 
(4,795
)
 
(4,753
)
Total equity
 
375,981

 
376,552

Total liabilities and equity
 
$
1,422,992

 
$
1,423,819

See Notes to Condensed Consolidated Financial Statements.

2
Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
Three Months Ended March 31,
 
2018
 
2017
REVENUE
 
 
 
Rooms
$
65,507

 
$
67,418

Food and beverage
23,500

 
24,473

Other
13,482

 
5,365

Total hotel revenue
102,489

 
97,256

Other
—

 
40

Total revenue
102,489

 
97,296

EXPENSES
 
 
 
Hotel operating expenses:
 
 
 
Rooms
14,918

 
15,797

Food and beverage
15,620

 
16,861

Other expenses
29,664

 
27,731

Management fees
3,617

 
3,545

Total hotel expenses
63,819

 
63,934

Property taxes, insurance and other
5,604

 
5,074

Depreciation and amortization
13,006

 
11,971

Impairment charges
12

 
—

Advisory services fee
5,244

 
865

Transaction costs
488

 
4,328

Corporate general and administrative
28

 
3,874

Total expenses
88,201

 
90,046

OPERATING INCOME (LOSS)
14,288

 
7,250

Equity in earnings (loss) of unconsolidated entity
(3
)
 
—

Interest income
200

 
112

Other income (expense)
(63
)
 
(157
)
Interest expense and amortization of loan costs
(10,179
)
 
(8,202
)
Write-off of loan costs and exit fees
(2
)
 
(1,963
)
Unrealized gain (loss) on investment in Ashford Inc.
528

 
3,091

Unrealized gain (loss) on derivatives
73

 
(898
)
INCOME (LOSS) BEFORE INCOME TAXES
4,842

 
(767
)
Income tax (expense) benefit
(572
)
 
478

NET INCOME (LOSS)
4,270

 
(289
)
(Income) loss attributable to noncontrolling interest in consolidated entities
42

 
21

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(292
)
 
255

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
4,020

 
(13
)
Preferred dividends
(1,707
)
 
(1,673
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
2,313

 
$
(1,686
)
INCOME (LOSS) PER SHARE - BASIC:
 
 
 
Net income (loss) attributable to common stockholders
$
0.07

 
$
(0.07
)
Weighted average common shares outstanding – basic
31,680

 
27,267

INCOME (LOSS) PER SHARE - DILUTED:
 
 
 
Net income (loss) attributable to common stockholders
$
0.07

 
$
(0.07
)
Weighted average common shares outstanding – diluted
31,683

 
27,267

Dividends declared per common share
$
0.16

 
$
0.16

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
NET INCOME (LOSS)
$
4,270

 
$
(289
)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
Total other comprehensive income (loss)
—

 
—

TOTAL COMPREHENSIVE INCOME (LOSS)
4,270

 
(289
)
Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities
42

 
21

Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
(292
)
 
255

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
$
4,020

 
$
(13
)
See Notes to Condensed Consolidated Financial Statements.

4
Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Noncontrolling
Interest in
Consolidated
Entities
 
Total
 
Redeemable Noncontrolling Interests in Operating Partnership
 
Shares
 
Amount
 
 
 
 
Balance at January 1, 2018
32,120


$
321

 
$
469,791

 
$
(88,807
)
 
$
(4,753
)
 
$
376,552

 
$
46,627

Purchase of common stock
(7
)
 
—

 
(74
)
 
—

 
—

 
(74
)
 
—

Equity-based compensation
—


—

 
2,449

 
—

 
—

 
2,449

 
144

Issuance of restricted shares/units
406

 
4

 
54

 
—

 
—

 
58

 
18

Forfeiture of restricted common shares
(2
)
 
—

 
—

 
—

 
—

 
—

 
—

Dividends declared – common stock
—


—

 
—

 
(5,275
)
 
—

 
(5,275
)
 
—

Dividends declared – preferred stock
—

 
—

 
—

 
(1,707
)
 
—

 
(1,707
)
 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(822
)
Net income (loss)
—

 
—

 
—

 
4,020

 
(42
)
 
3,978

 
292

Balance at March 31, 2018
32,517

 
$
325

 
$
472,220

 
$
(91,769
)
 
$
(4,795
)
 
$
375,981

 
$
46,259

See Notes to Condensed Consolidated Financial Statements.

5
Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Three Months Ended March 31,
 
2018

2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
4,270

 
$
(289
)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
 
 
 
Depreciation and amortization
13,006

 
11,971

Equity-based compensation
2,593

 
(1,668
)
Bad debt expense
57

 
36

Amortization of loan costs
988

 
1,049

Write-off of loan costs and exit fees
2

 
1,963

Amortization of intangibles
43

 
50

Impairment charges
12

 
—

Unrealized (gain) loss on investment in Ashford Inc.
(528
)
 
(3,091
)
Realized and unrealized (gain) loss on derivatives
(73
)
 
1,054

Net settlement of trading derivatives
(270
)
 
—

Equity in (earnings) loss of unconsolidated entity
3

 
—

Deferred tax expense (benefit)
136

 
(693
)
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions:
 
 
 
Accounts receivable and inventories
(5,419
)
 
(2,733
)
Insurance receivable
(5,387
)
 
—

Prepaid expenses and other assets
(3,747
)
 
(2,833
)
Accounts payable and accrued expenses
781

 
1,927

Due to/from related party, net
(498
)
 
(221
)
Due to affiliate
—

 
(2,500
)
Due to/from third-party hotel managers
(637
)
 
1,677

Due to/from Ashford Trust OP, net
—

 
494

Due to/from Ashford Inc.
(1,436
)
 
(1,672
)
Other liabilities
53

 
33

Net cash provided by (used in) operating activities
3,949

 
4,554

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Acquisition of hotel properties, net of cash and restricted cash acquired
(4,500
)
 
(154,028
)
Investment in unconsolidated entity
(2,000
)
 
—

Proceeds from liquidation of AQUA U.S. Fund
—

 
2,289

Improvements and additions to hotel properties
(15,736
)
 
(9,273
)
Net cash provided by (used in) investing activities
(22,236
)
 
(161,012
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Borrowings on indebtedness
—

 
432,500

Repayments of indebtedness
(714
)
 
(334,774
)
Payments of loan costs and exit fees
(92
)
 
(9,097
)
Payments for derivatives
(67
)
 
(319
)
Purchase of common stock
(74
)
 
(6
)
Payments for dividends and distributions
(7,518
)
 
(4,625
)
Issuance of preferred stock
—

 
38,577

Issuance of common stock
—

 
66,650

Other
18

 
—

Net cash provided by (used in) financing activities
(8,447
)
 
188,906

Net change in cash, cash equivalents and restricted cash
(26,734
)
 
32,448

Cash, cash equivalents and restricted cash at beginning of period
185,342

 
164,645

Cash, cash equivalents and restricted cash at end of period
$
158,608

 
$
197,093

 
 
 
 

6
Table of Contents

 
Three Months Ended March 31,
 
2018

2017
SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Interest paid
$
9,031

 
$
7,981

Income taxes paid (refund)
(743
)
 
716

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Common stock purchases accrued but not paid
$
—

 
$
112

Dividends and distributions declared but not paid
8,374

 
8,025

Capital expenditures accrued but not paid
4,138

 
1,697

Non-cash dividends paid
58

 
—

Accrued common stock offering expense
—

 
133

Accrued preferred stock offering expenses
—

 
216

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
Cash and cash equivalents at beginning of period
$
137,522

 
$
126,790

Restricted cash at beginning of period
47,820

 
37,855

Cash, cash equivalents and restricted cash at beginning of period
$
185,342

 
$
164,645

 
 
 
 
Cash and cash equivalents at end of period
$
95,223

 
$
161,314

Restricted cash at end of period
63,385

 
35,779

Cash, cash equivalents and restricted cash at end of period
$
158,608

 
$
197,093

See Notes to Condensed Consolidated Financial Statements.

7
Table of Contents
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



1. Organization and Description of Business
Braemar Hotels & Resorts Inc. (formerly Ashford Hospitality Prime, Inc.), together with its subsidiaries (“Braemar”), is a Maryland corporation that invests primarily in high revenue per available room (“RevPAR”) luxury hotels and resorts. High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-current U.S. national average RevPAR for all hotels as determined by Smith Travel Research. Braemar has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. Braemar conducts its business and owns substantially all of its assets through its operating partnership, Braemar Hospitality Limited Partnership (formerly Ashford Hospitality Prime Limited Partnership) (“Braemar OP”). In this report, the terms “the Company,” “we,” “us” or “our” refers to Braemar Hotels & Resorts Inc. and, as the context may require, all entities included in its condensed consolidated financial statements.
We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC” or the “Advisor”) through an advisory agreement. Ashford LLC is a subsidiary of Ashford Inc. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
As of March 31, 2018 , Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly-owned by Mr. Monty J. Bennett, Chairman of our board of directors, and Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Hospitality Trust, Inc. (“Ashford Trust”), managed three of our twelve hotel properties. Third-party management companies managed the remaining hotel properties.
The accompanying condensed consolidated financial statements include the accounts of such wholly-owned and majority owned subsidiaries of Braemar OP that as of March 31, 2018 , own and operate twelve hotel properties in six states, the District of Columbia and the U.S. Virgin Islands. The portfolio includes ten wholly-owned hotel properties and two hotel properties that are owned through a partnership in which Braemar OP has a controlling interest. These hotel properties represent 3,576 total rooms, or 3,341 net rooms, excluding those attributable to our partner. As a REIT, Braemar needs to comply with limitations imposed by the Internal Revenue Code related to operating hotels. As of March 31, 2018 , eleven of our twelve hotel properties were leased by wholly-owned or majority-owned subsidiaries that are treated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes (collectively the TRS entities are referred to as “Braemar TRS”). One hotel property located in the U.S. Virgin Islands is owned by our U.S. Virgin Islands TRS. Braemar TRS then engages third-party or affiliated hotel management companies to operate the hotel properties under management contracts. Hotel operating results related to the hotel properties are included in the condensed consolidated statements of operations.
As of March 31, 2018 , nine of the twelve hotel properties were leased by Braemar’s wholly-owned TRS and the two hotel properties majority-owned through a consolidated partnership were leased to a TRS wholly-owned by such consolidated partnership. Each leased hotel is leased under a percentage lease that provides for each lessee to pay in each calendar month the base rent plus, in each calendar quarter, percentage rent, if any, based on hotel revenues. Lease revenue from Braemar TRS is eliminated in consolidation. The hotel properties are operated under management contracts with Marriott International, Inc. (“Marriott”), Hilton Worldwide (“Hilton”), Accor Business and Leisure Management, LLC (“Accor”), Hyatt Hotels Corporation (“Hyatt”), Ritz-Carlton, Inc., a subsidiary of Marriott (“Ritz-Carlton”) and Remington Lodging, which are eligible independent contractors under the Internal Revenue Code.
2. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements include the accounts of Braemar Hotels & Resorts Inc., its majority-owned subsidiaries, and its majority-owned entities in which it has a controlling interest. All significant intercompany accounts and transactions between consolidated entities have been eliminated in these condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2017 Annual Report on Form 10-K, as originally filed with the Securities and Exchange Commission (“SEC”) on March 14, 2018.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Braemar OP is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE 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 and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to Braemar OP that most significantly impact its 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 our wholly-owned subsidiary, Braemar OP General Partner LLC (formerly Ashford Prime OP General Partner LLC), its general partner. As such, we consolidate Braemar OP.
The following items affect reporting comparability of our historical condensed consolidated financial statements:
•
Historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three months ended March 31, 2018 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
•
On March 31, 2017, we acquired the Park Hyatt Beaver Creek and on May 11, 2017, we acquired the Hotel Yountville. The operating results of these hotel properties have been included in our results of operations as of their acquisition dates.
•
On November 1, 2017, we sold the Plano Marriott Legacy Town Center.
Use of Estimates —The preparation of these condensed 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.
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 5% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions.
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. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property’s net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs. See note 4.
Investment in Ashford Inc. —We hold approximately 195,000 shares of Ashford Inc. common stock, which represented an approximate 9.3% ownership interest in Ashford Inc. and had a fair value of $18.7 million at March 31, 2018 . This investment would typically be accounted for under the equity method of accounting, under Accounting Standard Codification (“ASC”) 323-10 - Investments - Equity Method and Joint Ventures since we exercise significant influence. However, we have elected to record our investment in Ashford Inc. using the fair value option under ASC 825-10 - Fair Value Option - Financial Assets and Financial Liabilities .
Investment in Unconsolidated Entity —Investment in unconsolidated entity, in which we have ownership interest of 8.2% at March 31, 2018, is accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the entities’ net income/loss. We review our investment in unconsolidated entity 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 in earnings (loss) in unconsolidated entity. No such impairment was recorded for the three months ended March 31, 2018.
Our investment in unconsolidated entity is considered to be a variable interest in the underlying entity. VIEs, 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

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


entity’s activities and operations, we are not considered to be the primary beneficiary of this entity on an ongoing basis and therefore such entity should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Equity-Based Compensation —Stock/unit-based compensation for non-employees is accounted for at fair value based on the market price of the shares at period end in accordance with applicable authoritative accounting guidance that results in recording expense, included in “advisory services fee” and “management fees,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Performance stock units (“PSUs”) and performance-based Long-Term Incentive Plan (“LTIP”) units granted to certain executive officers are accounted for at fair value at period end based on a Monte Carlo simulation valuation model that results in recording expense, included in “advisory services fee,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Stock/unit grants to independent directors are recorded at fair value based on the market price of the shares at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant and included in “corporate general and administrative” expense in the condensed consolidated statements of operations.
Recently Adopted Accounting Standards — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14,  Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date , which defers the effective date to fiscal periods beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect (modified) transition method. This standard, referred to as “Topic 606,” does not materially affect the amount or timing of revenue recognition for revenues from room, food and beverage, and other hotel level sales. Additionally, we have historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations. Therefore, Topic 606 does not impact the recognition of hotel sales. We adopted this standard effective January 1, 2018, under the modified retrospective method, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. See related disclosures in note 3.
In January 2016, the FASB issued ASU 2016-01,  Recognition and Measurement of Financial Assets and Financial Liabilities  (“ASU 2016-01”), which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available-for-sale (“AFS”) debt securities in combination with other deferred tax assets. ASU 2016-01 provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. It also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain provisions of ASU 2016-01 are eligible for early adoption. We adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force (“ASU 2016-15”). The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We adopted this standard effective January 1, 2018 on a prospective basis. The adoption of this standard did not have a material impact on our consolidated statement of cash flows.
In January 2017, the FASB issued ASU 2017-01,  Business Combinations (Topic 805) - Clarifying the Definition of a Business  (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. We adopted this standard effective January 1, 2018. Under the new standard, certain future hotel acquisitions may be considered asset acquisitions rather than business

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


combinations, which would affect capitalization of acquisitions costs (such costs are expensed for business combinations and capitalized for asset acquisitions).
In February 2017, the FASB issued ASU 2017-05,  Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU “2017-05”), which clarifies the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets  and adds guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. An entity may elect to apply ASU 2017-05 under a retrospective or modified retrospective method. We adopted this standard effective January 1, 2018, under the modified retrospective method. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards —In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The accounting for leases under which we are the lessor remains largely unchanged. While we are currently in the initial stages of assessing the impact that ASU 2016-02 will have on our condensed consolidated financial statements, we expect the primary impact to our condensed consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our condensed consolidated balance sheets resulting in the recording of ROU assets and lease obligations.
In June 2016, the FASB issued ASU 2016-13,  Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments  ("ASU 2016-13"). The ASU sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
3. Revenue
On January 1, 2018, we adopted Topic 606 using the modified retrospective method. As the adoption of this standard did not have a material impact on our consolidated financial statements, no adjustments to opening retained earnings were made as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605- Revenue Recognition .
Rooms revenue represents revenues from the occupancy of our hotel rooms and is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue for guest no-shows, day use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.
Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel properties, In-room dining and mini-bars revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual equipment/services, rental of function rooms, and other F&B related revenues. Revenue is recognized as the services or products are provided. Our hotel properties may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenues as appropriate (i.e. gross vs. net).
Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, resort and destination fees, spas, parking, entertainment and other guest services, as well as rental revenue; primarily consisting of leased retail outlets at our hotel properties. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. Interest income 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.
The following table presents our revenue disaggregated by geographical areas (in thousands):
 
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographical Markets
 
Number of hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
4
 
$
19,104

 
$
7,306

 
$
3,474

 
$
—

 
$
29,884

Colorado
 
1
 
9,797

 
4,819

 
3,543

 
—

 
18,159

Florida
 
2
 
10,755

 
2,749

 
863

 
—

 
14,367

Illinois
 
1
 
3,419

 
1,251

 
210

 
—

 
4,880

Pennsylvania
 
1
 
6,153

 
1,173

 
297

 
—

 
7,623

Washington
 
1
 
5,502

 
1,664

 
265

 
—

 
7,431

Washington, D.C.
 
1
 
8,961

 
4,339

 
284

 
—

 
13,584

USVI
 
1
 
1,816

 
199

 
4,546

 
—

 
6,561

Total
 
12
 
$
65,507

 
$
23,500

 
$
13,482

 
$
—

 
$
102,489

 
 
Three Months Ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Geographical Markets
 
Number of hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
3
 
$
16,924

 
$
6,017

 
$
1,400

 
$
—

 
$
24,341

Colorado
 
1
 
—

 
—

 
—

 
—

 
—

Florida
 
2
 
10,925

 
3,052

 
463

 
—

 
14,440

Illinois
 
1
 
3,473

 
1,214

 
99

 
—

 
4,786

Pennsylvania
 
1
 
4,960

 
979

 
183

 
—

 
6,122

Washington
 
1
 
5,413

 
1,830

 
255

 
—

 
7,498

Washington, D.C.
 
1
 
10,874

 
4,650

 
311

 
—

 
15,835

USVI
 
1
 
9,743

 
3,518

 
2,414

 
—

 
15,675

Sold hotel properties
 
1
 
5,106

 
3,213

 
240

 
40

 
8,599

Total
 
12
 
$
67,418

 
$
24,473

 
$
5,365

 
$
40

 
$
97,296

4. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
 
March 31, 2018
 
December 31, 2017
Land
 
$
344,937

 
$
344,937

Buildings and improvements
 
966,045

 
962,478

Furniture, fixtures and equipment
 
84,313

 
87,796

Construction in progress
 
11,181

 
7,899

Total cost
 
1,406,476

 
1,403,110

Accumulated depreciation
 
(258,173
)
 
(257,268
)
Investments in hotel properties, net
 
$
1,148,303

 
$
1,145,842

Impairment Charges and Insurance Recoveries
In September 2017, the Ritz-Carlton, St. Thomas located in St. Thomas, USVI, the Key West Pier House located in Key West, FL and the Tampa Renaissance located in Tampa, FL were impacted by the effects of Hurricanes Irma and Maria. The Company holds insurance policies that provide coverage for property damage and business interruption after meeting certain deductibles at all of its hotel properties. During the year ended December 31, 2017, the Company recognized impairment charges, net of anticipated insurance recoveries of $1.1 million . Additionally, the Company recognized remediation and other costs, net of anticipated insurance

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


recoveries of $3.8 million , included primarily in other hotel operating expenses. As of December 31, 2017, the Company recorded an insurance receivable of $8.8 million , net of deductibles of $4.9 million , related to the anticipated insurance recoveries. During the year ended December 31, 2017, the Company received proceeds of $11.1 million for business interruption losses associated with lost profits, of which $4.1 million was recorded as “other” hotel revenue in our consolidated statement of operations, $3.3 million represented reimbursement of incurred expenses in excess of the deductible of $1.1 million and $3.7 million was recorded as a reduction to insurance receivable.
For the three months ended March 31, 2018, the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of $4.9 million , which is included in “other” hotel revenue in our consolidated statement of operations and recorded an additional insurance receivable of $188,000 associated with property damage from the hurricanes and $313,000 related to reimbursement of business interruption incurred expenses from the hurricanes. No additional proceeds were received from our insurance carriers for the hurricanes during the three months ended March 31, 2018. Additionally, during the three months ended March 31, 2018, the Company recorded revenue of $1.8 million , net of deductibles of $500,000 , for business interruption losses associated with lost profits at the Bardessono Hotel and Hotel Yountville as a result of the Napa wildfires, which is included in “other” hotel revenue in our condensed consolidated statements of operations. During the three months ended March 31, 2018, we recorded an impairment charge of $12,000 at the Tampa Renaissance as a result of a change in estimate of property damage as a result of the hurricanes. As of March 31, 2018, the Company’s insurance receivable was $14.2 million . The Company will not record an insurance recovery receivable for business interruption losses associated with lost profits until the amount for such recoveries is known and the amount is realizable.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


5. Hotel Dispositions
On November 1, 2017, the Company sold the Plano Marriott Legacy Town Center for  $104.0 million  in cash. The sale resulted in a gain of  $23.8 million  for the year ended December 31, 2017.
Since the sale of the hotel property did not represent a strategic shift that has (or will have) a major effect on our operations or financial results, its results of operations were not reported as discontinued operations in our consolidated financial statements.
We included the results of operations for this hotel property through the date of disposition in net income (loss) as shown in our condensed consolidated statements of operations for the three months ended March 31, 2017 . The following table includes the condensed financial information from this hotel property (in thousands):
 
Three Months Ended
 
March 31, 2017
Total hotel revenue
$
8,559

Total hotel operating expenses
(5,150
)
Operating income (loss)
3,409

Property taxes, insurance and other
(355
)
Depreciation and amortization
(1,188
)
Interest expense and amortization of loan costs
(635
)
Income (loss) before income taxes
1,231

(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership
(162
)
Income (loss) before income taxes attributable to the Company
$
1,069

6. Note Receivable
As of March 31, 2018 and December 31, 2017 , we held a note receivable of $8.1 million from the city of Philadelphia, Pennsylvania. The note bears interest at a rate of 12.85% and matures in June 2018. The interest income recorded on the note receivable is offset against the interest expense recorded on the TIF loan of the same amount. See note 8.
7. Investment in Unconsolidated Entity
Ashford Inc.
As of March 31, 2018 and December 31, 2017 , we held approximately 195,000 shares of Ashford Inc. common stock. The closing price per share of Ashford Inc. common stock on the NYSE American LLC was $95.71 and $93.00 as of March 31, 2018 and December 31, 2017 , respectively. This represented an approximate  9.3%  ownership interest in Ashford Inc. for both March 31, 2018 and December 31, 2017 . See notes 11 and 12.
We have elected to use the fair value option, under the applicable accounting guidance, to account for our investment in Ashford Inc. as the fair value is readily available since Ashford Inc. common stock is traded on a national exchange. The fair value of our investment in Ashford Inc. is included in “investment in Ashford Inc., at fair value” on our condensed consolidated balance sheets, and changes in market value are included in “unrealized gain (loss) on investment in Ashford Inc.” on our condensed consolidated statements of operations.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The following tables summarize the condensed consolidated balance sheets as of  March 31, 2018 and December 31, 2017 , and the condensed consolidated statements of operations for the  three months ended March 31, 2018 and 2017 , of Ashford Inc. (in thousands):
Ashford Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
 
March 31, 2018
 
December 31, 2017
Total assets
 
$
119,597

 
$
114,810

Total liabilities
 
82,830

 
78,742

Redeemable noncontrolling interests
 
4,662

 
5,111

Total stockholders’ equity of Ashford Inc.
 
30,545

 
30,185

Noncontrolling interests in consolidated entities
 
1,560

 
772

Total equity
 
32,105

 
30,957

Total liabilities and equity
 
$
119,597

 
$
114,810

Our investment in Ashford Inc., at fair value
 
$
18,652

 
$
18,124

Ashford Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Total revenue
$
48,168

 
$
13,013

Total operating expenses
(53,204
)
 
(15,149
)
Operating income (loss)
(5,036
)
 
(2,136
)
Realized and unrealized gain (loss) on investments
—

 
(75
)
Other
(93
)
 
118

Income tax (expense) benefit
(706
)
 
(630
)
Net income (loss)
(5,835
)
 
(2,723
)
(Income) loss from consolidated entities attributable to noncontrolling interests
173

 
(25
)
Net (income) loss attributable to redeemable noncontrolling interests
(61
)
 
363

Net income (loss) attributable to Ashford Inc.
$
(5,723
)
 
$
(2,385
)
Our unrealized gain (loss) on investment in Ashford Inc.
$
528

 
$
3,091

OpenKey
On March 28, 2018, the Company made a $2.0 million investment in OpenKey, which is controlled and consolidated by Ashford Inc., for a 8.2% ownership interest, which investment was approved by our Related Party Transactions Committee and the independent members of our board of directors. OpenKey is a hospitality focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guest rooms. Our investment is recorded as a component of “investment in unconsolidated entities” in our condensed consolidated balance sheet and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance. As of March 31, 2018 , our ownership interest had a carrying value of $2.0 million . For the three months ended March 31, 2018 , our equity in loss of the unconsolidated entity was $3,000 .

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


8. Indebtedness
Indebtedness consisted of the following (in thousands):
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
March 31, 2018
 
December 31, 2017
Secured revolving credit facility (3)
 
None
 
November 2019
 
Base Rate  (2) + 1.25% to 2.50% or LIBOR (1)  + 2.25% to 3.50%
 
$
—

 
$
—

TIF loan (4)   (5)
 
1 hotel
 
June 2018
 
12.85%
 
8,098

 
8,098

Mortgage loan (6)
 
1 hotel
 
December 2018
 
LIBOR (1)  + 4.95%
 
42,000

 
42,000

Mortgage loan (4) (7)
 
4 hotels
 
February 2019
 
LIBOR (1)  + 2.58%
 
277,628

 
277,628

Mortgage loan (8)
 
1 hotel
 
March 2019
 
LIBOR (1) + 2.55%
 
80,000

 
80,000

Mortgage loan (9)
 
1 hotel
 
March 2019
 
LIBOR (1)  + 2.25%
 
70,000

 
70,000

Mortgage loan (10)
 
1 hotel
 
April 2019
 
LIBOR (1) + 2.75%
 
67,500

 
67,500

Mortgage loan (11)
 
2 hotels
 
November 2019
 
LIBOR (1)  + 2.65%
 
189,296

 
190,010

Mortgage loan
 
1 hotel
 
May 2022
 
LIBOR (1)  + 2.55%
 
51,000

 
51,000

Mortgage loan
 
1 hotel
 
August 2022
 
LIBOR (1) + 2.55%
 
40,000

 
40,000

 
 
 
 
 
 
 
 
825,522

 
826,236

Deferred loan costs, net
 
 
 
 
 
 
 
(4,469
)
 
(5,277
)
Indebtedness, net
 
 
 
 
 
 
 
$
821,053

 
$
820,959

__________________
(1)  
LIBOR rates were 1.883% and 1.564% at March 31, 2018 and December 31, 2017 , respectively.
(2)  
Base Rate, as defined in the secured revolving credit facility agreement, is the greater of (i) the prime rate set by Bank of America, (ii) federal funds rate + 0.5% , or (iii) LIBOR + 1.0% .
(3)  
Our borrowing capacity under our secured revolving credit facility is $100.0 million . We have an option, subject to lender approval, to further increase the borrowing capacity to an aggregate of $250.0 million . We may use up to $15.0 million for standby letters of credit. The secured revolving credit facility has two one -year extension options subject to advance notice, satisfaction of certain conditions and a 0.25% extension fee.
(4)  
These loans are collateralized by the same hotel property. This hotel property is included in the $277.6 million mortgage loan.
(5)  
The interest expense from the TIF loan is offset against interest income on the note receivable of the same amount. See note 6.
(6)  
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the first was exercised in December 2017.
(7)  
This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions.
(8)  
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the third was exercised in March 2018.
(9)  
This mortgage loan has three one-year options, subject to satisfaction of certain conditions, of which the second was exercised in March 2018.
(10)  
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions.
(11)  
This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.
On January 18, 2017, we refinanced three mortgage loans with existing outstanding balances totaling approximately $333.7 million and final maturity dates in April 2017. The new mortgage loan totaled $365.0 million , is interest only with a floating rate of LIBOR + 2.58% and has a stated maturity of February 2019 with five one -year extension options, subject to the satisfaction of certain conditions. On November 1, 2017, we completed the sale of the Plano Marriott Legacy Town Center for  $104.0 million in cash. We repaid approximately $87.4 million on the mortgage loan that was previously secured in part by the hotel property. The mortgage loan is secured by four hotel properties: Seattle Marriott Waterfront, Tampa Renaissance, San Francisco Courtyard Downtown and Philadelphia Courtyard Downtown.
On March 31, 2017, in connection with the acquisition of the Park Hyatt Beaver Creek, we completed the financing of a $67.5 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.75% . The stated maturity date of the mortgage loan is April 2019, with three one -year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by the Park Hyatt Beaver Creek.
On May 11, 2017, in connection with the acquisition of the Hotel Yountville, we completed the financing of a $51.0 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.55% . The stated maturity date of the mortgage loan is May 2022 . The mortgage loan is secured by the Hotel Yountville.
On August 18, 2017, we refinanced our existing $40.0 million mortgage loan with a final maturity date in December 2020 with a new $40.0 million mortgage loan that is interest only, provides for a floating interest rate of LIBOR + 2.55% and has a stated maturity date of August 2022. The mortgage loan is secured by the Bardessono Hotel.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


We are required to maintain certain financial ratios under our secured revolving credit facility. If we violate covenants in any debt 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 our inability to borrow unused amounts under our line of credit, even if repayment of some or all of our borrowings is not required. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of the consolidated group. As of March 31, 2018 , we were in compliance in all material respects with all covenants or other requirements set forth in our debt agreements as amended.
9. Income (Loss) Per Share
The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):
 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss) attributable to common stockholders - basic and diluted:
 
 
 
Net income (loss) attributable to the Company
$
4,020

 
$
(13
)
Less: Dividends on preferred stock
(1,707
)
 
(1,673
)
Less: Dividends on common stock
(5,116
)
 
(5,033
)
Less: Dividends on unvested performance stock units
(72
)
 
(67
)
Less: Dividends on unvested restricted shares
(87
)
 
(50
)
Undistributed net income (loss) allocated to common stockholders
(2,962
)
 
(6,836
)
Add back: Dividends on common stock
5,116

 
5,033

Distributed and undistributed net income (loss) - basic and diluted
$
2,154

 
$
(1,803
)
 
 
 
 
Weighted average common shares outstanding:
 
 
 
Weighted average common shares outstanding – basic
31,680

 
27,267

Incentive fee shares
3

 
—

Weighted average common shares outstanding – diluted
31,683

 
27,267

 
 
 
 
Income (loss) per share - basic:
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.07

 
$
(0.07
)
Income (loss) per share - diluted:
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.07

 
$
(0.07
)

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss) allocated to common stockholders is not adjusted for:
 
 
 
Income (loss) allocated to unvested restricted shares
$
87

 
$
50

Income (loss) allocated to unvested performance stock units
72

 
67

Income (loss) attributable to redeemable noncontrolling interests in operating partnership
292

 
(255
)
Dividends on preferred stock
1,707

 
1,673

Total
$
2,158

 
$
1,535

Weighted average diluted shares are not adjusted for:
 
 
 
Effect of unvested restricted shares
49

 
50

Effect of unvested performance stock units
16

 
—

Effect of assumed conversion of operating partnership units
4,124

 
4,223

Effect of assumed conversion of preferred stock
6,569

 
4,550

Effect of incentive fee shares
—

 
182

Total
10,758

 
9,005

10. Derivative Instruments
Interest Rate Derivatives —We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows. The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements. All derivatives are recorded at fair value.
During the three months ended March 31, 2018 , we entered into interest rate caps with notional amount totaling $150.0 million and strike rates ranging from 2.43% to 7.80% . These interest rate caps had effective dates of February 2018 , maturity dates of March 2019 , and a total cost of $67,000 . This instrument was not designated as a cash flow hedge.
During the three months ended March 31, 2017 , we entered into interest rate caps with notional amounts totaling  $568.5 million and strike rate ranging from  3.00%  to  5.35% . These interest rate caps have effective dates from  January 2017 to  March 2017 , maturity dates from  March 2018 to  April 2019 , and a total cost of  $319,000 . These instruments were not designated as cash flow hedges.
As of March 31, 2018 , we held interest rate caps with notional amounts totaling $858.2 million and strike rates ranging from 2.43% to 11.61% . These instruments cap the interest rates on our mortgage loans with an aggregate principal balance of  $817.4 million  and maturity dates from  December 2018  to  August 2022 . These instruments have maturity dates ranging from November 2018 to September 2019 .
As of March 31, 2018 , we held interest rate floors with notional amounts totaling $6.9 billion and strike rates ranging from -0.25% to 1.50% . These instruments have maturity dates ranging from  March 2019 to July 2020 . Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
Credit Default Swap Derivatives —We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. 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. As of March 31, 2018 , we held a credit default swap with a notional amount of $50.0 million , an effective date of August 2017 and an expected maturity date of October 2026. Assuming the underlying bonds pay off at par over their remaining average life, our estimated total exposure for these trades was approximately  $2.3 million  as of  March 31, 2018 . Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


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 counterparties when such change in market value is over  $250,000 .
11. 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 value of interest rate caps is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. The variable interest rates used in the calculation of projected receipts on the caps 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.
Fair value of credit default swaps are obtained from a third party who publishes various information including the index composition and price data (Level 2 inputs). The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
The fair value of interest rate floors is calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor. These expected future cash flows are probability-weighted projections based on the contract terms, accounting for both the magnitude and likelihood of potential payments, which are both computed using the appropriate LIBOR forward curve and market implied volatilities as of the valuation date (Level 2 inputs).
The fair value of options on futures contracts is determined based on the last reported settlement price as of the measurement date (Level 1 inputs). These exchange-traded options are centrally cleared, and a clearinghouse stands in between all trades to ensure that the obligations involved in the trades are satisfied.
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  March 31, 2018 , the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from  1.883%  to  2.597%  for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present 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)
 
Counterparty and Cash Collateral Netting (1)
 
Total
 
March 31, 2018
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
91

 
$
—

 
$
9

 
$
100

 
Interest rate derivatives - caps
—

 
66

 
—

 
—

 
66

 
Credit default swaps
—

 
207

 
—

 
631

 
838

 
 
—

 
364

 
—

 
640

 
1,004

(2)  
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
18,652

 
—

 
—

 
—

 
18,652

 
Total
$
18,652

 
$
364

 
$
—

 
$
640

 
$
19,656

 
 
Quoted Market Prices (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Counterparty and Cash Collateral Netting (1)
 
Total
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
118

 
$
—

 
$
12

 
$
130

 
Interest rate derivatives - caps
—

 
4

 
—

 
—

 
4

 
Credit default swaps
—

 
102

 
—

 
358

 
460

 
 
—

 
224

 
—

 
370

 
594

(2)  
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
18,124

 
—

 
—

 
—

 
18,124

 
Total
$
18,124

 
$
224

 
$
—

 
$
370

 
$
18,718

 
__________________
(1)  
Represents net cash collateral posted between us and our counterparties.
(2)  
Reported as “derivative assets” in our condensed consolidated balance sheets.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on the condensed consolidated statements of operations (in thousands):
 
 
Gain (Loss) Recognized in Income
 
 
 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
Assets
 
 
 
 
 
Derivative assets:
 
 
 
 
 
Interest rate derivatives - floors
 
$
(27
)
 
$
(759
)
 
Interest rate derivatives - caps
 
(5
)
 
(256
)
 
Credit default swaps
 
105

(1)  
—

 
Options on futures contracts
 
—

 
(39
)
 
 
 


 


 
Non-derivative assets:
 
 
 
 
 
Investment in Ashford Inc.
 
528

 
3,091

 
Total
 
$
601

 
$
2,037

 
Total combined
 
 
 
 
 
Interest rate derivatives - floors
 
$
(27
)
 
$
(759
)
 
Interest rate derivatives - caps
 
(5
)
 
(256
)
 
Credit default swaps
 
105

 
—

 
Options on futures contracts
 
—

 
117

 
Unrealized gain (loss) on derivatives
 
73

 
(898
)
 
Realized gain (loss) on options on futures contracts
 
—

 
(156
)
(2)  
Unrealized gain (loss) on investment in Ashford Inc.
 
528

 
3,091

 
Net
 
$
601

 
$
2,037

 
_______________
(1)  
Excludes costs of $63 associated with credit default swaps for the three months ended March 31, 2018 included in “other income (expense)” in our condensed consolidated statements of operations.
(2)  
Included in “other income (expense)” in our condensed consolidated statements of operations.
12. Summary of Fair Value of Financial Instruments
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.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets and liabilities measured at fair value:
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
 
$
18,652

 
$
18,652

 
$
18,124

 
$
18,124

Derivative assets
 
1,004

 
1,004

 
594

 
594

Financial assets not measured at fair value:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
95,223

 
$
95,223

 
$
137,522

 
$
137,522

Restricted cash
 
63,385

 
63,385

 
47,820

 
47,820

Accounts receivable, net
 
19,692

 
19,692

 
14,334

 
14,334

Insurance receivable
 
14,203

 
14,203

 
8,825

 
8,825

Note receivable
 
8,098

 
7,850 to 8,677

 
8,098

 
8,020 to 8,864

Due from related party, net
 
873

 
873

 
349

 
349

Due from third-party hotel managers
 
5,748

 
5,748

 
4,589

 
4,589

Financial liabilities not measured at fair value:
 
 
 
 
 
 
 
 
Indebtedness
 
$
825,522

 
$782,508 to $864,877

 
$
826,236

 
$ 780,243 to $ 862,372

Accounts payable and accrued expenses
 
57,468

 
57,468

 
56,803

 
56,803

Dividends and distributions payable
 
8,374

 
8,374

 
8,146

 
8,146

Due to Ashford Inc.
 
267

 
267

 
1,703

 
1,703

Due to third-party hotel managers
 
2,231

 
2,231

 
1,709

 
1,709

Cash, cash equivalents and restricted cash . These financial assets have maturities of less than 90 days and most bear interest at market rates. The carrying value approximates fair value due to their short-term nature. This is considered a Level 1 valuation technique.
Accounts receivable, net, insurance receivable, due from related party, net, accounts payable and accrued expenses, dividends and distributions payable, due to 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.
Note receivable . Fair value of the note receivable was determined by using similar loans with similar collateral. Since there is very little to no trading activity, we relied on our internal analysis of what we believe a willing buyer would pay for this note at March 31, 2018 and December 31, 2017 . We estimated the fair value of the note receivable to be approximately 3.1% lower to 7.1% higher than the carrying value of $8.1 million at March 31, 2018 and approximately 1.0% lower to 9.5% higher than the carrying value of $8.1 million at December 31, 2017 . This is considered a Level 2 valuation technique.
Investment in Ashford Inc. Fair value of the investment in Ashford Inc. is based on the quoted closing price on the balance sheet date. This is considered a Level 1 valuation technique.
Derivative assets . Fair value of interest rate derivatives is determined using the net present value of expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and our counterparties. Fair value of credit default swaps are obtained from a third party who publishes the CMBX index composition and price data. Fair values of interest rate floors are calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor. See notes 10 and 11 for a complete description of the methodology and assumptions utilized in determining fair values.
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. We estimated the fair value of the total indebtedness to be approximately 94.8% to 104.8% of the carrying value of $825.5 million at March 31, 2018 , and approximately 94.4% to 104.4% of the carrying value of $826.2 million at December 31, 2017 . This is considered a Level 2 valuation technique.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


13. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity and their allocable share of equity in earnings/losses of Braemar OP, which is an allocation of net income/loss attributable to the common unitholders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (“common units”) and units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested. Each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either (i) issued pursuant to an effective registration statement; (ii) included in an effective registration statement providing for the resale of such common stock; or (iii) issued subject to a registration rights agreement.
LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, generally have vesting periods of three 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 unit which can then be redeemed for cash or, at our election, settled in our common stock. An LTIP unit will achieve parity with the common units upon the sale or deemed sale of all or substantially all of the assets of our operating partnership at a time when our stock is trading at a level in excess of the price it was trading on the date of the LTIP issuance. More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of our operating partnership or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for our operating partnership.
The compensation committee of the board of directors of the Company approves performance-based LTIP units to certain executive officers from time to time. The award agreements provide for the grant of a target number of performance-based LTIP units that will be settled in common units of Braemar OP, if and when the applicable vesting criteria have been achieved following the end of the performance and service period. The target number of performance-based LTIP units may be adjusted from 0% to 200% based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s Compensation Committee on the grant date. As of March 31, 2018 , there are approximately 804,000 performance-based LTIP units, representing 200% of the target, outstanding. The performance criteria for the performance-based LTIP units are based on market conditions under the relevant literature, and the performance-based LTIP units were granted to non-employees.
The unamortized fair value of performance-based LTIP units of $1.9 million at March 31, 2018 will be expensed over a period of 2.8 years, subject to future mark to market adjustments. We recorded compensation expense of $8,000 and a credit of  $1.0 million due to lower fair values as compared to prior periods for the three months ended March 31, 2018 and 2017 , respectively. The related amounts are included in “advisory services fee” on our condensed consolidated statements of operations.
As of March 31, 2018 , we have issued a total of 1.9 million LTIP units (including performance-based LTIP units), net of forfeitures, all of which, other than approximately 367,000 LTIP units and 1.1 million performance based LTIP units issued from March 2015 to March 2018 had reached full economic parity with, and are convertible into, common units. For the three months ended March 31, 2018 and 2017 , compensation expense of $136,000 and $43,000 was recorded related to the LTIP units issued to Ashford LLC’s employees, respectively, and is included in “advisory services fee.” The fair value of the unrecognized cost of LTIP units of $2.3 million at March 31, 2018 , will be amortized over a period of 3.0 years, subject to future mark to market adjustments.
During the three months ended March 31, 2017 , approximately 5,000 common units, with an aggregate redemption fair value of $67,000 , were redeemed by the holders and, at our election, we issued shares of our common stock to satisfy the redemption. During the three months ended March 31, 2018, no common units were redeemed by the holders.
Redeemable noncontrolling interests in Braemar OP as of March 31, 2018 and December 31, 2017 , were $46.3 million and $46.6 million , respectively, which represented ownership of our operating partnership of approximately 11.20% and 11.43% , respectively. The carrying value of redeemable noncontrolling interests as of March 31, 2018 and December 31, 2017 , included no adjustments to reflect the excess of redemption value over the accumulated historical costs. For the three months ended March 31, 2018 and 2017 , we allocated net income of $292,000 and net loss of $255,000 to the redeemable noncontrolling interests, respectively. For the three months ended March 31, 2018 and 2017 , we declared aggregate cash distributions to holders of common units and holders of LTIP units of $822,000 and $790,000 , respectively. These distributions are recorded as a reduction of redeemable noncontrolling interests in operating partnership.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


14. Equity and Stock-Based Compensation
Dividends —Common stock dividends declared for the three months ended March 31, 2018 and 2017 , were $5.2 million and $5.1 million , respectively.
Performance Stock Units —The compensation committee of the board of directors of the Company approves grants of PSUs to certain executive officers from time to time. The award agreements provide for the grant of a target number of PSUs that will be settled in shares of common stock of the Company, if and when the applicable vesting criteria have been achieved following the end of the performance and service period, generally, three years from the issuance date. The target number of PSUs may be adjusted from 0% to 200% based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s Compensation Committee on the grant date. The performance criteria for the PSUs are based on market conditions under the relevant literature, and the PSUs were granted to non-employees. At March 31, 2018 , the outstanding PSUs had a fair value of $2.6 million . We recorded compensation expense in the amount of $1.6 million and a credit of $800,000 due to lower fair values of the PSUs for the three months ended March 31, 2018 and 2017 , respectively. During the three months ended March 31, 2018, approximately $1.6 million of the compensation expense was related to the accelerated vesting of PSUs granted to one of our executive officers upon his passing, in accordance with the terms of the awards. These amounts are included in “advisory services fee” on our condensed consolidated statements of operations. As of March 31, 2018 , we had unamortized compensation expense of $2.4 million related to PSUs which is expected to be recognized over a period of 2.8 years, subject to future mark to market adjustments.
Restricted Stock Units —Stock-based compensation expense of $825,000 and $118,000 was recognized for the three months ended March 31, 2018 and 2017 , respectively, in connection with restricted stock units awarded to employees of Ashford LLC and is included in “advisory services fee” on our condensed consolidated statements of operations. During the three months ended March 31, 2018, approximately $640,000 of the compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his passing, in accordance with the terms of the awards. There were also restricted stock units granted to certain employees of Remington Lodging, and the associated expenses are recorded as a component of “management fees” on our condensed consolidated statements of operations. For the three months ended March 31, 2018 , expense related to such grants was $46,000 . For the  three months ended March 31, 2017 , expense related to such grants was immaterial. In addition, stock-based compensation expense of $0 and $18,000 was recognized for the three months ended March 31, 2018 and 2017 , respectively, in connection with common stock issued to our independent directors, which vested immediately, and is included in “corporate general and administrative” expense on our condensed consolidated statements of operations. At March 31, 2018 , the outstanding restricted shares had a fair value of $5.3 million . At March 31, 2018 , the unamortized cost of the unvested shares of restricted stock was $4.6 million , which will be expensed over a period of 3.6 years , subject to future mark to market adjustments, and have vesting dates between April 2018 and November 2021 .
Stock Repurchases —On December 5, 2017, our board of directors reapproved the stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value  $0.01  per share having an aggregate value of up to  $50 million . The board of directors’ authorization replaced any previous repurchase authorizations.
No  shares were repurchased during the three months ended  March 31, 2018 and 2017 , pursuant to this authorization. As of March 31, 2018 , we have purchased a cumulative 4.3 million shares of our common stock, for approximately $63.2 million , since the program’s inception on November 4, 2014.
At-the-Market Equity Distribution Program —On December 11, 2017, the Company established an “at-the-market” equity distribution program pursuant to which it may, from time to time, sell shares of its Common Stock having an aggregate offering price of up to  $50 million . As of March 31, 2018, no shares of our common stock have been sold under this program.
Noncontrolling Interest in Consolidated Entities —A partner had noncontrolling ownership interests of 25% in two hotel properties with a total carrying value of $(4.8) million at both March 31, 2018 and December 31, 2017 , respectively. Noncontrolling interests in consolidated entities were allocated a net loss of $42,000 and $21,000 for the three months ended March 31, 2018 and 2017 , respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


15. 5.5% Series B Cumulative Convertible Preferred Stock
Each share of our 5.5% Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) is convertible at any time, at the option of the holder, into a number of whole shares of common stock at an initial conversion price of $18.90 (which represents an initial conversion rate of 1.3228 shares of our common stock, subject to certain adjustments). The Series B Convertible Preferred Stock is also subject to conversion upon certain events constituting a change of control. Holders of the Series B Convertible Preferred Stock have no voting rights, subject to certain exceptions.
The Company may, at its option, cause the Series B Convertible Preferred Stock to be converted in whole or in part, on a pro-rata basis, into fully paid and nonassessable shares of the Company’s common stock at the conversion price, provided that the “Closing Bid Price” (as defined in the Articles Supplementary) of the Company’s common stock shall have equaled or exceeded 110% of the conversion price for the immediately preceding 45 consecutive trading days ending three days prior to the date of notice of conversion. In the event of such mandatory conversion, the Company shall pay holders of the Series B Convertible Preferred Stock any additional dividend payment to make the holder whole on dividends expected to be received through June 11, 2019, in an amount equal to the net present value, where the discount rate is the dividend rate on the Series B Convertible Preferred Stock, of the difference between (i) the annual dividend payments the holders of Series B Convertible Preferred Stock would have received in cash from the date of the mandatory conversion to June 11, 2019, and (ii) the common stock quarterly dividend payments the holders of Series B Convertible Preferred Stock would have received over the same time period had such holders held common stock.
On March 7, 2017, we closed an offering of approximately 2.0 million shares of our Series B Convertible Preferred Stock at $20.19 per share for gross proceeds of $39.9 million . The net proceeds to us, after underwriting discounts and offering expenses were approximately $38.2 million . Dividends on the Series B Convertible Preferred Stock accrue at a rate of 5.50% on the liquidation preference of $25.00 per share. On March 31, 2017, the underwriters partially exercised their over-allotment option and purchased an additional 100,000  shares of the Series B Convertible Preferred Stock, which closed on April 5, 2017. The net proceeds from the partial exercise of the over-allotment option after underwriting discounts were approximately  $1.9 million .
At March 31, 2018 , we had  5.0 million  outstanding shares of Series B Convertible Preferred Stock that do not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside our control. As such, the Series B Convertible Preferred Stock is classified outside of permanent equity.
The Series B Convertible Preferred Stock dividend for all issued and outstanding shares is set at $1.375 per annum per share. For both the three months ended March 31, 2018 and 2017 , we declared dividends of approximately $1.7 million  with respect to shares of Series B Convertible Preferred Stock.
16. Commitments and Contingencies
Restricted Cash —Under certain management and debt agreements for our hotel properties existing at March 31, 2018 , 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 5% of gross revenues for capital improvements.
Management Fees —Under management agreements for our hotel properties existing at March 31, 2018 , we pay a) monthly property management fees equal to the greater of $13,000 (increased annually based on consumer price index adjustments) 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) 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 management budget cumulatively, including project management fees, and d) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from December 2019 through December 2065, 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.
Income Taxes —We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2013 through 2017 remain subject to potential examination by certain federal and state taxing authorities.
Litigation —We are engaged in 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

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


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.
17. Segment Reporting
We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refer to owning hotel properties 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 March 31, 2018 and December 31, 2017 , all of our hotel properties were in the U.S. and its territories.
18. Related Party Transactions
Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor, and as a result, we pay advisory fees to Ashford LLC. We are required to pay Ashford LLC a monthly base fee that is 1/12th of 0.70% of our total market capitalization plus the Key Money Asset Management Fee (defined in our advisory agreement as the aggregate gross asset value of all key money assets multiplied by 1/12th of 0.70% ), subject to a minimum monthly base fee, as payment for managing our day-to-day operations in accordance with our investment guidelines. Total market capitalization includes the aggregate principal amount of our consolidated indebtedness (including our proportionate share of debt of any entity that is not consolidated but excluding our joint venture partners’ proportionate share of consolidated debt). We are also required to pay Ashford LLC an incentive fee that is measured annually. Each year that our annual total stockholder return exceeds the average annual total stockholder return for our peer group, we will pay Ashford LLC an incentive fee over the following three years , subject to the Fixed Charge Coverage Ratio (“FCCR”) Condition, as defined in the advisory agreement, which relates to the ratio of adjusted EBITDA to fixed charges. We also reimburse Ashford LLC for certain reimbursable overhead and internal audit, risk management advisory and asset management services, as specified in the advisory agreement. We also record equity-based compensation expense for equity grants of common stock and LTIP units awarded to our officers and employees of Ashford LLC 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.
The following table summarizes the advisory services fees incurred (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Advisory services fee
 
 
 
Base advisory fee
$
2,107

 
$
2,003

Reimbursable expenses (1)
420

 
547

Equity-based compensation (2)  
2,547

 
(1,685
)
Incentive fee
170

 
—

Total
$
5,244

 
$
865

________
(1)  
Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services.
(2)  
Equity-based compensation is associated with equity grants of Braemar’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.
In connection with the acquisition of the Bardessono Hotel in 2015 and Ashford Inc.’s engagement to provide hotel advisory services to us, Ashford Inc. agreed to provide $2.0 million of key money consideration in the form of furniture, fixtures and equipment to be used by Braemar. This arrangement is accounted for as a lease, in accordance with the applicable accounting guidance. As such, a portion of the base advisory fee is allocated to lease expense equal to the estimated fair value of the lease payments that would have been made. Lease expense of $84,000 and $84,000 was recognized for the three months ended March 31, 2018 and 2017 , respectively, and was included in “other” hotel expense in the consolidated statements of operations.
Certain employees of Remington Lodging, who perform work on behalf of Braemar, were granted approximately 22,000 and 21,000 shares of restricted stock under the Braemar Stock Plan in 2017 and 2018, respectively. These share grants were accounted for under the applicable accounting guidance related to share-based payments granted to non-employees and are recorded as a component of “management fees” in our condensed consolidated statements of operations. For the three months ended March 31, 2018 , expense related to such grants was $46,000 . For the  three months ended March 31, 2017 , expense related to such grants was

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


immaterial. The unamortized fair value of these grants was $426,000 as of March 31, 2018 , which will be amortized over a period of 3.0 years.
In accordance with our advisory agreement, our advisor, or entities in which our advisor has an interest, have a right to provide products or services to our hotel properties, provided such transactions are evaluated and approved by our independent directors. The following table summarizes the entities in which our advisor has an interest with which we or our hotel properties contracted for products and services, the amounts paid by us for those services, the applicable classification on our condensed consolidated financial statements and the amount payable to each entity (included in “due to Ashford Inc.”) (in thousands):
 
 
 
Three Months Ended March 31, 2018
As of
March 31, 2018
As of
December 31, 2017
Company
 
Product or Service
Transaction Amount
Other Hotel Expenses
 
Corporate General and Administrative
Due to
Ashford Inc.
OpenKey
 
Mobile key app
$
8

$
8

 
$
—

$
5

$
4

Pure Rooms
 
“Allergy friendly” premium rooms
9

9

 
—

—

45

RED Leisure
 
Watersports activities and travel/transportation services
180

180

 
—

—

—

Ashford LLC
 
Insurance claims services
38

—

 
38

38

—

At March 31, 2018 and December 31, 2017 , the balance in “due to Ashford Inc.” of $224,000 and $1.7 million , respectively, is primarily associated with advisory services.
19. Subsequent Events
On April 4, 2018, the Company acquired a 100% interest in the 266 -room Ritz-Carlton Sarasota in Sarasota, Florida for $171.0 million and a 22 acre plot of vacant land for $9.7 million . As a result of the recent date of the transaction, it is impractical to provide the pro forma results of operations that include the impact of the Ritz-Carlton Sarasota.
Concurrent with the completion of the acquisition, the Company completed the financing of a $100 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR + 2.65% . The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.
On May 8, 2018, the Company announced that it has signed a definitive agreement to sell the 293 -room Renaissance Tampa hotel in Tampa, Florida for $68.0 million . The transaction is expected to close during the second quarter of 2018. As of March 31, 2018, the carrying value of the hotel property was $54.3 million .
 
 
 
 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to “we,” “us,” “our,” the “Company” or “Braemar” refer to Braemar Hotels & Resorts Inc. (formerly Ashford Hospitality Prime, Inc.), a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Braemar Hospitality Limited Partnership (formerly Ashford Hospitality Prime Limited Partnership), a Delaware limited partnership, which we refer to as “our operating partnership” or “Braemar OP.” “Ashford Trust” refers to Ashford Hospitality Trust, Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Limited Partnership, a Delaware limited partnership and Ashford Trust’s operating partnership.” “Ashford LLC” refers to Ashford Hospitality Advisors LLC, a Delaware limited liability company and a subsidiary of Ashford Inc. “Remington Lodging” refers to Remington Lodging and Hospitality LLC, a Delaware limited liability company, a property management company owned by Mr. Monty J. Bennett, chairman of our board of directors, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust. “Our TRSs” refers to our taxable REIT subsidiaries, including Braemar TRS Corporation (formerly Ashford Prime TRS Corporation, a Delaware corporation), which we refer to as “Braemar TRS,” and its subsidiaries, together with the two taxable REIT subsidiaries that lease our two hotels held in a consolidated joint venture and are wholly-owned by the joint venture and the U.S. Virgin Islands’ (“USVI”) taxable REIT subsidiary that owns the Ritz-Carlton St. Thomas hotel.
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains registered trademarks that are the exclusive property of their respective owners, which are companies other than us, including Marriott International®, Hilton Worldwide®, Sofitel®, Hyatt® and Accor®.
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:
•
our business and investment strategy;
•
our projected operating results and dividend rates;
•
our ability to obtain future financing arrangements;
•
our understanding of our competition;
•
market trends;
•
projected capital expenditures;
•
anticipated acquisitions or dispositions; and
•
the impact of technology on our operations and business.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements include, but are not limited to:
•
factors discussed in our Form 10-K for the year ended December 31, 2017 , as originally filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2018 (the “ 2017 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,” as updated in our subsequent Quarterly Reports on Form 10-Q;
•
general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise;
•
our ability to deploy capital and raise additional capital at reasonable costs to repay debts, invest in our properties and fund future acquisitions;
•
unanticipated increases in financing and other costs, including a rise in interest rates;
•
the degree and nature of our competition;
•
actual and potential conflicts of interest with Ashford Trust, Ashford LLC, Ashford Inc., Remington Lodging, our executive officers and our non-independent directors;
•
changes in personnel of Ashford LLC or the lack of availability of qualified personnel;

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•
changes in governmental regulations, accounting rules, tax rates and similar matters;
•
legislative and regulatory changes, including changes to the Internal Revenue Code and related rules, regulations and interpretations governing the taxation of real estate investment trusts (“REITs”); and
•
limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes.
When considering forward-looking statements, you should keep in mind the matters summarized under “Item 1A. Risk Factors” of our 2017 10-K and any subsequent updates to this disclosure in our Quarterly Reports on Form 10-Q, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Form 10-Q. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Form 10-Q to conform these statements to actual results and performance, except as may be required by applicable law.
Overview
We are a Maryland corporation formed in April 2013 as Ashford Hospitality Prime, Inc. and changed our name to Braemar Hotels & Resorts Inc. in April 2018. We invest primarily in high revenue per available room (“RevPAR”), luxury hotels and resorts. High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-current U.S. national average RevPAR for all hotels as determined by Smith Travel Research. Two times the U.S. national average was $167 for the year ended December 31, 2017. We have elected to be taxed as a REIT under the Internal Revenue Code beginning with our short taxable year ended December 31, 2013. We conduct our business and own substantially all of our assets through our operating partnership, Braemar OP.
We operate in the direct hotel investment segment of the hotel lodging industry. As of March 31, 2018 , we owned interests in twelve hotel properties in six states, the District of Columbia and St. Thomas, U.S. Virgin Islands with 3,576 total rooms, or 3,341 net rooms, excluding those attributable to our joint venture partner. The hotel properties in our current portfolio are predominantly located in U.S. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators. We own ten of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity.
We are advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
On April 23, 2018, in connection with our name change, we entered into the Fifth Amended and Restated Advisory Agreement with Braemar (the “Fifth Amended and Restated Advisory Agreement”). The Fifth Amended and Restated Advisory Agreement amends the prior amended and restated advisory agreement only to reflect the name change and does not amend or otherwise alter the rights of any of the parties thereto.
Pursuant to the termination provisions of the Fifth Amended and Restated Advisory Agreement, the revenues and expenses used to calculate Net Earnings (as defined) for the twelve months ended March 31, 2018 , are as follows (in thousands):
Revenues
$
16,078

Expenses
6,220

Net Earnings
$
9,858

Recent Developments
On March 28, 2018, the Company made a $2.0 million investment in OpenKey, which is controlled and consolidated by Ashford Inc., for a 8.2% ownership interest, which investment was approved by our Related Party Transactions Committee and the independent members of our board of directors. OpenKey is a hospitality focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guestrooms.
On April 4, 2018, the Company acquired a 100% interest in the 266 -room Ritz-Carlton Sarasota in Sarasota, Florida for $171.0 million and a 22 acre plot of vacant land for $9.7 million . Concurrent with the completion of the acquisition, the Company completed the financing of a $100 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR + 2.65%. The

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mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.
On May 8, 2018, the Company announced that it has signed a definitive agreement to sell the 293-room Renaissance Tampa hotel in Tampa, Florida for $68.0 million. The transaction is expected to close during the second quarter of 2018. As of March 31, 2018, the carrying value of the hotel property was $54.3 million.
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel’s contribution to cash flow and its potential to provide attractive long-term total returns. These key indicators include:
•
Occupancy-Occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels’ available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period.
•
ADR-ADR means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate.
•
RevPAR-RevPAR means revenue per available room and is calculated by multiplying ADR by the average daily occupancy. RevPAR is one of the commonly used measures within the hotel industry to evaluate hotel operations. RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense. Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue comprised approximately 63.9% of our total hotel revenue for the three months ended March 31, 2018 , and is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
We also use funds from operations (“FFO”), Adjusted FFO (“AFFO”), earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) and Adjusted EBITDAre as measures of the operating performance of our business. See “Non-GAAP Financial Measures.”

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LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•
advisory fees payable to Ashford LLC;
•
recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
•
interest expense and scheduled principal payments on outstanding indebtedness, including our secured revolving credit facility (see “Contractual Obligations and Commitments”);
•
distributions, in the form of dividends on our capital stock, necessary to qualify for taxation as a REIT; and
•
capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our secured revolving credit facility.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments. We expect to meet our long-term liquidity requirements through various sources of capital, including our secured revolving credit facility and future equity and preferred equity issuances, existing working capital, net cash provided by operations, proceeds from insurance claims, hotel mortgage indebtedness and other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us. The success of our business strategy will depend, in part, on our ability to access these various capital sources.
Our hotel properties will require periodic capital expenditures and renovation to remain competitive. In addition, acquisitions, redevelopments or expansions of hotel properties may require significant capital outlays. We may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected.
Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties decline. When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan.
On December 5, 2017, our board of directors reapproved the stock repurchase program pursuant to which the Board granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share having an aggregate value of up to $50 million . The Board’s authorization replaced any previous repurchase authorizations. No  shares were repurchased during the three months ended  March 31, 2018 , pursuant to this authorization.
On December 11, 2017, we entered into equity distribution agreements with Morgan Stanley & Co. LLC and UBS Securities LLC, each acting as a sales agent (the “Equity Distribution Agreements”). Pursuant to the Equity Distribution Agreements, we may sell from time to time through the sales agents shares of our common stock having an aggregate offering price of up to $50.0 million. Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent. As of March 31, 2018, no shares of our common stock have been sold under this program.
On April 2, 2018, the Company made a draw on its secured revolving credit facility in the amount of $40.0 million.
On April 4, 2018, in connection with the acquisition of the 266 -room Ritz-Carlton Sarasota in Sarasota, Florida, the Company completed the financing of a $100 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR +

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2.65%. The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.
Secured Revolving Credit Facility
We have a three-year, senior secured revolving credit facility in the amount of $100 million. It includes $15 million available in letters of credit and $15 million available in swingline loans. We believe the secured revolving credit facility will provide us with significant financial flexibility to fund future acquisitions and hotel redevelopments.
The secured revolving credit facility is provided by a syndicate of financial institutions with Bank of America, N.A., serving as the administrative agent to Braemar OP, as the borrower. We and certain of our subsidiaries guarantee the secured revolving credit facility, which is secured by a pledge of 100% of the equity interests we hold in Braemar OP and 100% of the equity interest issued by any guarantor (other than Braemar) or any other subsidiary of ours that is not restricted under its loan documents or organizational documents from having its equity pledged (subject to certain exclusions), all mortgage receivables held by the borrower or any guarantor, and certain deposit accounts and securities accounts held by the borrower and any guarantor. The proceeds of the secured revolving credit facility may be used for working capital, capital expenditures, property acquisitions, and any other lawful purposes.
The secured revolving credit facility also contains customary terms, covenants, negative covenants, events of default, limitations and other conditions for credit facilities of this type. Subject to certain exceptions, we are subject to restrictions on incurring additional indebtedness, mergers and fundamental changes, sales or other dispositions of property, changes in the nature of our business, investments and capital expenditures.
We also are subject to certain financial covenants, as set forth below, which are tested by the borrower on a consolidated basis (net of the amounts attributable to the non-controlling interest held by our partner in a majority-owned consolidated entity) and include, but are not limited to, the following:
•
Consolidated indebtedness (less cash and cash equivalents in excess of $10,000,000) to total asset value (based on property capitalization rates defined within the secured revolving credit facility agreement) not to exceed 60%. Our ratio was 47.8% at March 31, 2018 .
•
Consolidated recourse indebtedness other than the secured revolving credit facility not to exceed $50,000,000.
•
Consolidated fixed charge coverage ratio not less than 1.40x initially, with such ratio being increased beginning October 1, 2017 to 1.50x. This ratio was 2.17 x at March 31, 2018 .
•
Indebtedness of the consolidated parties that accrues interest at a variable rate (other than the secured revolving credit facility) that is not subject to a “cap,” “collar,” or other similar arrangement not to exceed 25% of consolidated indebtedness.
•
Consolidated tangible net worth not less than 75% of the consolidated tangible net worth on the closing date of the secured revolving credit facility plus 75% of the net proceeds of any future equity issuances.
•
Secured debt that is secured by real property not to exceed 70% of the as-is appraised value of such real property.
All financial covenants are tested and certified by the borrower on a quarterly basis. We were in compliance with all covenants at March 31, 2018 .
The secured revolving credit facility includes customary events of default and the occurrence of an event of default will permit the lenders to terminate commitments to lend under the secured revolving credit facility and accelerate payment of all amounts outstanding thereunder. If a default occurs and is continuing, we will be precluded from making distributions on our shares of common stock (other than those required to allow us to qualify and maintain our status as a REIT, so long as such default does not arise from a payment default or event of insolvency).
Borrowings under the secured revolving credit facility bear interest, at our option, at either LIBOR for a designated interest period plus an applicable margin, or the base rate (as defined in the credit agreement) plus an applicable margin. The applicable margin for borrowings under the secured revolving credit facility for base rate loans range from 1.25% to 2.50% per annum and the applicable margin for borrowings under the secured revolving credit facility for LIBOR loans range from 2.25% to 3.50% per annum, depending on the ratio of consolidated indebtedness to EBITDA, with the lowest rate applying if such ratio is less than 4.0x and the highest rate applying if such ratio is greater than 6.0x.
The secured revolving credit facility is a three-year interest-only facility with all outstanding principal being due at maturity on November 10, 2019, subject to two one-year extension options if certain terms and conditions are satisfied and a 0.25% extension fee. The secured revolving credit facility has an accordion feature whereby the aggregate commitments may be increased up to $250 million, subject to certain terms.

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We intend to repay any indebtedness incurred under our secured revolving credit facility from time to time out of net cash provided by operations and from the net proceeds of issuances of additional equity and debt securities or sale of assets, as market conditions permit.
Sources and Uses of Cash
We had approximately $95.2 million and $137.5 million of cash and cash equivalents at March 31, 2018 and December 31, 2017 , respectively.
We anticipate that our principal sources of funds to meet our cash requirements will include cash on hand, positive cash flow from operations and capital market activities.
Net Cash Flows Provided by (Used in) Operating Activities . Net cash flows provided by operating activities were $3.9 million and $4.6 million for the three months ended March 31, 2018 and 2017 , respectively. Cash flows from operations are impacted by changes in hotel operations of our ten comparable hotel properties, the sale of the Plano Marriott Legacy Town Center on November 1, 2017, as well as the acquisitions of the Park Hyatt Beaver Creek on March 31, 2017, and Hotel Yountville on May 11, 2017. Cash flows from operations are also impacted by the timing of working capital cash flows such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers.
Net Cash Flows Provided by (Used in) Investing Activities . For the three months ended March 31, 2018 , net cash flows used in investing activities were $22.2 million . These cash outflows were primarily attributable to a $4.5 million deposit associated with the acquisition of the Ritz-Carlton, Sarasota, a $2.0 million investment in OpenKey and $15.7 million of capital improvements made to various hotel properties. For the  three months ended March 31, 2017 , net cash flows used in investing activities were  $161.0 million . These cash outflows were primarily attributable to  $154.0 million  for the acquisition of the Park Hyatt Beaver Creek and a deposit on the acquisition of Hotel Yountville and  $9.3 million  of capital improvements made to various hotel properties, partially offset by  $2.3 million  of proceeds received from the liquidation of our investment in the AQUA U.S. Fund. 
Net Cash Flows Provided by (Used in) Financing Activities. For the three months ended March 31, 2018 , net cash flows used in financing activities were $8.4 million . Cash outflows primarily consisted of $7.5 million for payments of dividends and distributions and $714,000 for repayment of indebtedness. For the  three months ended March 31, 2017 , net cash flows provided by financing activities were  $188.9 million . Cash inflows primarily consisted of borrowings on indebtedness of  $432.5 million , proceeds of  $66.7 million  from the issuance of common stock and  $38.6 million  from the issuance of convertible preferred stock. These cash inflows were partially offset by  $334.8 million  for repayments of indebtedness,  $9.1 million  for payments of loan costs and exit fees and  $4.6 million  for payments of dividends and distributions.

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RESULTS OF OPERATIONS
Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017 (in thousands except percentages):
 
Three Months Ended March 31,
 
Favorable (Unfavorable)
 
2018
 
2017
 
$ Change
 
% Change
Revenue
 
 
 
 
 
 
 
Rooms
$
65,507

 
$
67,418

 
$
(1,911
)
 
(2.8
)%
Food and beverage
23,500

 
24,473

 
(973
)
 
(4.0
)
Other
13,482

 
5,365

 
8,117

 
151.3

Total hotel revenue
102,489

 
97,256

 
5,233

 
5.4

Other
—

 
40

 
(40
)
 
(100.0
)
Total revenue
102,489

 
97,296

 
5,193

 
5.3

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
14,918

 
15,797

 
879

 
5.6

Food and beverage
15,620

 
16,861

 
1,241

 
7.4

Other expenses
29,664

 
27,731

 
(1,933
)
 
(7.0
)
Management fees
3,617

 
3,545

 
(72
)
 
(2.0
)
Total hotel expenses
63,819

 
63,934

 
115

 
0.2

Property taxes, insurance and other
5,604

 
5,074

 
(530
)
 
(10.4
)
Depreciation and amortization
13,006

 
11,971

 
(1,035
)
 
(8.6
)
Impairment charges
12

 
—

 
(12
)
 


Advisory services fee
5,244

 
865

 
(4,379
)
 
(506.2
)
Transaction costs
488

 
4,328

 
3,840

 
88.7

Corporate general and administrative
28

 
3,874

 
3,846

 
99.3

Total expenses
88,201

 
90,046

 
1,845

 
2.0

Operating income (loss)
14,288

 
7,250

 
7,038

 
97.1

Equity in earnings (loss) of unconsolidated entity
(3
)
 
—

 
(3
)
 


Interest income
200

 
112

 
88

 
78.6

Other income (expense)
(63
)
 
(157
)
 
94

 
59.9

Interest expense and amortization of loan costs
(10,179
)
 
(8,202
)
 
(1,977
)
 
(24.1
)
Write-off of loan costs and exit fees
(2
)
 
(1,963
)
 
1,961

 
99.9

Unrealized gain (loss) on investment in Ashford Inc.
528

 
3,091

 
(2,563
)
 
(82.9
)
Unrealized gain (loss) on derivatives
73

 
(898
)
 
971

 
108.1

Income (loss) before income taxes
4,842

 
(767
)
 
5,609

 
731.3

Income tax (expense) benefit
(572
)
 
478

 
(1,050
)
 
(219.7
)
Net income (loss)
4,270

 
(289
)
 
4,559

 
1,577.5

(Income) loss from consolidated entities attributable to noncontrolling interests
42

 
21

 
21

 
100.0

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(292
)
 
255

 
(547
)
 
(214.5
)
Net income (loss) attributable to the Company
$
4,020

 
$
(13
)
 
$
4,033

 
31,023.1
 %

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All hotel properties owned for the three months ended March 31, 2018 and 2017 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended March 31, 2018 and 2017 . The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our condensed consolidated financial statements:
Hotel Properties
 
Location
 
Acquisition/Disposition
 
Acquisition/Disposition Date
Park Hyatt Beaver Creek (1)
 
Beaver Creek, CO
 
Acquisition
 
March 31, 2017
Hotel Yountville (1)
 
Yountville, CA
 
Acquisition
 
May 11, 2017
Marriott Legacy Town Center
 
Plano, TX
 
Disposition
 
November 1, 2017
________
(1)  
The operating results of these hotel properties have been included in our results of operations as of their acquisition dates.
The following table illustrates the key performance indicators of all hotel properties for the periods indicated:
 
Three Months Ended March 31,
 
2018
 
2017
Occupancy
78.67
%
 
78.43
%
ADR (average daily rate)
$
266.01

 
$
258.00

RevPAR (revenue per available room)
$
209.27

 
$
202.35

Rooms revenue (in thousands)
$
65,507

 
$
67,418

Total hotel revenue (in thousands)
$
102,489

 
$
97,256

The following table illustrates the key performance indicators of the ten hotel properties that were included for the full three months ended March 31, 2018 and 2017 :
 
Three Months Ended March 31,
 
2018
 
2017
Occupancy
78.86
%
 
79.24
%
ADR (average daily rate)
$
235.37

 
$
264.92

RevPAR (revenue per available room)
$
185.62

 
$
209.93

Rooms revenue (in thousands)
$
53,594

 
$
62,312

Total hotel revenue (in thousands)
$
80,911

 
$
88,697

Net Income (Loss) Attributable to the Company. Net income (loss) attributable to the Company changed $4.0 million , from a net loss of $13,000 for the three months ended March 31, 2017 (the “ 2017 quarter ”), to net income of $4.0 million for the three months ended March 31, 2018 (the “ 2018 quarter ”), as a result of the factors discussed below.
Rooms Revenue . Rooms revenue de creased $1.9 million , or 2.8% , to $65.5 million during the 2018 quarter compared to the 2017 quarter . During the 2018 quarter , we experienced a 3.1% in crease in room rates and a 24 basis point increase in occupancy. Rooms revenue from our ten comparable hotel properties de creased $8.7 million due to a decrease in room rates of  11.2%  and a  38 basis point de crease in occupancy. Rooms revenue decreased (i) $7.9 million at the Ritz-Carlton, St. Thomas due to the negative impact caused by Hurricanes Irma and Maria. During the 2018 quarter only 83 rooms were in service as the hotel is being renovated; (ii) $5.1 million at the Plano Marriott Legacy Town Center as a result of its sale on November 1, 2017; (iii) $1.9 million at the Capital Hilton as a result of 9.2% lower room rates and a 796 basis point decrease in occupancy at the hotel due to a renovation during the 2018 quarter and the presidential inauguration that occurred in the 2017 quarter; (iv) $209,000 at the Key West Pier House as a result of a 358 basis point decrease in occupancy, partially offset by 0.3% higher room rates at the hotel; (v) $177,000 at the San Francisco Courtyard Downtown as a result of 5.2% lower room rates, partially offset by a 175 basis point increase in occupancy at the hotel; (vi) $109,000 at the Bardessono Hotel as a result of a 434 basis point decrease in occupancy, partially offset by 1.4% higher room rates at the hotel; and (vii) $54,000 at the Chicago Sofitel Magnificent Mile as a result of a 349 basis point decrease in occupancy, partially offset by 3.9% higher room rates at the hotel. These decreases were partially offset by increases of (i) $9.8 million at the Park Hyatt Beaver Creek as a result of its acquisition on March 31, 2017; (ii) $2.1 million at the Hotel Yountville as a result of its acquisition on May 11, 2017; (iii) $1.2 million at the Philadelphia Courtyard as a result of

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15.3% higher room rates and a 565 basis point increase in occupancy at the hotel due to a renovation during the 2017 quarter ; (iv) $350,000 at the Hilton La Jolla Torrey Pines as a result of a 639 basis point increase in occupancy, partially offset by 2.1% lower room rates at the hotel; (v) $89,000 at the Seattle Marriott Waterfront as a result of 6.9% higher room rates, partially offset by a 462 basis point decrease in occupancy at the hotel; and (vi) $39,000 at the Tampa Renaissance as a result of a 399 basis point increase in occupancy, partially offset by 3.8% lower room rates at the hotel.
Food and Beverage Revenue . Food and beverage revenue de creased $1.0 million , or 4.0% , to $23.5 million during the 2018 quarter compared to the 2017 quarter . This overall de crease is due to a decrease of $3.3 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes; $3.2 million at the Plano Marriott Legacy Town Center due to its sale on November 1, 2017 and an aggregate decrease in food and beverage revenue of $1.1 million at the Capital Hilton , Tampa Renaissance , Seattle Marriott Waterfront , San Francisco Courtyard Downtown , Bardessono Hotel and Key West Pier House . These de creases were partially offset by increases of $4.8 million at the Park Hyatt Beaver Creek and $323,000 at the Hotel Yountville due to their acquisitions on March 31, 2017 and May 11, 2017, respectively, and an aggregate increase in food and beverage revenue of $1.5 million at the Hilton La Jolla Torrey Pines , Philadelphia Courtyard and Chicago Sofitel Magnificent Mile .
Other Hotel Revenue . Other hotel revenue, which consists mainly of telecommunications, parking, rentals and business interruption revenue, in creased $8.1 million , or 151.3% , to $13.5 million during the 2018 quarter compared to the 2017 quarter . During the 2018 quarter we recognized business interruption revenue of $4.9 million at the Ritz-Carlton, St. Thomas and Key West Pier House and $1.8 million, net of deductibles of $500,000 at the Bardessono Hotel and Hotel Yountville as a result of the Napa wildfires. This in crease is also attributable to an increase in other hotel revenue of $3.5 million at the Park Hyatt Beaver Creek and $980,000 at the Hotel Yountville as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively. There was also an aggregate increase of $1.7 million at the Bardessono Hotel , Key West Pier House , Hilton La Jolla Torrey Pines , Philadelphia Courtyard , Chicago Sofitel Magnificent Mile , Seattle Marriott Waterfront , Tampa Renaissance and San Francisco Courtyard Downtown . These increases were partially offset by lower other hotel revenue of  $240,000  at the  Plano Marriott Legacy Town Center  due to its sale on November 1, 2017 and $27,000 at the Capital Hilton .
Other Non-Hotel Revenue . Other non-hotel revenue de creased $40,000 , or 100.0% , to $0 in the 2018 quarter compared to the 2017 quarter . The de crease is attributable to the disposition of Plano Marriott Legacy Town Center which included Texas margin tax recoveries from guests in the 2017 quarter .
Rooms Expense . Rooms expense de creased $879,000 , or 5.6% , to $14.9 million in the 2018 quarter compared to the 2017 quarter . The de crease is attributable to a decrease of $1.9 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes and $917,000 at the Plano Marriott Legacy Town Center due to its sale on November 1, 2017, partially offset by an increase of $1.4 million at the Park Hyatt Beaver Creek and $565,000 at the Hotel Yountville as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively.
Food and Beverage Expense . Food and beverage expense de creased $1.2 million , or 7.4% , to $15.6 million during the 2018 quarter compared to the 2017 quarter . The de crease is attributable to $2.9 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $1.6 million at the Plano Marriott Legacy Town Center due to its sale on November 1, 2017 and an aggregate de crease of $194,000 from our remaining comparable hotel properties. These de creases were partially offset by an aggregate increase of $3.4 million from our 2017 acquisitions.
Other Operating Expenses . Other operating expenses in creased $1.9 million , or 7.0% , to $29.7 million in the 2018 quarter compared to the 2017 quarter . Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees. We experienced an in crease of $654,000 in direct expenses and $1.3 million in indirect expenses and incentive management fees in the 2018 quarter compared to the 2017 quarter . Direct expenses were 2.4% of total hotel revenue for the 2018 quarter and 1.9% for the 2017 quarter . The in crease in direct expenses is primarily attributable to increases of $1.7 million at the Park Hyatt Beaver Creek and $78,000 at the Hotel Yountville as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively. The increase was partially offset by decreases in other operating expenses of $960,000 at Ritz-Carlton, St. Thomas as a result of the hurricanes, $135,000 at our remaining comparable hotel properties and $34,000 at the Plano Marriott Legacy Town Center as a result of its sale. The increase in indirect expenses is attributable to increases in (i) incentive management fees of $ 560,000 including $1.3 million from the Park Hyatt Beaver Creek and Hotel Yountville and an aggregate increase of $325,000 at our remaining comparable hotel properties, partially offset by decreases of $577,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes and $521,000 from the sale of the Plano Marriott Legacy Town Center ; (ii) energy costs of $ 431,000 , comprised of an increase of $ 370,000 from the Park Hyatt Beaver Creek and Hotel Yountville , $ 129,000 from our remaining comparable hotel properties and $114,000 at the Ritz-Carlton, St. Thomas, partially offset by a decrease of $182,000 from the Plano Marriott Legacy Town Center as a result of its sale; (iii) marketing costs of $ 255,000 , including $ 934,000 from the Park Hyatt Beaver Creek and the Hotel Yountville and an aggregate increase of $515,000 at our remaining comparable hotel properties, partially offset by a decrease of $607,000 at the Plano Marriott Legacy Town Center as a result of its sale and $587,000 at the Ritz-Carlton, St. Thomas; and (iv) lease expense of

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$ 152,000 , comprised of an increase of $ 144,000 from our remaining comparable hotel properties, $ 10,000 from the Park Hyatt Beaver Creek and the Hotel Yountville and $2,000 at the Ritz-Carlton, St. Thomas, partially offset by a decrease of $4,000 at the Plano Marriott Legacy Town Center as a result of its sale.
Management Fees . Base management fees in creased $72,000 , or 2.0% , to $3.6 million in the 2018 quarter compared to the 2017 quarter . The in crease is comprised of an in crease of $618,000 from the Park Hyatt Beaver Creek and Hotel Yountville. These in creases are partially offset by a decrease of $257,000 at the Plano Marriott Legacy Town Center as a result of its sale, $273,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes and an aggregate decrease of $16,000 from our remaining comparable hotel properties.
Property Taxes, Insurance and Other . Property taxes, insurance and other in creased $530,000 , or 10.4% , to $5.6 million in the 2018 quarter compared to the 2017 quarter , which is attributable to increases of $783,000 at the Park Hyatt Beaver Creek and $323,000 at the Hotel Yountville as a result of their acquisitions in March 2017 and May 2017, respectively. These in creases were partially offset by a decrease $ 355,000 from the Plano Marriott Legacy Town Center as a result of its sale and $ 221,000 from our remaining comparable hotel properties.
Depreciation and Amortization . Depreciation and amortization in creased $1.0 million , or 8.6% , to $13.0 million for the 2018 quarter compared to the 2017 quarter due to an aggregate increase of $ 1.5 million from the Park Hyatt Beaver Creek and Hotel Yountville and $ 1.3 million from our remaining comparable hotel properties, partially offset by a decrease of $1.2 million from the Plano Marriott Legacy Town Center as a result of its sale and $597,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Impairment Charges. We recorded an impairment charge of $12,000 at the Tampa Renaissance as a result of a change in estimate of property damage as a result of the hurricanes.
Advisory Services Fee. Advisory services fee in creased  $4.4 million , or 506.2% , to  $5.2 million  in the 2018 quarter compared to the 2017 quarter due to in creases in equity-based compensation of $4.2 million , incentive fee of $170,000 and base advisory fee of $104,000 . These in creases were partially offset by a decrease of $127,000 in reimbursable expenses. In the 2018 quarter , we recorded an advisory services fee of $5.2 million , which included a base advisory fee of $2.1 million , reimbursable expenses of $420,000 , an incentive fee of $170,000 and $2.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. During the three months ended March 31, 2018, approximately $2.2 million of the equity-based compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his passing, in accordance with the terms of the awards. In the  2017 quarter , we recorded an advisory services fee of  $865,000  which included a base advisory fee of  $2.0 million , reimbursable expenses of  $547,000  and a credit to equity-based compensation expense in the amount of  $1.7 million  associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. The credit to equity-based compensation expense is a result of lower fair values at March 31, 2017 as compared to December 31, 2016.
Transaction Costs. In the  2018 quarter , we recorded transaction costs of $488,000 primarily related to the acquisitions of Ritz-Carlton Sarasota. In the 2017 quarter , we recorded transaction costs of  $4.3 million  related to the acquisitions of Park Hyatt Beaver Creek and the Hotel Yountville.
Corporate General and Administrative . Corporate general and administrative expenses de creased $3.8 million , or 99.3% , to $28,000 in the 2018 quarter compared to the 2017 quarter . In the 2017 quarter we incurred professional fees associated with the proxy contest and litigation of $2.0 million. In the 2018 quarter we recorded insurance recoveries related to the proxy contest and litigation of $1.2 million. This resulted in a decrease in professional fees associated with the proxy contest and litigation of $3.2 million in the 2018 quarter compared to the 2017 quarter. We also experienced lower miscellaneous expenses of $ 300,000 in the 2018 quarter compared to the 2017 quarter.
Equity in Earnings (Loss) of Unconsolidated Entity . We recorded equity in loss of unconsolidated entity of $3,000 in the 2018 quarter related to our investment in OpenKey. We did not have any equity in OpenKey during the  2017 quarter .
Interest Income . Interest income in creased $88,000 , or 78.6% , to $200,000 for the 2018 quarter compared to the 2017 quarter .
Other Income (Expense) . Other expense decreased  $94,000 from $157,000 to $63,000 in the  2018 quarter compared to the 2017 quarter . In the 2018 quarter , we recorded other expense of  $63,000  related to CMBX premiums and usage fees. In the  2017 quarter , we recognized a realized loss of $156,000 related to options on futures contracts.
Interest Expense and Amortization of Loan Costs . Interest expense and amortization of loan costs in creased $2.0 million , or 24.1% , to $10.2 million for the 2018 quarter compared to the 2017 quarter . The in crease is primarily due to new mortgage loans

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associated with the acquisitions of the Park Hyatt Beaver Creek and Hotel Yountville as well as a higher average LIBOR rate. The average LIBOR rates for the 2018 quarter and the 2017 quarter were 1.65% and 0.83% , respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees were $2,000 for the 2018 quarter . Write-off of loan costs and exit fees were $2.0 million for the  2017 quarter resulting from the write-off of unamortized loan costs of $107,000 and exit fees of $1.9 million associated with the refinancing of three mortgage loans maturing April of 2017. The mortgage loans were refinanced with a $365.0 million mortgage loan due February 2019.
Unrealized Gain (Loss) on Investment in Ashford Inc. Unrealized gain on investment in Ashford Inc. decreased $2.6 million , or 82.9% , to $528,000 in the 2018 quarter . The fair value is based on the closing market price of Ashford Inc. common stock at the end of the period.
Unrealized Gain (Loss) on Derivatives . Unrealized gain on derivatives of  $73,000  for the  2018 quarter  consisted of a $105,000 unrealized gain on CMBX credit default swaps, partially offset by a $27,000 unrealized loss on interest rate floors and a $5,000 unrealized loss on interest rate caps. Unrealized loss on derivatives of $898,000 for the  2017 quarter  consisted of a $759,000 unrealized loss on interest rate floors, $256,000 unrealized loss on interest rate caps, partially offset by a $117,000 unrealized gain on options on futures contracts. The fair value of the interest rate caps and floors are primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of options on futures contracts is primarily based on the last reported settlement price as of the measurement date.
Income Tax (Expense) Benefit . Income tax (expense) benefit changed  $1.1 million , from an income tax benefit of  $478,000 for the  2017 quarter  to income tax expense of  $572,000  for the  2018 quarter . This change was primarily due to an increase in the profitability of our TRSs in the 2018 quarter  compared to the  2017 quarter .
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interest . Our noncontrolling interest partner in consolidated entities was allocated loss of $42,000 and $21,000 for the 2018 quarter and the 2017 quarter , respectively. At both March 31, 2018 and 2017, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net income of $292,000 and net loss $255,000 for the 2018 quarter and the 2017 quarter , respectively. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 11.20% and 13.12% as of March 31, 2018 and 2017 , respectively.
Seasonality
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months and some 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 and cash on hand will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations and cash on hand are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize borrowings to fund distributions required to maintain our REIT status. However, we cannot make any assurances that we will make distributions in the future.
Contractual Obligations and Commitments
There have been no material changes since December 31, 2017 , outside of the ordinary course of business, to contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 10-K.
Off-Balance Sheet Arrangements
In the normal course of business, we may form or invest in partnerships or joint ventures. 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 see note 2 to our condensed consolidated financial statements.
We have no other off-balance sheet arrangements.

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Critical Accounting Policies
Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 10-K. There have been no material changes in these critical accounting policies.
Non-GAAP Financial Measures
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, FFO and AFFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of loan costs, interest income, depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entities and Company’s portion of EBITDA of OpenKey. In addition, we excluded impairment on real estate and Company’s portion of EBITDAre of OpenKey from EBITDA to calculate EBITDAre.
We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and management conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, uninsured hurricane and wildfire related costs, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/loss on investments, unrealized gain/ loss on derivatives and stock/unit-based compensation.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
Beginning with the three months ended March 31, 2018, we have started reporting EBITDA for real estate, or EBITDAre, as defined by NAREIT, and Adjusted EBITDAre. Previously, we reported Adjusted EBITDA. Adjusted EBITDAre is calculated in a similar manner as Adjusted EBITDA, with the exception of the adjustment for the consolidated noncontrolling interest’s pro rata share of Adjusted EBITDA. The rationale for including 100% of EBITDAre for consolidated noncontrolling interests is that the full amount of any debt of these entities is reported in our consolidated balance sheet and therefore metrics using total debt to EBITDAre provide a better understanding of the Company’s leverage. This is also consistent with NAREIT’s definition of EBITDAre. All prior periods have been adjusted to conform to the current period presentation.

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The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) (unaudited):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Net income (loss)
 
$
4,270

 
$
(289
)
Interest income  
 
(200
)
 
(112
)
Interest expense and amortization of loan costs
 
10,179

 
8,202

Depreciation and amortization
 
13,006

 
11,971

Income tax expense (benefit)
 
572

 
(478
)
Equity in (earnings) loss of unconsolidated entity
 
3

 
—

Company’s portion of EBITDA of OpenKey
 
(2
)
 
—

EBITDA
 
27,828

 
19,294

Impairment charges on real estate
 
12

 
—

EBITDAre
 
27,840

 
19,294

Amortization of favorable (unfavorable) contract assets (liabilities)
 
43

 
49

Transaction and management conversion costs
 
503

 
4,328

Other (income) expense
 
63

 
157

Write-off of loan costs and exit fees
 
2

 
1,963

Unrealized (gain) loss on investment in Ashford Inc.
 
(528
)
 
(3,091
)
Unrealized (gain) loss on derivatives
 
(73
)
 
898

Non-cash stock/unit-based compensation
 
2,593

 
(1,668
)
Legal, advisory and settlement costs
 
(1,141
)
 
2,945

Uninsured hurricane and wildfire related costs
 
467

 
—

Adjusted EBITDAre
 
$
29,769

 
$
24,875

 
 
 
 
 

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We calculate FFO and AFFO in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to the Company, computed in accordance with GAAP, excluding gains or losses on sales of hotel properties and extraordinary items as defined by GAAP, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership. 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 AFFO excludes preferred dividends, transaction and management conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, uninsured hurricane and wildfire related costs, other income/expense and non-cash items such as unrealized gain/loss on investments, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey. FFO and AFFO exclude amounts attributable to the portion of a partnership owned by the third party. 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 GAAP net income or loss as an indication of our financial performance or GAAP cash flows from operating activities as a measure of our liquidity. FFO and AFFO are also not 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 our condensed consolidated financial statements.
The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands) (unaudited):
 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss)
$
4,270

 
$
(289
)
(Income) loss from consolidated entities attributable to noncontrolling interest
42

 
21

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(292
)
 
255

Preferred dividends
(1,707
)
 
(1,673
)
Net income (loss) attributable to common stockholders
2,313

 
(1,686
)
Depreciation and amortization on real estate (1)
12,258

 
11,251

Impairment charges on real estate
12

 
—

Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
292

 
(255
)
Equity in (earnings) loss of unconsolidated entity
3

 
—

Company’s portion of FFO of OpenKey
(2
)
 
—

FFO available to common stockholders and OP unitholders
14,876

 
9,310

Preferred dividends
1,707

 
1,673

Transaction and management conversion costs
503

 
4,328

Other (income) expense
63

 
157

Write-off of loan costs and exit fees
2

 
1,963

Unrealized (gain) loss on investments
(528
)
 
(3,091
)
Unrealized (gain) loss on derivatives
(73
)
 
898

Non-cash stock/unit-based compensation
2,593

 
(1,668
)
Legal, advisory and settlement costs
(1,141
)
 
2,945

Uninsured hurricane and wildfire related costs
467

 
—

Adjusted FFO available to the Company and OP unitholders
$
18,469

 
$
16,515

____________________
(1)  
Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for non-controlling interest for each line item:
 
Three Months Ended March 31,
 
2018
 
2017
Depreciation and amortization on real estate
$
(748
)
 
$
(720
)

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Hotel Properties
The following table presents certain information related to our hotel properties:
Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
Fee Simple Properties
 
 
 
 
 
 
 
 
 
 
Hilton
 
Washington, D.C.
 
Full
 
550

 
75
%
 
413

Marriott
 
Seattle, WA
 
Full
 
361

 
100

 
361

Courtyard by Marriott  (1)
 
Philadelphia, PA
 
Select
 
499

 
100

 
499

Courtyard by Marriott  (1)
 
San Francisco, CA
 
Select
 
410

 
100

 
410

Chicago Sofitel Magnificent Mile
 
Chicago, IL
 
Full
 
415

 
100

 
415

Pier House Resort
 
Key West, FL
 
Full
 
142

 
100

 
142

Ritz-Carlton, St. Thomas  (2)
 
St. Thomas, USVI
 
Full
 
180

 
100

 
180

Park Hyatt Beaver Creek
 
Beaver Creek, CO
 
Full
 
190

 
100

 
190

Hotel Yountville
 
Yountville, CA
 
Full
 
80

 
100

 
80

Ground Lease Properties
 
 
 
 
 
 
 
 
 
 
Hilton (3)
 
La Jolla, CA
 
Full
 
394

 
75
%
 
296

Renaissance (4)
 
Tampa, FL
 
Full
 
293

 
100

 
293

Bardessono Hotel (5)
 
Yountville, CA
 
Full
 
62

 
100

 
62

Total
 
 
 
 
 
3,576

 
 
 
3,341

________
(1)  
Announced plans to convert to Autograph Collection. These hotel properties will be full service upon conversion.
(2)  
Due to the impact from hurricanes Irma and Maria the Ritz-Carlton, St. Thomas total rooms count was 83 during the three months ended March 31, 2018. The hotel had 180 total rooms in service prior to the hurricanes.
(3)  
The ground lease expires in 2067.
(4)  
The ground lease expires in 2080.
(5)  
The initial ground lease expires in 2055. The ground lease contains two 25-year extension options, at our election.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates. To the extent that we acquire assets or conduct operations in an international jurisdiction, we will also have currency exchange risk. We may enter into certain hedging arrangements in order to manage interest rate and currency fluctuations. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
At March 31, 2018 , our total indebtedness of $825.5 million included $817.4 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 March 31, 2018 , would be approximately $2.0 million per year. Interest rate changes will have no impact on the remaining $8.1 million 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. The information presented above includes those exposures that existed at March 31, 2018 , but 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.
We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. We have entered into credit default swap transactions with notional amounts totaling  $50.0 million to hedge financial and capital market risk for upfront costs of  $888,000 , of which $257,000 has since been returned to us, and $631,000 remains held as collateral as of March 31, 2018 . 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 estimated total exposure for these trades was approximately $2.3 million  at  March 31, 2018 .

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We hold interest rate floors with notional amounts totaling $6.9 billion and strike rates ranging from -0.25% to 1.50% . Our total exposure is capped at our initial total cost of $3.7 million . These instruments have termination dates ranging from March 2019 to July 2020 .
ITEM 4.
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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2018 (“Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms; and (ii) is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
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.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are engaged in 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 1A.
RISK FACTORS
The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 , filed with the Securities and Exchange Commission, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner. At March 31, 2018 , there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017 .
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
On December 5, 2017, our board of directors reapproved the stock repurchase program pursuant to which the Board granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share having an aggregate value of up to $50 million. The Board’s authorization replaced any previous repurchase authorizations. No  shares were repurchased during the three months ended  March 31, 2018 , pursuant to this authorization.

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The following table provides the information with respect to purchases and forfeitures of our common stock during each of the months in the first quarter of 2018 :
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Plan
 
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plan
Common stock:
 
 
 
 
 
 
 
 
January 1 to January 31
 
924

(1)  
$
10.06

(2)  
—

 
$
50,000,000

February 1 to February 28
 
753

 
$
—

(2)  
—

 
$
50,000,000

March 1 to March 31
 
7,624

 
$
9.81

(2)  
—

 
$
50,000,000

Total
 
9,301

 
$
9.81

 
—

 
 
__________________
(1)  
Includes 42 shares in January that were repurchased from Ashford Trust when former Ashford Trust employees who held restricted shares of Braemar common stock they received in the spin-off, forfeited the shares to Ashford Trust upon termination of employment.
(2)  
There is no cost associated with the forfeiture of 882, 753 and 135 restricted shares of our common stock in January, February and March, respectively.
ITEM 3.
DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
OTHER INFORMATION
None.

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ITEM 6.
EXHIBITS
Exhibit
 
Description
3.1
 
3.2
 
3.3
 
3.4
 
3.5
 
3.6
 
3.7
 
3.8
 
3.9
 
3.10
 
3.11*
 
10.1
 
12*
 
31.1*
 
31.2*
 
32.1*
 
32.2*
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 are formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements Comprehensive Income; (iii) Consolidated Statement of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of 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.

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SIGNATURES
Pursuant to the requirements 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.
BRAEMAR HOTELS & RESORTS INC.
Date:
May 9, 2018
By:
/s/  RICHARD J. STOCKTON
 
 
 
 
Richard J. Stockton
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
Date:
May 9, 2018
By:
/s/  DERIC S. EUBANKS
 
 
 
 
Deric S. Eubanks
 
 
 
 
Chief Financial Officer
 


46
EXHIBIT 3.11

BRAEMAR HOTELS & RESORTS INC .
THIRD AMENDED AND RESTATED BYLAWS
April 23, 2018





BRAEMAR HOTELS & RESORTS INC.
THIRD AMENDED AND RESTATED BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1.      Place . All meetings of stockholders shall be held at the principal executive office of Braemar Hotels & Resorts Inc. (the “Corporation”) or at such other place as shall be set by the Board of Directors (the “Board”) in accordance with these Bylaws and stated in the notice of the meeting.
Section 2.      Annual Meeting . An annual meeting of stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on the date and at the time and place set by the Board of Directors. The Corporation shall hold its first annual meeting of stockholders beginning with the year 2014.
Section 3.      Special Meetings .
(a)     General . Each of the Chairman of the Board, Chief Executive Officer and Board of Directors may call a special meeting of stockholders. Except as provided in subsection (b)(4) of this Section 3, a special meeting of stockholders shall be held on the date and at the time and place set by the Chairman of the Board, Chief Executive Officer or Board of Directors, whoever has called the meeting. Subject to subsection (b) of this Section 3, a special meeting of stockholders shall also be called by the secretary of the Corporation to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting.
(b)     Stockholder-Requested Special Meetings .
(1)    Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the “ Record Date Request Notice ”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “ Request Record Date ”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their agents duly authorized in a writing accompanying the Record Date Request Notice), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder and each matter proposed to be acted on at the meeting that would be required to be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”). Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which a Record Date Request Notice is received by the secretary.
(2)    In order for any stockholder to request a special meeting to act on any matter that may properly be considered at a meeting of stockholders, one or more written requests for a special meeting (collectively, the “ Special Meeting Request ”) signed by stockholders of record (or their agents duly authorized in a writing accompanying the request) as of the Request Record Date entitled





to cast not less than a majority of all of the votes entitled to be cast on such matter at such meeting (the “ Special Meeting Percentage ”) shall be delivered to the secretary. In addition, the Special Meeting Request shall (a) set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to those lawful matters set forth in the Record Date Request Notice received by the secretary), (b) bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, (c) set forth (i) the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed), (ii) the class, series and number of all shares of stock of the Corporation which are owned (beneficially or of record) by each such stockholder and (iii) the nominee holder for, and number of, shares of stock of the Corporation owned beneficially but not of record by such stockholder, (d) be sent to the secretary by registered mail, return receipt requested, and (e) be received by the secretary within 30 days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.
(3)    The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including the Corporation’s proxy materials). The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.
(4)    In the case of any special meeting called by the secretary upon the request of stockholders (a “ Stockholder-Requested Meeting ”), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder-Requested Meeting shall be not more than 90 days after the record date for such meeting (the “ Meeting Record Date ”); and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “ Delivery Date ”), a date and time for a Stockholder-Requested Meeting, then such meeting shall be held at 2:00 p.m., local time, on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation. In fixing a date for a Stockholder‑Requested Meeting, the Board of Directors may consider such factors as it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Directors to call an annual meeting or a special meeting. In the case of any Stockholder-Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Directors may revoke the notice for any Stockholder‑Requested Meeting in the event that the requesting stockholders fail to comply with the provisions of paragraph (3) of this Section 3(b).
(5)    If written revocations of the Special Meeting Request have been delivered to the secretary and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting on the matter to the secretary: (i) if the notice of meeting has not already been delivered, the secretary shall refrain from delivering the notice of the meeting and send to all requesting stockholders who have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary first sends to all requesting stockholders who have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Corporation’s intention to revoke the notice of the meeting or for the chairman of the meeting to adjourn the meeting without action on the matter, (A) the

2



secretary may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chairman of the meeting may call the meeting to order and adjourn the meeting without acting on the matter. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.
(6)    The Chairman of the Board, Chief Executive Officer or Board of Directors may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been received by the secretary until the earlier of (i) five Business Days after actual receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent, as of the Request Record Date, stockholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(7)    For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
Section 4.      Notice . A written notice of all annual meetings of stockholders stating the hour, date and place of such annual meetings and, to the extent required by the Maryland General Corporation Law, the purpose for which the meeting has been called shall be given by the Secretary or an Assistant Secretary (or other person authorized by these Bylaws or by law) not less than 10 days nor more than 90 days before the meeting, unless any provisions of the Maryland General Corporation Law prescribe a different period of notice, to each stockholder entitled to vote at such meeting or to each stockholder who, under the Corporation’s charter, as amended from time to time (the “Charter”) or under these Bylaws, is entitled to such notice, by delivering such notice, by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books, by electronic transmission or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. The Corporation may give a single notice to all stockholders who share an address, which single notice shall be effective as to any stockholder at such address, unless such stockholder objects to receiving such single notice or revokes a prior consent to receiving such single notice. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article I or the validity of any proceedings at any such meeting.
Subject to Section 11(a) of this Article I, any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a public announcement (as defined in Section 11(c)(3) of this Article I) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.
Section 5.      Organization and Conduct . Every meeting of stockholders shall be conducted by the Chairman of the Board or, in the case of a vacancy in the office or absence of the Chairman of the Board, by one of the following officers present at the meeting in the following order: the Vice Chairman of the Board, if there is one, the Chief Executive Officer, the President, the Vice Presidents in their order of rank and seniority, the Secretary, or, in the absence

3



of such officers, a chairman chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The Secretary, or, in the Secretary’s absence, an Assistant Secretary, or, in the absence of both the Secretary and Assistant Secretaries, an individual appointed by the Board of Directors or, in the absence of such appointment, an individual appointed by the chairman of the meeting shall act as secretary. In the event that the Secretary presides at a meeting of stockholders, an Assistant Secretary, or, in the absence of all Assistant Secretaries, an individual appointed by the Board of Directors or the chairman of the meeting, shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chairman and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies and such other individuals as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies and other such individuals as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments; (e) determining when and for how long the polls should be opened and when the polls should be closed; (f) maintaining order and security at the meeting; (g) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (h) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (i) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Section 6.      Quorum . At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter shall constitute a quorum; but this section shall not affect any requirement under any statute or the charter of the Corporation for the vote necessary for the approval of any matter. If such quorum is not established at any meeting of the stockholders, the chairman of the meeting may adjourn the meeting sine die or from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum has been established, may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough stockholders to leave fewer than would be required to establish a quorum.
Section 7.      Voting . Directors of the Corporation shall be elected by a plurality of the votes cast at any meeting of stockholders at which directors are to be elected and at which a quorum is present; provided, however , subject to the stockholders’ approval of the amendment to the Corporation’s charter at the next meeting of the Corporation’s stockholders and the filing and acceptance for record of Articles of Amendment and Restatement implementing such amendment with the Maryland State Department of Assessments and Taxation, effective as of the date on which the Corporation’s stockholders approve the amendment to the Corporation’s charter, a nominee for director shall be elected to the Board of Directors if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election (with “withholds,” “abstentions” and “broker nonvotes” not counted as a vote cast either “for” or “against” that nominee’s election); provided however , that in the case of a contested election, directors shall be elected by a plurality of the votes cast (in which case stockholders shall not be permitted to cast votes against the election of directors). In the election of directors, each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. Cumulative voting is not permitted. For purposes of this Bylaw provision, a “contested election” shall mean any election of directors with respect to which (i) the Corporation receives notice that any stockholder has nominated an individual for election as a director in compliance with the requirements set forth in these Bylaws and (ii) all such nominations have not been withdrawn by such stockholder(s) on or prior to the date the Corporation first mails its notice of meeting for such meeting to the stockholders, and, as a result of which, there are more nominees than directorships.
A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority

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of the votes cast is required by law or by the charter of the Corporation. Unless otherwise provided by statute or by the charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Voting on any question or in any election may be viva voce unless the chairman of the meeting shall order that voting be by ballot or otherwise.
Section 8.      Proxies . A holder of record of shares of stock of the Corporation may cast votes in person or by proxy executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.
Section 9.      Voting of Stock by Certain Holders . Stock of the Corporation registered in the name of a corporation, partnership, trust, limited liability company or other entity, if entitled to be voted, may be voted by the president or a vice president, general partner, trustee or managing member thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or fiduciary may vote stock registered in the name of such person in the capacity of such director or fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt by the Corporation of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification.
Section 10.      Inspectors . The Board of Directors or the chairman of the meeting may appoint, before or at the meeting, one or more inspectors for the meeting and any successor to the inspector. Except as otherwise provided by the chairman of the meeting, the inspectors, if any, shall (i) determine the number of shares of stock represented at the meeting, in person or by proxy, and the validity and effect of proxies, (ii) receive and tabulate all votes, ballots or consents, (iii) report such tabulation to the chairman of the meeting, (iv) hear and determine all challenges and questions arising in connection with the right to vote, and (v) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 11.      Advance Notice of Stockholder Nominees for Director and Other Stockholder Proposals .
(a)     Annual Meetings of Stockholders .
(1)    Nominations of individuals for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors, (iii) by any stockholder of the Corporation who was a stockholder of record both at the time of giving of notice by the stockholder as provided for in this Section 11(a) and at the time

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of the annual meeting, who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and who has complied with this Section 11(a), or (iv) by any Eligible Holder (as defined in Article I, Section 12 below) whose Nominee (as defined in Article I, Section 12 below) is included in the Corporation’s proxy materials for the relevant annual meeting. For the avoidance of doubt, the foregoing clauses (iii) and (iv) shall be the exclusive means for a stockholder to make director nominations, and the foregoing clause (iii) shall be the exclusive means for a stockholder to propose other business (other than a proposal included in the Corporation’s proxy materials pursuant to and in compliance with Exchange Act Rule 14a-8), at an annual meeting of stockholders.
(2)    For any nomination or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 11, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and any such other business must otherwise be a proper matter for action by the stockholders. To be timely, a stockholder’s notice shall set forth all information required under this Section 11 and shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 120th day nor later than 5:00 p.m., Eastern Time, on the 90th day prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article I) for the preceding year’s annual meeting (for purposes of the notice requirement of this paragraph for the Corporation’s 2014 annual meeting, it shall be assumed that notice of the preceding year’s annual meeting was mailed on April 12, 2013); provided, however, that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, in order for notice by the stockholder to be timely, such notice must be so delivered not earlier than the 120th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The postponement or adjournment of an annual meeting, or the public announcement thereof, shall not commence a new time period for the giving of a stockholder’s notice as described above.
(3)    Such stockholder’s notice shall set forth:
(A)    as to each individual whom the stockholder proposes to nominate for election or reelection as a director (each, a “ Proposed Nominee ”), all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act;
(B)    as to any other business that the stockholder proposes to bring before the meeting, a description of such business, the stockholder’s reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the stockholder or the Stockholder Associated Person therefrom;
(C)    as to the stockholder giving the notice, any Proposed Nominee and any Stockholder Associated Person:
(i)    the class, series and number of all shares of stock or other securities of the Corporation or any affiliate thereof (collectively, the “ Company Securities ”), if any, which are owned (beneficially or of record) by such stockholder, Proposed Nominee or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and

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any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person,
(ii)    the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such stockholder, Proposed Nominee or Stockholder Associated Person,
(iii)    whether and the extent to which such stockholder, Proposed Nominee or Stockholder Associated Person, directly or indirectly (through brokers, nominees or otherwise), is subject to or during the last six months has engaged in any hedging, derivative or other transaction or series of transactions or entered into any other agreement, arrangement or understanding (including any short interest, any borrowing or lending of securities or any proxy or voting agreement), the effect or intent of which is to (I) manage risk or benefit from changes in the price of Company Securities for such stockholder, Proposed Nominee or Stockholder Associated Person or (II) increase or decrease the voting power of such stockholder, Proposed Nominee or Stockholder Associated Person in the Corporation or any affiliate thereof disproportionately to such person’s economic interest in the Company Securities, and
(iv)    any substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Corporation), by security holdings or otherwise, of such stockholder, Proposed Nominee or Stockholder Associated Person, in the Corporation or any affiliate thereof, other than an interest arising from the ownership of Company Securities where such stockholder, Proposed Nominee or Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series;
(D)    as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in clauses (ii) or (iii) of this paragraph (3) of this Section 11(a) and any Proposed Nominee:
(i)    the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee and
(ii)    the investment strategy or objective, if any, of such stockholder and each such Stockholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder and each such Stockholder Associated Person;
(E)    the name and address of any person who contacted or was contacted by the stockholder giving the notice or any Stockholder Associated Person about the Proposed Nominee or other business proposal prior to the date of such stockholder’s notice; and
(F)    to the extent known by the stockholder giving the notice, the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.
(4)    Such stockholder’s notice shall, with respect to any Proposed Nominee, be accompanied by a certificate executed by the Proposed Nominee (i) certifying that such Proposed

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Nominee (a) is not, and will not become, a party to any agreement, arrangement or understanding with any person or entity other than the Corporation in connection with service or action as a director that has not been disclosed to the Corporation and (b) will serve as a director of the Corporation if elected; and (ii) attaching a completed Proposed Nominee questionnaire (which questionnaire shall be provided by the Corporation, upon request, to the stockholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder, or would be required pursuant to the rules of any national securities exchange on which any securities of the Corporation are listed or over-the-counter market on which any securities of the Corporation are traded).
(5)    Notwithstanding anything in this subsection (a) of this Section 11 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased, and there is no public announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article I) for the preceding year’s annual meeting, a stockholder’s notice required by this Section 11(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive office of the Corporation not later than 5:00 p.m., Eastern Time, on the tenth day following the day on which such public announcement is first made by the Corporation.
(6)    For purposes of this Section 11, “ Stockholder Associated Person ” of any stockholder shall mean (i) any person acting in concert with such stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder (other than a stockholder that is a depositary) and (iii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such stockholder or such Stockholder Associated Person.
(b)     Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) provided that the special meeting has been called in accordance with Section 3(a) of this Article I for the purpose of electing directors, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 11 and at the time of the special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the notice procedures set forth in this Section 11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more individuals to the Board of Directors, any stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder’s notice, containing the information required by paragraphs (a)(3) and (4) of this Section 11, is delivered to the secretary at the principal executive office of the Corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The public announcement of a postponement or adjournment of a special meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.
(c)     General .
(1)    If information submitted pursuant to this Section 11 by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall be inaccurate in any material respect, such information may be deemed not to have been provided

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in accordance with this Section 11. Any such stockholder shall notify the Corporation of any inaccuracy or change (within two Business Days of becoming aware of such inaccuracy or change) in any such information. Upon written request by the secretary or the Board of Directors, any such stockholder shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 11, and (B) a written update of any information (including, if requested by the Corporation, written confirmation by such stockholder that it continues to intend to bring such nomination or other business proposal before the meeting) submitted by the stockholder pursuant to this Section 11 as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 11.
(2)    Only such individuals who are nominated in accordance with this Section 11 shall be eligible for election by stockholders as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with this Section 11. The chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 11.
(3)    For purposes of this Section 11, “the date of the proxy statement” shall have the same meaning as “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission from time to time. “Public announcement” shall mean disclosure (A) in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or other widely circulated news or wire service or (B) in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to the Exchange Act.
(4)    Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, or the right of the Corporation to omit a proposal from, the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act. Nothing in this Section 11 shall require disclosure of revocable proxies received by the stockholder or Stockholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such stockholder or Stockholder Associated Person under Section 14(a) of the Exchange Act.
Section 12.      Proxy Access for Director Nominations .
(a)     Inclusion of Stockholder Nominee in Proxy Materials . Subject to the provisions of this Section 12, if expressly requested in the relevant Nomination Notice (as defined below), the Corporation shall include in its proxy statement for any annual meeting of stockholders:
(1)    the names of any person or persons nominated for election for whom notice is provided in accordance with this Section 12 (each such nominee, a “ Stockholder Nominee ”), which shall also be included on the Corporation’s form of proxy and ballot, by any Eligible Holder (as defined below) or group of up to 20 Eligible Holders that has (individually and collectively, in the case of a group) satisfied, as determined by the Board of Directors or any committee thereof, all applicable conditions and complied with all applicable procedures set forth in this Section 12 (such Eligible Holder or group of Eligible Holders being a “ Nominating Stockholder ”);

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(2)    disclosure about each Stockholder Nominee and the Nominating Stockholder required under the rules of the United States Securities and Exchange Commission (the “ SEC ”) in the proxy statement;
(3)    any statement included by the Nominating Stockholder in the Nomination Notice for inclusion in the proxy statement in support of each Stockholder Nominee’s election to the Board of Directors (subject, without limitation, to Section 12(e)(2)), if such statement does not exceed 500 words and fully complies with Section 14 of the Exchange Act and the rules and regulations thereunder, including Rule 14a-9 (the “ Supporting Statement ”); and
(4)    nothing in this Section 12 shall limit the Corporation’s ability to solicit against and include in its proxy materials any statement in opposition to the nomination, any of the information provided pursuant to this Section 12 and any solicitation materials or related information with respect to a Stockholder Nominee.
For purposes of this Section 12, any determination to be made by the Board of Directors may be made by the Board of Directors, a committee of the Board of Directors or any officer of the Corporation designated by the Board of Directors or a committee of the Board of Directors, and any such determination shall be final and binding on the Corporation, any Eligible Holder, any Nominating Stockholder, any Stockholder Nominee and any other person so long as made in good faith (without any further requirements). The chairman of any annual meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether a Stockholder Nominee has been nominated in accordance with the requirements of this Section 12 and, if not so nominated, shall direct and declare at the meeting that such Stockholder Nominee shall not be considered.
This Section 12 shall be the exclusive method for stockholders to include nominees for Director election in the Corporation’s proxy materials.
(b)     Maximum Number of Stockholder Nominees .
(1)    The Corporation shall not be required to include in the proxy statement for an annual meeting of stockholders more Stockholder Nominees than that number of directors constituting the greater of (i) two or (ii) 20% of the total number of directors of the Corporation on the last day on which a Nomination Notice may be submitted pursuant to this Section 12 (rounded down to the nearest whole number) (the “ Maximum Number ”). The Maximum Number for a particular annual meeting shall be reduced by: (i) Stockholder Nominees who the Board of Directors itself decides to nominate for election at such annual meeting; (ii) Stockholder Nominees who cease to satisfy, or Stockholder Nominees of Nominating Stockholders that cease to satisfy, the eligibility requirements in this Section 12, as determined by the Board of Directors; (iii) Stockholder Nominees whose nomination is withdrawn by the Nominating Stockholder or who become unwilling to serve on the Board of Directors; and (iv) the number of incumbent directors who had been Stockholder Nominees with respect to any of the preceding two annual meetings of stockholders and whose reelection at the upcoming annual meeting is being recommended by the Board of Directors. In the event that one or more vacancies for any reason occurs on the Board of Directors after the deadline for submitting a Nomination Notice as set forth in Section 12(d) below but before the date of the annual meeting, and the Board of Directors resolves to reduce the size of the board in connection therewith, the Maximum Number shall be calculated based on the number of directors in office as so reduced.
(2)    If the number of Stockholder Nominees pursuant to this Section 12 for any annual meeting of stockholders exceeds the Maximum Number then, promptly upon notice from the Corporation, each Nominating Stockholder will select one Stockholder Nominee for inclusion in the proxy statement until the Maximum Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Nominating Stockholder’s Nomination Notice

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and if the amount of the ownership position is tied, in the order of the date of the Nominating Stockholder’s Nomination Notice (earliest to latest), with the process repeated if the Maximum Number is not reached after each Nominating Stockholder has selected one Stockholder Nominee. If, after the deadline for submitting a Nomination Notice as set forth in Section 12(d), a Nominating Stockholder or a Stockholder Nominee ceases to satisfy the eligibility requirements in this Section 12, as determined by the Board of Directors, a Nominating Stockholder withdraws its nomination or a Stockholder Nominee becomes unwilling to serve on the Board of Directors, whether before or after the mailing or other distribution of the definitive proxy statement, then the nomination shall be disregarded, and the Corporation: (i) shall not be required to include in its proxy statement or on any ballot or form of proxy the disregarded Stockholder Nominee or any successor or replacement nominee proposed by the Nominating Stockholder or by any other Nominating Stockholder and (ii) may otherwise communicate to its stockholders, including without limitation by amending or supplementing its proxy statement or ballot or form of proxy, that a Stockholder Nominee will not be included as a nominee in the proxy statement or on any ballot or form of proxy and will not be voted on at the annual meeting.
(c)     Eligibility of Nominating Stockholder .
(1)    An “ Eligible Holder ” is a person who has either (i) been a record holder of the shares of common stock used to satisfy the eligibility requirements in this Section 12(c) continuously for the three-year period specified in Subsection (2) below or (ii) provides to the Secretary of the Corporation, within the time period referred to in Section 12(d), evidence of continuous ownership (as defined below) of such shares for such three-year period from one or more securities intermediaries in a form that the Board of Directors or any committee thereof determines would be deemed acceptable for purposes of a stockholder proposal under Rule 14a‑8(b)(2) under the Exchange Act (or any successor rule).
(2)    An Eligible Holder or group of up to 20 Eligible Holders may submit a nomination in accordance with this Section 12 only if the person or group (in the aggregate) has continuously owned at least the Minimum Number (as defined below) of shares of the Corporation’s common stock throughout the three-year period preceding and including the date of submission of the Nomination Notice, and continues to own at least the Minimum Number through the date of the annual meeting. Two or more funds that are (x) under common management and investment control, (y) under common management and funded primarily by a single employer or (z) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended, shall be treated as one Eligible Holder if such Eligible Holder shall provide together with the Nomination Notice documentation reasonably satisfactory to the Corporation that demonstrates that the funds meet the criteria set forth in (x), (y) or (z) hereof. For the avoidance of doubt, in the event of a nomination by a group of Eligible Holders, any and all requirements and obligations for an individual Eligible Holder that are set forth in this Section 12, including the minimum holding period, shall apply to each member of such group; provided , however , that the Minimum Number shall apply to the ownership of the group in the aggregate. Should any stockholder cease to satisfy the eligibility requirements in this Section 12, as determined by the Board of Directors, or withdraw from a group of Eligible Holders at any time prior to the annual meeting of stockholders, the group of Eligible Stockholders shall only be deemed to own the shares held by the remaining members of the group.
(3)    The “ Minimum Number ” of shares of the Corporation’s common stock means 3% of the number of outstanding shares of common stock as of the most recent date for which such amount is given in any filing by the Corporation with the SEC prior to the submission of the Nomination Notice.
(4)    For purposes of this Section 12, an Eligible Holder “ owns ” only those outstanding shares of the Corporation as to which the Eligible Holder possesses both:

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(A)    the full voting and investment rights pertaining to the shares; and
(B)    the full economic interest in (including the opportunity for profit and risk of loss on) such shares;
provided that the number of shares calculated in accordance with clauses (A) and (B) shall not include any shares: (1) purchased or sold by such Eligible Holder or any of its affiliates in any transaction that has not been settled or closed, (2) sold short by such Eligible Holder, (3) borrowed by such Eligible Holder or any of its affiliates for any purpose or purchased by such Eligible Holder or any of its affiliates pursuant to an agreement to resell or subject to any other obligation to resell to another person, or (4) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such Eligible Holder or any of its affiliates, whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which instrument or agreement has, or is intended to have, the purpose or effect of: (x) reducing in any manner, to any extent or at any time in the future, such Eligible Holder’s or any of its affiliates’ full right to vote or direct the voting of any such shares, and/or (y) hedging, offsetting, or altering to any degree, gain or loss arising from the full economic ownership of such shares by such Eligible Holder or any of its affiliates.
An Eligible Holder “ owns ” shares held in the name of a nominee or other intermediary so long as the Eligible Holder retains the right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has delegated any voting power by means of a proxy, power of attorney, or other similar instrument or arrangement that is revocable at any time by the Eligible Holder. An Eligible Holder’s ownership of shares shall be deemed to continue during any period in which the Eligible Holder has loaned such shares provided that the Eligible Holder has the power to recall such loaned shares on three business days’ notice, has recalled such loaned shares as of the date of the Nomination Notice and continues to hold such shares through the date of the annual meeting. The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings. Whether outstanding shares of the Corporation are “owned” for these purposes shall be determined by the Board.
(5)    No Eligible Holder shall be permitted to be in more than one group constituting a Nominating Stockholder, and if any Eligible Holder appears as a member of more than one group, it shall be deemed to be a member of the group that has the largest ownership position as reflected in the Nomination Notice.
(d)     Nomination Notice . To nominate a Stockholder Nominee, the Nominating Stockholder must, no earlier than the 120th day and no later than 5:00 p.m., Eastern Time, on the 90th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting, submit to the Secretary of the Corporation at the principal executive office of the Corporation all of the following information and documents (collectively, the “ Nomination Notice ”); provided , however , that in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, the Nomination Notice shall be given in the manner provided herein not earlier than the 120th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 90th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made:
(1)    A Schedule 14N (or any successor form) relating to each Stockholder Nominee, completed and filed with the SEC by the Nominating Stockholder as applicable, in accordance with SEC rules;
(2)    A written notice, in a form deemed satisfactory by the Board of Directors, of the nomination of each Stockholder Nominee that includes the following additional information,

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agreements, representations and warranties by the Nominating Stockholder (including each group member):
(A)    the information required with respect to the nomination of directors pursuant to Section 11 of these Bylaws;
(B)    the details of any relationship that existed within the past three years and that would have been described pursuant to Item 6(e) of Schedule 14N (or any successor item) if it existed on the date of submission of the Schedule 14N;
(C)    a representation and warranty that the Nominating Stockholder acquired the securities of the Corporation in the ordinary course of business and did not acquire, and is not holding, securities of the Corporation for the purpose or with the effect of influencing or changing control of the Corporation;
(D)    a representation and warranty that each Stockholder Nominee’s candidacy or, if elected, Board membership would not violate applicable state or federal law or the rules of any stock exchange on which the Corporation’s securities are traded;
(E)    a representation and warranty that each Stockholder Nominee:
(i)    does not have any direct or indirect relationship with the Corporation that would cause the Stockholder Nominee to be considered not independent pursuant to the Corporation’s policy on director independence contained in the Corporation’s Corporate Governance Guidelines as most recently published on its website and otherwise qualifies as independent under the rules of the New York Stock Exchange;
(ii)    meets the audit committee and compensation committee independence requirements under the rules of the New York Stock Exchange;
(iii)    is a “non-employee director” for the purposes of Rule 16b-3 under the Exchange Act (or any successor rule);
(iv)    is an “outside director” for the purposes of Section 162(m) of the Internal Revenue Code (or any successor provision);
(v)    meets the director qualifications set forth in Article II, Section 4 of these Bylaws; and
(vi)    is not and has not been subject to any event specified in Rule 506(d)(1) of Regulation D (or any successor rule) under the Securities Act of 1933 or Item 401(f) of Regulation S-K (or any successor rule) under the Exchange Act, without reference to whether the event is material to an evaluation of the ability or integrity of such Stockholder Nominee;
(F)    a representation and warranty that the Nominating Stockholder satisfies the eligibility requirements set forth in Section 12(c) and has provided evidence of ownership to the extent required by Section 12(c)(1);
(G)    a representation and warranty that the Nominating Stockholder intends to continue to satisfy the eligibility requirements described in Section 12(c) through the date of the annual meeting and intends to continue to hold the Minimum Number of shares for at least one year following the annual meeting;

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(H)    details of any position of a Stockholder Nominee as an officer or director of any competitor (that is, any entity that produces products or provides services that compete with or are alternatives to the principal products produced or services provided by the Corporation or its affiliates) of the Corporation, within the three years preceding the submission of the Nomination Notice;
(I)    a representation and warranty that the Nominating Stockholder will not engage in a “solicitation” within the meaning of Rule 14a-1(l) (without reference to the exception in Section 14a-(l)(2)(iv)) (or any successor rules) with respect to the annual meeting, other than with respect to a Stockholder Nominee or any nominee of the Board of the Directors;
(J)    a representation and warranty that the Nominating Stockholder will not use any proxy card other than the Corporation’s proxy card in soliciting stockholders in connection with the election of a Stockholder Nominee at the annual meeting;
(K)    if desired, a Supporting Statement; and
(L)    in the case of a nomination by a group, the designation by all group members or one group member that is authorized to act on behalf of all group members with respect to matters relating to the nomination, including withdrawal of the nomination;
(3)    An executed agreement, in a form deemed satisfactory by the Board of Directors or any committee thereof pursuant to which the Nominating Stockholder (including each group member) agrees:
(A)    to comply with all applicable laws, rules and regulations in connection with the nomination, solicitation and election;
(B)    to file any written solicitation or other communication with the Corporation’s stockholders relating to one or more of the Corporation’s directors or director nominees or any Stockholder Nominee with the SEC, regardless of whether any such filing is required under rule or regulation or whether any exemption from filing is available for such materials under any rule or regulation;
(C)    to assume all liability stemming from an action, suit or proceeding concerning any actual or alleged legal or regulatory violation arising out of any communication by the Nominating Stockholder or any of its Stockholder Nominees with the Corporation, its stockholders or any other person in connection with the nomination or election of directors, including, without limitation, the Nomination Notice;
(D)    to indemnify and hold harmless (jointly with all other group members, in the case of a group member) the Corporation and each of its directors, officers and employees individually against any liability, loss, damages, expenses or other costs (including attorneys’ fees) incurred in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of or relating to a failure or alleged failure of the Nominating Stockholder or any of its Stockholder Nominees to comply with, or any breach or alleged breach of, its or their obligations, agreements or representations under this Section 12;
(E)    in the event that any information included in the Nomination Notice, or any other communication by the Nominating Stockholder (including with respect to any group member), with the Corporation, its stockholders or any other person in connection with the nomination or election ceases to be true and accurate in all material respects (or

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omits a material fact necessary to make the statements made not misleading), or that the Nominating Stockholder (including any group member) has failed to continue to satisfy the eligibility requirements described in Section 12(c), to promptly (and in any event within 48 hours of discovering such misstatement, omission or failure) notify the Corporation and any other recipient of such communication of (A) the misstatement or omission in such previously provided information and of the information that is required to correct the misstatement or omission or (B) such failure; and
(4)    An executed agreement, in a form deemed satisfactory by the Board of Directors or any committee thereof or by each Stockholder Nominee:
(A)    to provide to the Corporation such other information and certifications, including completion of the Corporation’s director questionnaire, as it may reasonably request;
(B)    at the reasonable request of the Nominating and Corporate Governance Committee, to meet with the Nominating and Corporate Governance Committee to discuss matters relating to the nomination of such Stockholder Nominee to the Board of Directors, including the information provided by such Stockholder Nominee to the Corporation in connection with his or her nomination and such Stockholder Nominee’s eligibility to serve as a member of the Board of Directors;
(C)    that such Stockholder Nominee has read and agrees, if elected, to serve as a member of the Board of Directors, to adhere to the Corporation’s Corporate Governance Guidelines and Code of Business Conduct and Ethics and any other Corporation policies and guidelines applicable to directors; and
(D)    that such Stockholder Nominee is not and will not become a party to (i) any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity in connection with his or her nomination, service or action as a director of the Corporation that has not been disclosed to the Corporation, (ii) any agreement, arrangement or understanding with any person or entity as to how such Stockholder Nominee would vote or act on any issue or question as a director (a “ Voting Commitment ”) that has not been disclosed to the Corporation or (iii) any Voting Commitment that could limit or interfere with such Stockholder Nominee’s ability to comply, if elected as a director of the Corporation, with its director duties under applicable law.
The information and documents required by this Section 12(d) to be provided by the Nominating Stockholder shall be: (i) provided with respect to and executed by each group member, in the case of information applicable to group members; and (ii) provided with respect to the persons specified in Instruction 1 to Items 6(c) and (d) of Schedule 14N (or any successor item) in the case of a Nominating Stockholder or group member that is an entity. The Nomination Notice shall be deemed submitted on the date on which all the information and documents referred to in this Section 12(d) (other than such information and documents contemplated to be provided after the date the Nomination Notice is provided) have been delivered to or, if sent by mail, received by the Secretary of the Corporation.
(e)     Exceptions .
(1)    Notwithstanding anything to the contrary contained in this Section 12, the Corporation may omit from its proxy statement any Stockholder Nominee and any information concerning such Stockholder Nominee (including a Nominating Stockholder’s Supporting Statement) and no vote on such Stockholder Nominee will occur (notwithstanding that proxies in respect of such vote may have been received by the Corporation), and the Nominating Stockholder may not, after the last day on which a Nomination Notice would be timely, cure in any way any defect preventing the nomination of such Stockholder Nominee, if:

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(A)    the Corporation receives a notice pursuant to Section 11 of these Bylaws that a stockholder intends to nominate a candidate for director at the annual meeting, whether or not such notice is subsequently withdrawn or made the subject of a settlement with the Corporation;
(B)    the Nominating Stockholder or the designated lead group member, as applicable, or any qualified representative thereof, does not appear at the meeting of stockholders to present the nomination submitted pursuant to this Section 12 or the Nominating Stockholder withdraws its nomination or the chairman of the annual meeting declares that such nomination was not made in accordance with the procedures prescribed by this Section 12 and shall therefore be disregarded;
(C)    the Board of Directors determines that such Stockholder Nominee’s nomination or election to the Board of Directors would result in the Corporation violating or failing to be in compliance with the Corporation’s bylaws or charter or any applicable law, rule or regulation to which the Corporation is subject, including any rules or regulations of the New York Stock Exchange;
(D)    such Stockholder Nominee was nominated for election to the Board of Directors pursuant to this Section 12 at one of the Corporation’s two preceding annual meetings of stockholders and either withdrew or became ineligible or received a vote of less than 25% of the votes cast in favor of such Stockholder Nominee’s election;
(E)    such Stockholder Nominee has been, within the past three years, an officer or director of a competitor, as defined for purposes of Section 8 of the Clayton Antitrust Act of 1914, as amended; or
(F)    the Corporation is notified, or the Board of Directors determines, that the Nominating Stockholder or the Stockholder Nominee has failed to continue to satisfy the eligibility requirements described in Section 12(c), any of the representations and warranties made in the Nomination Notice ceases to be true and accurate in all material respects (or omits a material fact necessary to make the statements made not misleading), such Stockholder Nominee becomes unwilling or unable to serve on the Board of Directors or any material violation or breach occurs of the obligations, agreements, representations or warranties of the Nominating Stockholder or such Stockholder Nominee under this Section 12.
(2)    Notwithstanding anything to the contrary contained in this Section 12, the Corporation may omit from its proxy statement, or may supplement or correct, any information, including all or any portion of the Supporting Statement or any other statement in support of a Stockholder Nominee included in the Nomination Notice, if the Board of Directors determines that:
(A)    such information is not true in all material respects or omits a material statement necessary to make the statements made not misleading; or
(B)    the inclusion of such information in the proxy statement would otherwise violate the SEC proxy rules or any other applicable law, rule or regulation.
The Corporation may solicit against, and include in the proxy statement its own statement relating to, any Stockholder Nominee.

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ARTICLE II
DIRECTORS
Section 1.      Powers . All of the powers of the Corporation shall be exercised by or under the direction of the Board of Directors except as otherwise provided by the Charter or required by law.
Section 2.      Number and Terms . The Board of Directors shall establish and may increase or decrease the number of directors of the Corporation, provided , that the number thereof shall never be less than the minimum number permitted under the Maryland General Corporation Law nor more than 15, and further provided , that the tenure of office of a director shall not be affected by any decrease in the number of directors. A majority of the directors shall have been affirmatively determined by the Board to be independent, as defined and to the extent required in the applicable rules of the Securities and Exchange Commission and the listing standards of the New York Stock Exchange. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve for a term of one year and until his successor shall be elected and shall qualify or until his earlier resignation or removal.
Section 3.      Director Nominations . Nomination of candidates for election as directors of the Corporation at any annual or special meeting of stockholders may be made (a) by, or at the direction of, a majority of the Board of Directors or (b) by any stockholder entitled to vote at such annual meeting and has complied with Article 1, Section 11.
Section 4.      Qualification . No Director need be a stockholder of the Corporation. Unless waived by a vote of the Board of Directors, no individual may serve as a director of the Corporation if he has reached the age of 70 years at the time of election. Upon attaining the age of 70, and annually thereafter, a director shall tender a letter of proposed retirement from the Board, effective upon the expiration of such director’s then-current term, and the Board shall determine whether, in light of all the circumstances, the Board should accept such proposed retirement or request that the director continue to serve on the Board of Directors.
Section 5.      Vacancies . Any vacancy occurring on the Board of Directors, including any vacancy created by reason of an increase in the number of directors, shall be filled in the manner provided in Article VII, Section 6 of the Charter.
Section 6.      Resignation . Any Director may resign at any time by giving written notice to the Board of Directors, effective upon execution and delivery to the Corporation of such written notice or upon any future date specified in the notice, unless the resignation otherwise provides.
Section 7.      Regular Meetings . The regular annual meeting of the Board of Directors shall be held, without other notice than this Bylaw, on the same date and at the same place as the annual meeting of stockholders following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine without other notice than such resolution.
Section 8.      Executive Sessions . To ensure free and open discussion and communication among the non‑management directors, the non-management directors shall meet in executive session at least twice a year with no members of management present.
Section 9.      Special Meetings . Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the Directors, the Chairman of the Board, if one is elected, the Lead Director, if one is elected, or the Chief Executive Officer. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.
Section 10.      Notice of Meetings . Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each Director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the Chief Executive Officer or such other officer designated by the Chairman of the Board, if one is elected, or the Chief Executive Officer. Notice

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of any special meeting of the Board of Directors shall be given to each Director in person or by telephone, electronic mail, facsimile transmission or by telegram sent to his business or home address at least 24 hours in advance of the meeting, or by written notice mailed to his business or home address at least 48 hours in advance of the meeting. Such notice shall be deemed to be delivered when hand delivered to such address, when read to such Director by telephone, when deposited in the mail so addressed with postage thereon prepaid, upon transmission of the message by electronic mail, upon completion of transmission of a facsimile message and receipt of a completed answer back indicating receipt or when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is adjourned for more than 30 days, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the hour, date or place of any meeting adjourned for 30 days or less or of the business to be transacted at such meeting, other than an announcement at the meeting at which such adjournment is taken of the hour, date and place to which the meeting is adjourned.
A written waiver of notice executed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to an effective notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting. Except as otherwise required by law, by the Charter or by these Bylaws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
Section 11.      Quorum . At any meeting of the Board of Directors, a majority of the Directors then in office shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 10 of this Article II. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present.
Section 12.      Action at Meeting . At any meeting of the Board of Directors at which a quorum is present and subject to Section 8 of Article VII of the Charter, a majority of the Directors present may take any action on behalf of the Board of Directors, unless otherwise required by law, by the Charter or these Bylaws.
Section 13.      Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing. Such written consent shall be filed with the records of the proceedings of the Board of Directors and shall be treated for all purposes as a vote at a meeting of the Board of Directors.
Section 14.      Manner of Participation . Members of the Board of Directors or of committees elected by the Board pursuant to Section 15 of this Article II may participate in meetings of the Board or of such committees by means of telephone conference or similar communications equipment by means of which all directors participating in the meeting can hear each other at the same time, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these Bylaws.
Section 15.      Committees . The Board of Directors, by the affirmative vote of a majority of the directors then in office may elect from its number directors to serve on one or more committees, including an Audit Committee, a Compensation Committee and an Nominating/Corporate Governance Committee, and may delegate thereto some or all of its powers except those which by law, by the Charter or by these Bylaws, may not be delegated. Except as the Board of Directors may otherwise determine or as required by law, by the Charter or by these Bylaws, any such committee may make rules for conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by the Charter and by these Bylaws for the Board of Directors. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.
The Board of Directors shall have power to rescind any action of any committee, other than the Audit Committee, but no such rescission shall have retroactive effect. With the approval of the Board of Directors, the Chief Executive Officer may appoint such other committees consisting of such directors as the Chief Executive Officer shall

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select. Any recommendations of such committees appointed by the Chief Executive Officer shall be submitted to the Board of Directors.
Section 16.      Compensation of Directors . Directors shall receive compensation for their services as shall be determined by a majority of the Board of Directors, provided that Directors who are serving the Corporation as officers or employees and who receive compensation for their services as such (“ Employee Directors ”) shall not receive any salary or other compensation for their services as Directors of the Corporation; provided, however , that such Employee Directors may be paid their reasonable expenses incurred as a director.
ARTICLE III
OFFICERS
Section 1.      Enumeration . The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary and a Treasurer and such other officers, including without limitation a Chairman of the Board, a Chief Operating Officer, a Chief Legal Officer, a Chief Financial Officer, a Chief Accounting Officer, one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine. Effective on the date on which the Corporation hires a Chief Executive Officer that is not also the Chairman of the Board, any number of offices may be held by the same person, except the offices of Chairman of the Board and the Chief Executive Officer.
Section 2.      Election and Appointment . At the regular annual meeting of the Board of Directors following the annual meeting of stockholders, the Board of Directors shall elect the Chief Executive Officer, the President, the Treasurer and the Secretary. Other officers may be appointed by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting, or other officers may be appointed by the Chief Executive Officer.
Section 3.      Qualification . No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time except the offices of President and Vice President. Any officer may be required by the Board of Directors to give bond, at the Corporation’s expense, for the faithful performance of his duties in such amount and with such sureties as the Board of Directors may determine.
Section 4.      Tenure . Except as otherwise provided by the Charter or by these Bylaws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next annual meeting of stockholders and until his successor is elected and qualified or until his earlier resignation or removal. Election or appointment of an officer, employee or agent shall not of itself create contract rights. The Board of Directors may, however, authorize the Corporation to enter into an employment contract with any officer in accordance with law, but no such contract right shall prohibit the right of the Board of Directors to remove any officer at any time in accordance with Section 6 of this Article III.
Section 5.      Resignation . Any officer may resign by delivering his written resignation to the Corporation addressed to the Chief Executive Officer or the Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
Section 6.      Removal . If the Board of Directors in its judgment finds that the best interests of the Corporation will be served, the Board of Directors may remove any officer by the affirmative vote of a majority of the Directors then in office. Such removal shall be without prejudice to the contract rights, if any, of the person so removed.
Section 7.      Absence or Disability . In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.
Section 8.      Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

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Section 9.      Chief Executive Officer . The President may be the Chief Executive Officer or the Board of Directors may elect another person to be the Chief Executive Officer. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside, when present, at all meetings of the Board of Directors. The Chief Executive Officer shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation’s business and shall preside, if the Chairman of the Board is not present, at all meetings of the stockholders. Effective on the date on which the Corporation hires a Chief Executive Officer that is not also the Chairman of the Board, the Chief Executive Officer shall not concurrently serve as the Chairman of the Board.
Section 10.      Chairman of the Board . The Chairman of the Board shall preside at all meetings of the Board of Directors and at all meetings of stockholders. If the Chairman of the Board is absent, the Chief Executive Officer shall preside at meetings of the Board of Directors and at meetings of stockholders. The Chairman of the Board shall have such other powers and shall perform such other duties as the Board of Directors may from time to time designate and shall act as an officer of the Corporation if so designated by the Board.
Section 11.      President . If the President is not the Chief Executive Officer or Chairman of the Board and in the absence of such persons, the President shall preside, when present, at all meetings of the stockholders. If the President is not the Chief Executive Officer, he shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 12.      Chief Operating Officer, Chief Legal Officer, Chief Financial Officer and Chief Accounting Officer . Any Chief Operating Officer, Chief Legal Officer, Chief Financial Officer or Chief Accounting Officer shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 13.      Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 14.      Treasurer and Assistant Treasurers . The Chief Financial Officer shall be the Treasurer, unless the Board of Directors shall elect another officer to be the Treasurer. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities and valuable documents of the Corporation. He shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of a Chief Financial Officer, the office of the Treasurer shall be deemed to be the office of the Chief Financial Officer of the Corporation whenever the signature of the Chief Financial Officer is required on any document or instrument, by the laws of the United States or any state, or elsewhere in the Bylaws, and the Treasurer shall have authority to affix his signature in such capacity.
The office of the Chief Accounting Officer shall be deemed an Assistant Treasurer of the Corporation whenever the signature of an Assistant Treasurer is required on any document or instrument, by the laws of the United States or any state, or elsewhere in these Bylaws, and the Vice President of Finance and Accounting shall have authority to affix his signature in such capacity. Any Treasurer or Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 15.      Secretary and Assistant Secretaries . The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In the absence of the Secretary from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by the signature of the Secretary or an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive

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Officer. In the absence of the Secretary, any Assistant Secretary may perform the duties and responsibilities of the Secretary.
Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
Section 16.      Other Powers and Duties . Subject to these Bylaws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
STOCK
Section 1.      Certificates of Stock . Unless otherwise provided by the Board of Directors or by law, each stockholder shall be entitled to a certificate of the stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall bear the seal of the Corporation, if one has been adopted, and shall be signed by the Chairman of the Board of Directors, Chief Executive Officer or President and countersigned by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. The seal of the Corporation, if one has been adopted, and any and all signatures on the certificate may be a facsimile, including those of any transfer agent or registrar. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law.
Section 2.      Transfers . Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred only on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.
Section 3.      Record Holders . Except as may otherwise be required by law, by the Charter or by these Bylaws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation or its transfer agent of his post office address and any changes thereto.
Section 4.      Record Date . In order that the Corporation may determine the stockholders entitled to receive notice of or to vote at any meeting of stockholders or any adjournments thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 90 days nor less than 10 days before the date of such meeting, nor more than 90 days prior to any other action. In such case, only stockholders of record on such record date shall be so entitled, notwithstanding any transfer of stock on the stock transfer books of the Corporation after the record date.
If no record date is fixed:

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(a)
the record date for determining stockholders entitled to receive notice of or to vote at a meeting of stockholders shall be the later of (i) the close of business on the day on which notice is mailed or (ii) the 30th day before the meeting; and
(b)
the record date for determining stockholders entitled to receive payment of a dividend or an allotment of any rights shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 5.      Replacement of Certificates . In case of the alleged loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof upon such terms as the Corporation or its transfer agent may prescribe.
Section 6.      Transfer Agents and Registrars . The Corporation may serve as the transfer agent and registrar of the shares of stock, or the Board of Directors may, in its discretion, appoint one or more responsible bank, trust company or other entity as the Board of Directors may deem advisable, from time to time, to act as transfer agent and registrar of shares of stock. No certificate for shares of stock shall be valid until countersigned by the transfer agent and registered by the registrar.
Section 7.      Stockholders’ Addresses . Every stockholder or transferee shall furnish the Secretary or a transfer agent with the address to which notice of meetings and all other notices may be served upon or mailed to such stockholder or transferee, and in default thereof, such stockholder or transferee shall not be entitled to service or mailing of any such notice.
Section 8.      Repurchase of Shares of Stock . The Corporation may purchase its shares of stock and invest its assets in its own shares of stock, provided that in each case the consent of the Board of Directors shall have been obtained.
ARTICLE V
INDEMNIFICATION
Section 1.      Right to Indemnification . The Corporation shall, to the maximum extent permitted by the Maryland General Corporation Law in effect from time to time, indemnify, and, without a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner or trustee and, in each case, shall indemnify such person from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former director or officer of the Corporation or director, officer, partner or trustee of such other entity (each, an “ Indemnitee ”). The Corporation shall, to the maximum extent permitted by the Maryland General Corporation Law in effect from time to time, provide such indemnification and advancement of expenses to a person who served a predecessor of the Corporation in any of the capacities described above (any such person shall also be deemed to be an “ Indemnitee ”).
Section 2.      Indemnification of Employees and Agents of the Corporation . With the approval of the Board of Directors, the Corporation shall, to the maximum extent permitted by the Maryland General Corporation Law in effect from time to time, and to such further extent as it shall deem appropriate under the circumstances, provide such indemnification and advancement of expenses as described in Section 1 above, to any employee or agent of the Corporation or a predecessor of the Corporation (each such person shall also be deemed to be an “ Indemnitee ”).
Section 3.      Right of Indemnitee to Bring Suit . If a claim under this Article V is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If the Indemnitee is successful

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in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall also be entitled to be paid the expense of prosecuting or defending such suit. In any suit brought by an Indemnitee who is a present or former director to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses), it shall be a defense that such Indemnitee has not met the applicable standard of conduct set forth in the Maryland General Corporation Law. In addition, in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Indemnitee who is a present or former director has not met the applicable standard of conduct set forth in the Maryland General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the Maryland General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article V or otherwise shall be on the Corporation.
Section 4.      Non-Exclusivity of Rights . The rights to indemnification and to advancement of expenses conferred in this Article V shall not be exclusive of any other right that any person may have or hereafter acquire under these Bylaws, the Charter or any statute, agreement, vote of stockholders or disinterested directors or otherwise.
Section 5.      Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or any director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Maryland General Corporation Law.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1.      Fiscal Year . The fiscal year of the Corporation shall end on December 31 of each year or on such other date as may be fixed by the Board of Directors.
Section 2.      Seal . The seal of the Corporation shall be in the form of a circle and shall have inscribed thereon the name of the Corporation and the year of its organization. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced.
Section 3.      Investment Policies . The directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as they shall deem appropriate in their sole discretion.
Section 4.      Execution of Instruments . All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the Chief Executive Officer, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors may authorize.
Section 5.      Voting of Securities . Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the Chief Executive Officer, the President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitutions at any meeting of stockholders or stockholders of any other corporation or organization, any of whose securities are held by this Corporation.

23



Section 6.      Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.
Section 7.      Corporate Records . The original or attested copies of the Charter, Bylaws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Maryland and shall be kept at the principal office of the Corporation, at the office of its counsel or at an office of its transfer agent.
Section 8.      Amendments . The exclusive power to alter, amend or repeal these bylaws, and to adopt new bylaws, shall be vested in the Board of Directors.
Section 9.      Offices . The principal office of the Corporation within the State of Maryland shall be located at such place as the Board of Directors may designate. The Corporation may have additional offices, including a principal executive office, at such place or places both within and without the State of Maryland as the Board of Directors may from time to time determine or the business of the Corporation may require.


24

EXHIBIT 12


BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(dollars in thousands)
 
Three Months Ended
 
 Year Ended December 31,
 
March 31, 2018
 
2017
 
2016
 
2015
 
2014
 
2013
 Earnings
 
 
 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before provision for income taxes and noncontrolling interests
$
4,842

 
$
27,802

 
$
25,894

 
$
(4,428
)
 
$
4,635

 
$
(15,585
)
 Amount recorded for equity in (earnings) loss of unconsolidated entity
3

 
—

 
2,587

 
2,927

 
—

 
—

 Add:
 
 
 
 
 
 
 
 
 
 
 
 Interest on indebtedness
9,191

 
34,034

 
37,712

 
35,254

 
37,203

 
32,266

 Amortization of loan costs
988

 
4,903

 
3,169

 
2,575

 
1,828

 
745

 Interest component of operating leases
116

 
442

 
431

 
353

 
264

 
227

 
$
15,140

 
$
67,181

 
$
69,793

 
$
36,681

 
$
43,930

 
$
17,653

 
 
 
 
 
 
 
 
 
 
 
 
 Fixed charges
 
 
 
 
 
 
 
 
 
 
 
 Interest on indebtedness
$
9,191

 
$
34,034

 
$
37,712

 
$
35,254

 
$
37,203

 
$
32,266

 Amortization of loan costs
988

 
4,903

 
3,169

 
2,575

 
1,828

 
745

 Interest component of operating leases
116

 
442

 
431

 
353

 
264

 
227

 
$
10,295

 
$
39,379

 
$
41,312

 
$
38,182

 
$
39,295

 
$
33,238

 Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
 
Series A Preferred Stock
$
—

 
$
—

 
$
—

 
$
1,867

 
$
—

 
$
—

Series B Preferred Stock
1,707

 
6,795

 
3,860

 
119

 
—

 
—

 
$
1,707

 
$
6,795

 
$
3,860

 
$
1,986

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Combined fixed charges and preferred stock dividends
$
12,002

 
$
46,174

 
$
45,172

 
$
40,168

 
$
39,295

 
$
33,238

 
 
 
 
 
 
 
 
 
 
 
 
 Ratio of earnings to fixed charges
1.47

 
1.71

 
1.69

 

 
1.12

 

 
 
 
 
 
 
 
 
 
 
 
 
 Ratio of earnings to combined fixed charges and preferred stock dividends
1.26

 
1.45

 
1.55

 

 
1.12

 

 
 
 
 
 
 
 
 
 
 
 
 
 Deficit (Fixed charges)


 


 


 
$
1,501

 


 
$
15,585

 
 
 
 
 
 
 
 
 
 
 
 
 Deficit (Combined fixed charges and preferred stock dividends)


 


 


 
$
3,487

 


 
$
15,585






EXHIBIT 31.1
CERTIFICATION
I, Richard J. Stockton, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Braemar Hotels & Resorts 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 officer 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 officer 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: May 9, 2018

/s/ RICHARD J. STOCKTON
 
Richard J. Stockton
 
President and Chief Executive Officer
 




EXHIBIT 31.2
CERTIFICATION
I, Deric S. Eubanks, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Braemar Hotels & Resorts 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 officer 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 officer 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: May 9, 2018

/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 Quarterly Report of Braemar Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2018 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Stockton, President and 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: May 9, 2018

/s/  RICHARD J. STOCKTON
 
Richard J. Stockton
 
President and 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 Quarterly Report of Braemar Hotels & Resorts Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2018 , 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: May 9, 2018

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