Braemar Hotels & Resorts Inc. (Form: 10-Q, Received: 08/06/2019 15:01:18)

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 June 30, 2019



¨	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 every Interactive Data File required to be submitted 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 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	¨	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) of 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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BHR	New York Stock Exchange
Preferred Stock, Series B	BHR-PB	New York Stock Exchange
Preferred Stock, Series D	BHR-PD	New York Stock Exchange

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		32,902,713
(Class)		Outstanding at August 2, 2019

BRAEMAR HOTELS & RESORTS INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	2
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018	4
Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	8
Notes to Condensed Consolidated Financial Statements	10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	58
ITEM 4. CONTROLS AND PROCEDURES	59
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	59
ITEM 1A. RISK FACTORS	59
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	59
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	61
ITEM 4. MINE SAFETY DISCLOSURES	61
ITEM 5. OTHER INFORMATION	61
ITEM 6. EXHIBITS	61
SIGNATURES	62

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)



	June 30, 2019			December 31, 2018
ASSETS
Investments in hotel properties, gross	$	1,748,734		$	1,562,806
Accumulated depreciation	(288,319		)	(262,905		)
Investments in hotel properties, net	1,460,415			1,299,901
Cash and cash equivalents	80,360			182,578
Restricted cash	70,064			75,910
Accounts receivable, net of allowance of $119 and $101, respectively	19,266			12,739
Inventories	2,321			1,862
Prepaid expenses	8,246			4,409
Investment in Ashford Inc., at fair value	6,195			10,114
Investment in unconsolidated entity	1,821			1,766
Derivative assets	911			772
Operating lease right-of-use assets	82,353			—
Other assets	10,847			13,831
Intangible assets, net	5,208			27,678
Due from related party, net	875			—
Due from third-party hotel managers	11,557			4,927
Total assets	$	1,760,439		$	1,636,487
LIABILITIES AND EQUITY
Liabilities:
Indebtedness, net	$	1,047,681		$	985,873
Accounts payable and accrued expenses	85,542			64,116
Dividends and distributions payable	9,334			8,514
Due to Ashford Inc.	4,030			4,001
Due to related party, net	—			224
Due to third-party hotel managers	3,154			1,633
Operating lease liabilities	60,779			—
Other liabilities	27,991			29,033
Total liabilities	1,238,511			1,093,394
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 June 30, 2019 and December 31, 2018	106,123			106,123
Redeemable noncontrolling interests in operating partnership	42,075			44,885
Equity:
Preferred stock, $0.01 value, 50,000,000 shares authorized:
Series D cumulative preferred stock, 1,600,000 shares issued and outstanding at June 30, 2019 and December 31, 2018	16			16
Common stock, $0.01 par value, 200,000,000 shares authorized, 32,879,913 and 32,511,660 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	329			325
Additional paid-in capital	516,700			512,545
Accumulated deficit	(137,775		)	(115,410		)
Total stockholders’ equity of the Company	379,270			397,476
Noncontrolling interest in consolidated entities	(5,540		)	(5,391		)
Total equity	373,730			392,085
Total liabilities and equity	$	1,760,439		$	1,636,487

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
REVENUE
Rooms	$	75,121		$	78,439		$	151,852		$	143,946
Food and beverage	25,790			25,393			57,904			48,893
Other	17,605			17,286			37,268			30,768
Total hotel revenue	118,516			121,118			247,024			223,607
Other	—			—			5			—
Total revenue	118,516			121,118			247,029			223,607
EXPENSES
Hotel operating expenses:
Rooms	16,833			16,652			33,815			31,570
Food and beverage	19,394			17,287			41,604			32,907
Other expenses	36,335			33,768			75,230			63,432
Management fees	4,166			4,501			8,582			8,118
Total hotel expenses	76,728			72,208			159,231			136,027
Property taxes, insurance and other	5,206			6,077			12,666			11,681
Depreciation and amortization	18,474			14,811			35,160			27,817
Impairment charges	—			59			—			71
Advisory services fee	4,397			4,880			10,421			10,124
Transaction costs	70			461			704			949
Corporate general and administrative	932			1,206			2,058			1,234
Total expenses	105,807			99,702			220,240			187,903
Gain (loss) on sale of assets and hotel properties	9			15,711			9			15,711
OPERATING INCOME (LOSS)	12,718			37,127			26,798			51,415
Equity in earnings (loss) of unconsolidated entity	(51		)	(62		)	(101		)	(65		)
Interest income	287			230			649			430
Other income (expense)	(139		)	(63		)	(256		)	(126		)
Interest expense and amortization of loan costs	(14,055		)	(12,678		)	(28,248		)	(22,857		)
Write-off of loan costs and exit fees	—			(4,176		)	(312		)	(4,178		)
Unrealized gain (loss) on investment in Ashford Inc.	(4,626		)	(6,024		)	(3,919		)	(5,496		)
Unrealized gain (loss) on derivatives	654			(298		)	(218		)	(225		)
INCOME (LOSS) BEFORE INCOME TAXES	(5,212		)	14,056			(5,607		)	18,898
Income tax (expense) benefit	(411		)	(1,202		)	(1,338		)	(1,774		)
NET INCOME (LOSS)	(5,623		)	12,854			(6,945		)	17,124
(Income) loss attributable to noncontrolling interest in consolidated entities	248			(89		)	149			(47		)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	865			(1,235		)	1,305			(1,527		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	(4,510		)	11,530			(5,491		)	15,550
Preferred dividends	(2,532		)	(1,708		)	(5,064		)	(3,415		)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(7,042	)	$	9,822		$	(10,555	)	$	12,135
INCOME (LOSS) PER SHARE - BASIC:
Net income (loss) attributable to common stockholders	$	(0.22	)	$	0.30		$	(0.34	)	$	0.37
Weighted average common shares outstanding – basic	32,307			32,006			32,213			31,845
INCOME (LOSS) PER SHARE - DILUTED:
Net income (loss) attributable to common stockholders	$	(0.22	)	$	0.29		$	(0.34	)	$	0.37
Weighted average common shares outstanding – diluted	32,307			38,588			32,213			31,853

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
NET INCOME (LOSS)	$	(5,623	)	$	12,854		$	(6,945	)	$	17,124
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Total other comprehensive income (loss)	—			—			—			—
TOTAL COMPREHENSIVE INCOME (LOSS)	(5,623		)	12,854			(6,945		)	17,124
Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities	248			(89		)	149			(47		)
Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership	865			(1,235		)	1,305			(1,527		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	(4,510	)	$	11,530		$	(5,491	)	$	15,550

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in thousands except per share amounts)



	8.25% Series D Cumulative Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			5.50% Series B Cumulative Convertible Preferred Stock			Redeemable Noncontrolling Interests in Operating Partnership
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			Shares	Amount
Balance at March 31, 2019	1,600	$	16	32,841		$	328	$	514,739		$	(132,575	)	$	(5,292	)	$	377,216		4,966	$	106,123	$	51,010
Purchase of common stock	—	—		(13	)	—		(182		)	—			—			(182		)	—	—		—
Equity-based compensation	—	—		—		—		1,377			—			—			1,377			—	—		644
Forfeiture of restricted common shares	—	—		(3	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.16/share)	—	—		—		—		—			(5,336		)	—			(5,336		)	—	—		—
Dividends declared – preferred stock - Series B ($0.3437/share)	—	—		—		—		—			(1,707		)	—			(1,707		)	—	—		—
Dividends declared – preferred stock - Series D ($0.5156/share)	—	—		—		—		—			(825		)	—			(825		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			—			—			—	—		(769		)
Redemption/conversion of operating partnership units	—	—		55		1		766			—			—			767			—	—		(767		)
Net income (loss)	—	—		—		—		—			(4,510		)	(248		)	(4,758		)	—	—		(865		)
Redemption value adjustment	—	—		—		—		—			7,178			—			7,178			—	—		(7,178		)
Balance at June 30, 2019	1,600	$	16	32,880		$	329	$	516,700		$	(137,775	)	$	(5,540	)	$	373,730		4,966	$	106,123	$	42,075

Table of Contents



	8.25% Series D Cumulative Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			5.50% Series B Cumulative Convertible Preferred Stock			Redeemable Noncontrolling Interests in Operating Partnership
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			Shares	Amount
Balance at December 31, 2018	1,600	$	16	32,512		$	325	$	512,545		$	(115,410	)	$	(5,391	)	$	392,085		4,966	$	106,123	$	44,885
Impact of adoption of new accounting standard ⁽¹⁾	—	—		—		—		—			(103		)	—			(103		)	—	—		—
Purchase of common stock	—	—		(30	)	—		(384		)	—			—			(384		)	—	—		—
Equity-based compensation	—	—		—		—		2,355			—			—			2,355			—	—		1,194
Preferred stock offering costs				—		—		(13		)	—						(13		)	—	—		—
Issuance of restricted shares/units	—	—		237		2		(2		)	—			—			—			—	—		7
Forfeiture of restricted common shares	—	—		(4	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.32/share)	—	—		—		—		—			(10,665		)	—			(10,665		)	—	—		—
Dividends declared – preferred stock - Series B ($0.6875/share)	—	—		—		—		—			(3,414		)	—			(3,414		)	—	—		—
Dividends declared – preferred stock - Series D ($1.0313/share)	—	—		—		—		—			(1,650		)	—			(1,650		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			—			—			—	—		(1,547		)
Redemption/conversion of operating partnership units	—	—		165		2		2,199			—			—			2,201			—	—		(2,201		)
Net income (loss)	—	—		—		—		—			(5,491		)	(149		)	(5,640		)	—	—		(1,305		)
Redemption value adjustment	—	—		—		—		—			(1,042		)	—			(1,042		)	—	—		1,042
Balance at June 30, 2019	1,600	$	16	32,880		$	329	$	516,700		$	(137,775	)	$	(5,540	)	$	373,730		4,966	$	106,123	$	42,075

_______________

⁽¹⁾ see notes 2 and 5 .

Table of Contents



	8.25% Series D Cumulative Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			5.50% Series B Cumulative Convertible Preferred Stock			Redeemable Noncontrolling Interests in Operating Partnership
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			Shares	Amount
Balance at March 31, 2018	—	$	—	32,517		$	325	$	472,220		$	(91,769	)	$	(4,795	)	$	375,981		4,966	$	106,123	$	46,259
Purchase of common stock	—	—		(12	)	—		(129		)	—			—			(129		)	—	—		—
Equity-based compensation	—	—		—		—		854			—			—			854			—	—		588
Forfeiture of restricted common shares	—	—		(3	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.16/share)	—	—		—		—		—			(5,272		)	—			(5,272		)	—	—		—
Dividends declared – preferred stock - Series B ($0.3437/share)	—	—		—		—		—			(1,708		)	—			(1,708		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			(539		)	(539		)	—	—		(822		)
Net income (loss)	—	—		—		—		—			11,530			89			11,619			—	—		1,235
Redemption value adjustment	—	—		—		—		—			(558		)	—			(558		)	—	—		558
Balance at June 30, 2018	—	$	—	32,502		$	325	$	472,945		$	(87,777	)	$	(5,245	)	$	380,248		4,966	$	106,123	$	47,818



	8.25% Series D Cumulative Preferred Stock			Common Stock				Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			5.50% Series B Cumulative Convertible Preferred Stock			Redeemable Noncontrolling Interests in Operating Partnership
	Shares	Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Noncontrolling Interest in Consolidated Entities			Total			Shares	Amount
Balance at January 1, 2018	—	$	—	32,120		$	321	$	469,791		$	(88,807	)	$	(4,753	)	$	376,552		4,966	$	106,123	$	46,627
Purchase of common stock	—	—		(19	)	—		(203		)	—			—			(203		)	—	—		—
Equity-based compensation	—	—		—		—		3,303			—			—			3,303			—	—		732
Issuance of restricted shares/units	—	—		406		4		54			—			—			58			—	—		18
Forfeiture of restricted common shares	—	—		(5	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.32/share)	—	—		—		—		—			(10,547		)	—			(10,547		)	—	—		—
Dividends declared – preferred stock - Series B ($0.6875/share)	—	—		—		—		—			(3,415		)	—			(3,415		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			(539		)	(539		)	—	—		(1,644		)
Net income (loss)	—	—		—		—		—			15,550			47			15,597			—	—		1,527
Redemption value adjustment	—	—		—		—		—			(558		)	—			(558		)	—	—		558
Balance at June 30, 2018	—	$	—	32,502		$	325	$	472,945		$	(87,777	)	$	(5,245	)	$	380,248		4,966	$	106,123	$	47,818

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)



	Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(6,945	)	$	17,124
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization	35,160			27,817
Equity-based compensation	3,549			4,035
Bad debt expense	166			109
Amortization of loan costs	2,201			2,063
Write-off of loan costs and exit fees	312			4,178
Amortization of intangibles	237			92
Amortization of non-refundable membership initiation fees	(67		)	(5		)
Interest expense accretion on refundable membership club deposits	438			150
(Gain) loss on sale of hotel properties	(9		)	(15,711		)
Impairment charges	—			71
Unrealized (gain) loss on investment in Ashford Inc.	3,919			5,496
Realized and unrealized (gain) loss on derivatives	358			225
Net settlement of trading derivatives	(175		)	(290		)
Equity in (earnings) loss of unconsolidated entity	101			65
Deferred income tax expense (benefit)	592			122
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions and dispositions:
Accounts receivable and inventories	(5,325		)	(4,525		)
Prepaid expenses and other assets	(3,147		)	3,249
Accounts payable and accrued expenses	6,336			(3,239		)
Operating lease right-of-use assets	170			—
Due to/from related party, net	(1,099		)	(252		)
Due to/from third-party hotel managers	1,066			2,085
Due to/from Ashford Inc.	(381		)	(603		)
Operating lease liabilities	(86		)	—
Other liabilities	(4,892		)	(3,595		)
Net cash provided by (used in) operating activities	32,479			38,661

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property insurance	—			24,663
Acquisition of hotel properties, net of cash and restricted cash acquired	(111,751		)	(177,875		)
Investment in unconsolidated entity	(156		)	(2,000		)
Net proceeds from sale of assets and hotel properties	1,420			65,336
Improvements and additions to hotel properties	(72,707		)	(32,423		)
Net cash provided by (used in) investing activities	(183,194		)	(122,299		)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on indebtedness	249,000			575,000
Repayments of indebtedness	(187,086		)	(399,312		)
Payments of loan costs and exit fees	(2,440		)	(9,406		)
Payments for derivatives	(62		)	(348		)
Purchase of common stock	(202		)	(203		)
Payments for dividends and distributions	(16,456		)	(15,122		)
Preferred stock offering costs	(110		)	—
Other	7			18
Net cash provided by (used in) financing activities	42,651			150,627
Net change in cash, cash equivalents and restricted cash	(108,064		)	66,989
Cash, cash equivalents and restricted cash at beginning of period	258,488			185,342
Cash, cash equivalents and restricted cash at end of period	$	150,424		$	252,331

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	25,427		$	21,976
Income taxes paid (refund)	(494		)	704
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock purchases accrued but not paid	$	182		$	—
Dividends and distributions declared but not paid	9,334			8,572
Capital expenditures accrued but not paid	16,396			3,658
Non-cash dividends paid	—			58

Table of Contents



	Six Months Ended June 30,
	2019		2018
Non-cash settlement of note receivable	—		8,098
Non-cash settlement of TIF loan	—		8,098
SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents at beginning of period	$	182,578	$	137,522
Restricted cash at beginning of period	75,910		47,820
Cash, cash equivalents and restricted cash at beginning of period	$	258,488	$	185,342

Cash and cash equivalents at end of period	$	80,360	$	169,235
Restricted cash at end of period	70,064		83,096
Cash, cash equivalents and restricted cash at end of period	$	150,424	$	252,331

See Notes to Condensed Consolidated Financial Statements.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Description of Business

Braemar Hotels & Resorts 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 (“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.

We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. As of June 30, 2019 , 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 thirteen hotel properties. Third-party management companies managed the remaining hotel properties. On May 31, 2019, Ashford Inc., the parent company of Ashford LLC, entered into an agreement to acquire the hotel management business of Remington Holdings, L.P. (as amended by the First Amendment thereto dated July 17, 2019, the “Combination Agreement”).

Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. has an ownership interest. These products and services include, but are not limited to project management services, audio visual services, debt placement services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.

The accompanying condensed consolidated financial statements include the accounts of such wholly-owned and majority-owned subsidiaries of Braemar OP that as of June 30, 2019 , own thirteen hotel properties in six states, the District of Columbia and the U.S. Virgin Islands (“USVI”). The portfolio includes eleven 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 3,719 total rooms, or 3,484 net rooms, excluding those attributable to our partner. As a REIT, Braemar is required to comply with limitations imposed by the Internal Revenue Code related to operating hotels. As of June 30, 2019 , twelve of our thirteen 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 USVI, is owned by our USVI 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 June 30, 2019 , ten of the thirteen 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

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 2018 Annual Report on Form 10-K, as originally filed with the Securities and Exchange Commission (“SEC”) on March 8, 2019, as subsequently amended.

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, 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 and six months ended June 30, 2019 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 ;


•	on April 4, 2018, we acquired the Ritz-Carlton, Sarasota. The operating results of the hotel property have been included in the results of operations as of its acquisition date;


•	on June 1, 2018, we sold the Tampa Renaissance; and


•	on January 15, 2019, we acquired the Ritz-Carlton, Lake Tahoe. The operating results of the hotel property have been included in the results of operations as of its acquisition date.

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 (“FF&E”) 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 approximately 7.9% of the outstanding common stock in Ashford Inc., with a fair value of $6.2 million at June 30, 2019 . 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 .

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Investment in Unconsolidated Entity —Investment in unconsolidated entity, in which we have ownership interest of 8.4% at June 30, 2019 , 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) of unconsolidated entity. No such impairment was recorded for the three and six months ended June 30, 2019 and 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 and (ii) 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 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.

Leases —We determine if an arrangement is a lease at commencement date. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on our consolidated balance sheets. We currently do not have any finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. The lease terms used to calculate our right-of-use assets may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Equity-Based Compensation —Prior to the adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, stock/unit-based compensation for non-employees was accounted for at fair value based on the market price of the shares at period end that resulted 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 Long-Term Incentive Plan (“Performance LTIP”) units granted to certain executive officers were accounted for at fair value at period end based on a Monte Carlo simulation valuation model that resulted 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 certain independent directors are recorded at fair value based on the market price of the shares/units 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.

After the adoption of ASU 2018-07 in the third quarter of 2018, stock/unit-based compensation for non-employees is measured at the grant date and expensed ratably over the vesting period based on the original measurement as of the grant date. This results in the recording of expense, included in “advisory services fee,” “management fees” and “corporate general and administrative” expense, equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. PSUs and Performance LTIP units granted to certain executive officers vest based on time and market conditions and are measured at the grant date fair value based on a Monte Carlo simulation valuation model. The subsequent expense is then ratably recognized over the service period as the service is rendered regardless of when, if ever, the market conditions are satisfied. This results in recording expense, included in “advisory services fee,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. Stock/unit grants to certain independent directors are measured at the grant date based on the market price of the shares/units at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.

Recently Adopted Accounting Standards — In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a 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. Under the new standard, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases ("ASU 2018-10") and ASU 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

in the lease, lease term and purchase option. The amendments in ASU 2018-11 provide an optional transition method for adoption of the new standard, which allows entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors (“ASU 2018-20”). The amendments create a lessor practical expedient applicable to sales and other similar taxes incurred in connection with a lease, and simplify lessor accounting for lessor costs paid by the lessee.

We adopted the standard effective January 1, 2019 on a modified retrospective basis and implemented internal controls to enable the preparation of financial information on adoption. We elected the practical expedients which provide us the option to apply the new guidance at its effective date on January 1, 2019 without having to adjust the comparative prior period financial statements. The package of practical expedients also allowed us to carry forward the historical lease classification. Additionally, we elected the practical expedients allowing us not to separate lease and non-lease components and not record leases with an initial term of twelve months or less (“short-term leases”) on the balance sheet across all existing asset classes.

The adoption of this standard has resulted in the recognition of ROU assets and lease liabilities primarily related to our ground lease arrangements for which we are the lessee. As of January 1, 2019, we recorded operating lease liabilities of $60.6 million as well as a corresponding operating lease ROU asset of $82.5 million , which includes, among other things, the reclassified intangible assets of $22.3 million . The standard did not have a material impact on our condensed consolidated statements of operations and statements of cash flows. See related disclosures in note 5 .

Recently Issued Accounting Standards —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. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses ( “ ASU 2018-19”) . ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases . We are currently evaluating the impact that ASU 2016-13 will have on our condensed consolidated financial statements and related disclosures.

3 . Revenue

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, condo management fees, resort and destination fees, health center fees, spas, golf, telecommunications, parking, entertainment and other guest services, as well as rental revenue primarily from leased retail outlets at our hotel properties, and membership initiation fees and dues, primarily from club memberships. Cancellation fees are recognized from non-cancellable deposits when the customer provides notification of cancellation in accordance with established management policy time frames. Non-refundable membership initiation fees are recognized over the expected life of an active membership.

For the three and six months ended June 30, 2019, the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of $6.6 million and $12.6 million , respectively. For the three and six months ended June 30, 2018 , the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of $5.2 million and $10.1 million , respectively. Additionally, during the three and six months ended June 30, 2018, the Company recorded revenue of $190,000 and $1.9 million , respectively, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

For the three and six months ended June 30, 2018, the Company recorded $3.3 million of business interruption income for the Tampa Renaissance related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010. No such revenue was recorded for the three and six months ended June 30, 2019 .

Taxes specifically collected from customers and submitted to taxing authorities are not recorded in revenue. Interest income is recognized when earned.

The following tables present our revenue disaggregated by geographical areas (in thousands):



	Three Months Ended June 30, 2019
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	5	$	26,549	$	7,956	$	3,526	$	—	$	38,031
Colorado	1	1,376		1,416		1,728		—		4,520
Florida	2	11,444		6,591		4,181		—		22,216
Illinois	1	8,229		2,408		406		—		11,043
Pennsylvania	1	7,257		905		254		—		8,416
Washington	1	7,901		1,606		425		—		9,932
Washington, D.C.	1	12,363		4,430		436		—		17,229
USVI	1	2		478		6,649		—		7,129
Total	13	$	75,121	$	25,790	$	17,605	$	—	$	118,516



	Three Months Ended June 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	23,535	$	5,649	$	2,379	$	—	$	31,563
Colorado	1	1,761		1,745		1,731		—		5,237
Florida	2	10,807		7,053		3,172		—		21,032
Illinois	1	7,783		2,569		371		—		10,723
Pennsylvania	1	8,351		1,719		303		—		10,373
Washington	1	9,050		1,701		361		—		11,112
Washington, D.C.	1	12,791		3,896		337		—		17,024
USVI	1	1,472		132		5,253		—		6,857
Sold hotel properties	1	2,889		929		3,379		—		7,197
Total	13	$	78,439	$	25,393	$	17,286	$	—	$	121,118



	Six Months Ended June 30, 2019
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	5	$	56,463	$	18,121	$	7,452	$	—	$	82,036
Colorado	1	10,973		6,252		5,394		—		22,619
Florida	2	26,440		14,687		9,003		—		50,130
Illinois	1	11,552		3,546		702		—		15,800
Pennsylvania	1	11,494		1,713		483		—		13,690
Washington	1	13,017		3,421		807		—		17,245
Washington, D.C.	1	21,071		8,991		818		—		30,880
USVI	1	842		1,173		12,609		—		14,624
Corporate entities	—	—		—		—		5		5
Total	13	$	151,852	$	57,904	$	37,268	$	5	$	247,029

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



	Six Months Ended June 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	42,639	$	12,954	$	5,854	$	—	$	61,447
Colorado	1	11,558		6,564		5,274		—		23,396
Florida	2	16,280		7,856		3,923		—		28,059
Illinois	1	11,202		3,820		581		—		15,603
Pennsylvania	1	14,504		2,892		600		—		17,996
Washington	1	14,552		3,365		626		—		18,543
Washington, D.C.	1	21,752		8,236		620		—		30,608
USVI	1	3,288		331