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
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 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

 
 
 



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.

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 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.

3

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.

4

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
 
 
 
 
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



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
 
 
 
 
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 .

6

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
 
 
 
 
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
 
 
 
 
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.

7

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


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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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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
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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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
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