Braemar Hotels & Resorts Inc. (Form: 10-Q, Received: 11/06/2019 16:23:44)

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 September 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		32,885,863
(Class)		Outstanding at November 4, 2019

BRAEMAR HOTELS & RESORTS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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	38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	60
ITEM 4. CONTROLS AND PROCEDURES	61
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	61
ITEM 1A. RISK FACTORS	61
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	61
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	62
ITEM 4. MINE SAFETY DISCLOSURES	62
ITEM 5. OTHER INFORMATION	62
ITEM 6. EXHIBITS	62
SIGNATURES	64

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)



	September 30, 2019			December 31, 2018
ASSETS
Investments in hotel properties, gross	$	1,768,160		$	1,562,806
Accumulated depreciation	(296,557		)	(262,905		)
Investments in hotel properties, net	1,471,603			1,299,901
Cash and cash equivalents	82,583			182,578
Restricted cash	57,367			75,910
Accounts receivable, net of allowance of $128 and $101, respectively	19,657			12,739
Inventories	2,350			1,862
Prepaid expenses	6,376			4,409
Investment in Ashford Inc., at fair value	4,724			10,114
Investment in unconsolidated entity	1,949			1,766
Derivative assets	773			772
Operating lease right-of-use assets	82,976			—
Other assets	12,257			13,831
Intangible assets, net	5,114			27,678
Due from related party, net	817			—
Due from third-party hotel managers	18,019			4,927
Total assets	$	1,766,565		$	1,636,487
LIABILITIES AND EQUITY
Liabilities:
Indebtedness, net	$	1,057,467		$	985,873
Accounts payable and accrued expenses	97,945			64,116
Dividends and distributions payable	9,502			8,514
Due to Ashford Inc.	4,749			4,001
Due to related party, net	—			224
Due to third-party hotel managers	2,172			1,633
Operating lease liabilities	61,168			—
Other liabilities	29,525			29,033
Total liabilities	1,262,528			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 September 30, 2019 and December 31, 2018	106,123			106,123
Redeemable noncontrolling interests in operating partnership	40,584			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 September 30, 2019 and December 31, 2018	16			16
Common stock, $0.01 par value, 200,000,000 shares authorized, 32,900,422 and 32,511,660 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	329			325
Additional paid-in capital	518,304			512,545
Accumulated deficit	(155,024		)	(115,410		)
Total stockholders’ equity of the Company	363,625			397,476
Noncontrolling interest in consolidated entities	(6,295		)	(5,391		)
Total equity	357,330			392,085
Total liabilities and equity	$	1,766,565		$	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
REVENUE
Rooms	$	76,808		$	74,358		$	228,660		$	218,304
Food and beverage	26,422			21,171			84,326			70,064
Other	15,652			13,317			52,920			44,085
Total hotel revenue	118,882			108,846			365,906			332,453
Other	2			—			7			—
Total revenue	118,884			108,846			365,913			332,453
EXPENSES
Hotel operating expenses:
Rooms	18,265			16,624			52,080			48,194
Food and beverage	20,721			16,171			62,325			49,078
Other expenses	36,201			32,058			111,431			95,490
Management fees	3,960			3,963			12,542			12,081
Total hotel expenses	79,147			68,816			238,378			204,843
Property taxes, insurance and other	7,690			6,835			20,356			18,516
Depreciation and amortization	16,831			14,474			51,991			42,291
Impairment charges	—			—			—			71
Advisory services fee	5,158			5,733			15,579			15,857
Transaction costs	—			—			704			949
Corporate general and administrative	1,575			1,765			3,633			2,999
Total expenses	110,401			97,623			330,641			285,526
Gain (loss) on disposition of assets and sale of hotel property	(1,163		)	—			(1,154		)	15,711
OPERATING INCOME (LOSS)	7,320			11,223			34,118			62,638
Equity in earnings (loss) of unconsolidated entity	(48		)	(81		)	(149		)	(146		)
Interest income	249			540			898			970
Other income (expense)	(114		)	(64		)	(370		)	(190		)
Interest expense and amortization of loan costs	(13,646		)	(13,084		)	(41,894		)	(35,941		)
Write-off of loan costs and exit fees	(335		)	—			(647		)	(4,178		)
Unrealized gain (loss) on investment in Ashford Inc.	(1,471		)	2,158			(5,390		)	(3,338		)
Unrealized gain (loss) on derivatives	(754		)	(578		)	(972		)	(803		)
INCOME (LOSS) BEFORE INCOME TAXES	(8,799		)	114			(14,406		)	19,012
Income tax (expense) benefit	(155		)	(740		)	(1,493		)	(2,514		)
NET INCOME (LOSS)	(8,954		)	(626		)	(15,899		)	16,498
(Income) loss attributable to noncontrolling interest in consolidated entities	(1,899		)	(1,695		)	(1,750		)	(1,742		)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	1,465			452			2,770			(1,075		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	(9,388		)	(1,869		)	(14,879		)	13,681
Preferred dividends	(2,533		)	(1,707		)	(7,597		)	(5,122		)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(11,921	)	$	(3,576	)	$	(22,476	)	$	8,559
INCOME (LOSS) PER SHARE - BASIC:
Net income (loss) attributable to common stockholders	$	(0.37	)	$	(0.12	)	$	(0.71	)	$	0.25
Weighted average common shares outstanding – basic	32,347			32,023			32,259			31,905
INCOME (LOSS) PER SHARE - DILUTED:
Net income (loss) attributable to common stockholders	$	(0.37	)	$	(0.12	)	$	(0.71	)	$	0.25
Weighted average common shares outstanding – diluted	32,347			32,023			32,259			31,922

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
NET INCOME (LOSS)	$	(8,954	)	$	(626	)	$	(15,899	)	$	16,498
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Total other comprehensive income (loss)	—			—			—			—
TOTAL COMPREHENSIVE INCOME (LOSS)	(8,954		)	(626		)	(15,899		)	16,498
Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities	(1,899		)	(1,695		)	(1,750		)	(1,742		)
Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership	1,465			452			2,770			(1,075		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	(9,388	)	$	(1,869	)	$	(14,879	)	$	13,681

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 June 30, 2019	1,600	$	16	32,880		$	329	$	516,700	$	(137,775	)	$	(5,540	)	$	373,730		4,966	$	106,123	$	42,075
Equity-based compensation	—	—		—		—		1,604		—			—			1,604			—	—		755
Issuance of restricted shares/units	—	—		23		—		—		—			—			—			—	—		1
Forfeiture of restricted common shares	—	—		(3	)	—		—		—			—			—			—	—		—
Dividends declared – common stock ($0.16/share)	—	—		—		—		—		(5,339		)	—			(5,339		)	—	—		—
Dividends declared – preferred stock - Series B ($0.3437/share)	—	—		—		—		—		(1,708		)	—			(1,708		)	—	—		—
Dividends declared – preferred stock - Series D ($0.5156/share)	—	—		—		—		—		(825		)	—			(825		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—		—			(2,654		)	(2,654		)	—	—		(771		)
Net income (loss)	—	—		—		—		—		(9,388		)	1,899			(7,489		)	—	—		(1,465		)
Redemption value adjustment	—	—		—		—		—		11			—			11			—	—		(11		)
Balance at September 30, 2019	1,600	$	16	32,900		$	329	$	518,304	$	(155,024	)	$	(6,295	)	$	357,330		4,966	$	106,123	$	40,584

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	—	—		—		—		3,959			—			—			3,959			—	—		1,949
Preferred stock offering costs				—		—		(13		)	—						(13		)	—	—		—
Issuance of restricted shares/units	—	—		260		2		(2		)	—			—			—			—	—		8
Forfeiture of restricted common shares	—	—		(7	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.48/share)	—	—		—		—		—			(16,004		)	—			(16,004		)	—	—		—
Dividends declared – preferred stock - Series B ($1.0312/share)	—	—		—		—		—			(5,122		)	—			(5,122		)	—	—		—
Dividends declared – preferred stock - Series D ($1.5469/share)	—	—		—		—		—			(2,475		)	—			(2,475		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			(2,654		)	(2,654		)	—	—		(2,318		)
Redemption/conversion of operating partnership units	—	—		165		2		2,199			—			—			2,201			—	—		(2,201		)
Net income (loss)	—	—		—		—		—			(14,879		)	1,750			(13,129		)	—	—		(2,770		)
Redemption value adjustment	—	—		—		—		—			(1,031		)	—			(1,031		)	—	—		1,031
Balance at September 30, 2019	1,600	$	16	32,900		$	329	$	518,304		$	(155,024	)	$	(6,295	)	$	357,330		4,966	$	106,123	$	40,584

_______________

⁽¹⁾See note 18.

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 June 30, 2018	—	$	—	32,502		$	325	$	472,945		$	(87,777	)	$	(5,245	)	$	380,248		4,966	$	106,123	$	47,818
Purchase of common stock	—	—		—		—		(1		)	—			—			(1		)	—	—		—
Equity-based compensation	—	—		—		—		1,099			—			—			1,099			—	—		575
Issuance of restricted shares/units	—	—		23		—		—			—			—			—			—	—		—
Forfeiture of restricted common shares	—	—		(1	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.16/share)	—	—		—		—		—			(5,276		)	—			(5,276		)	—	—		—
Dividends declared – preferred stock - Series B ($0.3437/share)	—	—		—		—		—			(1,707		)	—			(1,707		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			(2,115		)	(2,115		)	—	—		(824		)
Net income (loss)	—	—		—		—		—			(1,869		)	1,695			(174		)	—	—		(452		)
Redemption value adjustment	—	—		—		—		—			(2,609		)	—			(2,609		)	—	—		2,609
Balance at September 30, 2018	—	$	—	32,524		$	325	$	474,043		$	(99,238	)	$	(5,665	)	$	369,465		4,966	$	106,123	$	49,726



	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	)	—		(204		)	—			—			(204		)	—	—		—
Equity-based compensation	—	—		—		—		4,402			—			—			4,402			—	—		1,307
Issuance of restricted shares/units	—	—		429		4		54			—			—			58			—	—		18
Forfeiture of restricted common shares	—	—		(6	)	—		—			—			—			—			—	—		—
Dividends declared – common stock ($0.48/share)	—	—		—		—		—			(15,823		)	—			(15,823		)	—	—		—
Dividends declared – preferred stock - Series B ($1.0312/share)	—	—		—		—		—			(5,122		)	—			(5,122		)	—	—		—
Distributions to noncontrolling interests	—	—		—		—		—			—			(2,654		)	(2,654		)	—	—		(2,468		)
Net income (loss)	—	—		—		—		—			13,681			1,742			15,423			—	—		1,075
Redemption value adjustment	—	—		—		—		—			(3,167		)	—			(3,167		)	—	—		3,167
Balance at September 30, 2018	—	$	—	32,524		$	325	$	474,043		$	(99,238	)	$	(5,665	)	$	369,465		4,966	$	106,123	$	49,726

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)



	Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(15,899	)	$	16,498
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization	51,991			42,291
Equity-based compensation	5,908			5,709
Bad debt expense	307			186
Amortization of loan costs	3,248			3,157
Write-off of loan costs and exit fees	647			4,178
Amortization of intangibles	366			143
Amortization of non-refundable membership initiation fees	(117		)	(18		)
Interest expense accretion on refundable membership club deposits	651			376
(Gain) loss on disposition of assets and sale of hotel property	1,154			(15,711		)
Impairment charges	—			71
Unrealized (gain) loss on investment in Ashford Inc.	5,390			3,338
Realized and unrealized (gain) loss on derivatives	1,162			803
Net settlement of trading derivatives	(1,074		)	(688		)
Equity in (earnings) loss of unconsolidated entity	149			146
Deferred income tax expense (benefit)	816			136
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions and dispositions:
Accounts receivable and inventories	(5,886		)	(5,593		)
Prepaid expenses and other assets	(2,672		)	922
Accounts payable and accrued expenses	13,856			(2,609		)
Operating lease right-of-use assets	398			—
Due to/from related party, net	(1,041		)	344
Due to/from third-party hotel managers	(6,378		)	5,578
Due to/from Ashford Inc.	(345		)	1,479
Operating lease liabilities	(144		)	—
Other liabilities	(3,521		)	(7,851		)
Net cash provided by (used in) operating activities	48,966			52,885

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property insurance	—			24,663
Acquisition of hotel properties, net of cash and restricted cash acquired	(111,751		)	(177,874		)
Investment in unconsolidated entity	(332		)	(2,000		)
Net proceeds from disposition of assets and sale of hotel property	10,300			65,336
Improvements and additions to hotel properties	(108,182		)	(51,610		)
Net cash provided by (used in) investing activities	(209,965		)	(141,485		)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on indebtedness	329,500			575,000
Repayments of indebtedness	(257,086		)	(399,804		)
Payments of loan costs and exit fees	(4,447		)	(9,407		)
Payments for derivatives	(89		)	(348		)
Purchase of common stock	(384		)	(204		)
Payments for dividends and distributions	(24,931		)	(22,661		)
Preferred stock offering costs	(110		)	—
Distributions to noncontrolling interest in consolidated entities	—			(538		)
Other	8			18
Net cash provided by (used in) financing activities	42,461			142,056
Net change in cash, cash equivalents and restricted cash	(118,538		)	53,456
Cash, cash equivalents and restricted cash at beginning of period	258,488			185,342
Cash, cash equivalents and restricted cash at end of period	$	139,950		$	238,798

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	38,221		$	31,641
Income taxes paid (refund)	(490		)	1,626
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Dividends and distributions declared but not paid	9,502			8,840
Capital expenditures accrued but not paid	18,815			5,167
Non-cash dividends paid	—			58

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	Nine Months Ended September 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	$	82,583	$	163,825
Restricted cash at end of period	57,367		74,973
Cash, cash equivalents and restricted cash at end of period	$	139,950	$	238,798

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 September 30, 2019, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which was 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 and the Second Amendment thereto dated August 28, 2019, the “Combination Agreement”), which includes Remington Lodging. The transaction closed on November 6, 2019.

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 wholly-owned and majority-owned subsidiaries of Braemar OP that as of September 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 September 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 September 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

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

consolidated financial statements include the accounts of Braemar Hotels & Resorts Inc., its majority-owned subsidiaries, and its majority-owned entities in which it has a controlling interest. All significant intercompany accounts and transactions between consolidated entities have been eliminated in these condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 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 nine months ended September 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.—As of September 30, 2019, we held approximately 195,000 shares of Ashford Inc. common stock, which represented approximately 7.5% of the outstanding common stock in Ashford Inc., with a fair value of $4.7 million. 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. See note 19.

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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 8.6% at September 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 nine months ended September 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, business interruption revenue 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 nine months ended September 30, 2019, the Company recorded revenue from business interruption losses associated with lost profits from hurricanes of $4.0 million and $16.6 million, respectively. For the three and nine months ended September 30, 2018, the Company recorded revenue from business interruption losses associated with lost profits from hurricanes of $3.8 million and $13.9 million, respectively. Additionally, during the three and nine months ended September 30, 2018, the Company recorded revenue of $0 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 nine months ended September 30, 2018, the Company recorded $0 and $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 nine months ended September 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 September 30, 2019
Primary Geographical Market	Number of Hotels	Rooms			Food and Beverage		Other Hotel		Other		Total
California	5	$	32,070		$	9,190	$	4,441	$	—	$	45,701
Colorado	1	3,086			3,615		2,368		—		9,069
Florida	2	8,234			4,124		3,308		—		15,666
Illinois	1	7,501			2,250		466		—		10,217
Pennsylvania	1	6,675			1,474		310		—		8,459
Washington	1	10,361			1,649		382		—		12,392
Washington, D.C.	1	8,889			3,688		378		—		12,955
USVI	1	(8		)	432		3,999		—		4,423
Corporate entities	—	—			—		—		2		2
Total	13	$	76,808		$	26,422	$	15,652	$	2	$	118,884



	Three Months Ended September 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	26,368	$	5,209	$	2,404	$	—	$	33,981
Colorado	1	3,178		3,112		2,438		—		8,728
Florida	2	8,194		4,335		3,420		—		15,949
Illinois	1	8,157		2,280		327		—		10,764
Pennsylvania	1	7,137		1,422		267		—		8,826
Washington	1	11,035		1,799		380		—		13,214
Washington, D.C.	1	8,638		2,729		264		—		11,631
USVI	1	1,651		285		3,817		—		5,753
Total	12	$	74,358	$	21,171	$	13,317	$	—	$	108,846



	Nine Months Ended September 30, 2019
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	5	$	88,533	$	27,311	$	11,893	$	—	$	127,737
Colorado	1	14,059		9,867		7,762		—		31,688
Florida	2	34,674		18,811		12,311		—		65,796
Illinois	1	19,053		5,796		1,168		—		26,017
Pennsylvania	1	18,169		3,187		793		—		22,149
Washington	1	23,378		5,070		1,189		—		29,637
Washington, D.C.	1	29,960		12,679		1,196		—		43,835
USVI	1	834		1,605		16,608		—		19,047
Corporate entities	—	—		—		—		7		7
Total	13	$	228,660	$	84,326	$	52,920	$	7	$	365,913

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



	Nine Months Ended September 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	69,007	$	18,163	$	8,258	$	—	$	95,428
Colorado	1	14,736		9,676		7,712		—		32,124
Florida	2	24,474		12,191		7,343		—		44,008
Illinois	1	19,359		6,100		908		—		26,367
Pennsylvania	1	21,641		4,314		867		—		26,822
Washington	1	25,587		5,164		1,006		—		31,757
Washington, D.C.	1	30,390		10,965		884		—		42,239
USVI	1	4,939		616		13,616		—		19,171
Sold hotel properties	1	8,171		2,875		3,491		—		14,537
Total	13	$	218,304	$	70,064	$	44,085	$	—	$	332,453

4. Investments in Hotel Properties, net

Investments in hotel properties, net consisted of the following (in thousands):



	September 30, 2019		December 31, 2018
Land	$	455,298	$	428,567
Buildings and improvements	1,106,503