What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-10 compared with 2021-03-05 · 288 added, 439 removed, 465 unchanged (61% of the section changed)

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national average RevPAR for all hotels as determined by Smith Travel Research.

Two times the U.S.

Two times the

national average was $144 for the year ended December 31, 2021.

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We operate in the direct hotel investment segment of the hotel lodging industry.

As of December 31, 2020, we owned interests in thirteen hotel properties in six states, the District of Columbia and St.

As of December 31, 2021, we owned interests in 14 hotel properties in six states, the District of Columbia and St.

Virgin Islands with 3,875 total rooms, or 3,640 net rooms, excluding those attributable to our joint venture partner.

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urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators.

We own eleven of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity.

We own 12 of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity.

We are advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement.

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instead we employ hotel management companies to operate them for us under management contracts.

As of December 31, 2020, Remington Hotels, a subsidiary of Ashford Inc., managed three of our thirteen hotel properties.

As of December 31, 2021, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 14 hotel properties.

Third-party management companies managed the remaining hotel properties.

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has an ownership interest.

These products and services include, but are not limited to project management services, debt placement and related services, broker-dealer and distribution services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.

Pursuant to the provisions of the Fifth Amended and Restated Advisory Agreement with Ashford LLC, as amended on January 15, 2019, the revenues and expenses used to calculate Net Earnings (as defined) for the twelve months ended December 31, 2020, are as follows (in thousands):

Revenues $ 24,337

Expenses 10,981

Net earnings $ 13,556

COVID-19, Management’s Plans and Liquidity

In December 2019, COVID-19 was identified in Wuhan, China, subsequently spread to other regions of the world, and has resulted in significant travel restrictions and extended shutdown of numerous businesses in every state in the United States.

These products and services include, but are not limited to design and construction services, debt placement and related services, broker-dealer and distribution services, audio visual services, real estate advisory services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.

In March 2020, the World Health Organization declared COVID-19 to be a global pandemic.

Beginning in late February 2020, we have experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations.

The prolonged presence of the virus has resulted

in health and other government authorities imposing widespread restrictions on travel and other businesses.

The hotel industry and our portfolio have experienced the postponement or cancellation of a significant number of business conferences and similar events.

Following the government mandates and health official orders in March 2020, the Company temporarily suspended operations at 11 of its 13 hotels and dramatically reduced staffing and expenses at its hotels that remained operational.

COVID-19 has had a significant negative impact on the Company’s operations and financial results to date.

The full financial impact of the reduction in hotel demand caused by the pandemic and suspension of operations at the Company’s hotels cannot be reasonably estimated at this time due to uncertainty as to its severity and duration.

In addition, one or more possible recurrences of COVID-19 cases could result in further reductions in business and personal travel and could cause state and local governments to reinstate travel restrictions.

The Company expects that the COVID-19 pandemic will continue to have a negative impact on the Company’s results of operations, financial position and cash flow in 2021 and potentially much longer.

As a result, in March 2020, the Company fully drew down its $75 million secured revolving credit facility, which was later converted into a term loan, suspended the quarterly cash dividend on its common stock, reduced planned capital expenditures, and, working closely with its hotel managers, significantly reduced its hotels’ operating expenses.

See note 7 to our consolidated financial statements.

All of the Company’s property-level debt is non-recourse.

Beginning on April 1, 2020, we did not make at least one interest payment under nearly all of our loan agreements, which constituted an “Event of Default” as such term is defined under the applicable loan documents.

Further, the Company triggered an “Event of Default,” as defined under the secured revolving credit facility agreement as a result of the Company being in default on mortgage and mezzanine loans with an aggregate principal amount in excess of $200 million.

Pursuant to the terms of the applicable loan documents, such an Event of Default caused an automatic increase in the interest rate on our outstanding loan balance for the period such Event of Default remains outstanding.

Following an Event of Default, our lenders can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable loan agreement and foreclose on the applicable hotel properties that are security for such loans.

Such Event of Default under the senior revolving credit facility agreement was eliminated by the First Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020, which provides that defaults under mortgage and mezzanine loans wi th an aggregate principal amount in excess of $200 million do not trigger a default under the senior revolving credit agreement unless such mortgage or mezzanine loans are also accelerated, and excluding from the $200 million threshold, any default and acceleration under those certain mortgage and mezzanine loans having an aggregate principal amount of $435 million and secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy.

During the second and third quarter of 2020, we reached forbearance and other agreements with our lenders relating to loans secured by the Pier House Resort & Spa, The Ritz-Carlton Sarasota, The Ritz-Carlton Lake Tahoe, Hotel Yountville, Bardessono Hotel and Spa, Sofitel Chicago Magnificent Mile, The Notary Hotel, The Clancy, Marriott Seattle Waterfront, Capital Hilton and Hilton La Jolla Torrey Pines.

On June 8, 2020, the Company amended its secured revolving credit facility converting it into a $65 million secured term loan and changed the terms of certain financial covenants, including a waiver of the Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) through March 31, 2021, that the Company was subject to under the secured revolving credit facility.

On February 22, 2021, the Company further amended the term loan providing an extension of the waiver on the majority of the covenants through the fourth quarter of 2021 and a reduced fixed charge coverage ratio covenant through the end of 2022.

The first period in which covenants will be tested is for the fiscal quarter ending March 31, 2022.

As of December 31, 2020, no loans are in default.

Additionally, the Company did not make rental payments under two ground leases that are paid monthly;

however, the Company executed a forbearance agreement with the landlord of the Bardessono Hotel and Spa and executed a rent deferral letter (consistent with the terms of Ordinance Number O-21177, passed by the Council of the City of San Diego on March 25, 2020) with the landlord of the Hilton La Jolla Torrey Pines, each of which temporarily resolved any potential events of default arising out of such non-payments.

As of December 31, 2020, the Company is current on its rental payments.

In addition, the Company has taken proactive and aggressive actions to protect liquidity and reduce corporate expenses.

The Company has also significantly reduced its planned spending for capital expenditures for fiscal year 2021 to approximately $20 million to $24 million and suspended its common stock dividends conserving approximately $6 million per quarter.

When preparing financial statements for each annual and interim reporting period management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that create substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

In applying the accounting guidance, the Company considers its current financial condition and liquidity sources, including current funds available, forecasted future cash flows and its unconditional obligations due over the next 12 months.

Beginning in late February 2020, we experienced a significant decline in occupancy and RevPAR associated with COVID-19 as we experienced significant reservation cancellations as well as a significant reduction in new reservations.

The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses.

As of December 31, 2021, the Company maintained unrestricted cash of $216.0 million and restricted cash of $47.4 million.

During the three months ended December 31, 2020, we utilized cash, cash equivalents and restricted cash of $9.7 million.

vast majority of the restricted cash is comprised of lender and manager held reserves.

The Company worked with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls.

At the end of the quarter, there was also $12.3 million due to the Company from third-party hotel managers, which is primarily the Company’s cash held by one of its property managers which is also available to fund hotel operating costs.

We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic subside, whether our hotels will be forced to shut down operations or whether one or more governmental entities may impose additional travel restrictions due to a resurgence of COVID-19 cases in the future.

As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty.

However, based on our completed credit facility loan amendment and forbearance and other agreements, our current unrestricted and restricted cash on hand, our current cash utilization and forecast of future operating results for the next 12 months from the date of this report, and the actions we have taken to improve our liquidity, the Company has concluded that management’s current plan alleviates the substantial doubt about its ability to continue as a going concern.

The vast majority of the restricted cash comprises lender and manager held reserves.

At the end of the year, there was also $27.5 million due to the Company from third-party hotel managers, which is primarily the Company’s cash held by one of its property managers which is also available to fund hotel operating costs.

For the year ended December 31, 2021, cash flows provided by operating activities were approximately $64.0 million.

On March 4, 2022, our board of directors declared a quarterly cash dividend of $0.01 per diluted share for the Company’s common stock for the first quarter of 2022.

Additionally, in March 2022, the board of directors approved an update to our previously announced dividend policy for 2022 to revise our then-expectation to pay a quarterly dividend of $0.01 per share of common stock during 2022.

The approval of our dividend policy does not commit our board of directors to declare future dividends with respect to any quantity or the amount thereof.

We cannot predict when hotel operating levels will return to normalized levels after the effects of the pandemic fully subside, whether our hotels will be forced to shut down operations or whether one or more possible recurrences of COVID-19 case surges could result in further reductions in business and personal travel or potentially cause state and local governments to reinstate travel restrictions.

Facts and circumstances could change in the future that are outside of management’s control, such as additional government mandates, health official orders, travel restrictions and extended business shutdowns due to COVID-19.

2020 and Recent Developments

Pursuant to the terms of the Letter Agreement dated March 13, 2020 (the “Hotel Management Letter Agreement”), in order to allow Remington Hotels to better manage its corporate working capital and to ensure the continued efficient operation of our hotels, we agreed to pay the base fee and to reimburse all expenses on a weekly basis for the preceding week, rather than on a monthly basis.

The Hotel Management Letter Agreement went into effect on March 13, 2020 and will continue until terminated by us.

On March 20, 2020, the Company entered into an agreement with Lismore Capital II LLC (“Lismore”), a subsidiary of Ashford Inc., to engage Lismore to seek modifications, forbearances or refinancings of the Company’s loans (the “Lismore Agreement”).

Pursuant to the Lismore Agreement, Lismore shall, during the agreement term, (which commenced on March 20, 2020 and shall end on the date that is 12 months following the commencement date, or upon it being terminated by the Company on not less than 30 days’ written notice) negotiate the refinancing, modification or forbearance of the existing mortgage and mezzanine debt on the Company’s hotels and secured revolving credit facility.

In connection with the services provided by Lismore, Lismore shall be paid an advisory fee (the “Advisory Fee”) of up to 50 basis points (0.50%) of the aggregate amount of the modifications, forbearances or refinancings of the Company’s mortgage and mezzanine debt and its secured revolving credit facility (the “Financing”), calculated and payable as follows:

(i) 12.5 basis points (0.125%) of the aggregate amount of potential Financings upon execution of the Lismore Agreement;

(ii) 12.5 basis points (0.125%) payable in six equal installments beginning April 20, 2020 and ending on September 20, 2020;

provided, however, in the event the Company does not complete, for any reason, Financings during the term of the Lismore Agreement equal to or greater than $1,091,250,000, then the Company shall offset, against any fees owed by the Company or its affiliates pursuant to the Advisory Agreement, a portion of the fee paid by the Company to Lismore equal to the product of (x) the amount of Financings completed during the term of the Lismore Agreement minus $1,091,250,000 multiplied by (y) 0.125%;

and (iii) 25 basis points (0.25%) payable upon the acceptance by the applicable lender of any Financing.

Upon entering into the agreement with Lismore, the Company made a payment of $1.4 million.

No amount of this payment can be clawed back.

As of December 31, 2020, the Company has also paid $1.4 million related to periodic installments of which $683,000 has been expensed in accordance with the agreement and $681,000 may be offset against future fees under the agreement that are eligible for claw back under the agreement.

Further, the Company has paid $1.4 million in success fees under the agreement in connection with each signed forbearance or other agreement, of which no amounts are available for claw back.

As of December 31, 2020, the Company has paid Lismore approximately $4.1 million and held a deposit of $1.0 million, included in “other assets.” For the year ended December 31, 2020, the Company has recognized expense of $3.1 million which is included in “write-off of loan costs and exit fees.”

In April 2020, certain subsidiaries of the Company applied for and received loans from Key Bank, N.A.

under the PPP, which was established under the CARES Act.

All funds borrowed under the PPP were returned on or before May 7, 2020.

On June 8, 2020, the Company entered into an Amendment that converted its $75 million secured revolving credit facility into a $65 million secured term loan.

The Company had borrowed the full borrowing capacity of $75 million under the Credit Facility and repaid $10 million on June 8, 2020, in connection with the signing of the Amendment.

Pursuant to the terms of the Amendment, borrowings will bear interest at a rate of LIBOR plus 3.50% or Base Rate plus 2.50% until June 30, 2021.

After such date, the pricing will revert to the original terms of the Credit Facility.

The Amendment also added principal amortization

of $5 million per quarter commencing on March 31, 2021.

The Amendment changes the terms of certain financial covenants that the Company was subject to under the Credit Facility.

The Amendment has the same maturity date of October 25, 2022 but removes the two one-year extension options and also removes the Company’s ability to reborrow amounts that have been repaid.

On July 28, 2020, the board of directors of the Company appointed Richard J.

Stockton, the President and Chief Executive Officer of the Company, as a member of the board of directors, effective immediately, to serve a term ending on the date of the Company’s 2021 Annual Meeting of Stockholders.

On March 16, 2020, the Company announced that in light of the uncertainty created by the effects of COVID-19, the annual cash retainer for each independent director serving on the Company’s board of directors would be temporarily reduced by 25% and would continue in effect until the board of directors determined in its discretion that the effects of COVID-19 had subsided.

The Company also disclosed at that time that any amounts relinquished pursuant to the reduction in fees may be paid in the future, as determined by the board of directors in its discretion.

On August 6, 2020, the Company announced that for fiscal year 2020, the independent directors will receive the full value of their annual cash retainer (without reduction).

The full value of such cash retainer will be paid 25% in either fully vested shares of common stock or LTIP units (at each director’s election) and 75% in cash;

however, each independent director may also elect to take all or any portion of such 75% in either fully vested shares of common stock or LTIP units.

The remaining quarterly installments of such retainer will be adjusted so that, for fiscal 2020 in the aggregate, each independent director will have received the full value of the annual cash retainer in the mix of cash and fully vested common stock (or LTIP units) so elected.

This arrangement does not apply to any additional cash retainers for committee service or service as lead director, or meeting fees, which will continue to be paid in cash.

The board of directors currently intends to continue this arrangement through the Company’s 2021 Annual Meeting of Stockholders, at which time the board of directors currently intends to re-examine the program.

On August 25, 2020, in light of the fact that Lismore negotiated access to the FF&E reserves but no forbearance on debt service for the $435 million mortgage loan secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy, the independent members of the board of directors of Ashford Inc.

waived $1.6 million of Lismore success fees.

On December 31, 2020, Ashford Inc., Ashford Trust and Braemar entered into an Amended and Restated Contribution Agreement pursuant to which Braemar had initially agreed to contribute, with Ashford Hospitality Trust, Inc.

(“Ashford Trust”), up to $15.0 million, based on an allocation percentage of 75% to Ashford Trust and 25% Braemar to fund the operations of Ashford Securities.

The initial true-up date did not occur, and beginning on the effective date of the Amended and Restated Contribution Agreement, costs will be allocated based upon an allocation percentage of 50% to Ashford Inc., 50% to Braemar and 0% to Ashford Trust.

Upon reaching the earlier of $400 million in aggregate non-listed preferred equity offerings raised, or June 10, 2023, there will be an Amended and Restated true up (the “Amended and Restated True-up Date”) among Ashford Inc., Ashford Trust and Braemar whereby the actual expense reimbursement paid by each company will be based on the actual amount of capital raised by Ashford Inc., Ashford Trust and Braemar, respectively.

After the Amended and Restated True-Up Date, the expense reimbursements will be allocated among Ashford Inc., Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities.

Additionally, Braemar’s aggregate Capital Contributions under the Initial Contribution Agreement and the Amended and Restated Contribution Agreement shall not exceed $3.75 million unless otherwise agreed to in writing by Braemar.

On February 4, 2021, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN, Ltd.

(“YA”), pursuant to which the Company will be able to sell up to 7,780,786 shares of its common stock (the “Commitment Amount”) at the Company’s request any time during the commitment period commencing on February 4, 2021, and terminating on the earliest of (i) the first day of the month next following the 36-month anniversary of the SEDA or (ii) the date on which YA shall have made payment of Advances (as defined in the SEDA) pursuant to the SEDA for shares of the Company’s common stock equal to the Commitment Amount (the “Commitment Period”).

Other than with respect to the Initial Advance (as defined below) the shares sold to YA pursuant to the SEDA would be purchased at 95% of the Market Price (as defined below) and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock.

“Market Price” shall mean the lowest daily VWAP (as defined below) of the Company’s common stock during the 5 consecutive trading days commencing on the trading day following the date the Company submits an advance notice to YA.

“VWAP” means, for any trading day, the daily volume weighted average price of the Company’s common stock for such date on the principal market as reported by Bloomberg L.P.

during regular trading hours.

At any time during the Commitment Period the Company may require YA to purchase shares of the Company’s common stock by delivering a written notice to YA setting forth the Advance Shares (as defined in the SEDA) that the Company desires

to issue and sell to YA (the “Advance Notice”).

The Company may deliver an Advance Notice for an initial Advance for up to 1,200,000 Advance Shares (the “Initial Advance”).

The preliminary purchase price per share for such shares shall be 100% of the average daily VWAP for the 5 consecutive trading days immediately prior to the date of the Advance Notice (the “Preliminary Purchase Price”).

Pursuant to the SEDA, we currently intend to use the net proceeds from any sale of the shares for working capital purposes, including the repayment of outstanding debt.

There are no other restrictions on future financing transactions.

The SEDA does not contain any right of first refusal, participation rights, penalties or liquidated damages.

We are not required to pay any additional amounts to reimburse or otherwise compensate YA in connection with the transaction except for a $10,000 structuring fee.

As of March 3, 2021, the Company has sold approximately 1.2 million shares of common stock and received proceeds of approximately $6.4 million under the SEDA.

On February 22, 2021, the Company entered into the Second Amendment to Second Amended and Restated Credit Agreement on its term loan.

The amendment provides an extension of the waiver on the majority of the covenants through the fourth quarter of 2021 and a reduced fixed charge coverage ratio covenant through the end of 2022.

The first period in which covenants will be tested is for the fiscal quarter ending March 31, 2022.

The amendment also allows the Company to utilize approximately $9.3 million of cash held in FF&E reserve accounts at certain properties for discretionary capital expenditures.

Recent Developments

In December 2021, the Company made an additional investment of approximately $116,000 in OpenKey.

On December 27, 2021, the Company entered into a definitive agreement to acquire the 96-room Dorado Beach, a Ritz-Carlton Reserve in Dorado, Puerto Rico.

In addition, the Company is also acquiring the income stream attributable to 14 residential units adjacent to the property that participate in a rental management program.

The acquisition is expected to close on or about March 11, 2022, subject to certain customary closing conditions.

The consideration consists of $104 million in cash and 6.0 million shares of Braemar common stock.

The Company will also assume a mortgage loan with a principal balance of approximately $54 million.

On February 2, 2022, the Company refinanced its mortgage loan secured by the Park Hyatt Beaver Creek Resort & Spa, which had a final maturity date in April 2022.

The new, non-recourse mortgage loan totals $70.5 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions.

The mortgage loan is interest only and provides for a floating interest rate of SOFR + 2.86%

Key Indicators of Operating Performance

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Short-term supply is also expected to be below long-term averages.

While the industry is expected to have supply growth below historical averages, we may experience supply growth, in certain markets, in excess of national averages that may negatively impact performance.

While the industry is

expected to have supply growth below historical averages, we may experience supply growth, in certain markets, in excess of national averages that may negatively impact performance.

Beginning in 2020, the COVID-19 pandemic had a direct impact on supply.

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Specifically, our revenue is comprised of:

• Rooms revenue—Occupancy and ADR are the major drivers of rooms revenue.

• Rooms revenue:

Occupancy and ADR are the major drivers of rooms revenue.

Rooms revenue accounts for the substantial majority of our total revenue.

• Food and beverage revenue—Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel’s food and beverage outlets or meeting and banquet facilities).

• Other hotel revenue—Occupancy and the nature of the property are the main drivers of other ancillary revenue, such as telecommunications, parking and leasing services.

• Food and beverage revenue:

Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel’s food and beverage outlets or meeting and banquet facilities).

• Other hotel revenue:

Occupancy and the nature of the property are the main drivers of other ancillary revenue, such as telecommunications, parking and leasing services.

Hotel Operating Expenses.

The following presents the components of our hotel operating expenses:

• Rooms expense—These costs include housekeeping wages and payroll taxes, reservation systems, room supplies, laundry services and front desk costs.

• Rooms expense:

These costs include housekeeping wages and payroll taxes, reservation systems, room supplies, laundry services and front desk costs.

Like rooms revenue, occupancy is the major driver of rooms expense and, therefore, rooms expense has a significant correlation to rooms revenue.

These costs can increase based on increases in salaries and wages, as well as the level of service and amenities that are provided.

• Food and beverage expense—These expenses primarily include food, beverage and labor costs.

• Food and beverage expense:

These expenses primarily include food, beverage and labor costs.

Occupancy and the type of customer staying at the hotel (i.e., catered functions generally are more profitable than restaurant, bar or other on-property food and beverage outlets) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.

• Management fees—Base management fees are computed as a percentage of gross revenue.

• Management fees:

Base management fees are computed as a percentage of gross revenue.

Incentive management fees generally are paid when operating profits exceed certain threshold levels.

• Other hotel expenses—These expenses include labor and other costs associated with the other operating department revenues, as well as labor and other costs associated with administrative departments, franchise fees, sales and marketing, repairs and maintenance and utility costs.

• Other hotel expenses:

These expenses include labor and other costs associated with the other operating department revenues, as well as labor and other costs associated with administrative departments, franchise fees, sales and marketing, repairs and maintenance and utility costs.

Most categories of variable operating expenses, including labor costs such as housekeeping, fluctuate with changes in occupancy.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table summarizes changes in key line items from our consolidated statements of operations for the year ended December 31, 2020 and 2019 (in thousands except percentages):

The following table summarizes changes in key line items from our consolidated statements of operations for the years ended December 31, 2021 and 2020 (in thousands except percentages):

Year Ended December 31, Favorable (Unfavorable)

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Total hotel revenue 427,542 226,974 200,568 88.4

Other — 7 (7) (100.0)

Total revenue 226,974 487,614 (260,640) (53.5)

Hotel operating expenses:

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Depreciation and amortization 73,762 73,371 (391) (0.5)

Gain on legal settlement (917) — 917

Advisory services fee 22,641 18,486 (4,155) (22.5)

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Other income (expense) — (5,126) 5,126 100.0

Interest expense and amortization of loan costs (45,104) (54,507) 9,403 17.3

Interest expense and amortization of discounts and loan costs (30,901) (45,104) 14,203 31.5

Write-off of loan costs and exit fees (1,963) (3,920) 1,957 49.9

Unrealized gain (loss) on investment in Ashford Inc.

— 7,872 (7,872) (100.0)

Unrealized gain (loss) on derivatives 32 4,959 (4,927) (99.4)

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Net income (loss) attributable to the Company $ (26,664) $ (105,262) $ 78,598 74.7 %

All hotel properties owned for the year ended December 31, 2020 and 2019 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the year ended December 31, 2020 and 2019.

The hotel property listed below is not a comparable hotel property for the periods indicated and all other hotel properties are considered comparable hotel properties.

The following acquisition affects reporting comparability related to our consolidated financial statements:

Hotel Property Location Type Date

The Ritz-Carlton Lake Tahoe (1)

Truckee, CA Acquisition January 15, 2019

(1) The operating results of this hotel property has been included in our results of operations as of its acquisition date.

All hotel properties owned for the years ended December 31, 2021 and 2020 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the years ended December 31, 2021 and 2020.

The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties.

The following acquisitions and dispositions affect reporting comparability related to our consolidated financial statements:

Hotel Properties Location Acquisition/Disposition Acquisition/Disposition Date

C Beverly Hills Hotel Los Angeles, California Acquisition August 5, 2021

The following table illustrates the key performance indicators of all hotel properties for the periods indicated:

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Total hotel revenue (in thousands) $ 427,542 $ 226,974

The following table illustrates the key performance indicators of the twelve comparable hotel properties that were included for the full year ended December 31, 2020 and 2019:

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the years ended December 31, 2021 and 2020:

Year Ended December 31,

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Net Income (Loss) Attributable to the Company.

Net income (loss) attributable to the Company changed $105.6 million, from net income of $371,000 for the year ended December 31, 2019 (“2019”), to net loss of $105.3 million for the year ended December 31, 2020 (“2020”), as a result of the factors discussed below.

Net loss attributable to the Company decreased $78.6 million, from $105.3 million for the year ended December 31, 2020 (“2020”), to $26.7 million for the year ended December 31, 2021 (“2021”), as a result of the factors discussed below.

Rooms Revenue .

Rooms revenue decreased $167.6 million, or 55.2%, to $136.3 million during 2020 compared to 2019.

During 2020, we experienced a 4,846 basis point decrease in occupancy and an 11.5% increase in room rates compared to 2019.

The decrease in rooms revenue is due to the COVID-19 pandemic.

Rooms revenue at our twelve comparable hotel properties decreased $160.3 million due to a 4,979 basis point decrease in occupancy, partially offset by an increase in room rates of 9.6%.

The decrease in rooms revenue is a result of the changes in occupancy and ADR as reflected in the table below (dollars in thousands):

Rooms revenue increased $144.3 million, or 105.9%, to $280.6 million during 2021 compared to 2020.

During 2021, we experienced a 2,220 basis point increase in occupancy and a 17.2% increase in room rates compared to 2020.

The increase in rooms revenue is due to the hotel properties recovering from the COVID-19 pandemic as well as an increase of $4.5 million associated with the acquisition of the Mr.

C Beverly Hills Hotel on August 5, 2021.

Fluctuations in rooms revenue between 2021 and 2020 is a result of the changes in occupancy and ADR between 2021 and 2020 as reflected in the table below (dollars in thousands):

Hotel Property Favorable (Unfavorable)

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The Ritz-Carlton St.

13,477 (976) 7.8 %

Thomas 38,048 4,067 57.7 %

Park Hyatt Beaver Creek Resort & Spa 4,456 2,102 (16.6) %

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Bardessono Hotel and Spa 10,924 2,759 46.6 %

$ (160,319) (4,979) 9.6 %

Non-Comparable

The Ritz-Carlton Lake Tahoe 7,444 1,217 13.6 %

Total $ 139,772 2,202 17.5 %

Non-comparable

C Beverly Hills Hotel $ 4,531 n/a n/a

_______________

(1) The hotel was closed from March 2020 until August 2020.

(2) The hotel was being renovated during 2019 and 2020.

(1) The hotel was closed from April 2020 through mid-August in 2020.

(2) The hotel was being renovated during 2020.

Additionally the hotel was closed from April 11, 2020 through September 30, 2020.

(3) The hotel was closed for renovation starting in March 2019 due to the impact from Hurricane Irma.

It re-opened in the fourth quarter of 2019.

Food and Beverage Revenue .

Food and beverage revenue decreased $64.8 million, or 56.3%, to $50.3 million during 2020 compared to 2019.

This decrease is primarily attributable to the impact of the COVID-19 pandemic.

We experienced an aggregate decrease in food and beverage revenue of $68.4 million at twelve hotel properties, partially offset by an increase of $3.6 million at The Ritz-Carlton St.

Thomas, which was closed for renovation for most of 2019.

Food and beverage revenue increased $40.0 million, or 79.7%, to $90.3 million during 2021 compared to 2020.

This increase is primarily driven by the recovery from the COVID-19 pandemic.

We experienced an aggregate increase in food and beverage revenue of $38.9 million at 12 comparable hotel properties as well as an increase of $1.7 million at the Mr.

C Beverly Hills Hotel.

These increases were partially offset by a decrease of $505,000 at the Capital Hilton.

Other Hotel Revenue .

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, decreased $28.2 million, or 41.1%, to $40.4 million during 2020 compared to 2019.

The decrease is attributable to an aggregate decrease in other hotel revenue of $16.6 million at twelve hotel properties and lower business interruption revenue of approximately $15.4 million.

These decreases were partially offset by higher other hotel revenue of $3.7 million at The Ritz-Carlton St.

During 2020 and 2019, we recognized business interruption revenue of approximately $4.0 million and approximately $19.3 million, respectively, at The Ritz-Carlton St.

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, increased $16.2 million, or 40.1%, to $56.7 million during 2021 compared to 2020.

The increase is attributable to higher other hotel revenue of $20.3 million at 12 comparable hotel properties and an increase of $407,000 at the Mr.

C Beverly Hills Hotel, partially offset by a decrease of $462,000 at Capital Hilton.

During 2020, we also recognized business interruption revenue of $4.0 million at The Ritz-Carlton St.

Thomas as a result of Hurricane Irma.

Rooms Expense .

Rooms expense decreased $32.2 million, or 45.9%, to $38.1 million in 2020 compared to 2019.

The decrease is attributable to an aggregate decrease in rooms expense of $35.1 million at twelve hotel properties, partially offset by an increase of $2.9 million at The Ritz-Carlton St.

Rooms expense increased $21.8 million, or 57.2%, to $59.8 million in 2021 compared to 2020.

The increase is attributable to an aggregate increase in rooms expense of $20.6 million at 13 comparable hotel properties due to the hotel properties recovering from the COVID-19 pandemic and an increase of $1.2 million at the Mr.

C Beverly Hills Hotel.

Food and Beverage Expense .

Food and beverage expense decreased $39.4 million, or 46.0%, to $46.2 million during 2020 compared to 2019.

The decrease is attributable to an aggregate decrease of $43.4 million at twelve hotel properties, partially offset by an increase of $3.9 million at The Ritz-Carlton St.

Food and beverage expense increased $28.9 million, or 62.6%, to $75.2 million during 2021 compared to 2020.

The increase is attributable to an aggregate increase of $28.7 million at 11 comparable hotel properties and an increase of $1.5 million at the Mr.

C Beverly Hills Hotel, partially offset by an aggregate decrease of $1.2 million at the Capital Hilton and The Notary Hotel.

Other Operating Expenses .

Other operating expenses decreased $52.6 million, or 34.8%, to $98.5 million in 2020 compared to 2019.

Other operating expenses increased $40.4 million, or 41.1%, to $138.9 million in 2021 compared to 2020.

Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees.

We experienced a decrease of $5.2 million in direct expenses and $47.4 million in indirect expenses and incentive management fees in 2020 compared to 2019.

We experienced an increase of $6.7 million in direct expenses and $33.7 million in indirect expenses and incentive management fees in 2021 compared to 2020.

Direct expenses were 4.9% of total hotel revenue in 2021 and 6.2% in 2020.

The decrease in direct expenses is attributable to twelve hotel properties as a result of the COVID-19 pandemic, excluding The Ritz-Carlton St.

Thomas, which had an increase in direct expense of $1.9 million as a result of it being closed for renovation during most of 2019.

The decrease in indirect expenses is attributable to decreases in (i) marketing costs of $17.1 million, comprised of a net decrease of $15.7 million at our twelve comparable hotel properties and $1.4 million at The Ritz-Carlton Lake Tahoe;

(ii) general and administrative costs of $18.4 million, comprised of a net decrease of $17.8 million at our twelve comparable hotel properties and a decrease of $633,000 at The Ritz-Carlton Lake Tahoe;

(iii) repairs and maintenance of $5.0 million, comprised of a net decrease of $4.7 million at our twelve comparable hotel properties and $325,000 at The Ritz-Carlton Lake Tahoe;

(iv) incentive management fees of $3.5 million as a result of lower revenues attributable to the COVID-19 pandemic;

(v) energy costs of $2.0 million, comprised of a net decrease of $1.9 million at our twelve comparable hotel properties and $69,000 at The Ritz-Carlton Lake Tahoe;

and (vi) lease expense of $1.5 million, comprised of a net decrease of $1.5 million at our twelve comparable hotel properties, partially offset by an increase of $42,000 at The Ritz-Carlton Lake Tahoe.

The increase in direct expenses is associated with higher revenues as all of our comparable hotel properties are recovering from the COVID-19 pandemic and an increase of $30,000 at the Mr.

C Beverly Hills Hotel.

The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $9.2 million comprising an increase of $8.2 million at our 13 comparable hotel properties and $943,000 at the Mr.

C Beverly Hills Hotel;

(ii) marketing costs of $8.3 million comprising an increase of $7.7 million at our 13 comparable hotel properties and $524,000 at the Mr.

C Beverly Hills Hotel;

(iii) repairs and maintenance of $5.3 million comprising an increase of $5.0 million at our 13 comparable hotel properties and $314,000 at the Mr.

C Beverly Hills Hotel;

(iv) lease expense of $976,000 comprising an increase of $953,000 at our 13 comparable hotel properties and $23,000 at the Mr.

C Beverly Hills Hotel;

(v) energy costs of $3.6 million comprised of an increase of $3.3 million at our 13 comparable hotel properties and $309,000 at the Mr.

C Beverly Hills Hotel;

and (vi) incentive management fees of $6.4 million comprising an increase of $6.4 million at our 13 comparable hotel properties and $65,000 at the Mr.

C Beverly Hills Hotel.

Management Fees .

Base management fees decreased $9.4 million, or 56.5%, to $7.2 million in 2020 compared to 2019.

This decrease is attributable to all of our hotel properties as a result of the COVID-19 pandemic.

Base management fees increased $5.9 million, or 81.9%, to $13.1 million in 2021 compared to 2020.

Management fees increased $5.8 million at 13 comparable hotel properties and $195,000 at the Mr.

C Beverly Hills Hotel.

Property Taxes, Insurance and Other .

Property taxes, insurance and other increased $498,000, or 1.8%, to $28.5 million in 2020 compared to 2019, which is primarily due the receipt of a property tax refund of $1.7 million in 2019 at the Park Hyatt Beaver Creek Resort & Spa.

Property taxes, insurance and other increased $6.5 million, or 22.9%, to $35.0 million in 2021 compared to 2020.

The increase is comprised of an aggregate increase of approximately $7.3 million at seven hotel properties.

Approximately $6.6 million of the increase is primarily attributable to higher current year assessments at two hotel properties.

The increase also includes $545,000 at the Mr.

C Beverly Hills Hotel.

These increases were partially offset by an aggregate decrease of approximately $1.4 million at six hotel properties.

Depreciation and Amortization .

Depreciation and amortization increased $3.3 million, or 4.6%, to $73.4 million for 2020 compared to 2019 due to an aggregate increase of $4.9 million at our twelve comparable hotel properties, partially offset by a decrease of $1.7 million at The Ritz-Carlton Lake Tahoe.

Depreciation and amortization increased $391,000, or 0.5%, to $73.8 million for 2021 compared to 2020.

The increase is comprised of an increase of $972,000 at the Mr.

C Beverly Hills Hotel and an aggregate increase of $2.6 million at The Clancy, Marriott Seattle Waterfront, Hotel Yountville, The Ritz-Carlton St.

Thomas, The Ritz-Carlton Sarasota and The Ritz-Carlton Lake Tahoe.

These increases are partially offset by an aggregate decrease of $3.2 million at seven comparable hotel properties as a result of fully depreciated assets.

Advisory Services Fee.

Advisory services fee decreased $2.0 million, or 9.9%, to $18.5 million in 2020 compared to 2019 due to decreases in the base advisory fee of $853,000, reimbursable expenses of $499,000, incentive fee of $678,000, and equity-based compensation of $11,000.

In 2020, we recorded an advisory services fee of $18.5 million, which included a base advisory fee of $10.0 million, reimbursable expenses of $1.8 million, $7.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and a credit to the incentive fee of $678,000 as a result of not meeting the FCCR threshold required for paying the final installment of the incentive fee incurred in 2018.

Advisory services fee increased $4.2 million, or 22.5%, to $22.6 million in 2021 compared to 2020 due to increases in the base advisory fee of $825,000, reimbursable expenses of $507,000, incentive fee of $678,000 as well as an increase in equity-based compensation of $2.1 million.

In 2021, we recorded an advisory services fee of $22.6 million, which included a base advisory fee of $10.8 million, reimbursable expenses of $2.3 million and $9.5 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

In 2020, we recorded an advisory services fee of $18.5 million, which included a base advisory fee of $10.0 million, reimbursable expenses of $1.8 million and $7.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and a credit to the incentive fee of $678,000 as a result of not meeting the FCCR threshold required for paying the final installment of the incentive fee incurred in 2018.

Gain on Legal Settlement .

In 2021, we recognized a gain of $728,000 related to the settlement of a transfer tax matter with the City of San Francisco and $189,000 related to a billing dispute.

In 2020, there was no such gain recognized.

Transaction Costs.

In 2019, we recorded transaction costs of $704,000 primarily related to the acquisition of The Ritz-Carlton Sarasota.

There were no transaction costs during 2020.

In 2021, we recognized $563,000 of transaction costs associated with the acquisition of the Mr.

C Beverly Hills Hotel.

There were no transaction costs in 2020.

Corporate General and Administrative .

Corporate general and administrative expense was $8.7 million in 2021 and $6.7 million in 2020.

The increase in corporate general and administrative expenses is primarily due to higher professional fees of $1.1 million, higher reimbursed operating expenses of Ashford Securities of $344,000 and higher miscellaneous expenses of $154,000, partially offset by lower public company costs of $329,000.

The increase in corporate general and administrative expenses is primarily due to higher public company costs of $658,000, higher miscellaneous expenses of $575,000 and an increase of $1.3 million related to our share of the reimbursed operating expenses of Ashford Securities, partially offset by lower professional fees of $497,000.

Gain (loss) on Insurance Settlement and Disposition of Assets .

In 2020, we recognized a gain of $10.1 million as a result of finalizing the insurance settlement from Hurricane Irma.

In 2019, we recorded gains of $26.2 million and $88,000 related to insurance settlements from Hurricane Irma at The Ritz-Carlton St.

Thomas hotel and the Pier House Resort & Spa, respectively.

The gains resulted from the receipt of proceeds in excess of the carrying value of the property upon settlement of a portion of the insurance claim.

These gains were partially offset by a loss of $1.2 million related to the disposition of FF&E resulting from the renovation at The Notary Hotel.

In 2021, we recognized a gain of $481,000 associated with proceeds received from an insurance claim, a gain of $18,000 upon disposition of certain fixed assets, as well as a gain of $197,000 associated with the sale of certain ERFP assets to Ashford Inc.

Equity in Earnings (Loss) of Unconsolidated Entity .

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Other Income (Expense) .

Other expense decreased $8.8 million, or 63.2% to $5.1 million in 2020 compared to 2019.

In 2020, we recorded realized losses of $3.6 million and $1.3 million on our disposition of interest rate floors and CMBX credit default swaps, respectively.

Other expense decreased $5.1 million, or 100.0% to $0 in 2021 compared to 2020.

In 2020, we recorded a realized loss of $3.6 million and $1.3 million on our disposition of interest rate floors and CMBX credit default swaps, respectively.

We also recorded expense of $191,000 related to CMBX premiums and interest paid on collateral.

In 2019, we recorded a realized loss of $13.4 million on our disposition of our investment in Ashford Inc., expense of $253,000

related to CMBX premiums and interest paid on collateral and a realized loss of $278,000 on interest rate floors, partially offset by other income of $10,000.

Interest Expense and Amortization of Loan Costs .

Interest expense and amortization of loan costs decreased $9.4 million, or 17.3%, to $45.1 million for 2020 compared to 2019.

The dec rease is primarily due to a lower average LIBOR rate, partially offset by higher interest expense associated with our corporate term loan as well as default interest and late charges recorded on loans that were previously in default.

Interest Expense and Amortization of Discounts and Loan Costs .

Interest expense and amortization of discounts and loan costs decreased $14.2 million, or 31.5%, to $30.9 million for 2021 compared to 2020.

The dec rease i s primarily due to lower interest expense from a lower average LIBOR rate, a credit to interest expense related to the amortization of default interest and late charges recorded on loans that were previously in default and the repayment of our secured term loan.

These decreases were partially offset by higher interest expense from our Convertible Senior Notes and the mortgage loan associated with the Mr.

C Beverly Hills Hotel acquisition.

The average LIBOR rates for 2021 and 2020 were 0.10% and 0.52%, respectively.

Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $3.9 million in 2020, resulting from several amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments.

Third-party fees incurred in conjunction with these amendments, totaling $3.9 million, were expensed in accordance with applicable accounting guidance.

Write-off of loan costs and exit fees was $647,000 for 2019, resulting from the write-off of unamortized loan costs of $338,000 and other costs of $309,000 associated with a loan modification and the refinancing of two mortgage loans.

Unrealized Gain (Loss) on Investment in Ashford Inc.

Unrealized gain on investment in Ashford Inc.

was $7.9 million in 2019, which is associated with the recognition of the associated realized loss on the disposition of our investment in Ashford Inc.

in the fourth quarter of 2019.

Write-off of loan costs and exit fees was $2.0 million in 2021.

This included a $1.2 million write-off of unamortized loan costs upon the payoff of our secured term loan payoff and $387,000 of third-party fees from amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments.

These third-party fees incurred in conjunction with these amendments were expensed in accordance with applicable accounting guidance.

In addition, there was a write-off of loan costs of approximately $419,000 upon the $20 million pay-down of the mortgage loan assumed with the acquisition of the Mr.

C Beverly Hills Hotel.

Write-off of loan costs and exit fees was $3.9 million for 2020, resulting from amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments.

These third-party fees incurred in conjunction with these amendments were expensed in accordance with applicable accounting guidance.

Unrealized Gain (Loss) on Derivatives .

Unrealized gain on derivatives of $32,000 for 2021 consisted of an unrealized gain of approximately $94,000 on warrants, partially offset by an unrealized loss of approximately $62,000 on interest rate caps.

Unrealized gain on derivatives of $5.0 million for 2020 consisted of a $3.6 million unrealized gain on interest rate floors associated with the recognition of realized losses and a $1.4 million unrealized gain on CMBX credit default swaps associated with the recognition of realized losses, partially offset by an unrealized loss of $93,000 on interest rate caps.

Unrealized loss on derivatives of $1.1 million for 2019 consisted of a $1.1 million unrealized loss on CMBX credit default swaps and a $134,000 unrealized loss on interest rate caps, partially offset by a $126,000 unrealized gain on interest rate floors.

The fair value of the interest rate caps and floors is primarily based on movements in the LIBOR forward curve and the passage of time.

The fair value of credit default swaps is based on the change in value of CMBX indices.

Income Tax (Expense) Benefit .

Income tax (expense) benefit changed $6.2 million, from income tax expense of $1.8 million in 2019 to an income tax benefit of $4.4 million in 2020.

This change was primarily due to a decrease in the profitability of our TRS entities in 2020 compared to 2019.

Income tax expense changed $5.7 million, from an income tax benefit of $4.4 million in 2020 to income tax expense of $1.3 million in 2021.

This change was primarily due to an increase in the profitability of our TRS entities in 2021 compared to 2020.

(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities .

Our noncontrolling interest partner in consolidated entities was allocated a loss of $6.4 million and income of $2.0 million for 2020 and 2019, respectively.

Our noncontrolling interest partner in consolidated entities was allocated a loss of $2.7 million and $6.4 million for 2021 and 2020, respectively.

At both December 31, 2021 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

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Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 8.83% and 9.43% as of December 31, 2021 and 2020, respectively.

As of December 31, 2020, gross outstanding indebtedness was approximately $1.1 billion.

The following table sets forth our indebtedness (dollars in thousands):

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Fully Extended Maturity Date

BAML Term loan (2)

Equity $ 61,495 4.00 % Interest only (2)

Oct-2022 Oct-2022

Securitized (2)

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The Ritz-Carlton, St.

1 99,500 2.90 % Amortizing Apr-2023 Apr-2023

The Ritz-Carlton, Sarasota, FL

1 51,000 2.80 % Interest only May-2023 May-2023

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Bardessono Hotel and Spa, Yountville, CA

1 100,000 2.90 % Interest only (8)

Apr-2023 Apr-2023

The Ritz-Carlton, Sarasota, FL

1 54,000 2.35 % Interest only Jan-2024 Jan-2024

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Hilton La Jolla Torrey Pines, La Jolla, CA

1 30,000 5.10 % Interest only Aug-2024 Aug-2024

C Beverly Hills Hotel

1 80,000 2.10 % Interest only Sep-2024 Sep-2024

Pier House Resort & Spa, Key West, FL

Convertible Senior Notes Equity 86,250 4.50 % Interest only

June-2026 June-2026

Total/Weighted Average 14 $ 1,180,750 2.65 %

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(1) Maturity date assumes no future extensions.

(2) Bears interest at a rate of LIBOR plus 3.50% or base rate plus 2.50% until June 30, 2021.

After such date, the pricing will revert to the original terms of the Credit Facility, which bears interest at a range of 1.25% to 2.50% over base rate or 2.25% to 3.50% over LIBOR.

The term loan has a LIBOR floor of 0.50%.

Also principal amortization of $5 million per quarter commencing on March 31, 2021.

(2) Interest rate is variable at LIBOR plus 3.00%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.0%.

This mortgage loan includes three one-year extension options subject to satisfaction of certain conditions, of which the second was exercised in April 2020.

This mortgage loan includes three one-year extension options subject to satisfaction of certain conditions, of which the third was exercised in April 2021.

(3) Interest rate is variable at LIBOR plus 2.16%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 4.0%.

This mortgage loan includes five one-year extension options subject to the satisfaction of certain conditions, of which the first was exercised in June 2020.

(5) Interest rate is variable at LIBOR plus 3.95%.

This mortgage loan includes five one-year extension options subject to the satisfaction of certain conditions, of which the second was exercised in June 2021.

(4) Interest rate is variable at LIBOR plus 3.95% with a LIBOR floor of 1.00%.

This mortgage loan has three one-year extension options, subject to the satisfaction of certain conditions, of which the first was exercised in August 2021.

(5) Interest rate is variable at LIBOR plus 2.65% with a LIBOR floor of 0.25%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.

This mortgage loan has three one-year extension options, subject to the satisfaction of certain conditions.

The mortgage loan was interest only until July 1, 2021, at which time it began amortizing 1% annually for the remaining term.

The stated maturity is April 2023.

(6) Interest rate is variable at LIBOR plus 2.55%, with a LIBOR floor of 0.25%.

(7) Interest rate is variable at LIBOR plus 2.65%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.

The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term.

(8) Interest rate is variable at LIBOR plus 2.10%.

(7) Interest rate is variable at LIBOR plus 2.10%, with a LIBOR floor of 0.25%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.

(8) Interest rate is variable at LIBOR plus 1.70%.

(10) Interest rate is variable at LIBOR plus 1.85%.

(9) Interest rate is variable at LIBOR plus 3.60%, with a LIBOR floor of 1.50%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 2.0%.

On June 8, 2020, we entered into the First Amendment to the Second Amended and Restated Credit Agreement (the “Amendment”).

The Amendment converted the $75 million Second Amended and Restated Credit Agreement, dated October 25, 2019 (the “Credit Facility”), which was a secured revolving credit facility, into a $65 million secured term loan.

We had borrowed the full borrowing capacity of $75 million under the Credit Facility and repaid $10 million on June 8, 2020, in connection with the signing of the Amendment.

Pursuant to the terms of the Amendment, borrowings will bear interest at a rate of LIBOR plus 3.50% or Base Rate plus 2.50% until June 30, 2021.

After such date, the pricing will revert to the original terms of the Credit Facility.

The Amendment also added principal amortization of $5 million per quarter commencing on March 31, 2021.

The Amendment changes the terms of certain financial covenants that we were subject to under the Credit Facility.

The Amendment has the same maturity date of October 25, 2022 but removes the two one-year extension options and also removes our ability to reborrow amounts that have been repaid.

On February 22, 2021, the Company entered into the Second Amendment to Second Amended and Restated Credit Agreement (the “Second Amendment”).

The amendment provides an extension of the waiver on the majority of the covenants through the fourth quarter of 2021 and a reduced fixed charge coverage ratio covenant through the end of 2022.

The first period in which covenants will be tested is for the fiscal quarter ending March 31, 2022.

The amendment also allows the Company to utilize approximately $9.3 million of cash held in FF&E reserve accounts at certain properties for discretionary capital expenditures.

The following loans include various financial cash trap triggers.

The BAML Pier House loan, the BAML Bardessono loan, the BAML Yountville loan, the BAML Sarasota loan and the BAML Lake Tahoe loan all have a 1.20x debt service coverage ratio requirement.

The Park Hyatt Beaver Creek Resort & Spa loan has a 9.0% debt yield requirement, the 4 pack loan has a 7.5% debt yield requirement, and the Apollo loan has a 10.0% debt yield requirement.

(10) Interest rate is variable at LIBOR plus 1.85%, with a LIBOR floor of 0.25%.

This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.

In May 2021, the Company issued $86.25 million aggregate principal amount of 4.50% Convertible Senior Notes due June 2026 (the “Convertible Senior Notes”).

The net proceeds from this offering of the Convertible Senior Notes were approximately $82.8 million after deducting the underwriting fees and other expenses paid by the Company.

A portion of the proceeds were used to fully repay the secured term loan.

See note 6 to our consolidated financial statements for a full description of our Convertible Senior Notes.

On September 23, 2021, the Company finalized an extension of its mortgage loans for the Bardessono Hotel and Spa with a final maturity in August 2022 and the Hotel Yountville with a final maturity in May 2022.

Each of the loans was extended for one year beyond its original maturity on the same terms as the original loan.

On February 2, 2022, the Company refinanced its mortgage loan secured by the Park Hyatt Beaver Creek Resort & Spa, which had a final maturity date in April 2022.

The new, non-recourse mortgage loan totals $70.5 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions.

The mortgage loan is interest only and provides for a floating interest rate of SOFR + 2.86%.

The following mortgage loans include various financial cash trap triggers.

The BAML Pier House mortgage loan, the BAML Bardessono mortgage loan, the BAML Yountville mortgage loan, the BAML Sarasota mortgage loan and the BAML Lake Tahoe mortgage loan all have a 1.20x debt service coverage ratio requirement.

The Park Hyatt Beaver Creek Resort & Spa mortgage loan, outstanding at December 31, 2021, had a 10.0% debt yield requirement.

The mortgage loan secured by four hotel properties has a 7.5% debt yield requirement, and the Apollo mortgage loan has a 12.0% debt yield requirement.

When these provisions are triggered, substantially all of the profits generated by the hotel properties securing such loan are deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders.

This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan.

As of December 31, 2021, our $435 million mortgage loan, our $195 million mortgage loan and our $54 million mortgage loan were in cash traps and approximately $157,000 of our restricted cash was subject to these cash traps.

Additionally, at December 31, 2021, there was approximately $2.4 million of restricted cash, associated with two mortgage loans that were no longer in cash traps as of that date, which was subsequently released.

LIQUIDITY AND CAPITAL RESOURCES

COVID-19, Management’s Plans and Liquidity

In March 2020, the World Health Organization declared COVID-19 to be a global pandemic.

The prolonged presence of the virus has resulted in health and other government authorities imposing widespread restrictions on travel and other businesses.

The hotel industry and our portfolio have experienced the postponement or cancellation of a significant number of business conferences and similar events.

COVID-19 has had a significant negative impact on the Company’s operations and financial results to date.

The Company expects that the COVID-19 pandemic will continue to have a negative impact on the Company’s results of operations, financial position and cash flow in 2021 and potentially much longer.

See note 7 to our consolidated financial statements for term loan details.

All of the Company’s property-level debt is non-recourse.

Such Event of Default under the senior revolving credit facility agreement was eliminated by the First

Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020, which provides that defaults under mortgage and mezzanine loans wi th an aggregate principal amount in excess of $200 million do not trigger a default under the senior revolving credit agreement unless such mortgage or mezzanine loans are also accelerated, and excluding from the $200 million threshold, any default and acceleration under those certain mortgage and mezzanine loans having an aggregate principal amount of $435 million and secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy.

The Company amended its secured revolving credit facility converting it into a $65 million secured term loan and changed the terms of certain financial covenants, including a waiver of the Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) through March 31, 2021, that the Company was subject to under the secured revolving credit facility.

On February 22, 2021, the Company further amended the term loan providing an extension of the waiver on the majority of the covenants continuing through the fourth quarter of 2021 and a reduced fixed charge coverage ratio covenant through the end of 2022.

The first period in which covenants will be tested is for the fiscal quarter ending March 31, 2022.

As of December 31, 2020, no loans are in default.

Additionally, the Company did not make rental payments under two ground leases that are paid monthly;

As of December 31, 2020, the Company is current on its rental payments.

In addition, the Company has taken proactive and aggressive actions to protect liquidity and reduce corporate expenses.

As of December 31, 2021, the Company maintained unrestricted cash of $216.0 million and restricted cash of $47.4 million.

During the three months ended December 31, 2020, we utilized cash, cash equivalents and restricted cash of $9.7 million.

The vast majority of the restricted cash is comprised of lender and manager held reserves.

The Company worked with its property managers and lenders in order to utilize lender and manager held reserves to fund operating shortfalls.

As a result of these factors resulting from the impact of the pandemic, we are unable to estimate future financial performance with certainty.

The vast majority of the restricted cash comprises lender and manager held reserves.

For the year ended December 31, 2021, cash flows provided by operating activities were approximately $64.0 million.

On March 4, 2022, our board of directors declared a quarterly cash dividend of $0.01 per diluted share for the Company’s common stock for the first quarter of 2022.

The approval of our dividend policy does not commit our board of directors to declare future dividends with respect to any quantity or the amount thereof.

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This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan.

These cash trap provisions have been triggered on some of our mortgage loans.

These cash trap provisions have been triggered on some of our mortgage loans, as discussed above.

Our loans may remain subject to cash trap provisions for a substantial period of time which could limit our flexibility and adversely affect our financial condition or our qualification as a REIT.

Our estimated future obligations as of December 31, 2021 include both current and long-term obligations.

With respect to our indebtedness, as discussed in note 6 to our consolidated financial statements, we have current obligations of $546.0 million and long-term obligations of $634.8 million.

As of December 31, 2021, we held extension options to extend the principal for all

of the debt due in the next twelve months except for $68.5 million.

$67.5 million relates to the mortgage loan secured by the Park Hyatt Beaver Creek Resort & Spa that was refinanced on February 2, 2022.

Additionally we have mortgage loan payments of approximately $1.0 million due in the next twelve months.

As discussed in note 17 to our consolidated financial statements, under our operating leases we have current obligations of approximately $3.3 million and long-term obligations of approximately $156.9 million.

Additionally, as discussed in note 16 to our consolidated financial statements, we have short-term capital commitments of approximately $23.0 million.

Equity Transactions

On December 5, 2017, our board of directors approved the stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share and preferred stock having an aggregate value of up to $50 million.

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Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network.

We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares

of our common stock sold through such sales agent.

We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent.

On July 7, 2020, we entered into a side letter (the “Side Letter”) with the sales agents pursuant to which we agreed to pay all reasonable documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel incurred by the sales agents, in connection with the ongoing services contemplated by the equity distribution agreements (subject to a $75,000 cap on certain expenses incurred in June 2020).

Pursuant to the Side Letter, the sales agents have agreed to reimburse us for up to $50,000 of such expenses, if the sales agents offer and sell an amount of our common stock with an aggregate offering price of $15,000,000, and have agreed to reimburse us for up to an additional $50,000 of such expenses, provided the sales agents offer and sell an amount of our common stock with an aggregate offering price of $30,000,000.

As of March 3, 2021, the Company has sold approximately 5.7 million shares of common stock and received proceeds of approximately $19.7 million under this program.

As of March 8, 2022, the Company has sold approximately 7.4 million shares of common stock and received gross proceeds of approximately $30.8 million under this program.

On November 13, 2019, we filed an initial registration statement with the SEC, as amended on January 24, 2020, for shares of our non-traded Series E Redeemable Preferred Stock (the “Series E Preferred Stock”) and our non-traded Series M Redeemable Preferred Stock (the “Series M Preferred Stock”).

The registration statement became effective on February 21, 2020, and contemplates the issuance and sale of up to 20,000,000 shares of Series E Preferred Stock or Series M Preferred Stock in a primary offering and up to 8,000,000 shares of Series E Preferred Stock or Series M Preferred Stock offered pursuant to a dividend reinvestment plan.

On February 25, 2020, we filed our prospectus with the SEC.

Ashford Securities, a subsidiary of Ashford Inc.

serves as the dealer manager and wholesaler of our Series E Preferred Stock and Series M Preferred Stock.

As of March 3, 2021, no shares of Series E Preferred Stock or Series M Preferred Stock have been issued.

On December 4, 2019, we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our Series B Cumulative Convertible Preferred Stock having an aggregate offering price of up to $40.0 million.

Sales of shares of our Series B Cumulative Convertible Preferred Stock may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for our Series B Cumulative Convertible Preferred Stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network.

We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our Series B Cumulative Convertible Preferred Stock sold through such sales agents.

Since the inception of the program, we issued approximately 63,000 shares of our Series B Cumulative Convertible Preferred Stock through our “at-the-market” equity offering program resulting in gross proceeds of approximately $1.2 million before discounts and commissions to the selling agents of approximately $19,000.

On February 4, 2021, the Company entered into the SEDA, pursuant to which the Company will be able to sell the Commitment Amount at the Company’s request any time during the commitment period commencing on February 4, 2021, and terminating at the end of the Commitment Period.

Other than with respect to the Initial Advance the shares sold to YA pursuant to the SEDA would be purchased at 95% of the Market Price and would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock.

At any time during the Commitment Period the Company may require YA to purchase shares of the Company’s common stock by delivering an Advance Notice.

The Company may deliver an Initial Advance for up to 1,200,000 Advance Shares.

The Preliminary Purchase Price per share for such shares shall be 100% of the average daily VWAP for the 5 consecutive trading days immediately prior to the date of the Advance Notice.

Ashford Securities, a subsidiary of Ashford Inc., serves as the dealer manager and wholesaler of the Series E Preferred Stock and Series M Preferred Stock.

On April 2, 2021, the Company filed with the State Department of Assessments and Taxation of the State of Maryland (the “SDAT”) articles supplementary to the Company’s Articles of Amendment and Restatement that provided for:

(i) reclassifying the existing 28,000,000 shares of Series E Preferred Stock and 28,000,000 shares of Series M Preferred Stock as unissued shares of preferred stock;

(ii) reclassifying and designating 28,000,000 shares of the Company’s authorized capital stock as shares of the Series E Preferred Stock (the “Series E Articles Supplementary”);

and (iii) reclassifying and designating 28,000,000 shares of the Company’s authorized capital stock as shares of the Series M Preferred Stock (the “Series M Articles Supplementary”).

The Series E Articles Supplementary and Series M Articles Supplementary were filed to revise the preferred stock terms related to the dividend rate, our optional redemption right and certain other voting rights.

The Company also caused its operating partnership to execute Amendment No.

5 to the Third Amended and Restated Agreement of Limited Partnership to amend the terms of its operating partnership agreement to conform to the terms of the Series E Articles Supplementary and Series M Articles Supplementary.

As of March 8, 2022, the Company has issued approximately 2.9 million shares of Series E Preferred Stock and received net proceeds of approximately $65.4 million and issued approximately 37,000 shares of Series M Preferred Stock and received net proceeds of approximately $892,000.

The Company also issued approximately 4,000 shares of Series E Preferred Stock pursuant to the dividend reinvestment plan.

On December 4, 2019, we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our 5.50% Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) having an aggregate offering price of up to $40.0 million.

Sales of shares of the Series B Convertible Preferred Stock may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading market for the Series B Convertible Preferred Stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network.

pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of the Series B Convertible Preferred Stock sold through such sales agents.

Since the inception of the program, we issued approximately 63,000 shares of the Series B Convertible Preferred Stock through our “at-the-market” equity offering program resulting in gross proceeds of approximately $1.0 million before discounts and commissions to the selling agents of approximately $19,000.

On February 4, 2021, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN, Ltd.

“Market Price” means the lowest daily VWAP of the Company’s common stock during the five consecutive trading days commencing on the trading day following the date the Company submits an advance notice to YA.

“VWAP” means, for any trading day, the daily volume weighted average price of the Company’s common stock for such date on the principal market as reported by Bloomberg L.P.

during regular trading hours.

The Company may deliver an Advance Notice for an initial Advance for up to 1,200,000 Advance Shares (the “Initial Advance”).

The preliminary purchase price per share for such shares shall be 100% of the average daily VWAP for the five consecutive trading days immediately prior to the date of the Advance Notice.

Pursuant to the SEDA, we currently intend to use the net proceeds from any sale of the shares for working capital purposes, including the repayment of outstanding debt.

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As of March 8, 2022, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

Dividend Policy .

In December 2019, the board of directors approved our 2020 dividend policy which stated our then-expectation to pay a quarterly dividend payment of $0.16 per share of our common stock for 2020.

As previously disclosed, the approval of our dividend policy did not commit our board of directors to declare future dividends.

On March 16, 2020, the Company and its board of directors announced a suspension of its previously disclosed 2020 common stock dividend policy.

The Company did not pay a dividend on its common stock for 2020.

The board of directors will continue to review our dividend policy and make future announcements with respect thereto.

We may incur indebtedness to meet distribution requirements imposed on REITs under the Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions.

Alternatively, we may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under U.S.

federal income tax laws governing REIT distribution requirements.

We may pay dividends in excess of our cash flow.

Secured Revolving Credit Facility and Secured Term Loan

Prior to June 8, 2020, we had a senior secured revolving credit facility in the amount of $75.0 million, including $15 million available in letters of credit and $15 million available in swingline loans.

The secured revolving credit facility also contained customary terms, covenants, negative covenants, events of default, limitations and other conditions for credit facilities of this type.

Subject to certain exceptions, we are subject to restrictions on incurring additional indebtedness, mergers and fundamental changes, sales or other dispositions of property, changes in the nature of our business, investments and capital expenditures.

We also were subject to certain financial covenants, as set forth below, which were tested by the borrower on a consolidated basis (net of the amounts attributable to the non-controlling interest held by our partner in a majority-owned consolidated entity) and include, but are not limited to, the following:

• consolidated indebtedness (less cash and cash equivalents in excess of $10,000,000) to total asset value not to exceed 65%.

• consolidated recourse indebtedness other than the secured revolving credit facility not to exceed $50,000,000.

• consolidated fixed charge coverage ratio not less than 1.40x initially, with such ratio being increased beginning July 1, 2020 to 1.50x.

• indebtedness of the consolidated parties that accrues interest at a variable rate (other than the secured revolving credit facility) that is not subject to a “cap,” “collar,” or other similar arrangement not to exceed 25% of consolidated indebtedness.

• consolidated tangible net worth not less than 75% of the consolidated tangible net worth on June 30, 2019, plus 75% of the net proceeds of any future equity issuances.

• secured debt that is secured by real property not to exceed 70% of the as-is appraised value of such real property.

All financial covenants were tested and certified by the borrower on a quarterly basis.

Beginning April 1, 2020, the Company did not make at least one interest payment on nearly all of its mortgage and mezzanine loans, which constituted an “Event of Default” as such term is defined under the applicable loan documents.

Such Event of Default under the senior revolving credit facility agreement was eliminated by the First Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020, which provides that defaults under mortgage and mezzanine loans with an aggregate principal amount in excess of $200 million do not trigger a default under the senior revolving credit agreement unless such mortgage or mezzanine loans are also accelerated, and excluding from the $200 million threshold, any default and acceleration under those certain mortgage and mezzanine loans having an aggregate principal amount of $435 million and secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy.

The secured revolving credit facility included customary events of default, and the occurrence of an event of default will permit the lenders to terminate commitments to lend under the secured revolving credit facility and accelerate payment of all amounts outstanding thereunder.

If a default occurs and is continuing, we will be precluded from making distributions on our shares of common stock (other than those required to allow us to qualify and maintain our status as a REIT, so long as such default does not arise from a payment default or event of insolvency).

Borrowings under the secured revolving credit facility bore interest, at our option, at either LIBOR for a designated interest period plus an applicable margin, or the Base Rate (as defined in the credit agreement) plus an applicable margin.

The applicable margin for borrowings under the secured revolving credit facility for base rate loans range from 1.25% to 2.50% per annum and the applicable margin for borrowings under the secured revolving credit facility for LIBOR loans range from 2.25% to 3.50% per annum, depending on the ratio of consolidated indebtedness to EBITDA, with the lowest rate applying if such ratio is less than 4.0x and the highest rate applying if such ratio is greater than 6.0x.

The First Amendment to Second Amended and Restated Credit Agreement (the “Amendment”)

On June 8, 2020, we entered into an Amendment which converted the $75 million secured revolving credit facility into a $65 million secured term loan.

We had borrowed the full borrowing capacity of $75 million under the Credit Facility and repaid $10 million on June 8, 2020, in connection with the signing of the Amendment.

Pursuant to the terms of the Amendment, borrowings will bear interest at a rate of LIBOR plus 3.50% or Base Rate plus 2.50% until June 30, 2021.

After such date, the pricing will revert to the original terms of the Credit Facility.

The Amendment also added amortization of $5 million per quarter

commencing on March 31, 2021.

The Amendment has the same maturity date of October 25, 2022 but removes the two one-year extension options and also removes the Company’s ability to reborrow amounts that have been repaid.

The Amendment changed the terms of certain financial covenants that the Company was subject to under the Credit Facility, which are summarized as follows:

• The requirement that the Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) be not less than 1.40 has been waived through March 31, 2021 (the “Covenant Waiver Period”).

At the end of the Covenant Waiver Period, the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility) becomes 1.0 for the second quarter of 2021, 1.10 for the third and fourth quarters of 2021, 1.20 for the first quarter of 2022, and then returns to 1.40 thereafter.

• The covenant that required the Company’s consolidated recourse indebtedness (other than the Credit Facility) not exceed $50 million was permanently reduced to zero ($0) and a new covenant was also added that requires the Company to have minimum liquidity (comprised of unrestricted cash) of $20 million through June 30, 2021, which shall be tested monthly.

Our cash and cash equivalents were $78.6 million at December 31, 2020.

The Amendment added limitations on the Company’s ability prior to June 30, 2021, to incur or guaranty additional indebtedness, grant liens, make restricted payments (with the exception of existing preferred dividend payments) or engage in asset sales, discretionary capital expenditures or additional investments.

The Amendment also added mandatory prepayments that require the Company to prepay and reduce the balance of the term loan by an amount equal to 50% of net proceeds from any asset sales, equity offerings (including the offering of Series E, Series M and other preferred equity offerings) or incurrence of indebtedness (including refinancings), except that the first $50 million of any common equity offering (including sales of shares of common stock under the Company’s “at-the-market” equity distribution program) is subject to a mandatory prepayment in an amount equal to 25% of net proceeds.

The Company was in compliance with all covenants as of December 31, 2020.

The Second Amendment to Second Amended and Restated Credit Agreement (the “Second Amendment”)

On February 22, 2021, the Company entered into the Second Amendment to Second Amended and Restated Credit Agreement.

The Second Amendment waives certain covenants through the fourth quarter of 2021 and amends certain other terms, as described further below.

The first period in which covenants will be tested is for the fiscal quarter ending March 31, 2022.

Pursuant to the terms of the Second Amendment, borrowings will bear interest at a rate of LIBOR plus 3.65% or Base Rate plus 2.65% until the Company provides a compliance certificate for the quarter ending March 31, 2022.

After such date, the pricing will revert to the original terms of the Credit Facility.

The Second Amendment changes the terms of certain financial covenants that the Company was subject to under the Credit Facility.

The requirement that the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility) be not less than 1.40 has been waived through December 31, 2021 (the “Covenant Waiver Period”).

At the end of the Covenant Waiver Period, the Consolidated Fixed Charge Coverage Ratio becomes 1.0 for the first quarter of 2022, 1.10 for the second and third quarters of 2022, 1.20 for the fourth quarter of 2022, and then returns to 1.40 thereafter.

The Second Amendment permits funding of select renovation projects from existing furniture, fixtures and equipment (FF&E) reserves at the Ritz-Carlton Sarasota;

the Ritz-Carlton Lake Tahoe, Park Hyatt Beaver Creek Resort & Spa, Hilton La Jolla Torrey Pines, and Marriott Seattle Waterfront, subject to a cap on amounts to be spent consistent with the forecasted spend information provided pursuant to the Second Amendment.

The Credit Facility includes mandatory prepayments that require the Company to prepay and reduce the balance of the Credit Facility by an amount equal to 50% of net proceeds from any asset sales, equity offerings (including the offering of Series E, Series M and other preferred equity offerings) or incurrence of indebtedness (including refinancings), except that the first $50 million of any common equity offering (including sales of shares of common stock under the Company’s “at-the-market” equity distribution program) is subject to a mandatory prepayment amount, which was increased from 25% of net proceeds to 35% of net proceeds in the Second Amendment.

From March 16, 2021 through March 8, 2022, Braemar entered into privately negotiated exchange agreements with certain holders of the Series B Convertible Preferred Stock in reliance on Section 3(a)(9) of the Securities Act.

The Company agreed to exchange a total of approximately 2.0 million shares of its Series B Convertible Preferred stock for approximately 7.3 million shares of its common stock.

On April 21, 2021, the Company entered into a purchase agreement (the “Lincoln Park Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company may issue or sell to Lincoln Park up to 8,893,565 shares of the Company’s common stock from time to time during the term of the Lincoln Park Purchase Agreement.

The issuance of the shares of common stock pursuant to the Lincoln Park Purchase Agreement has been registered pursuant to the Company’s shelf registration statement on Form S-3 (the “Registration Statement”), and the related base prospectus included in the Registration Statement, as supplemented by a prospectus supplement filed with the SEC on April 21, 2021.

The Company and Lincoln Park also entered into a registration rights agreement, pursuant to which the Company agreed to maintain the effectiveness of the Registration Statement.

Upon entering into the Lincoln Park Purchase Agreement, the Company issued 15,000 shares of the Company’s common stock as consideration for Lincoln Park’s execution and delivery of the Lincoln Park Purchase Agreement.

As of March 8, 2022, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $4.2 million under the Lincoln Park Purchase Agreement .

On May 25, 2021, the Company entered into an equity distribution agreement (the “Virtu May 2021 EDA”) with Virtu Americas LLC (“Virtu”), to sell from time to time shares of our common stock having an aggregate offering price of up to $50 million.

We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold.

The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale.

As of March 8, 2022, the Company has sold approximately 8.3 million shares of common stock under the Virtu May 2021 EDA and received gross proceeds of approximately $50.0 million.

All shares of common stock under the Virtu May 2021 EDA have been sold.

On July 12, 2021, the Company entered into a second equity distribution agreement (the “Virtu July 2021 EDA”)with Virtu to sell from time to time shares of our common stock having an aggregate offering price of up to $100 million.

We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold.

The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the

time of sale.

As of March 8, 2022, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.

Debt Transactions

In May 2021, the Company issued $86.25 million aggregate principal amount of 4.50% Convertible Senior Notes due June 2026 (the “Convertible Senior Notes”).

The net proceeds from this offering of the Convertible Senior Notes were approximately $82.8 million after deducting the underwriting fees and other expenses paid by the Company.

The Convertible Senior Notes are governed by an indenture (the “Base Indenture”) between the Company and U.S.

Bank National Association, as trustee.

The Convertible Senior Notes bear interest at a rate of 4.50% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021.

The Convertible Senior Notes will mature on June 1, 2026.

The Convertible Senior Notes are convertible at any time prior to the close of business on the business day immediately preceding the maturity date for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the election of the Company, based on an initial conversion rate of 157.7909 shares of the Company’s common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $6.34 per share of common stock), subject to adjustment of the conversion rate under certain circumstances.

In addition, following the occurrence of certain corporate events, if the Company provides notice of redemption or if it exercises its option to convert the Convertible Senior Notes, the Company will, in certain circumstances, increase the conversion rate for a holder that converts its Convertible Senior Notes in connection with such corporate event, such notice of redemption, or such issuer conversion option, as the case may be.

The Company may redeem the Convertible Senior Notes at the Company’s option, in whole or in part, on any business day on or after the date of issuance if the last reported sale price per share of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed subject to certain adjustments, plus accrued and unpaid interest to, but excluding, the redemption date.

Each of the loans was extended for one year beyond its original maturity on the same terms as the original loan.

On February 2, 2022, the Company refinanced its mortgage loan secured by the Park Hyatt Beaver Creek Resort & Spa, which had a final maturity date in April 2022.

The new, non-recourse mortgage loan totals $70.5 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions.

The mortgage loan is interest only and provides for a floating interest rate of SOFR + 2.86%.

Sources and Uses of Cash

We had approximately $216.0 million and $78.6 million of cash and cash equivalents at December 31, 2021 and December 31, 2020, respectively.

We anticipate that our principal sources of funds to meet our cash requirements will include cash on hand, positive cash flow from operations and capital market activities.

We anticipate using funds to pay for (i) capital expenditures for our thirteen

hotel properties, estimated to be approximately $20 million to $24 million in fiscal year 2021 and (ii) debt interest payments are estimated to be approximately $28 million in 2021 based on future payments using the one month LIBOR rate as of December 31, 2020.

We anticipate using funds to pay for (i) capital expenditures for our 14 hotel properties, estimated to be approximately $60 million to $70 million in fiscal year 2022 and (ii) debt interest payments are estimated to be approximately $30.2 million in 2022 based on future payments using the one month LIBOR rate as of December 31, 2021.

This estimate will fluctuate based on changes in the one-month LIBOR rate.

Net Cash Flows Provided by (Used in) Operating Activities.

Net cash flows provided by (used in) operating activities were $(50.3) million and $66.3 million for the year ended December 31, 2020 and 2019, respectively.

Cash flows from operations were impacted by the COVID-19 pandemic, changes in hotel operations of our twelve comparable hotel properties as well as the acquisition of The Ritz-Carlton Lake Tahoe on January 15, 2019.

Net cash flows provided by (used in) operating activities were $64.0 million and $(50.3) million for the years ended December 31, 2021 and 2020, respectively.

Cash flows from operations were impacted by the COVID-19 pandemic and changes in hotel operations of our 13 comparable hotel properties as well the acquisition of the Mr.

C Beverly Hills Hotel on August 5, 2021.

Cash flows from operations are also impacted by the timing of working capital cash flows such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties, settling with hotel managers and timing differences between the receipt of proceeds from business interruption insurance claims and the recognition of the related revenue.

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For the year ended December 31, 2021, net cash flows used in investing activities were $41.7 million.

These cash outflows were primarily attributable to $25.6 million of capital improvements made to various hotel properties offset by $9.0 million of insurance proceeds received related to Hurricane Irma.

These cash outflows were primarily attributable to $25.6 million of capital improvements made to various hotel properties, approximately $17.6 million associated with the acquisition of the Mr.

Beverly Hills Hotel and earnest money associated with the pending acquisition of Dorado Beach, a Ritz-Carlton Reserve, partially offset by proceeds of $1.8 million from the sale of certain ERFP assets to Ashford Inc.

For the year ended December 31, 2020, net cash flows used in investing activities were $16.5 million.

These cash outflows were primarily attributable to $111.8 million for the acquisition of The Ritz-Carlton Lake Tahoe, $136.3 million of capital improvements made to various hotel properties and a $332,000 investment in OpenKey, partially offset by $10.3 million of net cash proceeds from the sale of FF&E pursuant to the ERFP, $11.0 million of insurance proceeds received related to Hurricane Irma and proceeds of $597,000 from the sale of our investment in Ashford Inc.

These cash outflows were primarily attributable to $25.6 million of capital improvements made to various hotel properties offset by $9.0 million of insurance proceeds related to Hurricane Irma.

Net Cash Flows Provided by (Used in) Financing Activities.

For the year ended December 31, 2021, net cash flows provided by financing activities were $128.0 million.

Cash inflows primarily consisted of borrowings on indebtedness of $109.3 million, net proceeds of $13.3 million from the “at-the-market” common stock offering and $474,000 from the issuance of preferred stock, partially offset by repayments of indebtedness of $47.8 million, $16.2 million of dividend and distribution payments, $6.5 million of payments for loan costs and fees associated with loan forbearance, and distributions of $2.6 million to the holder of a noncontrolling interest in consolidated entities.

Cash inflows primarily consisted of net proceeds of $83.2 million from the issuance of our Convertible Senior Notes, $102.5 million from the issuance of common stock, $36.9 million from the issuance of preferred stock and contributions of $1.2 million from a noncontrolling interest in consolidated entities.

The cash inflows were partially offset by repayments of indebtedness of $84.2 million, $9.1 million of dividend and distribution payments and $1.9 million of payments for loan costs and fees.

For the year ended December 31, 2020, net cash flows provided by financing activities were $49.6 million.

Cash inflows primarily consisted of borrowings on indebtedness of $329.5 million and proceeds of $645,000 from the issuance of preferred stock, net of discounts and offering expenses, partially offset by $257.1 million for repayments of indebtedness, $33.4 million of dividend and distribution payments, $4.4 million for payments of loan costs and other fees and $2.7 million for distributions to the holder of a noncontrolling interest in consolidated entities.

We rely entirely on the performance of our properties and the ability of the properties’ managers to increase revenues to keep pace with inflation.

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Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, and utilities are subject to inflation as well.

Off-Balance Sheet Arrangements

In the normal course of business, we may form or invest in partnerships or joint ventures.

We evaluate each partnership and joint venture to determine whether the entity is a variable interest entity (“VIE”).

If the entity is determined to be a VIE we assess whether we are the primary beneficiary and need to consolidate the entity.

For further discussion see note 2 to our consolidated financial statements.

We have no other off-balance sheet arrangements.

Contractual Obligations and Commitments

The table below summarizes future obligations for principal and estimated interest payments on our debt and future minimum lease payments on our operating leases, each as of December 31, 2020, assuming no exercise of loan extension options (in thousands):

Payments Due by Period

< 1 Year 1-3 Years 3-5 Years > 5 Years Total

Contractual obligations excluding extension options:

Long-term debt obligations (1)

$ 567,229 $ 232,495 $ 329,000 $ — $ 1,128,724

Estimated interest obligations (2)

20,464 21,889 3,151 — 45,504

Operating lease obligations 3,283 6,484 6,502 146,008 162,277

Capital commitments

12,232 — — — 12,232

Total contractual obligations $ 603,208 $ 260,868 $ 338,653 $ 146,008 $ 1,348,737

____________________

(1) Certain loans contain extension options.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Indebtedness”

(2) For variable-rate indebtedness, interest obligations are estimated based on the LIBOR interest rate as of December 31, 2020.

In addition to the amounts discussed above, we also have management agreements which require us to pay monthly management fees, incentive fees, group service fees and other general fees, if required.

These management agreements expire from December 2023 through December 2065.

Business - Hotel Management Agreements.”

Some of our loan agreements contain financial and other covenants.

If we violate these covenants, we could be required to repay a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all.

We were in compliance with all covenants at December 31, 2020.

Such Event of Default under the senior revolving credit facility agreement was eliminated by the First Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020, which provides that defaults under mortgage and mezzanine loans with an aggregate principal amount in excess of $200 million do not trigger a default under the senior revolving credit agreement unless such mortgage or mezzanine loans are also accelerated, and excluding from the $200 million threshold, any default and acceleration under those certain mortgage and mezzanine loans having an aggregate principal amount of $435 million and secured by the Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, The Notary Hotel and The Clancy.

As of December 31, 2020, no loans are in default.

Additionally, the Company did not make rental payments under two ground leases that are paid monthly;

As of December 31, 2020, the Company is current on its rental payments.

Critical Accounting Policies

Our accounting policies are fully described in note 2 to our consolidated financial statements included in “Item 8.

Financial Statements and Supplementary Data.” We believe that the following discussion addresses our most critical accounting policies,

representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Financial Statements and Supplementary Data.” We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Impairment of Investments in Hotel Properties.

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At December 31, 2021, we had TRS net operating loss carry forwards for U.S.

federal income tax purposes of $68.7 million, of which $54.0 million will begin to expire in 2023.

federal income tax purposes of $61.2 million, of which $52.3 million is subject to expiration and will begin to expire in 2023.

The remainder was generated after December 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act.

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Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (“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.

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.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842):

Effective Dates (“ASU 2019-10”).

ASU 2019-10 updates the effective dates for ASU 2016-13, but there is no change for public companies.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (“ASU 2019-11”).

ASU 2019-11, clarifies specific issues within the amendments of ASU 2016-13.

We adopted the standard effective January 1, 2020 and the adoption of this standard did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”), which clarifies the interaction between the accounting for equity securities, equity method investments, and certain derivative instruments.

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ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years and should be applied prospectively.

Early adoption is permitted.

We are currently evaluating the impact that ASU 2020-01 will have on our consolidated financial statements and related disclosures.

We adopted the standard effective January 1, 2021, and the adoption of this standard did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

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The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope (“ASU 2021-01”) to provide guidance and relief for transitioning to alternative reference rates.

ASU 2021-01 is effective immediately for all entities.

The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.

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For SEC filers, excluding smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.

We are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements and related disclosures.

We plan to adopt ASU 2020-06 through the modified retrospective method on January 1, 2022.

Upon adoption, the Convertible Senior Notes will be recorded as a single debt instrument at amortized cost, instead of being recorded as both a liability and equity.

The Company will also cease recording non-cash interest expense associated with amortization of the debt discount associated with the conversion features.

The adoption of ASU 2020-06 will result in an adjustment to additional paid-in capital, accumulated deficit, and the carrying value of our Convertible Senior Notes.

The impact of adopting ASU 2020-06 will be an increase to “indebtedness, net” and a decrease to stockholders’ equity of approximately $5.6 million.

We do not expect the adoption of this standard to have a material impact on our consolidated financial statements, beyond the impact to our Convertible Senior Notes described above.

Non-GAAP Financial Measures

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EBITDA is defined as net income (loss) before interest expense and amortization of loan costs, depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entity and after the Company’s portion of EBITDA of OpenKey.

In addition, we excluded impairment on real estate, (gain) loss on insurance settlement, disposition of assets and sale of hotel property and Company’s portion of EBITDAre of OpenKey from EBITDA to calculate EBITDA for real estate, or EBITDAre, as defined by NAREIT.

We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/loss on investments, unrealized gain/ loss on derivatives and stock/unit-based compensation.

In addition, we excluded impairment on real estate, (gain) loss on insurance settlement and disposition of assets and Company’s portion of EBITDAre of OpenKey from EBITDA to calculate EBITDA for real estate, or EBITDAre, as defined by NAREIT.

We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/ loss on derivatives and stock/unit-based compensation.

We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition.

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EBITDA 73,078 (10,605) 127,583

Impairment charges on real estate — — 71

(Gain) loss on insurance settlement, disposition of assets and sale of hotel property (10,149) (25,165) (15,738)

(Gain) loss on insurance settlement and disposition of assets (696) (10,149) (25,165)

EBITDAre 72,382 (20,754) 102,418

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Unrealized (gain) loss on investment in Ashford Inc.

— (7,872) 8,010

Unrealized (gain) loss on derivatives (32) (4,959) 1,103

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Legal, advisory and settlement costs (208) 2,023 527

Uninsured hurricane and wildfire related costs — — 412

Company’s portion of adjustments to EBITDAre of OpenKey 7 13 25

Adjusted EBITDAre $ 87,465 $ (4,535) $ 121,465

The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year ended December 31, 2020 (in thousands) (unaudited):

The results of The Mr.

C Beverly Hills Hotel are included from its acquisition date through December 31, 2021 (in thousands) (unaudited):

Year Ended December 31, 2021

Capital Hilton Hilton La Jolla Torrey Pines Sofitel Chicago Magnificent Mile Bardessono Hotel and Spa Pier House Resort & Spa Hotel Yountville Park Hyatt Beaver Creek Resort & Spa The Notary Hotel The Clancy The Ritz-Carlton Sarasota The Ritz-Carlton Lake Tahoe Marriott Seattle Waterfront The Ritz-Carlton St.

Thomas Hotel Total Corporate / Allocated (1)

C Beverly Hills Hotel Hotel Total Corporate / Allocated (1)

Braemar Hotels & Resorts Inc.

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(2) Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.

The results of The Ritz-Carlton Lake Tahoe are included from its acquisition date through December 31, 2019 (in thousands) (unaudited):

Year Ended December 31, 2020

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The results of The Ritz-Carlton Sarasota are included from its acquisition date through December 31, 2018, and the results of the Tampa Renaissance hotel are excluded since its disposition date (in thousands) (unaudited):

The results of The Ritz-Carlton Lake Tahoe are included from its acquisition date through December 31, 2019 (in thousands) (unaudited):

Year Ended December 31, 2019

Capital Hilton Hilton La Jolla Torrey Pines Sofitel Chicago Magnificent Mile Bardessono Hotel and Spa Pier House Resort & Spa Hotel Yountville Park Hyatt Beaver Creek Resort & Spa The Notary Hotel Plano Marriott Legacy Town Center The Clancy The Ritz-Carlton Sarasota Marriott Seattle Waterfront The Ritz-Carlton St.

Thomas Tampa Renaissance Hotel Total Corporate / Allocated (1)

Thomas Hotel Total Corporate / Allocated (1)

Braemar Hotels & Resorts Inc.

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(2) Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.

We calculate FFO and Adjusted FFO in the following table.

FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on insurance settlement, disposition of assets and sale of hotel property, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities.

FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on insurance settlement and disposition of assets, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities.

NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP.

Our calculation of Adjusted FFO excludes dividends on convertible preferred stock, transaction and conversion costs, write-off of loan costs and exit fees, amortization of loan costs, legal, advisory and settlement costs, advisory services incentive fee, other income/expense and non-cash items such as unrealized gain/loss on investments, interest expense accretion on refundable membership club deposits, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey.

Our calculation of Adjusted FFO excludes dividends on Series B Convertible Preferred Stock, gain/loss on extinguishment of preferred stock, transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, other income/expense and non-cash items such as interest expense on Convertible Senior Notes, interest expense accretion on refundable membership club deposits, amortization of loan costs, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey.

FFO and Adjusted FFO exclude amounts attributable to the portion of a partnership owned by the third-party.

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Preferred dividends (8,745) (10,219) (10,142)

Gain (loss) on extinguishment of preferred stock (4,595) — —

Net income (loss) attributable to common stockholders (40,004) (115,481) (9,771)

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71,072 70,426 66,933

Impairment charges on real estate — — 71

Net income (loss) attributable to redeemable noncontrolling interests in operating partnership (3,597) (12,979) (1,207)

Equity in (earnings) loss of unconsolidated entity 252 217 199

(Gain) loss on insurance settlement, disposition of assets and sale of hotel property (10,149) (25,165) (15,738)

(Gain) loss on insurance settlement and disposition of assets (696) (10,149) (25,165)

Company’s portion of FFO of OpenKey (251) (216) (201)

FFO available to common stockholders and OP unitholders 26,776 (68,182) 30,788

Series B Cumulative Convertible Preferred Stock dividends 6,919 6,842 6,829

Series B Convertible Preferred Stock dividends 4,747 6,919 6,842

(Gain) loss on extinguishment of preferred stock 4,595 — —

Transaction and conversion costs 2,637 1,370 2,076

Other (income) expense — 5,126 13,947

Interest expense on Convertible Senior Notes 3,378 — —

Interest expense accretion on refundable membership club benefits 772 818 864

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Unrealized (gain) loss on investment in Ashford Inc.

— (7,872) 8,010

Unrealized (gain) loss on derivatives (32) (4,959) 1,103

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Legal, advisory and settlement costs (208) 2,023 527

Uninsured hurricane and wildfire related costs — — 412

Company’s portion of adjustments to FFO of OpenKey 7 13 28

Adjusted FFO available to common stockholders, OP unitholders and Series B Cumulative Convertible preferred stockholders on an “as converted” basis $ (41,728) $ 61,156 $ 66,396

Adjusted FFO available to common stockholders, OP unitholders, Series B Cumulative Convertible preferred stockholders and convertible note holders on an “as converted” basis $ 56,960 $ (41,728) $ 61,156

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis