What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-10 compared with 2021-03-05 · 688 added, 547 removed, 1187 unchanged (51% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Dallas, Texas ;

PCAOB ID # 243 )

Consolidated Balance Sheets — December 31, 2021 and 2020

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We have audited the accompanying consolidated balance sheets of Braemar Hotels & Resorts Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, and comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 5, 2021 expressed an adverse opinion thereon.

Adoption of New Accounting Standard

As discussed in Notes 2 and 18 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2019 due to the adoption of ASU No.

2016-02, Leases, and the associated amendments (Topic 842), using the modified retrospective method.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 10, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

COVID-19, Management’s Plans and Liquidity

As described in Note 1 of the Company’s financial statements, in March 2020, the World Health Organization declared COVID-19 to be a global pandemic.

Due to the widespread travel restrictions imposed by governments, the Company experienced postponements or cancellations of a significant number of business conferences and similar events and reduced occupancies at its hotel properties.

Additionally, beginning on April 1, 2020, the Company did not make interest payments on

some of its debt, which resulted in an event of default on some its property-level debt as well as its credit facility.

These events of default were cured in 2020 as part of management’s plan to alleviate substantial doubt.

Due to these events and conditions, the Company determined conditions existed that created substantial doubt about its ability to continue as a going concern for a period of at least one year from the date the financial statements are issued.

However, management’s plans, which primarily relied on currently available funds;

amendments to debt agreements which were executed during 2020, including waivers on certain financial covenants;

forecasted future cash flows, reduced operating expenses and suspended common stock dividends, alleviated the substantial doubt about the Company’s ability to continue as a going concern.

We identified the hotels’ forecasted future cash flows used in the going concern assessment as a critical audit matter.

Auditing the hotel cash flows was especially challenging and required significant auditor judgment due to the uncertainties resulting from COVID-19 and its continuing impact on the hospitality industry as well as the Company, thereby creating challenges to forecast future hotel revenue trends or leverage historical information to forecast expected hotel revenue.

The primary procedures we performed to address the critical audit matter included:

• Comparing the hotels’ prior cash flow forecasts to actual results to assess the Company’s ability to accurately forecast future results.

• Assessing the reasonableness of management’s key assumptions, including projected revenue, in the forecasted future cash flows by (1) considering available industry data on revenue trends and (2) evaluating positive and negative evidence that support or contradict the conclusions reached by management.

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Hotel Property Acquisition for Mr.

C Beverly Hills Hotel

As described in Note 4 to the consolidated financial statements, the Company acquired a 100% interest in the Mr.

C Beverly Hills Hotel and five luxury residences adjacent to the hotel on August 5, 2021 (“the Acquisition”).

The total consideration consisted of $10.0 million of cash, 2.5 million Braemar OP common units with a fair value of approximately $13.2 million and 500,000 warrants for the purchase of Braemar common stock with a fair value of approximately $1.5 million.

Management utilize d various estimates in the fair value assessment related to the Acquisition.

We identified the evaluation of the fair value of the investment in hotel properties acquired in the Acquisition as a critical audit matter.

Specifically, there was judgment applied by management when developing the fair value estimates used to allocate the purchase consideration to the acquired land, hotel building, residences and respective improvements, which also included

making judgments about the valuation methodologies ( e.g., market approach and cost approach) and inputs to the valuation model.

Auditing these matters involved especially challenging auditor effort due to the specialized skills and knowledge required to evaluate the valuation methodologies and the reasonableness of the inputs used to determine the fair value of the investment in hotel properties acquired.

The primary procedures we performed to address this critical audit matter utilized valuation professionals with specialized knowledge and skills, who assisted in:

• Assessing the appropriateness of the valuation methodologies utilized to allocate the purchase consideration;

• Assessing the relevance of the market comparable transactions utilized by management to determine the fair value of the acquired land, by independently reviewing similar transactions from industry sources compared to transactions used by the Company in reaching its conclusion on the fair value of the acquired elements;

• Assessing the reasonableness of the fair value of the hotel building, residences and respective improvements by comparing the replacement cost to observable market information.

/s/ BDO USA, LLP

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Other liabilities 20,034 18,077

Derivative liabilities 1,435 —

Total liabilities 1,355,657 1,278,247

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65,426 106,949

Series E redeemable preferred stock, $ 0.01 par value, 1,710,399 and 0 shares issued and outstanding at December 31, 2021 and December 31, 2020

Series M redeemable preferred stock, $ 0.01 par value, 29,044 and 0 shares issued and outstanding at December 31, 2021 and December 31, 2020

Redeemable noncontrolling interests in operating partnership 36,087 27,655

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Depreciation and amortization 73,762 73,371 70,112

Impairment charges — — 71

Advisory services fee 22,641 18,486 20,527

(Gain) loss on legal settlements ( 917 ) — —

Transaction costs 563 — 704

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Total expenses 426,789 316,974 448,375

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

OPERATING INCOME (LOSS) 1,449 ( 79,851 ) 64,404

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Other income (expense) — ( 5,126 ) ( 13,947 )

Interest expense and amortization of loan costs ( 45,104 ) ( 54,507 ) ( 49,653 )

Interest expense and amortization of discounts and loan costs ( 30,901 ) ( 45,104 ) ( 54,507 )

Write-off of loan costs and exit fees ( 1,963 ) ( 3,920 ) ( 647 )

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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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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Noncontrolling

Entities 5.50 % Series B Cumulative Convertible Preferred Stock

Redeemable Noncontrolling Interest in Operating Partnership

Common Stock Additional Paid-in Capital Accumulated Deficit Total

Shares Amount Shares Amount Shares Amount

Entities Total 5.50 % Series B Cumulative Convertible Preferred Stock

Series E Redeemable

Preferred Stock Series M Redeemable

Preferred Stock Redeemable Noncontrolling Interest in Operating Partnership

Common Stock Additional Paid-in Capital Accumulated Deficit

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance at December 31, 2018 1,600 $ 16 32,512 $ 325 $ 512,545 $ ( 115,410 ) $ ( 5,391 ) $ 392,085 4,966 $ 106,123 — $ — — $ — $ 44,885

Impact of adoption of new accounting standard — — — — — ( 103 ) — ( 103 ) — — — — — — —

Distribution of Ashford Inc.

common stock — — — — — ( 3,509 ) — ( 3,509 ) — — — — — — ( 456 )

Purchase of common stock — — ( 45 ) — ( 520 ) — — ( 520 ) — — — — — — —

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Issuance of preferred shares — — — — — — — — 42 797 — — — — —

Preferred shares issuance costs — — — — ( 13 ) — — ( 13 ) — — — — — — —

Dividends declared – common stock ($ 0.64 /share)

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Distributions to noncontrolling interests — — — — — — ( 2,654 ) ( 2,654 ) — — — — — — ( 2,594 )

Redemption/conversion of operating partnership units — — 165 2 2,199 — — 2,201 — — — — — — ( 2,201 )

Net income (loss) — — — — — 371 2,032 2,403 — — — — — — ( 1,207 )

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Balance at December 31, 2019 1,600 $ 16 32,885 $ 329 $ 519,551 $ ( 150,629 ) $ ( 6,013 ) $ 363,254 5,008 $ 106,920 — $ — — $ — $ 41,570

Impact of adoption of new accounting standard — — — — — ( 103 ) — ( 103 ) — — —

Distribution of Ashford Inc.

common stock — — — — — ( 3,509 ) — ( 3,509 ) — — ( 456 )

Purchase of common stock — — ( 47 ) — ( 155 ) — — ( 155 ) — — — — — — —

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Issuance of preferred shares — — — — — — — — 23 29 — — — — —

Preferred shares issuance costs — — — — ( 13 ) — — ( 13 ) — — —

Dividends declared – common stock ($ 0.64 /share)

— — — — — ( 21,302 ) — ( 21,302 ) — — —

Issuance of common stock — — 4,729 47 13,280 — — 13,327 — — — — — — —

PSU dividend claw back upon cancellation — — — — — 202 — 202 — — — — — — —

Dividends declared – preferred stock - Series B ($ 1.3750 /share)

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Distributions to noncontrolling interests — — — — — — ( 2,639 ) ( 2,639 ) — — — — — — —

Performance LTIP dividend claw back upon cancellation — — — — — — — — — — — — — — 270

Redemption/conversion of operating partnership units — — 339 3 3,451 — — 3,454 — — — — — — ( 3,454 )

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Equity-based compensation — — — — 6,891 — — 6,891 — — — — — — 3,292

Issuance of common stock — — 18,243 183 102,134 — — 102,317 — — — — — — —

Issuance of preferred stock — — — — — — — — — — 1,710 36,211 29 582 —

Issuance of restricted shares/units — — 764 8 ( 8 ) — — — — — — — — — —

Issuance of common units for hotel acquisition — — — — — — — — — — — — — — 13,175

Forfeiture of restricted common shares — — ( 26 ) — — — — — — — — — — — —

Issuance of preferred shares — — — — — — — — 23 29 —

Issuance of common stock — — 4,729 47 13,280 — — 13,327 — — —

PSU dividend claw back upon cancellation — — — — — 143 — 143 — — — — — — —

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— — — — — ( 3,300 ) — ( 3,300 ) — — — — — — —

Distributions to noncontrolling interests — — — — — — ( 2,639 ) ( 2,639 ) — — —

Dividends declared – preferred stock - Series E ($ 1.00 /share)

— — — — — ( 683 ) — ( 683 ) — — — — — — —

8.25 % Series D Cumulative

Preferred Stock

Noncontrolling

Entities Total 5.50 % Series B Cumulative Convertible Preferred Stock

Series E Redeemable

Preferred Stock Series M Redeemable

Preferred Stock Redeemable Noncontrolling Interest in Operating Partnership

Common Stock Additional Paid-in Capital Accumulated Deficit

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Dividends declared – preferred stock - Series M ($ 0.85 /share)

— — — — — ( 15 ) — ( 15 ) — — — — — — —

Contributions from noncontrolling interests — — — — — — 1,189 1,189 — — — — — — —

Performance LTIP dividend claw back upon cancellation — — — — — — — — — — — — — — 38

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Net income (loss) — — — — — ( 26,664 ) ( 2,650 ) ( 29,314 ) — — — — — — ( 3,597 )

Extinguishment of preferred stock — — 7,291 71 46,047 ( 4,595 ) — 41,523 ( 1,953 ) ( 41,523 ) — — — — —

Equity component of Convertible Senior Notes — — — — 6,257 — — 6,257 — — — — — — —

Redemption value adjustment - preferred stock — — — — — ( 3,261 ) — ( 3,261 ) — — — 3,128 — 133 —

Redemption value adjustment — — — — — ( 108 ) — ( 108 ) — — — — — — 108

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Bad debt expense 436 727 444

Amortization of loan costs and capitalized default interest 854 4,343 4,260

Amortization of loan costs, discounts and capitalized default interest ( 205 ) 854 4,343

Write-off of loan costs and exit fees 1,963 3,920 647

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Interest expense accretion on refundable membership club deposits 772 818 864

Write-off of income guarantee — — 2,000

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

Impairment charges — — 71

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

Realized and unrealized (gain) loss on investment in Ashford Inc.

— 5,552 8,010

Realized and unrealized (gain) loss on derivatives ( 32 ) ( 24 ) 1,381

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Deferred income tax expense (benefit) ( 174 ) ( 956 ) 764

Changes in operating assets and liabilities, exclusive of the effects of hotel acquisition:

Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions:

Accounts receivable and inventories ( 11,036 ) 4,057 ( 5,788 )

Insurance receivable — — 8,825

Prepaid expenses and other assets ( 793 ) ( 1,460 ) ( 2,228 )

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Proceeds from property insurance — 9,037 11,020

Net proceeds from disposition of assets and sale of hotel property — 10,300 65,336

Net proceeds from disposition of assets 1,816 — 10,300

Proceeds from sale of investment in Ashford Inc.

Acquisition of hotel properties, net of cash and restricted cash acquired — ( 111,751 ) ( 184,960 )

Acquisition of hotel properties ( 17,615 ) — ( 111,751 )

Investment in unconsolidated entity ( 233 ) ( 26 ) ( 332 )

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Proceeds from issuance of common stock 102,461 13,259 —

Contributions from noncontrolling interest in consolidated entities 1,189 — —

Distributions to noncontrolling interest in consolidated entities — ( 2,639 ) ( 2,654 )

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Common stock purchases accrued but not paid — 28 136

Issuance of common units for hotel acquisition 13,175 — —

Issuance of warrants in hotel acquisition 1,528 — —

Assumption of debt in hotel acquisition 49,815 — —

Capital expenditures accrued but not paid 4,564 8,993 18,572

Non-cash dividends paid — — 58

Distribution of Ashford Inc.

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Non-cash loan principal associated with default interest and late charges — 9,859 —

Non-cash extinguishment of preferred stock 41,523 — —

Issuance of common stock from preferred stock exchange 46,118 — —

Accrued common stock offering expense 76 — —

Unsettled common stock offering proceeds — 68 —

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Accrued preferred stock offering expenses 101 — 33

Non-cash settlement of note receivable — — 8,098

Non-cash settlement of TIF loan — — 8,098

Non-cash preferred stock dividends 39 — —

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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Braemar conducts its business and owns substantially all of its assets through its operating partnership, Braemar Hospitality Limited Partnership (“Braemar OP”).

In this report, the terms the “Company,” “we,” “us” or “our” refers to Braemar Hotels & Resorts Inc.

In this report, the terms “Company,” “we,” “us” or “our” refers to Braemar Hotels & Resorts Inc.

and, as the context may require, all entities included in its consolidated financial statements.

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

Remington Hotels, a subsidiary of Ashford Inc.

after November 6, 2019, manages three of our thirteen hotel properties.

Remington Hotels, a subsidiary of Ashford Inc., manages four of our 14 hotel properties.

Third-party management companies manage 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.

The accompanying consolidated financial statements include the accounts of wholly-owned and majority-owned subsidiaries of Braemar OP that as of December 31, 2020, own thirteen hotel properties in six states, the District of Columbia and the U.S.

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.

The accompanying consolidated financial statements include the accounts of wholly-owned and majority-owned subsidiaries of Braemar OP that as of December 31, 2021, own 14 hotel properties in six states, the District of Columbia and the U.S.

Virgin Islands (“USVI”).

The portfolio includes eleven wholly-owned hotel properties and two hotel properties that are owned through a partnership in which Braemar OP has a controlling interest.

The portfolio includes 12 wholly-owned hotel properties and two hotel properties that are owned through a partnership in which Braemar OP has a controlling interest.

These hotel properties represent 3,875 total rooms, or 3,640 net rooms, excluding those attributable to our partner.

As a REIT, Braemar is required to comply with limitations imposed by the Internal Revenue Code related to operating hotels.

As of December 31, 2020, twelve of our thirteen hotel properties were leased by wholly-owned or majority-owned subsidiaries that are treated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes (collectively the TRS entities are referred to as “Braemar TRS”).

As a REIT, Braemar is required to comply with limitations imposed by the Code related to operating hotels.

As of December 31, 2021, 13 of our 14 hotel properties were leased by wholly-owned or majority-owned subsidiaries that are treated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes (collectively the TRS entities are referred to as “Braemar TRS”).

One hotel property, located in the USVI, is owned by our USVI TRS.

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Hotel operating results related to the hotel properties are included in the consolidated statements of operations.

As of December 31, 2020, ten of the thirteen hotel properties were leased by Braemar’s wholly-owned TRS and the two hotel properties majority-owned through a consolidated partnership were leased to a TRS wholly-owned by such consolidated partnership.

As of December 31, 2021, 11 of the 14 hotel properties were leased by Braemar’s wholly-owned TRS, and the two hotel properties majority-owned through a consolidated partnership were leased to a TRS wholly-owned by such consolidated partnership.

Each leased hotel is leased under a percentage lease that provides for each lessee to pay in each calendar month the base rent plus, in each calendar quarter, percentage rent, if any, based on hotel revenues.

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(“Accor”), Hyatt Corporation (“Hyatt”), Ritz-Carlton (Virgin Islands), Inc.

and The Ritz-Carlton Hotel Company, L.L.C., each of which are affiliates of Marriott (“Ritz-Carlton”) and Remington Hotels, which are eligible independent contractors under the Internal Revenue Code.

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.

and The Ritz-Carlton Hotel Company, L.L.C., each of which is an affiliate of Marriott (“Ritz-Carlton”) and Remington Hotels, which are eligible independent contractors under the Code.

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.

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.

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 for term loan details.

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 the 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.

The Company also 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 entered into the Second Amendment to Second Amended and Restated Credit Agreement.

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.

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 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.

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.

As of December 31, 2021, the Company maintained unrestricted cash of $ 216.0 million and restricted cash of $ 47.4 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 of December 31, 2020, there was also $ 12.3 million due to the Company from third-party hotel managers, which is 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 vast majority of the restricted cash comprises lender and manager held reserves.

As of December 31, 2021, there

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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.

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.

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.

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The following items affect reporting comparability of our historical consolidated financial statements:

• on April 4, 2018, we acquired The Ritz-Carlton Sarasota.

The operating results of the hotel property have been included in the results of operations as of its acquisition date;

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

• on January 15, 2019, we acquired The Ritz-Carlton Lake Tahoe.

The operating results of the hotel property have been included in the results of operations as of its acquisition date;

• on August 5, 2021, we acquired the Mr.

C Beverly Hills Hotel and five adjacent luxury residences.

The operating results of the hotel property have been included in the results of operations from its acquisition date.

Use of Estimates —The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

For property and equipment acquired in a business combination, we record the sets acquired based on their fair value as of the acquisition date.

Replacements and improvements and finance leases are capitalized, while repairs and maintenance are expense as incurred.

Property and equipment acquired in an asset acquisition are recorded at cost.

The acquisition cost is allocated to land, buildings, improvements, furniture, fixtures and equipment, as well as identifiable intangible and lease assets and liabilities.

Acquisition cost is allocated using relative fair values.

We evaluate several factors, including weighted market data for similar assets, expected future cash flows discounted at risk adjusted rates, and replacement costs for assets to determine an appropriate exit cost when evaluating the fair values.

Impairment of Investments in Hotel Properties —Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

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For certain equipment leases, such as office equipment, copiers and vehicles, we account for the lease and non-lease components as a single lease component.

As of January 1, 2019, we recorded operating lease liabilities as well as a corresponding operating lease ROU asset which includes deferred rent and the reclassified intangible assets and intangible liabilities associated with above/below market-rate leases where we are the lessee.

Intangible Assets, net —Intangible assets, net represents the customer relationships associated with The Ritz-Carlton Sarasota acquisition, which are amortized using the straight-line method over its expected useful life, which approximates amortization based on economic consumption.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Derivative Instruments —We use interest rate derivatives to hedge our risks and to capitalize on the historical correlation between changes in LIBOR (London Interbank Offered Rate) and RevPAR.

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The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.

Advance deposits are recorded as liabilities when a customer or group of customers provides a deposit for a future stay or banquet event at our hotels.

Advance deposits are converted to revenue when the services are provided to the customer or when the customer with a noncancellable reservation fails to arrive for part or all of the reservation.

Conversely, advance deposits are generally refundable upon guest cancellation of the related reservation within an

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established period of time prior to the reservation.

Our advance deposit balance as of December 31, 2021 and 2020 was $ 31.8 million and $ 16.2 million, respectively, and are generally recognized as revenue within a one-year period.

Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel properties, in-room dining and mini-bars revenue, and banquet/catering revenue from group and social functions.

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We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenues as appropriate (i.e.

Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, condo management fees, resort and destination fees, health center fees, spas, golf, telecommunications, parking, entertainment and other guest services, as well as rental revenue primarily from leased retail outlets at our hotel properties, and membership initiation fees and

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dues, primarily from club memberships.

Cancellation fees are recognized from non-cancellable deposits when the customer provides notification of cancellation in accordance with established management policy time frames.

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Advertising costs are included in “other” hotel expenses in our consolidated statements of operations.

Equity-Based Compensation —Prior to the adoption of ASU 2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, stock/unit-based compensation for non-employees was accounted for at fair value based on the market price of the shares at period end that resulted in recording expense, included in “advisory services fee” and “management fees,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period.

Performance stock units (“PSUs”) and Performance Long-Term Incentive Plan (“Performance LTIP”) units granted to certain executive officers were accounted for at fair value at period end based on a Monte Carlo simulation valuation model that resulted in recording expense, included in “advisory services fee,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period.

Stock/unit grants to certain independent directors are recorded at fair value based on the market price of the shares/units at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant and included in “corporate general and administrative” expense in the consolidated statements of operations.

After the adoption of ASU 2018-07 in the third quarter of 2018, stock/unit-based compensation for non-employees is measured at the grant date and expensed ratably over the vesting period based on the original measurement as of the grant date.

Equity-Based Compensation —Stock/unit-based compensation for non-employees is measured at the grant date and expensed ratably over the vesting period based on the original measurement as of the grant date.

This results in the recording of expense, included in “advisory services fee,” “management fees” and “corporate general and administrative” expense, equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period.

PSUs and Performance LTIP units granted to certain executive officers vest based on time and market conditions and are measured at the grant date fair value based on a Monte Carlo simulation valuation model.

The subsequent expense is then ratably recognized over the service period as the service is rendered regardless of when, if ever, the market conditions are satisfied.

This results in recording expense, included in “advisory services fee,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period.

Stock/unit grants to certain independent directors are measured at the grant date based on the market price of the shares/units at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.

With respect to the 2019 and 2020 award agreements, the number of PSUs and Performance LTIP units actually earned may range from 0 % to 200 % of target based on achievement of a specific relative total stockholder return based on the formulas determined by the Company’s compensation committee on the grant date.

The performance criteria for the PSUs and Performance LTIP units are based on market conditions under the relevant literatures .

The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, regardless of the actual outcome of the market condition.

With respect to the 2021 award agreements, the compensation committee shifted to a new performance metric, pursuant to which, the performance awards will be eligible to vest, from 0 % to 200 % of target, based on achievement of certain performance targets over the three-year performance period commencing on January 1, 2021 and ending on December 31, 2023.

The performance criteria for the 2021 performance grants are based on performance conditions under the relevant literature.

The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award.

The grant date fair value of the award may vary from period to period, as the number of performance grants earned may vary since the estimated probable achievement of certain performance targets may vary from period to period.

Depreciation and Amortization —Hotel properties are depreciated over the estimated useful life of the assets and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets.

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However, Braemar TRS and our USVI TRS are treated as TRSs for U.S.

federal income tax purposes.

federal income tax

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In accordance with authoritative accounting guidance, we account for income taxes related to our TRSs using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.

The entities that own twelve of our thirteen hotel properties are considered partnerships for U.S.

The entities that own 13 of our 14 hotel properties are considered partnerships for U.S.

federal income tax purposes.

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Accordingly, we provide for income taxes in these jurisdictions for the partnerships.

The consolidated entities that operate the thirteen hotel properties are considered taxable corporations for U.S.

The consolidated entities that operate the 14 hotel properties are considered taxable corporations for U.S.

federal, foreign, state, and city income tax purposes and have elected to be TRSs of Braemar.

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that operate the two hotel properties owned by a consolidated partnership elected to be treated as TRSs of Ashford Trust in April 2007, when the partnership was acquired by Ashford Trust.

As a result of Ashford Trust’s distribution of its remaining common units of Braemar OP and shares of common stock of Braemar on July 27, 2015, the Braemar TRSs revoked their elections to be TRSs of Ashford Trust effective July 29, 2015.

The Braemar TRSs remain TRSs of Braemar.

The “Income Taxes” topic of the FASB’s ASC addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements.

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Diluted income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share.

Recently Adopted Accounting Standards —In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

The ASU sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses.

The standard requires measurement and recognition of expected credit losses for most financial assets held.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

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.

Recently Adopted Accounting Standards —In January 2020, the Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update (“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.

The ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments—Equity Method and Joint Ventures , for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

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Early adoption is permitted.

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

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

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”).

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

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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Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

This ASU (1) simplifies the accounting for convertible debt instruments and convertible

(1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification (“ASC”) 470-20, Debt:

Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock;

(2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

preferred stock by removing the existing guidance in ASC 470-20, Debt:

(2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification;

own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification;

and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (“EPS”) for convertible instruments by using the if-converted method.

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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.

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

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USVI 1 16,771 6,667 8,157 — 31,595

Corporate entities — — — — 7 7

Total 13 $ 136,265 $ 50,263 $ 40,446 $ — $ 226,974

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USVI 1 3,295 3,057 19,770 — 26,122

Sold hotel properties 1 8,171 2,876 3,564 — 14,611

Corporate entities — — — — 7 7

Total 13 $ 303,848 $ 115,085 $ 68,674 $ 7 $ 487,614

For the years ended December 31, 2020, 2019 and 2018, the Company recorded revenue from business interruption losses associated with lost profits from hurricanes of $ 4.0 million, $ 19.3 million and $ 13.9 million, respectively.

Additionally, during the year ended December 31, 2018, the Company recorded revenue of $ 1.9 million, net of deductibles of $ 500,000 , for business interruption losses associated with lost profits at the Bardessono Hotel and Spa and Hotel Yountville as a result of the Napa wildfires.

These revenues are included in “other” hotel revenue in our consolidated statements of operations.

For the year ended December 31, 2018, the Company recorded $ 3.4 million of business interruption income for the Tampa Renaissance related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

These revenues are included in “other” hotel revenue in our consolidated statements of operations.

For the years ended December 31, 2020 and 2019, the Company recorded revenue from business interruption losses associated with lost profits from Hurricane Irma of $ 4.0 million and $ 19.3 million, respectively.

This revenue is included in “other” hotel revenue in our consolidated statement of operations.

There was no such revenue recorded for the year ended December 31, 2021 as the insurance claim was fully settled in 2020.

Investments in Hotel Properties, net

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Construction in progress 12,038 11,422

Residences 12,746 —

Total cost 1,845,078 1,784,849

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Impairment Charges and Insurance Recoveries

For the years ended December 31, 2020 and 2019, the Company received proceeds of $ 14.5 million and $ 36.6 million, respectively, from our insurance carriers for property damage and business interruption from Hurricane Irma.

In September 2020, the Company reached a final settlement with its insurance carriers related to Hurricane Irma.

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Additionally, for the year ended December 31, 2019, the Company recorded a gain of $ 26.2 million upon settlement of a portion of the insurance claim.

For the years ended December 31, 2020, 2019 and 2018, the Company received proceeds of $ 14.5 million, $ 36.6 million and $ 48.1 million, respectively, from our insurance carriers for property damage and business interruption from Hurricane Irma.

For the year ended December 31, 2021, we recognized a gain of $ 481,000 associated with proceeds received from an insurance claim.

During the years ended December 31, 2021, 2020 and 2019, no impairment charges were recorded.

During the year ended December 31, 2018, the Company recorded an impairment charge of $ 71,000 , as a result of a change in estimate of property

C Beverly Hills Hotel

On August 5, 2021, the Company acquired a 100 % interest in the 138 -room Mr.

C Beverly Hills Hotel and five luxury residences adjacent to the hotel.

The total consideration consisted of $ 10.0 million of cash, 2.5 million Braemar OP common units with a fair value of approximately $ 13.2 million and 500,000 warrants for the purchase of Braemar common stock with a

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

damage as a result of the hurricanes Maria and Irma.

During the year ended December 31, 2019, the Company recorded a loss of $ 1.2 million related to the disposition of FF&E resulting from the renovation at The Notary Hotel.

As of December 31, 2019, the Company had a net liability of $ 2.2 million included in “other liabilities” on the consolidated balance sheet, as it had received insurance proceeds in excess of the sum of its impairment, remediation expenses and business interruption revenue recorded through December 31, 2019.

Hotel Disposition

On June 1, 2018, the Company sold the Tampa Renaissance hotel for $ 68.0 million in cash.

The sale resulted in a gain of $ 15.7 million for the year ended December 31, 2018 and is included in “gain (loss) on insurance settlement, disposition of assets and sale of hotel property” in our consolidated statements of operations.

Since the sale of the hotel property did not represent a strategic shift that has (or will have) a major effect on our operations or financial results, its results of operations were not reported as discontinued operations in our consolidated financial statements.

We included the results of operations for this hotel property through the date of disposition in net income (loss) as shown in our consolidated statements of operations for the year ended December 31, 2018, respectively .

The following table includes the condensed financial information from this hotel property (in thousands):

$ 6.00 strike price and a fair value of approximately $ 1.5 million.

Additionally the Company assumed a $ 50.0 million mortgage loan, with a fair value of approximately $ 49.8 million .

Upon closing, the Company repaid $ 20.0 million of the assumed mortgage loan.

See notes 6, 7 and 11 for further discussion regarding the mortgage loan, common units and warrants.

The acquisition of the Mr.

C Beverly Hills Hotel included the hotel and the adjacent luxury residences (the “residences”).

We have accounted for the transaction as a business combination under Accounting Standards Codification (“ASC”) 805- Business Combinations.

We prepared the purchase price allocation of the assets acquired and liabilities assumed.

The final purchase price allocation was completed with the assistance of a third party appraisal firm during the year ended December 31, 2021.

This valuation is considered a Level 3 valuation technique, as noted in the following table (in thousands):

Land $ 25,232

Buildings and improvements 35,689

Furniture, fixtures and equipment 758

Investments in hotel properties 74,425

Inventories 94

Mortgage loan ( 49,815 )

Net other assets (liabilities) $ ( 486 )

The results of operations of the hotel property have been included in our results of operations from the acquisition date.

The table below summarizes the total revenue and net income (loss) in our consolidated statements of operations for the year ended December 31, 2021:

Year Ended December 31, 2021

Total hotel revenue

Total hotel operating expenses ( 7,431 )

Property taxes, insurance and other ( 529 )

Depreciation and amortization ( 1,294 )

Impairment charges ( 12 )

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

Operating income (loss) 21,083

Interest expense and amortization of loan costs ( 791 )

Income (loss) before income taxes 20,292

(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership ( 2,277 )

Income (loss) before income taxes attributable to the Company $ 18,015

Total revenue $ 6,592

Net income (loss) ( 1,630 )

Pro Forma Financial Results

The following table reflects the unaudited pro forma results of operations as if the acquisitions had occurred and the applicable indebtedness was incurred on January 1, 2020, and the removal of $ 563,000 of non-recurring transaction costs directly attributable to the acquisition for the year ended December 31, 2021 (in thousands):

Year Ended December 31,

Total revenue $ 433,813 $ 235,379

Net income (loss) $ ( 32,720 ) $ ( 128,461 )

Net income (loss) attributable to common stockholders $ ( 38,334 ) $ ( 111,613 )

Pro forma income (loss) per share;

Basic $ ( 0.72 ) $ ( 3.28 )

Diluted $ ( 0.72 ) $ ( 3.28 )

Weighted average common shares outstanding (in thousands):

Basic 52,684 33,998

Diluted 52,684 33,998

Investment in Unconsolidated Entity

OpenKey is a hospitality-focused mobile key platform that provides a universal smart phone app and related hardware and software for keyless entry into hotel guest rooms.

In 2018, the Company made an initial $ 2.0 million investment in OpenKey, which is controlled and consolidated by Ashford Inc., for an initial 8.2 % ownership interest.

An additional investment of $ 26,000 was made during the year ended December 31, 2020.

In 2018, the Company made an initial investment in OpenKey, which is controlled and consolidated by Ashford Inc., for an initial 8.2 % ownership interest.

In 2021, the Company made additional investments of $ 233,000 .

All investments were recommended by our Related Party Transactions Committee and unanimously approved by the independent members of our board of directors.

As of December 31, 2021, the Company has made investments in OpenKey totaling $ 2.6 million.

Our investment is recorded as “investment in unconsolidated entity” in our consolidated balance sheets and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance.

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Our investment is recorded as “investment in unconsolidated entity” in our consolidated balance sheets and is accounted for under the equity method of accounting as we have significant influence over the entity under the applicable accounting guidance.

We review our investment in OpenKey for impairment in each reporting period pursuant to the applicable authoritative accounting guidance.

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Ownership interest in OpenKey 7.8 % 8.2 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes our equity in earnings (loss) in OpenKey (in thousands):

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Indebtedness, net consisted of the following (dollars in thousands):

December 31, 2020 December 31, 2019

Indebtedness Collateral Maturity Interest Rate Debt Balance Book Value of Collateral Debt Balance Book Value of Collateral

Secured revolving credit facility (3)

Equity October 2022 Base Rate (2) + 1.25 % to 2.50 % or LIBOR (1) + 2.25 % to 3.50 %

$ — $ — $ — $ —

Indebtedness Collateral Current Maturity Final

Maturity (12)

Interest Rate December 31, 2021 December 31, 2020

Debt Balance Book Value of Collateral Debt Balance Book Value of Collateral

Mortgage loan (3)

Park Hyatt Beaver Creek Resort & Spa April 2021 LIBOR (1) + 2.75 %

Park Hyatt Beaver Creek Resort & Spa April 2022 April 2022 LIBOR (1) + 3.00 %

$ 67,500 $ 137,718 $ 67,500 $ 140,516

Mortgage loan (4)

The Notary Hotel June 2021 LIBOR (1) + 2.16 %

The Notary Hotel June 2022 June 2025 LIBOR (1) + 2.16 %

435,000 417,109 435,000 439,215

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The Ritz-Carlton St.

Thomas August 2021 LIBOR (1) + 3.95 %

Thomas August 2022 August 2024 LIBOR (1) + 3.95 %

42,500 124,114 42,500 130,216

Term loan (6)

Equity October 2022 October 2022 Base Rate (2) + 1.25 % to 2.65 % or LIBOR (1) + 2.25 % to 3.65 %

Mortgage loan (7)

Hotel Yountville May 2022 LIBOR (1) + 2.55 %

The Ritz-Carlton Sarasota April 2023 April 2023 LIBOR (1) + 2.65 %

99,500 162,621 100,000 163,814

Mortgage loan (7) (8)

Bardessono Hotel and Spa August 2022 LIBOR (1) + 2.55 %

Hotel Yountville May 2023 May 2023 LIBOR (1) + 2.55 %

51,000 85,847 51,000 87,795

Term loan (3)

Equity October 2022 Base Rate (2) + 1.25 % to 2.50 % or LIBOR (1) + 2.25 % to 3.50 %

Mortgage loan (7) (8)

The Ritz-Carlton Sarasota April 2023 LIBOR (1) + 2.65 %

Bardessono Hotel and Spa August 2023 August 2023 LIBOR (1) + 2.55 %

40,000 53,413 40,000 56,645

Mortgage loan (7)

The Ritz-Carlton Lake Tahoe January 2024 LIBOR (1) + 2.10 %

The Ritz-Carlton Lake Tahoe January 2024 January 2024 LIBOR (1) + 2.10 %

54,000 112,713 54,000 113,821

Mortgage loan (9)

Capital Hilton February 2024 LIBOR (1) + 1.70 %

Capital Hilton February 2024 February 2024 LIBOR (1) + 1.70 %

195,000 193,194 197,229 203,918

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Mortgage loan (10)

Pier House Resort & Spa September 2024 LIBOR (1) + 1.85 %

C Beverly Hills Hotel August 2024 August 2024 LIBOR (1) + 3.60 %

30,000 73,587 — —

Mortgage loan (7)

Pier House Resort & Spa September 2024 September 2024 LIBOR (1) + 1.85 %

80,000 85,281 80,000 88,650

Convertible Senior Notes (11)

Equity June 2026 June 2026 4.50 % 86,250 — — —

1,180,750 1,445,597 1,128,724 1,424,590

Capitalized default interest and late charges 3,904 7,304

Deferred loan costs, net ( 3,538 ) ( 5,434 )

Discounts, net ( 8,438 ) —

Indebtedness, net $ 1,172,678 $ 1,445,597 $ 1,130,594 $ 1,424,590

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(2) Base Rate, as defined in the secured term loan agreement, is the greater of (i) the prime rate set by Bank of America, or (ii) federal funds rate + 0.5 %, or (iii) LIBOR + 1.0 %.

(3) Effective June 8, 2020, we amended our secured revolving credit facility totaling $ 75 million, which was the total borrowing capacity.

In conjunction with the amendment, we repaid $ 10.0 million of principal and converted the facility to a term loan with a principal balance of $ 65 million.

The amended term loan is interest only until March 2021 and bears interest at a rate of Base Rate + 1.25 % - 2.50 % or LIBOR + 2.25 % - 3.5 %, with a LIBOR floor of 0.50 %.

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

(5) Effective June 9, 2020, we executed a FF&E accommodation agreement for this mortgage loan.

Terms of the agreement included lender-held reserves were made available to fund property-level operating expenses and monthly FF&E escrow deposits were waived through January 2021.

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

(6) The interest rate spread on this mortgage loan changed from 4.95 % as of December 31, 2019, to 3.95 % as of March 31, 2020, based on an appraisal received in accordance with the August 5, 2019 loan amendment.

(3) Effective January 9, 2021, we amended this mortgage loan.

Terms of the agreement included monthly FF&E escrow deposits being waived from January 2021 through June 2021.

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

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

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

This mortgage loan has a LIBOR floor of 1.00 %.

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

(7) Effective May 1, 2020, we executed a forbearance agreement for this mortgage loan.

Terms of the agreement included adding a LIBOR floor of 0.25 %;

deferral of interest payments for three months with the option to extend the interest payment deferral an additional three months , which was exercised in August 2020, with all deferred payments due at maturity;

lender-held reserves were made available to fund property-level operating expenses;

and monthly FF&E escrow deposits were waived through December 2020.

(8) Effective September 24, 2020, we executed a forbearance agreement for this mortgage loan.

Terms of the agreement included deferral of interest payments for six months , lender-held reserves were made available to fund property-level operating expenses, and monthly FF&E escrow deposits were waived through December 2020.

In conjunction with the forbearance agreement, deferred interest payments of $ 2.2 million were capitalized into the principal balance and are to be repaid in 12 monthly installments beginning January 2021.

(6) Effective February 22, 2021, we amended this term loan.

In conjunction with the amendment, the interest rate spread increased from a rate of Base Rate + 1.25 % - 2.50 % or LIBOR + 2.25 % - 3.50 % to a Base Rate + 1.25 % - 2.65 % or LIBOR + 2.25 % - 3.65 %, with a LIBOR floor of 0.50 %.

On May 18, 2021, we repaid this term loan in full.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

On January 15, 2019, in connection with the acquisition of the 170 -room Ritz-Carlton Lake Tahoe located in Truckee, California, the Company completed the financing of a $ 54.0 million mortgage loan.

(7) Effective December 31, 2020, we amended this mortgage loan.

Terms of the agreement included monthly FF&E escrow deposits being waived from January 2021 through December 2021.

This mortgage loan has a LIBOR floor of 0.25 %.

(8) On September 23, 2021, we amended this mortgage loan.

Terms of the agreement included extending the current and final maturity dates by one year .

(9) Effective March 5, 2021, we amended this mortgage loan.

Terms of the agreement included monthly FF&E escrow deposits waived through July 1, 2021.

(10) This mortgage loan has a LIBOR floor of 1.50 %.

(11) On May 18, 2021, we executed a purchase agreement to sell convertible senior notes in a private offering.

In conjunction with the private offering, we sold convertible senior notes with an aggregate principal amount of $ 86.25 million.

(12) The final maturity date assumes all available extensions options will be exercised.

During the second and third quarters 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.

As of December 31, 2021, no loans are in default.

See note 15 for discussion of the loan modification agreement with Lismore Capital LLC (“Lismore”).

The Company determined that all of the forbearance and other agreements evaluated were considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges.

No gain or loss was recognized during 2020, as the carrying amount of the original loans was not greater than the undiscounted cash flows of the modified loans.

As a result of the troubled debt restructurings, all accrued default interest and late charges were capitalized into the applicable loan balances and are being amortized over the remaining term of the loans using the effective interest method.

The amount of default interest and late charges capitalized into indebtedness for the year ended December 31, 2020 was $ 9.9 million.

The amount of principal amortization for the years ended December 31, 2021 and 2020 was $ 3.4 million and $ 2.6 million, respectively.

On August 5, 2021, in connection with the acquisition of the Mr.

C Beverly Hills Hotel and the adjacent residences, the Company assumed a $ 50 million mortgage loan and repaid $ 20 million upon closing.

This mortgage loan provides for an interest rate of LIBOR + 3.60 %.

The mortgage loan is interest only and has a five year term.

On January 22, 2019, the Company refinanced its existing mortgage loan with an outstanding balance of approximately $ 186.8 million and a final maturity date in November 2021 with a new $ 195.0 million mortgage loan that is interest only, bears interest at a rate of LIBOR + 1.70 % and has a five-year term.

The mortgage loan is secured by the same two hotels:

the Capital Hilton and Hilton La Jolla Torrey Pines.

These two hotels are held in a joint venture in which we have a 75 % equity interest.

On August 5, 2019, the Company amended its mortgage loan with an outstanding balance of $ 42.0 million with a new $ 42.5 million mortgage loan that is interest only, originally bearing interest at a rate of LIBOR + 4.95 % with a two-year initial term and three one-year extension options, subject to the satisfaction of certain conditions.

The mortgage loan is secured by The Ritz-Carlton St.

On September 30, 2019, the Company refinanced its mortgage loan with an outstanding balance of $ 70.0 million with a new $ 80.0 million mortgage loan that is interest only, bears interest at a rate of LIBOR + 1.85 % and has a five-year term with no extension options.

The mortgage loan is secured by the Pier House Resort & Spa.

On October 25, 2019, the Company entered into a new $ 75.0 million secured revolving credit facility which replaces the Company’s previous credit facility that was scheduled to mature on November 10, 2019.

The new credit facility provides for a three-year revolving line of credit and bears interest at a range of 1.25 % to 2.50 % over Base Rate or 2.25 % to 3.50 % over LIBOR, depending on the leverage level of the Company.

There are two , one-year extension options subject to the satisfaction of certain conditions.

The new credit facility includes the opportunity to expand the borrowing capacity by up to $ 175.0 million to an aggregate size of $ 250.0 million.

There was no amount outstanding on the Company’s previous credit facility as of December 31, 2019.

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

under the Payroll Protection Program (“PPP”), which was established under the CARES Act.

All funds borrowed under the PPP totaling $ 34.3 million were returned on or before May 7, 2020.

On June 8, 2020, the Company 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.

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

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.

We are required to maintain certain financial ratios under our secured term loan.

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

The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of the consolidated group.

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

The mortgage loan is interest only with a stated maturity in August 2024.

Convertible Senior Notes

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.

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 Company recorded coupon interest expense of $ 2.4 million for the year ended December 31, 2021.

The Company separated the Convertible Senior Notes into liability and equity components.

The initial carrying amount of the liability component was calculated using a discount rate of 7.1 %.

The discount rate was based on the terms of debt instruments that were similar to the Convertible Senior Notes.

The $ 6.3 million carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the net proceeds of the Convertible Senior Notes.

The amount recorded in equity is not subject to remeasurement or amortization.

The initial discount of $ 9.3 million is accreted to interest expense using the effective interest rate method over the contractual term of the Convertible Senior Notes.

The Company recorded discount amortization of $ 974,000 for the year ended December 31, 2021, with the remaining discount balance to be amortized through June 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.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 with an aggregate principal amount in excess of $ 200 million do not trigger a default under the senior revolving credit agreement unless such mort gage 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.

See note 16 for discussion of the loan modification agreement with Lismore Capital LLC (“Lismore”).

As of December 31, 2020, the Company determined that all of the forbearance and other agreements evaluated were considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges.

No gain or loss was recognized during the year ended December 31, 2020, as the carrying amount of the original loans was not greater than the undiscounted cash flows of the modified loans.

Additionally, as a result of the troubled debt restructurings all accrued default interest and late charges were capitalized into the applicable loan balances and will be amortized over the remaining term of the loan using the effective interest method.

The amount of default interest and late charges capitalized into indebtedness as of December 31, 2020, was $ 9.9 million.

The amount of principal amortization during the year ended December 31, 2020 was $ 2.6 million.

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.

The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of the consolidated group.

As of December 31, 2021, we were in compliance with all covenants.

Maturities and scheduled amortization of indebtedness as of December 31, 2021, assuming no extension of existing extension options for each of the following five years and thereafter are as follows (in thousands):

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All derivatives are recorded at fair value.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the interest rate derivatives we entered into over the applicable periods:

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Strike rate high end of range 4.00 % 4.00 % 7.80 %

Effective date range March 2020 - June 2020 January 2019 - December 2019 February 2018 - December 2018

Termination date range April 2021 - June 2021 March 2020 - October 2021 March 2019 - June 2020

Effective date range January 2021- September 2021 March 2020 - June 2020 January 2019 - December 2019

Termination date range February 2022- August 2024 April 2021 - June 2021 March 2020 -October 2021

Total cost of interest rate caps (in thousands) $ 200 $ 92 $ 115

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Strike rate high end of range 1.63 %

Effective date January 2019 July 2018

Termination date March 2020 June 2019 - September 2019

Effective date January 2019

Termination date March 2020

Total cost of interest rate floors (in thousands) $ — $ — $ 75

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(1) No instruments were designated as cash flow hedges.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Interest rate derivatives consisted of the following:

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Strike rate high end of range 4.00 % 4.00 %

Termination date range February 2021 - October 2021 January 2020 - October 2021

Termination date range February 2022 - August 2024 February 2021 - October 2021

Aggregate principal balance on corresponding mortgage loans (in thousands) $ 857,000 $ 779,000

Interest rate floors:

Notional amount (in thousands) $ — $ 5,000,000

Strike rate low end of range ( 0.25 ) %

Strike rate high end of range 1.63 %

Termination date range March 2020 - July 2020

_______________

(1) No instruments were designated as cash flow hedges.

(2) Cash collateral is posted by us as well as our counterparties.

We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.

Credit Default Swap Derivatives —We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk.

A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation.

The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments.

If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses.

The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity).

For all CMBX trades completed to date, we were the buyer of protection.

Credit default swaps are subject to master-netting settlement arrangements and credit support annexes.

Cash collateral is posted by us as well as our counterparties.

We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.

The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparties when such change in market value is over $ 250,000 .

During the fourth quarter of 2020, we disposed of all CMBX credit default swaps.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Warrants —On August 5, 2021, as part of the consideration paid to acquire the Mr.

C Beverly Hills Hotel and five adjacent luxury residences, the Company issued 500,000 warrants for the purchase of Braemar common stock with a $ 6.00 strike price on or after August 5, 2021 until August 5, 2024.

The holder can choose to exercise the warrant by cash or by net issue exercise, in which event the Company shall issue to the holder a number of warrant shares which reflects the fair market value of the Company’s common stock.

As of December 31, 2021, no warrants have been exercised.

The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions:

three -year contractual term;

97.93 % volatility;

0 % dividend rate;

and a risk-free interest rate of 0.38 %.

The estimated fair value of the warrants was approximately $ 1.5 million on the date of issuance.

The warrants are re-valued at each reporting period with the change in fair value recorded through earnings.

In applying the guidance in ASC 815, it was determined that the warrants should be classified as a liability as a result of certain settlement provisions.

The warrants are included in derivative liabilities on the consolidated balance sheet and changes in value are reported as a component of unrealized gain (loss) on derivatives on the consolidated statements of operations.

This is a Level 2 valuation technique.

Fair Value Measurements

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Fair value of interest rate floors is calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor.

The fair value of warrants is determined by using the Black-Scholes option pricing model.

When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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Transfers of inputs between levels are determined at the end of each reporting period.

In determining the fair values of our derivatives at December 31, 2020, the LIBOR interest rate forward curve (Level 2 inputs) assumed a downtrend from 0.144 % to 0.131 % for the remaining term of our derivatives.

In determining the fair values of our derivatives at December 31, 2021, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 0.101 % to 1.500 % for the remaining term of our

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Credit spreads (Level 3 inputs) used in determining the fair values derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):

The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):

Quoted Market Prices (Level 1) Significant Other

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(Level 2) Significant Unobservable Inputs

(Level 3) Counterparty and Cash Collateral Netting (2)

(Level 3) Total

December 31, 2021

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Interest rate derivatives - caps $ — $ 139 $ — $ 139

$ — $ — $ — $ — $ —

Total $ — $ 139 $ — $ 139 (1)

Derivative liabilities:

Warrants — ( 1,435 ) $ — ( 1,435 ) (2)

Net $ — $ ( 1,296 ) $ — $ ( 1,296 )

__________________

(1) Reported as “derivative assets” in our consolidated balance sheet.

(2) Reported as “derivative liabilities” in our consolidated balance sheet.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Quoted Market Prices (Level 1) Significant Other

Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Counterparty and Cash Collateral Netting (2)

December 31, 2019

Derivative assets:

Interest rate derivatives - floors $ — $ 1 $ — $ 52 $ 53

Interest rate derivatives - caps — 1 — — 1

Credit default swaps — ( 550 ) — 1,078 528

$ — $ ( 548 ) $ — $ 1,130 $ 582 (3)

__________________

(1) As of December 31, 2020, the Company has outstanding interest rate caps.

(2) Represents net cash collateral posted between us and our counterparties.

(3) Reported as “derivative assets” in our consolidated balance sheets.

Effect of Fair Value Measured Assets and Liabilities on Consolidated Statements of Operations

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Total $ ( 62 ) $ 24 $ ( 6,933 )

Derivative liabilities:

Warrants 94 — —

Net $ 32 $ 24 $ ( 6,933 )

Total combined

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Credit default swaps — 1,437 ( 1,095 )

Options on futures contracts — — —

Warrants 94 — —

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

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Unrealized gain (loss) on investment in Ashford Inc.

— 7,872 ( 8,010 )

Realized gain (loss) on investment in Ashford Inc.

1 unchanged sentence

_______________

(1) Excludes costs associated with credit default swaps of $ 191 , $ 253 , $ 253 for the years ended December 31, 2020, 2019 and 2018, respectively, which is included in “other income (expense)” in our consolidated statements of operations.

(1) Excludes costs associated with credit default swaps of $ 191 and $ 253 for the years ended December 31, 2020 and 2019, respectively, which is included in “other income (expense)” in our consolidated statements of operations.

(2) Included in “other income (expense)” in our consolidated statements of operations .

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Fair Value of Financial Instruments

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Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):

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Derivative assets $ 139 $ 139 $ — $ —

Derivative liabilities 1,435 1,435 — —

Financial assets not measured at fair value:

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This is considered a Level 1 valuation technique.

Derivative assets .

Derivative assets and derivative liabilities .

See notes 7 and 8 for a complete description of the methodology and assumptions utilized in determining fair values.

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Dividends on common stock — — ( 24,145 )

Loss on extinguishment of preferred stock - Series B ( 4,595 ) — —

Dividends on unvested performance stock units — — ( 261 )

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Dividends on preferred stock - Series B 4,747 6,919 6,842

Loss on extinguishment of preferred stock - Series B 4,595 — —

Interest expense on Convertible Senior Notes 3,378 — —

Dividends on preferred stock - Series E 683 — —

Dividends on preferred stock - Series M 15 — —

Total $ 9,821 $ ( 6,060 ) $ 6,301

4 unchanged sentences

Effect of assumed conversion of preferred stock - Series B 4,614 6,728 6,581

Effect of assumed conversion of exchanged preferred stock - Series B 364 — —

Effect of assumed conversion of Convertible Senior Notes 8,450 — —

Effect of assumed conversion of preferred stock - Series E 1,345 — —

Effect of assumed conversion of preferred stock - Series M 32 — —

Total 19,884 10,673 11,044

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Redeemable Noncontrolling Interests in Operating Partnership

4 unchanged sentences

or (iii) issued subject to a registration rights agreement.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, generally have vesting periods of three years .

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The award agreements provide for the grant of a target number of Performance LTIP units that will be settled in common units of Braemar OP, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period, which is generally three years from the grant date.

The number of Performance LTIP units actually earned may range from 0 % to 200 %of target based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s compensation committee on the grant date.

As of December 31, 2020, there were approximately 220,000 Performance LTIP units, representing 200 % of the target, outstanding.

The performance criteria for the Performance LTIP units are based on market conditions under the relevant literature, and the Performance LTIP units were granted to non-employees.

During the years ended December 31, 2020, 2019 and 2018, approximately 211,000 , 281,000 and 312,000 Performance LTIP units were cancelled due to the market condition criteria not being met, respectively.

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.

On May 22, 2020, September 28, 2020 and December 15, 2020, approximately 17,000 , 8,000 and 4,000 LTIP units, respectively, were issued to independent directors, with fair values of approximately $ 44,000 , $ 20,000 and $ 19,000 , respectively, which vested immediately upon grant and have been expensed during the year ended December 31, 2020.

These grants represented a portion of the annual cash retainer for each independent director serving on the Company’s board of directors.

As of December 31, 2020, we have issued a total of approximately 1.1 million LTIP units (including Performance LTIP units), net of cancellations, all of which, other than approximately 104,000 LTIP units and 60,000 Performance LTIP units issued from March 2015 to December 2020, had reached full economic parity with, and are convertible into, common units.

With respect to the 2019 and 2020 award agreements, the number of Performance LTIP units actually earned may range from 0 % to 200 % of target based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s compensation committee on the grant date.

The performance criteria for the Performance LTIP units are based on market conditions under the relevant literature.

During the years ended December 31, 2021 and 2020, approximately 60,000 performance-based LTIP units granted in 2019, and 211,000 performance-based LTIP units granted in 2018, were canceled due to the market condition criteria not being met.

As a result there was a claw back of the previously declared dividends in the amount of $ 38,000 and $ 270,000 , respectively.

The performance criteria for the 2021 performance grants are based on performance conditions under the relevant literature.

The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award.

As of December 31, 2021, we have issued a total of approximately 2.4 million LTIP and Performance LTIP units, net of Performance LTIP cancellations.

All LTIP and Performance LTIP units, other than approximately 569,000 LTIP units and 840,000 Performance LTIP units issued from March 2015 to May 2021, had reached full economic parity with, and are convertible into, common units.

BRAEMAR HOTELS & RESORTS INC.

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LTIP units Advisory services fee 1,372 1,142 1,354

LTIP units Corporate, general and administrative 12 — —

LTIP units - independent directors Corporate, general and administrative 164 120 103

Total $ 3,313 $ 2,146 $ 2,601

The unamortized cost of the unvested Performance LTIP units of $ 409,000 at December 31, 2020 will be expensed over a period of 2.0 years with a weighted average perio d of 1.7 years.

The unamortized cost of the unvested LTIP units of $ 771,000 at December 31, 2020, will be amortized over a period of 2.2 years with a weighted average period of 1.4 yea rs.

The unamortized cost of the unvested Performance LTIP units of approximately $ 4.6 million at December 31, 2021 will be expensed over a period of 2.0 years with a weighted average period of 1.7 years.

The unamortized cost of the unvested LTIP units of approximately $ 2.5 million at December 31, 2021, will be amortized over a period of 2.2 years with a weighted average period of 2.0 years.

On August 5, 2021, we issued 2.5 million common units in our operating partnership in conjunction with the acquisition of the Mr.

C Beverly Hills Hotel.

A summary of the activity of the units in our operating partnership is as follows (in thousands):

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Performance LTIP units issued 840 160 60

Common units issued for hotel acquisition 2,500 — —

Units redeemed for shares of common stock ( 868 ) ( 339 ) ( 165 )

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(1) Reflects the excess of the redemption value over the accumulated historical cost.

We allocated net income (loss) to the redeemable noncontrolling interests and declared aggregate cash distributions to the holders of common units and holders of LTIP units, which are recorded as a reduction of redeemable noncontrolling interests in operating partnership, as illustrated in the table below (in thousands):

We allocated net (income) loss to the redeemable noncontrolling interests as illustrated in the table below (in thousands):

Year Ended December 31,

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Performance LTIP dividend claw back upon cancellation ( 38 ) ( 270 ) —

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table presents the common units redeemed and the fair value at redemption (in thousands):

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The historical cost of the converted units was $ 3.5 million.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(2) The redemption value is the greater of historical cost or fair value.

The historical cost of the converted units was $ 4.6 million.

Common Stock Dividends — The following table summarizes the common stock dividends declared during the period (in thousands):

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Common stock dividends declared $ — $ — $ 21,302

Claw back of dividends on cancelled Performance Stock Units ( 202 ) — —

8.25 % Series D Cumulative Preferred Stock —At December 31, 2021 and 2020, there were 1.6 million shares of 8.25 % Series D cumulative preferred stock outstanding.

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Series D cumulative preferred stock quarterly dividends are set at the rate of 8.25 % of the $ 25.00 liquidation preference (equivalent to an annual dividend rate of $ 2.0625 per share).

In general, Series D cumulative preferred stock holders have no voting rights.

The Series D Cumulative Preferred Stock dividend for all issued and outstanding shares is set at $ 2.0625 per annum per share.

In general, Series D cumulative preferred stockholders have no voting rights.

The Series D Preferred Stock dividend for all issued and outstanding shares is set at $ 2.0625 per annum per share.

The following table summarizes dividends declared (in thousands):

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As of December 31, 2021, $ 50 million remains authorized by the board of directors pursuant to the December 5, 2017 approval.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We repurchased approximately 50,000 , 47,000 and 45,000 shares of our common stock in 2021, 2020 and 2019, respectively, to satisfy employees’ statutory minimum U.S.

1 unchanged sentence

At-the-Market Common Stock Equity Distribution Program —On December 11, 2017, the Company established an “at-the-market” equity distribution program pursuant to which it may, from time to time, sell shares of its common stock having an aggregate offering price of up to $ 50 million.

As of December 31, 2020, the Company has sold approximately 4.7 million shares of common stock and received proceeds of approximately $ 14.5 million under this program.

As of December 31, 2021, the Company has sold approximately 7.4 million shares of common stock and received net proceeds of approximately $ 30.5 million under this program.

The issuance activity is summarized below (in thousands):

Year Ended December 31,

2021 2020 2019

Common shares issued 2,711 4,729 —

Gross proceeds received $ 16,119 $ 14,717 $ —

Commissions 202 184 —

Net proceeds $ 15,917 $ 14,533 $ —

Standby Equity Distribution Agreement —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 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.

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 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.

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.

The issuance activity under the SEDA is summarized below (in thousands):

Year Ended December 31, 2021

Common shares sold to YA 1,700

Proceeds received $ 10,000

Common Stock Resale Agreement —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

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The issuance activity is summarized below (in thousands):

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.

The issuance activity under the Lincoln Park agreement is summarized below (in thousands):

Year Ended December 31, 2021

Common shares sold to Lincoln Park 766

Additional commitment shares 15

Total common shares issued to Lincoln Park 781

Proceeds received $ 4,217

At-the-Market Equity Distribution 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 the Company’s 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.

The issuance activity under the Virtu May 2021 EDA is summarized below (in thousands):

Year Ended December 31, 2021

Common shares issued 8,339

Gross proceeds received $ 50,000

Commissions and other expenses 184

Commissions 500

Net proceeds $ 49,500

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.

The issuance activity under the Virtu July 2021 EDA is summarized below (in thousands):

Year Ended December 31, 2021

Common shares issued 4,712

Gross proceeds received $ 24,020

Commissions 240

Net proceeds $ 23,780

Noncontrolling Interest in Consolidated Entities —A partner had noncontrolling ownership interests of 25 % in two hotel properties with a total carrying value of $( 16.5 ) million and $( 15.1 ) million at December 31, 2021 and 2020, respectively.

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(Income) loss from consolidated entities attributable to noncontrolling interests $ 2,650 $ 6,436 $ ( 2,032 )

Preferred Stock

5.50 % Series B Cumulative Convertible Preferred Stock

Each share of our 5.50 % Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) is convertible at any time, at the option of the holder, into a number of whole shares of common stock at a conversion price of $ 18.70 (which represents a conversion rate of 1.3372 shares of our common stock, subject to certain adjustments).

The Series B Convertible Preferred Stock is also subject to conversion upon certain events constituting a change of control.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Convertible Preferred Stock is also subject to conversion upon certain events constituting a change of control.

Holders of the Series B Convertible Preferred Stock have no voting rights, subject to certain exceptions.

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1) an optional redemption in which on or after June 11, 2020, the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $ 25.00 per share, plus any accumulated, accrued and unpaid dividends;

2) a special optional redemption, in which on or prior to the occurrence of a Change of Control (as defined), the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $ 25.00 per share;

and 3) a REIT Termination Event and Listing Event Redemption, in which at any time (i) a REIT Termination Event (defined below) occurs or (ii) the Company’s common stock fails to be listed on the NYSE, NYSE American, or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor thereto (each a “National Exchange”), the holder of Series B Cumulative Preferred Stock shall have the right to require the Company to redeem any or all shares of Series B Cumulative Preferred Stock at 103 % of the liquidation preference ($ 25.00 per share, plus any accumulated, accrued, and unpaid dividends) in cash.

2) a special optional redemption, in which on or prior to the occurrence of a Change of Control (as defined in the Articles Supplementary), the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $ 25.00 per share;

and 3) a “REIT Termination Event” and “Listing Event Redemption,” in which at any time (i) a REIT Termination Event (as defined below) occurs or (ii) the Company’s common stock fails to be listed on the NYSE, NYSE American, or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor thereto (each a “National Exchange”), the holder of Series B Convertible Preferred Stock shall have the right to require the Company to redeem any or all shares of Series B Convertible Preferred Stock at 103 % of the liquidation preference ($ 25.00 per share, plus any accumulated, accrued, and unpaid dividends) in cash.

A “REIT Termination Event,” shall mean the earliest of:

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(iii) board of directors’ approval on ceasing to be qualified as a REIT;

(iv) board’s determination based on advise of the counsel to cease to be qualified as a REIT;

(v) determination within the meaning of Section 1313(a) of IRC to cease to be qualified as a REIT.

(iv) board’s determination based on the advice of counsel to cease to be qualified as a REIT;

(v) determination within the meaning of Section 1313(a) of the Code to cease to be qualified as a REIT.

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 Convertible Preferred Stock having an aggregate offering price of up to $ 40.0 million.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

market for our 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.

Sales of shares of our 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 of 1933, as amended (the “Securities Act”), including sales made directly on the NYSE, the existing trading market for our 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.

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 Convertible Preferred Stock sold through such sales agents.

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Year Ended December 31,

2021 2020 2019

Series B Convertible Preferred Stock shares issued — 23 42

Gross proceeds received $ — $ 439 $ 809

Commissions and other expenses 7 12

Commissions — 7 12

Net proceeds $ — $ 432 $ 797

5 unchanged sentences

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During 2021, 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 table below summarizes the activity (in thousands):

Year Ended December 31, 2021

Preferred Shares Tendered Common Shares Issued

Series B Convertible Preferred Stock

Series E Redeemable Preferred Stock

On April 2, 2021, the Company entered into equity distribution agreements with certain sales agents to sell from time-to-time shares of the Series E Redeemable Preferred Stock (the “Series E Preferred Stock”).

Pursuant to such equity distribution agreements, the Company is offering a maximum of 20,000,000 shares of Series E Preferred Stock in a primary offering price of $ 25.00 per share.

The Company is also offering a maximum of 8,000,000 shares of the Series E Preferred Stock pursuant to a dividend reinvestment plan (the “DRIP”) at $ 25.00 per share (the “Stated Value”).

The Series E Preferred Stock ranks senior to all classes or series of the Company’s common stock and future junior securities, on a parity with each series of the Company’s outstanding preferred stock (the Series B Convertible Preferred stock, the Series D Preferred Stock and the Series M Preferred Stock (as defined below)) and with any future parity securities and junior to future senior securities and to all of the Company’s existing and future indebtedness, with respect to the payment of dividends and the distribution of amounts upon liquidation, dissolution or winding up of the Company’s affairs.

Holders of the Series E Preferred Stock shall have the right to vote for the election of directors of the Company and on all other matters requiring stockholder action by the holders of the common stock, each share being entitled to vote to the same extent as one share of the Company’s common stock, and all such shares voting together as a single class.

If and whenever dividends on any shares of the Series E Preferred Stock shall be in arrears for 18 or more monthly periods, whether or not such quarterly periods are consecutive the number of directors then constituting the board shall be increased by two and the holders of such shares of Series E Preferred Stock shall be entitled to vote for the election of the additional directors of the Company who shall each be elected for one-year terms.

Each share is redeemable at any time, at the option of the holder, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends, less a redemption fee.

Starting on the second anniversary, each share is redeemable at any time, at the option of the Company, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends (with no redemption fee).

The Series E Preferred Stock is also subject to conversion upon certain events constituting a change of control.

Upon such change of control events, holders have the option to convert their shares of Series E Preferred Stock into a maximum of 5.69476 shares of our common stock.

The redemption fee shall be an amount equal to:

• 8.0 % of the stated value of $ 25.00 per share (the “Stated Value”) beginning on the Original Issue Date (as defined in the Articles Supplementary) of the shares of the Series E Preferred Stock to be redeemed;

• 5.0 % of the Stated Value beginning on the second anniversary from the Original Issue Date of the shares of the Series E Preferred Stock to be redeemed;

• 0 % of the Stated Value beginning on the third anniversary from the Original Issue Date of the shares of the Series E Preferred Stock to be redeemed.

The Company has the right, in its sole discretion, to redeem the shares in cash, or in an equal of shares of common stock or any combination thereof, calculated based on the closing price per share for the single trading day prior to the date of redemption.

The Series E Preferred Stock cash dividends are as follows:

• 8.0 % per annum of the Stated Value beginning on the date of the first settlement of the Series E Preferred Stock (the “Date of Initial Closing”);

• 7.75 % per annum of the Stated Value beginning on the first anniversary from the Date of Initial Closing;

• 7.5 % per annum of the Stated Value beginning on the second anniversary from the Date of Initial Closing.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Dividends will be authorized and declared on a monthly basis and payable in arrears on the 15th of each month to holders of record at the close of business on the last business day of each month immediately preceding the applicable thereafter dividend payment date.

Dividends will be computed on the basis of twelve 30-day months and a 360-day year.

The Company has a DRIP that allows for participating holders to have their Series E Preferred Stock dividend distributions automatically reinvested in additional shares of the Series E Preferred Stock at a price of $ 25.00 per share.

The issuance activity of the Series E Preferred Stock is summarized below (in thousands):

Year Ended December 31,

Series E Preferred Stock shares issued (1)

Net proceeds $ 38,450

__________________

(1) Exclusive of shares issued under the dividend reinvestment plan.

The Series E Preferred Stock does not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside of the Company’s control.

As such, the Series E Preferred Stock is classified outside of permanent equity.

At the date of issuance, the carrying amount of the Series E Preferred Stock was less than the redemption value.

As a result of the Company’s determination that redemption is probable the carrying value will be adjusted to the redemption amount each reporting period.

The redemption value adjustment of Series E Preferred Stock is summarized below (in thousands):

December 31, 2021 December 31, 2020

Series E Preferred Stock $ 39,339 $ —

Adjustments to Series E Preferred Stock (1)

(1) Reflects the excess of the redemption value over the accumulated carrying value.

The following table summarizes dividends declared (in thousands):

Year Ended December 31,

Series E Preferred Stock $ 683

Series M Redeemable Preferred Stock

On April 2, 2021, the Company entered into equity distribution agreements with certain sales agents to sell from time-to-time shares of the Series M Redeemable Preferred Stock (the “Series M Preferred Stock”).

Pursuant to such equity distribution agreements, the Company is offering a maximum of 20,000,000 shares of the Series M Preferred Stock (par value $ 0.01 ) in a primary offering price of $ 25.00 per share (or “Stated Value”).

The Company is also offering a maximum of 8,000,000 shares of Series M Preferred Stock pursuant to the DRIP at $ 25.00 per share.

The Series M Preferred Stock ranks senior to all classes or series of the Company’s common stock and future junior securities, on a parity with each series of the Company’s outstanding preferred stock (the Series B Convertible Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock) and with any future parity securities and junior to future senior securities and to all of the Company’s existing and future indebtedness, with respect to the payment of dividends and the distribution of amounts upon liquidation, dissolution or winding up of the Company’s affairs.

Holders of the Series M Preferred Stock shall have the right to vote for the election of directors of the Company and on all other matters requiring stockholder action by the holders of the common stock, each share being entitled to vote to the same extent as one share of the Company’s common stock, and all such shares voting together as a single class.

If and whenever dividends on any shares of Series E Preferred Stock shall be in arrears for 18 or more monthly periods, whether or not such quarterly periods are consecutive the number of directors then constituting the board shall be increased by two and the holders of such shares of Series M Preferred Stock shall be entitled to vote for the election of the additional directors of the Company who shall each be elected for one-year terms.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The redemption fee shall be an amount equal to:

• 1.5 % of the Stated Value of $ 25.00 per share beginning on the Series M Original Issue Date (as defined below) of the shares of Series M Preferred Stock to be redeemed;

• 0 % of the Stated Value beginning on the first anniversary from the Series M Original Issue Date of the shares of Series M Preferred Stock to be redeemed.

Holders of Series M Preferred Stock are entitled to receive cumulative cash dividends at the initial rate of 8.2 % per annum of the Stated Value of $ 25.00 per share (equivalent to an annual dividend rate of $ 2.05 per share).

Beginning one year from the date of original issuance of each share of Series M Preferred Stock (the “Series M Original Issue Date”) and on each one-year anniversary thereafter for such share of Series M Preferred Stock, the dividend rate shall increase by 0.10 % per annum;

provided, however, that the dividend rate for any share of Series M Preferred Stock shall not exceed 8.7 % per annum of the Stated Value.

Dividends will be computed on the basis of twelve 30-day months and a 360-day year.

The Company has a DRIP that allows for participating holders to have their Series M Preferred Stock dividend distributions automatically reinvested in additional shares of the Series M Preferred Stock at a price of $ 25.00 per share.

The issuance activity of Series M Preferred Stock is summarized below (in thousands):

Year Ended December 31,

Series M Preferred Stock shares issued 29

Net proceeds $ 704

The Series M Preferred Stock does not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside the Company’s control.

As such, the Series M Preferred Stock is classified outside of permanent equity.

At the date of issuance, the carrying amount of the Series M Preferred Stock was less than the redemption value.

As a result of the Company’s determination that redemption is probable the carrying value will be adjusted to the redemption amount each reporting period.

The redemption value adjustment of Series M Preferred stock is summarized below (in thousands):

December 31, 2021 December 31, 2020

Series M Preferred Stock $ 715 $ —

Adjustments to Series M Preferred Stock (1)

(1) Reflects the excess of the redemption value over the accumulated carrying value.

The following table summarizes dividends declared (in thousands):

Year Ended December 31,

Series M Preferred Stock $ 15

Stock-Based Compensation

Under the 2013 Equity Incentive Plan, as amended, we are authorized to grant 3.3 million restricted stock units or performance stock units of our common stock as incentive stock awards.

Under the 2013 Equity Incentive Plan, as amended, we are authorized to grant 3.3 million restricted stock or performance stock units of our common stock as incentive stock awards.

At December 31, 2021, approximately 774,000 shares were available for future issuance under the 2013 Equity Incentive Plan.

Restricted Stock Units —We incur stock-based compensation expense in connection with restricted stock units awarded to certain employees of Ashford LLC and its affiliates.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restricted Stock —We incur stock-based compensation expense in connection with restricted stock awarded to certain employees of Ashford LLC and its affiliates.

We also issue common stock to certain of our independent directors, which vests immediately upon issuance.

On May 22, 2020, September 28, 2020 and December 15, 2020, approximately 18,000 , 9,000 and 5,000 shares of common stock, respectively, were issued to independent directors, with fair values of approximately $ 48,000 , $ 23,000 and $ 22,000 , respectively, which vested immediately upon grant and have been expensed during the year ended December 31, 2020.

These grants represented a portion of the annual cash retainer for each independent director serving on the Company’s board of directors, resulting from the COVID-19 related modifications to our director compensation program discussed in note 12.

At December 31, 2021, the unamortized cost of unvested shares of restricted stock was $ 1.8 million, which is expected to be recognized over a period of 2.4 years with a weighted average period of 1.9 years.

The following table summarizes the stock-based compensation expense for restricted stock units (in thousands):

The following table summarizes the stock-based compensation expense for restricted stock (in thousands):

Year Ended December 31,

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Management fees 56 133 155

Corporate general and administrative - Premier 71 72 —

Corporate general and administrative 111 71 72

Corporate general and administrative - independent directors 322 130 208

$ 3,517 $ 3,006 $ 2,903

For the year ended December 31, 2018, approximately $ 640,000 of the compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his death, in accordance with the terms of the awards.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of our restricted stock activity is as follows (shares in thousands):

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Outstanding at end of year 957 $ 6.94 536 $ 7.98 497 $ 11.89

Performance Stock Units —The compensation committee of the board of directors of the Company may authorize the issuance of grants of PSUs to certain executive officers and directors from time to time.

The fair value of restricted stock vested during the years ended December 31, 2021, 2020 and 2019 was approximately $ 2.1 million, $ 1.2 million and $ 2.2 million, respectively.

Performance Stock Units —The compensation committee of the board of directors of the Company may authorize the issuance of grants of performance stock units (“PSUs”) to certain executive officers and directors from time to time.

The award agreements provide for the grant of a target number of PSUs that will be settled in shares of common stock of the Company, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period, which is generally three years from the grant date.

The number of PSUs actually earned may range from 0 % to 200 % of target based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s compensation committee on the grant date.

The performance criteria for the PSUs are based on market conditions under the relevant literature, and the PSUs were granted to non-employees.

During the years ended December 31, 2020, 2019 and 2018, approximately 197,000 , 119,000 and 262,000 PSUs were cancelled due to the market condition criteria not being met, respectively.

With respect to the 2019 and 2020 award agreements, the number of PSUs actually earned may range from 0 % to 200 % of target based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s compensation committee on the grant date.

The performance criteria for the PSUs are based on market conditions under the relevant literature.

The performance criteria for the 2021 performance grants are based on performance conditions under the relevant literature, and the 2021 performance grants were issued to non-employees.

The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of the award, which may vary from period to period, as the number of performance grants earned may vary since the estimated probable achievement of certain performance targets may vary from period to period.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the years ended December 31, 2021 and 2020, approximately 223,000 PSUs granted in 2019, and 197,000 PSUs granted in 2018, respectively, were canceled due to the market condition criteria not being met.

As a result there was a claw back of the previously declared dividends in the amount of $ 143,000 and $ 202,000 , respectively.

The following table summarizes the compensation expense for PSUs (in thousands):

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Advisory services fee $ 3,374 $ 2,695 2,439

For the year ended December 31, 2018, approximately $ 1.6 million of the compensation expense was related to the accelerated vesting of PSUs granted to one of our executive officers upon his death, in accordance with the terms of the awards.

At December 31, 2021, the unamortized cost of unvested shares of PSUs was $ 5.0 million, which is expected to be recognized over a period of 2.0 years with a weighted average period of 1.7 years.

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Outstanding at end of year 671 $ 5.84 448 $ 11.71 420 $ 16.91

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Related Party Transactions

6 unchanged sentences

provided, however in no event shall the base fee for any month be less than the minimum base fee as provided by our advisory agreement.

The base fee is payable on the 5 th business day of each month.

The base fee is payable on the fifth business day of each month.

The minimum base fee for Braemar for each month will be equal to the greater of:

5 unchanged sentences

We also recorded equity-based compensation expense for equity grants of common stock and LTIP units awarded to officers and employees of Ashford LLC in connection with providing advisory services.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the advisory services fees incurred (in thousands):

8 unchanged sentences

Incentive fee (3)

( 678 ) — 2,035

Total $ 22,641 $ 18,486 $ 20,527

2 unchanged sentences

(3) The $( 678,000 ) incentive fee in 2020 is a result of not meeting the FCCR threshold required for paying the final installment of the incentive fee incurred in 2018.

As of December 31, 2020 and 2019, due from related parties, net included a $ 365,000 security deposit paid to Remington Hotel Corporation, an entity indirectly owned by Mr.

Bennett and Mr.

Archie Bennett, Jr., for office space allocated to us under our advisory agreement.

It will be held as security for the payment of our allocated share of office space rental.

If unused it will be returned to us upon lease expiration or earlier termination.

Pursuant to the Company's hotel management agreements with each hotel management company, the Company bears the economic burden for casualty insurance coverage.

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At the beginning of each year, Ashford Inc.'s risk management department collects funds from Braemar, Ashford Trust and their respective hotel management companies, to fund the casualty insurance program as needed, on an allocated basis.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Lismore Advisory Fee

On March 20, 2020, the Company entered into an agreement with 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 signed forbearance or other agreements, of which no amounts are available for claw back.

As of December 31, 2020, the Company has paid Lismore approximately $ 4.1 million, of which $ 1.0 million is included in “other assets” on our consolidated balance sheets.

For the year ended December 31, 2020, the Company has recognized expense of $ 3.1 million, respectively, which is included in “write-off of loan costs and exit fees” in our consolidated statements of operations.

The Lismore Agreement was terminated effective March 20, 2021.

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

The Company paid approximately $ 1.4 million related to periodic installments of which $ 683,000 was expensed in accordance with the agreement.

The remaining $ 681,000 was set off against the cash payment of the base advisory fee per the agreement upon contract termination in March 2021.

Further, the Company paid approximately $ 1.4 million in success fees in connection with signed forbearance or other agreements.

In total, the Company paid approximately $ 4.1 million under the Lismore Agreement.

For the years ended December 31, 2021 and 2020, the Company recognized expense of $ 341,000 and $ 3.1 million, respectively.

These expenses are included in “write-off of loan costs and exit fees” in the consolidated statements of operations.

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 associated with items (ii) and (iii) above.

The Company engaged Lismore to negotiate, on the Company’s behalf, one or more modifications to the terms of the mortgage loan assumed in connection with the acquisition of the Mr.

C Beverly Hills Hotel.

Upon closing of the hotel, the Company paid Lismore a fee of $ 150,000 .

Ashford Securities

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announced the formation of Ashford Securities LLC (“Ashford Securities”) to raise retail capital in order to grow its existing and future platforms.

In conjunction with the formation of Ashford Securities, Braemar has entered into a contribution agreement with Ashford Inc.

pursuant to which Braemar has agreed to contribute, with Ashford Hospitality Trust, Inc.

(“Ashford Trust”), up to $ 15.0 million to fund the operations of Ashford Securities.

In conjunction with the formation of Ashford Securities, Braemar has entered into a contribution agreement (the “Initial Contribution Agreement”) with Ashford Inc.

pursuant to which Braemar has agreed to contribute, with Ashford Trust, up to $ 15.0 million to fund the operations of Ashford Securities.

Costs for all operating expenses of Ashford Securities that were contributed by Ashford Trust and Braemar will be expensed as incurred.

These costs were allocated initially to Ashford Trust and Braemar based on an allocation percentage of 75 % to Ashford Trust and 25 % Braemar.

Upon reaching the earlier of $ 400 million in aggregate non-listed preferred equity offerings raised or June 10, 2023, there will be a true up (the “Initial True-up Date”) between Ashford Trust and Braemar whereby the actual capital contributions contributed by each company will be based on the actual amount of capital raised by Ashford Trust and Braemar, respectively.

After the Initial True-Up Date, the capital contributions will be allocated between Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities.

On December 31, 2020, an Amended and Restated Contribution Agreement was entered into by Ashford Inc., Ashford Trust and Braemar with respect to expenses to be reimbursed by 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.

Upon reaching the earlier of $ 400 million in aggregate non-listed preferred equity offerings

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

raised or June 10, 2023, there will be a true up (the “Initial True-Up Date”) between Ashford Trust and Braemar, whereby the actual capital contributions contributed by each company will be based on the actual amount of capital raised by Ashford Trust and Braemar, respectively.

After the Initial True-Up Date, the capital contributions will be allocated between Ashford Trust and Braemar quarterly based on the actual capital raised through Ashford Securities.

On December 31, 2020, an Amended and Restated Contribution Agreement (the “Amended and Restated Contribution Agreement”) was entered into by Ashford Inc., Ashford Trust and Braemar with respect to expenses to be reimbursed by Ashford Securities.

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, 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.

As of December 31, 2020, Braemar has funded approximately $ 996,000 .

As of December 31, 2020 and December 31, 2019, $ 63,000 and $ 520,000 , respectively, of the pre-funded amounts were included in “other assets” on our consolidated balance sheets.

As of December 31, 2021, Braemar has funded approximately $ 3.5 million.

Additionally, as of December 31, 2021, $ 338,000 of the pre-funded amount was included in “other assets” on our consolidated balance sheets.

The table below summarizes the amount Braemar has expensed related to reimbursed operating expenses of Ashford Securities (in thousands):

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Enhanced Return Funding Program

Concurrent with the Amendment No.

Concurrent with Amendment No.

1 to the Fifth Amended and Restated Advisory Agreement with Ashford Inc.

(“Amendment No.

1”), on January 15, 2019, the Company also entered into the Enhanced Return Funding Program Agreement (the “ERFP Agreement”) with Ashford Inc.

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The Fifth Amended and Restated Advisory Agreement was also amended to name Ashford Inc.

and its subsidiaries as the Company’s sole and exclusive provider of asset management, project management and other services offered by Ashford Inc.

and its subsidiaries as the Company’s sole and exclusive provider of asset management, design and construction and other services offered by Ashford Inc.

or any of its subsidiaries.

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Each funding will equal 10 % of the property acquisition price and will be made either at the time of the property acquisition or at any time generally within the two-year period following the date of such acquisition, in exchange for FF&E for use at the acquired property or any other property owned by Braemar OP.

The initial term of the ERFP Agreement is two years (the “Initial Term”), unless earlier terminated pursuant to the terms of the ERFP Agreement.

At the end of the Initial Term, the ERFP Agreement shall automatically renew for successive one-year periods (each such period a “Renewal Term”) unless either Ashford Inc.

The initial term of the ERFP Agreement was two years (the “Initial Term”).

At the end of the Initial Term, the ERFP Agreement automatically renewed for one year and shall automatically renew for successive one-year periods (each such period a “Renewal Term”) unless either Ashford Inc.

or Braemar provides written notice to the other at least sixty days in advance of the expiration of the Initial Term or Renewal Term, as applicable, that such notifying party intends not to renew the ERFP Agreement.

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As a result, the Company recorded gains of $ 9,000 and $ 23,000 , respectively, for the year ended December 31, 2019.

The gains are recorded in “gain (loss) on insurance settlement, disposition of assets and sale of hotel property” in our consolidated statements of operations.

The gains are recorded in

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

“gain (loss) on insurance settlement, disposition of assets and sale of hotel property” in our consolidated statements of operations.

Under the applicable accounting guidance in ASC 842, the Company has not recorded an operating lease right-of-use asset, an operating lease liability or lease expense for rents as the related party lease has no economic substance because the related party lease is provided rent-free.

For the year ended December 31, 2020, the Company purchased FF&E of approximately $ 1.6 million from Ashford Inc.

upon expiration of the underlying ERFP lease.

In 2015, prior to the inception of the ERFP program, $ 2.0 million of key money consideration was invested in FF&E by Ashford LLC to be used by Braemar, which represented all of the key money consideration for the Bardessono Hotel and Spa.

Upon adoption of ASC 842, we evaluated this arrangement, which is accounted for as a lease that expired in 2020.

Upon adoption of ASC 842, we evaluated this arrangement, which was accounted for as a lease that expired in 2020.

Under the applicable guidance in ASC 842, as the related party lease is provided rent-free, there is no economic substance related to the lease which results in not recording an operating lease right-of-use asset, an operating lease liability or lease expense for rents.

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for $ 200,000 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Project Management Agreement

In connection with Ashford Inc.’s August 8, 2018 acquisition of Remington Lodging’s project management business, we entered into a project management agreement with Ashford Inc.’s subsidiary, Premier Project Management LLC (“Premier”), pursuant to which Premier provides project management services to our hotels, including construction management, interior design, architectural services, and the purchasing, freight management, and supervision of installation of FF&E and related services.

Pursuant to the project management agreement, we pay Premier:

(a) project management fees of up to 4 % of project costs;

and (b) for the following services as follows:

In 2021, the Company sold approximately $ 1.6 million of hotel FF&E from Braemar hotel properties to Ashford LLC, which was subsequently leased back to the Company rent-free.

In accordance with ASC 842, the Company evaluated the transactions and concluded that the transactions qualified as sales.

As a result, the Company recorded an aggregate gain of $ 197,000 for the year ended December 31, 2021.

The gains are recorded in “gain (loss) on insurance settlement, disposition of assets and sale of hotel properties” in our consolidated statements of operations.

Upon expiration of an ERFP lease, the Company purchased the underlying FF&E from Ashford Inc.

at fair value for $ 144,000 , which was paid during the third quarter of 2021.

On November 8, 2021, the Company received written notice from the Advisor of its intention not to renew the ERFP program.

As a result, the ERFP Agreement terminated in accordance with its terms on January 15, 2022.

Design and Construction Services

In connection with Ashford Inc.’s August 8, 2018 acquisition of Remington Lodging’s design and construction business, we entered into a design and construction services agreement with Ashford Inc.’s subsidiary, Premier Project Management LLC (“Premier”), pursuant to which Premier provides design and construction services to our hotels, including construction management, interior design, architectural services, and the purchasing, freight management, and supervision of installation of FF&E and related services.

Pursuant to the design and construction services agreement, we pay Premier:

(a) design and construction fees of up to 4 % of project costs;

and (b) for the following services:

(i) architectural ( 6.5 % of total construction costs);

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provided that if the purchase price exceeds $ 2.0 million for a single hotel in a calendar year, then the purchasing fee is reduced to 6 % of the FF&E purchase price in excess of $ 2.0 million for such hotel in such calendar year).

On March 20, 2020, we amended the project management agreement to provide that Premier’s fees shall be paid by the Company to Premier upon the completion of any work provided by third party vendors to the Company.

Hotel Management Agreement

On March 20, 2020, we amended the design and construction services agreement to provide that Premier’s fees shall be paid by the Company to Premier upon the completion of any work provided by third-party vendors to the Company.

Hotel Management Services

On November 6, 2019, Ashford Inc.

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Following the acquisition, hotel management services are provided by Remington Hotels, a subsidiary of Ashford Inc., under the respective hotel management agreement with each customer, including Ashford Trust and Braemar.

At December 31, 2020, Remington Hotels managed three of our thirteen hotel properties.

At December 31, 2021, Remington Hotels managed four of our 14 hotel properties.

We pay monthly hotel management fees equal to the greater of approximately $ 15,000 per hotel (increased annually based on consumer price index adjustments) or 3 % of gross revenues as well as annual incentive management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

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

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

We also have a mutual exclusivity agreement with Remington Hotels, pursuant to which:

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or (ii) by a majority vote elect not to engage such related party because either special circumstances exist such that it would be in the best interest of our Company not to engage such related party, or, based on related party’s prior performance, it is believed that another manager could perform the management or other duties materially better.

Ashford Trust

As of December 31, 2021, the Company had a $ 728,000 receivable from Ashford Trust, included in “due from related parties, net.” The receivable relates to a legal settlement between Ashford Trust and the City of San Francisco regarding a transfer tax matter associated with the transfer of The Clancy from Ashford Trust to Braemar upon Braemar’s 2013 spin-off from Ashford Trust.

The transfer taxes were initially paid by Braemar at the time of the spin-off.

The $ 728,000 gain is included in “(gain) loss on legal settlements” on the consolidated statements of operations.

In January 2022, the City of San Francisco remitted payment to Ashford Trust, which subsequently remitted payment to Braemar.

Remington Lodging (prior to Ashford Inc.

Remington Lodging was a hotel and project management company, wholly owned by our chairman, Mr.

Remington Lodging was a hotel and design and construction company, wholly owned by our chairman, Mr.

Bennett and Mr.

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who is Ashford Trust’s chairman emeritus.

We had master hotel and project management agreements and hotel and project management mutual exclusivity agreements with Remington Lodging.

On August 8, 2018, Ashford Inc.

completed the acquisition of Remington Lodging’s project management business, Premier Project Management LLC (“Premier”).

As a result of Ashford Inc.’s acquisition, the project management services are no longer provided by Remington Lodging and are now provided by a subsidiary of Ashford Inc.

under the respective project management agreement with each customer, including Ashford Trust and Braemar.

We had master hotel and design and construction services agreements and hotel and design and construction services mutual exclusivity agreements with Remington Lodging.

On November 6, 2019, Ashford Inc.

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under the respective hotel management agreement with each customer, including Ashford Trust and Braemar under the Remington Hotels name.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Prior to August 8, 2018, we paid Remington Lodging:

a) monthly hotel management fees equal to the greater of approximately $ 14,000 (increased annually based on consumer price index adjustments) or 3 % of gross revenues as well as annual incentive management fees, if certain operational criteria are met;

b) project management fees of up to 4 % of project costs;

c) market service fees including purchasing, design and construction management not to exceed 16.5 % of project budget cumulatively, including project management fees;

and d) other general and administrative expense reimbursements, primarily related to accounting services.

This related party allocated such charges to us based on various methodologies, including headcount and actual amounts incurred.

Between August 8, 2018 and November 5, 2019, we paid Remington Lodging monthly hotel management fees equal to the greater of approximately $ 14,000 (increased annually based on consumer price index adjustments) or 3 % of gross revenues as well as annual incentive hotel management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

The following table presents the fees related to our hotel and project management agreements with Remington Lodging prior to its transactions with Ashford Inc.

Between January 1, 2019 and November 5, 2019, we paid Remington Lodging monthly hotel management fees equal to the greater of approximately $ 14,000 (increased annually based on consumer price index adjustments) or 3 % of gross revenues as well as annual incentive hotel management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

The following table presents the fees related to our hotel and design and construction services agreements with Remington Lodging prior to its transactions with Ashford Inc.

(in thousands):

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Hotel management fees, including incentive hotel management fees $ 1,738

Market service and project management fees — 3,328

Corporate general and administrative 297

Total $ 2,035

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Transactions

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Company Product or Service Total Investments in Hotel Properties, net (1)

Other Assets Other Hotel Revenue Other Hotel Expenses Management fees Property Taxes, Insurance and Other Advisory Services Fee Write-off of Premiums, Loan Costs and Exit Fees

Ashford LLC FF&E purchases $ 1,816 $ 1,816 $ — $ — $ — $ — $ — $ —

Indebtedness, net (2)

Other Assets Other Hotel Revenue Other Hotel Expenses Preferred Stock (3)

Management fees Property Taxes, Insurance and Other Advisory Services Fee Corporate General and Administrative Write-off of Premiums, Loan Costs and Exit Fees

Ashford LLC Insurance claims services $ 7 $ — $ — $ — $ — $ — $ — $ — $ 7 $ — $ — $ —

J&S Audio Visual Audio visual services 592 — — 592 — — — — —

Ashford Securities Broker/Dealer 1,983 — — — — — — — — — 1,983 —

Ashford Securities Dealer Manager Fees 410 — — — — — 410 — — — — —

INSPIRE Audio visual services 1,001 — — — 1,001 — — — — — — —

Lismore Capital Debt placement and related services 491 — 150 — — — — — — — — 341

Lismore Capital Broker services 3 — — — — — — — — — — 3

OpenKey Mobile key app 38 — — — — 38 — — — — — —

Premier Project management services 2,849 2,505 — — — — — 344 —

Premier Design and construction services 3,009 2,653 — — — — — — — 356 — —

Pure Wellness Hypoallergenic premium rooms 141 — — — — 141 — — — — — —

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3,243 — — — — 934 — 2,309 — — — —

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Year Ended December 31, 2020

Company Product or Service Total Investments in Hotel Properties, net (1)

Indebtedness, net (2)

Other Hotel Revenue Other Hotel Expenses Management fees Property Taxes, Insurance and Other Advisory Services Fee Corporate General and Administrative Write-off of Premiums, Loan Costs and Exit Fees

Other Assets Other Hotel Revenue Other Hotel Expenses Management fees Property Taxes, Insurance and Other Advisory Services Fee Write-off of Premiums, Loan Costs and Exit Fees

Ashford LLC FF&E purchases $ 1,816 $ 1,816 $ — $ — $ — $ — $ — $ — $ —

Ashford LLC Insurance claims services 108 — — — — — 108 — —

J&S Audio Visual Audio visual services 560 — — 560 — — — — — —

INSPIRE Audio visual services 592 — — 592 — — — — —

Lismore Capital Debt placement and related services 4,093 — 1,022 — — — — — 3,071

OpenKey Mobile key app 38 — — — 38 — — — —

Premier Project management services 10,123 9,584 — — — — — 539 — —

Premier Design and construction services 2,849 2,505 — — — — — 344 —

Pure Wellness Hypoallergenic premium rooms 52 — — — 52 — — — —

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Indebtedness, net (2)

Other Hotel Expenses Corporate General and Administrative

Other Hotel Revenue Other Hotel Expenses Management fees Property Taxes, Insurance and Other Advisory Services Fee Corporate General and Administrative Write-off of Premiums, Loan Costs and Exit Fees

Ashford LLC Insurance claims services $ 135 $ — $ — $ — $ — $ — $ 135 $ — $ — $ —

INSPIRE Audio visual services 560 — — 560 — — — — — —

Lismore Capital Debt placement and related services 1,208 — ( 995 ) — — — — — — 213

OpenKey Mobile key app 34 — — — 34 — — — — —

Premier Design and construction services 10,123 9,584 — — — — — 539 — —

Pure Wellness Hypoallergenic premium rooms 194 148 — — 46 — — — — —

Premier Project management services 3,958 3,958 — — —

RED Leisure Watersports activities and travel/transportation services 946 — — — 946 — — — — —

Remington Hotels Hotel management services (4)

572 — — — 323 249 — — — —

(1) Recorded in FF&E and depreciated over the estimated useful life.

(2) Recorded as deferred loan costs, which are included in “indebtedness, net” on our consolidated balance sheets and amortized over the initial term of the applicable loan agreement.

(3) Recorded as a reduction of Series E and Series M Redeemable Preferred Stock proceeds.

(4) Other hotel expenses include incentive hotel management fees and other hotel management costs.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the components of due to Ashford Inc.

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Ashford LLC Insurance claims services 1 12

J&S Audio Visual Audio visual services 1 173

INSPIRE Audio visual services 418 1

OpenKey Mobile key app — 3

Pure Wellness Hypoallergenic premium rooms — 3

Premier Project management services 631 2,433

Premier Design and construction services 470 631

RED Leisure Watersports activities and travel/transportation services 191 144

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As of December 31, 2021 and 2020, due from related parties, net included a net receivable from Remington Hotels of $ 677,000 and $ 626,000 , respectively, primarily related to advances made by Braemar and accrued base and incentive management fees.

As of December 31, 2021 and 2020, due from related parties, net included a $ 365,000 security deposit paid to Remington Hotel Corporation, an entity indirectly owned by Mr.

Bennett and Mr.

Archie Bennett, Jr., for office space allocated to us under our advisory agreement.

It will be held as security for the payment of our allocated share of office space rental.

If unused it will be returned to us upon lease expiration or earlier termination.

Commitments and Contingencies

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In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4 % to 5 % of gross revenues for capital improvements.

Management Fees —Under hotel management agreements for our hotel properties existing at December 31, 2020, we pay a monthly hotel management fee equal to the greater of approximately $ 14,000 per hotel (increased annually based on

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

consumer price index adjustments) or 3 % of gross revenues, or in some cases 2.5 % to 5.0 % of gross revenues, as well as annual incentive management fees, if applicable.

Licensing Fees —In conjunction with the Mr.

C Beverly Hills Hotel acquisition on August 5, 2021, we entered into an Intellectual Property Sublease Agreement, which allows us to continue to use certain proprietary marks associated with the Mr.

C brand name.

In return, we pay licensing fees of:

(i) 1 % of total operating revenue;

(ii) 2 % of gross food and beverage revenues;

and (iii) 25 % of food and beverage profits.

The agreement expires on August 4, 2022.

The table below summarizes the licensing fees incurred (in thousands):

Line Item Year Ended December 31, 2021

Other hotel expenses $ 133

Management Fees —Under hotel management agreements for our hotel properties existing at December 31, 2021, we pay a monthly hotel management fee equal to the greater of approximately $ 15,000 per hotel (increased annually based on consumer price index adjustments) or 3 % of gross revenues, or in some cases 3.0 % to 5.0 % of gross revenues, as well as annual incentive management fees, if applicable.

These management agreements expire from December 2023 through December 2065, with renewal options.

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Tax years 2017 through 2021 remain subject to potential examination by certain federal and state taxing authorities.

Litigation —On October 24, 2019, the Company provided notice to Accor of the material breach of its responsibilities under the Accor management agreement for the Sofitel Chicago Magnificent Mile at 20 East Chestnut Street in Chicago, Illinois.

On November 7, 2019, Accor filed a complaint against Ashford TRS Chicago II in the Supreme Court of the State of New York, New York County, seeking a declaratory judgment that no breach has occurred.

Litigation —On October 24, 2019, the Company provided notice to Accor of the material breach of Accor’s responsibilities under the Accor management agreement for the Sofitel Chicago Magnificent Mile at 20 East Chestnut Street in Chicago, Illinois.

On November 7, 2019, Accor filed a complaint against Ashford TRS Chicago II in the Supreme Court of the State of New York, New York County, seeking a declaratory judgment that no breach under the management agreement has occurred and an injunction to prevent Ashford TRS Chicago II form terminating the management agreement.

Accor’s complaint was dismissed on or about February 27, 2020.

On January 6, 2020, Ashford TRS Chicago II filed a complaint against Accor in the Supreme Court of the State of New York, New York County, alleging breach of the Accor management agreement and seeking declaration of its right to terminate the Accor management agreement.

On July 20, 2020, Accor filed an Amended Answer and Counterclaims against Ashford TRS Chicago II.

Accor asserts two causes of action:

First, Accor asserts a counterclaim for declaratory judgment that Accor correctly calculated the amount payable to Ashford TRS Chicago II under the management agreement to “cure” Accor’s performance test failure (the “Cure Amount”).

Second, Accor asserts a counterclaim for breach of contract on the basis that Ashford TRS Chicago II breached the management agreement by wrongfully maintaining that the Cure Amount for the 2018 and 2019 Performance Test failure is $ 1,031,549 instead of $ 535,120 .

On January 6, 2020, Ashford TRS Chicago II filed a complaint against Accor in the Supreme Court of the State of New York, New York County, alleging breach of the Accor management agreement and seeking damages and a declaration of its right to terminate the Accor management agreement.

On July 20, 2020, Accor filed an Amended Answer and Counterclaims against Ashford TRS Chicago II, in which Accor asserts two causes of action:

First, Accor asserts a counterclaim for declaratory judgment that Accor correctly calculated the amount payable to Ashford TRS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Chicago II under the management agreement to “cure” Accor’s performance test failure (the “Cure Amount”).

Second, Accor asserts a counterclaim for breach of contract alleging that Ashford TRS Chicago II breached the management agreement by wrongfully maintaining that the Cure Amount for the 2018 and 2019 Performance Test failure is $ 1,031,549 instead of $ 535,120 .

As of December 31, 2021, no amounts have been accrued.

On February 16, 2022, the parties entered into a settlement agreement agreeing to:

1) amend the management agreement;

2) dismiss the lawsuit and counterclaims;

3) stipulate to the failure of the performance tests and cure amounts for 2018 of $ 867,682 and 2019 of $ 784,919 ;

and 4) arbitrate whether the performance tests for 2020 and 2021 were valid and/or required equitable adjustment.

On February 23, 2022, Ashford TRS Chicago II and Accor filed a stipulation of discontinuance dismissing all claims, counterclaims, and cross-claims in the January 6, 2020 action with prejudice.

One of the Company’s hotel management companies is currently involved in litigation regarding its employment policies and practices at multiple California hotels, including one of the Company’s hotels.

The Company believes it is probable that the litigation will result in a loss due to a potential pre-trial settlement, in which case the Company estimates its potential loss will be approximately $ 500,000 ;

however, it is entitled to indemnification for a portion of such loss.

As of December 31, 2020, approximately $ 500,000 has been accrued.

In June 2020, each of the Company, Ashford Trust, Ashford Inc., and Lismore, a subsidiary of Ashford Inc.

(collectively with the Company, Ashford Trust, Ashford Inc.

and Lismore, the “Ashford Companies”), received an administrative subpoena from the SEC.

The Company’s administrative subpoena requires the production of documents and other information since January 1, 2018 relating to, among other things, (1) related party transactions among the Ashford Companies (including the Lismore Agreement between the Company and Lismore pursuant to which the Company engaged Lismore to negotiate the refinancing, modification or forbearance of certain mortgage debt) or between any of the Ashford Companies and any officer, director or owner of the Ashford Companies or any entity controlled by any such person, and (2) the Company’s accounting policies, procedures, and internal controls related to such related party transactions.

In addition, in October 2020, Mr.

Bennett, chairman of our board of directors, received an administrative subpoena from the SEC requiring testimony and the production of documents and other information substantially similar to the requests in the subpoenas received by the Ashford Companies.

The Company and Mr.

Bennett are responding to the administrative subpoenas.

A class action lawsuit has been filed against one of the Company’s hotel management companies alleging violations of certain California employment laws, which class action affects two hotels owned by subsidiaries of the Company.

On January 28, 2022, the Court approved a settlement of this litigation.

The resulting loss to the Company is approximately $ 448,000 ;

although it is entitled to indemnification in the amount of approximately $ 291,000 , based on the respective periods of ownership of the Company’s hotel.

As of December 31, 2021, approximately $ 500,000 was accrued.

On December 20, 2016, a class action lawsuit was filed against one of the Company’s hotel management companies in the Superior Court of the State of California in and for the County of Contra Costa alleging violations of certain California employment laws, which class action affects two hotels owned by subsidiaries of the Company.

The court has entered an order granting class certification with respect to:

(1) a statewide class of non-exempt employees of our manager who were allegedly deprived of rest breaks as a result of our manager’s previous policy requiring its employees to stay on premises during rest breaks;

(1) a statewide class of non-exempt employees of our manager who were allegedly deprived of rest breaks as a result of our manager’s previous written policy requiring its employees to stay on premises during rest breaks;

and (2) a derivative class of non-exempt former employees of our manager who were not paid for allegedly missed breaks upon separation from employment.

Notices to potential class members were sent out on February 2, 2021.

Potential class members have until April 4, 2021 to opt out of the class.

There is a Case Management Conference scheduled for March 5, 2021, at which time the parties expect the court to address the timing for any motions for summary judgment and trial.

While we believe it is reasonably possible that we may incur a loss associated with this litigation, because the class size has not yet been determined and there is uncertainty under California law with respect to a significant legal issue, we do not believe any potential loss to the Company is reasonably estimable at this time.

Potential class members had until April 4, 2021 to opt out of the class;

however, the total number of employees in the class has not been definitively determined and is the subject of continuing discovery.

While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe any potential loss to the Company is reasonably estimable at this time.

As of December 31, 2021, no amounts have been accrued.

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To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims:

employment matters, tax matters, matters relating to compliance with applicable law (for example, the ADA and similar state laws.

employment matters, tax matters and matters relating to compliance with applicable law (for example, the ADA and similar state laws).

The likelihood of loss from these legal proceedings is based on the definitions within contingency accounting literature.

We recognize a loss when we believe the loss is both probable and reasonably estimable.

Based on the information available to

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us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations, or cash flow.

Based on the information available to us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations, or cash flow.

However, our assessment may change depending upon the development of these legal proceedings, and the final results of these legal proceedings cannot be predicted with certainty.

If we do not prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods.

Leases —We lease land under two non-cancelable operating ground leases, which expire in 2067 and 2065, related to our hotel properties in La Jolla, CA and Yountville, CA, respectively.

The lease in La Jolla, CA contains one extension option of either 10 or 20 years dependent upon capital investment spend during the lease term.

The lease in Yountville, CA contains two 25 -year extension options.

Leases —We lease land under two non-cancelable operating ground leases, which expire in 2067 and 2065, related to our hotel properties in La Jolla, California and Yountville, California, respectively.

The lease in La Jolla, California contains one extension option of either 10 or 20 years dependent upon capital investment spend during the lease term.

The lease in Yountville, California contains two 25 -year extension options.

These leases are subject to base rent plus contingent rent based on each hotel property’s financial results and escalation clauses.

For the year ended December 31, 2018, we recognized rent expense of $ 5.7 million, which included contingent rent of $ 1.8 million.

Rent expense is included in “other” hotel expenses in our consolidated statements of operations.

Capital Commitments —At December 31, 2021, we had capital commitments of $ 23.0 million, including commitments that will be satisfied with insurance proceeds, relating to general capital improvements that are expected to be paid in the next twelve months .

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The package of practical expedients also allowed us to carry forward the historical lease classification.

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Additionally, we elected the practical expedients allowing us not to separate lease and non-lease components and not record short-term leases on the balance sheet across all existing asset classes.

The adoption of this standard has resulted in the recognition of operating lease ROU assets and lease liabilities primarily related to our ground lease arrangements for which we are the lessee.

As of January 1, 2019, we recorded operating lease liabilities of $ 60.6 million as well as a corresponding operating lease ROU asset of $ 82.5 million, which includes, among other things, the reclassified intangible assets of $ 22.3 million.

The adoption of this standard resulted in the recognition of operating lease ROU assets and lease liabilities primarily related to our ground lease arrangements for which we are the lessee.

As of January 1, 2019, we recorded operating lease liabilities of $ 60.6 million as well as a corresponding operating lease ROU assets of $ 82.5 million, which includes, among other things, the reclassified intangible assets of $ 22.3 million.

The standard did not have a material impact on our consolidated statements of operations and statements of cash flows.

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Operating lease liabilities $ 60,937 $ 60,917

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We incurred the following lease costs related to our operating leases (in thousands):

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Year Ended December 31,

2021 2020 2019

Supplemental Cash Flows Information

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Operating leases (1)

47 years 47 years

45 years 47 years 47 years

Weighted Average Discount Rate

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(1) Calculated using the lease term, excluding extension options, and discount rates of the ground leases.

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Future minimum lease payments due under non-cancellable leases as of December 31, 2021 were as follows (in thousands):

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Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income.

At December 31, 2020, twelve of our hotel properties were leased to TRS lessees and The Ritz-Carlton St.

At December 31, 2021, 13 of our hotel properties were leased to TRS lessees and The Ritz-Carlton St.

Thomas was owned by our USVI TRS.

The TRS entities recognized net book income (loss) before income taxes of $ 12.6 million, $( 27.0 ) million and $ 31.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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The following table reconciles the income tax expense at statutory rates to the actual income tax expense recorded (in thousands):

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Total income tax (expense) benefit $ ( 1,324 ) $ 4,406 $ ( 1,764 )

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The components of income tax expense are as follows (in thousands):

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At December 31, 2021 and 2020, we determined that there were no amounts to accrue for interest and penalties due to taxing authorities.

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At December 31, 2021 and 2020, our net deferred tax asset, included in “other assets,” and net deferred tax liability, included in “accounts payable and accrued expenses,” respectively, on our consolidated balance sheets, consisted of the following (in thousands):

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At December 31, 2021, we had TRSs net operating loss carryforwards 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 2017 and is not subject to expiration under the Tax Cuts and Jobs Act.

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We do not recognize deferred tax assets and a valuation allowance for the REIT since the REIT distributes its taxable income as dividends to stockholders, and in turn, the stockholders incur income taxes on those dividends.

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The following table summarizes the changes in the valuation allowance (in thousands):

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The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted.

For the year ended December 31, 2020, the CARES Act allowed us to record a tax benefit of $ 3.4 million for the 2020 net operating loss at our TRS that will be carried back to prior tax years.

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On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, and extended several COVID-19 tax related measures passed as part of the “CARES Act”.

The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which is the period ended December 31, 2020.

For the year ended December 31, 2020, the CARES Act allowed us to record a tax benefit of $ 3.4 million for the 2020 net operating loss at our TRS that was carried back to prior tax years.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, and extended several COVID-19 tax related measures passed as part of the “CARES Act.” The Company is required to recognize the effect on the consolidated financial statements in the period the law was enacted, which was the period ended December 31, 2020.

The Consolidated Appropriations Act, 2021 did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2020.

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$ 4,261 $ 4,640

As of December 31, 2018, intangible assets represented favorable market-rate leases which relate to the acquisitions of the Hilton La Jolla Torrey Pines hotel in La Jolla, CA and the Bardessono Hotel and Spa in Yountville, CA, which are being amortized over the lease terms with expiration dates of 2067 and 2105, respectively.

Intangible assets also include the customer relationships associated with The Ritz-Carlton Sarasota acquisition on April 4, 2018.

Intangible assets include the customer relationships associated with The Ritz-Carlton Sarasota acquisition on April 4, 2018.

The customer relationships are being amortized over the 15 year expected life.

Prior to June 1, 2018 we held an intangible liability that represented an unfavorable market-rate lease which related to the acquisition of the Tampa Renaissance in Tampa, FL, which was being amortized over the remaining initial lease term that was set to expire in 2080.

The hotel property was sold on June 1, 2018.

The unamortized balance was written off as of the time of the sale and included in the calculation of gain/loss.

Following the adoption of ASC 842 on January 1, 2019, we derecognized the intangible assets associated with favorable market-rate leases where we are the lessee in the amount of $ 22.3 million.

The carrying amount of the ROU assets was then adjusted by the corresponding amount.

See notes 2 and 18.

As a result, as of December 31, 2020, intangible assets include the customer relationships associated with The Ritz-Carlton Sarasota acquisition only.

For the years ended December 31, 2020, 2019 and 2018, amortization related to intangible assets was $ 379,000 , $ 379,000 and $ 549,000 , respectively, and amortization related to the intangible liability was $ 0 , $ 0 and $ 23,000 , respectively.

For the years ended December 31, 2021, 2020 and 2019, amortization related to intangible assets was $ 379,000 , $ 379,000 and $ 379,000 , respectively.

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Estimated future amortization expense for intangible assets, net for each of the next five years and thereafter is as follows (in thousands):

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Total $ 4,261

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Concentration of Risk

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and its territories.

For the year ended December 31, 2020, four of our hotel properties generated revenues in excess of 10% of total hotel revenue amounting to 59 % of total hotel revenue.

For the year ended December 31, 2021, three of our hotel properties generated revenues in excess of 10% of total hotel revenue amounting to 48 % of total hotel revenue.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents.

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and its territories.

Subsequent Events

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.

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 have been sold under the SEDA.

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

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.

Subsequent Event

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 %.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data