What changed in this filing

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Item 9A. Controls and Procedures

2022-03-10 compared with 2021-03-05 · 90 added, 36 removed, 268 unchanged (32% of the section changed)

2 unchanged sentences

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, as a result of the material weakness in our internal control over financial reporting related to the accounting for troubled debt restructurings described below that was identified in the third quarter of 2020 and for which it was not possible for the Company to remediate during the fourth quarter of 2020 because there were no similar transactions to evaluate, our disclosure controls and procedures were not effective to ensure that (i) information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures are effective to ensure that (i) information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control over Financial Reporting

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In making the assessment of the effectiveness of our internal control over financial reporting, management has utilized the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (2013 framework) (“COSO”).

Based on management’s assessment of these criteria, we concluded that, as of December 31, 2020, our internal control over financial reporting is not effective.

During our financial statement close process for the period ended September 30, 2020, we identified a material weakness related solely to the review controls over accounting for troubled debt restructurings as of September 30, 2020 (the “Debt Accounting Review”).

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As part of the Debt Accounting Review, the Company inappropriately applied the related GAAP accounting standard when accounting for its forbearance and other agreements that allowed for the forgiveness of default interest and late charges.

This error resulted in a misstatement of the Company’s previously issued second quarter and third quarter earnings press releases furnished on Form 8-K.

The execution of the applicable control is highly complex, and the facts and circumstances underlying the deficiency do not occur frequently.

Because the Company’s review controls did not result in the Company applying GAAP specifically related to troubled debt restructurings correctly in its consolidated financial statements, the Company’s control was deemed to be ineffective.

The Company’s previously issued financial results for the three and six months ended June 30, 2020 and the three and nine months ended September 30, 2020 were corrected in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 to properly reflect the correct accounting for troubled debt restructurings.

To prevent future material weaknesses from arising in similar circumstances, during the fourth quarter of 2020, the Company designed a new control whereby management will engage a third-party accounting expert to assist management in assessing the accounting for similar transactions in its consolidated financial statements.

However, the Company did not enter into any similar transactions during the fourth quarter of 2020, and therefore it was not possible for the Company to test whether the new control was designed and operating effectively as of December 31, 2020.

As a result, the material weakness still exists as of December 31, 2020.

We reviewed the results of management’s assessment with the audit committee of our board of directors.

Notwithstanding the material weakness described above, management has concluded that our consolidated financial statements included in this Annual Report on Form 10-Kare fairly stated in all material respects in accordance with GAAP.

Based on management’s assessment of these criteria, we concluded that, as of December 31, 2021, our internal control over financial reporting is effective.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our most recent fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Report of Independent Registered Public Accounting Firm

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We have audited Braemar Hotels & Resorts Inc.’s (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 (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, 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, 2020, and the related notes and schedule (collectively referred to as “the financial statements”) and our report dated March 5, 2021 expressed an unqualified opinion thereon.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of 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 and our report dated March 10, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness regarding management’s failure to design and maintain effective controls over accounting for troubled debt restructurings has been identified and is more fully described in management’s assessment.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 financial statements, and this report does not affect our report dated March 5, 2021 on those financial statements.

Definition and Limitations of Internal Control over Financial Reporting

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March 10, 2022

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during our most recent fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Other Information

Opinion of the Liquidation Value of our Series E Preferred Stock and Series M Preferred Stock as of December 31, 2021

In order to assist broker-dealers in complying with their obligations under FINRA Rule 2331(c)(1)(B) with respect to customer account statements and our Series E Preferred Stock and our Series M Preferred Stock, we engaged Robert A.

Stanger & Co., Inc.

(“Stanger”) to provide an opinion of the liquidation value of our Series E Preferred Stock and our Series M Preferred Stock as of December 31, 2021 (the “Valuation Date”).

The liquidation value is the amount that a holder of the Series E Preferred Stock or the Series M Preferred Stock would receive per share in the event of our liquidation.

Based on certain assumptions and qualifications set forth in its report, Stanger concluded that the estimated liquidation value of the Series E Preferred Stock and the Series M Preferred Stock was $25.00 per share, which equals the per share liquidation preference for each series as set forth in the articles supplementary creating the Series E and the Series M Preferred Stock.

In arriving at this conclusion, Stanger used the following valuation approaches:

Market capitalization .

Stanger reviewed the public market capitalization of our common stock at its 52-week low, its 52-week high and the closing price as of the Valuation Date.

Stanger adjusted the common market capitalization for the liquidation value of the preferred securities to determine an adjusted market capitalization.

In all cases, the preferred stock coverage ratio, which is the ratio of the adjusted market capitalization to the total liquidation preference for all of our outstanding preferred securities, was adequate as of the Valuation Date.

Analyst target prices .

Stanger reviewed the then most recent (November 2021) target common stock prices published by analysts at investment banks and other financial firms (four in total).

Using the lowest target price, the highest target price and the average or “consensus” price Stanger estimated the common market capitalization as of the Valuation Date.

Stanger adjusted the common market capitalization for the liquidation value of the preferred securities to determine an adjusted market capitalization.

Direct capitalization analysis .

Stanger chose a range of capitalization rates it believed to be appropriate for our asset type and multiplied them with our aggregate “capitalized net operating income” to determine an estimated range of real estate values, deducted our indebtedness, and adjusted for available working capital and for estimated non-controlling interests due to third parties as of the Valuation Date, to derive an estimate of our equity value (before accounting for the preferred securities).

To arrive at our stabilized “capitalized net operating income,” Stanger used the higher of the 2019 net operating income (“NOI”) or budgeted 2022 NOI for each property (believing that 2020 and 2021 NOI was not appropriate on account of COVID-19 disruptions).

For those properties where 2019 NOI was capitalized, Stanger deducted the loss to lease (the difference between 2022 budget NOI and 2019 NOI) from the capitalized value.

Using the highest and lowest capitalization rates in Stanger’s range, our equity value exceeded the total liquidation preference for all of our outstanding preferred securities as of the Valuation Date.

Third-party appraisals .

Stanger prepared a range of equity values based upon the most recent appraised values of our assets (on an “as is” and “stabilized” basis), deducted our indebtedness, and adjusted for available working capital and the estimated non-controlling interests due to third parties as of the Valuation Date, to derive an estimate of our equity value (before accounting for the preferred securities).

The most recent appraisals available for each property were from February 2018 through January 2022.

The age of the “as-is” appraisals averaged 2.8 years.

Using the “as is” values and the “stabilized” values, our equity value exceeded the total liquidation preference for all of our outstanding preferred securities.

Stanger is engaged in the business of providing valuation services for real estate assets and consulting services for non-traded REITs and their sponsors as well as for other real estate programs.

Stanger has not previously provided services to us.

However, Stanger has provided consulting services to Ashford Securities, a subsidiary of Ashford Inc., since 2019 and has received fees in connection with those services.

As previously disclosed, we provide funds to Ashford Inc.

in connection with the formation, registration and operations of Ashford Securities.

Limited Waiver Under Advisory Agreement

On March 10, 2022, we entered into a Limited Waiver Under Advisory Agreement (the “Limited Waiver”) with Braemar OP, Braemar TRS and our advisor.

As previously disclosed, our advisory agreement (i) allocates responsibility for certain employee costs between us and our advisor and (ii) permits our Board of Directors to issue annual equity awards in the Company or the Operating Partnership to employees and other representatives of our advisor based on achievement by the Company of certain financial or other objectives or otherwise as our Board of Directors sees fit.

Pursuant to the Limited Waiver, the Company, Braemar OP, Braemar

TRS and our advisor waived the operation of any provision in the advisory agreement that would otherwise limit our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2022 cash incentive compensation to employees and other representatives of our advisor.

The foregoing description of the Limited Waiver does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Limited Waiver, a copy of which is attached hereto as Exhibit 10.39 and is incorporated herein by reference.

The foregoing information is included for the purpose of providing the disclosures required under “Item 1.01 - Entry into a Material Definitive Agreement,” of Current Report on Form 8-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance

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3.8 Articles Supplementary for the Series D Cumulative Preferred Stock, accepted for record and certified by the Maryland State Department of Assessments and Taxation on November 19, 2018 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on November 19, 2018) (File No.

3.9 Articles Supplementary Establishing the Series E Redeemable Preferred Stock of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on January 23, 2020 (incorporated by reference to Exhibit 3.14 to Amendment No.

1 to the Registration Statement on Form S-3 (File No.

333-234663) filed with the SEC on January 24, 2020)

3.10 Articles Supplementary Establishing the Series M Redeemable Preferred Stock of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on January 23, 2020 (incorporated by reference to Exhibit 3.15 to Amendment No.

1 to the Registration Statement on Form S-3 (File No.

333-234663) filed with the SEC on January 24, 2020)

3.9 Articles Supplementary Establishing the Series E Redeemable Preferred Stock of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on April 2, 2021.

(incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on April 2, 2021) (File No.

3.10 Certificate of Correction of Series E Articles Supplementary of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on November 4, 2021.

(incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on November 5, 2021) (File No.

3.11 Articles Supplementary Establishing the Series M Redeemable Preferred Stock of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on April 2, 2021.

(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on April 2, 2021) (File No.

3.12 Certificate of Correction of Series M Articles Supplementary of Braemar Hotels & Resorts Inc., accepted for record and certified by the SDAT on November 4, 2021.

(incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on November 5, 2021) (File No.

4.1 Specimen Common Stock Certificate of Ashford Hospitality Prime, Inc.

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4.4 Preemptive Rights Agreement, dated as of December 4, 2015, by and among the Company and the Series B Investors (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on December 10, 2015) (File No.

4.5 Indenture, dated as of May 18, 2021, by and among the Company, as issuer, and the Trustee, as trustee, including the Form of Note representing the Company’s 4.50% Convertible Senior Notes due 2026.

(incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on May 18, 2021) (File No.

4.6 * Description of Securities

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4 to the Third Amended and Restated Agreement of Limited Partnership of Braemar Hospitality Limited Partnership (incorporated by reference to Exhibit 10.1 of Form 8-K filed on January 24, 2020)

10.1.4 Amendment No.

5 to the Third Amended and Restated Agreement of Limited Partnership of Braemar Hospitality Limited Partnership.

(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 2, 2021) (File No.

10.1.5 Amendment No.

6 to the Third Amended and Restated Agreement of Limited Partnership of Braemar Hospitality Limited Partnership.

(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on May 18, 2021) (File No.

10.2 Fifth Amended and Restated Advisory Agreement, dated as of April 23, 2018, among Braemar Hotels & Resorts Inc., Braemar Hospitality Limited Partnership, Braemar TRS Corporation, Ashford Hospitality Advisors LLC and Ashford Inc.

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and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on January 18, 2019) (File No.

10.2.2 Amendment No.

2 to the Fifth Amended and Restated Advisory Agreement, dated as of August 16, 2021, by and among Braemar Hotels & Resorts Inc., Braemar Hospitality Limited Partnership, Braemar TRS Corporation, Ashford Inc.

and Ashford Hospitality Advisors LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 17, 2021) (File No.

10.3 Right of First Offer Agreement between Ashford Hospitality Trust, Inc.

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10.20† Amended and Restated Form of Performance LTIP Unit Award Agreement (filed as Exhibit 10.44 to the Annual Report on Form 10-K filed on February 28, 2017 (File No.

10.21† Form of LTIP Unit Award Agreement (filed as Exhibit 10.21 to the Annual Report on Form 10-K filed on March 13, 2020) (File No.

10.22† Form of Performance LTIP Unit Award Agreement (filed as Exhibit 10.22 to the Annual Report on Form 10-K filed on March 13, 2020) (File No.

10.23† Form of Performance Stock Unit Award Agreement (filed as Exhibit 10.23 to the Annual Report on Form 10-K filed on March 13, 2020) (File No.

10.21† Form of 2021 Performance LTIP Unit Award Agreement (filed as Exhibit 10.7 to the Quarterly Report on Form 10-Q filed on May 7, 2021) (File No.

10.22† Form of 2021 Performance Stock Unit Award Agreement (filed as Exhibit 10.6 to the Quarterly Report on Form 10-Q filed on May 7, 2021) (File No.

10.23† Restricted Stock Award Agreement, dated as of November 2, 2016, by and between Ashford Hospitality Prime, Inc.

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10.25.2 First Amendment to Second Amended and Restated Credit Agreement, dated June 8, 2020 (incorporated by reference to Exhibit 10.1 of Form 8-K filed June 11, 2020)

10.25.3 Second Amendment to Second Amended and Restated Credit Agreement, dated February 22, 2021.(incorporated by reference to Exhibit 10.1 of Form 8-K filed February 22, 2021) (File No.

10.26 Form of Indemnification Agreement between Ashford Hospitality Prime, Inc.

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and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 28, 2019) (File No.

10.33 Letter Agreement, dated March 13, 2020, by and between Remington Lodging & Hospitality, LLC and Braemar TRS Corporation (incorporated by reference to Exhibit 10.2 of Form 8-K filed on March 16, 2020)

10.32 Standby Equity Distribution Agreement, dated as of February 4, 2021, by and between Braemar Hotels & Resorts Inc.

and YA II PN.

(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 4, 2021) (File No.

10.33 Purchase Agreement, dated as of April 21, 2021, by and between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 21, 2021) (File No.

10.34 Purchase Agreement, dated as of May 13, 2021, by and among the Company, the Operating Partnership, the Advisor and UBS Securities LLC, as the Initial Purchaser.

(incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on May 18, 2021) (File No.

10.35 Equity Distribution Agreement, dated as of May 25, 2021, by and between Braemar Hotels & Resorts Inc.

and Virtu Americas LLC (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on May 26, 2021)

10.36 Equity Distribution Agreement, dated as of July 12, 2021, by and among Braemar Hotels & Resorts Inc., Braemar Hospitality Limited Partnership, Ashford Hospitality Advisors LLC and Virtu Americas LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 12, 2021)

10.37 Amendment No.

1 to the Braemar Master Project Management Agreement (filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q filed on August 6, 2021) (File No.

10.38* Purchase and Sale Agreement, dated as of December 24, 2021, between and among DBR Hotel Owner LLC, as seller, and Braemar Hotels & Resorts Inc.

and BHR Dorado LLC, as purchaser

10.39* Limited Waiver Under Advisory Agreement, dated as of March 10, 2022, by and among Braemar Hotels & Resorts Inc., Braemar Hospitality Limited Partnership, Braemar TRS Corporation, Ashford Inc.

and Ashford Hospitality Advisors LLC.

21.1* List of Subsidiaries of Braemar Hotels & Resorts Inc.

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23.1* Consent of BDO USA, LLP

23.2* Consent of Robert A.

Stanger & Co., Inc.

31.1* Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

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32.2** Certification of the Chief Financial Officer required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with SEC Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)

99.1 Consulting and Cooperation Agreement, by and among Ashford Inc., Ashford Hospitality Advisors LLC, and Robert G.

Haiman, dated as of June 30, 2021 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on June 30, 2021) .

_________________________

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(iii) Consolidated Statements Comprehensive Income (Loss);

(iii) Consolidated Statements of Equity;(iv)Consolidated Statements of Cash Flows;

and (v) Notes to Consolidated Financial Statements.

(iv) Consolidated Statements of Equity;(v) Consolidated Statements of Cash Flows;

and (vi) Notes to Consolidated Financial Statements.

In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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The Ritz-Carlton Lake Tahoe Truckee, CA 54,000 26,731 91,603 — 2,461 26,731 94,064 120,795 8,082 — 01/2019 (1),(2),(3)

C Beverly Hills Hotel Beverly Hills, CA 30,000 29,346 45,077 — 136 29,346 45,213 74,559 972 — 08/2021 (1),(2),(3)

Total $ 1,094,500 $ 484,644 $ 1,117,238 $ — $ 243,196 $ 484,644 $ 1,360,434 $ 1,845,078 $ 399,481

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(3) Estimated useful life for furniture and fixtures is 1.5 to 5 years.

(4) Amount includes transfer of FF&E to Ashford Inc.

in return for the key money consideration.

Year Ended December 31,

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

What changed 10-K

Item 9A. Controls and Procedures