What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 320 added, 492 removed, 820 unchanged (50% of the section changed)

4 unchanged sentences

(unaudited, in thousands, except share and per share amounts)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Investments in hotel properties, gross $ 2,044,378 $ 1,845,078

26 unchanged sentences

Commitments and contingencies (note 15)

5.50 % Series B cumulative convertible preferred stock, $ 0.01 par value, 3,078,017 and 5,031,473 shares issued and outstanding at September 30, 2021 and December 31, 2020

5.50 % Series B cumulative convertible preferred stock, $ 0.01 par value, 3,078,017 shares issued and outstanding at March 31, 2022 and December 31, 2021

65,426 65,426

Series E redeemable preferred stock, $ 0.01 par value, 265,637 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020

Series M redeemable preferred stock, $ 0.01 par value, 14,644 and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020

Series E redeemable preferred stock, $ 0.01 par value, 3,191,495 and 1,710,399 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

73,404 39,339

Series M redeemable preferred stock, $ 0.01 par value, 62,444 and 29,044 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Redeemable noncontrolling interests in operating partnership 42,291 36,087

Preferred stock, $ 0.01 value, 80,000,000 shares authorized:

8.25 % Series D cumulative preferred stock, 1,600,000 shares issued and outstanding at September 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value, 250,000,000 shares authorized, 63,974,117 and 38,274,770 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

8.25 % Series D cumulative preferred stock, 1,600,000 shares issued and outstanding at March 31, 2022 and December 31, 2021

Common stock, $ 0.01 par value, 250,000,000 shares authorized, 71,269,799 and 65,365,470 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 736,911 707,418

9 unchanged sentences

(unaudited, in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Rooms $ 105,192 $ 54,323

11 unchanged sentences

Advisory services fee 7,322 4,795

(Gain) loss on legal settlements — — ( 989 ) —

Transaction costs 275 — 571 —

Corporate general and administrative 2,495 1,600

4 unchanged sentences

Interest income 25 9

Other income (expense) — ( 3,604 ) — ( 3,806 )

Interest expense and amortization of discounts and loan costs ( 8,522 ) ( 6,756 )

21 unchanged sentences

(unaudited, in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

NET INCOME (LOSS) $ 15,604 $ ( 11,034 )

18 unchanged sentences

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance at June 30, 2021 1,600 $ 16 57,311 $ 573 $ 661,576 $ ( 295,641 ) $ ( 16,264 ) $ 350,260 3,108 $ 66,064 — — — — $ 29,398

Equity-based compensation — — — — 1,990 — — 1,990 — — — — — — 1,054

Issuance of common stock — — 6,550 66 34,166 — 34,232 — — — — — — —

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

Issuance of preferred stock — — — — — — — — — — 266 4,204 15 250 —

Dividends declared – preferred stock - Series B ($ 0.34 /share)

— — — — — ( 1,058 ) — ( 1,058 ) — — — — — — —

Dividends declared – preferred stock - Series D ($ 0.52 /share)

— — — — — ( 825 ) — ( 825 ) — — — — — — —

Dividends declared – preferred stock - Series E ($ 0.50 /share)

— — — — — ( 90 ) — ( 90 ) — — — — — — —

Dividends declared – preferred stock - Series M ($ 0.51 /share)

— — — — — ( 4 ) — ( 4 ) — — — — — — —

Net income (loss) — — — — — ( 6,946 ) ( 450 ) ( 7,396 ) — — — — — — ( 823 )

Extinguishment of preferred stock — — 120 — 749 ( 111 ) — 638 ( 30 ) ( 638 ) — — — — —

Redemption value adjustment - preferred stock — — — — — ( 2,017 ) — ( 2,017 ) — — — 1,906 111 —

Redemption value adjustment — — — — — 2,856 — 2,856 — — — — — — ( 2,856 )

Balance at September 30, 2021 1,600 $ 16 63,974 $ 639 $ 698,481 $ ( 303,836 ) $ ( 16,714 ) $ 378,586 3,078 $ 65,426 266 $ 6,110 15 $ 361 $ 39,948

8.25 % Series D Cumulative Preferred Stock

Common Stock Additional

Capital Accumulated Deficit Noncontrolling Interest in Consolidated Entities Total 5.50 % Series B Cumulative Convertible

Preferred Stock

Series E Redeemable

Preferred Stock Series M Redeemable

Preferred Stock Redeemable Noncontrolling Interests in Operating Partnership

Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount

Balance at December 31, 2021 1,600 $ 16 65,365 $ 653 $ 707,418 $ ( 309,240 ) $ ( 16,549 ) $ 382,298 3,078 $ 65,426 1,710 $ 39,339 29 $ 715 $ 36,087

Impact of adoption of new accounting standard — — — — ( 6,257 ) 656 — ( 5,601 ) — — — — — — —

Purchase of common stock — — ( 93 ) ( 1 ) ( 551 ) — — ( 552 ) — — — — — — —

2 unchanged sentences

Issuance of preferred stock — — — — — — — — — — 1,481 33,093 33 802 —

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

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

Forfeiture of restricted common shares — — ( 2 ) — — — — — — — — — — — —

Dividends declared – common stock ($ 0.01 /share)

— — — — — ( 720 ) — ( 720 ) — — — — — — —

Dividends declared – preferred stock - Series B ($ 0.34 /share)

7 unchanged sentences

Contributions from noncontrolling interests — — — — — — 164 164 — — — — — — —

Redemption/conversion of operating partnership units — — 2 — 17 — — 17 — — — — — — ( 17 )

Distributions to noncontrolling interests — — — — — — — — — — — — — — ( 83 )

Net income (loss) — — — — — 14,663 ( 26 ) 14,637 — — — — — — 967

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 — — — — — ( 993 ) — ( 993 ) — — — 972 — 21 —

Redemption value adjustment — — — — — ( 4,386 ) — ( 4,386 ) — — — — — — 4,386

Balance at September 30, 2021 1,600 $ 16 63,974 $ 639 $ 698,481 $ ( 303,836 ) $ ( 16,714 ) $ 378,586 3,078 $ 65,426 266 $ 6,110 $0 15 $ 361 39,948

8.25 % Series D Cumulative Preferred Stock

Common Stock Additional

Capital Accumulated Deficit Noncontrolling Interest in Consolidated Entities Total 5.50 % Series B Cumulative Convertible

Preferred Stock

Redeemable Noncontrolling Interests in Operating Partnership

Shares Amount Shares Amount Shares Amount

Balance at June 30, 2020 1,600 $ 16 33,528 $ 335 $ 525,846 $ ( 216,574 ) $ ( 11,628 ) $ 297,995 5,031 $ 107,352 $ 31,589

Purchase of common stock — — ( 1 ) — ( 2 ) — — ( 2 ) — — —

Equity-based compensation — — — — 1,465 — — 1,465 — — 541

Issuance of common stock — — 3,046 30 6,380 — — 6,410 — — —

Issuance of restricted shares/units — — 29 — ( 48 ) — — ( 48 ) — — ( 44 )

Forfeiture of restricted common shares — — ( 2 ) — — — — — — — —

Dividends declared – preferred stock - Series B ($ 0.34 /share)

— — — — — ( 1,729 ) — ( 1,729 ) — — —

Dividends declared – preferred stock-Series D ($ 0.52 /share)

— — — — — ( 825 ) — ( 825 ) — — —

Net income (loss) — — — — — ( 18,677 ) ( 1,999 ) ( 20,676 ) — — ( 2,381 )

Redemption value adjustment — — — — — ( 8 ) — ( 8 ) — — 8

Balance at September 30, 2020 1,600 $ 16 36,600 $ 365 $ 533,641 $ ( 237,813 ) $ ( 13,627 ) $ 282,582 5,031 $ 107,352 $ 29,713

Balance at March 31, 2022 1,600 $ 16 71,270 $ 712 $ 736,911 $ ( 303,323 ) $ ( 16,411 ) $ 417,905 3,078 $ 65,426 3,191 $ 73,404 62 $ 1,538 $ 42,291

8.25 % Series D Cumulative Preferred Stock

7 unchanged sentences

Issuance of common stock — — 3,205 32 18,277 — — 18,309 — — —

Issuance of preferred stock — — — — — — — — 23 432 —

Issuance of restricted shares/units — — 504 5 ( 5 ) — — — — — —

4 unchanged sentences

— — — — — ( 825 ) — ( 825 ) — — —

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

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

Net income (loss) — — — — — ( 8,708 ) ( 1,247 ) ( 9,955 ) — — ( 1,079 )

Extinguishment of preferred stock — — 1,535 15 10,398 ( 73 ) — 10,340 ( 486 ) ( 10,340 ) —

Redemption value adjustment — — — — — ( 1,266 ) — ( 1,266 ) — — 1,266

Balance at September 30, 2020 1,600 $ 16 36,600 $ 365 $ 533,641 $ ( 237,813 ) $ ( 13,627 ) $ 282,582 5,031 $ 107,352 $ 29,713

Balance at March 31, 2021 1,600 $ 16 43,466 $ 434 $ 571,288 $ ( 278,445 ) $ ( 16,335 ) $ 276,958 4,545 $ 96,609 $ 28,162

See Notes to Condensed Consolidated Financial Statements.

3 unchanged sentences

(unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

11 unchanged sentences

Realized and unrealized (gain) loss on derivatives ( 408 ) 20

Net settlement of trading derivatives — 30

Equity in (earnings) loss of unconsolidated entity 72 64

8 unchanged sentences

Due to/from Ashford Inc.

1,703 ( 363 )

Operating lease liabilities ( 73 ) ( 60 )

2 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from property insurance — 2,528

Net proceeds from disposition of assets — 200

Acquisition of hotel property, net of cash and restricted cash acquired ( 86,958 ) —

Investment in unconsolidated entity ( 117 ) ( 26 )

Improvements and additions to hotel properties ( 10,791 ) ( 4,692 )

9 unchanged sentences

Proceeds from issuance of common stock — 18,181

Common stock offering costs ( 36 ) —

Contributions from noncontrolling interest in consolidated entities 164 —

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

Net cash provided by (used in) financing activities 31,919 4,381

5 unchanged sentences

Income taxes paid (refunded) ( 2,989 ) ( 41 )

Nine Months Ended September 30,

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Dividends and distributions declared but not paid $ 3,229 $ 2,569

Three Months Ended March 31,

Common stock purchases accrued but not paid 552 348

Issuance of units for hotel acquisition 13,175 —

Issuance of warrants in hotel acquisition 1,528 —

Assumption of debt in hotel acquisition 58,601 —

Capital expenditures accrued but not paid 4,054 4,628

Accrued but unpaid financing costs — 2,229

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

Issuance of common stock for hotel acquisition 35,040 —

Accrued common stock offering expense 39 101

1 unchanged sentence

Accrued preferred stock offering expenses 40 —

Non-cash preferred stock dividends 99 —

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

24 unchanged sentences

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

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

Remington Lodging & Hospitality, LLC (“Remington Hotels”), a subsidiary of Ashford Inc., manages four of our 15 hotel properties.

Third-party management companies manage the remaining hotel properties.

2 unchanged sentences

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 condensed consolidated financial statements include the accounts of wholly-owned and majority-owned subsidiaries of Braemar OP that as of September 30, 2021, own 14 hotel properties in six states, the District of Columbia and the U.S.

The accompanying condensed consolidated financial statements include the accounts of wholly-owned and majority-owned subsidiaries of Braemar OP that as of March 31, 2022, own 15 hotel properties in six states, the District of Columbia, Puerto Rico and the U.S.

Virgin Islands (“USVI”).

2 unchanged sentences

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

As of September 30, 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”).

As of March 31, 2022, 14 of our 15 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.

1 unchanged sentence

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

As of September 30, 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.

As of March 31, 2022, 12 of the 15 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.

2 unchanged sentences

(“Marriott”), Hilton Management LLC (“Hilton”), Accor Management US Inc.

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

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 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 throughout the United States.

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

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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2021, the Company maintained unrestricted cash of $ 195.5 million and restricted cash of $ 44.8 million.

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

As of September 30, 2021, there was also $ 20.4 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 December 10, 2020, the Company announced that it plans to continue its suspension of the common stock dividend into 2021 to protect liquidity and will evaluate future dividend declarations on a quarterly basis going forward.

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.

(“Accor”), Hyatt Corporation (“Hyatt”), The Ritz-Carlton Hotel Company, L.L.C.

and its affiliates, each of which is also an affiliate of Marriott (“Ritz-Carlton”) and Remington Hotels, which are eligible independent contractors under the Code.

Significant Accounting Policies

4 unchanged sentences

All significant intercompany accounts and transactions between consolidated entities have been eliminated in these condensed consolidated financial statements.

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements.

We believe the disclosures made herein are adequate to prevent the information presented from being misleading.

6 unchanged sentences

• historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results.

Consequently, operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Consequently, operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022;

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

1 unchanged sentence

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

• on March 11, 2022, we acquired The Ritz-Carlton Reserve Dorado Beach hotel located in Dorado, Puerto Rico.

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

Actual results could differ from those estimates.

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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

Early adoption is permitted.

We 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.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Recently Adopted Accounting Standards —In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

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.

5 unchanged sentences

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 adopted ASU 2020-06 through the modified retrospective method on January 1, 2022.

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

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

The adoption of ASU 2020-06 resulted 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 includes an increase to “indebtedness, net” and a decrease to stockholders’ equity of approximately $ 5.6 million.

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

BRAEMAR HOTELS & RESORTS INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The impact of adoption on our condensed consolidated statement of operations for the three months ended March 31, 2022 resulted in a decrease to net interest expense by $ 273,000 relating to the non-cash interest expense associated with amortization of the debt discount.

The adoption had no effect on our basic and diluted net income per share of common stock attributable to common stockholders for the three months ended March 31, 2022.

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.

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

Three Months Ended September 30, 2021

Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total

California 6 $ 28,838 $ 8,024 $ 3,626 $ 40,488

Colorado 1 4,123 4,152 2,168 10,443

Florida 2 13,738 5,384 4,581 23,703

Illinois 1 5,233 1,196 389 6,818

Pennsylvania 1 3,911 580 243 4,734

Washington 1 6,906 792 550 8,248

Washington, D.C.

1 2,476 512 337 3,325

USVI 1 12,335 3,854 2,229 18,418

Total 14 $ 77,560 $ 24,494 $ 14,123 $ 116,177

Three Months Ended September 30, 2020

Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total

California 5 $ 11,504 $ 2,895 $ 1,536 $ 15,935

Colorado 1 1,688 692 1,659 4,039

Florida 2 7,103 3,175 3,262 13,540

Illinois 1 1,706 240 127 2,073

Pennsylvania 1 1,088 9 58 1,155

Washington 1 1,056 3 118 1,177

Washington, D.C.

1 331 4 292 627

USVI 1 3,642 1,519 1,047 6,208

Total 13 $ 28,118 $ 8,537 $ 8,099 $ 44,754

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total

California 6 $ 30,971 $ 10,869 $ 4,943 $ 46,783

Puerto Rico 1 5,476 1,132 888 7,496

Colorado 1 12,177 6,133 3,131 21,441

7 unchanged sentences

Total 15 $ 105,192 $ 36,707 $ 19,981 $ 161,880

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total

12 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the three and nine months ended September 30, 2020, the Company recorded revenue from business interruption losses associated with lost profits from Hurricane Irma of $ 0 and $ 4.0 million, respectively.

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

There was no such revenue recorded for the three and nine months ended September 30, 2021 as the insurance claim was fully settled in 2020.

Investments in Hotel Properties, net

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Land $ 560,241 $ 480,530

7 unchanged sentences

Impairment Charges and Insurance Recoveries

For the three and nine months ended September 30, 2021, we recognized a gain of $ 0 and $ 481,000 , respectively.

associated with proceeds received from an insurance claim.

For the three and nine months ended September 30, 2020, the Company received proceeds of $ 650,000 and $ 8.0 million, respectively, from our insurance carriers for property damage and business interruption from Hurricane Irma.

There were no proceeds for the three and nine months ended September 30, 2021 as the claim was fully settled in September 2020.

During the three and nine months ended September 30, 2021 and 2020, no impairment charges were recorded.

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

Upon settlement, the Company recorded a gain of $ 10.1 million as the proceeds received exceeded the carrying value of the hotel property at the time of the loss.

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

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

There was no such gain recognized for the three months ended March 31, 2022.

During the three months ended March 31, 2022 and 2021, no impairment charges were recorded.

The Ritz-Carlton Reserve Dorado Beach

On March 11, 2022, the Company acquired a 100 % interest in the 96 -room Dorado Beach, a Ritz-Carlton Reserve in Dorado, Puerto Rico.

The total consideration consisted of $ 104.0 million of cash and 6.0 million shares of the Company’s common stock with a fair value of approximately $ 35.0 million.

Additionally, the Company assumed a $ 54.0 million mortgage loan with a fair value of approximately $ 58.6 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 are in the process of evaluating the values assigned to investment in hotel property, property level working capital balances and the residences.

This valuation is considered a Level 3 valuation technique.

Thus, the balances reflected below are subject to change, and any such changes could result in adjustments to the allocation.

Any change to the amounts recorded within the investments in hotel properties will also impact depreciation and amortization expense.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):

See note 6 for further discussion regarding the mortgage loan.

On March 14, 2022, the Company filed a resale registration statement on Form S-3, which was declared effective by the SEC on April 1, 2022, to register for resale the 6.0 million shares of common stock.

We accounted for this acquisition as an asset acquisition because substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets.

The cost of the acquisition including transaction costs of approximately $ 1.9 million, was allocated to the individual assets acquired and liabilities assumed on a relative fair value basis, which is considered a Level 3 valuation technique.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):

Land $ 79,711

2 unchanged sentences

Investments in hotel properties 197,221

Restricted cash 1,091

Inventories 1,184

1 unchanged sentence

Net other assets (liabilities) $ ( 9,806 )

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

The table below summarizes the total revenue and net income (loss) in our condensed consolidated statements of operations for the three and nine months ended September 30, 2021:

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Total revenue $ 2,272 $ 2,272

Net income (loss) ( 1,203 ) ( 1,203 )

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 $ 275,000 and $ 571,000 of non-recurring transaction costs directly attributable to the acquisition for the three and nine months ended September 30, 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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 condensed consolidated statements of operations for the three months ended March 31, 2022:

Three Months Ended March 31, 2022

Total revenue $ 7,495

Net income (loss) 3,492

Net income (loss) attributable to common stockholders $ ( 7,898 ) $ ( 20,675 ) $ ( 34,082 ) $ ( 84,203 )

Pro Forma income per share;

Basic $ ( 0.13 ) $ ( 0.61 ) $ ( 0.70 ) $ ( 2.54 )

Diluted $ ( 0.13 ) $ ( 0.61 ) $ ( 0.70 ) $ ( 2.54 )

Weighted average common shares outstanding (in thousands):

Basic 59,207 33,923 48,954 33,103

Diluted 59,207 33,923 48,954 33,103

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Investment in Unconsolidated Entity

1 unchanged sentence

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.

On July 12, 2021, the Company made an additional investment in OpenKey of approximately $ 117,000 .

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

As of September 30, 2021, the Company has made investments in OpenKey totaling $ 2.5 million.

As of March 31, 2022, the Company has made investments in OpenKey totaling $ 2.6 million.

Our investment is recorded as “investment in unconsolidated entity” in our condensed 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.

An investment is impaired when its estimated fair value is less than the carrying amount of

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

the investment.

An investment is impaired when its estimated fair value is less than the carrying amount of the investment.

Any impairment is recorded in equity in earnings (loss) of unconsolidated entity.

No such impairment was recorded for the three and nine months ended September 30, 2021 and 2020.

No such impairment was recorded for the three months ended March 31, 2022 and 2021.

The following table summarizes our carrying value and ownership interest in OpenKey:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Carrying value of the investment in OpenKey (in thousands) $ 1,617 $ 1,689

1 unchanged sentence

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Line Item 2022 2021

Equity in earnings (loss) of unconsolidated entity $ ( 72 ) $ ( 64 )

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Indebtedness, net

1 unchanged sentence

Indebtedness Collateral Current Maturity Final

Maturity (12)

Interest Rate September 30, 2021 December 31, 2020

Interest Rate March 31, 2022 December 31, 2021

Mortgage loan (3)

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

$ 67,500 $ 67,500

Mortgage loan (4)

7 unchanged sentences

42,500 42,500

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 (6)

15 unchanged sentences

Mortgage loan (3)

Park Hyatt Beaver Creek Resort & Spa February 2024 February 2027 SOFR (2) + 2.86 %

Mortgage loan (7)

The Ritz-Carlton Reserve Dorado Beach March 2024 March 2026 LIBOR (1) + 6.00 %

Mortgage loan (8)

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

30,000 30,000

Mortgage loan (6)

1 unchanged sentence

80,000 80,000

Convertible Senior Notes (11)

Equity June 2026 June 2026 4.50 % 86,250 —

Convertible Senior Notes Equity June 2026 June 2026 4.50 % 86,250 86,250

1,237,500 1,180,750

Capitalized default interest and late charges 4,425 7,304

Capitalized default interest and late charges, net 3,382 3,904

Deferred loan costs, net ( 4,502 ) ( 3,538 )

Discounts, net ( 8,844 ) —

Premiums/(Discounts), net 1,768 ( 8,438 )

Indebtedness, net $ 1,238,148 $ 1,172,678

__________________

(1) LIBOR rates were 0.080 % and 0.144 % at September 30, 2021 and December 31, 2020, respectively.

(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 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.

(1) LIBOR rates were 0.452 % and 0.101 % at March 31, 2022 and December 31, 2021, respectively.

(2) SOFR rate was 0.302 % at March 31, 2022.

(3) On February 2, 2022, we refinanced this mortgage loan totaling $ 67.5 million with a new $ 70.5 million mortgage loan with a two-year initial term and three one-year extension options, subject to the satisfaction of certain conditions.

The new mortgage loan is interest only and bears interest at a rate of SOFR + 2.86 %.

(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.

1 unchanged sentence

This mortgage loan has a LIBOR floor of 1.00 %.

(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.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(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.

(6) 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.

(7) This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.

This mortgage loan has a LIBOR floor of 0.75 %.

(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.

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

(9) 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 September 30, 2021, no loans are in default.

See note 14 for discussion of the loan modification agreement with Lismore Capital LLC (“Lismore”).

As of March 31, 2022, no loans are in default.

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.

Additionally, 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 non-cash principal amortization associated with the default interest and late charges during the three and nine months ended September 30, 2021 was approximately $ 519,000 and $ 2.9 million, respectively.

The amount of principal amortization during the three and nine months ended September 30, 2020 was $ 937,000 and $ 1.2 million, respectively.

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

C Beverly Hills Hotel and the adjacent residences in Los Angeles, California, 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 with the stated maturity in August 2024.

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 principal amortization for the three months ended March 31, 2022 and 2021 was $ 523,000 and $ 1.3 million, respectively.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 %.

In connection with the refinancing, the Company paid Lismore a fee of approximately $ 637,000 .

On March 11, 2022, in connection with the acquisition of The Ritz-Carlton Reserve Dorado Beach, the Company assumed a $ 54 million mortgage loan.

Convertible Senior Notes

1 unchanged sentence

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.

2 unchanged sentences

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

The Company recorded coupon interest expense of $ 970,000 and $ 1.4 million, respectively, for the three and nine months ended September 30, 2021.

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

The Company recorded coupon interest expense of $ 970,000 for the three months ended March 31, 2022.

Upon issuance of the Convertible Senior Notes, 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 %.

1 unchanged sentence

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 $ 391,000 and $ 576,000 , respectively, for the three and nine months ended September 30, 2021.

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

The initial discount of $ 9.3 million was 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 $ 132,000 related to the initial purchase discount for the three months ended March 31, 2022, with the remaining discount balance to be amortized through June 2026.

As a result of the Company's adoption of ASU 2020-06 on January 1, 2022, the Convertible Senior Notes are now recorded as a single liability with no portion recorded in equity.

The Company also ceased recording non-cash interest expense associated with the amortization of the portion of the debt discount originally reflected in equity, while the initial purchase discount remains and will continue 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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Convertible Senior Notes in connection with such corporate event, such notice of redemption, or such issuer conversion option, as the case may be.

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

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

1 unchanged sentence

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 September 30, 2021, we were in compliance with all covenants.

As of March 31, 2022, we were in compliance with all covenants.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Derivative Instruments

Interest Rate Derivatives —We are exposed to risks arising from our business operations, economic conditions and financial markets.

To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows.

The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements.

To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows, which include interest rate caps.

All derivatives are recorded at fair value.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Interest rate caps:

2 unchanged sentences

Strike rate high end of range 3.50 % 3.00 %

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

Termination date range February 2022- August 2024 April 2021 - June 2021

Effective date range February 2022 January 2021 - March 2021

Termination date range February 2024 September 2021 - April 2022

Total cost of interest rate caps (in thousands) $ 76 $ 20

3 unchanged sentences

Interest rate caps:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Notional amount (in thousands) $ 928,000 $ 882,500

1 unchanged sentence

Strike rate high end of range 4.00 % 4.00 %

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

Termination date range April 2022 - August 2024 February 2022 - August 2024

Aggregate principal balance on corresponding mortgage loans (in thousands) $ 859,750 $ 857,000

2 unchanged sentences

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 the August 5, 2021 until August 5, 2024.

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 September 30, 2021, no warrants have been exercised.

As of March 31, 2022, 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:

5 unchanged sentences

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

1 unchanged sentence

This is a Level 2 valuation technique.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Fair Value Measurements

7 unchanged sentences

Fair value of interest rate caps is determined using the net present value of expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and our counterparties.

Fair value of credit default swaps is obtained from a third-party who publishes various information including the index composition and price data (Level 2 inputs).

The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.

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.

2 unchanged sentences

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

In determining the fair values of our derivatives at September 30, 2021, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 0.080 % to 1.188 % for the remaining term of our derivatives.

In determining the fair values of our derivatives at March 31, 2022, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 0.452 % to 2.790 % for the remaining term of our derivatives.

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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

4 unchanged sentences

(Level 3) Total

September 30, 2021

March 31, 2022

Derivative assets:

4 unchanged sentences

Net $ — $ ( 812 ) $ — $ ( 812 )

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Quoted Market Prices (Level 1) Significant Other

Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total

December 31, 2021

Derivative assets:

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

$ — $ 139 $ — $ 139 (1)

Derivative liabilities:

Warrants — ( 1,435 ) — ( 1,435 ) (2)

Net $ — $ ( 1,296 ) $ — $ ( 1,296 )

__________________

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

3 unchanged sentences

Gain (Loss) Recognized in Income

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Derivative assets:

Interest rate derivatives - caps $ 843 $ ( 20 )

Credit default swaps — 51 (1)

Total derivative assets $ 843 $ ( 20 )

4 unchanged sentences

Total combined

Interest rate derivatives - floors $ — $ 3,540 $ — $ 3,615

Interest rate derivatives - caps $ 843 $ ( 20 )

Credit default swaps — 51 — 226

Warrants ( 435 ) —

Unrealized gain (loss) on derivatives $ 408 $ ( 20 )

Realized gain (loss) on interest rate floors — ( 3,540 ) (2)

— ( 3,615 ) (2)

Net $ 408 $ ( 20 )

_______________

(1) Excludes costs associated with credit default swaps of $ 0 and $ 64 for the three months ended September 30, 2021 and 2020, respectively, as well as $ 0 and $ 191 for the nine months ended September 30, 2021 and 2020, respectively, which is included in “other income (expense)” in our condensed consolidated statements of operations.

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summary of Fair Value of Financial Instruments

2 unchanged sentences

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Value Estimated

1 unchanged sentence

Value Estimated

Financial assets and liabilities measured at fair value:

Financial assets measured at fair value:

Derivative assets $ 1,058 $ 1,058 $ 139 $ 139

Financial liabilities measured at fair value:

Derivative liabilities $ 1,870 $ 1,870 $ 1,435 $ 1,435

29 unchanged sentences

Credit spreads take into consideration general market conditions, maturity and collateral.

We estimated the fair value of the total indebtedness to be approximately 82.6 % to 91.3 % of the carrying value of $ 1.2 billion at September 30, 2021, and approximately 78.3 % to 86.6 % of the carrying value of $ 1.1 billion at December 31, 2020.

We estimated the fair value of the total indebtedness to be approximately 85.9 % to 95.0 % of the carrying value of $ 1.2 billion at March 31, 2022, and approximately 87.2 % to 96.4 % of the carrying value of $ 1.2 billion at December 31, 2021.

These fair value estimates are considered a Level 2 valuation technique.

4 unchanged sentences

The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Net income (loss) attributable to common stockholders - basic and diluted:

1 unchanged sentence

Dividends on preferred stock ( 3,303 ) ( 2,388 )

Dividends on common stock ( 707 ) —

Loss on extinguishment of preferred stock - Series B — ( 73 )

Dividends on unvested performance stock units ( 7 ) —

Dividends on unvested restricted shares ( 6 ) —

Net (income) loss allocated to performance stock units ( 112 ) —

Net (income) loss allocated to unvested restricted shares ( 89 ) —

Undistributed net income (loss) allocated to common stockholders $ 10,439 $ ( 11,169 )

Distributed and undistributed net income (loss) - basic and diluted $ ( 9,034 ) $ ( 21,231 ) $ ( 35,740 ) $ ( 87,202 )

Dividends on common stock 707 —

Distributed and undistributed net income (loss) - basic $ 11,146 $ ( 11,169 )

Interest expense on Convertible Senior Notes 1,103 —

Dividends on preferred stock - Series E 1,399 —

Dividends on preferred stock - Series M $ 21 $ —

Distributed and undistributed net income (loss) - diluted $ 13,669 $ ( 11,169 )

Weighted average common shares outstanding:

Weighted average common shares outstanding – basic and diluted 59,207 33,923 48,954 33,103

Weighted average common shares outstanding – basic 65,878 39,605

Effect of assumed exercise of warrants 3 —

Effect of assumed conversion of Convertible Senior Notes 13,609 —

Effect of assumed conversion of preferred stock - Series E 10,258 —

Effect of assumed conversion of preferred stock - Series M 147 —

Weighted average common shares outstanding – diluted 89,895 39,605

Income (loss) per share - basic:

3 unchanged sentences

Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Net income (loss) allocated to common stockholders is not adjusted for:

Income (loss) allocated to unvested restricted shares $ 95 $ —

Income (loss) allocated to unvested performance stock units 120 —

Income (loss) attributable to redeemable noncontrolling interests in operating partnership 967 ( 1,079 )

1 unchanged sentence

Loss on extinguishment of preferred stock - Series B — 73

Interest expense on Convertible Senior Notes 1,361 — 2,010 —

Dividends on preferred stock - Series E 90 — 90 —

Dividends on preferred stock - Series M 4 — 4 —

Total $ 2,240 $ 557

1 unchanged sentence

Effect of unvested restricted shares 17 83

Effect of unvested performance stock units 1 —

Effect of assumed conversion of operating partnership units 5,856 4,006

1 unchanged sentence

Effect of assumed conversion of exchanged preferred stock - Series B — 551

Effect of contingently issuable shares — 10 — 3

Effect of assumed conversion of Convertible Senior Notes 13,609 — 6,730 —

Effect of assumed conversion of preferred stock - Series E 700 — 233 —

Effect of assumed conversion of preferred stock - Series M 32 — 11 —

Total 9,990 10,718

Redeemable Noncontrolling Interests in Operating Partnership

Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity and their allocable share of equity in earnings/losses of Braemar OP, which is an allocation of net income/loss attributable to the common unitholders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (the “common units”) and units issued under our Long-Term Incentive Plan (the “LTIP” units) that are vested.

Each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either:

(i) issued pursuant to an effective registration

BRAEMAR HOTELS & RESORTS INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Redeemable Noncontrolling Interests in Operating Partnership

Each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either:

(i) issued pursuant to an effective registration statement;

(ii) included in an effective registration statement providing for the resale of such common stock;

5 unchanged sentences

More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of our operating partnership or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for our operating partnership.

The Company issued equity awards in the first quarter of 2021, a substantial majority of which were issued subject to stockholder approval of an increase in the number of shares available for issuance under the Company’s 2013 Equity Incentive Plan.

Under the applicable accounting literature, these awards are not accounted for until stockholder approval is obtained.

In March 2021, approximately 244,000 LTIP units with a fair value of approximately $ 1.7 million and a vesting period of three years were granted.

Stockholder approval was obtained on May 11, 2021.

On May 11, 2021, approximately 202,000 LTIP units with a fair value of $ 1.4 million and a vesting period of three years were issued.

Additionally, approximately 23,000 LTIP units were issued to independent directors, with a fair value of approximately $ 164,000 , which vested immediately upon grant.

The compensation committee of the board of directors of the Company may authorize the issuance of Performance LTIP units to certain executive officers and directors from time to time.

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.

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.

As of March 31, 2022, there were approximately 2.2 million Performance LTIP units, representing 200 % of the target, outstanding.

With respect to the 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.

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.

With respect to the 2021 and 2022 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.

The performance criteria for the 2021 and 2022 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.

On May 11, 2021, approximately 840,000 Performance LTIP units with a fair value of approximately $ 5.7 million and a vesting period of three years were granted.

As of September 30, 2021, we have issued a total of approximately 2.4 million LTIP units (including Performance LTIP units), net of cancellations, all of which, other than approximately 572,000 LTIP units and 900,000 Performance LTIP units issued from March 2015 to May 2021, had reached full economic parity with, and are convertible into, common units.

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.

In March 2022, the Company granted approximately 1.2 million Performance LTIP units, representing 200 % of the target, with a grant date fair value of $ 5.89 per share and a vesting period of three years .

As of March 31, 2022 , the Company does not have sufficient shares of common stock available under its incentive stock plan to settle any future redemptions of the Performance LTIP units, upon reaching the conditions required for redemption.

As a result, the 2022 awards are classified as liability awards on the condensed consolidated balance sheet and are included in “due to Ashford Inc., net.” The 2022 awards are subject to remeasurement each reporting period.

As of March 31, 2022, we have issued a total of approximately 3.5 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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The following table presents the redeemable noncontrolling interests in Braemar OP (in thousands) and the corresponding approximate ownership percentage of our operating partnership:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Redeemable noncontrolling interests in Braemar OP $ 42,291 $ 36,087

Adjustments to redeemable noncontrolling interests (1)

$ 4,661 $ 275

Ownership percentage of operating partnership 7.84 % 8.83 %

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership $ ( 967 ) $ 1,079

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Common units converted to common stock — — 2 339

Fair value of common units converted $ — $ — $ 15 $ 390 (1)

____________________________________

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

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

Distributions declared to holders of common units, LTIP units and Performance LTIP units 83 —

Equity and Stock-Based Compensation

Common Stock Dividends —The board of directors did no t declare a quarterly common stock dividend for the three and nine months ended September 30, 2021 and 2020 .

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.

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

Three Months Ended March 31,

Common stock dividends declared $ 720 $ —

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.

Under the applicable accounting literature, these awards are not accounted for until stockholder approval is obtained.

In March 2021, approximately 504,000 restricted stock units with a fair value of approximately $ 3.5 million and a vesting period of three years were granted.

Stockholder approval was obtained on May 11, 2021.

On May 11, 2021, approximately 215,000 restricted stock units with a fair value of approximately $ 1.5 million and a vesting period of three years were granted.

Additionally, approximately 46,000 shares of common stock were issued to independent directors, with a fair value of approximately $ 322,000 , which vested immediately upon grant.

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.

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.

In March 2022, 41,000 PSUs with a fair value of $ 403,000 and a vesting period of three years were granted.

The 2022 awards may be settled in cash or shares of the Company’s common stock solely at the option of the Company.

As of March 31, 2022 , the Company does not have sufficient shares available under its incentive stock plan to settle the 2022 awards in shares of the Company’s common stock.

With respect to the 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 and 2022 performance grants are based on performance conditions under the relevant literature, and the 2021 and 2022 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Under the applicable accounting literature, these awards are not accounted for until shareholder approval is obtained.

Stockholder approval was obtained on May 11, 2021.

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.

On May 11, 2021, approximately 446,000 PSUs with a fair value of approximately $ 6.0 million and vesting period of three years were issued.

8.25 % Series D Cumulative Preferred Stock —The dividend for all issued and outstanding shares of the Company’s Series D Cumulative Preferred Stock (the “Series D Preferred Stock”) is set at $ 2.0625 per annum per share.

The following table summarizes dividends declared (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Series D Cumulative Preferred Stock $ 825 $ 825

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 September 30, 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):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Common shares issued — 3,046 2,711 3,046

Gross proceeds received $ — $ 7,715 $ 16,119 $ 7,715

Commissions and other expenses — 97 202 97

Net proceeds $ — $ 7,618 $ 15,917 $ 7,618

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

The board of directors’ authorization replaced any previous repurchase authorizations.

No shares were repurchased during the three months ended March 31, 2022 and 2021.

As of March 31, 2022, $ 50 million remains authorized by the board of directors pursuant to the December 5, 2017 approval.

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

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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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 (the “Preliminary Purchase Price”).

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

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

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

As of March 31, 2022, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $ 10.0 million under the SEDA.

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Three Months Ended March 31,

Common shares sold to YA — 1,200

Proceeds received $ — $ 7,007

Common Stock Resale Agreement —On April 21, 2021, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”), entered into a purchase agreement, 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 purchase agreement.

Concurrently with entering into the Purchase Agreement, the Company also entered into a registration rights agreement with Lincoln Park, pursuant to which it agreed to provide Lincoln Park with certain registration rights related to the shares issued under the Purchase Agreement.

Upon entering into the 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 purchase agreement.

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.

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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2022, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $ 4.2 million under the Lincoln Park Purchase Agreement.

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Three Months Ended March 31,

Common shares sold to Lincoln Park — —

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Proceeds received $ — $ —

At-the-Market Equity Distribution Agreement —On May 25, 2021, the Company entered into an equity distribution agreement 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 (the “Virtu May 2021 EDA”).

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):

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Common shares issued 2,367 8,339

Gross proceeds received $ 13,421 $ 50,000

Commissions and other expenses 134 500

Net proceeds $ 13,287 $ 49,500

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

At-the-Market Equity Distribution Agreement —On July 12, 2021, the Company entered into a second equity distribution agreement (the “Virtu July 2021 EDA”) with Virtu Americas LLC (“Virtu”) to sell from time to time shares of our common stock having an aggregate offering price of up to $ 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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2022, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $ 24.0 million.

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Three Months Ended March 31,

Common shares issued —

Gross proceeds received $ —

Commissions and other expenses 214 214

Commissions —

Net proceeds $ —

The board of directors’ authorization replaced any previous repurchase authorizations.

No shares were repurchased during the nine months ended September 30, 2021 and 2020.

As of September 30, 2021, $ 50 million remains authorized by the board of directors pursuant to the December 5, 2017 approval.

Preferred Stock

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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 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.

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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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(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.

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

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of September 30, 2021, we have sold approximately 65,000 shares of our Series B Convertible Preferred Stock and received proceeds of approximately $ 1.2 million under this program.

The issuance activity is summarized below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Series B Convertible Preferred Stock shares issued — — — 23

Gross proceeds received $ — $ — $ — $ 439

Commissions and other expenses — — — 7

Net proceeds $ — $ — $ — $ 432

Series B Convertible 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 our control.

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The following table summarizes dividends declared (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Series B Convertible Preferred Stock $ 1,058 $ 1,563

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The table below summarizes the activity (in thousands):

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Preferred Shares Tendered Common Shares Issued Preferred Shares Tendered Common Shares Issued

Three Months Ended March 31, 2021

Preferred Shares Tendered Common Shares Issued

Series B Convertible Preferred Stock

30 120 1,953 7,291

Series E Redeemable Preferred Stock

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Series E Preferred Stock shares issued (1)

Net proceeds $ 33,236

__________________

(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.

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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 increased to the redemption amount each reporting period.

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):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Series E Preferred Stock $ 73,404 $ 39,339

Adjustments to Series E Preferred Stock (1)

$ 972 $ 3,128

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

The following table summarizes dividends declared (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

Series E Preferred Stock 90 90

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes dividends declared (in thousands):

Three Months Ended March 31,

Series E Preferred Stock $ 1,399

Series M Redeemable Preferred Stock

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• 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 Original Issue Date 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.

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.

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 of Series M”) 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;

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.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Series M Preferred Stock shares issued 33

Net proceeds $ 810

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.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 increased to the redemption amount each reporting period.

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):

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Series M Preferred Stock $ 1,538 $ 715

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The following table summarizes dividends declared (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Series M Preferred Stock $ 21

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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:

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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.

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

As previously disclosed, the advisory agreement (i) allocates responsibility for certain employee costs between the Company and its advisor and (ii) permits the Company’s board of directors to issue annual equity awards in the Company or Braemar OP to employees and other representatives of its advisor based on achievement by the Company of certain financial or other objectives or otherwise as the Company’s board of directors sees fit.

Pursuant to the Limited Waiver, the Company, Braemar OP, Braemar TRS and the Company’s advisor waived the operation of any provision in the advisory agreement that would otherwise limit its ability, in its discretion and at the Company’s 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 its advisor.

BRAEMAR HOTELS & RESORTS INC.

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Advisory services fee

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Reimbursable expenses (1)

694 404 1,696 1,360

Equity-based compensation (2)

2,994 1,785 6,666 5,606

Incentive fee 977 371

Total $ 7,322 $ 4,795

(1) Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services.

(1) Reimbursable expenses include overhead, internal audit, risk management advisory, asset management services and deferred cash awards.

(2) Equity-based compensation is associated with equity grants of Braemar’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.

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Under the advisory agreement, Ashford Inc.

secures casualty insurance policies to cover Braemar, Ashford Hospitality Trust, Inc.

(“Ashford Trust”), their hotel managers, as needed, and Ashford Inc.

secures casualty insurance policies to cover Braemar, Ashford Trust, their hotel managers, as needed, and Ashford Inc.

The total loss estimates included in such policies are based on the collective pool of risk exposures from each party.

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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.

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”).

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 three and nine months ended September 30, 2021, the Company recognized expense of $ 0 and $ 341,000 , respectively.

For the three and nine months ended September 30, 2020, the Company recognized expense of $ 1.2 million and $ 2.7 million, respectively.

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

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 debt placement fee of $ 150,000 .

As of March 31, 2022 and 2021, 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.

Ashford Securities

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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.

BRAEMAR HOTELS & RESORTS INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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.

The Initial True-Up Date was not met prior to the Amended and Restated Contribution was entered into.

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, through Ashford Securities.

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

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

As of September 30, 2021, Braemar has funded approximately $ 2.8 million.

Additionally, as of September 30, 2021, $ 144,000 of the pre-funded amount was included in “other assets” on our condensed consolidated balance sheets.

On January 27, 2022, Ashford Trust, Braemar and Ashford Inc.

entered into a Second Amended and Restated

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Contribution Agreement which provided for an additional $ 18 million in expenses to be reimbursed with all expenses allocated 45 % to Ashford Trust, 45 % to Braemar and 10 % to Ashford Inc.

As of March 31, 2022, Braemar has funded approximately $ 4.1 million.

Additionally, as of March 31, 2022 and December 31, 2021 , $ 131,000 and $ 338,000 , respectively, of the pre-funded amounts were included in “other assets” on our condensed consolidated balance sheets.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Line Item 2022 2021

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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.

During the second quarter of 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 $ 0 and $ 197,000 for the three and nine months ended September 30, 2021, respectively.

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

In the second quarter of 2021, 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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Hotel Management Services

On November 6, 2019, Ashford Inc.

completed the acquisition of Remington Lodging’s hotel management business.

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 September 30, 2021, Remington Hotels managed four of our 14 hotel properties.

We pay monthly hotel management fees equal to the greater of approximately $ 14,000 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.

At March 31, 2022, Remington Hotels managed four of our 15 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

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services.

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

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Ashford Trust

As of September 30, 2021, the Company has an $ 800,000 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.

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 $ 800,000 gain is included in “(gain) loss on legal settlements” on the condensed consolidated statements of operations.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Commitments and Contingencies

Restricted Cash —Under certain management and debt agreements for our hotel properties existing at September 30, 2021, escrow payments are required for insurance, real estate taxes and debt service.

Restricted Cash —Under certain management and debt agreements for our hotel properties existing at March 31, 2022, escrow payments are required for insurance, real estate taxes and debt service.

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.

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The table below summarizes the licensing fees incurred (in thousands):

Line Item Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Three Months Ended March 31,

Line Item 2022

Other hotel expenses $ 102

Management Fees —Under hotel management agreements for our hotel properties existing at September 30, 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 2.5 % to 5.0 % of gross revenues, as well as annual incentive management fees, if applicable.

Management Fees —Under hotel management agreements for our hotel properties existing at March 31, 2022, 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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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 has occurred.

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 .

As of September 30, 2021, no amounts have been accrued.

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 September 30, 2021, 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

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 Accor management agreement has

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

occurred and an injunction to prevent Ashford TRS Chicago II from terminating the Accor 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 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 asserted two causes of action:

First, Accor asserted a counterclaim for declaratory judgment that Accor correctly calculated the amount payable to Ashford TRS Chicago II under the Accor management agreement to “cure” Accor’s performance test failure (the “Cure Amount”).

Second, Accor asserted a counterclaim for breach of contract alleging that Ashford TRS Chicago II breached the Accor 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 February 16, 2022, the parties entered into a settlement agreement agreeing to:

1) amend the Accor 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.

As a result of the settlement related to the 2018 performance test failure, the Company recorded a gain of approximately $ 868,000 for the three months ended March 31, 2022, that is recorded as a reduction of management fees and included in “management fees” on the Company’s condensed consolidated statements of operations.

As of March 31, 2022, no amounts have been accrued.

On January 28, 2022, the Court approved a settlement of this litigation.

The resulting loss to the Company was approximately $ 448,000 ;

although it was entitled to indemnification in the amount of approximately $ 291,000 , based on the respective periods of ownership of the Company’s hotel.

As of March 31, 2022, approximately $ 500,000 was accrued.

The settlement amount was paid subsequent to March 31, 2022, and the matter is now closed.

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.

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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 September 30, 2021, no amounts have been accrued.

As of March 31, 2022, no amounts have been accrued.

We are also engaged in other legal proceedings that have arisen but have not been fully adjudicated.

6 unchanged sentences

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.

BRAEMAR HOTELS & RESORTS INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Segment Reporting

3 unchanged sentences

We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance.

As of September 30, 2021 and December 31, 2020, all of our hotel properties were in the U.S.

As of March 31, 2022 and December 31, 2021, all of our hotel properties were in the U.S.

and its territories.

Subsequent Event

On April 15, 2022, Ashford Inc.

and Ashford Services, agreed with Jeremy Welter, the Chief Operating Officer of Ashford Inc., that, effective on the Resignation Date, Mr.

Welter would terminate employment with and service to Ashford Inc., Ashford Services and their affiliates.

Welter is also the Chief Operating Officer of the Company and Braemar and accordingly his service as Chief Operating Officer of each of the Company and Braemar will also end effective as of the Resignation Date.

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-Q

Item 1. Financial Statements