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Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-08-05 · 159 added, 130 removed, 590 unchanged (33% of the section changed)

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Additionally, statements regarding the following subjects are forward-looking by their nature:

• the factors discussed in our Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2022 (the “2021 10-K”), including those set forth under the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;” and other filings under the Exchange Act;

• our business and investment strategy;

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• our understanding of our competition;

• market trends;

• projected capital expenditures;

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Additionally, the following factors could cause actual results to vary from our forward-looking statements:

• adverse effects of the COVID-19 pandemic, including a significant reduction in business and personal travel and travel restrictions in regions where our hotels are located, and one or more possible recurrences of COVID-19 case surges causing a further reduction in business and personal travel and potential reinstatement of travel restrictions by state or local governments;

• changes in interest rates;

• macroeconomic conditions, such as a prolonged period of weak economic growth, and volatility in capital markets;

• extreme weather conditions may cause property damage or interrupt business;

• our ability to raise sufficient capital and/or take other actions to improve our liquidity position or otherwise meet our liquidity requirements;

• actions by our lenders to accelerate loan balances and foreclose on the hotel properties that are security for our loans if we are unable to make debt service payments or satisfy our other obligations under the forbearance agreements;

• general volatility of the capital markets and the market price of our common and preferred stock;

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

As of June 30, 2022, we owned interests in 15 hotel properties in six states, the District of Columbia, Puerto Rico and St.

As of September 30, 2022, we owned interests in 15 hotel properties in six states, the District of Columbia, Puerto Rico and St.

Virgin Islands with 3,971 total rooms, or 3,736 net rooms, excluding those attributable to our joint venture partner.

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

As of June 30, 2022, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 15 hotel properties.

As of September 30, 2022, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 15 hotel properties.

Third-party management companies managed the remaining hotel properties.

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and, together with Mr.

Archie Bennett, Jr., as of June 30, 2022, owned approximately 610,246 shares of Ashford Inc.

Archie Bennett, Jr., as of September 30, 2022, owned approximately 610,246 shares of Ashford Inc.

common stock, which represented an approximate 19.6% ownership interest in Ashford Inc., and owned 18,758,600 shares of Ashford Inc.

Series D Convertible Preferred Stock, which was exercisable (at an exercise price of $117.50 per share) into an additional approximate 3,991,191 shares of Ashford Inc.

common stock, which if exercised as of June 30, 2022 would have increased the Bennetts’ ownership interest in Ashford Inc.

common stock, which if exercised as of September 30, 2022 would have increased the Bennetts’ ownership interest in Ashford Inc.

to 64.8% subject to applicable voting limitations;

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include 360,000 shares owned by trusts.

As of June 30, 2022, Mr.

As of September 30, 2022, Mr.

Bennett, chairman of our board of directors and his father, Mr.

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Welter was also the Chief Operating Officer of the Company and accordingly his service as Chief Operating Officer of the Company also ended on July 15, 2022.

On September 20, 2022, the Company made an additional investment in OpenKey of approximately $164,000.

In September 2022, given the recent increases in the federal funds rate and interest rates on short-term U.S.

Treasury securities, the independent members of our board of directors approved the engagement of our Advisor to actively manage and invest the Company’s excess cash in short-term U.S.

Treasury securities (the “Cash Management Strategy”).

As consideration for the Advisor’s services under this engagement, the Company will pay the Advisor an annual fee equal to the lesser of (i) 20 basis points (0.20%) of the average daily balance of the Company’s excess cash invested by the Advisor and (ii) the actual rate of return realized by the Cash Management Strategy (the “Cash Management Fee”);

provided that in no event will the Cash Management Fee be less than zero.

The Cash Management Fee will be calculated and payable monthly in arrears.

Investment of the Company’s excess cash pursuant to the Cash Management Strategy commenced in October 2022.

On October 31, 2022, the Company entered into a Purchase and Sale Agreement (the “ Purchase Agreement ”) to acquire a 100% interest in the 210-room Four Seasons Resort Scottsdale at Troon North for $267.8 million in cash.

As required by the Purchase Agreement, the Company has deposited $26.8 million into escrow pending the closing or termination of the Purchase Agreement.

The acquisition is expected to close by December 31, 2022, subject to certain customary closing conditions.

Key Indicators of Operating Performance

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RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property.

Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels.

Although RevPAR does not include these ancillary revenues, it is generally considered the

leading indicator of core revenues for many hotels.

We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period).

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RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR.

For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in

increased other operating department revenue and expense.

For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense.

Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021 (in thousands except percentages):

Three Months Ended June 30, Favorable (Unfavorable)

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended September 30, 2022 and 2021 (in thousands except percentages):

Three Months Ended September 30, Favorable (Unfavorable)

2022 2021 $ Change % Change

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Advisory services fee 8,854 4,809 (4,045) (84.1)

(Gain) loss on legal settlements (114) (989) (875) (88.5)

Transaction costs — 275 275 100.0

1 unchanged sentence

Total expenses 158,080 115,127 (42,953) (37.3)

Gain (loss) on insurance settlement and disposition of assets — 197 (197) (100.0)

Operating income (loss) 3,109 1,050 2,059 196.1

1 unchanged sentence

Interest income 745 13 732 5,630.8

Other income (expense) 27 — 27

Interest expense and amortization of loan costs (14,490) (8,364) (6,126) (73.2)

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Net income (loss) attributable to the Company $ (8,040) $ (6,946) $ (1,094) (15.8) %

All hotel properties owned for the three months ended June 30, 2022 and 2021 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended June 30, 2022 and 2021.

All hotel properties owned for the three months ended September 30, 2022 and 2021 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended September 30, 2022 and 2021.

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

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

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

Hotel Properties Location Type Date

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

Three Months Ended June 30,

Three Months Ended September 30,

Occupancy 71.50 % 61.64 %

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Total hotel revenue (in thousands) $ 161,189 $ 116,177

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full three months ended September 30, 2022 and 2021:

Three Months Ended September 30,

Occupancy 71.79 % 61.81 %

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Net Income (Loss) Attributable to the Company.

Net income (loss) attributable to the Company changed $23.6 million, from a net loss of $9.2 million for the three months ended June 30, 2021 (the “2021 quarter”) to net income $14.4 million for the three months ended June 30, 2022 (the “2022 quarter”), as a result of the factors discussed below.

Net loss attributable to the Company increased $1.1 million, from a net loss of $6.9 million for the three months ended September 30, 2021 (the “2021 quarter”) to $8.0 million for the three months ended September 30, 2022 (the “2022 quarter”), as a result of the factors discussed below.

Rooms Revenue .

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Marriott Seattle Waterfront (1)

1,333 (1,140) 39.3 %

The Notary Hotel 2,113 1,361 18.7 %

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Non-comparable

C Beverly Hills Hotel $ 3,418 n/a n/a

C Beverly Hills Hotel $ 1,938 2,128 0.8 %

The Ritz-Carlton Reserve Dorado Beach 8,190 n/a n/a

Total $ 10,128

(1) This hotel was under renovation during the 2022 quarter.

Food and Beverage Revenue .

Food and beverage revenue increased $13.1 million, or 53.6%, to $37.6 million during the 2022 quarter compared to the 2021 quarter.

This increase is attributable to an aggregate increase at all comparable hotel properties of $16.2 million as they are recovering from the COVID-19 pandemic, as well as an increase of $1.5 million resulting from the acquisition of the Mr.

This increase is attributable to an aggregate increase at ten comparable hotel properties of $9.3 million as they are recovering from the COVID-19 pandemic, as well as an increase of $536,000 resulting from the acquisition of the Mr.

C Beverly Hills Hotel on August 5, 2021 and $3.7 million with the acquisition of The Ritz-Carlton Reserve Dorado Beach on March 11, 2022, respectively.

These increases were partially offset by an aggregate decrease of $398,000 at The Ritz-Carlton, St.

Thomas, Hotel Yountville and Bardessono Hotel and Spa.

Other Hotel Revenue .

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The increase is attributable to an aggregate increase in other hotel revenue of $2.5 million at 11 comparable hotel properties and increases of $166,000 and $2.5 million at the Mr.

C Beverly Hills Hotel and the Ritz-Carlton Reserve Dorado Beach, respectively, partially offset by an aggregate decrease of $327,000 at Pier House Resort & Spa, Marriott Seattle Waterfront and The Ritz-Carlton Lake Tahoe.

C Beverly Hills Hotel and The Ritz-Carlton Reserve Dorado Beach, respectively, partially offset by an aggregate decrease of $197,000 at the Marriott Seattle Waterfront and Park Hyatt Beaver Creek Resort & Spa.

Rooms Expense .

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This increase is primarily attributable to an aggregate increase of $5.6 million at 11 comparable hotel properties as they are recovering from the COVID-19 pandemic and increases of $601,000 and $2.5 million at the Mr.

C Beverly Hills Hotel and the Ritz-Carlton Reserve Dorado Beach, respectively, partially offset by a decrease of $27,000 at The Ritz-Carlton Lake Tahoe.

C Beverly Hills Hotel and The Ritz-Carlton Reserve Dorado Beach, respectively, partially offset by a decrease of $270,000 at The Ritz-Carlton St.

Thomas and Bardessono Hotel and Spa.

Food and Beverage Expense .

Food and beverage expense increased $11.1 million, or 54.7%, to $31.3 million during the 2022 quarter compared to the 2021 quarter.

This increase is attributable to an aggregate increase of $10.3 million at all comparable hotel properties and an increase of $1.1 million and $4.2 million at the Mr.

C Beverly Hills Hotel and the Ritz-Carlton Reserve Dorado Beach, respectively.

This increase is attributable to an aggregate increase of $6.9 million at ten comparable hotel properties and an increase of $615,000 and $3.7 million at the Mr.

C Beverly Hills Hotel and The Ritz-Carlton Reserve Dorado Beach, respectively, partially offset by a decrease of $158,000 at The Ritz-Carlton St.

Thomas, Hotel Yountville and Bardessono Hotel and Spa.

Other Operating Expenses .

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Direct expenses were 4.2% of total hotel revenue in the 2022 quarter and 4.4% in the 2021 quarter.

The increase in direct expenses is primarily attributable to higher occupancy levels at all of our comparable hotel properties as they

are recovering from the COVID-19 pandemic and an increase of approximately $23,000 and $1.6 million at the Mr.

The increase in direct expenses is primarily attributable to higher occupancy levels at all of our comparable hotel properties as they are recovering from the COVID-19 pandemic and an increase of approximately $1,000 and $1.4 million at the Mr.

C Beverly Hills Hotel and The Ritz-Carlton Reserve Dorado Beach, respectively.

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(iv) lease expense of $424,000 comprising an increase of $341,000 at our 13 comparable hotel properties and $83,000 at the two acquired hotel properties;

(v) energy costs of $1.7 million comprising an increase of $628,000 at our 13 comparable hotel properties and $1.0 million at the two acquired hotel properties;

and (vi) incentive management fees of $257,000 comprising an increase of $375,000 at the two acquired hotel properties, partially offset by a decrease of $118,000 at our 13 comparable hotel properties.

and (v) energy costs of $2.0 million comprising an increase of $962,000 at our 13 comparable hotel properties and $1.0 million at the two acquired hotel properties.

The increases are partially offset by decreases in incentive management fees of $183,000.

Management Fees .

Base management fees increased $1.5 million, or 42.3%, to $5.1 million in the 2022 quarter compared to the 2021 quarter.

Base management fees increased $1.8 million at our comparable hotel properties and $771,000 at the two acquired hotel properties.

Base management fees increased $1.1 million at nine comparable hotel properties and $525,000 at the two acquired hotel properties, partially offset by an aggregate decrease of $101,000 at Pier House Resort & Spa, Bardessono Hotel and Spa, Hotel Yountville and The Ritz-Carlton St.

Property Taxes, Insurance and Other .

Property taxes, insurance and other decreased $3.8 million, or 29.9%, to $8.9 million in the 2022 quarter compared to the 2021 quarter.

The decrease is mainly composed of an aggregate decrease of approximately $3.1 million at nine hotel properties, including a $2.4 million decrease at the Sofitel Chicago Magnificent Mile due to lower property tax assessments.

The decrease is partially offset by an aggregate increase of $249,000 at four comparable hotel properties as well as increases of $330,000 at the Mr.

The decrease is mainly composed of an aggregate decrease of approximately $5.3 million at four hotel properties, including a $2.9 million and $2.2 million decrease at the Sofitel Chicago Magnificent Mile and Marriott Seattle Waterfront, respectively, due to lower property tax assessments.

The decrease is partially offset by an aggregate increase of $812,000 at nine comparable hotel properties as well as increases of $126,000 at the Mr.

C Beverly Hills Hotel and $636,000 at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions.

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The increase comprised $240,000 at the Mr.

C Beverly Hills Hotel and $1.6 million at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions as well as an aggregate increase of $570,000 at the Park Hyatt Beaver Creek Resort & Spa, Marriott Seattle Waterfront, The Ritz-Carlton St.

C Beverly Hills Hotel and $1.6 million at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions and an aggregate increase of $751,000 at Capital Hilton, Park Hyatt Beaver Creek Resort & Spa, Marriott Seattle Waterfront, The Ritz-Carlton St.

Thomas and The Ritz-Carlton Lake Tahoe.

These increases were partially offset by an aggregate decrease of $1.4 million at nine comparable hotel properties primarily due to fully depreciated assets.

These increases were partially offset by an aggregate decrease of $1.3 million at eight comparable hotel properties primarily due to fully depreciated assets.

Advisory Services Fee.

Advisory services fee decreased $434,000, or 6.4%, to $6.3 million in the 2022 quarter compared to the 2021 quarter due to increases in the base advisory fee of $548,000, reimbursable expenses of $663,000 and equity-based compensation of $352,000, partially offset by a decrease in incentive fee of $2.0 million.

Advisory services fee increased $4.0 million, or 84.1%, to $8.9 million in the 2022 quarter compared to the 2021 quarter due to increases in the base advisory fee of $511,000, reimbursable expenses of $497,000, equity-based compensation of $352,000, and incentive fee of $2.7 million.

In the 2022 quarter, we recorded an advisory services fee of $8.9 million, which included a base advisory fee of $3.3 million, reimbursable expenses of $1.2 million, $3.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and a credit to incentive fee of $731,000.

In the 2021 quarter, we recorded an advisory services fee of $6.7 million, which included a base advisory fee of $2.7 million, reimbursable expenses of $510,000, incentive fee of $1.3 million and $2.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

Gain on legal settlements.

In the 2021 quarter, we recognized a gain of $800,000 related to the settlement of a transfer tax matter with the City of San Francisco and a gain of $189,000 related to a billing dispute.

During the 2022 quarter, the Company received an additional payment of approximately $114,000 related to accrued interest on the initial settlement amount associated with the City of San Francisco transfer tax matter.

and incentive fee of $1.0 million.

In the 2021 quarter, we recorded an advisory services fee of $4.8 million, which included a base advisory fee of $2.8 million, reimbursable expenses of $694,000, $3.0 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and a credit to incentive fee of $1.6 million.

Transaction Costs.

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Corporate general and administrative expense was $8.1 million in the 2022 quarter and $2.1 million in the 2021 quarter.

The increase in corporate general and administrative expense is due to higher professional fees of $391,000, higher public company costs of $139,000, higher reimbursed operating expenses of Ashford Securities of $141,000, and higher miscellaneous expenses of $384,000.

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

In the 2021 quarter, we recognized a gain of $197,000 associated with the sale of certain ERFP assets to Ashford Inc.

The increase in corporate general and administrative expense is due to higher professional fees of $632,000, higher reimbursed operating expenses of Ashford Securities of $4.9 million, and higher miscellaneous expenses of $530,000, partially offset by a decrease of $60,000 in public company costs.

During the third quarter of 2022, the funding estimate to Ashford Securities was revised based on the latest capital raise estimates of the aggregate capital raised through Ashford Securities that resulted in additional expense of approximately $5.2 million.

Equity in Earnings (Loss) of Unconsolidated Entity .

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Interest income was $745,000 and $13,000 in 2022 quarter and 2021 quarter, respectively.

The increase in interest income was primarily related to bank account interest resulting from higher cash balances and higher interest rates in the 2022 quarter compared to the 2021 quarter.

Other Income (Expense).

Other income was $27,000 in the 2022 quarter compared to $0 in the 2021 quarter.

In 2022 quarter, we recorded income of $27,000 related to payments from counterparties on interest rate caps.

Interest Expense and Amortization of Loan Costs .

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Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $22,000 in the 2022 quarter, primarily related to the acquisition of the Ritz-Carlton Reserve Dorado Beach.

Write-off of loan costs and exit fees was $1.2 million in the 2021 quarter, primarily associated with the $1.2 million write-off of unamortized loan costs upon the payoff of our secured term loan.

Write-off of loan costs and exit fees was $8,000 in the 2022 quarter, primarily related to the mortgage loan extension of The Ritz-Carlton St.

Write-off of loan costs and exit fees was $432,000 in the 2021 quarter, primarily associated with the $419,000 write-off of loan costs upon the $20 million pay-down of the mortgage loan assumed with the Mr.

C Beverly Hills Hotel acquisition.

Unrealized Gain (Loss) on Derivatives .

Unrealized gain on derivatives of $1.2 million in the 2022 quarter consisted of an unrealized gain of approximately $1.2 million on warrants and approximately $43,000 on interest rate caps.

Unrealized loss on derivatives of $58,000 in the 2021 quarter consisted of unrealized loss on interest rate caps.

Unrealized gain on derivatives of $2.4 million in the 2022 quarter consisted of an unrealized gain of approximately $265,000 on warrants and approximately $2.1 million on interest rate caps.

Unrealized gain on derivatives of $142,000 in the 2021 quarter consisted of an unrealized gain of approximately $190,000 on warrants, partially offset by an unrealized loss of approximately $48,000 on interest rate caps.

Income Tax (Expense) Benefit .

Income tax expense increased $1.0 million, from $61,000 in the 2021 quarter to $1.1 million in the 2022 quarter.

This increase was primarily due to an increase in the profitability of our TRS entities in the 2022 quarter compared to the 2021 quarter.

Income tax expense decreased $465,000, from $560,000 in the 2021 quarter to $95,000 in the 2022 quarter.

This decrease was primarily due to the decrease in the profitability of our TRS entities in the 2022 quarter compared to the 2021 quarter.

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

Our noncontrolling interest partner in consolidated entities was allocated income of $1.5 million and a loss of $849,000 in the 2022 quarter and the 2021 quarter, respectively.

At both June 30, 2022 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

Our noncontrolling interest partner in consolidated entities was allocated income of $823,000 and a loss of $450,000 in the 2022 quarter and the 2021 quarter, respectively.

At both September 30, 2022 and 2020, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership.

Noncontrolling interests in operating partnership were allocated net income of $846,000 and a net loss of $1.3 million in the 2022 quarter and the 2021 quarter, respectively.

Redeemable noncontrolling interests in Braemar OP represented ownership interests of 7.59% and 7.62% as of June 30, 2022 and 2021, respectively.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021 (in thousands except percentages):

Six Months Ended June 30, Favorable (Unfavorable)

Noncontrolling interests in operating partnership were allocated net loss of $1.2 million and $823,000 in the 2022 quarter and the 2021 quarter, respectively.

Redeemable noncontrolling interests in Braemar OP represented ownership interests of 7.66% and 8.35% as of September 30, 2022 and 2021, respectively.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2022 and 2021 (in thousands except percentages):

Nine Months Ended September 30, Favorable (Unfavorable)

2022 2021 $ Change % Change

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Advisory services fee 22,481 16,343 (6,138) (37.6)

Gain on legal settlement (114) (989) (875) (88.5)

(Gain) loss on legal settlements (114) (989) (875) (88.5)

Transaction costs — 571 571 100.0

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Interest income 932 34 898 2,641.2

Other income (expense) 27 — 27

Interest expense and amortization of discounts and loan costs (33,293) (22,346) (10,947) (49.0)

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Net income (loss) attributable to the Company $ 20,989 $ (24,887) $ 45,876 184.3 %

All hotel properties owned for the six months ended June 30, 2022 and 2021 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the six months ended June 30, 2022 and 2021.

All hotel properties owned for the nine months ended September 30, 2022 and 2021 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the nine months ended September 30, 2022 and 2021.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Occupancy 66.00 % 49.46 %

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Total hotel revenue (in thousands) $ 497,963 $ 297,135

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full three months ended June 30, 2022 and 2021:

Six Months Ended June 30,

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

Occupancy 65.79 % 49.42 %

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Net Income (Loss) Attributable to the Company.

Net income (loss) attributable to the Company changed $47.0 million, from a net loss of $17.9 million for the six months ended June 30, 2021 (the “2021 period”), to net income of $29.0 million for the six months ended June 30, 2022 (the “2022 period”), as a result of the factors discussed below.

Net income (loss) attributable to the Company changed $45.9 million, from a net loss of $24.9 million for the nine months ended September 30, 2021 (the “2021 period”), to net income of $21.0 million for the nine months ended September 30, 2022 (the “2022 period”), as a result of the factors discussed below.

Rooms Revenue .

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Marriott Seattle Waterfront (1)

5,434 758 29.2 %

The Notary Hotel 7,689 2,065 23.7 %

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Non-comparable

C Beverly Hills Hotel $ 6,703 n/a n/a

C Beverly Hills Hotel $ 8,641 1,920 2.4 %

The Ritz-Carlton Reserve Dorado Beach $ 25,593 n/a n/a

Total $ 34,234

(1) This hotel was under renovation during the 2022 period.

Food and Beverage Revenue .

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The increase is attributable to higher other hotel revenue of $11.7 million at 12 comparable hotel properties and an increase of $813,000 at the Mr.

C Beverly Hills Hotel and $3.8 million at The Ritz-Carlton Reserve Dorado Beach.

C Beverly Hills Hotel and $6.3 million at The Ritz-Carlton Reserve Dorado Beach, partially offset by a decrease of $36,000 at Marriott Seattle Waterfront.

Rooms Expense .

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(iii) repairs and maintenance of $5.1 million comprising an increase of $2.5 million at our 13 comparable hotel properties and $2.6 million at the two acquired hotel properties;

(iv) lease expense of $779,000 comprising an increase of $661,000 at our 13 comparable hotel properties and $118,000 at the two acquired hotel properties;

(iv) lease expense of $1.2 million comprising an increase of $1.0 million at our 13 comparable hotel properties and $202,000 at the two acquired hotel properties;

(v) energy costs of $4.9 million comprised of an increase of $2.5 million at our 13 comparable hotel properties and $2.4 million at the two acquired hotel properties;

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Management fees increased approximately $4.5 million at 12 of our comparable hotel properties, $372,000 at the Mr.

C Beverly Hills Hotel and $857,000 at The Ritz-Carlton Reserve Dorado Beach.

C Beverly Hills Hotel and $1.3 million at The Ritz-Carlton Reserve Dorado Beach.

These increases were partially offset by a decrease of $502,000 at the Sofitel Chicago Magnificent Mile primarily as a result of a legal settlement with Accor.

1 unchanged sentence

Property Taxes, Insurance and Other .

Property taxes, insurance and other decreased $574,000, or 4.0%, to $13.9 million in the 2022 period compared to the 2021 period.

The decrease is mainly resulted from an aggregate decrease of $2.5 million at seven hotel properties, including a $1.3 million decrease at the Sofitel Chicago Magnificent Mile due to lower property tax assessments.

Property taxes, insurance and other decreased $4.3 million, or 16.0%, to $22.7 million in the 2022 period compared to the 2021 period.

The decrease is mainly resulted from an aggregate decrease of $7.7 million at six hotel properties, including a $4.1 million and $2.4 million decrease at the Sofitel Chicago Magnificent Mile and Marriott Seattle Waterfront, respectively, due to lower property tax assessments.

The decrease is partially offset by increases of $784,000 at the Mr.

C Beverly Hills Hotel and $809,000 at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions, as well as an aggregate increase of approximately $422,000 at six hotel properties.

C Beverly Hills Hotel and $1.4 million at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions, as well as an aggregate increase of approximately $1.1 million at seven hotel properties.

Depreciation and Amortization .

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The increase comprised $1.5 million at the Mr.

C Beverly Hills Hotel and $1.9 million at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions as well as an aggregate increase of $952,000 at the Park Hyatt Beaver Creek Resort & Spa, Marriott Seattle Waterfront, The Ritz-Carlton St.

C Beverly Hills Hotel and $3.5 million at The Ritz-Carlton Reserve Dorado Beach as a result of their acquisitions as well as an aggregate increase of $1.7 million at the Park Hyatt Beaver Creek Resort & Spa, Marriott Seattle Waterfront, The Ritz-Carlton St.

Thomas and The Ritz-Carlton Lake Tahoe.

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Advisory Services Fee.

Advisory services fee increased $2.1 million, or 18.1%, to $13.6 million in the 2022 period compared to the 2021 period due to increases in the base advisory fee of $942,000, reimbursable expenses of $1.3 million and equity-based compensation of $1.3 million, partially offset by a decrease in incentive fee of $1.4 million.

In the 2022 period, we recorded an advisory services fee of $13.6 million, which included a base advisory fee of $6.2 million, reimbursable expenses of $2.3 million, $4.9 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and an incentive fee of $246,000.

Advisory services fee increased $6.1 million, or 37.6%, to $22.5 million in the 2022 period compared to the 2021 period due to increases in the base advisory fee of $1.5 million, reimbursable expenses of $1.8 million, equity-based compensation of $1.6 million, and incentive fee of $1.3 million.

In the 2022 period, we recorded an advisory services fee of $22.5 million, which included a base advisory fee of $9.4 million, reimbursable expenses of $3.5 million, $8.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

and an incentive fee of $1.3 million.

Gain on legal settlement .

In the 2021 period, we recorded an advisory services fee of $16.3 million, which included a base advisory fee of $8.0 million, reimbursable expenses of $1.7 million and $6.7 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

(Gain) loss on legal settlements .

In the 2021 period, we recognized a gain of $800,000 related to the settlement of a transfer tax matter with the City of San Francisco and $189,000 related to a billing dispute.

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Corporate general and administrative expense was $14.0 million in the 2022 period and $6.1 million in the 2021 period.

The increase in corporate general and administrative expenses is primarily due to higher professional fees of $790,000, higher public company costs of $347,000, higher reimbursed operating expenses of Ashford Securities of $328,000 and higher miscellaneous expenses of $485,000.

The increase in corporate general and administrative expenses is primarily due to higher professional fees of $1.4 million, higher public company costs of $287,000, higher reimbursed operating expenses of Ashford Securities of $5.2 million and higher miscellaneous expenses of $1.0 million.

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

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In the 2022 period and the 2021 period, we recorded equity in loss of unconsolidated entity of $220,000 and $198,000, respectively, related to our investment in OpenKey.

Other Income (Expense).

Other income was $27,000 in the 2022 period compared to $0 in the 2021 period.

In the 2022 period, we recorded income of $27,000 related to payments from counterparties on interest rate caps.

Interest Income .

Interest income was $932,000 and $34,000 in the 2022 period and the 2021 period, respectively.

The increase in interest income was primarily related to higher cash balances and higher interest rates in the 2022 period compared to the 2021 period.

Interest Expense and Amortization of Discounts and Loan Costs .

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Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $98,000 in the 2022 period primarily resulting from the refinance of the Park Hyatt Beaver Creek Resort & Spa in February 2022 and the acquisition of the Ritz-Carlton Reserve Dorado Beach.

Write-off of loan costs and exit fees was $106,000 in the 2022 period primarily resulting from the refinance of the Park Hyatt Beaver Creek Resort & Spa in February 2022, the acquisition of The Ritz-Carlton Reserve Dorado Beach and the mortgage loan extension of The Ritz-Carlton St.

Write-off of loan costs and exit fees was $2.0 million in the 2021 period, primarily associated with a $1.2 million write-off of unamortized loan costs upon the payoff of our secured term loan payoff and $351,000 from several amendments executed with various lenders, which included deferral of debt service payments and allowed the use of reserves for property-level operating shortfalls and/or to cover debt service payments.

Third-party fees incurred in conjunction with these amendments, totaling $351,000, were expensed in accordance with applicable accounting guidance.

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

C Beverly Hills Hotel.

Unrealized Gain (Loss) on Derivatives .

Unrealized gain on derivatives of $1.6 million for the 2022 period consisted of an unrealized gain of approximately $886,000 on interest rate caps, and approximately $730,000 on warrants.

Unrealized loss on derivatives of $78,000 for the 2021 period consisted of unrealized loss on interest rate caps.

Unrealized gain on derivatives of $4.0 million for the 2022 period consisted of an unrealized gain of approximately $3.0 million on interest rate caps, and approximately $995,000 on warrants.

Unrealized gain on derivatives of $64,000 for the 2021 period consisted of an unrealized gain of approximately $190,000 on warrants, partially offset by an unrealized loss of approximately $126,000 on interest rate caps.

Income Tax (Expense) Benefit .

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Our noncontrolling interest partner in consolidated entities was allocated income of $2.3 million and a loss of $2.5 million for the 2022 period and the 2021 period, respectively.

At both June 30, 2022 and 2021, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

At both September 30, 2022 and 2021, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership.

Noncontrolling interests in operating partnership were allocated net income of $1.8 million in the 2022 period and a net loss of $2.4 million in the 2021 period.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 7.59% and 7.62% as of June 30, 2022 and 2021, respectively.

Noncontrolling interests in operating partnership were allocated net income of $647,000 in the 2022 period and a net loss of $3.2 million in the 2021 period.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 7.66% and 8.35% as of September 30, 2022 and 2021, respectively.

LIQUIDITY AND CAPITAL RESOURCES

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and (ii) 1/12 th of the “G&A Ratio” for the most recently completed fiscal quarter multiplied by our total market capitalization on the last balance sheet date included in the most recent quarterly report on Form 10-Q or annual report on Form 10-K that we file with the SEC.

Thus, even if our total market capitalization and

performance decline, we will still be required to make payments to our advisor equal to the minimum base advisory fee, which could adversely impact our liquidity and financial condition.

Thus, even if our total market capitalization and performance decline, we will still be required to make payments to our advisor equal to the minimum base advisory fee, which could adversely impact our liquidity and financial condition.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments.

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

As of June 30, 2022, our $435 million mortgage loan and our $195 million mortgage loan were in cash traps and approximately $106,000 of our restricted cash was subject to these cash traps.

As of September 30, 2022, our $435 million mortgage loan was in a cash trap and approximately $139,000 of our restricted cash was subject to this cash trap.

Equity Transactions

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

No shares were repurchased during the six months ended June 30, 2022, pursuant to this authorization.

No shares were repurchased during the nine months ended September 30, 2022, pursuant to this authorization.

On December 11, 2017, we entered into equity distribution agreements with certain sales agents to sell from time to time shares of our common stock having an aggregate offering price of up to $50.0 million.

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

Sales of shares of our common stock, if

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

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

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

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

price of $30,000,000.

As of August 3, 2022, the Company has sold approximately 7.4 million shares of common stock and received gross proceeds of approximately $30.8 million under this program.

As of November 3, 2022, the Company has sold approximately 7.4 million shares of common stock and received gross proceeds of approximately $30.8 million under this program.

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

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

As of August 3, 2022, the Company has issued approximately 6.5 million shares of Series E Preferred Stock and received net proceeds of approximately $145.3 million and issued approximately 666,000 shares of Series M Preferred Stock and received net proceeds of approximately $16.1 million.

The Company also issued approximately 16,000 shares of Series E Preferred Stock pursuant to the dividend reinvestment plan.

As of November 3, 2022, the Company has issued approximately 10.3 million shares of Series E Preferred Stock and received net proceeds of approximately $231.8 million and issued approximately 1.2 million shares of Series M Preferred Stock and received net proceeds of approximately $30.1 million.

The Company also issued approximately 33,000 shares of Series E Preferred Stock and approximately 1,200 shares of Series M Preferred Stock, respectively, pursuant to the dividend reinvestment plan.

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

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

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

As of August 3, 2022, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

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 November 3, 2022, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

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.

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

Upon entering into the Lincoln Park Purchase Agreement, the Company issued

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

As of August 3, 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 .

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

As of November 3, 2022, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $4.2 million under the Lincoln Park Purchase Agreement .

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

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

As of August 3, 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.

As of November 3, 2022, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.

Debt Transactions

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Sources and Uses of Cash

We had approximately $251.0 million and $216.0 million of cash and cash equivalents at June 30, 2022 and December 31, 2021, respectively.

We had approximately $358.9 million and $216.0 million of cash and cash equivalents at September 30, 2022 and December 31, 2021, respectively.

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

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

Net cash flows provided by operating activities were $79.8 million and $31.5 million for the six months ended June 30, 2022 and 2021, respectively.

Net cash flows provided by operating activities were $104.0 million and $55.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Cash flows from operations were impacted by changes in hotel operations of our 13 comparable hotel properties as well as the acquisitions of the Mr.

C Beverly Hills Hotel on August 5, 2021 and The Ritz-Carlton Reserve Dorado Beach on March 11, 2022.

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

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

For the six months ended June 30, 2022, net cash flows used in investing activities were $106.8 million.

These cash outflows were primarily attributable to $19.9 million of capital improvements made to various hotel properties and approximately $86.8 million associated with the acquisition of The Ritz-Carlton Reserve Dorado Beach.

For the nine months ended September 30, 2022, net cash flows used in investing activities were $123.6 million.

These cash outflows were primarily attributable to $36.5 million of capital improvements made to various hotel properties, approximately $86.8 million associated with the acquisition of The Ritz-Carlton Reserve Dorado Beach and additional investments in OpenKey of $328,000.

Our capital improvements consisted of $22.1 million of return on investment capital projects and $14.4 million of renewal and replacement capital projects.

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Renewal and replacement capital projects are designed to maintain the quality and competitiveness of our hotels.

For the six months ended June 30, 2021, net cash flows used in investing activities were $10.3 million.

These cash outflows were primarily attributable to $9.1 million of capital improvements made to various hotel properties and a deposit of $3.0 million associated with the acquisition of the Mr.

Beverly Hills Hotel, partially offset by proceeds of $1.8 million from the sale of certain ERFP assets to Ashford Inc.

Our capital improvements consisted of $3.1 million of return on investment capital projects and $6.0 million of renewal and replacement capital projects.

For the nine months ended September 30, 2021, net cash flows used in investing activities were $23.7 million.

These cash outflows were primarily attributable to $15.8 million of capital improvements made to various hotel properties, approximately $9.5 million associated with the acquisition of the Mr.

C Beverly Hills Hotel, partially offset by proceeds of $1.8 million from the sale of certain ERFP assets to Ashford Inc.

Our capital improvements consisted of approximately $7.5 million of return on investment capital projects and approximately $8.4 million of renewal and replacement capital projects.

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

For the six months ended June 30, 2022, net cash flows provided by financing activities were $62.8 million.

For the nine months ended September 30, 2022, net cash flows provided by financing activities were $169.1 million.

Cash inflows primarily consisted of debt borrowings of $70.5 million, $185.2 million from the issuance of preferred stock and contributions of $164,000 from a noncontrolling interest in consolidated entities.

The cash inflows were partially offset by repayments of indebtedness of $68.0 million, $7.3 million of dividend and distribution payments, $1.7 million of payments for loan costs and fees and $1.1 million of payments for derivatives.

For the six months ended June 30, 2021, net cash flows provided by financing activities were $80.7 million.

Cash inflows primarily consisted of net proceeds of $83.2 million from the issuance of our Convertible Senior Notes, $65.7 million from the issuance of common stock and contributions of $920,000 from a noncontrolling interest in consolidated entities.

The cash inflows were partially offset by repayments of indebtedness of $62.8 million, $4.9 million of dividend and distribution payments and $930,000 of payments for loan costs and fees.

The cash inflows were partially offset by repayments of indebtedness of $68.3 million, $13.0 million of dividend and distribution payments, $1.8 million of payments for loan costs and fees, $2.1 million of payments for derivatives, $1.3 million for purchases of common stock and $193,000 for cash redemptions of Series E and Series M preferred stock.

For the nine months ended September 30, 2021, net cash flows provided by financing activities were $95.6 million.

Cash inflows primarily consisted of net proceeds of $83.2 million from the issuance of our Convertible Senior Notes, $100.0 million from the issuance of common stock, $4.6 million from the issuance of preferred stock and contributions of $920,000 from a noncontrolling interest in consolidated entities.

The cash inflows were partially offset by repayments of indebtedness of $83.8 million, $6.9 million of dividend and distribution payments, $1.9 million of payments for loan costs and fees, $376,000 for purchases of common stock and $200,000 of payment for derivatives.

Dividend Policy.

On June 1, 2022, our board of directors declared a quarterly cash dividend of $0.01 per diluted share for the Company’s common stock for the second quarter of 2022.

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

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

On September 8, 2022, our board of directors declared a quarterly cash dividend of $0.01 per diluted share for the Company’s common stock for the third quarter of 2022.

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

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This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases.

Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as the COVID-19 pandemic and government-issued travel restrictions in response, extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel.

Quarterly revenue also may be adversely affected by renovations and repositionings, our managers’ effectiveness in generating business and by events beyond our control, such as extreme weather conditions, natural disasters, terrorist attacks or alerts, civil unrest, government shutdowns, airline strikes or reduced airline capacity, economic factors and other considerations affecting travel.

To the extent that cash flows from operations and cash on hand are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize borrowings to fund distributions required to maintain our REIT status.

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Non-GAAP Financial Measures

The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, Funds From Operations (“FFO”) and Adjusted FFO are presented to help our investors evaluate our operating performance.

The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO are presented to help our investors evaluate our operating performance.

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

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

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

We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they are useful to an investor in evaluating our operating performance because it provides investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business.

We also believe it helps investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results.

Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions.

EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms.

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The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) (unaudited):

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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Transaction and conversion costs 5,562 980 6,888 2,148

Other (income) expense (27) — (27) —

Write-off of loan costs and exit fees 8 432 106 1,960

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

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

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

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

We present FFO and Adjusted FFO because we consider FFO and Adjusted FFO important supplemental measures of our operational performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and Adjusted FFO when reporting their results.

FFO and Adjusted FFO are intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time.

Historically, however, real estate values have risen or fallen with market conditions.

Because FFO and Adjusted FFO exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, FFO and Adjusted FFO provide performance measures that, when compared year over year, reflect the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.

We consider FFO and Adjusted FFO to be appropriate measures of our ongoing normalized operating performance as a REIT.

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The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands) (unaudited):

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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FFO available to common stockholders and OP unitholders 3,722 7,762 63,919 13,224

Series B Convertible Preferred Stock dividends 1,058 1,068 2,116 2,631

(Gain) loss on extinguishment of preferred stock — 111 — 4,595

Transaction and conversion costs 5,562 980 6,888 2,148

Interest expense on Convertible Senior Notes 1,108 649 2,211 649

Interest expense accretion on refundable membership club benefits 177 190 545 582

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Company’s portion of adjustments to FFO of OpenKey 1 1 6 7

Adjusted FFO available to common stockholders, OP unitholders, Series B Cumulative Convertible preferred stockholders and convertible note holders on an “as converted” basis $ 35,325 $ 12,942 $ 72,328 $ 23,106

Adjusted FFO available to common stockholders and OP unitholders 12,648 11,255 80,649 31,081

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The following table presents the amounts of the adjustments for noncontrolling interests for each line item:

Three Months Ended June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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(3) The above information does not include the operations of residential units not owned by The Ritz-Carlton Reserve Dorado Beach.

The results of the Hotel are included from March 11, 2022 through June 30, 2022.

The results of the hotel are included from March 11, 2022 through September 30, 2022.

(4) Some of our hotel properties are on land subject to ground leases, two of which cover the entire property.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis