What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-10 · 195 added, 296 removed, 457 unchanged (52% of the section changed)

10 unchanged sentences

High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-current U.S.

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

Two times the

national average RevPAR for all hotels as determined by STR, LLC.

Two times the U.S.

national average was $187 for the year ended December 31, 2022.

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

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

As of December 31, 2022, we owned interests in 16 hotel properties in seven states, the District of Columbia, Puerto Rico and St.

Virgin Islands with 4,181 total rooms, or 3,946 net rooms, excluding those attributable to our joint venture partner.

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has an ownership interest.

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

In 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.

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

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

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

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

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

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

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

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

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

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 and brokerage services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology.

Recent Developments

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

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

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

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

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

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

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

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

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

In September 2022, given the recent increases in 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 December 1, 2022, the Company acquired a 100% interest in the 210-room Four Seasons Resort Scottsdale at Troon North for $267.8 million in cash.

On December 7, 2022, our board of directors approved a new 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 $25 million.

The board of director’s authorization replaced any previous repurchase authorizations.

During the year ended December 31, 2022, we repurchased 1.5 million shares of our common stock for approximately $6.1 million.

Subsequent to December 31, 2022, the Company repurchased approximately 3.9 million shares of its common stock for approximately $18.9 million.

The Company repurchased approximately 5.4 million shares of its common stock for approximately $25.0 million and has completed the $25.0 million repurchase authorization.

On December 23, 2022, we entered into a $100 million mortgage loan, secured by the Four Seasons Resort Scottsdale at Troon North.

The mortgage loan has a three-year initial term and two one-year extension options, subject to satisfaction of certain conditions.

The mortgage loan is interest only and bears interest at a rate of SOFR + 3.75% with a SOFR floor of 1.00%.

On January 18, 2023, the Company paid off its existing mortgage loan associated with the Ritz-Carlton Reserve Dorado Beach.

Prior to the pay-off, the mortgage loan had an outstanding balance of $54 million.

On February 24, 2023, at the option of Mr.

Bennett’s 169,523 vested LTIP units that achieved economic parity with his common units were redeemed for common units on a one-for-one basis.

On February 24, 2023, the Company received a Notice of Exercise of Redemption Right (the “Redemption Notice”), pursuant to which Mr.

Bennett elected to redeem the common units and such redemption was settled in cash at the Company’s election based on the average of the closing price of the Company’s common stock for the ten consecutive trading days ending on February 23, 2023.

Additionally, on February 24, 2023, Mr.

Bennett elected to redeem an additional 1,254,254 common units and following receipt of the Redemption Notice, such redemption was settled in cash at the Company’s election at a price per common unit based on the average of the closing price of the Company’s common stock for the ten consecutive trading days ending on February 23, 2023.

The cash redemption for the 1,423,777 common units totaled approximately $7.0 million.

Additionally, based on information previously reported by Mr.

Bennett in a Form 4 filed on March 1, 2023, Mr.

Bennett subsequently sold 417,491 shares of common stock beneficially owned by him into the public markets.

Key Indicators of Operating Performance

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Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.

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

The development of new hotels is driven largely by construction costs, the availability of financing and expected performance of existing hotels.

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

While the industry is

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

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

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

We expect that our ADR, occupancy and RevPAR performance will be impacted by macroeconomic factors such as national and local employment growth, personal income and corporate earnings, GDP, consumer confidence, office vacancy rates and business relocation decisions, airport and other business and leisure travel, new hotel construction, the pricing strategies of competitors and currency fluctuations.

In addition, our ADR, occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton, Hyatt and Sofitel brands.

In addition, our ADR, occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton, Four Seasons, Hyatt and Sofitel brands.

Substantially all of our revenue is derived from the operation of hotels.

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Depreciation and amortization 78,122 73,762 (4,360) (5.9)

Gain on legal settlement (917) — 917

Advisory services fee 28,847 22,641 (6,206) (27.4)

(Gain) loss on legal settlements (114) (917) (803) (87.6)

Transaction costs — 563 563 100.0

5 unchanged sentences

Interest income 2,677 48 2,629 5,477.1

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

Interest expense and amortization of discounts and loan costs (52,166) (30,901) (21,265) (68.8)

Write-off of loan costs and exit fees (146) (1,963) 1,817 92.6

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

Realized and unrealized gain (loss) on derivatives 4,961 32 4,929 15,403.1

Income (loss) before income taxes 23,391 (31,587) 54,978 174.1

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All hotel properties owned for the years ended December 31, 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 years ended December 31, 2021 and 2020.

Based on when a hotel property was acquired or disposed of, the operating results for certain hotel properties are not comparable for the years ended December 31, 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 consolidated financial statements:

Hotel Properties Location Acquisition/Disposition Acquisition/Disposition Date

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

Hotel Properties Location Type Date

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

The Ritz-Carlton Reserve Dorado Beach Dorado, Puerto Rico Acquisition March 11, 2022

Four Seasons Resort Scottsdale Scottsdale, Arizona Acquisition December 1, 2022

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

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Total hotel revenue (in thousands) $ 669,585 $ 427,542

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

The following table illustrates the key performance indicators of the 13 hotel properties that were included for the full year ended December 31, 2022 and 2021:

Year Ended December 31,

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Net Income (Loss) Attributable to the Company.

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

Net income (loss) attributable to the Company changed $44.4 million, from a net loss of $26.7 million for the year ended December 31, 2021 (“2021”), to net income of $17.8 million for the year ended December 31, 2022 (“2022”), as a result of the factors discussed below.

Rooms Revenue .

1 unchanged sentence

During 2022, we experienced a 1,315 basis point increase in occupancy and a 16.8% increase in room rates compared to 2021.

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

C Beverly Hills Hotel on August 5, 2021.

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

The increase in rooms revenue is due to the hotel properties recovering from the COVID-19 pandemic as well as increases in rooms revenue of $8.9 million from the acquisition of the Mr.

C Beverly Hills Hotel on August 5, 2021, $38.1 million from the acquisition of The Ritz-Carlton Reserve Dorado Beach on March 11, 2022, and $3.1 million from the acquisition of the Four Seasons Resort Scottsdale.

Fluctuations in rooms revenue between 2022 and 2021 are a result of the changes in occupancy and ADR between 2022 and 2021 as reflected in the table below (dollars in thousands):

Hotel Property Favorable (Unfavorable)

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Capital Hilton $ 20,104 3,470 42.9 %

$ 2,178 1,132 (18.9) %

Marriott Seattle Waterfront (1)

6,340 465 30.4 %

The Notary Hotel 10,348 1,898 23.6 %

The Clancy (2)

16,707 1,408 71.2 %

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Non-comparable

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

_______________

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

(2) The hotel was being renovated during 2020.

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

C Beverly Hills Hotel $ 8,941 1,038 4.4 %

The Ritz-Carlton Reserve Dorado Beach 38,077 n/a n/a

Four Seasons Resort Scottsdale 3,107 n/a n/a

Total $ 50,125

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

Food and Beverage Revenue .

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

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

C Beverly Hills Hotel.

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

We experienced an aggregate increase in food and beverage revenue of $50.2 million at 13 comparable hotel properties as well as increases of $3.0 million, $14.2 million and $1.4 million at the Mr.

C Beverly Hills Hotel, The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale, respectively.

Other Hotel Revenue .

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The increase is attributable to higher other hotel revenue of $11.9 million at 11 comparable hotel properties, and an increase of $917,000 at the Mr.

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

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

Thomas as a result of Hurricane Irma.

C Beverly Hills Hotel, $8.9 million at The Ritz-Carlton Reserve Dorado Beach, as well as $657,000 at the Four Seasons Resort Scottsdale, partially offset by a decrease of $257,000 at Marriott Seattle Waterfront and $21,000 at the Pier House Resort & Spa.

Rooms Expense .

Rooms expense increased $34.6 million, or 57.8%, to $94.4 million in 2022 compared to 2021.

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

C Beverly Hills Hotel.

The increase is attributable to an aggregate increase in rooms expense of $22.9 million at 13 comparable hotel properties due to the hotel properties recovering from the COVID-19 pandemic and increases of $2.7 million at the Mr.

C Beverly Hills Hotel, $8.5 million at The Ritz-Carlton Reserve Dorado Beach as well as $538,000 at the Four Seasons Resort Scottsdale.

Food and Beverage Expense .

Food and beverage expense increased $50.4 million, or 67.0%, to $125.6 million during 2022 compared to 2021.

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

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

The increase is attributable to an aggregate increase of $33.6 million at 13 comparable hotel properties and increases of $2.8 million at the Mr.

C Beverly Hills Hotel, $12.7 million at The Ritz-Carlton Reserve Dorado Beach and $1.3 million at the Four Seasons Resort Scottsdale.

Other Operating Expenses .

Other operating expenses increased $66.5 million, or 47.8%, to $205.4 million in 2022 compared to 2021.

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

Hotel operating expenses consist of direct expenses from departments associated with revenue streams and

indirect expenses associated with support departments and incentive management fees.

We experienced an increase of $8.0 million in direct expenses and $58.4 million in indirect expenses and incentive management fees in 2022 compared to 2021.

Direct expenses were 4.3% of total hotel revenue in 2022 and 4.9% in 2021.

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

C Beverly Hills Hotel.

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

C Beverly Hills Hotel;

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

C Beverly Hills Hotel;

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

C Beverly Hills Hotel;

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

C Beverly Hills Hotel;

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

C Beverly Hills Hotel;

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

C Beverly Hills Hotel.

The increase in direct expenses is associated with higher direct expenses of approximately $2.9 million at 11 comparable hotel properties as they are recovering from the COVID-19 pandemic, as well as an increase of $61,000 at the Mr.

C Beverly Hills Hotel, $5.0 million at The Ritz-Carlton Reserve Dorado Beach as well as $193,000 at the Four Seasons Resort Scottsdale, the increases are partially offset by lower direct expenses of $58,000 at the Capital Hilton and Marriott Seattle Waterfront.

The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $24.6 million comprising an increase of $15.6 million at our 13 comparable hotel properties and $9.1 million at the three acquired hotel properties;

(ii) marketing costs of $15.7 million comprising an increase of $11.5 million at our 13 comparable hotel properties and $4.2 million at the three acquired hotel properties;

(iii) repairs and maintenance of $6.2 million comprising an increase of $2.5 million at our 13 comparable hotel properties and $3.7 million at the three acquired hotel properties;

(iv) lease expense of $1.3 million comprising an increase of $1.1 million at our 13 comparable hotel properties and $250,000 at the three acquired hotel properties;

(v) energy costs of $6.7 million comprised of an increase of $3.3 million at our 13 comparable hotel properties and $3.4 million at the three acquired hotel properties;

and (vi) incentive management fees of $3.8 million comprising an increase of $2.9 million at our 13 comparable hotel properties and $888,000 at the three acquired hotel properties.

Management Fees .

Base management fees increased $7.0 million, or 53.6%, to $20.1 million in 2022 compared to 2021.

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

C Beverly Hills Hotel.

Management fees increased approximately $4.9 million at 12 of our comparable hotel properties, $382,000 at the Mr.

C Beverly Hills Hotel, $1.9 million at The Ritz-Carlton Reserve Dorado Beach and $157,000 at the Four Seasons Resort Scottsdale.

These increases were partially offset by a decrease of $444,000 at the Sofitel Chicago Magnificent Mile primarily as a result of a legal settlement with Accor.

“Legal Proceedings.”

Property Taxes, Insurance and Other .

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

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

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

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

C Beverly Hills Hotel.

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

Property taxes, insurance and other decreased $4.2 million, or 12.1%, to $30.8 million in 2022 compared to 2021.

The decrease primarily resulted from an aggregate decrease of $8.5 million at five hotel properties, including a $5.5 million and $2.5 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 $768,000 at the Mr.

C Beverly Hills Hotel, $2.1 million at The Ritz-Carlton Reserve Dorado Beach and $78,000 at the Four Seasons Resort Scottsdale as a result of their acquisitions, as well as an aggregate increase of approximately $1.3 million at eight hotel properties.

Depreciation and Amortization .

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

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

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

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

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

Depreciation and amortization increased $4.4 million, or 5.9%, to $78.1 million for 2022 compared to 2021.

The increase comprised $1.5 million at the Mr.

C Beverly Hills Hotel, $5.1 million at The Ritz-Carlton Reserve Dorado Beach and $781,000 at the Four Seasons Resort Scottsdale as a result of their acquisitions as well as an aggregate increase of $2.2 million at the 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 $5.2 million at nine comparable hotel properties primarily due to fully depreciated assets.

Advisory Services Fee.

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

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

Advisory services fee increased $6.2 million, or 27.4%, to $28.8 million in 2022 compared to 2021 due to increases in the base advisory fee of $2.0 million, reimbursable expenses of $2.4 million, equity-based compensation of $1.1 million, and incentive fee of $803,000.

In 2022, we recorded an advisory services fee of $28.8 million, which included a base advisory fee of $12.8 million, reimbursable expenses of $4.7 million, $10.6 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 $803,000.

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

Gain on Legal Settlement .

(Gain) loss on legal settlements .

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

In 2020, there was no such gain recognized.

During 2022, 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.

Transaction costs .

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

C Beverly Hills Hotel.

C Beverly Hills Hotel that closed on August 5, 2021.

There were no transaction costs in 2022.

1 unchanged sentence

Corporate general and administrative expense was $18.1 million in 2022 and $8.7 million in 2021.

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

The increase in corporate general and administrative expenses is primarily due to higher professional fees of $1.2 million, higher public company costs of $108,000, higher reimbursed operating expenses of Ashford Securities of $7.5 million and higher miscellaneous expenses of $572,000.

During 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 $7.2 million.

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

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

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

There was no such gain (loss) in 2022.

Equity in Earnings (Loss) of Unconsolidated Entity .

1 unchanged sentence

Interest Income .

Interest income decreased $128,000, or 72.7%, to $48,000 for 2021 compared to 2020.

Other Income (Expense) .

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

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

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

Interest income was $2.7 million and $48,000 in 2022 and 2021, respectively.

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

Interest Expense and Amortization of Discounts and Loan Costs .

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

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

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

C Beverly Hills Hotel acquisition.

Interest expense and amortization of discounts and loan costs increased $21.3 million, or 68.8%, to $52.2 million for 2022 compared to 2021.

The increase is primarily due to higher interest expense from a higher average LIBOR rate, as well as higher interest expense from our Convertible Senior Notes and the mortgage loans associated with the Mr.

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

The average LIBOR rates for 2022 and 2021 were 1.91% and 0.10%, respectively.

Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $146,000 in 2022 primarily resulting from the refinance of the Park Hyatt Beaver Creek Resort & Spa in February 2022, the assumption of the mortgage loan from the acquisition of The Ritz-Carlton Reserve Dorado Beach, the extension of The Ritz-Carlton St.

Thomas mortgage loan and the amendments associated with Bardessono Hotel and Spa and The Ritz-Carlton Lake Tahoe mortgage loans.

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

3 unchanged sentences

C Beverly Hills Hotel.

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

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

Unrealized Gain (Loss) on Derivatives .

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

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

Realized and Unrealized Gain (Loss) on Derivatives .

Realized and Unrealized gain on derivatives of $5.0 million for 2022 consisted of unrealized gains of approximately $3.8 million on interest rate caps and approximately $1.2 million on warrants and realized gains of $497,000 associated with payments received from counterparties on interest rate caps.

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

Income Tax (Expense) Benefit .

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

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

Income tax expense increased $2.7 million, from $1.3 million in 2021 to $4.0 million in 2022.

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

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

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

Our noncontrolling interest partner in consolidated entities was allocated income of $2.1 million and a loss of $2.7 million in 2022 and 2021, respectively.

At both December 31, 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 a net loss of $3.6 million and $13.0 million for 2021 and 2020, respectively.

Noncontrolling interests in operating partnership were allocated a net loss of $476,000 in 2022 and $3.6 million in 2021.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 7.69% and 8.83% as of December 31, 2022 and 2021, respectively.

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

Lender/Property(ies) Number of

Encumbered Outstanding

December 31, 2021 Interest Rate at

December 31, 2021 Amortization Maturity

Fully Extended Maturity Date

Securitized (2)

1 67,500 3.10 % Interest only Apr-2022 Apr-2022

Park Hyatt Beaver Creek Resort & Spa, Beaver Creek, CO

Securitized (3)

4 435,000 2.26 % Interest only Jun-2022 Jun-2025

The Notary Hotel, Philadelphia, PA

The Clancy, San Francisco, CA

Marriott Seattle Waterfront, Seattle, WA

Sofitel Chicago Magnificent Mile, Chicago, IL

1 42,500 4.95 % Interest only Aug-2022 Aug-2024

The Ritz-Carlton, St.

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

The Ritz-Carlton, Sarasota, FL

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

Hotel Yountville, Yountville, CA

1 40,000 2.80 % Interest only Aug-2023 Aug-2023

Bardessono Hotel and Spa, Yountville, CA

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

The Ritz-Carlton, Lake Tahoe, CA

Prudential (8)

2 195,000 1.80 % Interest only Feb-2024 Feb-2024

Capital Hilton, Washington, D.C.

Hilton La Jolla Torrey Pines, La Jolla, CA

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

C Beverly Hills Hotel

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

Pier House Resort & Spa, Key West, FL

Convertible Senior Notes Equity 86,250 4.50 % Interest only

June-2026 June-2026

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

__________________

(1) Maturity date assumes no future extensions.

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

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

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

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

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

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

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

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

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

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

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

The stated maturity is April 2023.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following mortgage loans include various financial cash trap triggers.

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

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:

• advisory fees payable to Ashford LLC;

• recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;

• interest expense and scheduled principal payments on outstanding indebtedness, including our secured term loan (see “Contractual Obligations and Commitments”);

• interest expense and scheduled principal payments on outstanding indebtedness;

• distributions, if any, in the form of dividends on our common stock, necessary to qualify for taxation as a REIT;

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• capital expenditures to improve our hotel properties;

• advisory fees payable to Ashford LLC.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations, capital market activities and existing cash balances.

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We expect to meet our long-term liquidity requirements through various sources of capital, including future common and preferred equity issuances, existing working capital, net cash provided by operations, hotel mortgage indebtedness and other secured and unsecured borrowings.

However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the current and ongoing effects of COVID-19 on our business and the hotel industry, the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us.

However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us.

The success of our business strategy will depend, in part, on our ability to access these various capital sources.

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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 December 31, 2022, our $435 million mortgage loan was in a cash trap and approximately $298,000 of our restricted cash was subject to this cash trap.

Our estimated future obligations as of December 31, 2022 include both current and long-term obligations.

With respect to our indebtedness, as discussed in note 6 to our consolidated financial statements, we have current obligations of $667.0 million and long-term obligations of $669.8 million.

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

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

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

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

As of December 31, 2022, we held extension options to extend the principal for all of the debt due in the next twelve months except for $189.5 million.

As discussed in note 17 to our consolidated financial statements, under our operating leases we have current obligations of approximately $3.4 million and long-term obligations of approximately $154.6 million.

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Equity Transactions

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

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

No shares were repurchased during the year ended December 31, 2021, 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.

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

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

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

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

The board of director’s authorization replaced any previous repurchase authorizations.

During the year ended December 31, 2022, we repurchased 1.5 million shares of our common stock for approximately $6.1 million.

Subsequent to December 31, 2022, the Company repurchased approximately 3.9 million shares of its common stock for approximately $18.9 million.

The Company repurchased approximately 5.4 million shares of its common stock for approximately $25.0 million and has completed the $25.0 million repurchase authorization.

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

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

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

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

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

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

As of March 8, 2023, the Company has issued approximately 16.4 million shares of Series E Preferred Stock and received net proceeds of approximately $369.5 million and issued approximately 2.0 million shares of Series M Preferred Stock and received net proceeds of approximately $47.6 million.

The Company also issued approximately 68,000 shares of Series E Preferred Stock and approximately 4,000 shares of Series M Preferred Stock, respectively, pursuant to the dividend reinvestment plan.

On February 21, 2023, the Company announced the closing of its offering of the Series E Preferred Stock and Series M Preferred Stock.

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

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As of March 8, 2023, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

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

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

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

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As of March 8, 2023, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $4.2 million under the Lincoln Park Purchase Agreement .

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

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

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

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

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

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

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

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

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

time of sale.

As of March 8, 2023, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.

Debt Transactions

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

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

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

Bank National Association, as trustee.

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

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

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

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

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

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

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

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

On March 11, 2022, in connection with the acquisition of The Ritz-Carlton Reserve Dorado Beach the Company assumed a $54.0 million mortgage loan.

See note 6 to our consolidated financial statements.

On October 27, 2022, the Company amended its $40.0 million mortgage loan secured by the Bardessono Hotel and Spa.

Terms of the agreement replaced the variable interest rate of LIBOR + 2.55% with SOFR + 2.65%.

On October 27, 2022, the Company amended its $54.0 million mortgage loan secured by the Ritz-Carlton Lake Tahoe.

Terms of the agreement replaced the variable interest rate of LIBOR + 2.10% with SOFR + 2.20%.

On September 29, 2022, the Company amended its $80.0 million mortgage loan secured by the Pier House Resort & Spa.

Terms of the agreement replaced the variable interest rate of LIBOR + 1.85% with SOFR + 1.95%.

On December 23, 2022, we entered into a $100 million mortgage loan, secured by the Four Seasons Resort Scottsdale at Troon North.

The mortgage loan has a three-year initial term and two one-year extension options, subject to satisfaction of certain conditions.

The mortgage loan is interest only and bears interest at a rate of SOFR + 3.75% with a SOFR floor of 1.00%.

On January 18, 2023, the Company repaid its $54.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach.

Sources and Uses of Cash

We had approximately $261.5 million and $216.0 million of cash and cash equivalents at December 31, 2022 and December 31, 2021, respectively.

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

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

We anticipate using funds to pay for capital expenditures for our 16 hotel properties, estimated to be approximately $80.0 million in fiscal year 2023 and debt interest payments, estimated to be approximately $80.8 million in 2023 based on future payments using the one month LIBOR/SOFR rate as of December 31, 2022.

This estimate will fluctuate based on changes in the one-month LIBOR/SOFR rate and any future changes in outstanding indebtedness.

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

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

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

C Beverly Hills Hotel on August 5, 2021.

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

Net cash flows provided by operating activities were $109.5 million and $64.0 million for the twelve months ended December 31, 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, The Ritz-Carlton Reserve Dorado Beach on March 11, 2022 and the Four Seasons Resort Scottsdale on December 1, 2022.

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

For the year ended December 31, 2022, net cash flows used in investing activities were $402.2 million.

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

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

These cash outflows were primarily attributable to $49.1 million of capital improvements made to various hotel properties, approximately $354.4 million associated with the acquisition of The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale and additional investments in OpenKey of $328,000, partially offset by cash inflows of $1.7 million associated with an amendment to a hotel management agreement.

Our capital improvements consisted of approximately $28.0 million of return on investment capital projects and approximately $21.2 million of renewal and replacement capital projects.

Return on investment capital projects are designed to improve the positioning of our hotel properties within their markets and competitive sets.

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

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

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

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

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

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

Our capital improvements consisted of approximately $12.8 million of return on investment capital projects and approximately $12.9 million of renewal and replacement capital projects.

Net Cash Flows Provided by Financing Activities.

For the year ended December 31, 2022, net cash flows provided by financing activities were $345.1 million.

Cash inflows primarily consisted of debt borrowings of $170.5 million, $278.6 million from the issuance of preferred stock and $167,000 of proceeds from in-the-money interest rate caps.

The cash inflows were partially offset by repayments of indebtedness of $68.5 million, $20.8 million of dividend and distribution payments, $7.4 million related to payments for stock repurchases, $4.1 million of payments for loan costs and fees, $3.0 million of payments for derivatives, and $499,000 for cash redemptions of Series E and Series M preferred stock.

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

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

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

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

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

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

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

Critical Accounting Policies

Critical Accounting Policies and Estimates

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

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

Impairment of Investments in Hotel Properties.

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Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs.

There was no impairment charge recorded for the year ended December 31, 2021.

There was no impairment charge recorded for the years ended December 31, 2022, 2021 and 2020.

Income Taxes.

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At each reporting date, we evaluate whether it is more likely than not that we will utilize all or a portion of our deferred tax assets.

We consider all available positive and negative evidence, including historical results of operations, projected future taxable income, carryback potential and scheduled reversals of deferred tax liabilities.

We consider all available positive and negative evidence, including historical results of operations, projected future taxable income, carryback potential and scheduled

reversals of deferred tax liabilities.

In evaluating the objective evidence that historical results provide, we consider three years of consolidated cumulative operating income (loss).

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however, there could be substantial limitations on their use imposed by the Code.

At December 31, 2022, Braemar Hotels & Resorts Inc., our REIT, had net operating loss carryforwards for U.S.

federal income tax purposes of $109.7 million based on the latest filed tax return.

Of this amount, $2.2 million is subject to expiration in in 2033.

The remainder is not subject to expiration under the Tax Cuts and Jobs Act.

Management determined that it is more likely than not that $18.6 million of our net deferred tax assets will not be realized and a valuation allowance has been recorded accordingly.

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Recently Adopted Accounting Standards

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

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

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.

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):

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

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

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

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

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

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

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.

The impact of adoption on our consolidated statement of operations for the year ended December 31, 2022 resulted in a decrease to net interest expense by approximately $1.1 million relating to the non-cash interest expense associated with amortization of the debt discount.

The impact on basic and diluted net loss per share of common stock attributable to common stockholders for the year ended December 31, 2022 was $(0.02).

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides optional guidance through December 31, 2022 to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting.

In January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope , which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848.

The amendments in ASU Nos.

2020-04 and 2021-01 apply to contract modifications that replace a reference rate affected by reference rate reform, providing optional expedients regarding the measurement of hedge effectiveness in hedging relationships that have been modified to replace a reference rate.

The Company applied the optional expedient in evaluating debt modifications converting from LIBOR to SOFR.

There was no material impact as a result of this adoption.

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.

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

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

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

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, gain/loss on insurance settlements, 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 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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Write-off of loan costs and exit fees 146 1,963 3,920

Unrealized (gain) loss on investment in Ashford Inc.

(Gain) loss on insurance settlements (55) — —

Unrealized (gain) loss on derivatives (4,464) (32) (4,959)

Non-cash stock/unit-based compensation 10,204 7,892 7,943

Stock/unit-based compensation 11,285 10,204 7,892

Legal, advisory and settlement costs 2,170 (208) 2,023

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The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year ended December 31, 2022.

The results of The Mr.

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

The results of The Ritz-Carlton Reserve Dorado Beach and Four Seasons Resort Scottsdale are included from its acquisition date through December 31, 2022 (in thousands) (unaudited):

Year Ended December 31, 2022

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

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

Beverly Hills Hotel The Ritz-Carlton Dorado Beach Four seasons Resort Scottsdale Hotel Total Corporate / Allocated (1)

Braemar Hotels & Resorts Inc.

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

The results of The Mr.

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

Year Ended December 31, 2021

Thomas Hotel Total Corporate / Allocated (1)

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

Braemar Hotels & Resorts Inc.

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

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

Year Ended December 31, 2020

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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 and non-cash items such as interest expense on Convertible Senior Notes, interest expense accretion on refundable membership club deposits, amortization of loan costs, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey.

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, gain/loss on insurance settlements and non-cash items such as deemed dividends on redeemable preferred stock, 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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Preferred dividends (21,503) (8,745) (10,219)

Deemed dividends on preferred stock

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

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FFO available to common stockholders and OP unitholders 64,331 26,776 (68,182)

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

Deemed dividends on preferred stock

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

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Other (income) expense — — 5,126

Interest expense on Convertible Senior Notes 3,378 — —

Interest expense accretion on refundable membership club benefits 723 772 818

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2,365 2,121 3,332

Unrealized (gain) loss on investment in Ashford Inc.

(Gain) loss on insurance settlements (55) — —

Unrealized (gain) loss on derivatives (4,464) (32) (4,959)

Non-cash stock/unit-based compensation 10,204 7,892 7,943

Stock/unit-based compensation 11,285 10,204 7,892

Legal, advisory and settlement costs 2,170 (208) 2,023

Company’s portion of adjustments to FFO of OpenKey 8 7 13

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

Adjusted FFO available to common stockholders and OP unitholders 93,142 48,835 $ (48,647)

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

What changed 10-K

Item 7. Management’s Discussion and Analysis