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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-07 · 189 added, 379 removed, 370 unchanged (61% of the section changed)

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• the factors discussed in our Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2023 (the “2022 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;

• changes in interest rates;

• rising interest rates and inflation;

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

• uncertainty in the business sector and market volatility due to the recent failures of Silicon Valley Bank, New York Signature Bank and First Republic Bank;

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

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Risk Factors” in Part I of our 2022 10-K and this Form 10-Q, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements.

Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak and the numerous government travel restrictions imposed in response thereto.

The extent to which COVID-19 impacts us will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Accordingly, we cannot guarantee future results or performance.

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

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

As of March 31, 2023, we owned interests in 16 hotel properties in seven states, the District of Columbia, Puerto Rico and St.

Virgin Islands with 4,192 total rooms, or 3,957 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 September 30, 2022, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 15 hotel properties.

As of March 31, 2023, Remington Hotels, a subsidiary of Ashford Inc., managed four of our 16 hotel properties.

Third-party management companies managed the remaining hotel properties.

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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.

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.

Bennett is chairman and chief executive officer of Ashford Inc.

and, together with Mr.

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

Archie Bennett, Jr., as of March 31, 2023, owned approximately 610,261 shares of Ashford Inc.

common stock, which represented an approximate 19.1% 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 September 30, 2022 would have increased the Bennetts’ ownership interest in Ashford Inc.

to 64.8% subject to applicable voting limitations;

provided that prior to August 8, 2023, the voting power of the holders of the Ashford Inc.

Series D Convertible Preferred Stock is limited to 40% of the combined voting power of all of the outstanding voting securities of the Ashford Inc.

Series D Convertible Preferred Stock, which, along with all unpaid accrued and accumulated dividends thereon, was convertible (at a conversion price of $117.50 per share) into an additional approximate 4,148,178 shares of Ashford Inc.

common stock, which if converted as of March 31, 2023

would have increased the Bennetts’ ownership interest in Ashford Inc.

to 64.8%, provided that prior to August 8, 2023, the voting power of the holders of the Ashford Inc.

Series D Convertible Preferred Stock is limited to 40% of the combined voting power of all of the outstanding voting securities of Ashford Inc.

entitled to vote on any given matter.

The 18,758,600 shares of Ashford Inc.

Series D Convertible Preferred Stock owned by Mr.

The 18,758,600 shares of Series D Convertible Preferred Stock owned by Mr.

Bennett and Mr.

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include 360,000 shares owned by trusts.

As of September 30, 2022, Mr.

As of March 31, 2023, Mr.

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

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Recent Developments

On April 15, 2022, Ashford Inc.

and Ashford Hospitality Services, LLC, a subsidiary of Ashford Inc.

(“Ashford Services”), agreed with Jeremy Welter, the Chief Operating Officer of Ashford Inc., that, effective on July 15, 2022, Mr.

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

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.

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 directors’ authorization replaced any previous repurchase authorizations.

During the three months ended March 31, 2023, we repurchased 3.9 million shares of our common stock for approximately $18.9 million.

As of March 31, 2023, the Company has completed the $25.0 million repurchase authorization.

On January 18, 2023, the Company paid its $54.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach, which resulted in a gain on extinguishment of debt of $2.3 million for the three months ended March 31, 2023.

The gain was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired.

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.

On March 2, 2023, the Company entered into a second Limited Waiver Under Advisory Agreement (the “2023 Limited Waiver”) with Braemar OP, Braemar TRS and its advisor.

Pursuant to the 2023 Limited Waiver, the Company, Braemar OP, Braemar TRS and the Company’s advisor waived the operation of any provision in the advisory agreement that would otherwise limit our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2023 cash incentive compensation to employees and other representatives of our advisor.

On April 4, 2023, the Company amended the mortgage loan secured by The Ritz-Carlton Sarasota.

Terms of the amendment replaced the variable interest rate of LIBOR +2.65% with SOFR+2.75%, extended the current maturity date to October 2023, and added one six-month extension option, subject to satisfaction of certain conditions.

The Company paid Lismore approximately $99,000 for the successful execution of the Ritz-Carlton Sarasota loan modification and extension.

On April 18, 2023, the Company amended the mortgage loan secured by Hotel Yountville.

Terms of the amendment replaced the variable interest rate of LIBOR +2.55% with SOFR+2.65%, extended the current maturity date to November 2023, and added one six-month extension option, subject to satisfaction of certain 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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RESULTS OF OPERATIONS

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)

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 (in thousands except percentages):

Three Months Ended March 31, Favorable (Unfavorable)

2023 2022 $ Change % Change

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Other 25,546 19,981 5,565 27.9

Total revenue 161,189 116,177 45,012 38.7

Total hotel revenue 215,301 161,880 53,421 33.0

Hotel operating expenses:

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Advisory services fee 7,948 7,322 (626) (8.5)

Transaction costs — 275 275 100.0

Corporate general and administrative 2,820 2,495 (325) (13.0)

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Interest income 2,108 25 2,083 8,332.0

Other income (expense) 27 — 27

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

Interest expense and amortization of discounts and loan costs (22,873) (8,522) (14,351) (168.4)

Write-off of loan costs and exit fees (12) (76) 64 84.2

Unrealized gain (loss) on derivatives 2,403 142 2,261 1,592.3

Gain (loss) on extinguishment of debt 2,318 — 2,318

Realized and unrealized gain (loss) on derivatives (334) 408 (742) (181.9)

Income (loss) before income taxes 18,933 18,215 718 3.9

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Net income (loss) attributable to the Company $ 16,034 $ 14,663 $ 1,371 (9.4) %

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.

All hotel properties owned for the three months ended March 31, 2023 and 2022 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 March 31, 2023 and 2022.

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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Hotel Properties Location Type Date

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

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

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

Three Months Ended September 30,

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:

Three Months Ended March 31,

Occupancy 64.85 % 54.95 %

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Total hotel revenue (in thousands) $ 215,301 $ 161,880

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,

The following table illustrates the key performance indicators of the 14 hotel properties that were included for the full three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Occupancy 65.70 % 54.13 %

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Net Income (Loss) Attributable to the Company.

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.

Net income attributable to the Company increased $1.4 million, from $14.7 million for the three months ended March 31, 2022 (the “2022 quarter”), to $16.0 million for the three months ended March 31, 2023 (the “2023 quarter”), as a result of the factors discussed below.

Rooms Revenue .

Rooms revenue increased $32.3 million, or 30.7%, to $137.5 million during the 2023 quarter compared to the 2022 quarter.

During the 2022 quarter, we experienced a 986 basis point increase in occupancy and a 11.2% increase in room rates.

The increase in rooms revenue is primarily due to the hotel properties recovering from the COVID-19 pandemic as well as increases of $1.9 million and $8.2 million associated with the acquisitions of the Mr.

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

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

During the 2023 quarter, we experienced a 990 basis point increase in occupancy and a 2.8% increase in room rates compared to the 2022 quarter.

Fluctuations in rooms revenue between 2023 quarter and 2022 quarter are a result of the changes in occupancy and ADR between 2023 quarter and 2022 quarter as reflected in the table below (dollars in thousands):

Hotel Property Favorable (Unfavorable)

Rooms Revenue Occupancy

(change in bps) ADR (change in %)

(change in bps) ADR

(change in %)

Capital Hilton (1)

$ 4,896 3,297 21.7 %

Marriott Seattle Waterfront (2)

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The Notary Hotel 1,445 1,184 12.5 %

The Clancy 4,476 751 69.3 %

3,514 1,068 44.9 %

Sofitel Chicago Magnificent Mile 807 1,077 3.8 %

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The Ritz-Carlton Lake Tahoe (321) 201 (6.1) %

C Beverly Hills Hotel (90) 932 (14.7) %

Total $ 8,224 1,157 (9.9) %

Non-comparable

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

The Ritz-Carlton Reserve Dorado Beach $ 9,954 n/a n/a

Four Seasons Resort Scottsdale 14,157 n/a n/a

Total $ 24,111

(1) This hotel was under renovation during the 2023 quarter.

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

Food and Beverage Revenue .

Food and beverage revenue increased $15.5 million, or 42.3%, to $52.2 million during the 2023 quarter compared to the 2022 quarter.

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.

We experienced an aggregate increase in food and beverage revenue of $6.2 million at nine comparable hotel properties as well as increases of $3.7 million and $6.5 million at The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale, respectively.

These increases are partially offset by an aggregate decrease of approximately $980,000 at The Ritz-Carlton St.

Thomas, The Ritz-Carlton Lake Tahoe, Bardessono Hotel and Spa, Hotel Yountville and Mr.

C Beverly Hills Hotel.

Other Hotel Revenue .

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals and business interruption revenue, increased $4.9 million, or 35.0%, to $19.1 million during the 2022 quarter compared to the 2021 quarter.

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 $197,000 at the Marriott Seattle Waterfront and Park Hyatt Beaver Creek Resort & Spa.

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals, increased $5.6 million, or 27.9%, to $25.5 million during the 2023 quarter compared to the 2022 quarter.

The increase is attributable to higher other hotel revenue of $1.3 million at ten comparable hotel properties, $2.2 million at The Ritz-Carlton Reserve Dorado Beach and $2.6 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $621,000 at The Ritz-Carlton Sarasota, Pier House Resort & Spa, Bardessono Hotel and Spa, Park Hyatt Beaver Creek Resort & Spa.

Rooms Expense .

Rooms expense increased $7.2 million, or 35.5%, to $27.4 million in the 2023 quarter compared to the 2022 quarter.

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 $270,000 at The Ritz-Carlton St.

Thomas and Bardessono Hotel and Spa.

The increase is attributable to an aggregate increase in rooms expense of $3.4 million at 11 comparable hotel properties, an increase of $1.8 million at The Ritz-Carlton Reserve Dorado Beach and an increase of $2.3 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $294,000 at The Ritz-Carlton St.

Thomas, Pier House Resort & Spa and Bardessono Hotel and Spa.

Food and Beverage Expense .

Food and beverage expense increased $11.7 million, or 41.8%, to $39.7 million during the 2023 quarter compared to the 2022 quarter.

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.

The increase is attributable to higher food and beverage expense of $4.2 million at nine comparable hotel properties,$3.4 million at The Ritz-Carlton Reserve Dorado Beach and $4.6 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $488,000 at The Ritz-Carlton St.

Thomas, The Ritz-Carlton Lake Tahoe, Pier House Resort & Spa, Hotel Yountville and Mr.

C Beverly Hills Hotel.

Other Operating Expenses .

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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 $1.7 million in direct expenses and $13.0 million in indirect expenses and incentive management fees in the 2022 quarter as compared to the 2021 quarter as the hotel properties are recovering from the COVID-19 pandemic.

We experienced an increase of $2.2 million in direct expenses and $13.9 million in indirect expenses and incentive management fees in the 2023 quarter compared to the 2022 quarter.

Direct expenses were 4.2% of total hotel revenue in the 2023 quarter and 4.2% in the 2022 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 $1,000 and $1.4 million at the Mr.

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

The increase in indirect expenses comprises increases in:

(i) general and administrative costs of $5.6 million comprising an increase of $3.1 million at our 13 comparable hotel properties and $2.5 million at the two acquired hotel properties;

The increase in direct expenses is associated with higher direct expenses of approximately $392,000 at ten comparable hotel properties, $1.2 million at The Ritz-Carlton Reserve Dorado Beach and $760,000 at the Four Seasons Resort Scottsdale.

These increases were partially offset by lower direct expenses of $180,000 at the Sofitel Chicago Magnificent Mile, The Ritz-Carlton Sarasota, The Ritz-Carlton St.

Thomas and Mr.

C Beverly Hills Hotel.

The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $5.9 million comprising an increase of $2.5 million at our 14 comparable hotel properties and $3.3 million at the two acquired hotel properties;

(ii) marketing costs of $4.3 million comprising an increase of $2.3 million at our 14 comparable hotel properties and $2.0 million at the two acquired hotel properties;

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(iv) lease expense of $167,000 comprising an increase of $93,000 at our 14 comparable hotel properties and $74,000 at the two acquired 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.

(v) energy costs of $1.6 million comprised of an increase of $571,000 at our 14 comparable hotel properties and $1.0 million at our two acquired hotel properties;

and (vi) incentive management fees of $493,000 comprising an aggregate increase of $1.3 million at the two acquired hotel properties partially offset by an aggregate decrease of $769,000 at our 14 comparable hotel properties.

Management Fees .

Base management fees increased $2.6 million, or 61.6%, to $6.7 million in the 2023 quarter compared to the 2022 quarter.

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.

Management fees increased approximately $1.7 million at seven comparable hotel properties, $492,000 at The Ritz-Carlton Reserve Dorado Beach and $699,000 at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of $310,000 at the seven remaining comparable hotel properties.

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 $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.

Property taxes, insurance and other decreased $487,000, or 5.7%, to $8.1 million in the 2023 quarter compared to the 2022 quarter.

The decrease primarily resulted from an aggregate decrease of $2.4 million at five hotel properties, including a $2.3 million decrease at the Sofitel Chicago Magnificent Mile due to a lower property tax assessment.

The decrease is partially offset by increases of $419,000 at The Ritz-Carlton Reserve Dorado Beach and $257,000 at the Four Seasons Resort Scottsdale as a result of their acquisitions, as well as an aggregate increase of approximately $1.2 million at Capital Hilton, Hilton La Jolla Torrey Pines, The Clancy, Marriott Seattle Waterfront, Pier House Resort & Spa, Bardessono Hotel and Spa, Hotel Yountville, The Ritz-Carlton Sarasota and The Ritz-Carlton Lake Tahoe.

Depreciation and Amortization .

Depreciation and amortization increased $1.3 million, or 7.2%, to $19.6 million in the 2022 quarter compared to the 2021 quarter.

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 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 $1.3 million at eight comparable hotel properties primarily due to fully depreciated assets.

Depreciation and amortization increased $4.1 million, or 22.1%, to $22.5 million for the 2023 quarter compared to the 2022 quarter.

The increase comprised $1.3 million at The Ritz-Carlton Reserve Dorado Beach and $2.3 million at the Four Seasons Resort Scottsdale as a result of their acquisitions as well as an aggregate increase of $1.7 million at eight comparable hotel properties.

These increases were partially offset by an aggregate decrease of $1.2 million at the Marriott Seattle Waterfront, The Clancy, Marriott Seattle Waterfront, Bardessono Hotel and Spa, Hotel Yountville and Mr.

C Beverly Hills Hotel primarily due to fully depreciated assets.

Advisory Services Fee.

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.

Advisory services fee increased $626,000, or 8.5%, to $7.9 million in the 2023 quarter compared to the 2022 quarter due to increases in the base advisory fee of $701,000, reimbursable expenses of $926,000, partially offset by decreases in equity-based compensation of $24,000 and incentive fee of $977,000.

In the 2023 quarter, we recorded an advisory services fee of $7.9 million, which included a base advisory fee of $3.6 million, reimbursable expenses of $2.0 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.

In the 2022 quarter, we recorded an advisory services fee of $7.3 million, which included a base advisory fee of $2.9 million, reimbursable expenses of $1.1 million, $2.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

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.

In the 2021 quarter, we recognized transactions costs of $275,000 associated with the acquisition of the Mr.

C Beverly Hills Hotel.

There were no transaction costs in the 2022 quarter.

Corporate General and Administrative .

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 $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 .

In the 2022 quarter and 2021 quarter, we recorded equity in loss of unconsolidated entity of $74,000 and $68,000, respectively, related to our investment in OpenKey.

Interest Income .

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 .

Interest expense and amortization of loan costs increased $6.1 million, or 73.2%, to $14.5 million in the 2022 quarter compared to the 2021 quarter.

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 in the 2022 quarter and the 2021 quarter were 2.47% and 0.09%, respectively.

Write-off of Loan Costs and Exit Fees.

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 $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 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 $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 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

Rooms $ 322,222 $ 195,720 $ 126,502 64.6 %

Food and beverage 116,600 60,976 55,624 91.2

Other 59,141 40,439 18,702 46.2

Total hotel revenue 497,963 297,135 200,828 67.6

Hotel operating expenses:

Rooms 69,742 41,569 (28,173) (67.8)

Food and beverage 91,242 50,526 (40,716) (80.6)

Other expenses 149,130 98,143 (50,987) (52.0)

Management fees 14,802 9,079 (5,723) (63.0)

Total hotel operating expenses 324,916 199,317 (125,599) (63.0)

Property taxes, insurance and other 22,731 27,076 4,345 16.0

Depreciation and amortization 57,616 54,881 (2,735) (5.0)

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

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

Transaction costs — 571 571 100.0

Corporate general and administrative 14,008 6,077 (7,931) (130.5)

Total expenses 441,638 303,276 (138,362) (45.6)

Gain (loss) on insurance settlement and disposition of assets — 696 (696) (100.0)

Operating income (loss) 56,325 (5,445) 61,770 1,134.4

Equity in earnings (loss) of unconsolidated entity (220) (198) (22) (11.1)

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)

Write-off of loan costs and exit fees (106) (1,960) 1,854 94.6

Unrealized gain (loss) on derivatives 4,019 64 3,955 6,179.7

Income (loss) before income taxes 27,684 (29,851) 57,535 192.7

Income tax (expense) benefit (3,783) (766) (3,017) (393.9)

Net income (loss) 23,901 (30,617) 54,518 178.1

(Income) loss attributable to noncontrolling interest in consolidated entities (2,265) 2,546 (4,811) (189.0)

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership (647) 3,184 (3,831) (120.3)

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

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.

The following acquisitions affect reporting comparability related to our condensed 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

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

Nine Months Ended September 30,

Occupancy 66.00 % 49.46 %

ADR (average daily rate) $ 451.01 $ 385.28

RevPAR (revenue per available room) $ 297.66 $ 190.58

Rooms revenue (in thousands) $ 322,222 $ 195,720

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 nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

Occupancy 65.79 % 49.42 %

ADR (average daily rate) $ 426.10 $ 385.63

RevPAR (revenue per available room) $ 280.33 $ 190.60

Rooms revenue (in thousands) $ 286,455 $ 194,187

Total hotel revenue (in thousands) $ 441,791 $ 294,863

Net Income (Loss) Attributable to the Company.

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 .

Rooms revenue increased $126.5 million, or 64.6%, to $322.2 million during the 2022 period compared to the 2021 period.

During the 2022 period, we experienced a 1,654 basis point increase in occupancy and a 17.1% increase in room rates compared to the 2021 period.

The increase in rooms revenue is due to the hotel properties recovering from the COVID-19 pandemic as well as an increase of $8.6 million associated with the acquisition of the Mr.

C Beverly Hills Hotel on August 5, 2021 and $25.6 million with the acquisition of The Ritz-Carlton Reserve Dorado Beach on March 11, 2022, respectively.

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

Hotel Property Favorable (Unfavorable)

Rooms Revenue Occupancy

(change in bps) ADR (change in %)

Capital Hilton $ 15,633 3,654 55.4 %

Marriott Seattle Waterfront (1)

5,434 758 29.2 %

The Notary Hotel 7,689 2,065 23.7 %

14,997 2,166 84.0 %

Sofitel Chicago Magnificent Mile 8,859 2,301 24.2 %

Pier House Resort & Spa 3,625 (543) 28.4 %

The Ritz-Carlton St.

Thomas 4,249 (252) 13.9 %

Park Hyatt Beaver Creek Resort & Spa 6,639 686 38.3 %

Hotel Yountville 1,798 (386) 28.5 %

The Ritz-Carlton Sarasota 6,605 63 17.1 %

Hilton La Jolla Torrey Pines 9,749 2,374 26.9 %

Bardessono Hotel and Spa 1,629 (185) 15.7 %

The Ritz-Carlton Lake Tahoe 5,362 142 28.4 %

Total $ 92,268 1,637 10.5 %

Non-comparable

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 .

Food and beverage revenue increased $55.6 million, or 91.2%, to $116.6 million during the 2022 period compared to the 2021 period.

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

We experienced an aggregate increase in food and beverage revenue of $43.0 million at 13 comparable hotel properties as well as increases of $3.1 million and $9.5 million at the Mr.

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

Other Hotel Revenue .

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, increased $18.7 million, or 46.2%, to $59.1 million during the 2022 period compared to the 2021 period.

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

Rooms Expense .

Rooms expense increased $28.2 million, or 67.8%, to $69.7 million in the 2022 period compared to the 2021 period.

The increase is attributable to an aggregate increase in rooms expense of $19.8 million at 13 comparable hotel properties due to the hotel properties recovering from the COVID-19 pandemic and increases of $2.4 million at the Mr.

C Beverly Hills Hotel and $5.9 million at The Ritz-Carlton Reserve Dorado Beach.

Food and Beverage Expense .

Food and beverage expense increased $40.7 million, or 80.6%, to $91.2 million during the 2022 period compared to the 2021 period.

The increase is attributable to an aggregate increase of $29.4 million at 13 comparable hotel properties and increases of $2.8 million at the Mr.

C Beverly Hills Hotel and $8.5 million at The Ritz-Carlton Reserve Dorado Beach.

Other Operating Expenses .

Other operating expenses increased $51.0 million, or 52.0%, to $149.1 million in the 2022 period compared to the 2021 period.

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 $5.8 million in direct expenses and $45.2 million in indirect expenses and incentive management fees in the 2022 period compared to the 2021 period.

Direct expenses were 4.2% of total hotel revenue in the 2022 period and 5.1% in the 2021 period.

The increase in direct expenses is associated with higher direct expenses at our comparable hotel properties as they are recovering from the COVID-19 pandemic, as well as an increase of $59,000 at the Mr.

C Beverly Hills Hotel and $3.5 million at The Ritz-Carlton Reserve Dorado Beach.

The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $17.9 million comprising an increase of $11.5 million at our 13 comparable hotel properties and $6.3 million at the two acquired hotel properties;

(ii) marketing costs of $12.3 million comprising an increase of $9.5 million at our 13 comparable hotel properties and $2.9 million at the two acquired hotel properties;

(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 $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;

and (vi) incentive management fees of $3.8 million comprising an increase of $3.4 million at our 13 comparable hotel properties and $396,000 at the two acquired hotel properties.

Management Fees .

Base management fees increased $5.7 million, or 63.0%, to $14.8 million in the 2022 period compared to the 2021 period.

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

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.

“Legal Proceedings.”

Property Taxes, Insurance and Other .

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 $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 .

Depreciation and amortization increased $2.7 million, or 5.0%, to $57.6 million for the 2022 period compared to the 2021 period.

The increase comprised $1.5 million at the Mr.

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.

These increases were partially offset by an aggregate decrease of $3.9 million at nine comparable hotel properties primarily due to fully depreciated assets.

Advisory Services Fee.

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.

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.

During the 2022 period, 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 the 2021 period, we recognized $571,000 of transaction costs associated with the acquisition of the Mr.

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

There were no transaction costs in the 2022 period.

and an incentive fee of $977,000.

Corporate General and Administrative .

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 $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 .

In the 2021 period, we recognized a gain of $481,000 associated with proceeds received from an insurance claim and 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 the 2022 period.

Corporate general and administrative expense was $2.8 million in the 2023 quarter compared to $2.5 million in the 2022 quarter.

The increase in corporate general and administrative expenses is primarily due to higher reimbursed operating expenses of Ashford Securities of $667,000, partially offset by lower professional fees of $98,000, public company costs of $213,000 and miscellaneous expenses of $31,000.

Equity in Earnings (Loss) of Unconsolidated Entity .

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.

In the 2023 quarter and the 2022 quarter, we recorded equity in loss of unconsolidated entity of $73,000 and $72,000, respectively, related to our investment in OpenKey.

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 income was $2.1 million and $25,000 in the 2023 quarter and the 2022 quarter, respectively.

The increase in interest income in the 2023 quarter was primarily attributable to higher short-term interest rates on excess cash and the Company’s cash management agreement with Ashford LLC.

Interest Expense and Amortization of Discounts and Loan Costs .

Interest expense and amortization of discounts and loan costs increased $10.9 million, or 49.0%, to $33.3 million for the 2022 period compared to the 2021 period.

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

The average LIBOR rates for the 2022 period and the 2021 period were 0.62% and 0.10%, respectively.

Interest expense and amortization of discounts and loan costs increased $14.4 million, or 168.4%, to $22.9 million for the 2023 quarter compared to the 2022 quarter.

The increase is primarily due to higher interest expense from a higher average LIBOR/SOFR rate and the mortgage loans associated with The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale.

The average LIBOR rates for the 2023 quarter and the 2022 quarter were 4.62% and 0.23%, respectively.

The average SOFR rates for the 2023 quarter and the 2022 quarter were 4.50% and 0.09%, respectively.

Write-off of Loan Costs and Exit Fees.

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 $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.

Write-off of loan costs and exit fees was $12,000 in the 2023 quarter related to The Ritz-Carlton Lake Tahoe mortgage loan SOFR conversion.

Write-off of loan costs and exit fees was $76,000 in the 2022 quarter resulting from the refinance of the Park Hyatt Beaver Creek Resort & Spa in February 2022.

Gain (loss) on Extinguishment of Debt.

Gain on extinguishment of debt was $2.3 million in the 2023 quarter due to the payoff of The Ritz-Carlton Reserve Dorado Beach mortgage loan.

The gain was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired.

There was no such gain or loss in the 2022 quarter.

Realized and Unrealized Gain (Loss) on Derivatives .

Realized and unrealized loss on derivatives of $334,000 for the 2023 quarter consisted of unrealized loss on interest rate caps of approximately $2.3 million, partially offset by unrealized gain on warrants of approximately $103,000, and a realized gain of $1.9 million associated with payments received from counterparties on interest rate caps.

Realized and unrealized gain on derivatives of $408,000 for the 2022 quarter consisted of an unrealized gain of approximately $843,000 on interest rate caps, partially offset by an unrealized loss of approximately $435,000 on warrants.

Income Tax (Expense) Benefit .

Income tax expense increased $3.0 million, from $766,000 in the 2021 period to $3.8 million in the 2022 period.

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

Income tax expense decreased $282,000, from $2.6 million in the 2022 quarter to $2.3 million in the 2023 quarter.

This decrease was primarily due to a decrease in the taxable income of certain of our TRS entities in the 2023 quarter compared to the 2022 quarter.

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

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 September 30, 2022 and 2021, 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 $309,000 and a loss of $26,000 in the 2023 quarter and the 2022 quarter, respectively.

At both March 31, 2023 and 2022, 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 $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.

Noncontrolling interests in operating partnership were allocated net income of $261,000 in the 2023 quarter and $967,000 in the 2022 quarter.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 7.47% and 7.84% as of March 31, 2023 and 2022, respectively.

LIQUIDITY AND CAPITAL RESOURCES

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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.

While management cannot provide any assurances, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for U.S.

While management cannot provide any assurances, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments and paydowns for extension tests), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for U.S.

federal income tax purposes.

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If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected.

Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties decline.

Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties declines.

When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is 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.

These cash trap provisions have been triggered on some of our mortgage loans, as discussed above.

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 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.

These cash trap provisions have been triggered on one mortgage loan, as discussed below.

Our loan that is in a cash trap may remain subject to the 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 March 31, 2023, our $435 million mortgage loan was in a cash trap and approximately $440,000 of our restricted cash was subject to this cash trap.

As of March 31, 2023, the Company held cash and cash equivalents of $281.5 million and restricted cash of $63.1 million, the vast majority of which is comprised of lender and manager-held reserves.

As of March 31, 2023, $19.1 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company’s managers and is available to fund hotel operating costs.

At March 31, 2023, our net debt to gross assets was 37.1%.

The Company's cash and cash equivalents are primarily comprised of corporate cash invested in short-term U.S.

Treasury securities with maturity dates of less than 90 days and corporate cash held at commercial banks in Insured Cash Sweep (“ICS”) accounts, which are fully insured by the FDIC.

The Company’s cash and cash equivalents also includes property-level operating cash deposited with commercial banks that have been designated as a Global Systemically Important Bank (“G-SIB”) by the Financial Stability Board (“FSB”) and a small amount deposited with other commercial banks.

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 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.

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 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.

During the three months ended March 31, 2023, we repurchased 3.9 million shares of our common stock for approximately $18.9 million.

As of March 31, 2023, the Company 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 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 21, 2023, the Company announced the closing of its offering of the Series E Preferred Stock and Series M Preferred Stock.

The Company 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.

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 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.

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 May 4, 2023, 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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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.

As of May 4, 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 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 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.

As of May 4, 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

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%.

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 condensed consolidated financial statements.

On January 18, 2023, the Company repaid its $54.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach, which resulted in a gain on extinguishment of debt of $2.3 million for the three months ended March 31, 2023.

The gain was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired.

On April 4, 2023, the Company amended the mortgage loan secured by The Ritz-Carlton Sarasota.

The Company paid Lismore approximately $99,000 for the successful execution of the Ritz-Carlton Sarasota loan modification and extension.

On April 18, 2023, the Company amended the mortgage loan secured by Hotel Yountville.

Sources and Uses of Cash

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 had approximately $281.5 million and $261.5 million of cash and cash equivalents at March 31, 2023 and December 31, 2022, 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 $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.

Net cash flows provided by operating activities were $42.3 million and $28.8 million for the three months ended March 31, 2023 and 2022, respectively.

Cash flows from operations were impacted by changes in hotel operations of our 14 comparable hotel properties, The Ritz-Carlton Reserve Dorado Beach, acquired on March 11, 2022, and the Four Seasons Resort Scottsdale, acquired on December 1, 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 and settling with hotel managers.

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

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.

For the three months ended March 31, 2023, net cash flows used in investing activities were $18.7 million.

These cash outflows were primarily attributable to $18.7 million of capital improvements made to various hotel properties and a $99,000 loan to OpenKey partially offset by cash inflows of $75,000 related to proceeds from property insurance.

Our capital improvements consisted of approximately $13.8 million of return on investment capital projects and approximately $4.9 million of renewal and replacement capital projects.

For the three months ended March 31, 2022, net cash flows used in investing activities were $97.7 million.

These cash outflows were primarily attributable to $10.8 million of capital improvements made to various hotel properties and approximately $87.0 million associated with the acquisition of The Ritz-Carlton Reserve Dorado Beach.

Our capital improvements consisted of $7.5 million of return on investment capital projects and $3.3 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.

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

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

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

Net Cash Flows Provided by Financing Activities.

For the three months ended March 31, 2023, net cash flows provided by financing activities were $5.3 million.

Cash inflows primarily consisted of $98.0 million from the issuance of preferred stock and $1.6 million of proceeds from in-the-money interest rate caps.

The cash inflows were partially offset by repayments of indebtedness of $54.3 million, $12.6 million of dividend and distribution payments, $19.0 million of payments to repurchase common stock, payments of $7.0 million for the redemption of operating partnership units, $755,000 to purchase interest rate caps and $307,000 for cash redemptions of Series E and Series M preferred stock.

For the three months ended March 31, 2022, net cash flows provided by financing activities were $31.9 million.

Cash inflows primarily consisted of debt borrowings of $70.5 million, $33.7 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 $68.3 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.

The cash inflows were partially offset by repayments of indebtedness of $67.8 million, $3.0 million of dividend and distribution payments and $1.7 million of payments for loan costs and fees.

Dividend Policy.

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.

On December 8, 2022, our board of directors approved the Company’s dividend policy for 2023.

The Company expects to pay a quarterly cash dividend of $0.05 per share for the Company’s common stock for 2023, or $0.20 per share on an annualized basis.

On January 11, 2023, our board of directors declared a quarterly cash dividend of $0.05 per diluted share for the first quarter of 2023.

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.

The board of directors will continue to review our dividend policy and make announcements with respect thereto.

The board will continue to review our dividend policy on a quarter-to-quarter basis and make announcements with respect thereto.

For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination 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 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 pandemics, 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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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, 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.

In addition, we exclude impairment on real estate, (gain) loss on 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, advisory and settlement costs, advisory services incentive fee, gain/loss on extinguishment of debt, 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.

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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.

EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.

EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with

GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income (loss) $ 16,604 $ 15,604

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Company’s portion of EBITDA of OpenKey (77) (71)

EBITDA 25,806 18,989 118,593 47,378

(Gain) loss on insurance settlement and disposition of assets — — — (696)

EBITDAre 25,806 18,989 118,593 46,682

EBITDA and EBITDAre 64,323 45,179

Amortization of favorable (unfavorable) contract assets (liabilities) 119 108

Transaction and conversion costs 1,195 555

Other (income) expense (27) — (27) —

Write-off of loan costs and exit fees 12 76

Unrealized (gain) loss on derivatives (2,403) (142) (4,019) (64)

Realized and unrealized (gain) loss on derivatives 334 (408)

Stock/unit-based compensation 2,328 2,365

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Advisory services incentive fee — 977

(Gain) loss on extinguishment of debt (2,318) —

Company’s portion of adjustments to EBITDAre of OpenKey — 6

Adjusted EBITDAre $ 66,062 $ 49,175

FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on insurance settlement and disposition of assets, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities.

FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on disposition of assets, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities.

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 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.

Our calculation of Adjusted FFO excludes transaction and conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, stock/unit-based compensation, gain/loss on extinguishment of debt 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.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Net income (loss) $ 16,604 $ 15,604

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Preferred dividends (10,350) (3,303)

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

Deemed dividends on preferred stock

Net income (loss) attributable to common stockholders 3,230 11,360

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Equity in (earnings) loss of unconsolidated entity 73 72

(Gain) loss on insurance settlement and disposition of assets — — — (696)

Company’s portion of FFO of OpenKey (78) (72)

FFO available to common stockholders and OP unitholders 25,271 30,122

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

Deemed dividends on preferred stock

Transaction and conversion costs 1,195 555

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

Write-off of loan costs and exit fees 12 76

Amortization of loan costs (1)

598 407 1,793 1,684

Unrealized (gain) loss on derivatives 2,201 (408)

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Legal, advisory and settlement costs 69 317

Interest expense accretion on refundable membership club benefits 178 190

Amortization of loan costs (1)

Advisory services incentive fee — 977

(Gain) loss on extinguishment of debt (2,318) —

Company’s portion of adjustments to FFO of OpenKey — 6

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Depreciation and amortization on real estate $ (736) $ (646)

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Dorado, Puerto Rico 96 100 % 96

Four Seasons Resort Scottsdale Scottsdale, AZ 210 100 % 210

Ground Lease Properties (4)

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Total 4,192 3,957

(1) The above information does not include the operations of condominium units not owned by The Ritz-Carlton Lake Tahoe.

(1) The above information does not include the operations of the voluntary rental program with respect to condominium units not owned by the Company.

(2) Includes 138 hotel rooms and five residences adjacent to the hotel.

(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 September 30, 2022.

(3) The above information does not include the operations of the voluntary rental program with respect to residential units not owned by the Company.

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

(5) The ground lease expires in 2067.

The ground lease contains one extension option of either 10 or 20 years dependent upon capital investment spend during the lease term.

The ground lease contains one extension option of either 10 or 20 years dependent upon capital investment during the lease term.

(6) The initial ground lease expires in 2065.

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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