Braemar Hotels & Resorts Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (unaudited) BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 ASSETS Investments in hotel properties, gross $ 2,335,545 $ 2,325,093 Accumulated depreciation ( 455,279 ) ( 440,492 ) Investments in hotel properties, net 1,880,266 1,884,601 Cash and cash equivalents 281,490 261,541 Restricted cash 63,063 54,155 Accounts receivable, net of allowance of $ 285 and $ 339 , respectively 44,998 51,448 Inventories 5,243 5,238 Prepaid expenses 8,826 7,044 Investment in unconsolidated entity 1,715 1,689 Derivative assets 4,933 6,482 Operating lease right-of-use assets 79,189 79,449 Other assets 16,292 14,621 Intangible assets, net 3,788 3,883 Due from related parties, net 586 938 Due from third-party hotel managers 19,133 26,625 Total assets $ 2,409,522 $ 2,397,714 LIABILITIES AND EQUITY Liabilities: Indebtedness, net $ 1,277,642 $ 1,334,130 Accounts payable and accrued expenses 129,567 133,978 Dividends and distributions payable 8,756 8,184 Due to Ashford Inc. 3,759 10,005 Due to third-party hotel managers 1,463 2,096 Operating lease liabilities 60,620 60,692 Other liabilities 22,537 22,343 Derivative liabilities 181 284 Total liabilities 1,504,525 1,571,712 Commitments and contingencies (note 15) 5.50 % Series B cumulative convertible preferred stock, $ 0.01 par value, 3,078,017 shares issued and outstanding at March 31, 2023 and December 31, 2022 65,426 65,426 Series E redeemable preferred stock, $ 0.01 par value, 16,474,156 and 12,656,529 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 378,906 291,076 Series M redeemable preferred stock, $ 0.01 par value, 1,960,267 and 1,428,332 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 48,294 35,182 Redeemable noncontrolling interests in operating partnership 34,820 40,555 Equity: Preferred stock, $ 0.01 par value, 80,000,000 shares authorized: 8.25 % Series D cumulative preferred stock, 1,600,000 shares issued and outstanding at March 31, 2023 and December 31, 2022 16 16 Common stock, $ 0.01 par value, 250,000,000 shares authorized, 65,949,691 and 69,919,065 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively 659 699 Additional paid-in capital 715,729 734,134 Accumulated deficit ( 324,840 ) ( 324,740 ) Total stockholders’ equity of the Company 391,564 410,109 Noncontrolling interest in consolidated entities ( 14,013 ) ( 16,346 ) Total equity 377,551 393,763 Total liabilities and equity $ 2,409,522 $ 2,397,714 See Notes to Condensed Consolidated Financial Statements. 2 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts) Three Months Ended March 31, 2023 2022 REVENUE Rooms $ 137,527 $ 105,192 Food and beverage 52,228 36,707 Other 25,546 19,981 Total hotel revenue 215,301 161,880 EXPENSES Hotel operating expenses: Rooms 27,358 20,184 Food and beverage 39,739 28,028 Other expenses 62,295 46,207 Management fees 6,705 4,148 Total hotel operating expenses 136,097 98,567 Property taxes, insurance and other 8,116 8,603 Depreciation and amortization 22,521 18,441 Advisory services fee 7,948 7,322 Corporate general and administrative 2,820 2,495 Total operating expenses 177,502 135,428 OPERATING INCOME (LOSS) 37,799 26,452 Equity in earnings (loss) of unconsolidated entity ( 73 ) ( 72 ) Interest income 2,108 25 Interest expense and amortization of discounts and loan costs ( 22,873 ) ( 8,522 ) Write-off of loan costs and exit fees ( 12 ) ( 76 ) Gain (loss) on extinguishment of debt 2,318 — Realized and unrealized gain (loss) on derivatives ( 334 ) 408 INCOME (LOSS) BEFORE INCOME TAXES 18,933 18,215 Income tax (expense) benefit ( 2,329 ) ( 2,611 ) NET INCOME (LOSS) 16,604 15,604 (Income) loss attributable to noncontrolling interest in consolidated entities ( 309 ) 26 Net (income) loss attributable to redeemable noncontrolling interests in operating partnership ( 261 ) ( 967 ) NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY 16,034 14,663 Preferred dividends ( 10,350 ) ( 3,303 ) Deemed dividends on preferred stock ( 2,454 ) — NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 3,230 $ 11,360 INCOME (LOSS) PER SHARE - BASIC: Net income (loss) attributable to common stockholders $ 0.05 $ 0.17 Weighted average common shares outstanding – basic 66,498 65,878 INCOME (LOSS) PER SHARE - DILUTED: Net income (loss) attributable to common stockholders $ 0.05 $ 0.15 Weighted average common shares outstanding – diluted 72,478 89,895 See Notes to Condensed Consolidated Financial Statements. 3 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) Three Months Ended March 31, 2023 2022 NET INCOME (LOSS) $ 16,604 $ 15,604 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Total other comprehensive income (loss) — — TOTAL COMPREHENSIVE INCOME (LOSS) 16,604 15,604 Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities ( 309 ) 26 Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership ( 261 ) ( 967 ) COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY $ 16,034 $ 14,663 See Notes to Condensed Consolidated Financial Statements. 4 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (unaudited, in thousands except per share amounts) 8.25 % Series D Cumulative Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Noncontrolling Interest in Consolidated Entities Total 5.50 % Series B Cumulative Convertible Preferred Stock Series E Redeemable Preferred Stock Series M Redeemable Preferred Stock Redeemable Noncontrolling Interests in Operating Partnership Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2022 1,600 $ 16 69,919 $ 699 $ 734,134 $ ( 324,740 ) $ ( 16,346 ) $ 393,763 3,078 $ 65,426 12,657 $ 291,076 1,428 $ 35,182 $ 40,555 Purchase of common stock — — ( 3,968 ) ( 40 ) ( 19,210 ) — — ( 19,250 ) — — — — — — — Equity-based compensation — — — — 805 — — 805 — — — — — — 1,408 Issuance of preferred stock — — — — — — — — — — 3,828 85,916 533 12,879 — Forfeiture of restricted common shares — — ( 1 ) — — — — — — — — — — — — Dividends declared – common stock ($ 0.05 /share) — — — — — ( 3,334 ) — ( 3,334 ) — — — — — — — Dividends declared – preferred stock - Series B ($ 0.34 /share) — — — — — ( 1,058 ) — ( 1,058 ) — — — — — — — Dividends declared – preferred stock - Series D ($ 0.52 /share) — — — — — ( 825 ) — ( 825 ) — — — — — — — Dividends declared – preferred stock - Series E ($ 0.48 /share) — — — — — ( 7,534 ) — ( 7,534 ) — — — — — — — Dividends declared – preferred stock - Series M ($ 0.52 /share) — — — — — ( 933 ) — ( 933 ) — — — — — — — Contributions from noncontrolling interests — — — — — — 2,024 2,024 — — — — — — — Distributions to noncontrolling interests — — — — — — — — — — — — — — ( 361 ) Redemption/conversion of operating partnership units — — — — — — — — — — — — — — ( 7,039 ) Net income (loss) — — — — — 16,034 309 16,343 — — — — — — 261 Redemptions of preferred stock — — — — — — — — — — ( 11 ) ( 282 ) ( 1 ) ( 25 ) — Redemption value adjustment - preferred stock — — — — — ( 2,454 ) — ( 2,454 ) — — — 2,196 — 258 — Redemption value adjustment — — — — — 4 — 4 — — — — — — ( 4 ) Balance at March 31, 2023 1,600 $ 16 65,950 $ 659 $ 715,729 $ ( 324,840 ) $ ( 14,013 ) $ 377,551 3,078 $ 65,426 16,474 $ 378,906 1,960 $ 48,294 $ 34,820 8.25 % Series D Cumulative Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Noncontrolling Interest in Consolidated Entities Total 5.50 % Series B Cumulative Convertible Preferred Stock Series E Redeemable Preferred Stock Series M Redeemable Preferred Stock Redeemable Noncontrolling Interests in Operating Partnership Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2021 1,600 $ 16 65,365 $ 653 $ 707,418 $ ( 309,240 ) $ ( 16,549 ) $ 382,298 3,078 $ 65,426 1,710 $ 39,339 29 $ 715 $ 36,087 Impact of adoption of new accounting standard — — — — ( 6,257 ) 656 — ( 5,601 ) — — — — — — — Purchase of common stock — — ( 93 ) ( 1 ) ( 551 ) — — ( 552 ) — — — — — — — Equity-based compensation — — — — 1,320 — — 1,320 — — — — — — 934 Issuance of common stock — — 6,000 60 34,981 — — 35,041 — — — — — — — Issuance of preferred stock — — — — — — — — — — 1,481 33,093 33 802 — Forfeiture of restricted common shares — — ( 2 ) — — — — — — — — — — — — Dividends declared - common stock - ($ 0.01 /share) — — — — ( 720 ) — ( 720 ) — — — — — — — Dividends declared – preferred stock - Series B ($ 0.34 /share) — — — — — ( 1,058 ) — ( 1,058 ) — — — — — — — Dividends declared – preferred stock-Series D ($ 0.52 /share) — — — — — ( 825 ) — ( 825 ) — — — — — — — Dividends declared – preferred stock - Series E ($ 0.50 /share) — — — — — ( 1,399 ) — ( 1,399 ) — — — — — — — Dividends declared – preferred stock - Series M ($$ 0.51 /share) — — — — — ( 21 ) — ( 21 ) — — — — — — — Distributions to noncontrolling interests — — — — — — — — — — — — — — ( 83 ) Contributions from noncontrolling interests — — — — — — 164 164 — — — — — — — Net income (loss) — — — — — 14,663 ( 26 ) 14,637 — — — — — — 967 Redemption value adjustment - preferred stock — — — — — ( 993 ) — ( 993 ) — — — 972 — 21 — Redemption value adjustment — — — — — ( 4,386 ) — ( 4,386 ) — — — — — — 4,386 Balance at March 31, 2022 1,600 $ 16 71,270 $ 712 $ 736,911 $ ( 303,323 ) $ ( 16,411 ) $ 417,905 3,078 $ 65,426 3,191 $ 73,404 62 $ 1,538 $ 42,291 See Notes to Condensed Consolidated Financial Statements. 5 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 16,604 $ 15,604 Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities: Depreciation and amortization 22,521 18,441 Equity-based compensation 2,213 2,254 Bad debt expense 188 269 (Gain) loss on extinguishment of debt ( 2,318 ) — Amortization of loan costs, discounts and capitalized default interest 447 109 Write-off of loan costs and exit fees 12 76 Amortization of intangibles 119 119 Amortization of non-refundable membership initiation fees ( 410 ) ( 333 ) Interest expense accretion on refundable membership club deposits 178 190 Realized and unrealized (gain) loss on derivatives 334 ( 408 ) Equity in (earnings) loss of unconsolidated entity 73 72 Deferred income tax expense (benefit) 37 — Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions: Accounts receivable and inventories 6,473 ( 1,068 ) Prepaid expenses and other assets ( 3,453 ) ( 4,662 ) Accounts payable and accrued expenses ( 731 ) 7,046 Operating lease right-of-use assets 141 147 Due to/from related parties, net ( 13 ) 840 Due to/from third-party hotel managers 6,859 ( 12,230 ) Due to/from Ashford Inc. ( 7,314 ) 1,703 Operating lease liabilities ( 72 ) ( 73 ) Other liabilities 426 698 Net cash provided by (used in) operating activities 42,314 28,794 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from property insurance 75 — Acquisition of hotel properties, net of cash and restricted cash acquired — ( 86,958 ) Investment in unconsolidated entity ( 99 ) — Improvements and additions to hotel properties ( 18,706 ) ( 10,791 ) Net cash provided by (used in) investing activities ( 18,730 ) ( 97,749 ) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on indebtedness — 70,500 Repayments of indebtedness ( 54,250 ) ( 67,750 ) Payments of loan costs and exit fees ( 404 ) ( 1,667 ) Payments for derivatives ( 755 ) ( 76 ) Proceeds from derivatives 1,601 — Purchase of common stock ( 18,952 ) — Payments for dividends and distributions ( 12,630 ) ( 2,951 ) Proceeds from issuance of preferred stock 98,009 33,735 Proceeds from issuance of common stock — ( 36 ) Contributions from noncontrolling interest in consolidated entities 2,024 164 Redemption of operating partnership units ( 7,039 ) — Distributions to noncontrolling interest in consolidated entities ( 2,024 ) — Redemption of preferred stock ( 307 ) — Net cash provided by (used in) financing activities 5,273 31,919 Net change in cash, cash equivalents and restricted cash 28,857 ( 37,036 ) Cash, cash equivalents and restricted cash at beginning of period 315,696 263,374 Cash, cash equivalents and restricted cash at end of period $ 344,553 $ 226,338 6 Three Months Ended March 31, 2023 2022 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 30,283 $ 6,434 Income taxes paid (refunded) — ( 2,989 ) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Dividends and distributions declared but not paid $ 8,756 $ 3,229 Common stock purchases accrued but not paid 352 552 Assumption of debt in hotel acquisition — 58,601 Capital expenditures accrued but not paid 6,047 4,054 Issuance of common stock for hotel acquisition — 35,040 Accrued common stock offering expense — 39 Accrued preferred stock offering expenses 80 40 Non-cash preferred stock dividends 843 99 Unsettled proceeds from derivatives 596 — SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents at beginning of period $ 261,541 $ 215,998 Restricted cash at beginning of period 54,155 47,376 Cash, cash equivalents and restricted cash at beginning of period $ 315,696 $ 263,374 Cash and cash equivalents at end of period $ 281,490 $ 185,157 Restricted cash at end of period 63,063 41,181 Cash, cash equivalents and restricted cash at end of period $ 344,553 $ 226,338 See Notes to Condensed Consolidated Financial Statements. 7 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Description of Business Braemar Hotels & Resorts Inc., together with its subsidiaries (“Braemar”), is a Maryland corporation that invests primarily in high revenue per available room (“RevPAR”) luxury hotels and resorts. 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 STR, LLC. Braemar has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Braemar conducts its business and owns substantially all of its assets through its operating partnership, Braemar Hospitality Limited Partnership (“Braemar OP”). Terms such as the “Company,” “we,” “us” or “our” refer to Braemar Hotels & Resorts Inc. and, as the context may require, all entities included in its condensed consolidated financial statements. We are advised by Ashford Hospitality Advisors LLC (“Ashford LLC” or the “Advisor”) through an advisory agreement. Ashford LLC is a subsidiary of Ashford Inc. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC. We do not operate any of our hotel properties directly; instead we employ hotel management companies to operate them for us under management contracts. Remington Lodging & Hospitality, LLC (“Remington Hotels”), a subsidiary of Ashford Inc., manages four of our 16 hotel properties. Third-party management companies manage the remaining hotel properties. Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. 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 and brokerage services, insurance claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services and mobile key technology. The accompanying condensed consolidated financial statements include the accounts of wholly-owned and majority-owned subsidiaries of Braemar OP that as of March 31, 2023, own 16 hotel properties in seven states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands (“USVI”). The portfolio includes 14 wholly-owned hotel properties and two hotel properties that are owned through a partnership in which Braemar OP has a controlling interest. These hotel properties represent 4,192 total rooms, or 3,957 net rooms, excluding those attributable to our partner. As a REIT, Braemar is required to comply with limitations imposed by the Code related to operating hotels. As of March 31, 2023, 15 of our 16 hotel properties were leased by wholly-owned or majority-owned subsidiaries that are treated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes (collectively the TRS entities are referred to as “Braemar TRS”). One hotel property, located in the USVI, is owned by our USVI TRS. Braemar TRS then engages third-party or affiliated hotel management companies to operate the hotel properties under management contracts. Hotel operating results related to the hotel properties are included in the condensed consolidated statements of operations. As of March 31, 2023, 13 of the 16 hotel properties were leased by Braemar’s wholly-owned TRS, and the two hotel properties majority-owned through a consolidated partnership were leased to a TRS wholly-owned by such consolidated partnership. Each leased hotel is leased under a percentage lease that provides for each lessee to pay in each calendar month the base rent plus, in each calendar quarter, percentage rent, if any, based on hotel revenues. Lease revenue from Braemar TRS is eliminated in consolidation. The hotel properties are operated under management contracts with Marriott Hotel Services, Inc. (“Marriott”), Hilton Management LLC (“Hilton”), Accor Management US Inc. (“Accor”), Four Seasons Hotels Limited (“Four Seasons”), Hyatt Corporation (“Hyatt”), The Ritz-Carlton Hotel Company, L.L.C. and its affiliates, each of which is also an affiliate of Marriott (“Ritz-Carlton”) and Remington Hotels, which are eligible independent contractors under the Code. 2. Significant Accounting Policies Basis of Presentation and Principles of Consolidation —The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements include the accounts of Braemar Hotels & Resorts Inc., its majority-owned subsidiaries, and its majority-owned entities in which it has a controlling interest. All intercompany accounts and transactions between consolidated entities have been eliminated in these condensed consolidated financial statements. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with 8 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2023. Braemar OP is considered to be a variable interest entity (“VIE”), as defined by authoritative accounting guidance. A VIE must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. All major decisions related to Braemar OP that most significantly impact its economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of our wholly-owned subsidiary, Braemar OP General Partner LLC, its general partner. As such, we consolidate Braemar OP. The following items affect reporting comparability of our historical condensed consolidated financial statements: • historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023; • on March 11, 2022, we acquired The Ritz-Carlton Reserve Dorado Beach hotel located in Dorado, Puerto Rico. The operating results of the hotel property have been included in the results of operations from its acquisition date; and • on December 1, 2022, we acquired the Four Seasons Resort Scottsdale at Troon North located in Scottsdale, Arizona. The operating results of the hotel property have been included in the results of operations from its acquisition date. Use of Estimates —The preparation of these condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Recently Adopted Accounting Standards —In 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 ASU 2021-01 , Reference Rate Reform (Topic 848), 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. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848 ) (“ASU 2022-06”), which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company applied the optional expedient in evaluating debt modifications converting from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”). The Company adopted the standards upon the respective effective dates. There was no material impact as a result of this adoption. 9 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 3. Revenue The following tables present our revenue disaggregated by geographical areas (dollars in thousands): Three Months Ended March 31, 2023 Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total California 6 $ 34,566 $ 11,310 $ 5,690 $ 51,566 Puerto Rico 1 15,430 4,875 3,137 23,442 Arizona 1 14,157 6,518 2,616 23,291 Colorado 1 14,341 6,361 2,983 23,685 Florida 2 21,649 10,499 6,671 38,819 Illinois 1 3,566 983 355 4,904 Pennsylvania 1 4,520 996 282 5,798 Washington 1 4,221 700 412 5,333 Washington, D.C. 1 8,777 5,488 433 14,698 USVI 1 16,300 4,498 2,967 23,765 Total 16 $ 137,527 $ 52,228 $ 25,546 $ 215,301 Three Months Ended March 31, 2022 Primary Geographical Market Number of Hotels Rooms Food and Beverage Other Hotel Total California 6 $ 30,971 $ 10,869 $ 4,943 $ 46,783 Puerto Rico 1 5,476 1,132 888 7,496 Colorado 1 12,177 6,133 3,131 21,441 Florida 2 25,083 9,522 7,043 41,648 Illinois 1 2,759 797 329 3,885 Pennsylvania 1 3,075 506 211 3,792 Washington 1 2,588 411 309 3,308 Washington, D.C. 1 3,881 2,330 420 6,631 USVI 1 19,182 5,007 2,707 26,896 Total 15 $ 105,192 $ 36,707 $ 19,981 $ 161,880 4. Investments in Hotel Properties, net Investments in hotel properties, net consisted of the following (in thousands): March 31, 2023 December 31, 2022 Land $ 630,842 $ 630,489 Buildings and improvements 1,515,711 1,511,949 Furniture, fixtures and equipment 153,456 147,019 Construction in progress 22,790 22,890 Residences 12,746 12,746 Total cost 2,335,545 2,325,093 Accumulated depreciation ( 455,279 ) ( 440,492 ) Investments in hotel properties, net $ 1,880,266 $ 1,884,601 Impairment Charges During the three months ended March 31, 2023 and 2022, no impairment charges were recorded. 5. Investment in Unconsolidated Entity OpenKey, Inc. (“OpenKey”), which is controlled and consolidated by Ashford Inc., is a hospitality-focused mobile key platform that provides a universal smart phone app and related hardware and software for keyless entry into hotel guest rooms. As of March 31, 2023, the Company has made equity investments in OpenKey totaling $ 2.9 million. All investments were 10 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) recommended by our Related Party Transactions Committee and unanimously approved by the independent members of our board of directors. Our investment is recorded as “investment in unconsolidated entity” in our condensed consolidated balance sheets and is accounted for under the equity method of accounting as we have significant influence over the entity under the applicable accounting guidance. We review our investment in OpenKey for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of the investment. Any impairment is recorded in equity in earnings (loss) of unconsolidated entity. No such impairment was recorded for the three months ended March 31, 2023 and 2022. The following table summarizes our carrying value and ownership interest in OpenKey: March 31, 2023 December 31, 2022 Carrying value of the investment in OpenKey (in thousands) $ 1,615 $ 1,689 Ownership interest in OpenKey 7.9 % 7.9 % The following table summarizes our equity in earnings (loss) in OpenKey (in thousands): Three Months Ended March 31, Line Item 2023 2022 Equity in earnings (loss) of unconsolidated entity $ ( 74 ) $ ( 72 ) On February 2, 2023, the Company entered into a loan funding agreement with Ashford Inc. and OpenKey. Per the agreement, Ashford Inc. and the Company will provide OpenKey with a maximum loan amount of $ 5.0 million to be allocated on a pro-rata basis based on current ownership interests and funded quarterly, over the course of 2023. The loan bears interest at an annual rate of 15 %. Additionally, repayment of the loan principal and all accrued interest is due upon certain events. On February 3, 2023, the Company funded approximately $ 99,000 . The following table summarizes our note receivable from OpenKey (in thousands): Line Item March 31, 2023 December 31, 2022 Investment in unconsolidated entity $ 100 $ — The following table summarizes the interest income associated with the loan to OpenKey (in thousands): Three Months Ended March 31, Line Item 2023 Equity in earnings (loss) of unconsolidated entity $ 1 11 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 6. Indebtedness, net Indebtedness, net consisted of the following (dollars in thousands): Indebtedness Collateral Current Maturity Final Maturity (11) Interest Rate March 31, 2023 December 31, 2022 Mortgage loan (3) The Ritz-Carlton Sarasota April 2023 April 2023 LIBOR (1) + 2.65 % $ 98,250 $ 98,500 Mortgage loan (4) Hotel Yountville May 2023 May 2023 LIBOR (1) + 2.55 % 51,000 51,000 Mortgage loan (5) The Notary Hotel June 2023 June 2025 LIBOR (1) + 2.16 % 435,000 435,000 The Clancy Sofitel Chicago Magnificent Mile Marriott Seattle Waterfront Mortgage loan Bardessono Hotel and Spa August 2023 August 2023 SOFR (2) + 2.65 % 40,000 40,000 Mortgage loan (6) The Ritz-Carlton St. Thomas August 2023 August 2024 LIBOR (1) + 3.95 % 42,500 42,500 Mortgage loan The Ritz-Carlton Lake Tahoe January 2024 January 2024 SOFR (2) + 2.20 % 54,000 54,000 Mortgage loan Capital Hilton February 2024 February 2024 LIBOR (1) + 1.70 % 195,000 195,000 Hilton La Jolla Torrey Pines Mortgage loan (7) Park Hyatt Beaver Creek Resort & Spa February 2024 February 2027 SOFR (2) + 2.86 % 70,500 70,500 Mortgage loan (8) The Ritz-Carlton Reserve Dorado Beach March 2024 March 2026 LIBOR (1) + 6.00 % — 54,000 Mortgage loan (9) Mr. C Beverly Hills Hotel August 2024 August 2024 LIBOR (1) + 3.60 % 30,000 30,000 Mortgage loan Pier House Resort & Spa September 2024 September 2024 SOFR (2) + 1.95 % 80,000 80,000 Mortgage loan (10) Four Seasons Resort Scottsdale December 2025 December 2027 SOFR (2) + 3.75 % 100,000 100,000 Convertible Senior Notes Equity June 2026 June 2026 4.50 % 86,250 86,250 1,282,500 1,336,750 Capitalized default interest and late charges, net 1,465 1,934 Deferred loan costs, net ( 4,266 ) ( 5,054 ) Premiums/(discounts), net ( 2,057 ) 500 Indebtedness, net $ 1,277,642 $ 1,334,130 __________________ (1) LIBOR rates were 4.86 % and 4.39 % at March 31, 2023 and December 31, 2022, respectively. (2) SOFR rates were 4.80 % and 4.36 % at March 31, 2023 and December 31, 2022, respectively. (3) On April 4, 2023, we amended this mortgage loan. 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. (4) On April 18, 2023, we amended this mortgage loan. 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. (5) This mortgage loan has five one-year extension options, subject to satisfaction of certain conditions, of which the third was exercised in June 2022. (6) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the second was exercised in August 2022. This mortgage loan has a LIBOR floor of 1.00 %. (7) This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions. (8) On January 18, 2023, we repaid this mortgage loan. (9) This mortgage loan has a LIBOR floor of 1.50 %. (10) This mortgage loan has a SOFR floor of 1.00 %. (11) The final maturity date assumes all available extension options will be exercised. During the second and third quarters of 2020, we reached forbearance and other agreements with our lenders relating to loans secured by the Pier House Resort & Spa, The Ritz-Carlton Sarasota, The Ritz-Carlton Lake Tahoe, Hotel Yountville, Bardessono Hotel and Spa, Sofitel Chicago Magnificent Mile, The Notary Hotel, The Clancy, Marriott Seattle Waterfront, Capital Hilton and Hilton La Jolla Torrey Pines. The Company determined that all of the forbearance and other agreements evaluated were considered troubled debt restructurings due to terms that allowed for deferred interest and the forgiveness of default interest and late charges. As a result of the troubled debt restructurings, all accrued default interest and late charges were capitalized into the applicable loan balances and are being amortized over the remaining term of the loans using the effective interest method. The amount of principal that was amortized was approximately $ 468,000 and $ 523,000 , respectively, for the three months ended March 31, 2023 and 2022. 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 12 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired. Convertible Senior Notes 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 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 Company recorded coupon interest expense of $ 970,000 and $ 970,000 for the three months ended March 31, 2023 and 2022, respectively. The Company recorded discount amortization of $ 144,000 and $ 132,000 related to the initial purchase discount for the three months ended March 31, 2023 and 2022, with the remaining discount balance to be amortized through June 2026. The Convertible Senior Notes are convertible at any time prior to the close of business on the business day immediately preceding the maturity date for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the election of the Company, based on an initial conversion rate of 157.7909 shares of the Company’s common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $ 6.34 per share of common stock), subject to adjustment of the conversion rate under certain circumstances. 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. If we violate covenants in any debt agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. The assets of certain of our subsidiaries are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of the consolidated group. As of March 31, 2023, we were in compliance with all covenants. 7. Derivative Instruments Interest Rate Derivatives —We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows, which include interest rate caps. All derivatives are recorded at fair value. Payments from counterparties on in-the-money interest rate caps are recognized as realized gains on our consolidated statements of operations. The following table summarizes the interest rate derivatives we entered into over the applicable periods: Three Months Ended March 31, Interest rate caps: (1) 2023 2022 Notional amount (in thousands) $ 54,000 $ 70,500 Strike rate low end of range 3.50 % 3.50 % Strike rate high end of range 3.50 % 3.50 % Effective date range January 2023 February 2022 Termination date range January 2024 February 2024 Total cost of interest rate caps (in thousands) $ 755 $ 76 _______________ (1) No instruments were designated as cash flow hedges. 13 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Interest rate derivatives consisted of the following: Interest rate caps: (1) March 31, 2023 December 31, 2022 Notional amount (in thousands) $ 960,500 $ 960,500 Strike rate low end of range 2.00 % 2.00 % Strike rate high end of range 4.50 % 4.50 % Termination date range April 2023 - January 2025 January 2023- January 2025 Aggregate principal balance on corresponding mortgage loans (in thousands) $ 958,750 $ 959,000 _______________ (1) No instruments were designated as cash flow hedges. Warrants —On August 5, 2021, as part of the consideration paid to acquire the Mr. C Beverly Hills Hotel and five adjacent luxury residences, the Company issued 500,000 warrants for the purchase of Braemar common stock with a $ 6.00 strike price on or after August 5, 2021 until August 5, 2024. The holder can choose to exercise the warrant by cash or by net issue exercise, in which event the Company shall issue to the holder a number of warrant shares which reflect the fair market value of the Company’s common stock. As of March 31, 2023, no warrants have been exercised. The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions: three -year contractual term; 97.93 % volatility; 0 % dividend rate; and a risk-free interest rate of 0.38 %. The estimated fair value of the warrants was approximately $ 1.5 million on the date of issuance. The warrants are re-valued at each reporting period with the change in fair value recorded through earnings. In applying the guidance in ASC 815, it was determined that the warrants should be classified as a liability as a result of certain settlement provisions. The warrants are included in derivative liabilities on the condensed consolidated balance sheets and changes in value are reported as a component of “realized and unrealized gain (loss) on derivatives” on the condensed consolidated statements of operations. This is a Level 2 valuation technique. 8. Fair Value Measurements Fair Value Hierarchy —Our financial instruments measured at fair value either on a recurring or a non-recurring basis are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the marketplace as discussed below: • Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. • Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. • Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. The fair value of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rose above the strike rates of the caps. Variable interest rates used in the calculation of projected receipts and payments on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR/SOFR forward curves) and volatilities (Level 2 inputs). We also incorporate credit valuation adjustments (Level 3 inputs) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. When a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties, which we consider significant ( 10 % or more) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at March 31, 2023, the LIBOR/SOFR interest rate forward curve (Level 2 inputs) assumed a downtrend from 4.858 % to 3.125 % for the remaining term 14 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands): Quoted Market Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total March 31, 2023 Assets Derivative assets: Interest rate derivatives - caps $ — $ 4,933 $ — $ 4,933 Total $ — $ 4,933 $ — $ 4,933 (1) Liabilities Derivative liabilities: Warrants $ — $ ( 181 ) $ — $ ( 181 ) (2) Net $ — $ 4,752 $ — $ 4,752 Quoted Market Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total December 31, 2022 Assets Derivative assets: Interest rate derivatives - caps $ — $ 6,482 $ — $ 6,482 $ — $ 6,482 $ — $ 6,482 (1) Liabilities Derivative liabilities: Warrants $ — $ ( 284 ) $ — $ ( 284 ) (2) Net $ — $ 6,198 $ — $ 6,198 __________________ (1) Reported as “derivative assets” in our condensed consolidated balance sheets. (2) Reported as “derivative liabilities” in our condensed consolidated balance sheets. 15 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Effect of Fair Value Measured Assets and Liabilities on Condensed Consolidated Statements of Operations The following table summarizes the effect of fair value measured assets and liabilities on our condensed consolidated statements of operations (in thousands): Gain (Loss) Recognized in Income Three Months Ended March 31, 2023 2022 Assets Derivative assets: Interest rate derivatives - caps $ ( 437 ) $ 843 Total $ ( 437 ) $ 843 Liabilities Derivative liabilities: Warrants $ 103 $ ( 435 ) Net $ ( 334 ) $ 408 Total combined Interest rate derivatives - caps $ ( 2,304 ) $ 843 Warrants 103 ( 435 ) Unrealized gain (loss) on derivatives $ ( 2,201 ) (1) $ 408 Realized gain (loss) on interest rate caps 1,867 (1) (2) — Net $ ( 334 ) $ 408 ________ (1) Reported in “realized and unrealized gain (loss) on derivatives” in our consolidated statements of operations. (2) Represents settled and unsettled payments from counterparties on interest rate caps. 9. Summary of Fair Value of Financial Instruments Determining the estimated fair values of certain financial instruments such as indebtedness requires considerable judgment to interpret market data. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments were as follows (in thousands): March 31, 2023 December 31, 2022 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Financial assets measured at fair value: Derivative assets $ 4,933 $ 4,933 $ 6,482 $ 6,482 Financial liabilities measured at fair value: Derivative liabilities $ 181 $ 181 $ 284 $ 284 Financial assets not measured at fair value: Cash and cash equivalents $ 281,490 $ 281,490 $ 261,541 $ 261,541 Restricted cash 63,063 63,063 54,155 54,155 Accounts receivable, net 44,998 44,998 51,448 51,448 Due from related parties, net 586 586 938 938 Due from third-party hotel managers 19,133 19,133 26,625 26,625 Financial liabilities not measured at fair value: Indebtedness $ 1,280,443 $ 1,160,589 to $ 1,282,757 $ 1,337,250 $ 1,229,671 to $ 1,359,110 Accounts payable and accrued expenses 129,567 129,567 133,978 133,978 Dividends and distributions payable 8,756 8,756 8,184 8,184 Due to Ashford Inc. 3,759 3,759 10,005 10,005 Due to third-party hotel managers 1,463 1,463 2,096 2,096 16 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Cash, cash equivalents and restricted cash . These financial assets have maturities of less than 90 days and most bear interest at market rates. The carrying value approximates fair value due to their short-term nature. This is considered a Level 1 valuation technique. Accounts receivable, net, due from related parties, net, accounts payable and accrued expenses, dividends and distributions payable, due to Ashford Inc. and due to/from third-party hotel managers . The carrying values of these financial instruments approximate their fair values due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique. Derivative assets and derivative liabilities . See notes 7 and 8 for a complete description of the methodology and assumptions utilized in determining fair values. Indebtedness, net. Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. Cash flows are determined using a forward interest rate yield curve. The current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied, and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral. We estimated the fair value of the total indebtedness to be approximately 90.6 % to 100.2 % of the carrying value of $ 1.3 billion at March 31, 2023, and approximately 92.0 % to 101.6 % of the carrying value of $ 1.3 billion at December 31, 2022. These fair value estimates are considered a Level 2 valuation technique. 10. Income (Loss) Per Share The following table reconciles the amounts used in calculating basic and diluted income (loss) per share (in thousands, except per share amounts): Three Months Ended March 31, 2023 2022 Net income (loss) attributable to common stockholders - basic and diluted: Net income (loss) attributable to the Company $ 16,034 $ 14,663 Less: dividends on preferred stock ( 10,350 ) ( 3,303 ) Less: deemed dividends on preferred stock ( 2,454 ) — Less: dividends on common stock ( 3,289 ) ( 707 ) Less: dividends on unvested performance stock units ( 36 ) ( 7 ) Less: dividends on unvested restricted shares ( 9 ) ( 6 ) Less: net (income) loss allocated to performance stock units — ( 112 ) Less: net (income) loss allocated to unvested restricted shares — ( 89 ) Undistributed net income (loss) allocated to common stockholders ( 104 ) 10,439 Add back: dividends on common stock 3,289 707 Distributed and undistributed net income (loss) - basic $ 3,185 $ 11,146 Interest expense on Convertible Senior Notes — 1,103 Income (loss) attributable to redeemable noncontrolling interest in operating partnership 261 — Dividends on preferred stock - Series E (inclusive of deemed dividends) — 1,399 Dividends on preferred stock - Series M (inclusive of deemed dividends) — 21 Distributed and undistributed net income (loss) - diluted $ 3,446 $ 13,669 Weighted average common shares outstanding: Weighted average common shares outstanding – basic 66,498 65,878 Effect of assumed exercise of warrants — 3 Effect of assumed conversion of operating partnership units 5,980 — Effect of assumed conversion of Convertible Senior Notes — 13,609 Effect of assumed conversion of preferred stock - Series E — 10,258 Effect of assumed conversion of preferred stock - Series M — 147 Weighted average common shares outstanding – diluted 72,478 89,895 Income (loss) per share - basic: Net income (loss) allocated to common stockholders per share $ 0.05 $ 0.17 Income (loss) per share - diluted: Net income (loss) allocated to common stockholders per share $ 0.05 $ 0.15 17 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Due to their anti-dilutive effect, the computation of diluted income (loss) per share does not reflect the adjustments for the following items (in thousands): Three Months Ended March 31, 2023 2022 Net income (loss) allocated to common stockholders is not adjusted for: Income (loss) allocated to unvested restricted shares $ 9 $ 95 Income (loss) allocated to unvested performance stock units 36 120 Income (loss) attributable to redeemable noncontrolling interests in operating partnership — 967 Dividends on preferred stock - Series B 1,058 1,058 Interest expense on Convertible Senior Notes 1,114 — Dividends on preferred stock - Series E (inclusive of deemed dividends) 9,730 — Dividends on preferred stock - Series M (inclusive of deemed dividends) 1,191 — Total $ 13,138 $ 2,240 Weighted average diluted shares are not adjusted for: Effect of unvested restricted shares — 17 Effect of unvested performance stock units 353 1 Effect of assumed conversion of operating partnership units — 5,856 Effect of assumed conversion of preferred stock - Series B 4,116 4,116 Effect of assumed conversion of Convertible Senior Notes 13,609 — Effect of assumed conversion of preferred stock - Series E 100,205 — Effect of assumed conversion of preferred stock - Series M 11,671 — Total 129,954 9,990 11. Redeemable Noncontrolling Interests in Operating Partnership Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity and their allocable share of equity in earnings/losses of Braemar OP, which is an allocation of net income/loss attributable to the common unitholders based on the weighted average ownership percentage of these limited partners’ common units of limited partnership interest in the operating partnership (the “common units”) and units issued under our Long-Term Incentive Plan (the “LTIP” units) that are vested. Each common unit may be redeemed, by the holder, for either cash or, at our sole discretion, up to one share of our REIT common stock, which is either: (i) issued pursuant to an effective registration statement; (ii) included in an effective registration statement providing for the resale of such common stock; or (iii) issued subject to a registration rights agreement. LTIP units, which are issued to certain executives and employees of Ashford LLC as compensation, generally have vesting periods of three years . Additionally, certain independent members of the board of directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common unit which can then be redeemed for cash or, at our election, settled in our common stock. An LTIP unit will achieve parity with the common units upon the sale or deemed sale of all or substantially all of the assets of our operating partnership at a time when our stock is trading at a level in excess of the price it was trading on the date of the LTIP issuance. More specifically, LTIP units will achieve full economic parity with common units in connection with (i) the actual sale of all or substantially all of the assets of our operating partnership; or (ii) the hypothetical sale of such assets, which results from a capital account revaluation, as defined in the partnership agreement, for our operating partnership. The compensation committee of the board of directors of the Company may authorize the issuance of Performance LTIP units to certain executive officers and directors from time to time. The award agreements provide for the grant of a target number of Performance LTIP units that will be settled in common units of Braemar OP, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period, which is generally three years from the grant date. As of March 31, 2023, there were approximately 2.4 million Performance LTIP units, representing 200 % of the target, outstanding. With respect to the 2021, 2022 and 2023 award agreements, the compensation committee shifted to a new performance metric, pursuant to which, the performance awards will be eligible to vest, from 0 % to 200 % of target, based on achievement of certain performance targets over the three -year performance period. The performance criteria for the 2021, 2022 and 2023 performance grants are based on performance conditions under the relevant literature. The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the applicable measurement date 18 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) fair value of the award. The grant date fair value of the award may vary from period to period, as the number of performance grants earned may vary since the estimated probable achievement of certain performance targets may vary from period to period. In March 2023, the Company granted approximately 353,000 Performance LTIP units, representing 200 % of the target, and a vesting period of approximately three years. As of March 31, 2023, the Company does not have sufficient shares of common stock available under its incentive stock plan to settle any future redemptions of the Performance LTIP units, upon reaching the conditions required for redemption. As a result, the 2023 awards are classified as liability awards on the condensed consolidated balance sheet and are included in “due to Ashford Inc., net” on the condensed consolidated balance sheets. The 2023 awards are subject to remeasurement each reporting period. The fair value of the awards as of March 31, 2023 was $ 3.86 per share. As of March 31, 2023, we have issued a total of approximately 3.8 million LTIP and Performance LTIP units, net of Performance LTIP cancellations. All LTIP and Performance LTIP units, other than approximately 569,000 LTIP units and 1.2 million Performance LTIP units issued from March 2015 to March 2023, had reached full economic parity with, and are convertible into, common units. The following table presents the redeemable noncontrolling interests in Braemar OP and the corresponding approximate ownership percentage of our operating partnership: March 31, 2023 December 31, 2022 Redeemable noncontrolling interests in Braemar OP (in thousands) $ 34,820 $ 40,555 Adjustments to redeemable noncontrolling interests (1) (in thousands) $ 66 $ 70 Ownership percentage of operating partnership 7.47 % 7.69 % ____________________________________ (1) Reflects the excess of the redemption value over the accumulated historical cost. We allocated net (income) loss to the redeemable noncontrolling interests as illustrated in the table below (in thousands): Three Months Ended March 31, 2023 2022 Net (income) loss attributable to redeemable noncontrolling interests in operating partnership $ ( 261 ) $ ( 967 ) Distributions declared to holders of common units, LTIP units and Performance LTIP units $ 361 $ 83 On February 24, 2023, at the option of Mr. Monty J. Bennett, 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. 12. Equity and Stock-Based Compensation Common Stock Dividends —The following table summarizes the common stock dividends declared during the period (in thousands): Three Months Ended March 31, 2023 2022 Common stock dividends declared $ 3,334 $ 720 19 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Restricted Stock —We incur stock-based compensation expense in connection with restricted stock awarded to certain employees of Ashford LLC and its affiliates. We also issue common stock to certain of our independent directors, which vests immediately upon issuance. Performance Stock Units —The compensation committee of the board of directors of the Company may authorize the issuance of grants of performance stock units (“PSUs”) to certain executive officers and directors from time to time. The award agreements provide for the grant of a target number of PSUs that will be settled in shares of common stock of the Company, if, when and to the extent the applicable vesting criteria have been achieved following the end of the performance and service period, which is generally three years from the grant date. With respect to the 2021, 2022 and 2023 award agreements, the compensation committee shifted to a new performance metric, pursuant to which, the performance awards will be eligible to vest, from 0 % to 200 % of target, based on achievement of certain performance targets over the three-year performance period. The performance criteria for the 2021, 2022 and 2023 performance grants are based on performance conditions under the relevant literature, and the 2021, 2022 and 2023 performance grants were issued to non-employees. The corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the corresponding measurement date fair value of the award, which may vary from period to period, as the number of performance grants earned may vary since the estimated probable achievement of certain performance targets may vary from period to period. In March 2023, 383,000 PSUs with a vesting period of approximately three years were granted. The 2023 awards may be settled in cash or shares of the Company’s common stock solely at the option of the Company. As of March 31, 2023, the Company does not have sufficient shares available under its incentive stock plan to settle the 2023 awards in shares of the Company’s common stock. As a result, the 2023 awards are classified as liability awards and are included in “due to Ashford Inc., net” on the condensed consolidated balance sheet. The 2023 awards are subject to remeasurement each reporting period. The fair value of the awards as of March 31, 2023 was $ 2.8 million. 8.25 % Series D Cumulative Preferred Stock —The dividend for all issued and outstanding shares of the Company’s Series D Cumulative Preferred Stock (the “Series D Preferred Stock”) is set at $ 2.0625 per annum per share. The following table summarizes dividends declared (in thousands): Three Months Ended March 31, 2023 2022 Series D Cumulative Preferred Stock $ 825 $ 825 Stock Repurchases —On December 7, 2022, our board of directors approved a new stock repurchase program pursuant to which the board 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 . 13. Redeemable Preferred Stock 5.50 % Series B Cumulative Convertible Preferred Stock Each share of our 5.50 % Series B Cumulative Convertible Preferred Stock (the “Series B Convertible Preferred Stock”) is convertible at any time, at the option of the holder, into a number of whole shares of common stock at a conversion price of $ 18.70 (which represents a conversion rate of 1.3372 shares of our common stock, subject to certain adjustments). The Series B Convertible Preferred Stock is also subject to conversion upon certain events constituting a change of control. Holders of the Series B Convertible Preferred Stock have no voting rights, subject to certain exceptions. The Series B Convertible Preferred Stock dividend for all issued and outstanding shares is set at $ 1.375 per annum per share. The Company may, at its option, cause the Series B Convertible Preferred Stock to be converted in whole or in part, on a pro-rata basis, into fully paid and nonassessable shares of the Company’s common stock at the conversion price, provided that the “Closing Bid Price” (as defined in the Articles Supplementary) of the Company’s common stock shall have equaled or exceeded 110 % of the conversion price for the immediately preceding 45 consecutive trading days ending three days prior to the date of notice of conversion. 20 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) Additionally, the Series B Convertible Preferred Stock contains cash redemption features that consist of: 1) an optional redemption in which on or after June 11, 2020, the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $ 25.00 per share, plus any accumulated, accrued and unpaid dividends; 2) a special optional redemption, in which on or prior to the occurrence of a Change of Control (as defined in the Articles Supplementary), the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $ 25.00 per share; and 3) a “REIT Termination Event” and “Listing Event Redemption,” in which at any time (i) a REIT Termination Event (as defined below) occurs or (ii) the Company’s common stock fails to be listed on the NYSE, NYSE American, or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor thereto (each a “National Exchange”), the holder of Series B Convertible Preferred Stock shall have the right to require the Company to redeem any or all shares of Series B Convertible Preferred Stock at 103 % of the liquidation preference ($ 25.00 per share, plus any accumulated, accrued, and unpaid dividends) in cash. A “REIT Termination Event,” shall mean the earliest of: (i) filing of a federal income tax return where the Company does not compute its income as a REIT; (ii) stockholders’ approval on ceasing to be qualified as a REIT; (iii) board of directors’ approval on ceasing to be qualified as a REIT; (iv) board’s determination based on the advice of counsel to cease to be qualified as a REIT; or (v) determination within the meaning of Section 1313(a) of the Code to cease to be qualified as a REIT. Series B Convertible Preferred Stock does not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside our control. As such, the Series B Convertible Preferred Stock is classified outside of permanent equity. The following table summarizes dividends declared (in thousands): Three Months Ended March 31, 2023 2022 Series B Convertible Preferred Stock $ 1,058 $ 1,058 Series E Redeemable Preferred Stock On April 2, 2021, the Company entered into equity distribution agreements with certain sales agents to sell, from time to time, shares of the Series E Redeemable Preferred Stock (the “Series E Preferred Stock”). Pursuant to such equity distribution agreements, the Company is offering a maximum of 20,000,000 shares of Series E Preferred Stock in a primary offering at a price of $ 25.00 per share. The Company is also offering a maximum of 8,000,000 shares of the Series E Preferred Stock pursuant to a dividend reinvestment plan (the “DRIP”) at $ 25.00 per share (the “Stated Value”). The Series E Preferred Stock ranks senior to all classes or series of the Company’s common stock and future junior securities, on a parity with each series of the Company’s outstanding preferred stock (the Series B Convertible Preferred stock, the Series D Preferred Stock and the Series M Preferred Stock (as defined below)) and with any future parity securities and junior to future senior securities and to all of the Company’s existing and future indebtedness, with respect to the payment of dividends and the distribution of amounts upon liquidation, dissolution or winding up of the Company’s affairs. Holders of the Series E Preferred Stock shall have the right to vote for the election of directors of the Company and on all other matters requiring stockholder action by the holders of the common stock, each share being entitled to vote to the same extent as one share of the Company’s common stock, and all such shares voting together as a single class. If and whenever dividends on any shares of the Series E Preferred Stock shall be in arrears for 18 or more monthly periods, whether or not such quarterly periods are consecutive, the number of directors then constituting the board shall be increased by two and the holders of such shares of Series E Preferred Stock (voting together as a single class with all other classes or series of capital stock ranking on a parity with the Series E Preferred Stock) shall be entitled to vote for the election of the additional directors of the Company who shall each be elected for one-year terms. Each share is redeemable at any time, at the option of the holder, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends, less a redemption fee. Starting on the second anniversary, each share is redeemable at any time, at the option of the Company, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends (with no redemption fee). The Series E Preferred Stock is also subject to conversion upon certain 21 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) events constituting a change of control. Upon such change of control events, holders have the option to convert their shares of Series E Preferred Stock into a maximum of 5.69476 shares of our common stock. The redemption fee shall be an amount equal to: • 8.0 % of the stated value of $ 25.00 per share (the “Stated Value”) beginning on the Original Issue Date (as defined in the Articles Supplementary) of the shares of the Series E Preferred Stock to be redeemed; • 5.0 % of the Stated Value beginning on the second anniversary from the Original Issue Date of the shares of the Series E Preferred Stock to be redeemed; and • 0 % of the Stated Value beginning on the third anniversary from the Original Issue Date of the shares of the Series E Preferred Stock to be redeemed. The Company has the right, in its sole discretion, to redeem the shares in cash, or in an equal number of shares of common stock or any combination thereof, calculated based on the closing price per share for the single trading day prior to the date of redemption. The Series E Preferred Stock cash dividends are as follows: • 8.0 % per annum of the Stated Value beginning on the date of the first settlement of the Series E Preferred Stock (the “Date of Initial Closing”); • 7.75 % per annum of the Stated Value beginning on the first anniversary from the Date of Initial Closing; and • 7.5 % per annum of the Stated Value beginning on the second anniversary from the Date of Initial Closing. Dividends are payable on a monthly basis in arrears on the 15th day of each month (or, if such payment date is not a business day, the next succeeding business day) to holders of record at the close of business on the last business day of each month immediately preceding the applicable dividend payment date. Dividends will be computed on the basis of twelve 30-day months and a 360-day year. The Company has a DRIP that allows participating holders to have their Series E Preferred Stock dividend distributions automatically reinvested in additional shares of the Series E Preferred Stock at a price of $ 25.00 per share. The issuance activity of the Series E Preferred Stock is summarized below (in thousands): Three Months Ended March 31, 2023 2022 Series E Preferred Stock shares issued (1) 3,798 1,477 Net proceeds $ 85,444 $ 33,236 __________________ (1) Exclusive of shares issued under the DRIP. The Series E Preferred Stock does not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside of the Company’s control. As such, the Series E Preferred Stock is classified outside of permanent equity. At the date of issuance, the carrying amount of the Series E Preferred Stock was less than the redemption value. As a result of the Company’s determination that redemption is probable the carrying value will be adjusted to the redemption amount each reporting period. The redemption value adjustment of Series E Preferred Stock is summarized below (in thousands): March 31, 2023 December 31, 2022 Series E Preferred Stock $ 378,906 $ 291,076 Cumulative adjustments to Series E Preferred Stock (1) $ 11,599 $ 9,403 ________ (1) Reflects the excess of the redemption value over the accumulated carrying value. 22 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The following table summarizes dividends declared (in thousands): Three Months Ended March 31, 2023 2022 Series E Preferred Stock $ 7,534 $ 1,399 The redemption activities of Series E Preferred Stock is summarized below (in thousands): Three Months Ended March 31, 2023 2022 Series E Preferred Stock shares redeemed 11 — Redemption amount, net of redemption fees $ 282 $ — Series M Redeemable Preferred Stock On April 2, 2021, the Company entered into equity distribution agreements with certain sales agents to sell, from time to time, shares of the Series M Redeemable Preferred Stock (the “Series M Preferred Stock”). Pursuant to such equity distribution agreements, the Company is offering a maximum of 20,000,000 shares of the Series M Preferred Stock (par value $ 0.01 ) in a primary offering at a price of $ 25.00 per share (or “Stated Value”). The Company is also offering a maximum of 8,000,000 shares of Series M Preferred Stock pursuant to the DRIP at $ 25.00 per share. The Series M Preferred Stock ranks senior to all classes or series of the Company’s common stock and future junior securities, on a parity with each series of the Company’s outstanding preferred stock (the Series B Convertible Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock) and with any future parity securities and junior to future senior securities and to all of the Company’s existing and future indebtedness, with respect to the payment of dividends and the distribution of amounts upon liquidation, dissolution or winding up of the Company’s affairs. Holders of the Series M Preferred Stock shall have the right to vote for the election of directors of the Company and on all other matters requiring stockholder action by the holders of the common stock, each share being entitled to vote to the same extent as one share of the Company’s common stock, and all such shares voting together as a single class. If and whenever dividends on any shares of Series E Preferred Stock shall be in arrears for 18 or more monthly periods, whether or not such quarterly periods are consecutive, the number of directors then constituting the board shall be increased by two and the holders of such shares of Series M Preferred Stock (voting together as a single class with all other classes or series of capital stock ranking on a parity with the Series M Preferred Stock) shall be entitled to vote for the election of the additional directors of the Company who shall each be elected for one-year terms. Each share is redeemable at any time, at the option of the holder, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends, less a redemption fee. Starting on the second anniversary, each share is redeemable at any time, at the option of the Company, at a redemption price of $ 25.00 per share, plus any accumulated, accrued, and unpaid dividends (with no redemption fee). The Series M Preferred Stock is also subject to conversion upon certain events constituting a change of control. Upon such change of control events, holders have the option to convert their shares of Series M Preferred Stock into a maximum of 5.69476 shares of our common stock. The redemption fee shall be an amount equal to: • 1.5 % of the Stated Value of $ 25.00 per share beginning on the Series M Original Issue Date (as defined in the Articles Supplementary) of the shares of Series M Preferred Stock to be redeemed; and • 0 % of the Stated Value beginning on the first anniversary from the Series M Original Issue Date of the shares of Series M Preferred Stock to be redeemed. The Company has the right, in its sole discretion, to redeem the shares in cash, or in an equal number of shares of common stock or any combination thereof, calculated based on the closing price per share for the single trading day prior to the date of redemption. Holders of Series M Preferred Stock are entitled to receive cumulative cash dividends at the initial rate of 8.2 % per annum of the Stated Value of $ 25.00 per share (equivalent to an annual dividend rate of $ 2.05 per share). Beginning one year from the date of original issuance of each share of Series M Preferred Stock and on each one-year anniversary thereafter for such share 23 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) of Series M Preferred Stock, the dividend rate shall increase by 0.10 % per annum; provided, however, that the dividend rate for any share of Series M Preferred Stock shall not exceed 8.7 % per annum of the Stated Value. Dividends are payable on a monthly basis and in arrears on the 15th day of each month (or, if such payment date is not a business day, on the next succeeding business day) to holders of record at the close of business on the last business day of each month immediately preceding the applicable dividend payment date. Dividends will be computed on the basis of twelve 30-day months and a 360-day year. The Company has a DRIP that allows participating holders to have their Series M Preferred Stock dividend distributions automatically reinvested in additional shares of the Series M Preferred Stock at a price of $ 25.00 per share. The issuance activity of Series M Preferred Stock is summarized below (in thousands): Three Months Ended March 31, 2023 2022 Series M Preferred Stock shares issued (1) 531 33 Net proceeds $ 12,869 $ 810 __________________ (1) Exclusive of shares issued under the DRIP. The Series M Preferred Stock does not meet the requirements for permanent equity classification prescribed by the authoritative guidance because of certain cash redemption features that are outside the Company’s control. As such, the Series M Preferred Stock is classified outside of permanent equity. At the date of issuance, the carrying amount of the Series M Preferred Stock was less than the redemption value. As a result of the Company’s determination that redemption is probable the carrying value will be adjusted to the redemption amount each reporting period. The redemption value adjustment of Series M Preferred stock is summarized below (in thousands): March 31, 2023 December 31, 2022 Series M Preferred Stock $ 48,294 $ 35,182 Cumulative adjustments to Series M Preferred Stock (1) $ 1,070 $ 812 __________________ (1) Reflects the excess of the redemption value over the accumulated carrying value. The following table summarizes dividends declared (in thousands): Three Months Ended March 31, 2023 2022 Series M Preferred Stock $ 932 $ 21 The redemption activities of Series M Preferred Stock is summarized below (in thousands): Three Months Ended March 31, 2023 2022 Series M Preferred Stock shares redeemed 1 — Redemption amount, net of redemption fees $ 25 $ — 24 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 14. Related Party Transactions Ashford Inc. Advisory Agreement Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor. Our chairman, Mr. Monty Bennett, also serves as chairman of the board of directors and chief executive officer of Ashford Inc. Under our advisory agreement, we pay advisory fees to Ashford LLC. We pay a monthly base fee equal to 1/12 th of the sum of (i) 0.70 % of the total market capitalization of our company for the prior month, plus (ii) the Net Asset Fee Adjustment (as defined in our advisory agreement), if any, on the last day of the prior month during which our advisory agreement was in effect; provided, however in no event shall the base fee for any month be less than the minimum base fee as provided by our advisory agreement. The base fee is payable on the fifth business day of each month. The minimum base fee for Braemar for each month will be equal to the greater of: ▪ 90 % of the base fee paid for the same month in the prior year; and ▪ 1/12 th of the G&A Ratio (as defined) multiplied by the total market capitalization of Braemar. We are also required to pay Ashford LLC an incentive fee that is measured annually (or for a stub period if the advisory agreement is terminated at other than year-end). Each year that our annual total stockholder return exceeds the average annual total stockholder return for our peer group we pay Ashford LLC an incentive fee over the following three years , subject to the Fixed Charge Coverage Ratio (“FCCR”) Condition, as defined in the advisory agreement, which relates to the ratio of adjusted EBITDA to fixed charges. We also reimburse Ashford LLC for certain reimbursable overhead and internal audit, risk management advisory and asset management services, as specified in the advisory agreement. We also recorded equity-based compensation expense for equity grants of common stock, PSUs and LTIP units awarded to officers and employees of Ashford LLC in connection with providing advisory services. The following table summarizes the advisory services fees incurred (in thousands): Three Months Ended March 31, 2023 2022 Advisory services fee Base advisory fee $ 3,640 $ 2,939 Reimbursable expenses (1) 2,022 1,096 Equity-based compensation (2) 2,286 2,310 Incentive fee — 977 Total $ 7,948 $ 7,322 ________ (1) Reimbursable expenses include overhead, internal audit, risk management advisory, asset management services and deferred cash awards. (2) Equity-based compensation is associated with equity grants of Braemar’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC. Pursuant to the Company's hotel management agreements with each hotel management company, the Company bears the economic burden for casualty insurance coverage. Under the advisory agreement, Ashford Inc. secures casualty insurance policies to cover Braemar, Ashford Hospitality Trust, Inc. (“Ashford Trust”), their hotel managers, as needed, and Ashford Inc. The total loss estimates included in such policies are based on the collective pool of risk exposures from each party. Ashford Inc.'s risk management department manages the casualty insurance program. Each year Ashford Inc.'s risk management department collects funds from Braemar, Ashford Trust and their respective hotel management companies, to fund the casualty insurance program as needed, on an allocated basis. On September 27, 2022, an agreement was entered into by Ashford Inc., Ashford Trust and Braemar pursuant to which the Advisor is to implement the REITs' cash management strategies. This will include actively managing the REITs excess cash by primarily investing in short-term U.S. Treasury securities. The annual fee is 20 bps of the average daily balance of the funds managed by the Advisor and is payable monthly in arrears. As of March 31, 2023, “due to Ashford Inc.” includes a $ 365,000 security deposit paid to Remington Hotel Corporation (“RHC”) for office space allocated to us under our advisory agreement. It will be held as security for the payment of our 25 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) allocated share of the office space rental. If unused it will be returned to us upon lease expiration or earlier termination. As of December 31, 2022, RHC was indirectly owned by Mr. Monty J. Bennett and Mr. Archie Bennett, Jr. and the $ 365,000 was included in “due from related parties, net.” On January 3, 2023, Ashford Inc. acquired RHC. On March 10, 2022, the Company entered into a Limited Waiver Under Advisory Agreement (the “2022 Limited Waiver”) with Braemar OP, Braemar TRS and its advisor. The advisory agreement (i) allocates responsibility for certain employee costs between the Company and its advisor and (ii) permits the Company’s board of directors to issue annual equity awards in the Company or Braemar OP to employees and other representatives of its advisor based on achievement by the Company of certain financial or other objectives or otherwise as the Company’s board of directors sees fit. Pursuant to the 2022 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 have limited our ability, in our discretion and at our cost and expense, to award during the first and second fiscal quarters of calendar year 2022 cash incentive compensation to employees and other representatives of our advisor. 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. Lismore We engage Lismore or its subsidiaries to provide debt placement services and assist with loan modifications on our behalf. During the three months ended March 31, 2023 and 2022, we made payments of $ 0 and $ 637,000 , respectively, to Lismore or its subsidiaries. Ashford Securities On December 31, 2020, an Amended and Restated Contribution Agreement (the “Amended and Restated Contribution Agreement”) was entered into by Ashford Inc., Ashford Trust and Braemar (collectively, the “Parties” and each individually a “Party”) with respect to funding certain expenses of Ashford Securities LLC, a subsidiary of Ashford Inc. (“Ashford Securities”). Beginning on the effective date of the Amended and Restated Contribution Agreement, costs will be allocated based upon an allocation percentage of 50 % to Ashford Inc., 50 % to Braemar and 0 % to Ashford Trust. Upon reaching the earlier of $ 400 million in aggregate capital raised, or June 10, 2023, there will be a true up (the “Amended and Restated True-Up Date”) among Ashford Inc., Ashford Trust and Braemar whereby the actual amount contributed by each company will be based on the actual amount of capital raised by Ashford Inc., Ashford Trust and Braemar, respectively, through Ashford Securities (the resulting ratio of contributions among the Parties, the “Initial True-up Ratio”). On January 27, 2022, Ashford Trust, Braemar and Ashford Inc. entered into a Second Amended and Restated Contribution Agreement which provided for an additional $ 18 million in expenses to be reimbursed with all expenses allocated 45 % to Ashford Trust, 45 % to Braemar and 10 % to Ashford Inc. On February 1, 2023, Braemar entered into a Third Amended and Restated Contribution Agreement with Ashford Inc. and Ashford Trust. The Third Amended and Restated Contribution Agreement states that after the Amended and Restated True-Up Date occurs, capital contributions for the remainder of fiscal year 2023 will be divided between each Party based on the Initial True-Up Ratio. Thereafter on a yearly basis at year-end, starting with the year-end of 2023, there will be a true-up between the Parties whereby there will be adjustments so that the capital contributions made by each Party will be based on the cumulative amount of capital raised by each Party through Ashford Securities as a percentage of the total amount raised by the Parties collectively through Ashford Securities since June 10, 2019 (the resulting ratio of capital contributions among Braemar, Ashford Inc. and Ashford Trust following this true-up, the “Cumulative Ratio”). Thereafter, the capital contributions will be divided among each Party in accordance with the Cumulative Ratio, as recalculated at the end of each year. During the year ended December 31, 2022, the funding estimate was revised based on the latest capital raise estimates of the aggregate capital raised through Ashford Securities. As of December 31, 2022, Braemar had funded approximately $ 5.8 million and had a payable, included in “due to Ashford Inc., net” on the condensed consolidated balance sheet, of approximately $ 6.6 million. In March 2023, Braemar paid Ashford Inc. $ 8.7 million as a result of the contribution true-up between entities described above. As of March 31, 2023, Braemar has funded approximately $ 15.9 million. As of March 31, 2023, Braemar has a pre-funded balance of approximately $ 2.1 million that is included in “other assets” and approximately $ 343,000 that is included in “due to Ashford Inc., net” on the condensed consolidated balance sheet. 26 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) The table below summarizes the amount Braemar has expensed related to reimbursed operating expenses of Ashford Securities (in thousands): Three Months Ended March 31, Line Item 2023 2022 Corporate, general and administrative $ 1,195 $ 527 Design and Construction Services Premier Project Management LLC (“Premier”), as a subsidiary of Ashford Inc., provides design and construction services to our hotels, including construction management, interior design, architectural services, and the purchasing, freight management, and supervision of installation of FF&E and related services. Pursuant to the design and construction services agreement, we pay Premier: (a) design and construction fees of up to 4 % of project costs; and (b) for the following services: (i) architectural ( 6.5 % of total construction costs); (ii) construction management for projects without a general contractor ( 10 % of total construction costs); (iii) interior design ( 6 % of the purchase price of the FF&E designed or selected by Premier); and (iv) FF&E purchasing ( 8 % of the purchase price of FF&E purchased by Premier; provided that if the purchase price exceeds $ 2.0 million for a single hotel in a calendar year, then the purchasing fee is reduced to 6 % of the FF&E purchase price in excess of $ 2.0 million for such hotel in such calendar year). Hotel Management Services At March 31, 2023, Remington Hotels managed four of our 16 hotel properties. We pay monthly hotel management fees equal to the greater of approximately $ 16,000 per hotel (increased annually based on consumer price index adjustments) or 3 % of gross revenues as well as annual incentive management fees, if certain operational criteria were met and other general and administrative expense reimbursements primarily related to accounting services. 15. Commitments and Contingencies Restricted Cash —Under certain management and debt agreements for our hotel properties existing at March 31, 2023, escrow payments are required for insurance, real estate taxes and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 3 % to 5 % of gross revenues for capital improvements. Licensing Fees —In conjunction with the Mr. C Beverly Hills Hotel acquisition on August 5, 2021, we entered into an Intellectual Property Sublease Agreement, which allows us to continue to use certain proprietary marks associated with the Mr. C brand name. In return, we pay licensing fees of: (i) 1 % of total operating revenue; (ii) 2 % of gross food and beverage revenues; and (iii) 25 % of food and beverage profits. The agreement expires on August 5, 2023. The table below summarizes the licensing fees incurred (in thousands): Three Months Ended March 31, Line Item 2023 2022 Other hotel expenses $ 202 $ 102 Management Fees —Under hotel management agreements for our hotel properties existing at March 31, 2023, we pay a monthly hotel management fee equal to the greater of approximately $ 16,000 per hotel (increased annually based on consumer price index adjustments) or 3 % of gross revenues, or in some cases 3.0 % to 5.0 % of gross revenues, as well as annual incentive management fees, if applicable. These management agreements expire from December 2027 through December 2065, with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement. Income Taxes —We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2018 through 2022 remain subject to potential examination by certain federal and state taxing authorities. Litigation —On December 20, 2016, a class action lawsuit was filed against one of the Company’s hotel management companies in the Superior Court of the State of California in and for the County of Contra Costa alleging violations of certain 27 BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) California employment laws, which class action affects two hotels owned by subsidiaries of the Company. The court has entered an order granting class certification with respect to: (i) a statewide class of non-exempt employees of our manager who were allegedly deprived of rest breaks as a result of our manager’s previous written policy requiring its employees to stay on premises during rest breaks; and (ii) a derivative class of non-exempt former employees of our manager who were not paid for allegedly missed breaks upon separation from employment. Notices to potential class members were sent out on February 2, 2021. Potential class members had until April 4, 2021 to opt out of the class; however, the total number of employees in the class has not been definitively determined and is the subject of continuing discovery. The opt out period has been extended until such time that discovery has concluded. If this litigation goes to trial, we expect that the earliest the trial would occur is the last quarter of 2023, based on various extensions to which the parties have agreed. While we believe it is reasonably possible that we may incur a loss associated with this litigation, because there remains uncertainty under California law with respect to a significant legal issue, discovery relating to class members continues, and the trial judge retains discretion to award lower penalties than set forth in the applicable California employment laws, we do not believe that any potential loss to the Company is reasonably estimable at this time. As of March 31, 2023, no amounts have been accrued. We are also engaged in other legal proceedings that have arisen but have not been fully adjudicated. To the extent the claims giving rise to these legal proceedings are not covered by insurance, they relate to the following general types of claims: employment matters, tax matters and matters relating to compliance with applicable law (for example, the ADA and similar state laws). The likelihood of loss from these legal proceedings is based on the definitions within contingency accounting literature. We recognize a loss when we believe the loss is both probable and reasonably estimable. Based on the information available to us relating to these legal proceedings and/or our experience in similar legal proceedings, we do not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position, results of operations, or cash flow. However, our assessment may change depending upon the development of these legal proceedings, and the final results of these legal proceedings cannot be predicted with certainty. If we do not prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position, results of operations, or cash flows could be materially adversely affected in future periods. 16. Segment Reporting We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refers to owning hotel properties through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. As of March 31, 2023 and December 31, 2022, all of our hotel properties were in the U.S. and its territories. 28 Table of Contents