What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-07 · 162 added, 171 removed, 646 unchanged (34% of the section changed)

27 unchanged sentences

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

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

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

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

28 unchanged sentences

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

As of June 30, 2023, we owned interests in 16 hotel properties in seven states, the District of Columbia, Puerto Rico and St.

As of September 30, 2023, we owned interests in 16 hotel properties in seven states, the District of Columbia, Puerto Rico and St.

Virgin Islands with 4,192 total rooms, or 3,957 net rooms, excluding those attributable to our joint venture partner.

8 unchanged sentences

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

As of June 30, 2023, Remington Hospitality , a subsidiary of Ashford Inc., managed four of our 16 hotel properties.

As of September 30, 2023, Remington Hospitality , a subsidiary of Ashford Inc., managed four of our 16 hotel properties.

Third-party management companies managed the remaining hotel properties.

4 unchanged sentences

and, together with Mr.

Archie Bennett, Jr., as of June 30, 2023, owned approximately 610,261 shares of Ashford Inc.

Archie Bennett, Jr., as of September 30, 2023, hold a controlling interest in Ashford Inc.

The Bennetts owned approximately 610,261 shares of Ashford Inc.

common stock, which represented an approximate 19.0% ownership interest in Ashford Inc., and owned 18,758,600 shares of Ashford Inc.

Series D Convertible Preferred Stock, which, along with all unpaid accrued and accumulated dividends thereon, was convertible (at a conversion price of $117.50 per share) into an additional approximate 4,151,054 shares of Ashford Inc.

common stock, which if converted as of June 30, 2023

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

to 64.6%, provided that prior to August 8, 2023, the voting power of the holders of the Ashford Inc.

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

entitled to vote on any given matter.

of Ashford Inc.

common stock, which if converted as of September 30, 2023 would have increased the Bennetts’ ownership interest in Ashford Inc.

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

2 unchanged sentences

include 360,000 shares owned by trusts.

As of June 30, 2023, Mr.

As of September 30, 2023, Mr.

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

1 unchanged sentence

Recent Developments

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

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

Effective June 1, 2023, the variable interest rate increased from SOFR + 2.75% to SOFR + 3.60% in accordance with the loan agreement.

The Company paid Lismore approximately $98,000 for the successful execution of The Ritz-Carlton Sarasota loan modification and extension.

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

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

On June 13, 2023, the Company finalized an extension of its $435 million mortgage loan secured by four properties:

The Notary Hotel, The Clancy, Sofitel Chicago Magnificent Mile, and Marriott Seattle Waterfront.

The loan is being extended beyond its original initial maturity in June 2023 for an additional twelve months.

In conjunction with the extension, the Company paid down $142 million of the loan utilizing corporate cash on hand, which reduced the balance to approximately $293 million.

As part of the extension the Company also purchased an interest rate cap through June 2024 with a strike rate of 4.69%.

Effective June 30, 2023, LIBOR is no longer published.

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Syndicate bank participants include TBK Bank and MidFirst Bank.

The Credit Agreement evidences a $200 million senior secured credit facility (the “Facility”) comprised of a senior secured term loan facility of $150 million (the “Term Loan Facility”) and a senior secured revolving credit facility of $50 million (the “Revolving Credit Facility”).

The Credit Agreement evidences a $200 million secured credit facility (the “Facility”) comprised of a secured term loan facility of $150 million (the “Term Loan Facility”) and a secured revolving credit facility of $50 million (the “Revolving Credit Facility”).

Upon satisfaction of certain conditions, including the addition of new Borrowing Base Properties (as defined in the Credit Agreement), the Facility may be increased to a size of not more than $400 million in the aggregate.

34 unchanged sentences

On August 4, 2023, the board of directors of the Company approved amendments to the Company’s Fourth Amended and Restated Bylaws, as amended.

See Part II, Item 5 for a description of the amendments.

On September 29, 2023, the Company amended the mortgage loan secured by the Four Seasons Resort Scottsdale.

Terms of the amendment included increasing the outstanding principal from $100 million to $140 million, and extending the final maturity date by one year to December 2028.

On October 31, 2023, the Company amended its $54.0 million mortgage loan secured by The Ritz-Carlton Lake Tahoe.

Terms of the amendment included extending the maturity date by one year to January 2025, with a one-year extension option, amending the interest rate to SOFR + 3.60% and making a pay down of $587,000.

Key Indicators of Operating Performance

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The following table summarizes changes in key line items from our condensed consolidated statements of operations for three months ended June 30, 2023 and 2022 (in thousands except percentages):

Three Months Ended June 30, Favorable (Unfavorable)

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The following table summarizes changes in key line items from our condensed consolidated statements of operations for three months ended September 30, 2023 and 2022 (in thousands except percentages):

Three Months Ended September 30, Favorable (Unfavorable)

2023 2022 $ Change % Change

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Advisory services fee 7,020 8,854 1,834 20.7

(Gain) loss on legal settlements — (114) (114) (100.0)

Corporate general and administrative 2,506 8,075 5,569 69.0

3 unchanged sentences

Interest income 986 745 241 32.3

Other income (expense) 293 27 266 985.2

Interest expense and amortization of loan costs (23,306) (14,490) (8,816) (60.8)

7 unchanged sentences

Net income (loss) attributable to the Company $ (22,030) $ (8,040) $ (13,990) (174.0) %

All hotel properties owned for the three months ended June 30, 2023 and 2022 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended June 30, 2023 and 2022.

All hotel properties owned for the three months ended September 30, 2023 and 2022 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended September 30, 2023 and 2022.

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

3 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

Occupancy 68.37 % 71.50 %

3 unchanged sentences

Total hotel revenue (in thousands) $ 159,801 $ 161,189

The following table illustrates the key performance indicators of the 15 hotel properties that were owned for the full three months ended June 30, 2023 and 2022:

Three Months Ended June 30,

The following table illustrates the key performance indicators of the 15 hotel properties that were owned for the full three months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Occupancy 70.11 % 71.50 %

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Net Income (Loss) Attributable to the Company.

Net income (loss) attributable to the Company changed $16.2 million, from net income of $14.4 million for the three months ended June 30, 2022 (the “2022 quarter”) to net a loss of $1.8 million for the three months ended June 30, 2023 (the “2023 quarter”), as a result of the factors discussed below.

Net loss attributable to the Company increased $14.0 million, from $8.0 million for the three months ended September 30, 2022 (the “2022 quarter”) to $22.0 million for the three months ended September 30, 2023 (the “2023 quarter”), as a result of the factors discussed below.

Rooms Revenue .

Rooms revenue increased $4.6 million, or 4.1%, to $117.1 million during the 2023 quarter compared to the 2022 quarter.

Rooms revenue decreased $3.8 million, or 3.6%, to $100.7 million during the 2023 quarter compared to the 2022 quarter.

During the 2023 quarter, we experienced a 313 basis point decrease in occupancy and a 4.6% decrease in room rates.

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The Ritz-Carlton Lake Tahoe (1)

C Beverly Hills Hotel (113) 65 (4.1) %

(1,137) (1,194) 1.4 %

Cameo Beverly Hills

(792) (1,014) (10.9) %

The Ritz-Carlton Reserve Dorado Beach 269 199 (0.3) %

5 unchanged sentences

Food and Beverage Revenue .

Food and beverage revenue increased $5.5 million, or 13.0%, to $47.8 million during the 2023 quarter compared to the 2022 quarter.

This increase is attributable to an aggregate increase of $4.2 million at five comparable hotel properties and an increase of $5.3 million from the acquisition of the Four Seasons Resort Scottsdale on December 1, 2022.

Food and beverage revenue increased $913,000, or 2.4%, to $38.5 million during the 2023 quarter compared to the 2022 quarter.

This increase is attributable to an aggregate increase of $1.3 million at six comparable hotel properties and an increase of $3.0 million from the acquisition of the Four Seasons Resort Scottsdale on December 1, 2022.

These increases were partially offset by an aggregate decrease of $3.3 million at The Clancy, Sofitel Chicago Magnificent Mile, Pier House Resort & Spa, The Ritz-Carlton St.

Thomas, Park Hyatt Beaver Creek Resort & Spa, Hotel Yountville, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, Bardessono Hotel and Spa and Mr.

C Beverly Hills Hotel.

Thomas, Park Hyatt Beaver Creek Resort & Spa, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, Cameo Beverly Hills and The Ritz-Carlton Reserve Dorado Beach.

Other Hotel Revenue .

Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals, increased $1.5 million, or 7.7%, to $20.5 million during the 2023 quarter compared to the 2022 quarter.

This increase is attributable to an aggregate increase in other hotel revenue of $1.3 million at ten comparable hotel properties and an increase of $2.0 million at the Four Seasons Resort Scottsdale, partially offset by an aggregate decrease of $1.6 million at the Capital Hilton, Pier House Resort & Spa, The Ritz-Carlton St.

Thomas, The Ritz-Carlton Sarasota and Hilton La Jolla Torrey Pines.

This increase is attributable to an aggregate increase in other hotel revenue of $1.2 million at nine comparable hotel properties and an increase of $1.7 million at the Four Seasons Resort Scottsdale, partially offset by an aggregate decrease of $1.4 million at the Capital Hilton, The Notary Hotel, Pier House Resort & Spa, The Ritz-Carlton St.

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

Rooms Expense .

Rooms expense increased $2.6 million, or 10.7%, to $26.7 million in the 2023 quarter compared to the 2022 quarter.

This increase is primarily attributable to an aggregate increase of $1.9 million at eight comparable hotel properties and an increase of $1.9 million at the Four Seasons Resort Scottsdale, partially offset by a decrease of $1.2 million at the Pier House Resort & Spa, The Ritz-Carlton St.

Thomas, Hotel Yountville, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, Bardessono Hotel and Spa and The Ritz-Carlton Reserve Dorado Beach.

Rooms expense increased $475,000, or 1.9%, to $25.9 million in the 2023 quarter compared to the 2022 quarter.

This increase is primarily attributable to an aggregate increase of $723,000 at five comparable hotel properties and an increase of $1.5 million at the Four Seasons Resort Scottsdale, partially offset by an aggregate decrease of $1.7 million at The Clancy, Sofitel Chicago Magnificent Mile, Pier House Resort & Spa, The Ritz-Carlton St.

Thomas, Park Hyatt Beaver Creek Resort & Spa, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, The Ritz-Carlton Lake Tahoe, Cameo Beverly Hills and The Ritz-Carlton Reserve Dorado Beach.

Food and Beverage Expense .

Food and beverage expense increased $1.4 million, or 4.6%, to $32.8 million during the 2023 quarter compared to the 2022 quarter.

This increase is attributable to an aggregate increase of $2.1 million at seven comparable hotel properties and an increase of $3.7 million at the Four Seasons Resort Scottsdale, partially offset by a decrease of $1.4 million at the Sofitel Chicago Magnificent Mile, Pier House Resort & Spa, Park Hyatt Beaver Creek Resort & Spa, Hotel Yountville, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, The Ritz-Carlton Lake Tahoe and Mr.

C Beverly Hills Hotel.

This increase is attributable to an aggregate increase of $716,000 at seven comparable hotel properties and an increase of $3.1 million at the Four Seasons Resort Scottsdale, partially offset by an aggregate decrease of $2.4 million at the Sofitel Chicago Magnificent Mile, The Ritz-Carlton St.

Thomas, Park Hyatt Beaver Creek Resort & Spa, The Ritz-Carlton Sarasota, Hilton La Jolla Torrey Pines, The Ritz-Carlton Lake Tahoe, Cameo Beverly Hills and The Ritz-Carlton Reserve Dorado Beach.

Other Operating Expenses .

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The increase in indirect expenses comprises increases in:

(i) general and administrative costs of $1.0 million comprising an increase $1.6 million at the one acquired hotel property offset by a decrease of $652,000 at our 15 comparable hotel properties;

(ii) marketing costs of $2.3 million comprising an increase of $1.2 million at our 15 comparable hotel properties and $1.1 million at the one acquired hotel property;

(iii) repairs and maintenance of $1.2 million, comprising an increase of $493,000 at our 15 comparable hotel properties and $664,000 at one acquired hotel property;

(i) general and administrative costs of $719,000 comprising an increase $1.3 million at the one acquired hotel property offset by a decrease of $620,000 at our 15 comparable hotel properties;

(ii) marketing costs of $1.1 million comprising an increase of $218,000 at our 15 comparable hotel properties and $912,000 at the one acquired hotel property;

(iii) repairs and maintenance of $773,000, comprising an increase of $53,000 at our 15 comparable hotel properties and $720,000 at one acquired hotel property;

and (iv) energy costs of $196,000 comprising an increase of $89,000 at our 15 comparable hotel properties and $285,000 at the one acquired hotel property.

The increases were partially offset by decreases in (i) incentive management fees of $1.6 million comprising an aggregate decrease of $1.9 million from our 15 comparable hotel properties partially offset by an increase of $232,000 at the one acquired hotel property, and (ii) lease expense of $9,000 at our 15 comparable hotel properties.

The increases were partially offset by decreases in (i) incentive management fees of $1.2 million comprising an aggregate decrease of $1.1 million from our 15 comparable hotel properties and $59,000 at the one acquired hotel property, and (ii) lease expense of $66,000 at our 15 comparable hotel properties.

Management Fees .

Base management fees increased $342,000, or 6.2%, to $5.9 million in the 2023 quarter compared to the 2022 quarter.

Base management fees increased $408,000 at five comparable hotel properties and $450,000 at the one acquired hotel property, partially offset by an aggregate decrease of $516,000 at the Sofitel Chicago Magnificent Mile, Hilton La Jolla Torrey Pines, Park Hyatt Beaver Creek Resort & Spa, The Clancy, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa, , Mr.

C Beverly Hills Hotel, The Ritz-Carlton St.

Thomas and The Ritz-Carlton Sarasota.

Base management fees decreased $40,000, or 0.8%, to $5.1 million in the 2023 quarter compared to the 2022 quarter.

Base management fees decreased by $473,000 at 12 comparable hotel properties, partially offset by an aggregate increase of $173,000 at the Capital Hilton, The Notary Hotel and Marriott Seattle Waterfront and an increase of $260,000 at the one acquired hotel property.

Property Taxes, Insurance and Other .

Property taxes, insurance and other increased $1.6 million, or 18.3%, to $10.5 million in the 2023 quarter compared to the 2022 quarter.

The increase is primarily attributable to an aggregate increase of approximately $3.9 million at 13 comparable hotel properties, including $2.3 million at the Sofitel Chicago Magnificent Mile and $249,000 at the one acquired hotel property.

During the 2022 quarter, we received a real estate assessment reduction for the Sofitel Chicago Magnificent Mile.

These increases were partially offset by an aggregate decrease of $27,000 at The Notary Hotel and The Ritz-Carlton St.

The increase is primarily attributable to an aggregate increase of approximately $2.2 million at 13 comparable hotel properties and $211,000 at the one acquired hotel property.

These increases were partially offset by an aggregate decrease of $830,000, including $813,000 at the Sofitel Chicago Magnificent Mile and $17,000 at The Notary Hotel.

Depreciation and Amortization .

Depreciation and amortization increased $3.1 million, or 15.8%, to $22.7 million in the 2023 quarter compared to the 2022 quarter.

The increase comprised $2.4 million at Four Seasons Resort Scottsdale as a result of its acquisition and an aggregate increase of $1.6 million at nine comparable hotel properties.

These increases were partially offset by an aggregate decrease of $1.0 million at the Sofitel Chicago Magnificent Mile, The Clancy, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa and Mr.

C Beverly Hills Hotel due to fully depreciated assets.

The increase comprised $2.4 million at Four Seasons Resort Scottsdale as a result of its acquisition and an aggregate increase of $1.6 million at eight comparable hotel properties.

These increases were partially offset by an aggregate decrease of $961,000 at the Sofitel Chicago Magnificent Mile, The Notary Hotel, The Clancy, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa and Cameo Beverly Hills due to fully depreciated assets.

Advisory Services Fee.

Advisory services fee increased $1.9 million, or 30.3%, to $8.2 million in the 2023 quarter compared to the 2022 quarter due to increases in the base advisory fee of $441,000, reimbursable expenses of $869,000, and incentive fee of $731,000 which was due to a credit in the 2022 quarter related to the reversal of the incentive fee, partially offset by a decrease of $131,000 in equity-based compensation.

Advisory services fee decreased $1.8 million, or 20.7%, to $7.0 million in the 2023 quarter compared to the 2022 quarter due to decreases of $1.0 million in the incentive fee and $1.7 million in equity-based compensation, partially offset by increases in the base advisory fee of $124,000 and reimbursable expenses of $837,000.

In the 2023 quarter, we recorded an advisory services fee of $7.0 million, which included a base advisory fee of $3.4 million, reimbursable expenses of $2.0 million, $1.6 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

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

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

Gain on Legal Settlements.

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

There was no such gain during the 2023 quarter.

and an incentive fee of $1.0 million.

Corporate General and Administrative .

Corporate general and administrative expense was $3.9 million in the 2023 quarter and $3.4 million in the 2022 quarter.

The increase in corporate general and administrative expense is due to higher reimbursed operating expenses of Ashford Securities of $361,000 and higher miscellaneous expenses of $413,000 partially offset by lower public company costs of $193,000 and lower professional fees of $123,000.

Corporate general and administrative expense was $2.5 million in the 2023 quarter as compared to $8.1 million in the 2022 quarter.

The decrease in corporate general and administrative expense is due to lower reimbursed operating expenses of Ashford Securities of $4.6 million, lower professional fees of $519,000, lower miscellaneous expenses of $372,000 and lower public company costs of $80,000.

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

Equity in Earnings (Loss) of Unconsolidated Entity .

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Interest Income .

Interest income was $2.3 million and $162,000 in 2023 quarter and 2022 quarter, respectively.

Interest income was $986,000 and $745,000 in the 2023 quarter and 2022 quarter, respectively.

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

Other Income (Expense) .

Other income was $293,000 in the 2023 quarter compared to $27,000 in the 2022 quarter.

In the 2023 quarter we recorded $293,000 of miscellaneous income.

Interest Expense and Amortization of Loan Costs .

Interest expense and amortization of loan costs increased $8.8 million, or 60.8%, to $23.3 million in the 2023 quarter compared to the 2022 quarter.

This increase is primarily due to higher interest expense from higher average interest rates, as well as higher interest expense associated with the mortgage loan secured by the Four Seasons Resort Scottsdale as a result of its acquisition.

The average LIBOR rates for the 2023 quarter and the 2022 quarter were 5.10% and 1.02%, respectively.

This increase is primarily due to higher interest expense from higher average interest rates and higher interest expense associated with the mortgage loan secured by the Four Seasons Resort Scottsdale as a result of its acquisition.

The average LIBOR rate for the 2022 quarter was 2.47%.

The average SOFR rates for the 2023 quarter and the 2022 quarter were 5.08% and 2.08%, respectively.

Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $248,000 in the 2023 quarter, primarily related to various loan modifications.

Write-off of loan costs and exit fees consisted of $137,000 from third parties and $111,000 from Lismore.

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

Write-off of loan costs and exit fees was $2.6 million in the 2023 quarter, primarily related to various loan modifications and costs associated with the $200 million secured credit facility.

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

Realized and Unrealized Gain (Loss) on Derivatives .

Realized and unrealized gain on derivatives of $1.0 million for 2023 quarter consisted of an unrealized gain on warrants of approximately $16,000 and a realized gain of $2.3 million associated with payments received from counterparties on in-the-money interest rate caps.

Realized and unrealized gain on derivatives of $223,000 for 2023 quarter consisted of an unrealized gain on warrants of approximately $154,000 and a realized gain of $2.0 million associated with payments received from counterparties on in-the-money interest rate caps.

These gains were partially offset by an unrealized loss on interest rate caps of approximately $1.9 million.

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

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

Income Tax (Expense) Benefit .

Income tax (expense) benefit changed $1.2 million, from expense of $1.1 million in the 2022 quarter to a benefit of $75,000 in the 2023 quarter.

Income tax (expense) benefit changed $1.3 million, from expense of $95,000 in the 2022 quarter to a benefit of $1.2 million in the 2023 quarter.

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

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

Our noncontrolling interest partner in consolidated entities was allocated a loss of $367,000 and income of $1.5 million in the 2023 quarter and the 2022 quarter, respectively.

At both June 30, 2023 and 2022, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

Our noncontrolling interest partner in consolidated entities was allocated income of $1.8 million and $823,000 in the 2023 quarter and the 2022 quarter, respectively.

At both September 30, 2023 and 2022, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

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

Noncontrolling interests in operating partnership were allocated a net loss of $925,000 and net income of $846,000 in the 2023 quarter and the 2022 quarter, respectively.

Redeemable noncontrolling interests in Braemar OP represented ownership interests of 6.63% and 7.59% as of June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the six months ended June 30, 2023 and 2022 (in thousands except percentages):

Six Months Ended June 30, Favorable (Unfavorable)

Noncontrolling interests in operating partnership were allocated a net loss of $2.4 million and $1.2 million in the 2023 quarter and the 2022 quarter, respectively.

Redeemable noncontrolling interests in Braemar OP represented ownership interests of 6.63% and 7.66% as of September 30, 2023 and 2022, respectively.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2023 and 2022 (in thousands except percentages):

Nine Months Ended September 30, Favorable (Unfavorable)

2023 2022 $ Change % Change

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Interest income 5,389 932 4,457 478.2

Other income (expense) 293 27 266 985.2

Interest expense and amortization of discounts and loan costs (69,779) (33,293) (36,486) (109.6)

8 unchanged sentences

Net income (loss) attributable to the Company $ (7,842) $ 20,989 $ (28,831) (137.4) %

All hotel properties owned for the six months ended June 30, 2023 and 2022 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of operating results for certain hotel properties are not comparable for the six months ended June 30, 2023 and 2022.

All hotel properties owned for the nine months ended September 30, 2023 and 2022 have been included in our results of operations during the respective periods in which they were owned.

Based on when a hotel property was acquired or disposed of operating results for certain hotel properties are not comparable for the nine months ended September 30, 2023 and 2022.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

Occupancy 68.06 % 66.00 %

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Total hotel revenue (in thousands) $ 561,809 $ 497,963

The following table illustrates the key performance indicators of the 14 hotel properties that were owned for the full six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

The following table illustrates the key performance indicators of the 14 hotel properties that were owned for the full nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Occupancy 69.50 % 63.49 %

4 unchanged sentences

Net Income (Loss) Attributable to the Company.

Net income attributable to the Company decreased $14.8 million, from $29.0 million for the six months ended June 30, 2022 (the “2022 period”), to $14.2 million for the six months ended June 30, 2023 (the “2023 period”), as a result of the factors discussed below.

Net income (loss) attributable to the Company changed $28.8 million, from net income of $21.0 million for the nine months ended September 30, 2022 (the “2022 period”), to a net loss of $7.8 million for the nine months ended September 30, 2023 (the “2023 period”), as a result of the factors discussed below.

Rooms Revenue .

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The Notary Hotel 3,279 767 6.3 %

1,979 332 8.2 %

Sofitel Chicago Magnificent Mile 573 422 (3.2) %

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The Ritz-Carlton Lake Tahoe (1)

C Beverly Hills Hotel (202) 496 (9.2) %

(730) (77) (2.6) %

Cameo Beverly Hills

(994) (13) (9.6) %

Total $ (3,608) 601 (6.4) %

7 unchanged sentences

Food and beverage revenue increased $21.9 million, or 18.8%, to $138.5 million during the 2023 period compared to the 2022 period.

We experienced an aggregate increase in food and beverage revenue of $8.1 million at six comparable hotel properties as well as increases of $4.1 million and $11.8 million at The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale, respectively.

We experienced an aggregate increase in food and beverage revenue of $9.0 million at five comparable hotel properties and increases of $4.0 million and $14.8 million at The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale, respectively.

These increases were partially offset by an aggregate decrease of approximately $5.8 million at The Ritz-Carlton St.

Thomas, The Ritz-Carlton Sarasota, Pier House Resort & Spa, Bardessono Hotel and Spa, Hotel Yountville, Sofitel Chicago Magnificent Mile, Park Hyatt Beaver Creek Resort & Spa and Mr.

C Beverly Hills Hotel.

Thomas, The Ritz-Carlton Sarasota, Pier House Resort & Spa, Bardessono Hotel and Spa, Hotel Yountville, Sofitel Chicago Magnificent Mile, Park Hyatt Beaver Creek Resort & Spa, Hilton La Jolla Torrey Pines and Cameo Beverly Hills.

Other Hotel Revenue .

5 unchanged sentences

Rooms expense increased $10.2 million, or 14.7%, to $80.0 million in the 2023 period compared to the 2022 period.

This increase is attributable to an aggregate increase in rooms expense of $5.1 million at nine comparable hotel properties, an increase of $1.6 million at The Ritz-Carlton Reserve Dorado Beach and an increase of $4.2 million at the Four Seasons Resort Scottsdale.

This increase is attributable to an aggregate increase in rooms expense of $4.9 million at eight comparable hotel properties, an increase of $1.5 million at The Ritz-Carlton Reserve Dorado Beach and an increase of $5.7 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $1.8 million at The Ritz-Carlton St.

Thomas, The Ritz-Carlton Sarasota, Pier House Resort & Spa, Bardessono Hotel and Spa and Hotel Yountville.

Thomas, The Ritz-Carlton Sarasota, Pier House Resort & Spa, Bardessono Hotel and Spa, Hotel Yountville and Hilton La Jolla Torrey Pines.

Food and Beverage Expense .

Food and beverage expense increased $17.6 million, or 19.3%, to $108.9 million during the 2023 period compared to the 2022 period.

This increase is attributable to higher food and beverage expense of $5.4 million at eight comparable hotel properties, $3.7 million at The Ritz-Carlton Reserve Dorado Beach and $8.4 million at the Four Seasons Resort Scottsdale.

This increase is attributable to higher food and beverage expense of $5.5 million at six comparable hotel properties, $3.6 million at The Ritz-Carlton Reserve Dorado Beach and $11.5 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $2.9 million at The Ritz-Carlton St.

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

C Beverly Hills Hotel.

Thomas, The Ritz-Carlton Sarasota, The Ritz-Carlton Lake Tahoe, Pier House Resort & Spa, Hotel Yountville, Sofitel Chicago Magnificent Mile, Park Hyatt Beaver Creek Resort & Spa and Cameo Beverly Hills.

Other Operating Expenses .

3 unchanged sentences

Direct expenses were 4.3% of total hotel revenue in the 2023 period and 4.2% in the 2022 period.

The increase in direct expenses is associated with higher direct expenses of approximately $732,000 at nine comparable hotel properties, $1.3 million at The Ritz-Carlton Reserve Dorado Beach and $1.5 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by lower direct expenses of $616,000 at the Sofitel Chicago Magnificent Mile, Marriott Seattle Waterfront, Mr.

C Beverly Hills Hotel, The Ritz-Carlton St.

The increase in direct expenses is associated with higher direct expenses of approximately $1.2 million at nine comparable hotel properties, $1.3 million at The Ritz-Carlton Reserve Dorado Beach and $2.0 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by lower direct expenses of $1.4 million at the Sofitel Chicago Magnificent Mile, Pier House Resort & Spa, Cameo Beverly Hills, The Ritz-Carlton St.

Thomas and The Ritz-Carlton Sarasota.

The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $6.8 million comprising an increase of $2.0 million at our 14 comparable hotel properties and $4.8 million at the two acquired hotel properties;

The increase in indirect expenses is attributable to increases in:

(i) general and administrative costs of $7.6 million comprising an increase of $1.5 million at our 14 comparable hotel properties and $6.1 million at the two acquired hotel properties;

(ii) marketing costs of $7.7 million comprising an increase of $3.4 million at our 14 comparable hotel properties and $4.4 million at the two acquired hotel properties;

(iii) repairs and maintenance of $3.4 million comprising an increase of $470,000 at our 14 comparable hotel properties and $2.9 million at the two acquired hotel properties;

(iv) lease expense of $158,000 comprising an increase of $147,000 at our 14 comparable hotel properties and $11,000 at the two acquired hotel properties;

and (v) energy costs of $2.3 million comprised of an increase of $960,000 at our 14 comparable hotel properties and $1.4 million at our two acquired hotel properties.

(iv) lease expense of $92,000 comprising an increase of $130,000 at our 14 comparable hotel properties, partially offset by an aggregate decrease of $38,000 at the two acquired hotel properties;

and (v) energy costs of $2.5 million comprised of an increase of $1.1 million at our 14 comparable hotel properties and $1.4 million at our two acquired hotel properties.

These increases in indirect expenses were partially offset by an aggregate decrease of $2.3 million in incentive management fees, comprising of an aggregate decrease of $3.8 million at our 14 comparable hotel properties, offset by an aggregate increase of $1.5 million at the two acquired hotel properties.

1 unchanged sentence

Base management fees increased $2.9 million, or 19.3%, to $17.7 million in the 2023 period compared to the 2022 period.

Management fees increased $1.9 million at seven comparable hotel properties, $537,000 at The Ritz-Carlton Reserve Dorado Beach and $1.2 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of $683,000 at the Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa, Mr.

C Beverly Hills Hotel, The Ritz-Carlton St.

Management fees increased $2.0 million at six comparable hotel properties, $535,000 at The Ritz-Carlton Reserve Dorado Beach and $1.4 million at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of $1.0 million at the Park Hyatt Beaver Creek Resort & Spa, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa, Cameo Beverly Hills, The Ritz-Carlton St.

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

1 unchanged sentence

Property taxes, insurance and other increased $5.3 million, or 23.1%, to $28.0 million in the 2023 period compared to the 2022 period.

This increase is primarily attributable to an aggregate increase of $2.6 million at twelve comparable hotel properties, including $36,000 at the Sofitel Chicago Magnificent Mile, $590,000 at The Ritz-Carlton Reserve Dorado Beach and $506,000 at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $94,000 at The Notary Hotel and The Ritz-Carlton St.

This increase is primarily attributable to an aggregate increase of $4.4 million at 12 comparable hotel properties, $929,000 at The Ritz-Carlton Reserve Dorado Beach and $718,000 at the Four Seasons Resort Scottsdale.

These increases were partially offset by an aggregate decrease of approximately $835,000 including $777,000 at the Sofitel Chicago Magnificent Mile and $58,000 at The Notary Hotel.

Depreciation and Amortization .

1 unchanged sentence

This increase is comprised of $1.4 million at The Ritz-Carlton Reserve Dorado Beach, $7.1 million at the Four Seasons Resort Scottsdale and an aggregate increase of $4.8 million at eight comparable hotel properties.

These increases were partially offset by an aggregate decrease of $2.3 million at the Sofitel Chicago Magnificent Mile, The Clancy, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa and Mr.

C Beverly Hills Hotel primarily due to fully depreciated assets.

These increases were partially offset by an aggregate decrease of $3.2 million at the Sofitel Chicago Magnificent Mile, The Clancy, Pier House Resort & Spa, Hotel Yountville, Bardessono Hotel and Spa and Cameo Beverly Hills, primarily due to fully depreciated assets.

Advisory Services Fee.

Advisory services fee increased $2.5 million, or 18.6%, to $16.2 million in the 2023 period compared to the 2022 period due to increases in the base advisory fee of $1.1 million, reimbursable expenses of $1.8 million, partially offset by decreases in equity-based compensation of $155,000 and incentive fee of $246,000.

Advisory services fee increased $702,000, or 3.1%, to $23.2 million in the 2023 period compared to the 2022 period due to increases in reimbursable expenses of $2.6 million and base advisory fee of $1.3 million.

These increases are partially offset by decreases in equity-based compensation of $1.9 million and an incentive fee of $1.3 million.

In the 2023 period, we recorded an advisory services fee of $23.2 million, which included a base advisory fee of $10.7 million, reimbursable expenses of $6.1 million and $6.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.

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

and an incentive fee of $246,000.

and an incentive fee of $1.3 million.

Gain on Legal Settlements.

3 unchanged sentences

Corporate general and administrative expense was $9.2 million in the 2023 period compared to $14.0 million in the 2022 period.

The increase in corporate general and administrative expenses is primarily due to

higher reimbursed operating expenses of Ashford Securities of $1.0 million and higher miscellaneous expenses of $382,000, partially offset by lower professional fees of $221,000 and lower public company costs of $406,000.

The decrease in corporate general and administrative expenses is primarily due to lower reimbursed operating expenses of Ashford Securities of $3.6 million, lower miscellaneous expenses of $309,000, lower professional fees of $740,000 and lower public company costs of $166,000.

Equity in Earnings (Loss) of Unconsolidated Entity .

In the 2023 period and the 2022 period, we recorded equity in loss of unconsolidated entity of $208,000 and $220,000, respectively, related to our investment in OpenKey.

Other Income (Expense).

Other income was $293,000 in the 2023 period compared to $27,000 in the 2022 period.

In the 2023 period, we recorded $293,000 of miscellaneous income.

Interest Income .

4 unchanged sentences

The increase is primarily due to higher interest expense from higher average interest rates and the mortgage loan secured by the Four Seasons Resort Scottsdale as a result of its acquisition.

The average LIBOR rates for the 2023 period and the 2022 period were 4.85% and 0.62%, respectively.

LIBOR ceased to be published after June 30, 2023.

The average LIBOR rate for the 2022 period was 1.24%.

The average SOFR rates for the 2023 period and the 2022 period were 4.78% and 0.97%, respectively.

Write-off of Loan Costs and Exit Fees.

Write-off of loan costs and exit fees was $260,000 in the 2023 period related to various loan modifications.

Write-off of loan costs and exit fees consisted of $149,000 from third parties and $111,000 from Lismore.

Write-off of loan costs and exit fees was $98,000 in the 2022 period primarily resulting from third party cost from the refinance of the Park Hyatt Beaver Creek Resort & Spa in February 2022.

Write-off of loan costs and exit fees was $2.8 million in the 2023 period related to various loan modifications and costs associated with the $200 million secured credit facility.

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

Gain (loss) on Extinguishment of Debt.

5 unchanged sentences

These gains were partially offset by an unrealized loss on interest rate caps of approximately $5.5 million.

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

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

Income Tax (Expense) Benefit .

2 unchanged sentences

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

Our noncontrolling interest partner in consolidated entities was allocated a loss of $58,000 and income of $1.4 million in the 2023 period and the 2022 period, respectively.

At both June 30, 2023 and 2022, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

Our noncontrolling interest partner in consolidated entities was allocated income of $1.7 million and $2.3 million in the 2023 period and the 2022 period, respectively.

At both September 30, 2023 and 2022, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

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

Noncontrolling interests in operating partnership were allocated net loss of $664,000 in the 2023 period and net income of $1.8 million in the 2022 period.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 6.63% and 7.59% as of June 30, 2023 and 2022, respectively.

Noncontrolling interests in operating partnership were allocated a net loss of $3.0 million in the 2023 period and net income of $647,000 in the 2022 period.

Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 6.63% and 7.66% as of September 30, 2023 and 2022, respectively.

LIQUIDITY AND CAPITAL RESOURCES

29 unchanged sentences

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

As of June 30, 2023, our $293.2 million mortgage loan was in a cash trap and approximately $1.1 million of our restricted cash was subject to this cash trap.

As of June 30, 2023, the Company held cash and cash equivalents of $128.0 million and restricted cash of $63.4 million, the vast majority of which is comprised of lender and manager-held reserves.

As of June 30, 2023, $15.4 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company’s managers and is available to fund hotel operating costs.

At June 30, 2023, our net debt to gross assets was 37.3%.

As of September 30, 2023, none of our mortgage loans were subject to cash traps.

As of September 30, 2023, the Company held cash and cash equivalents of $149.5 million and restricted cash of $57.3 million, the vast majority of which is comprised of lender and manager-held reserves.

As of September 30, 2023, $14.2 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company’s managers and is available to fund hotel operating costs.

At September 30, 2023, our net debt to gross assets was 38.6%.

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

2 unchanged sentences

Equity Transactions

On December 7, 2022, our board of directors approved a new stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share,

having an aggregate value of up to $25 million.

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

During the six months ended June 30, 2023, we repurchased 3.9 million shares of our common stock for approximately $18.9 million.

As of June 30, 2023, the Company has completed the $25.0 million repurchase authorization.

During the nine months ended September 30, 2023, we repurchased 3.9 million shares of our common stock for approximately $18.9 million.

As of September 30, 2023, the Company has completed the $25.0 million repurchase authorization.

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

24 unchanged sentences

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

As of August 3, 2023, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

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

The issuance of the shares of common stock pursuant to the Lincoln Park Purchase Agreement has been registered pursuant to the Company’s shelf registration statement on Form S-3 (the “Registration Statement”), and the related base prospectus included in the Registration Statement, as supplemented by a prospectus supplement filed with the SEC on April 21, 2021.

The Company and Lincoln Park also entered into a registration rights agreement, pursuant to which the Company agreed to maintain the

effectiveness of the Registration Statement.

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

As of August 3, 2023, the Company has issued approximately 766,000 shares of common stock for gross proceeds of approximately $4.2 million under the Lincoln Park Purchase Agreement .

As of November 6, 2023, the Company has sold approximately 1.7 million shares of common stock and received proceeds of approximately $10.0 million under the SEDA.

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

1 unchanged sentence

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

As of August 3, 2023, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.

As of November 6, 2023, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.

Debt Transactions

On 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 and six months ended June 30, 2023.

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

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

Effective June 1, 2023, the variable interest rate increased from SOFR + 2.75% to SOFR + 3.60% in accordance with the loan agreement.

The Company paid Lismore approximately $98,000 for the successful execution of The Ritz-Carlton Sarasota loan modification and extension.

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

On June 13, 2023, the Company finalized an extension of its $435 million mortgage loan secured by four properties:

The Notary Hotel, The Clancy, Sofitel Chicago Magnificent Mile, and Marriott Seattle Waterfront.

The loan is being extended beyond its original initial maturity in June 2023 for an additional twelve months.

The loan is being extended beyond its original initial maturity in June 2023 for an additional 12 months.

In conjunction with the extension, the Company paid down $142 million of the loan utilizing corporate cash on hand, which reduced the balance to approximately $293 million.

7 unchanged sentences

Syndicate bank participants include TBK Bank and MidFirst Bank.

The maximum availability under the Facility is determined on a quarterly basis and limited to the lesser of (i) $200 million (subject to increase of up to $400 million in the aggregate);

The maximum availability under the Facility is determined on a quarterly basis and limited to the lesser of:

(i) $200 million (subject to increase of up to $400 million in the aggregate);

(ii) 55% of the appraised value of all Borrowing Base Properties;

22 unchanged sentences

The Credit Agreement includes customary events of default, and the occurrence of an event of default will permit the Lenders to terminate commitments to lend under the Credit Agreement and accelerate payments of all amounts outstanding thereunder.

On September 29, 2023, the Company amended its mortgage loan secured by the Four Seasons Resort Scottsdale.

Terms of the amendment included increasing the outstanding principal from $100 million to $140 million, and extending the final maturity date by one year to December 2028.

On October 31, 2023, the Company amended its $54.0 million mortgage loan secured by The Ritz-Carlton Lake Tahoe.

Sources and Uses of Cash

We had approximately $128.0 million and $261.5 million of cash and cash equivalents at June 30, 2023 and December 31, 2022, respectively.

We had approximately $149.5 million and $261.5 million of cash and cash equivalents at September 30, 2023 and December 31, 2022, respectively.

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

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

Net cash flows provided by operating activities were $62.0 million and $79.8 million for the six months ended June 30, 2023 and 2022, respectively.

Net cash flows provided by operating activities were $73.0 million and $104.0 million for the nine months ended September 30, 2023 and 2022, respectively.

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

1 unchanged sentence

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

For the six months ended June 30, 2023, net cash flows used in investing activities were $36.1 million.

For the nine months ended September 30, 2023, net cash flows used in investing activities were $55.6 million.

These cash outflows were primarily attributable to $55.6 million of capital improvements made to various hotel properties and a $237,000 loan to OpenKey partially offset by cash inflows of $327,000 related to proceeds from property insurance.

Our capital improvements consisted of approximately $36.8 million of return on investment capital projects and approximately $18.8 million of renewal and replacement capital projects.

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

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

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

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

OpenKey of $328,000.

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

1 unchanged sentence

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

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

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

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

For the six months ended June 30, 2023, net cash flows used in financing activities were $150.1 million.

Cash outflows primarily consisted of repayments of indebtedness of $196.4 million, $26.1 million of dividend and distribution payments, $19.3 million of payments to repurchase common stock, payments of $7.2 million for the redemption of operating partnership units, $3.4 million to purchase interest rate caps, $2.0 million of distributions to a noncontrolling interest in consolidated entities and $904,000 for cash redemptions of Series E and Series M preferred stock.

These cash outflows were partially offset by cash inflows of $97.9 million from the issuance of preferred stock, $4.0 million of contributions from a noncontrolling interest in consolidated entities and $4.0 million of proceeds from in-the-money interest rate caps.

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

For the nine months ended September 30, 2023, net cash flows used in financing activities were $126.3 million.

Cash outflows primarily consisted of repayments of indebtedness of $390.2 million, $39.4 million of dividend and distribution payments, $19.3 million of payments to repurchase common stock, payments of $7.2 million for the redemption of operating partnership units, $4.0 million to purchase interest rate caps, $2.0 million of distributions to a noncontrolling interest in consolidated entities, $3.3 million payments of loan costs and exit fees, and $4.8 million for cash redemptions of Series E and Series M preferred stock.

These cash outflows were partially offset by cash inflows of $236.0 million from borrowings on indebtedness, $97.9 million from the issuance of preferred stock, $4.1 million of contributions from a noncontrolling interest in consolidated entities and $6.0 million of proceeds from in-the-money interest rate caps.

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

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

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

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

Dividend Policy.

1 unchanged sentence

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

On April 5, 2023, our board of directors declared a quarterly cash dividend of $0.05 per diluted share for the second quarter of 2023.

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

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

15 unchanged sentences

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

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

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

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

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

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

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

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

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

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

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

2023 2022 2023 2022

8 unchanged sentences

Transaction and conversion costs 978 5,562 3,229 6,888

Other (income) expense

(293) (27) (293) (27)

Write-off of premiums, loan costs and exit fees 2,588 8 2,848 106

8 unchanged sentences

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

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

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

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

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

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

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

2023 2022 2023 2022

15 unchanged sentences

Transaction and conversion costs 978 5,562 3,229 6,888

Other (income) expense

(293) — (293) —

Write-off of premiums, loan costs and exit fees 2,588 8 2,848 106

11 unchanged sentences

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

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

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

2023 2022 2023 2022

18 unchanged sentences

Truckee, CA 170 100 % 170

C Beverly Hills Hotel (2)

Cameo Beverly Hills (2)

Los Angeles, CA 143 100 % 143

10 unchanged sentences

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

On August 1, 2023, the Company announced the rebranding and planned conversion of its Mr.

C Beverly Hills in Los Angeles, California to the Cameo Beverly Hills.

Following an extensive renovation, which is expected to be completed by the end of 2025, the hotel will join LXR Hotels & Resorts.

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

5 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis