10-Q 1 bhr2018q210-q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number: 001-35972

BRAEMAR HOTELS & RESORTS INC.

(Exact name of registrant as specified in its charter)

Maryland
 
46-2488594
(State or other jurisdiction of incorporation or organization)
 
(IRS employer identification number)
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
Dallas, Texas
 
75254
(Address of principal executive offices)
 
(Zip code)

(972) 490-9600
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
 
Accelerated filer
þ
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
 
Emerging growth company
þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) if the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value per share
 
32,501,880
(Class)
 
Outstanding at August 7, 2018


BRAEMAR HOTELS & RESORTS INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2018

TABLE OF CONTENTS

 
 
 



PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS (unaudited)

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share and per share amounts)
 
 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
 
Investments in hotel properties, gross
 
$
1,520,011

 
$
1,403,110

Accumulated depreciation
 
(241,928
)
 
(257,268
)
Investments in hotel properties, net
 
1,278,083

 
1,145,842

Cash and cash equivalents
 
169,235

 
137,522

Restricted cash
 
83,096

 
47,820

Accounts receivable, net of allowance of $91 and $94, respectively
 
22,338

 
14,334

Insurance receivable
 
—

 
8,825

Inventories
 
1,898

 
1,425

Note receivable
 
—

 
8,098

Deferred costs, net
 
477

 
656

Prepaid expenses
 
4,325

 
3,670

Investment in Ashford Inc., at fair value
 
12,628

 
18,124

Investment in unconsolidated entity
 
1,935

 
—

Derivative assets
 
1,007

 
594

Other assets
 
7,800

 
9,426

Intangible assets, net
 
27,994

 
22,545

Due from related party, net
 
588

 
349

Due from third-party hotel managers
 
5,522

 
4,589

Total assets
 
$
1,616,926

 
$
1,423,819

LIABILITIES AND EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Indebtedness, net
 
$
985,205

 
$
820,959

Accounts payable and accrued expenses
 
63,976

 
56,803

Dividends and distributions payable
 
8,572

 
8,146

Due to Ashford Inc.
 
1,100

 
1,703

Due to third-party hotel managers
 
2,299

 
1,709

Intangible liability, net
 
—

 
3,569

Other liabilities
 
21,585

 
1,628

Total liabilities
 
1,082,737

 
894,517

Commitments and contingencies (note 16)
 

 

5.50% Series B cumulative convertible preferred stock, $0.01 par value, 4,965,850 shares issued and outstanding at both June 30, 2018 and December 31, 2017
 
106,123

 
106,123

Redeemable noncontrolling interests in operating partnership
 
47,818

 
46,627

Equity:
 
 
 
 
Common stock, $0.01 par value, 200,000,000 shares authorized, 32,501,880 and 32,120,210 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
325

 
321

Additional paid-in capital
 
472,945

 
469,791

Accumulated deficit
 
(87,777
)
 
(88,807
)
Total stockholders’ equity of the Company
 
385,493

 
381,305

Noncontrolling interest in consolidated entities
 
(5,245
)
 
(4,753
)
Total equity
 
380,248

 
376,552

Total liabilities and equity
 
$
1,616,926

 
$
1,423,819

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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
REVENUE
 
 
 
 
 
 
 
Rooms
$
78,439

 
$
79,449

 
$
143,946

 
$
146,867

Food and beverage
25,393

 
27,980

 
48,893

 
52,453

Other
17,286

 
8,626

 
30,768

 
13,991

Total hotel revenue
121,118

 
116,055

 
223,607

 
213,311

Other
—

 
37

 
—

 
77

Total revenue
121,118

 
116,092

 
223,607

 
213,388

EXPENSES
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
16,652

 
17,613

 
31,570

 
33,410

Food and beverage
17,287

 
19,263

 
32,907

 
36,124

Other expenses
33,768

 
32,021

 
63,432

 
59,752

Management fees
4,501

 
4,209

 
8,118

 
7,754

Total hotel expenses
72,208

 
73,106

 
136,027

 
137,040

Property taxes, insurance and other
6,077

 
5,370

 
11,681

 
10,444

Depreciation and amortization
14,811

 
13,469

 
27,817

 
25,440

Impairment charges
59

 
—

 
71

 
—

Advisory services fee
4,880

 
3,143

 
10,124

 
4,008

Contract modification cost
—

 
5,000

 
—

 
5,000

Transaction costs
461

 
2,066

 
949

 
6,394

Corporate general and administrative
1,206

 
1,531

 
1,234

 
5,405

Total expenses
99,702

 
103,685

 
187,903

 
193,731

OPERATING INCOME (LOSS)
21,416

 
12,407

 
35,704

 
19,657

Equity in earnings (loss) of unconsolidated entity
(62
)
 
—

 
(65
)
 
—

Interest income
230

 
165

 
430

 
277

Gain (loss) on sale of hotel property
15,711

 
—

 
15,711

 
—

Other income (expense)
(63
)
 
(113
)
 
(126
)
 
(270
)
Interest expense and amortization of loan costs
(12,678
)
 
(9,931
)
 
(22,857
)
 
(18,133
)
Write-off of loan costs and exit fees
(4,176
)
 
—

 
(4,178
)
 
(1,963
)
Unrealized gain (loss) on investment in Ashford Inc.
(6,024
)
 
(1,563
)
 
(5,496
)
 
1,528

Unrealized gain (loss) on derivatives
(298
)
 
(100
)
 
(225
)
 
(998
)
INCOME (LOSS) BEFORE INCOME TAXES
14,056

 
865

 
18,898

 
98

Income tax (expense) benefit
(1,202
)
 
(479
)
 
(1,774
)
 
(1
)
NET INCOME (LOSS)
12,854

 
386

 
17,124

 
97

(Income) loss attributable to noncontrolling interest in consolidated entities
(89
)
 
(1,614
)
 
(47
)
 
(1,593
)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(1,235
)
 
343

 
(1,527
)
 
598

NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
11,530

 
(885
)
 
15,550

 
(898
)
Preferred dividends
(1,708
)
 
(1,707
)
 
(3,415
)
 
(3,380
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
$
9,822

 
$
(2,592
)
 
$
12,135

 
$
(4,278
)
INCOME (LOSS) PER SHARE - BASIC:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
0.30

 
$
(0.09
)
 
$
0.37

 
$
(0.16
)
Weighted average common shares outstanding – basic
32,006

 
31,469

 
31,845

 
29,380

INCOME (LOSS) PER SHARE - DILUTED:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
0.29

 
$
(0.09
)
 
$
0.37

 
$
(0.16
)
Weighted average common shares outstanding – diluted
38,588

 
31,469

 
31,853

 
29,380

Dividends declared per common share
$
0.16

 
$
0.16

 
$
0.32

 
$
0.32

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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
NET INCOME (LOSS)
$
12,854

 
$
386

 
$
17,124

 
$
97

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 
 
 
 
Total other comprehensive income (loss)
—

 
—

 
—

 
—

TOTAL COMPREHENSIVE INCOME (LOSS)
12,854

 
386

 
17,124

 
97

Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities
(89
)
 
(1,614
)
 
(47
)
 
(1,593
)
Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership
(1,235
)
 
343

 
(1,527
)
 
598

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
$
11,530

 
$
(885
)
 
$
15,550

 
$
(898
)
See Notes to Condensed Consolidated Financial Statements.

4

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited, in thousands)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Deficit
 
Noncontrolling
Interest in
Consolidated
Entities
 
Total
 
5.50% Series B Cumulative Convertible
 Preferred Stock
 
Redeemable Noncontrolling Interests in Operating Partnership
 
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance at January 1, 2018
 
32,120


$
321

 
$
469,791

 
$
(88,807
)
 
$
(4,753
)
 
$
376,552

 
4,966

 
$
106

 
$
46,627

Purchase of common stock
 
(19
)
 
—

 
(203
)
 
—

 
—

 
(203
)
 
—

 
—

 
—

Equity-based compensation
 
—


—

 
3,303

 
—

 
—

 
3,303

 
—

 
—

 
732

Issuance of restricted shares/units
 
406

 
4

 
54

 
—

 
—

 
58

 
—

 
—

 
18

Forfeiture of restricted common shares
 
(5
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Dividends declared – common stock
 
—


—

 
—

 
(10,547
)
 
—

 
(10,547
)
 
—

 
—

 
—

Dividends declared – preferred stock
 
—

 
—

 
—

 
(3,415
)
 
—

 
(3,415
)
 
—

 
—

 
—

Distributions to noncontrolling interests
 
—

 
—

 
—

 
—

 
(539
)
 
(539
)
 
—

 
—

 
(1,644
)
Net income (loss)
 
—

 
—

 
—

 
15,550

 
47

 
15,597

 
—

 
—

 
1,527

Redemption value adjustment
 
—

 
—

 
—

 
(558
)
 
—

 
(558
)
 
—

 
—

 
558

Balance at June 30, 2018
 
32,502

 
$
325

 
$
472,945

 
$
(87,777
)
 
$
(5,245
)
 
$
380,248

 
4,966

 
$
106

 
$
47,818

See Notes to Condensed Consolidated Financial Statements.

5

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2018

2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
17,124

 
$
97

Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
 
 
 
Depreciation and amortization
27,817

 
25,440

Equity-based compensation
4,035

 
(1,071
)
Bad debt expense
109

 
128

Amortization of loan costs
2,063

 
2,398

Write-off of loan costs and exit fees
4,178

 
1,963

Amortization of intangibles
92

 
93

Amortization of non-refundable membership initiation fees
(5
)
 
—

Interest expense accretion on refundable membership club deposits
150

 
—

(Gain) loss on sale of hotel property
(15,711
)
 
—

Impairment charges
71

 
—

Unrealized (gain) loss on investment in Ashford Inc.
5,496

 
(1,528
)
Realized and unrealized (gain) loss on derivatives
225

 
1,269

Net settlement of trading derivatives
(290
)
 
—

Equity in (earnings) loss of unconsolidated entity
65

 
—

Deferred tax expense (benefit)
122

 
(216
)
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions and dispositions:
 
 
 
Accounts receivable and inventories
(4,525
)
 
2,422

Prepaid expenses and other assets
3,249

 
(2,358
)
Accounts payable and accrued expenses
(3,239
)
 
92

Due to/from related party, net
(252
)
 
56

Due to affiliate
—

 
(2,500
)
Due to/from third-party hotel managers
2,085

 
5,013

Due to/from Ashford Trust OP, net
—

 
489

Due to/from Ashford Inc.
(603
)
 
(1,271
)
Other liabilities
(3,595
)
 
88

Net cash provided by (used in) operating activities
38,661

 
30,604

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Proceeds from property insurance
24,663

 
—

Acquisition of hotel properties, net of cash and restricted cash acquired
(177,875
)
 
(243,666
)
Investment in unconsolidated entity
(2,000
)
 
—

Proceeds from liquidation of AQUA U.S. Fund
—

 
2,289

Net proceeds from sale of hotel property
65,336

 
—

Improvements and additions to hotel properties
(32,423
)
 
(21,740
)
Net cash provided by (used in) investing activities
(122,299
)
 
(263,117
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Borrowings on indebtedness
575,000

 
483,500

Repayments of indebtedness
(399,312
)
 
(335,458
)
Payments of loan costs and exit fees
(9,406
)
 
(9,832
)
Payments for derivatives
(348
)
 
(338
)
Purchase of common stock
(203
)
 
(119
)
Payments for dividends and distributions
(15,122
)
 
(12,058
)
Issuance of preferred stock
—

 
40,169

Issuance of common stock
—

 
66,451

Other
18

 
21

Net cash provided by (used in) financing activities
150,627

 
232,336

Net change in cash, cash equivalents and restricted cash
66,989

 
(177
)
Cash, cash equivalents and restricted cash at beginning of period
185,342

 
164,645

Cash, cash equivalents and restricted cash at end of period
$
252,331

 
$
164,468

 
 
 
 

6

 
Six Months Ended June 30,
 
2018

2017
SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Interest paid
$
21,976

 
$
16,134

Income taxes paid (refund)
704

 
929

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Dividends and distributions declared but not paid
8,572

 
8,356

Capital expenditures accrued but not paid
3,658

 
1,498

Distributions declared but not paid to a noncontrolling interest in a consolidated entity
—

 
1,628

Non-cash dividends paid
58

 
—

Non-cash settlement of note receivable
8,098

 
—

Non-cash settlement of TIF loan
8,098

 
—

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
Cash and cash equivalents at beginning of period
$
137,522

 
$
126,790

Restricted cash at beginning of period
47,820

 
37,855

Cash, cash equivalents and restricted cash at beginning of period
$
185,342

 
$
164,645

 
 
 
 
Cash and cash equivalents at end of period
$
169,235

 
$
129,675

Restricted cash at end of period
83,096

 
34,793

Cash, cash equivalents and restricted cash at end of period
$
252,331

 
$
164,468

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. (formerly Ashford Hospitality Prime, 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 Smith Travel Research. Braemar has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. Braemar conducts its business and owns substantially all of its assets through its operating partnership, Braemar Hospitality Limited Partnership (formerly Ashford Hospitality Prime Limited Partnership) (“Braemar OP”). In this report, the terms “the Company,” “we,” “us” or “our” refers 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.
As of June 30, 2018, Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), which is beneficially wholly-owned by Mr. Monty J. Bennett, Chairman of our board of directors, and Mr. Archie Bennett, Jr., Chairman Emeritus of Ashford Hospitality Trust, Inc. (“Ashford Trust”), managed three of our twelve hotel properties. Third-party management companies managed the remaining hotel properties.
The accompanying condensed consolidated financial statements include the accounts of such wholly-owned and majority owned subsidiaries of Braemar OP that as of June 30, 2018, own and operate twelve hotel properties in six states, the District of Columbia and the U.S. Virgin Islands. The portfolio includes ten 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 3,549 total rooms, or 3,314 net rooms, excluding those attributable to our partner. As a REIT, Braemar needs to comply with limitations imposed by the Internal Revenue Code related to operating hotels. As of June 30, 2018, eleven of our twelve 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 U.S. Virgin Islands is owned by our U.S. Virgin Islands 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 June 30, 2018, nine of the twelve 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 International, Inc. (“Marriott”), Hilton Worldwide (“Hilton”), Accor Business and Leisure Management, LLC (“Accor”), Hyatt Hotels Corporation (“Hyatt”), Ritz-Carlton, Inc., a subsidiary of Marriott (“Ritz-Carlton”) and Remington Lodging, which are eligible independent contractors under the Internal Revenue 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 significant 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 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 2017 Annual Report on Form 10-K, as originally filed with the Securities and Exchange Commission (“SEC”) on March 14, 2018.

8
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


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 (formerly Ashford Prime 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 and six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018;
•
on March 31, 2017, we acquired the Park Hyatt Beaver Creek and on May 11, 2017, we acquired the Hotel Yountville. The operating results of these hotel properties have been included in our results of operations as of their acquisition dates;
•
on November 1, 2017, we sold the Plano Marriott Legacy Town Center;
•
on April 4, 2018, we acquired the Ritz-Carlton, Sarasota. The operating results of the hotel has been included in the results of operations as of its acquisition date; and
•
on June 1, 2018, we sold the Tampa Renaissance.
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.
Restricted Cash—Restricted cash includes reserves for debt service, real estate taxes and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures and equipment replacements of approximately 4% to 5% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions.
Impairment of Investments in Hotel Properties—Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property’s net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs. See note 4.
Investment in Ashford Inc.—We hold approximately 195,000 shares of Ashford Inc. common stock, which represented an approximate 9.2% ownership interest in Ashford Inc. and had a fair value of $12.6 million at June 30, 2018. This investment would typically be accounted for under the equity method of accounting, under Accounting Standard Codification (“ASC”) 323-10 - Investments - Equity Method and Joint Ventures since we exercise significant influence. However, we have elected to record our investment in Ashford Inc. using the fair value option under ASC 825-10 - Fair Value Option - Financial Assets and Financial Liabilities.
Investment in Unconsolidated Entity—Investment in unconsolidated entity, in which we have ownership interest of 8.2% at June 30, 2018, is accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the entities’ net income/loss. We review our investment in unconsolidated entity 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 our investment. Any impairment is recorded in equity in earnings (loss) in unconsolidated entity. No such impairment was recorded for the three and six months ended June 30, 2018.

9
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Our investment in unconsolidated entity is considered to be a variable interest in the underlying entity. VIEs, as defined by authoritative accounting guidance, 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. Because we do not have the power and financial responsibility to direct the unconsolidated entity’s activities and operations, we are not considered to be the primary beneficiary of this entity on an ongoing basis and therefore such entity should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Equity-Based Compensation—Stock/unit-based compensation for non-employees is accounted for at fair value based on the market price of the shares at period end in accordance with applicable authoritative accounting guidance that results in recording expense, included in “advisory services fee” and “management fees,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Performance stock units (“PSUs”) and performance-based Long-Term Incentive Plan (“LTIP”) units granted to certain executive officers are accounted for at fair value at period end based on a Monte Carlo simulation valuation model that results in recording expense, included in “advisory services fee,” equal to the fair value of the award in proportion to the requisite service period satisfied during the period. Stock/unit grants to independent directors are recorded at fair value based on the market price of the shares at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant and included in “corporate general and administrative” expense in the condensed consolidated statements of operations.
Recently Adopted Accounting Standards—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model, which requires a company to recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The update replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606): Deferral of the Effective Date, which defers the effective date to fiscal periods beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect (modified) transition method. This standard, referred to as “Topic 606,” does not materially affect the amount or timing of revenue recognition for revenues from room, food and beverage, and other hotel level sales. Additionally, we have historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations. Therefore, Topic 606 does not impact the recognition of hotel sales. We adopted this standard effective January 1, 2018, under the modified retrospective method, and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. See related disclosures in note 3.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available-for-sale (“AFS”) debt securities in combination with other deferred tax assets. ASU 2016-01 provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. It also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Certain provisions of ASU 2016-01 are eligible for early adoption. We adopted this standard effective January 1, 2018. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force (“ASU 2016-15”). The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We adopted this standard effective January 1, 2018 on a prospective basis as there were no required changes as a result of adoption. The adoption of this standard did not have a material impact on our consolidated statement of cash flows.

10
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business (“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. We adopted this standard effective January 1, 2018. Under the new standard, certain future hotel acquisitions may be considered asset acquisitions rather than business combinations, which would affect capitalization of acquisitions costs (such costs are expensed for business combinations and capitalized for asset acquisitions).
In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU “2017-05”), which clarifies the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and adds guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. An entity may elect to apply ASU 2017-05 under a retrospective or modified retrospective method. We adopted this standard effective January 1, 2018, under the modified retrospective method. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards—In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases ("ASU 2018-10"). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit in the lease, lease term and purchase option. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases ("ASU 2018-10") and ASU 2018-11, Leases (Topic 842), Targeted Improvements (“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit in the lease, lease term and purchase option and etc. The amendments in ASU 2018-11 provide an optional transition method for adoption of the new standard, which will allow entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. ASU 2016-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of 2019 on a modified retrospective basis. The accounting for leases under which we are the lessor remains largely unchanged. While we continue evaluating our lease portfolio to assess the impact that ASU 2016-02 will have on our condensed consolidated financial statements, we expect the primary impact to our condensed consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our condensed consolidated balance sheets resulting in the recording of ROU assets and lease obligations. We disclosed $175.4 million in undiscounted future minimum rentals due under non-cancelable leases in note 13 of our most recent 10-K. We are involving our property managers and implementing repeatable processes to manage ongoing lease data collection and analysis, and evaluating accounting policies and internal controls that will be impacted by the new standards.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The ASU sets forth an “expected credit loss” impairment model to replace the current “incurred loss” method of recognizing credit losses. The standard requires measurement and recognition of expected credit losses for most financial assets held. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees and aligns the guidance for share-based payments to non-employees with the requirements for share-based payments granted to employees. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that ASU 2018-07 will have on the condensed consolidated financial statements and related disclosures and expect that the associated compensation expense of the majority of our equity awards will be based on the grant date fair value.

11
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


3. Revenue
On January 1, 2018, we adopted Topic 606 using the modified retrospective method. As the adoption of this standard did not have a material impact on our consolidated financial statements, no adjustments to opening retained earnings were made as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605-Revenue Recognition.
Rooms revenue represents revenues from the occupancy of our hotel rooms and is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue for guest no-shows, day use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay.
Food & Beverage (“F&B”) revenue consists of revenue from the restaurants and lounges at our hotel properties, In-room dining and mini-bars revenue, and banquet/catering revenue from group and social functions. Other F&B revenue may include revenue from audio-visual equipment/services, rental of function rooms, and other F&B related revenues. Revenue is recognized as the services or products are provided. Our hotel properties may employ third parties to provide certain services at the property, for example, audio visual services. We evaluate each of these contracts to determine if the hotel is the principal or the agent in the transaction, and record the revenues as appropriate (i.e. gross vs. net).
Other revenue consists of ancillary revenue at the property, including attrition and cancellation fees, condo management fees, resort and destination fees, health center fees, spas, golf, telecommunications, parking, entertainment and other guest services, as well as rental revenue, primarily consisting of leased retail outlets at our hotel properties, and membership initiation fees and dues, primarily from club memberships. Attrition and cancellation fees are recognized for non-cancellable deposits when the customer provides notification of cancellation within established management policy time frames. Non-refundable membership initiation fees are recognized over the expected life of an active membership. For the three and six months ended June 30, 2018, the Company recorded $3.3 million of business interruption income for the Tampa Renaissance related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010.
Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. Interest income is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due.
The following tables present our revenue disaggregated by geographical areas (in thousands):
 
 
Three Months Ended June 30, 2018
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
4
 
$
23,535

 
$
5,649

 
$
2,379

 
$
—

 
$
31,563

Colorado
 
1
 
1,761

 
1,745

 
1,731

 
—

 
5,237

Florida
 
2
 
10,807

 
7,053

 
3,172

 
—

 
21,032

Illinois
 
1
 
7,783

 
2,569

 
371

 
—

 
10,723

Pennsylvania
 
1
 
8,351

 
1,719

 
303

 
—

 
10,373

Washington
 
1
 
9,050

 
1,701

 
361

 
—

 
11,112

Washington, D.C.
 
1
 
12,791

 
3,896

 
337

 
—

 
17,024

USVI
 
1
 
1,472

 
132

 
5,253

 
—

 
6,857

Sold hotel properties
 
1
 
2,889

 
929

 
3,379

 
—

 
7,197

Corporate entities
 
—
 
—

 
—

 
—

 
—

 
—

Total
 
13
 
$
78,439

 
$
25,393

 
$
17,286

 
$
—

 
$
121,118


12
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


 
 
Three Months Ended June 30, 2017
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
4
 
$
19,655

 
$
5,435

 
$
2,764

 
$
—

 
$
27,854

Colorado
 
1
 
1,717

 
1,544

 
1,685

 
—

 
4,946

Florida
 
1
 
4,687

 
1,139

 
335

 
—

 
6,161

Illinois
 
1
 
7,824

 
2,377

 
185

 
—

 
10,386

Pennsylvania
 
1
 
7,781

 
1,298

 
346

 
—

 
9,425

Washington
 
1
 
8,761

 
2,614

 
293

 
—

 
11,668

Washington, D.C.
 
1
 
12,516

 
4,109

 
372

 
—

 
16,997

USVI
 
1
 
7,329

 
4,552

 
2,215

 
—

 
14,096

Sold hotel properties
 
2
 
9,179

 
4,912

 
431

 
—

 
14,522

Corporate entities
 
—
 
—

 
—

 
—

 
37

 
37

Total
 
13
 
$
79,449

 
$
27,980

 
$
8,626

 
$
37

 
$
116,092

 
 
Six Months Ended June 30, 2018
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
4
 
$
42,639

 
$
12,954

 
$
5,854

 
$
—

 
$
61,447

Colorado
 
1
 
11,558

 
6,564

 
5,274

 
—

 
23,396

Florida
 
2
 
16,280

 
7,856

 
3,923

 
—

 
28,059

Illinois
 
1
 
11,202

 
3,820

 
581

 
—

 
15,603

Pennsylvania
 
1
 
14,504

 
2,892

 
600

 
—

 
17,996

Washington
 
1
 
14,552

 
3,365

 
626

 
—

 
18,543

Washington, D.C.
 
1
 
21,752

 
8,236

 
620

 
—

 
30,608

USVI
 
1
 
3,288

 
331

 
9,799

 
—

 
13,418

Sold hotel properties
 
1
 
8,171

 
2,875

 
3,491

 
—

 
14,537

Corporate entities
 
—
 
—

 
—

 
—

 
—

 
—

Total
 
13
 
$
143,946

 
$
48,893

 
$
30,768

 
$
—

 
$
223,607

 
 
Six Months Ended June 30, 2017
Primary Geographical Market
 
Number of Hotels
 
Rooms
 
Food and Beverage
 
Other Hotel
 
Other
 
Total
California
 
4
 
$
36,579

 
$
11,452

 
$
4,164

 
$
—

 
$
52,195

Colorado
 
1
 
1,717

 
1,544

 
1,685

 
—

 
4,946

Florida
 
1
 
10,369

 
2,073

 
696

 
—

 
13,138

Illinois
 
1
 
11,297

 
3,590

 
285

 
—

 
15,172

Pennsylvania
 
1
 
12,741

 
2,277

 
529

 
—

 
15,547

Washington
 
1
 
14,174

 
4,443

 
549

 
—

 
19,166

Washington, D.C.
 
1
 
23,390

 
8,760

 
682

 
—

 
32,832

USVI
 
1
 
17,072

 
8,071

 
4,628

 
—

 
29,771

Sold hotel properties
 
2
 
19,528

 
10,243

 
773

 
—

 
30,544

Corporate entities
 
—
 
—

 
—

 
—

 
77

 
77

Total
 
13
 
$
146,867

 
$
52,453

 
$
13,991

 
$
77

 
$
213,388


13
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


4. Investments in Hotel Properties, net
Investments in hotel properties, net consisted of the following (in thousands):
 
 
June 30, 2018
 
December 31, 2017
Land
 
$
428,567

 
$
344,937

Buildings and improvements
 
982,275

 
962,478

Furniture, fixtures and equipment
 
95,443

 
87,796

Construction in progress
 
13,726

 
7,899

Total cost
 
1,520,011

 
1,403,110

Accumulated depreciation
 
(241,928
)
 
(257,268
)
Investments in hotel properties, net
 
$
1,278,083

 
$
1,145,842

Impairment Charges and Insurance Recoveries
In September 2017, the Ritz-Carlton, St. Thomas located in St. Thomas, USVI, the Key West Pier House located in Key West, FL and the Tampa Renaissance located in Tampa, FL were impacted by the effects of Hurricanes Irma and Maria. The Company holds insurance policies that provide coverage for property damage and business interruption after meeting certain deductibles at all of its hotel properties. During the year ended December 31, 2017, the Company recognized impairment charges, net of anticipated insurance recoveries of $1.1 million. Additionally, the Company recognized remediation and other costs, net of anticipated insurance recoveries of $3.8 million, included primarily in other hotel operating expenses. As of December 31, 2017, the Company recorded an insurance receivable of $8.8 million, net of deductibles of $4.9 million, related to the anticipated insurance recoveries. During the year ended December 31, 2017, the Company received proceeds of $11.1 million for business interruption losses associated with lost profits, of which $4.1 million was recorded as “other” hotel revenue in our consolidated statement of operations, $3.3 million represented reimbursement of incurred expenses in excess of the deductible of $1.1 million and $3.7 million was recorded as a reduction to insurance receivable.
For the three and six months ended June 30, 2018, the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of $5.2 million and $10.1 million, respectively, which are included in “other” hotel revenue in our condensed consolidated statements of operations. The Company received proceeds of $34.0 million from our insurance carriers for property damage and business interruption from the hurricanes during the three and six months ended June 30, 2018. Additionally, during the three and six months ended June 30, 2018, the Company recorded revenue of $190,000 and $1.9 million, net of deductibles of $500,000, for business interruption losses associated with lost profits at the Bardessono Hotel and Hotel Yountville as a result of the Napa wildfires, which is included in “other” hotel revenue in our condensed consolidated statements of operations. During the three and six months ended June 30, 2018, we recorded impairment charges of $59,000 and $71,000 as a result of a change in estimate of property damage as a result of the hurricanes. As of June 30, 2018, the Company has a net liability of $10.4 million, included in “other liabilities” on the condensed consolidated balance sheet, as it has received insurance proceeds in excess of the sum of its impairment, remediation expenses and business interruption revenue recorded through June 30, 2018. The Company will not record revenue for business interruption losses associated with lost profits or gains from property damage recoveries until the amount for such recoveries is known and the amount is realizable.
Ritz-Carlton, Sarasota
On April 4, 2018, the Company acquired a 100% interest in the 266-room Ritz-Carlton, Sarasota in Sarasota, Florida for $171.7 million and a 22-acre plot of vacant land for $9.7 million. Concurrent with the closing of the acquisition, we completed the financing of a $100.0 million mortgage loan. See note 8.
The acquisition of the Ritz-Carlton, Sarasota included the hotel, a golf club, a beach club and a plot of vacant land, which are considered to be a group of dissimilar assets per ASU 2017-01. As such, we have accounted for this acquisition as a business combination. We have allocated the purchase price to the assets acquired and liabilities assumed on a preliminary basis using estimated fair value information currently available. We are in the process of evaluating the values assigned to investment in hotel property, property level working capital balances and intangibles. This valuation is considered a Level 3 valuation technique. Thus, the balances reflected below are subject to change, and any such changes could result in adjustments to the allocation. Any change to the amounts recorded within the investments in hotel properties or intangibles will also impact depreciation and amortization expense.

14
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The following table summarizes the preliminary estimated fair value of the assets acquired in the acquisition (in thousands):
Land (1)
$
83,630

Buildings and improvements
86,316

Furniture, fixtures and equipment
13,740

Customer relationships
5,682

Refundable membership club deposits (2)
(9,960
)
Income guarantee (3)
2,000

 
$
181,408

Net other assets (liabilities)
$
(3,533
)
________
(1) 
Amount includes the $9.7 million, 22-acre plot of vacant land.
(2) 
Recorded within “other liabilities” on our condensed consolidated balance sheets.
(3) 
Recorded within “other assets” on our condensed consolidated balance sheets.
The results of operations of the hotel property have been included in our results of operations as of the acquisition date. For both the three and six months ended June 30, 2018, we have included total revenue of $15.1 million and net loss of $719,000, in our condensed consolidated statements of operations. The unaudited pro forma results of operations as if the acquisition had occurred on January 1, 2017 are included below under “Pro Forma Financial Results.”
Pro Forma Financial Results
The following table reflects the unaudited pro forma results of operations as if the acquisitions had occurred and the applicable indebtedness was incurred on January 1, 2017, and the removal of $462,000 and $949,000 of non-recurring transaction costs directly attributable to the acquisitions for the three and six months ended June 30, 2018 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
121,763

 
$
136,590

 
$
243,680

 
$
248,128

Net income (loss)
13,617

 
1,390

 
20,842

 
2,037

Net income (loss) attributable to common stockholders
10,500

 
(1,705
)
 
15,437

 
(2,578
)
Pro Forma income per share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
(0.06
)
 
$
0.47

 
$
(0.10
)
Diluted
$
0.31

 
$
(0.06
)
 
$
0.47

 
$
(0.10
)
Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
32,006

 
31,469

 
31,845

 
29,380

Diluted
38,588

 
31,469

 
35,971

 
29,380



15
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


5. Hotel Dispositions
On November 1, 2017, the Company sold the Plano Marriott Legacy Town Center for $104.0 million in cash. The sale resulted in a gain of $23.8 million for the year ended December 31, 2017.
On June 1, 2018, the Company sold the Tampa Renaissance hotel for $68.0 million in cash. The sale resulted in a gain of $15.7 million for both the three and six months ended June 30, 2018 and is included in “gain (loss) on sale of hotel property” in our condensed consolidated statements of operations.
Since the sale of the hotel property did not represent a strategic shift that has (or will have) a major effect on our operations or financial results, its results of operations were not reported as discontinued operations in our consolidated financial statements.
We included the results of operations for this hotel property through the date of disposition in net income (loss) as shown in our condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017. The following table includes the condensed financial information from this hotel property (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total hotel revenue
$
7,197

 
$
14,522

 
$
14,537

 
$
30,544

Total hotel operating expenses
(2,521
)
 
(9,029
)
 
(7,499
)
 
(19,082
)
Operating income (loss)
4,676

 
5,493

 
7,038

 
11,462

Property taxes, insurance and other
(217
)
 
(735
)
 
(486
)
 
(1,372
)
Depreciation and amortization
(357
)
 
(2,180
)
 
(1,294
)
 
(4,301
)
Impairment charges
—

 
—

 
(12
)
 
—

Gain (loss) on sale of hotel property
15,711

 
—

 
15,711

 
—

Interest expense and amortization of loan costs
(303
)
 
(1,115
)
 
(791
)
 
(2,137
)
Income (loss) before income taxes
19,510

 
1,463

 
20,166

 
3,652

(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership
(2,179
)
 
(171
)
 
(2,253
)
 
(428
)
Income (loss) before income taxes attributable to the Company
$
17,331

 
$
1,292

 
$
17,913

 
$
3,224

6. Note Receivable
As of December 31, 2017, we held a note receivable of $8.1 million from the city of Philadelphia, Pennsylvania, which had a stated interest rate of 12.85%. The note matured in June 2018. Prior to maturity the interest income recorded on the note receivable was offset against the interest expense recorded on the TIF loan of the same amount. See note 8.
7. Investment in Unconsolidated Entity
Ashford Inc.
As of June 30, 2018 and December 31, 2017, we held approximately 195,000 shares of Ashford Inc. common stock. The closing price per share of Ashford Inc. common stock on the NYSE American LLC was $64.80 and $93.00 as of June 30, 2018 and December 31, 2017, respectively. This represented an approximate 9.2% and 9.3% ownership interest in Ashford Inc. for June 30, 2018 and December 31, 2017, respectively. See notes 11 and 12.
We have elected to use the fair value option, under the applicable accounting guidance, to account for our investment in Ashford Inc. as the fair value is readily available since Ashford Inc. common stock is traded on a national exchange. The fair value of our investment in Ashford Inc. is included in “investment in Ashford Inc., at fair value” on our condensed consolidated balance sheets, and changes in market value are included in “unrealized gain (loss) on investment in Ashford Inc.” on our condensed consolidated statements of operations.

16
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The following tables summarize the condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017, and the condensed consolidated statements of operations for the three and six months ended June 30, 2018 and 2017, of Ashford Inc. (in thousands):
Ashford Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
June 30, 2018
 
December 31, 2017
Total assets
$
138,145

 
$
114,810

Total liabilities
90,331

 
78,742

Redeemable noncontrolling interests
4,852

 
5,111

Total stockholders’ equity of Ashford Inc.
41,541

 
30,185

Noncontrolling interests in consolidated entities
1,421

 
772

Total equity
42,962

 
30,957

Total liabilities and equity
$
138,145

 
$
114,810

Our investment in Ashford Inc., at fair value
$
12,628

 
$
18,124

Ashford Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total revenue
$
54,811

 
$
19,639

 
$
102,979

 
$
32,652

Total operating expenses
(43,941
)
 
(18,221
)
 
(97,145
)
 
(33,370
)
Operating income (loss)
10,870

 
1,418

 
5,834

 
(718
)
Realized and unrealized gain (loss) on investments
—

 
(16
)
 
—

 
(91
)
Other
(333
)
 
10

 
(426
)
 
128

Income tax (expense) benefit
(1,605
)
 
(8,643
)
 
(2,311
)
 
(9,273
)
Net income (loss)
8,932

 
(7,231
)
 
3,097

 
(9,954
)
(Income) loss from consolidated entities attributable to noncontrolling interests
118

 
190

 
291

 
165

Net (income) loss attributable to redeemable noncontrolling interests
(90
)
 
332

 
(151
)
 
695

Net income (loss) attributable to Ashford Inc.
$
8,960

 
$
(6,709
)
 
$
3,237

 
$
(9,094
)
Our unrealized gain (loss) on investment in Ashford Inc.
$
(6,024
)
 
$
(1,563
)
 
$
(5,496
)
 
$
1,528

OpenKey
On March 28, 2018, the Company made a $2.0 million investment in OpenKey, which is controlled and consolidated by Ashford Inc., for an 8.2% ownership interest, which investment was approved by our Related Party Transactions Committee and the independent members of our board of directors. OpenKey is a hospitality focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guest rooms. Our investment is recorded as a component of “investment in unconsolidated entity” in our condensed consolidated balance sheet and is accounted for under the equity method of accounting as we have been deemed to have significant influence over the entity under the applicable accounting guidance. As of June 30, 2018, our ownership interest had a carrying value of $1.9 million. For the three and six months ended June 30, 2018, our equity in loss of the unconsolidated entity was $62,000 and $65,000, respectively.

17
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


8. Indebtedness
Indebtedness consisted of the following (in thousands):
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
June 30, 2018
 
December 31, 2017
Secured revolving credit facility(3)
 
None
 
November 2019
 
Base Rate (2) + 1.25% to 2.50% or LIBOR(1) + 2.25% to 3.50%
 
$
—

 
$
—

TIF loan(4) 
 
Courtyard Philadelphia
 
June 2018
 
12.85%
 
—

 
8,098

Mortgage loan(5)
 
Ritz-Carlton, St. Thomas
 
December 2018
 
LIBOR(1) + 4.95%
 
42,000

 
42,000

Mortgage loan(6) (7)
 
Courtyard Philadelphia
 
February 2019
 
LIBOR(1) + 2.58%
 
—

 
277,628

 
 
Courtyard San Francisco
 
 
 
 
 
 
 
 
 
 
Marriott Seattle Waterfront
 
 
 
 
 
 
 
 
 
 
Tampa Renaissance
 
 
 
 
 
 
 
 
Mortgage loan(6)
 
Sofitel Chicago Magnificent Mile
 
March 2019
 
LIBOR(1) + 2.55%
 
—

 
80,000

Mortgage loan(8)
 
Pier House Resort
 
March 2019
 
LIBOR(1) + 2.25%
 
70,000

 
70,000

Mortgage loan(9)
 
Park Hyatt Beaver Creek
 
April 2019
 
LIBOR(1) + 2.75%
 
67,500

 
67,500

Mortgage loan(10)
 
Capital Hilton
 
November 2019
 
LIBOR(1) + 2.65%
 
188,326

 
190,010

 
 
Hilton La Jolla Torrey Pines
 
 
 
 
 
 
 
 
Mortgage loan(6)
 
Courtyard Philadelphia
 
June 2020
 
LIBOR(1) + 2.16%
 
435,000

 
—

 
 
Courtyard San Francisco
 
 
 
 
 
 
 
 
 
 
Marriott Seattle Waterfront
 
 
 
 
 
 
 
 
 
 
Sofitel Chicago Magnificent Mile
 
 
 
 
 
 
 
 
Mortgage loan
 
Hotel Yountville
 
May 2022
 
LIBOR(1) + 2.55%
 
51,000

 
51,000

Mortgage loan
 
Bardessono Hotel
 
August 2022
 
LIBOR(1) + 2.55%
 
40,000

 
40,000

Mortgage loan
 
Ritz-Carlton, Sarasota
 
April 2023
 
LIBOR(1) + 2.65%
 
100,000

 
—

 
 
 
 
 
 
 
 
993,826

 
826,236

Deferred loan costs, net
 
 
 
 
 
 
 
(8,621
)
 
(5,277
)
Indebtedness, net
 
 
 
 
 
 
 
$
985,205

 
$
820,959

__________________
(1) 
LIBOR rates were 2.090% and 1.564% at June 30, 2018 and December 31, 2017, respectively.
(2) 
Base Rate, as defined in the secured revolving credit facility agreement, is the greater of (i) the prime rate set by Bank of America, (ii) federal funds rate + 0.5%, or (iii) LIBOR + 1.0%.
(3) 
Our borrowing capacity under our secured revolving credit facility is $100.0 million. We have an option, subject to lender approval, to further increase the borrowing capacity to an aggregate of $250.0 million. We may use up to $15.0 million for standby letters of credit. The secured revolving credit facility has two one-year extension options subject to advance notice, satisfaction of certain conditions and a 0.25% extension fee.
(4) 
The TIF loan matured on June 30, 2018. See note 6.
(5) 
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the first was exercised in December 2017.
(6) 
On May 23, 2018, we refinanced two mortgage loans totaling $357.6 million with a new $435.0 million mortgage loan with a two-year initial term and five one-year extension options subject to the satisfaction of certain conditions. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.16%.
(7) 
A portion of this mortgage loan at December 31, 2017 relates to the Tampa Renaissance, which was sold on June 1, 2018. See note 5.
(8) 
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions, of which the second was exercised in March 2018.
(9) 
This mortgage loan has three one-year extension options, subject to satisfaction of certain conditions.
(10) 
This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.
(11) 
The Ritz-Carlton, Sarasota property was acquired on April 4, 2018. The new mortgage loan is a five-year interest-only loan and bears interest at a rate of LIBOR + 2.65%.
On March 31, 2017, in connection with the acquisition of the Park Hyatt Beaver Creek, we completed the financing of a $67.5 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.75%. The stated maturity date of the mortgage loan is April 2019, with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by the Park Hyatt Beaver Creek.
On May 11, 2017, in connection with the acquisition of the Hotel Yountville, we completed the financing of a $51.0 million mortgage loan. This mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.55%. The stated maturity date of the mortgage loan is May 2022. The mortgage loan is secured by the Hotel Yountville.

18
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


On August 18, 2017, we refinanced our existing $40.0 million mortgage loan with a final maturity date in December 2020 with a new $40.0 million mortgage loan that is interest only, provides for a floating interest rate of LIBOR + 2.55% and has a stated maturity date of August 2022. The mortgage loan is secured by the Bardessono Hotel.
On April 4, 2018, in connection with the acquisition of the 266 -room Ritz-Carlton, Sarasota in Sarasota, Florida, the Company completed the financing of a $100.0 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR + 2.65%. The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.
On May 23, 2018, the Company refinanced two mortgage loans totaling $357.6 million with a new $435.0 million mortgage loan with a two-year initial term and five one-year extension options subject to the satisfaction of certain conditions. As a result of the refinance the Tampa Renaissance became unencumbered. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.16%. The loan is secured by four hotels: Seattle Marriott Waterfront, San Francisco Courtyard Downtown, Philadelphia Courtyard Downtown and Sofitel Chicago Magnificent Mile.
We are required to maintain certain financial ratios under our secured revolving credit facility. 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. Violations of certain debt covenants may result in our inability to borrow unused amounts under our line of credit, even if repayment of some or all of our borrowings is not required. 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 June 30, 2018, we were in compliance in all material respects with all covenants or other requirements set forth in our debt agreements as amended.
9. 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss) attributable to common stockholders - basic and diluted:
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
$
11,530

 
$
(885
)
 
$
15,550

 
$
(898
)
Less: Dividends on preferred stock
(1,708
)
 
(1,707
)
 
(3,415
)
 
(3,380
)
Less: Dividends on common stock
(5,122
)
 
(5,036
)
 
(10,238
)
 
(10,069
)
Less: Dividends on unvested performance stock units
(72
)
 
(86
)
 
(144
)
 
(153
)
Less: Dividends on unvested restricted shares
(78
)
 
(75
)
 
(165
)
 
(125
)
Less: Net (income) loss allocated to unvested restricted shares
(70
)
 
—

 
(24
)
 
—

Undistributed net income (loss) allocated to common stockholders
4,480

 
(7,789
)
 
1,564

 
(14,625
)
Add back: Dividends on common stock
5,122

 
5,036

 
10,238

 
10,069

Distributed and undistributed net income (loss) - basic
$
9,602

 
$
(2,753
)
 
$
11,802

 
$
(4,556
)
Dividends on preferred stock
1,708

 
—

 
—

 
—

Distributed and undistributed net income (loss) - diluted
$
11,310

 
$
(2,753
)
 
$
11,802

 
$
(4,556
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
32,006

 
31,469

 
31,845

 
29,380

Effect of assumed conversion of preferred stock
6,569

 
—

 
—

 
—

Incentive fee shares
13

 
—

 
8

 
—

Weighted average common shares outstanding – diluted
38,588

 
31,469

 
31,853

 
29,380

 
 
 
 
 
 
 
 
Income (loss) per share - basic:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.30

 
$
(0.09
)
 
$
0.37

 
$
(0.16
)
Income (loss) per share - diluted:
 
 
 
 
 
 
 
Net income (loss) allocated to common stockholders per share
$
0.29

 
$
(0.09
)
 
$
0.37

 
$
(0.16
)

19
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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss) allocated to common stockholders is not adjusted for:
 
 
 
 
 
 
 
Income (loss) allocated to unvested restricted shares
$
148

 
$
75

 
$
189

 
$
125

Income (loss) allocated to unvested performance stock units
72

 
86

 
144

 
153

Income (loss) attributable to redeemable noncontrolling interests in operating partnership
1,235

 
(343
)
 
1,527

 
(598
)
Dividends on preferred stock
—

 
1,707

 
3,415

 
3,380

Total
$
1,455

 
$
1,525

 
$
5,275

 
$
3,060

Weighted average diluted shares are not adjusted for:
 
 
 
 
 
 
 
Effect of unvested restricted shares
41

 
113

 
45

 
82

Effect of unvested performance stock units
—

 
—

 
8

 
—

Effect of assumed conversion of operating partnership units
4,114

 
4,290

 
4,119

 
4,256

Effect of assumed conversion of preferred stock
—

 
6,560

 
6,569

 
5,555

Effect of incentive fee shares
—

 
124

 
—

 
153

Total
4,155

 
11,087

 
10,741

 
10,046

10. 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. The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements. All derivatives are recorded at fair value.
During the six months ended June 30, 2018 and 2017, we entered into interest rate caps as summarized in the table below:
 
Six Months Ended June 30,
 
2018
 
2017
Notional amount (in thousands)
$
685,000

 
$
619,500

Strike rate minimum
2.43
%
 
3.00
%
Strike rate maximum
7.80
%
 
5.35
%
Effective date range
February 2018 - May 2018

 
January 2017 - May 2017

Maturity date range
March 2019 - June 2020

 
March 2018 - May 2019

Total cost of interest rate cap (in thousands)
$
348

 
$
338

_______________
No instruments were designated as cash flow hedges

20
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


As of June 30, 2018, we held interest rate instruments as summarized in the table below:
Interest rate caps (1)
 
 
Notional amount (in thousands)
 
$
1,393,200

Strike rate minimum
 
2.43
 %
Strike rate maximum
 
11.61
 %
Effective date range
 
January 2017 - May 2018

Maturity date range
 
November 2018 - June 2020

Aggregate principal balance on corresponding mortgage loans (in thousands)
 
$
993,826

 
 
 
Interest rate floors (1) (2)
 
 
Notional amount (in thousands)
 
$
6,850,000

Strike rate minimum
 
(0.25
)%
Strike rate maximum
 
1.50
 %
Maturity date range
 
March 2019 - July 2020

_______________
(1) 
No instruments were designated as cash flow hedges
(2) 
Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
Credit Default Swap Derivatives—We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. As of June 30, 2018, we held a credit default swap with a notional amount of $50.0 million, an effective date of August 2017 and an expected maturity date of October 2026. Assuming the underlying bonds pay off at par over their remaining average life, our estimated total exposure for these trades was approximately $2.3 million as of June 30, 2018. Cash collateral is posted by us as well as our counterparties. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in market value of credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparties when such change in market value is over $250,000.
11. 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 market place 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 is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rates of the caps. The variable interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (the Level 2 inputs). We also incorporate credit valuation adjustments (the Level 3 inputs) to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk.

21
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Fair value of credit default swaps are obtained from a third party who publishes various information including the index composition and price data (Level 2 inputs). The fair value of credit default swaps does not contain credit-risk-related adjustments as the change in fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
The fair value of interest rate floors is calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor. These expected future cash flows are probability-weighted projections based on the contract terms, accounting for both the magnitude and likelihood of potential payments, which are both computed using the appropriate LIBOR forward curve and market implied volatilities as of the valuation date (Level 2 inputs).
The fair value of options on futures contracts is determined based on the last reported settlement price as of the measurement date (Level 1 inputs). These exchange-traded options are centrally cleared, and a clearinghouse stands in between all trades to ensure that the obligations involved in the trades are satisfied.
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 counter-parties, 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 June 30, 2018, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from 2.090% to 2.848% for the remaining term of our derivatives. Credit spreads (Level 3 inputs) used in determining the fair values of hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.

22
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present 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)
 
Counterparty and Cash Collateral Netting(1)
 
Total
 
June 30, 2018
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
33

 
$
—

 
$
41

 
$
74

 
Interest rate derivatives - caps
—

 
92

 
—

 
—

 
92

 
Credit default swaps
—

 
222

 
—

 
619

 
841

 
 
—

 
347

 
—

 
660

 
1,007

(2) 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
12,628

 
—

 
—

 
—

 
12,628

 
Total
$
12,628

 
$
347

 
$
—

 
$
660

 
$
13,635

 
 
Quoted Market Prices (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Counterparty and Cash Collateral Netting(1)
 
Total
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
$
—

 
$
118

 
$
—

 
$
12

 
$
130

 
Interest rate derivatives - caps
—

 
4

 
—

 
—

 
4

 
Credit default swaps
—

 
102

 
—

 
358

 
460

 
 
—

 
224

 
—

 
370

 
594

(2) 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
18,124

 
—

 
—

 
—

 
18,124

 
Total
$
18,124

 
$
224

 
$
—

 
$
370

 
$
18,718

 
__________________
(1) 
Represents net cash collateral posted between us and our counterparties.
(2) 
Reported as “derivative assets” in our condensed consolidated balance sheets.

23
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 the condensed consolidated statements of operations (in thousands):
 
 
Gain (Loss) Recognized in Income
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2018
 
2017
 
2018
 
2017
 
Assets
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
 
$
(57
)
 
$
(135
)
 
$
(84
)
 
$
(894
)
 
Interest rate derivatives - caps
 
(256
)
 
(61
)
 
(261
)
 
(317
)
 
Credit default swaps
 
15

(1) 
—

 
120

(1) 
—

 
Options on futures contracts
 
—

 
(19
)
 
—

 
(58
)
 
 
 
 
 
 
 


 


 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
 
(6,024
)
 
(1,563
)
 
(5,496
)
 
1,528

 
Total
 
$
(6,322
)
 
$
(1,778
)
 
$
(5,721
)
 
$
259

 
Total combined
 
 
 
 
 
 
 
 
 
Interest rate derivatives - floors
 
$
(57
)
 
$
(135
)
 
$
(84
)
 
$
(894
)
 
Interest rate derivatives - caps
 
(256
)
 
(61
)
 
(261
)
 
(317
)
 
Credit default swaps
 
15

 
—

 
120

 
—

 
Options on futures contracts
 
—

 
96

 
—

 
213

 
Unrealized gain (loss) on derivatives
 
(298
)
 
(100
)
 
(225
)
 
(998
)
 
Realized gain (loss) on options on futures contracts
 
—

 
(115
)
(2) 
—

 
(271
)
(2) 
Unrealized gain (loss) on investment in Ashford Inc.
 
(6,024
)
 
(1,563
)
 
(5,496
)
 
1,528

 
Net
 
$
(6,322
)
 
$
(1,778
)
 
$
(5,721
)
 
$
259

 
_______________
(1) 
Excludes costs of $63 and $126 associated with credit default swaps for the three and six months ended June 30, 2018 included in “other income (expense)” in our condensed consolidated statements of operations.
(2) 
Included in “other income (expense)” in our condensed consolidated statements of operations.
12. Summary of Fair Value of Financial Instruments
Determining the estimated fair values of certain financial instruments such as notes receivable and 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.

24
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The carrying amounts and estimated fair values of financial instruments were as follows (in thousands):
 
 
June 30, 2018
 
December 31, 2017
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets and liabilities measured at fair value:
 
 
 
 
 
 
 
 
Investment in Ashford Inc.
 
$
12,628

 
$
12,628

 
$
18,124

 
$
18,124

Derivative assets
 
1,007

 
1,007

 
594

 
594

Financial assets not measured at fair value:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
169,235

 
$
169,235

 
$
137,522

 
$
137,522

Restricted cash
 
83,096

 
83,096

 
47,820

 
47,820

Accounts receivable, net
 
22,338

 
22,338

 
14,334

 
14,334

Insurance receivable
 
—

 
—

 
8,825

 
8,825

Note receivable
 
—

 
—

 
8,098

 
8,020 to 8,864

Due from related party, net
 
588

 
588

 
349

 
349

Due from third-party hotel managers
 
5,522

 
5,522

 
4,589

 
4,589

Financial liabilities not measured at fair value:
 
 
 
 
 
 
 
 
Indebtedness
 
$
993,826

 
$942,117 to $1,041,287

 
$
826,236

 
$ 780,243 to $ 862,372

Accounts payable and accrued expenses
 
63,976

 
63,976

 
56,803

 
56,803

Dividends and distributions payable
 
8,572

 
8,572

 
8,146

 
8,146

Due to Ashford Inc.
 
1,100

 
1,100

 
1,703

 
1,703

Due to third-party hotel managers
 
2,299

 
2,299

 
1,709

 
1,709

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, insurance receivable, due from related party, 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.
Note receivable. Fair value of the note receivable was determined by using similar loans with similar collateral. Since there is very little to no trading activity, we relied on our internal analysis of what we believe a willing buyer would pay for this note at December 31, 2017. We estimated the fair value of the note receivable to be approximately 1.0% lower to 9.5% higher than the carrying value of $8.1 million at December 31, 2017. This is considered a Level 2 valuation technique.
Investment in Ashford Inc. Fair value of the investment in Ashford Inc. is based on the quoted closing price on the balance sheet date. This is considered a Level 1 valuation technique.
Derivative assets. Fair value of interest rate derivatives is determined using the net present value of expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of us and our counterparties. Fair value of credit default swaps are obtained from a third party who publishes the CMBX index composition and price data. Fair values of interest rate floors are calculated using a third-party discounted cash flow model based on future cash flows that are expected to be received over the remaining life of the floor. See notes 10 and 11 for a complete description of the methodology and assumptions utilized in determining fair values.
Indebtedness. 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 94.8% to 104.8% of the carrying value of $993.8 million at June 30, 2018, and approximately 94.4% to 104.4% of the carrying value of $826.2 million at December 31, 2017. This is considered a Level 2 valuation technique.

25
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


13. 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 (“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 approves performance-based LTIP units to certain executive officers from time to time. The award agreements provide for the grant of a target number of performance-based LTIP units that will be settled in common units of Braemar OP, if and when the applicable vesting criteria have been achieved following the end of the performance and service period. The target number of performance-based LTIP units may be adjusted from 0% to 200% based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s Compensation Committee on the grant date. As of June 30, 2018, there are approximately 804,000 performance-based LTIP units, representing 200% of the target, outstanding. The performance criteria for the performance-based LTIP units are based on market conditions under the relevant literature, and the performance-based LTIP units were granted to non-employees.
As of June 30, 2018, we have issued a total of 1.9 million LTIP units (including performance-based LTIP units), net of forfeitures, all of which, other than approximately 295,000 LTIP units and 1.2 million performance based LTIP units issued from March 2015 to March 2018 had reached full economic parity with, and are convertible into, common units.
The following table presents compensation expense for performance LTIP units and LTIP units (in thousands):
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Type
 
Line Item
 
2018
 
2017
 
2018
 
2017
 
Performance LTIP units
 
Advisory services fee
 
$
286

 
$
(57
)
(1)
$
294

 
$
(1,104
)
(1)
LTIP units
 
Advisory services fee
 
$
302

 
$
130

 
$
438

 
$
173

 
LTIP units
 
Corporate, general and administrative
 
$
—

 
$
64

 
$
—

 
$
64

 
____________________________________
(1) 
The credit to compensation expense is a result of lower fair values as compared to prior periods.
The unamortized fair value of performance-based LTIP units of $2.1 million at June 30, 2018 will be expensed over a period of 2.5 years, subject to future mark to market adjustments. The fair value of the unrecognized cost of LTIP units of $2.4 million at June 30, 2018, will be amortized over a period of 2.7 years, subject to future mark to market adjustments.
During the three and six months ended June 30, 2017, approximately 1,000 and 6,000 common units, with an aggregate redemption fair value of $15,000 and $82,000, were redeemed by the holders and, at our election, we issued shares of our common stock to satisfy the redemption. During the three and six months ended June 30, 2018, no common units were redeemed.

26
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


The following table presents the redeemable noncontrolling interests in Braemar OP (in thousands) and the corresponding approximate ownership percentage of our operating partnership:
 
June 30, 2018
 
December 31, 2017
Redeemable noncontrolling interests in Braemar OP
$
47,818

 
$
46,627

Adjustments to redeemable noncontrolling interests (1)
558

 
—

Ownership percentage of operating partnership
11.17
%
 
11.43
%
____________________________________
(1) 
to reflect the excess of the redemption value over the accumulated historical costs. 
We allocated net income (loss) to the redeemable noncontrolling interests and declared aggregate cash distributions to the holders of common units and holders of LTIP units, which are recorded as a reduction of redeemable noncontrolling interests in operating partnership, as illustrated in the table below (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Allocated net income (loss) to the redeemable noncontrolling interests
$
(1,235
)
 
$
343

 
$
(1,527
)
 
$
598

Aggregate distributions to holders of common units, LTIP units and performance LTIP units
$
822

 
$
859

 
$
1,644

 
$
1,649

14. Equity and Stock-Based Compensation
Dividends—The following table summarizes the common stock dividends declared during the period (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Common stock dividends declared
$
5,200

 
$
5,112

 
$
10,403

 
$
10,195

Performance Stock Units—The compensation committee of the board of directors of the Company approves grants of PSUs to certain executive officers 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 and when the applicable vesting criteria have been achieved following the end of the performance and service period, generally, three years from the issuance date. The target number of PSUs may be adjusted from 0% to 200% based on achievement of a specified relative total stockholder return based on the formula determined by the Company’s Compensation Committee on the grant date. The performance criteria for the PSUs are based on market conditions under the relevant literature, and the PSUs were granted to non-employees. At June 30, 2018, the outstanding PSUs had a fair value of $3.1 million.
The following table summarizes the compensation expense for PSUs (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Line Item
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
$
292

 
$
(8
)
 
$
1,869

 
$
(808
)
During the six months ended June 30, 2018, approximately $1.6 million of the compensation expense was related to the accelerated vesting of PSUs granted to one of our executive officers upon his passing, in accordance with the terms of the awards. These amounts are included in “advisory services fee” on our condensed consolidated statements of operations.
As of June 30, 2018, we had unamortized compensation expense of $2.6 million related to PSUs which is expected to be recognized over a period of 2.5 years, subject to future mark to market adjustments.
Restricted Stock Units—We incur stock-based compensation expense in connection with restricted stock units awarded to employees of Ashford LLC, included in “advisory services fee,” on our condensed consolidated statements of operations, employees of Remington Lodging, included in “management fees” on our condensed consolidated statements of operations and common

27
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


stock issued to our independent directors, which immediately vests, and is included in “corporate general and administrative” expense on our condensed consolidated statements of operations.
At June 30, 2018, the outstanding restricted shares had a fair value of $5.6 million. At June 30, 2018, the unamortized cost of the unvested shares of restricted stock was $4.9 million, which will be expensed over a period of 3.3 years, subject to future mark to market adjustments, and have vesting dates between March 2019 and November 2021.
The following table summarizes the stock-based compensation expense for restricted stock units (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Line Item
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
$
498

 
$
271

 
$
1,323

 
$
389

Management fees
 
64

 
34

 
111

 
34

Corporate general and administrative
 
—

 
163

 
—

 
181

 
 
$
562

 
$
468

 
$
1,434

 
$
604

During the six months ended June 30, 2018, approximately $640,000 of the compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his passing, in accordance with the terms of the awards.
Stock Repurchases—On December 5, 2017, our board of directors reapproved the stock repurchase program pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company’s common stock, par value $0.01 per share having an aggregate value of up to $50 million. The board of directors’ authorization replaced any previous repurchase authorizations.
No shares were repurchased during the three and six months ended June 30, 2018 and 2017, pursuant to this authorization. As of June 30, 2018, we have purchased a cumulative 4.3 million shares of our common stock, for approximately $63.2 million, since the program’s inception on November 4, 2014.
At-the-Market Equity Distribution Program—On December 11, 2017, the Company established an “at-the-market” equity distribution program pursuant to which it may, from time to time, sell shares of its Common Stock having an aggregate offering price of up to $50 million. As of June 30, 2018, no shares of our common stock have been sold under this program.
Noncontrolling Interest in Consolidated Entities—A partner had noncontrolling ownership interests of 25% in two hotel properties with a total carrying value of $(5.2) million and $(4.8) million at June 30, 2018 and December 31, 2017, respectively.
The following table summarizes the (income) loss allocated to noncontrolling interests in consolidated entities (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
(Income) loss allocated to noncontrolling interests
 
$
(89
)
 
$
(1,614
)
 
$
(47
)
 
$
(1,593
)
15. 5.5% Series B Cumulative Convertible Preferred Stock
Each share of our 5.5% 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 an initial conversion price of $18.90 (which represents an initial conversion rate of 1.3228 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 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. In the event of such mandatory conversion, the Company shall pay holders of the Series B Convertible Preferred Stock any additional dividend payment to make the holder whole on dividends expected to be received through June 11, 2019, in an amount equal to the net present value, where the discount rate is the dividend rate on the Series B Convertible Preferred Stock, of the difference between (i) the annual dividend payments the holders of Series B Convertible Preferred Stock would have

28
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


received in cash from the date of the mandatory conversion to June 11, 2019, and (ii) the common stock quarterly dividend payments the holders of Series B Convertible Preferred Stock would have received over the same time period had such holders held common stock.
On March 7, 2017, we closed an offering of approximately 2.0 million shares of our Series B Convertible Preferred Stock at $20.19 per share for gross proceeds of $39.9 million. The net proceeds to us, after underwriting discounts and offering expenses were approximately $38.2 million. Dividends on the Series B Convertible Preferred Stock accrue at a rate of 5.50% on the liquidation preference of $25.00 per share. On March 31, 2017, the underwriters partially exercised their over-allotment option and purchased an additional 100,000 shares of the Series B Convertible Preferred Stock, which closed on April 5, 2017. The net proceeds from the partial exercise of the over-allotment option after underwriting discounts were approximately $1.9 million.
At June 30, 2018, we had 5.0 million outstanding shares of Series B Convertible Preferred Stock that do 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 Series B Convertible Preferred Stock dividend for all issued and outstanding shares is set at $1.375 per annum per share.
The following table summarizes dividends declared (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Series B convertible preferred stock
$
1,708

 
$
1,707

 
$
3,415

 
$
3,380

16. Commitments and Contingencies
Restricted Cash—Under certain management and debt agreements for our hotel properties existing at June 30, 2018, 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 4% to 5% of gross revenues for capital improvements.
Management Fees—Under management agreements for our hotel properties existing at June 30, 2018, we pay a) monthly property management fees equal to the greater of $13,000 (increased annually based on consumer price index adjustments) or 3% of gross revenues, or in some cases 2% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) project management fees of up to 4% of project costs, c) market service fees including purchasing, design and construction management not to exceed 16.5% of project management budget cumulatively, including project management fees, and d) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from December 2019 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 2014 through 2017 remain subject to potential examination by certain federal and state taxing authorities.
Litigation—We are engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does 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 or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to 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 or results of operations could be materially adversely affected in future periods.
17. Segment Reporting
We operate in one business segment within the hotel lodging industry: direct hotel investments. Direct hotel investments refer 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 June 30, 2018 and December 31, 2017, all of our hotel properties were in the U.S. and its territories.

29
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


18. Related Party Transactions
Ashford LLC, a subsidiary of Ashford Inc., acts as our advisor, and as a result, we pay advisory fees to Ashford LLC. We are required to pay Ashford LLC a monthly base fee that is 1/12th of 0.70% of our total market capitalization plus the Key Money Asset Management Fee (defined in our advisory agreement as the aggregate gross asset value of all key money assets multiplied by 1/12th of 0.70%), subject to a minimum monthly base fee, as payment for managing our day-to-day operations in accordance with our investment guidelines. Total market capitalization includes the aggregate principal amount of our consolidated indebtedness (including our proportionate share of debt of any entity that is not consolidated but excluding our joint venture partners’ proportionate share of consolidated debt). We are also required to pay Ashford LLC an incentive fee that is measured annually. Each year that our annual total stockholder return exceeds the average annual total stockholder return for our peer group, we will 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 record equity-based compensation expense for equity grants of common stock and LTIP units awarded to our officers and employees of Ashford LLC in connection with providing advisory services equal to the fair value of the award in proportion to the requisite service period satisfied during the period.
The following table summarizes the advisory services fees incurred (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Advisory services fee
 
 
 
 
 
 
 
Base advisory fee
$
2,313

 
$
2,276

 
$
4,420

 
$
4,279

Reimbursable expenses (1)
499

 
532

 
919

 
1,079

Equity-based compensation (2) 
1,377

 
335

 
3,924

 
(1,350
)
Incentive fee
691

 
—

 
861

 
—

Total
$
4,880

 
$
3,143

 
$
10,124

 
$
4,008

________
(1) 
Reimbursable expenses include overhead, internal audit, risk management advisory and asset management services.
(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.
In connection with the acquisition of the Bardessono Hotel in 2015 and Ashford Inc.’s engagement to provide hotel advisory services to us, Ashford Inc. agreed to provide $2.0 million of key money consideration in the form of furniture, fixtures and equipment to be used by Braemar. This arrangement is accounted for as a lease, in accordance with the applicable accounting guidance. As such, a portion of the base advisory fee is allocated to lease expense equal to the estimated fair value of the lease payments that would have been made. Lease expense of $84,000 and $168,000 was recognized for the three and six months ended June 30, 2018, respectively, and was included in “other” hotel expense in the consolidated statements of operations. For the three and six months ended June 30, 2017, this expense was $84,000 and $168,000.
Certain employees of Remington Lodging, who perform work on behalf of Braemar, were granted approximately 22,000 and 21,000 shares of restricted stock under the Braemar Stock Plan in 2017 and 2018, respectively. These share grants were accounted for under the applicable accounting guidance related to share-based payments granted to non-employees and are recorded as a component of “management fees” in our condensed consolidated statements of operations. For the three and six months ended June 30, 2018, expense related to such grants was $64,000 and $111,000, respectively. For both the three and six months ended June 30, 2017, expense related to such grants was $34,000. The unamortized fair value of these grants was $429,000 as of June 30, 2018, which will be amortized over a period of 2.7 years.

30
BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)


In accordance with our advisory agreement, our advisor, or entities in which our advisor has an interest, have a right to provide products or services to our hotel properties, provided such transactions are evaluated and approved by our independent directors. The following tables summarize the entities in which our advisor has an interest with which we or our hotel properties contracted for products and services, the amounts paid by us for those services and the applicable classification on our condensed consolidated financial statements (in thousands):
 
 
 
Three Months Ended June 30, 2018
Company
 
Product or Service
Transaction Amount
Investments in Hotel Properties, net (1)
 
Indebtedness, net (2)
 
Other Hotel Expenses
 
Corporate General and Administrative
OpenKey
 
Mobile key app
$
4

$
—

 
$
—

 
$
4

 
$
—

Pure Rooms
 
“Allergy friendly” premium rooms
10

—

 
—

 
10

 
—

RED Leisure
 
Watersports activities and travel/transportation services
180

—

 
—

 
180

 
—

Lismore Capital
 
Mortgage placement services
999

—

 
(999
)
 
—

 
—

Ashford LLC
 
Insurance claims services
31

—

 
—

 
—

 
31

________
(1) 
Recorded in furniture, fixtures and equipment and depreciated over the estimated useful life.
(2) 
Recorded as deferred loan costs, which are included in “indebtedness, net” on our consolidated balance sheets and amortized over the initial term of the applicable loan agreement.
 
 
 
Six Months Ended June 30, 2018
Company
 
Product or Service
Transaction Amount
Investments in Hotel Properties, net (1)
 
Indebtedness, net (2)
 
Other Hotel Expenses
 
Corporate General and Administrative
OpenKey
 
Mobile key app
$
12

$
—

 
$
—

 
$
12

 
$
—

Pure Rooms
 
“Allergy friendly” premium rooms
19

—

 
—

 
19

 
—

RED Leisure
 
Watersports activities and travel/transportation services
360

—

 
—

 
360

 
—

Lismore Capital
 
Mortgage placement services
999

—

 
(999
)
 
—

 
—

Ashford LLC
 
Insurance claims services
69

—

 
—

 
—

 
69

________
(1) 
Recorded in furniture, fixtures and equipment and depreciated over the estimated useful life.
(2) 
Recorded as deferred loan costs, which are included in “indebtedness, net” on our consolidated balance sheets and amortized over the initial term of the applicable loan agreement.
The following table summarizes the due to Ashford Inc. (in thousands):
 
 
 
 
June 30, 2018
 
December 31, 2017
Company
 
Product or Service
 
Due to Ashford Inc.
Ashford LLC
 
Advisory services
 
$
1,065

 
$
1,654

Ashford LLC
 
Insurance claims services
 
32

 
—

OpenKey
 
Mobile key app
 
3

 
4

Pure Rooms
 
“Allergy friendly” premium rooms
 
—

 
45

 
 
 
 
$
1,100

 
$
1,703



31

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, unless the context otherwise indicates, the references to “we,” “us,” “our,” the “Company” or “Braemar” refer to Braemar Hotels & Resorts Inc. (formerly Ashford Hospitality Prime, Inc.), a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Braemar Hospitality Limited Partnership (formerly Ashford Hospitality Prime Limited Partnership), a Delaware limited partnership, which we refer to as “our operating partnership” or “Braemar OP.” “Ashford Trust” refers to Ashford Hospitality Trust, Inc., a Maryland corporation, and, as the context may require, its consolidated subsidiaries, including Ashford Hospitality Limited Partnership, a Delaware limited partnership and Ashford Trust’s operating partnership.” “Ashford LLC” refers to Ashford Hospitality Advisors LLC, a Delaware limited liability company and a subsidiary of Ashford Inc. “Remington Lodging” refers to Remington Lodging and Hospitality LLC, a Delaware limited liability company, a property management company owned by Mr. Monty J. Bennett, chairman of our board of directors, and his father, Mr. Archie Bennett, Jr., chairman emeritus of Ashford Trust. “Our TRSs” refers to our taxable REIT subsidiaries, including Braemar TRS Corporation (formerly Ashford Prime TRS Corporation), a Delaware corporation, which we refer to as “Braemar TRS,” and its subsidiaries, together with the two taxable REIT subsidiaries that lease our two hotels held in a consolidated joint venture and are wholly-owned by the joint venture and the U.S. Virgin Islands’ (“USVI”) taxable REIT subsidiary that owns the Ritz-Carlton, St. Thomas hotel.
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains registered trademarks that are the exclusive property of their respective owners, which are companies other than us, including Marriott International®, Hilton Worldwide®, Sofitel®, Hyatt® and Accor®.
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-Q, we make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Additionally, statements regarding the following subjects are forward-looking by their nature:
•
our business and investment strategy;
•
our projected operating results and dividend rates;
•
our ability to obtain future financing arrangements;
•
our understanding of our competition;
•
market trends;
•
projected capital expenditures;
•
anticipated acquisitions or dispositions; and
•
the impact of technology on our operations and business.
Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, taking into account all information currently available to us, our actual results and performance could differ materially from those set forth in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements include, but are not limited to:
•
factors discussed in our Form 10-K for the year ended December 31, 2017, as originally filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2018 (the “ 2017 10-K”), including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties,” as updated in our subsequent Quarterly Reports on Form 10-Q;
•
general volatility of the capital markets, the general economy or the hospitality industry, whether the result of market events or otherwise;
•
our ability to deploy capital and raise additional capital at reasonable costs to repay debts, invest in our properties and fund future acquisitions;
•
unanticipated increases in financing and other costs, including a rise in interest rates;
•
the degree and nature of our competition;
•
actual and potential conflicts of interest with Ashford Trust, Ashford LLC, Ashford Inc., Remington Lodging, our executive officers and our non-independent directors;
•
changes in personnel of Ashford LLC or the lack of availability of qualified personnel;

32

•
changes in governmental regulations, accounting rules, tax rates and similar matters;
•
legislative and regulatory changes, including changes to the Internal Revenue Code and related rules, regulations and interpretations governing the taxation of real estate investment trusts (“REITs”); and
•
limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes.
When considering forward-looking statements, you should keep in mind the matters summarized under “Item 1A. Risk Factors” in Part I of our 2017 10-K and any subsequent updates to this disclosure in our Quarterly Reports on Form 10-Q, and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, could cause our actual results and performance to differ significantly from those contained in our forward-looking statements. Accordingly, we cannot guarantee future results or performance. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Form 10-Q. Furthermore, we do not intend to update any of our forward-looking statements after the date of this Form 10-Q to conform these statements to actual results and performance, except as may be required by applicable law.
Overview
We are a Maryland corporation formed in April 2013 as Ashford Hospitality Prime, Inc. and changed our name to Braemar Hotels & Resorts Inc. in April 2018. We invest 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 Smith Travel Research. Two times the U.S. national average was $167 for the year ended December 31, 2017. We have elected to be taxed as a REIT under the Internal Revenue Code beginning with our short taxable year ended December 31, 2013. We conduct our business and own substantially all of our assets through our operating partnership, Braemar OP.
We operate in the direct hotel investment segment of the hotel lodging industry. As of June 30, 2018, we owned interests in twelve hotel properties in six states, the District of Columbia and St. Thomas, U.S. Virgin Islands with 3,549 total rooms, or 3,314 net rooms, excluding those attributable to our joint venture partner. The hotel properties in our current portfolio are predominantly located in U.S. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators. We own ten of our hotel properties directly, and the remaining two hotel properties through an investment in a majority-owned consolidated entity.
We are advised by Ashford LLC, a subsidiary of Ashford Inc., through an advisory agreement. 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.
On April 23, 2018, in connection with our name change, we entered into the Fifth Amended and Restated Advisory Agreement with Ashford LLC (the “Fifth Amended and Restated Advisory Agreement”). The Fifth Amended and Restated Advisory Agreement amends the prior amended and restated advisory agreement only to reflect the name change and does not amend or otherwise alter the rights of any of the parties thereto.
Pursuant to the termination provisions of the Fifth Amended and Restated Advisory Agreement, the revenues and expenses used to calculate Net Earnings (as defined) for the twelve months ended June 30, 2018, are as follows (in thousands):
Revenues
$
18,384

Expenses
(7,178
)
Net Earnings
$
11,206

Recent Developments
On March 28, 2018, the Company made a $2.0 million investment in OpenKey, which is controlled and consolidated by Ashford Inc., for an 8.2% ownership interest, which investment was approved by our Related Party Transactions Committee and the independent members of our board of directors. OpenKey is a hospitality focused mobile key platform that provides a universal smart phone app for keyless entry into hotel guestrooms.
On April 4, 2018, the Company acquired a 100% interest in the 266-room Ritz-Carlton, Sarasota in Sarasota, Florida for $171.7 million and a 22-acre plot of vacant land for $9.7 million. Concurrent with the completion of the acquisition, the Company completed the financing of a $100.0 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR +

33

2.65%. The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.
On May 23, 2018, the Company refinanced two mortgage loans totaling $357.6 million with a new $435.0 million mortgage loan with a two-year initial term and five one-year extension options subject to the satisfaction of certain conditions. As a result of the refinance the Tampa Renaissance became unencumbered. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.16%. The loan is secured by four hotels: Seattle Marriott Waterfront, San Francisco Courtyard Downtown, Philadelphia Courtyard Downtown and Sofitel Chicago Magnificent Mile.
On June 1, 2018, the Company completed the sale of the 293-room Tampa Renaissance in Tampa, Florida for $68.0 million. The sale resulted in a gain of $15.7 million for both the three and six months ended June 30, 2018 and is included in “gain (loss) on sale of hotel property” in our condensed consolidated statements of operations. The closing of the sale completed a reverse 1031 exchange that was initiated to acquire the Ritz-Carlton, Sarasota.
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel’s contribution to cash flow and its potential to provide attractive long-term total returns. These key indicators include:
•
Occupancy-Occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels’ available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period.
•
ADR-ADR means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate.
•
RevPAR-RevPAR means revenue per available room and is calculated by multiplying ADR by the average daily occupancy. RevPAR is one of the commonly used measures within the hotel industry to evaluate hotel operations. RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense. Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue comprised approximately 64.8% and 64.4% of our total hotel revenue for the three and six months ended June 30, 2018, and is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
We also use funds from operations (“FFO”), Adjusted FFO (“AFFO”), earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) and Adjusted EBITDAre as measures of the operating performance of our business. See “Non-GAAP Financial Measures.”

34

RESULTS OF OPERATIONS
Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017
The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended June 30, 2018 and 2017 (in thousands except percentages):
 
Three Months Ended June 30,
 
Favorable (Unfavorable)
 
2018
 
2017
 
$ Change
 
% Change
Revenue
 
 
 
 
 
 
 
Rooms
$
78,439

 
$
79,449

 
$
(1,010
)
 
(1.3
)%
Food and beverage
25,393

 
27,980

 
(2,587
)
 
(9.2
)
Other
17,286

 
8,626

 
8,660

 
100.4

Total hotel revenue
121,118

 
116,055

 
5,063

 
4.4

Other
—

 
37

 
(37
)
 
(100.0
)
Total revenue
121,118

 
116,092

 
5,026

 
4.3

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
16,652

 
17,613

 
961

 
5.5

Food and beverage
17,287

 
19,263

 
1,976

 
10.3

Other expenses
33,768

 
32,021

 
(1,747
)
 
(5.5
)
Management fees
4,501

 
4,209

 
(292
)
 
(6.9
)
Total hotel expenses
72,208

 
73,106

 
898

 
1.2

Property taxes, insurance and other
6,077

 
5,370

 
(707
)
 
(13.2
)
Depreciation and amortization
14,811

 
13,469

 
(1,342
)
 
(10.0
)
Impairment charges
59

 
—

 
(59
)
 


Advisory services fee
4,880

 
3,143

 
(1,737
)
 
(55.3
)
Contract modification cost
—

 
5,000

 
5,000

 
100.0

Transaction costs
461

 
2,066

 
1,605

 
77.7

Corporate general and administrative
1,206

 
1,531

 
325

 
21.2

Total expenses
99,702

 
103,685

 
3,983

 
3.8

Operating income (loss)
21,416

 
12,407

 
9,009

 
72.6

Equity in earnings (loss) of unconsolidated entity
(62
)
 
—

 
(62
)
 
—

Interest income
230

 
165

 
65

 
39.4

Gain (loss) on sale of hotel property
15,711

 
—

 
15,711

 


Other income (expense)
(63
)
 
(113
)
 
50

 
44.2

Interest expense and amortization of loan costs
(12,678
)
 
(9,931
)
 
(2,747
)
 
(27.7
)
Write-off of loan costs and exit fees
(4,176
)
 
—

 
(4,176
)
 


Unrealized gain (loss) on investment in Ashford Inc.
(6,024
)
 
(1,563
)
 
(4,461
)
 
(285.4
)
Unrealized gain (loss) on derivatives
(298
)
 
(100
)
 
(198
)
 
(198.0
)
Income (loss) before income taxes
14,056

 
865

 
13,191

 
1,525.0

Income tax (expense) benefit
(1,202
)
 
(479
)
 
(723
)
 
(150.9
)
Net income (loss)
12,854

 
386

 
12,468

 
3,230.1

(Income) loss from consolidated entities attributable to noncontrolling interest
(89
)
 
(1,614
)
 
1,525

 
94.5

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(1,235
)
 
343

 
(1,578
)
 
(460.1
)
Net income (loss) attributable to the Company
$
11,530

 
$
(885
)
 
$
12,415

 
(1,402.8
)%

35

All hotel properties owned for the three months ended June 30, 2018 and 2017 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, 2018 and 2017. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our condensed consolidated financial statements:
Hotel Properties
 
Location
 
Acquisition/Disposition
 
Acquisition/Disposition Date
Hotel Yountville (1)
 
Yountville, CA
 
Acquisition
 
May 11, 2017
Plano Marriott Legacy Town Center
 
Plano, TX
 
Disposition
 
November 1, 2017
Ritz-Carlton, Sarasota (1)
 
Sarasota, FL
 
Acquisition
 
April 4, 2018
Tampa Renaissance
 
Tampa, FL
 
Disposition
 
June 1, 2018
________
(1) 
The operating results of these hotel properties have been included in our results of operations as of their acquisition dates.
The following table illustrates the key performance indicators of all hotel properties owned for the periods indicated:
 
Three Months Ended June 30,
 
2018
 
2017
Occupancy
84.90
%
 
84.07
%
ADR (average daily rate)
$
278.96

 
$
263.65

RevPAR (revenue per available room)
$
236.85

 
$
221.65

Rooms revenue (in thousands)
$
78,439

 
$
79,449

Total hotel revenue (in thousands)
$
121,118

 
$
116,055

The following table illustrates the key performance indicators of the ten hotel properties that were included for the full three months ended June 30, 2018 and 2017:
 
Three Months Ended June 30,
 
2018
 
2017
Occupancy
85.88
%
 
85.30
%
ADR (average daily rate)
$
271.08

 
$
275.16

RevPAR (revenue per available room)
$
232.80

 
$
234.72

Rooms revenue (in thousands)
$
65,794

 
$
68,288

Total hotel revenue (in thousands)
$
94,634

 
$
99,178

Net Income (Loss) Attributable to the Company. Net income (loss) attributable to the Company changed $12.4 million, from a net loss of $885,000 for the three months ended June 30, 2017 (the “2017 quarter”) to net income of $11.5 million for the three months ended June 30, 2018 (the “2018 quarter”), as a result of the factors discussed below.
Rooms Revenue. Rooms revenue decreased $1.0 million, or 1.3%, to $78.4 million during the 2018 quarter compared to the 2017 quarter. During the 2018 quarter, we experienced a 5.8% increase in room rates and an 83 basis point increase in occupancy. Rooms revenue at our ten comparable hotel properties decreased $2.5 million due to a decrease in room rates of 1.5%, partially offset by a 58 basis point increase in occupancy. Rooms revenue decreased (i) $5.9 million at the Ritz-Carlton, St. Thomas due to the negative impact caused by Hurricanes Irma and Maria. During the 2018 quarter approximately 82 rooms were in service as the hotel is being renovated; (ii) $5.2 million at the Plano Marriott Legacy Town Center as a result of its sale on November 1, 2017; (iii) $1.1 million at the Tampa Renaissance as a result of its sale on June 1, 2018; (iv) $177,000 at the Key West Pier House as a result of a 397 basis point decrease in occupancy, partially offset by 1.0% higher room rates at the hotel; (v) $60,000 at the Bardessono Hotel as a result of a 253 basis point decrease in occupancy, partially offset by 1.6% higher room rates at the hotel; and (vi) $41,000 at the Chicago Sofitel Magnificent Mile as a result of a 395 basis point decrease in occupancy due to a renovation during the 2018 quarter, partially offset by 4.1% higher room rates at the hotel. These decreases were partially offset by increases of (i) $6.3 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018; (ii) $1.5 million at the Hotel Yountville as a result of its acquisition on May 11, 2017; (iii) $2.2 million at the San Francisco Courtyard Downtown as a result of 13.6% higher room rates and a 975 basis point increase in occupancy at the hotel due to a renovation during the 2017 quarter; (iv) $570,000 at the Philadelphia Courtyard as

36

a result of 2.1% higher room rates and a 449 basis point increase in occupancy at the hotel; (v) $293,000 at the Hilton La Jolla Torrey Pines as a result of 4.1% higher room rates and a 57 basis point increase in occupancy at the hotel; (vi) $289,000 at the Seattle Marriott Waterfront as a result of 3.9% higher room rates, partially offset by a 131 basis point decrease in occupancy at the hotel; (vii) $275,000 at the Capital Hilton as a result of 5.4% higher room rates, partially offset by a 287 basis point decrease in occupancy at the hotel; and (viii) $44,000 at the Park Hyatt Beaver Creek as a result of 4.0% higher room rates, partially offset by a 62 basis point decrease in occupancy at the hotel.
Food and Beverage Revenue. Food and beverage revenue decreased $2.6 million, or 9.2%, to $25.4 million during the 2018 quarter compared to the 2017 quarter. This decrease is primarily attributable to a decrease in food and beverage revenue of $4.4 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes; $3.4 million at the Plano Marriott Legacy Town Center and $615,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease in food and beverage revenue of $1.5 million at the Seattle Marriott Waterfront, Capital Hilton, Key West Pier House, and Hilton La Jolla Torrey Pines. These decreases were partially offset by increases of $184,000 at the Hotel Yountville and $6.1 million at the Ritz-Carlton, Sarasota due to their acquisitions on May 11, 2017 and April 4, 2018, respectively, and an aggregate increase in food and beverage revenue of $1.0 million at the Philadelphia Courtyard, Park Hyatt Beaver Creek Resort & Spa, Chicago Sofitel Magnificent Mile, San Francisco Courtyard Downtown and Bardessono Hotel.
Other Hotel Revenue. Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals and business interruption revenue, increased $8.7 million, or 100.4%, to $17.3 million during the 2018 quarter compared to the 2017 quarter. During the 2018 quarter we recognized business interruption revenue of $5.2 million at the Ritz-Carlton, St. Thomas and $190,000 at the Bardessono Hotel and Hotel Yountville as a result of the Napa wildfires. We also recorded $3.3 million of business interruption income for the Tampa Renaissance related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010. This increase is also attributable to an increase in other hotel revenue $125,000 at the Hotel Yountville and $2.7 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on May 11, 2017 and April 4, 2018, respectively. There was also an aggregate increase of $615,000 at the Chicago Sofitel Magnificent Mile, San Francisco Courtyard Downtown, Key West Pier House, Seattle Marriott Waterfront, Bardessono Hotel and Park Hyatt Beaver Creek. These increases were partially offset by lower other hotel revenue of $290,000 at the Plano Marriott Legacy Town Center and $75,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $3.2 million at the Ritz-Carlton, St. Thomas, Hilton La Jolla Torrey Pines, Philadelphia Courtyard and Capital Hilton.
Other Non-Hotel Revenue. Other non-hotel revenue decreased $37,000, or 100.0%, to $0 in the 2018 quarter compared to the 2017 quarter. The decrease is attributable to the disposition of Plano Marriott Legacy Town Center which included Texas margin tax recoveries from guests in the 2017 quarter.
Rooms Expense. Rooms expense decreased $961,000, or 5.5%, to $16.7 million in the 2018 quarter compared to the 2017 quarter. This decrease is attributable to $1.8 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $993,000 at the Plano Marriott Legacy Town Center and $262,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively. There was also an aggregate decrease of $466,000 at the Chicago Sofitel Magnificent Mile, Bardessono Hotel, Key West Pier House, Seattle Marriott Waterfront, and Capital Hilton. This decrease was partially offset by an increase of $297,000 at the Hotel Yountville and $1.7 million at the Ritz-Carlton, Sarasota, as a result of their acquisitions on May 11, 2017 and April 4, 2018, respectively, and an aggregate increase in rooms expense of $614,000 at the San Francisco Courtyard Downtown, Park Hyatt Beaver Creek, Hilton La Jolla Torrey Pines, and Philadelphia Courtyard.
Food and Beverage Expense. Food and beverage expense decreased $2.0 million, or 10.3%, to $17.3 million during the 2018 quarter compared to the 2017 quarter. The decrease is attributable $3.5 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $1.7 million at the Plano Marriott Legacy Town Center and $386,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $581,000 at our remaining comparable hotel properties. These decreases were partially offset by increases of $167,000 at the Hotel Yountville and $4.0 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on May 11, 2017 and April 4, 2018, respectively.
Other Operating Expenses. Other operating expenses increased $1.7 million, or 5.5%, to $33.8 million in the 2018 quarter compared to the 2017 quarter. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees. We experienced an increase of $585,000 in direct expenses and an increase of $1.2 million in indirect expenses and incentive management fees in the 2018 quarter as compared to the 2017 quarter. Direct expenses were 2.8% of total hotel revenue for the 2018 quarter and 2.5% for the 2017 quarter. The increase in direct expenses is primarily attributable to increases of $45,000 at the Hotel Yountville and $1.6 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on May 11, 2017 and April 4, 2018, respectively. The increase was partially offset by decreases in other operating expenses of $937,000 at Ritz-Carlton, St. Thomas as a result of the hurricanes, $69,000 at our remaining comparable hotel properties and $42,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales. The increase in indirect expenses is attributable to increases in (i) incentive management fees of $846,000 including $1.2 million at our

37

remaining comparable hotel properties and $233,000 from the acquisitions of Hotel Yountville and Ritz-Carlton, Sarasota, partially offset by decreases of $528,000 from the sales of the Plano Marriott Legacy Town Center and Tampa Renaissance and $91,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes; (ii) general and administrative costs of $424,000 including $2.1 million at the Hotel Yountville and Ritz-Carlton, Sarasota and $193,000 at our remaining comparable hotel properties, partially offset by a decrease of $982,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $895,000 at Ritz-Carlton, St. Thomas as a result of the hurricanes; and (iii) repairs and maintenance of $71,000 including $756,000 at the Hotel Yountville and Ritz-Carlton, Sarasota and $56,000 at our remaining comparable hotel properties, partially offset by a decrease of $384,000 at the Ritz-Carlton, St. Thomas and $357,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales. These increases were partially offset by decreases in (i) lease expense of $151,000, comprised of a decrease of $59,000 at the Hotel Yountville and Ritz-Carlton, Sarasota, $20,000 at the Ritz-Carlton, St. Thomas and $83,000 at our remaining comparable hotel properties, partially offset by an increase of $11,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance; and (ii) energy costs of $32,000, comprised of a decrease of $254,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales, $157,000 at the Ritz-Carlton, St. Thomas, and $68,000 at our remaining comparable hotel properties, partially offset by an increase of $447,000 at the Hotel Yountville and Ritz-Carlton, Sarasota.
Management Fees. Base management fees increased $292,000, or 6.9%, to $4.5 million in the 2018 quarter compared to the 2017 quarter. The increase is comprised of an increase of $510,000 at the Hotel Yountville and Ritz-Carlton, Sarasota and $211,000 at our remaining comparable hotel properties. These increases were partially offset by a decrease of $217,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes and $212,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales.
Property Taxes, Insurance and Other. Property taxes, insurance and other increased $707,000, or 13.2%, to $6.1 million in the 2018 quarter compared to the 2017 quarter, which is attributable to increases of $29,000 at the Hotel Yountville and $731,000 at the Ritz-Carlton, Sarasota as a result of their acquisitions in May 2017 and April 2018, respectively, and $540,000 at our remaining comparable hotel properties. These increases were partially offset by a decrease of $475,000 at the Plano Marriott Legacy Town Center and $43,000 at the Tampa Renaissance as a result of their sales in November 2017 and June 2018, respectively, and $75,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Depreciation and Amortization. Depreciation and amortization increased $1.3 million, or 10.0%, to $14.8 million for the 2018 quarter compared to the 2017 quarter, which is due to an aggregate increase of $2.6 million at the Hotel Yountville and Ritz-Carlton, Sarasota and $1.3 million at our remaining comparable hotel properties, partially offset by a decrease of $1.8 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $708,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Impairment Charges. We recorded impairment charges of $59,000 in the 2018 quarter. The impairment charges are related to damages incurred at the Key West Pier House as a result of changes in the estimates of property damage from the hurricanes.
Advisory Services Fee. Advisory services fee increased $1.7 million, or 55.3%, to $4.9 million in the 2018 quarter compared to the 2017 quarter due to increases in equity-based compensation of $1.0 million, incentive fee of $691,000 and base advisory fee of $37,000. These increases were partially offset by a decrease of $33,000 in reimbursable expenses. In the 2018 period, we recorded an advisory services fee of $4.9 million, which included a base advisory fee of $2.3 million, reimbursable expenses of $499,000, an incentive fee of $691,000 and $1.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. In the 2017 period, we recorded an advisory services fee of $3.1 million which included a base advisory fee of $2.3 million, reimbursable expenses of $532,000 and equity-based compensation expense of $335,000 associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
Contract Modification Cost. In 2017, we recorded a $5.0 million one-time payment to Ashford LLC upon entering into the Fourth Amended and Restated Advisory Agreement.
Transaction Costs. In the 2018 quarter, we recorded transaction costs of $461,000 primarily related to the acquisition of the Ritz-Carlton, Sarasota. In the 2017 quarter, we recorded transaction costs of $2.1 million primarily related to the acquisitions of the Hotel Yountville and Park Hyatt Beaver Creek.
Corporate General and Administrative. Corporate general and administrative expense decreased $325,000, or 21.2%, to $1.2 million in the 2018 quarter compared to the 2017 quarter as a result of lower public company costs of $152,000 and equity-based compensation to non-employee directors of $227,000, partially offset by higher professional fees of $34,000 and miscellaneous expenses of $20,000.
Equity in Earnings (Loss) of Unconsolidated Entity. We recorded equity in loss of unconsolidated entity of $62,000 in the 2018 quarter related to our investment in OpenKey. We did not have an investment in OpenKey during the 2017 quarter.

38

Interest Income. Interest income increased $65,000, or 39.4%, to $230,000 for the 2018 quarter compared to the 2017 quarter.
Gain (loss) on sale of hotel property. In the 2018 quarter, we recorded a gain of $15.7 million related the sale of the Tampa Renaissance on June 1, 2018.
Other Income (Expense). We recorded other expense of $63,000 related to CMBX premiums and usage fees in the 2018 quarter. In the 2017 quarter, we recognized a realized loss of $113,000 related to the maturity of options on futures contracts.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $2.7 million, or 27.7%, to $12.7 million for the 2018 quarter compared to the 2017 quarter. The increase is primarily due to new mortgage loans associated with the acquisitions of the Hotel Yountville and Ritz-Carlton, Sarasota as well as a higher average LIBOR rate. The average LIBOR rates for the 2018 quarter and the 2017 quarter were 1.91% and 1.06%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was $4.2 million for the 2018 quarter, resulting from the write-off of unamortized loan costs of $1.6 million and exit fees of $2.6 million associated with the refinancing of two mortgage loans. There were no write-off of loan costs and exit fees during the 2017 quarter.
Unrealized Gain (Loss) on Investment in Ashford Inc. Unrealized loss on investment in Ashford Inc. increased $4.5 million, or 285.4%, to $6.0 million in the 2018 quarter. The fair value is based on the closing market price of Ashford Inc. common stock at the end of the period.
Unrealized Gain (Loss) on Derivatives. Unrealized loss on derivatives of $298,000 for the 2018 quarter consisted of a $256,000 unrealized loss on interest rate caps and a $57,000 unrealized loss on interest rate floors, partially offset by a $15,000 unrealized gain on CMBX credit default swaps. Unrealized loss on derivatives of $100,000 for the 2017 period consisted of a $135,000 unrealized loss on interest rate floors and a $61,000 unrealized loss on interest rate caps, partially offset by a $96,000 unrealized gain on options on futures contracts. The fair value of the interest rate caps and floors are primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of options on futures contracts is the last reported settlement price as of the measurement date. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax (Expense) Benefit. Income tax expense increased $723,000, or 150.9%, to $1.2 million for the 2018 quarter. This increase was primarily due to an increase in the profitability of the Company’s taxable REIT subsidiaries in the 2018 quarter compared to the 2017 quarter.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interest. Our noncontrolling interest partner in consolidated entities was allocated income of $89,000 and $1.6 million for the 2018 quarter and the 2017 quarter, respectively. At June 30, 2018, noncontrolling interests in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net income of $1.2 million and net loss of $343,000 for the 2018 quarter and the 2017 quarter, respectively. Redeemable noncontrolling interests in Braemar OP represented ownership interests of 11.17% and 11.71% as of June 30, 2018 and 2017, respectively.

39

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table summarizes changes in key line items from our condensed consolidated statements of operations for the six months ended June 30, 2018 and 2017 (in thousands except percentages):
 
Six Months Ended June 30,
 
Favorable (Unfavorable)
 
2018
 
2017
 
$ Change
 
% Change
Revenue
 
 
 
 
 
 
 
Rooms
$
143,946

 
$
146,867

 
$
(2,921
)
 
(2.0
)%
Food and beverage
48,893

 
52,453

 
(3,560
)
 
(6.8
)
Other
30,768

 
13,991

 
16,777

 
119.9

Total hotel revenue
223,607

 
213,311

 
10,296

 
4.8

Other
—

 
77

 
(77
)
 
(100.0
)
Total revenue
223,607

 
213,388

 
10,219

 
4.8

Expenses
 
 
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
 
 
Rooms
31,570

 
33,410

 
1,840

 
5.5

Food and beverage
32,907

 
36,124

 
3,217

 
8.9

Other expenses
63,432

 
59,752

 
(3,680
)
 
(6.2
)
Management fees
8,118

 
7,754

 
(364
)
 
(4.7
)
Total hotel expenses
136,027

 
137,040

 
1,013

 
0.7

Property taxes, insurance and other
11,681

 
10,444

 
(1,237
)
 
(11.8
)
Depreciation and amortization
27,817

 
25,440

 
(2,377
)
 
(9.3
)
Impairment charges
71

 
—

 
(71
)
 


Advisory services fee
10,124

 
4,008

 
(6,116
)
 
(152.6
)
Contract modification cost
—

 
5,000

 
5,000

 
100.0

Transaction costs
949

 
6,394

 
5,445

 
85.2

Corporate general and administrative
1,234

 
5,405

 
4,171

 
77.2

Total expenses
187,903

 
193,731

 
5,828

 
3.0

Operating income (loss)
35,704

 
19,657

 
16,047

 
81.6

Equity in earnings (loss) of unconsolidated entity
(65
)
 
—

 
(65
)
 


Interest income
430

 
277

 
153

 
55.2

Gain (loss) on sale of hotel property
15,711

 
—

 
15,711

 


Other income (expense)
(126
)
 
(270
)
 
144

 
53.3

Interest expense and amortization of loan costs
(22,857
)
 
(18,133
)
 
(4,724
)
 
(26.1
)
Write-off of loan costs and exit fees
(4,178
)
 
(1,963
)
 
(2,215
)
 
(112.8
)
Unrealized gain (loss) on investment in Ashford Inc.
(5,496
)
 
1,528

 
(7,024
)
 
(459.7
)
Unrealized gain (loss) on derivatives
(225
)
 
(998
)
 
773

 
77.5

Income (loss) before income taxes
18,898

 
98

 
18,800

 
(19,183.7
)
Income tax (expense) benefit
(1,774
)
 
(1
)
 
(1,773
)
 
(177,300.0
)
Net income (loss)
17,124

 
97

 
17,027

 
17,553.6

(Income) loss from consolidated entities attributable to noncontrolling interests
(47
)
 
(1,593
)
 
1,546

 
97.0

Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
(1,527
)
 
598

 
(2,125
)
 
(355.4
)
Net income (loss) attributable to the Company
$
15,550

 
$
(898
)
 
$
16,448

 
1,831.6
 %

40

All hotel properties owned for the six months ended June 30, 2018 and 2017 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, 2018 and 2017. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following acquisitions and dispositions affect reporting comparability related to our condensed consolidated financial statements:
Hotel Properties
 
Location
 
Acquisition/Disposition
 
Acquisition/Disposition Date
Park Hyatt Beaver Creek (1)
 
Beaver Creek, CO
 
Acquisition
 
March 31, 2017
Hotel Yountville (1)
 
Yountville, CA
 
Acquisition
 
May 11, 2017
Plano Marriott Legacy Town Center
 
Plano, TX
 
Disposition
 
November 1, 2017
Ritz-Carlton, Sarasota (1)
 
Sarasota, FL
 
Acquisition
 
April 4, 2018
Tampa Renaissance
 
Tampa, FL
 
Disposition
 
June 1, 2018
________
(1) 
The operating results of these hotel properties have been included in our results of operations as of their acquisition dates.
The following table illustrates the key performance indicators of all hotel properties for the periods indicated:
 
Six Months Ended June 30,
 
2018
 
2017
Occupancy
81.87
%
 
81.35
%
ADR (average daily rate)
$
272.91

 
$
261.03

RevPAR (revenue per available room)
$
223.45

 
$
212.35

Rooms revenue (in thousands)
$
143,946

 
$
146,867

Total hotel revenue (in thousands)
$
223,607

 
$
213,311

The following table illustrates the key performance indicators of the nine hotel properties that were included for the full six months ended June 30, 2018 and 2017:
 
Six Months Ended June 30,
 
2018
 
2017
Occupancy
83.33
%
 
83.37
%
ADR (average daily rate)
$
255.51

 
$
272.56

RevPAR (revenue per available room)
$
212.90

 
$
227.24

Rooms revenue (in thousands)
$
112,345

 
$
123,640

Total hotel revenue (in thousands)
$
162,968

 
$
175,466

Net Income (Loss) Attributable to the Company. Net income (loss) attributable to the Company changed $16.4 million, from a net loss of $898,000 for the six months ended June 30, 2017 (the “2017 period”), to net income of $15.6 million for the six months ended June 30, 2018 (the “2018 period”), as a result of the factors discussed below.
Rooms Revenue. Rooms revenue decreased $2.9 million, or 2.0%, to $143.9 million during the 2018 period compared to the 2017 period. During the 2018 period, we experienced a 4.6% increase in room rates and a 52 basis point increase in occupancy. Rooms revenue at our nine comparable hotel properties decreased $11.3 million due to a decrease in room rates of 6.3% and a 4 basis point decrease in occupancy. Rooms revenue decreased (i) $13.8 million at the Ritz-Carlton, St. Thomas due to the negative impact caused by Hurricanes Irma and Maria. During the 2018 period approximately 82 rooms were in service as the hotel is being renovated; (ii) $10.3 million at the Plano Marriott Legacy Town Center as a result of its sale on November 1, 2017; (iii) $1.0 million at the Tampa Renaissance as a result of its sale on June 1, 2018; (iv) $1.6 million at the Capital Hilton as a result of 1.1% lower room rates and a 540 basis point decrease in occupancy at the hotel due to a renovation during the 2018 period and the presidential inauguration that occurred in the 2017 period; (v) $386,000 at the Key West Pier House as a result of a 377 basis point decrease in occupancy, partially offset by 0.6% higher room rates at the hotel; (vi) $168,000 at the Bardessono Hotel as a result of a 343 basis point decrease in occupancy, partially offset by 1.7% higher room rates at the hotel; and (vii) $95,000 at the Chicago Sofitel Magnificent Mile as a result of a 372 basis point decrease in occupancy, as a result of a renovation, partially offset by 4.1% higher room rates at the hotel. These decreases were partially offset by increases of (i) $9.8 million at the Park Hyatt Beaver Creek

41

as a result of its acquisition on March 31, 2017; (ii) $3.6 million at the Hotel Yountville as a result of its acquisition on May 11, 2017; (iii) $6.3 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018; (iv) $2.0 million at the San Francisco Courtyard Downtown as a result of 4.0% higher room rates and a 577 basis point increase in occupancy at the hotel; (iii) $1.8 million at the Philadelphia Courtyard as a result of 7.2% higher room rates and a 506 basis point increase in occupancy at the hotel due to a renovation during the 2017 period; (iv) $643,000 at the Hilton La Jolla Torrey Pines as a result of 1.0% higher room rates and a 346 basis point increase in occupancy at the hotel; and (v) $378,000 at the Seattle Marriott Waterfront as a result of 5.4% higher room rates, partially offset by a 296 basis point decrease in occupancy at the hotel.
Food and Beverage Revenue. Food and beverage revenue decreased $3.6 million, or 6.8%, to $48.9 million during the 2018 period compared to the 2017 period. This overall decrease is due to a decrease of $7.7 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes; $6.6 million at the Plano Marriott Legacy Town Center and $786,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease in food and beverage revenue of $2.1 million at the Seattle Marriott Waterfront, Capital Hilton, Key West Pier House, and Bardessono Hotel. These decreases were partially offset by increases of $5.0 million at the Park Hyatt Beaver Creek, $507,000 at the Hotel Yountville and $6.1 million at the Ritz-Carlton, Sarasota due to their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively, and an aggregate increase in food and beverage revenue of $2.0 million at the Hilton La Jolla Torrey Pines, Philadelphia Courtyard, Chicago Sofitel Magnificent Mile, and San Francisco Courtyard Downtown.
Other Hotel Revenue. Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, increased $16.8 million, or 119.9%, to $30.8 million during the 2018 period compared to the 2017 period. During the 2018 period we recognized business interruption revenue of $10.1 million at the Ritz-Carlton, St. Thomas and Key West Pier House and $1.9 million, net of deductibles of $500,000 at the Bardessono Hotel and Hotel Yountville as a result of the Napa wildfires. We also recorded $3.3 million of business interruption income for the Tampa Renaissance related to a settlement for lost profits from the BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010. This increase is also attributable to an increase in other hotel revenue of $3.6 million at the Park Hyatt Beaver Creek, $306,000 at the Hotel Yountville and $2.7 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively. There was also an aggregate increase of $769,000 at the Chicago Sofitel Magnificent Mile, Key West Pier House, San Francisco Courtyard Downtown, Seattle Marriott Waterfront, Philadelphia Courtyard and Bardessono Hotel. These increases were partially offset by lower other hotel revenue of $530,000 at the Plano Marriott Legacy Town Center and $67,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $5.4 million at the Ritz-Carlton, St. Thomas, Hilton La Jolla Torrey Pines and Capital Hilton.
Other Non-Hotel Revenue. Other non-hotel revenue decreased $77,000, or 100.0%, to $0 in the 2018 period compared to the 2017 period. The decrease is attributable to the disposition of Plano Marriott Legacy Town Center which included Texas margin tax recoveries from guests in the 2017 period.
Rooms Expense. Rooms expense decreased $1.8 million, or 5.5%, to $31.6 million in the 2018 period compared to the 2017 period. The decrease is attributable to a decrease of $3.7 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $1.9 million at the Plano Marriott Legacy Town Center and $276,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively. There was also an aggregate decrease of $757,000 at the Chicago Sofitel Magnificent Mile, Capital Hilton, Bardessono Hotel and Key West Pier House. This decrease was partially offset by an increase of $1.5 million at the Park Hyatt Beaver Creek, $862,000 at the Hotel Yountville and $1.7 million at the Ritz-Carlton, Sarasota, as a result of their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively. There was also an aggregate increase of $838,000 at the San Francisco Courtyard Downtown, Philadelphia Courtyard, Hilton La Jolla Torrey Pines and Seattle Marriott Waterfront
Food and Beverage Expense. Food and beverage expense decreased $3.2 million, or 8.9%, to $32.9 million during the 2018 period compared to the 2017 period. The decrease is attributable to $6.3 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $3.2 million at the Plano Marriott Legacy Town Center and $424,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $825,000 at our remaining comparable hotel properties. These decreases were partially offset by increases of $3.1 million at the Park Hyatt Beaver Creek, $532,000 at the Hotel Yountville and $4.0 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively.
Other Operating Expenses. Other operating expenses increased $3.7 million, or 6.2%, to $63.4 million in the 2018 period compared to the 2017 period. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees. We experienced an increase of $1.2 million in direct expenses and $2.4 million in indirect expenses and incentive management fees in the 2018 period compared to the 2017 period. Direct expenses were 2.7% of total hotel revenue for the 2018 period and 2.2% for the 2017 period. The increase in direct expenses is primarily attributable to increases of $1.8 million at the Park Hyatt Beaver Creek, $123,000 at the Hotel Yountville and $1.6 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on March 31, 2017, May 11, 2017 and

42

April 4, 2018, respectively. The increase was partially offset by decreases of $1.9 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $269,000 at our remaining comparable hotel properties and $67,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales. The increase in indirect expenses is attributable to increases in (i) incentive management fees of $1.4 million including $1.8 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and an aggregate increase of $1.0 million at our remaining comparable hotel properties, partially offset by decreases of $667,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes and $774,000 from the sales of the Plano Marriott Legacy Town Center and Tampa Renaissance; (ii) energy costs of $399,000, comprised of an increase of $828,000 at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota, $40,000 at our remaining comparable hotel properties, partially offset by a decrease of $426,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $43,000 at the Ritz-Carlton, St. Thomas; (iii) general and administrative costs of $383,000, including $3.7 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $272,000 at our remaining comparable hotel properties, partially offset by a decrease of $1.9 million from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $1.6 million at Ritz-Carlton, St. Thomas as a result of the hurricanes; (iv) marketing costs of $232,000, including $1.8 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and an aggregate increase of $964,000 at our remaining comparable hotel properties, partially offset by a decrease of $1.4 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $1.1 million at the Ritz-Carlton, St. Thomas; and (v) repairs and maintenance of $18,000 including $1.2 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $121,000 at our remaining comparable hotel properties, partially offset by a decrease of $671,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $628,000 at the Ritz-Carlton, St. Thomas.
Management Fees. Base management fees increased $364,000, or 4.7%, to $8.1 million in the 2018 period compared to the 2017 period. The increase is comprised of an increase of $1.1 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $190,000 at our remaining comparable hotel properties. These increases are partially offset by a decrease of $473,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $491,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Property Taxes, Insurance and Other. Property taxes, insurance and other increased $1.2 million, or 11.8%, to $11.7 million in the 2018 period compared to the 2017 period, which is attributable to increases of $760,000 at the Park Hyatt Beaver Creek, $352,000 at the Hotel Yountville and $731,000 at the Ritz-Carlton, Sarasota as a result of their acquisitions in March 2017, May 2017 and April 2018, respectively, and $360,000 at our remaining comparable hotel properties. These increases were partially offset by a decrease $830,000 at the Plano Marriott Legacy Town Center and $55,000 at the Tampa Renaissance as a result of their sales in November 2017 and June 2018, respectively, and $81,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Depreciation and Amortization. Depreciation and amortization increased $2.4 million, or 9.3%, to $27.8 million for the 2018 period compared to the 2017 period due to an aggregate increase of $4.1 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $2.6 million at our remaining comparable hotel properties, partially offset by a decrease of $3.0 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $1.3 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes.
Impairment Charges. In the 2018 period we recorded an impairment charge of $59,000 at the Key West Pier House and $12,000 at the Tampa Renaissance as a result of changes in the estimates of property damage from the hurricanes.
Advisory Services Fee. Advisory services fee increased $6.1 million, or 152.6%, to $10.1 million in the 2018 period compared to the 2017 period due to increases in equity-based compensation of $5.3 million, incentive fee of $861,000 and base advisory fee of $141,000. These increases were partially offset by a decrease of $160,000 in reimbursable expenses. In the 2018 period, we recorded an advisory services fee of $10.1 million, which included a base advisory fee of $4.4 million, reimbursable expenses of $919,000, an incentive fee of $861,000 and $3.9 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. During the six months ended June 30, 2018, approximately $2.2 million of the equity-based compensation expense was related to the accelerated vesting of equity awards granted to one of our executive officers upon his passing, in accordance with the terms of the awards. In the 2017 period, we recorded an advisory services fee of $4.0 million which included a base advisory fee of $4.3 million, reimbursable expenses of $1.1 million and a credit to equity-based compensation expense in the amount of $1.4 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. The credit to equity-based compensation expense is a result of lower fair values at June 30, 2017 as compared to December 31, 2016.
Contract Modification Cost. In the 2017 period, we recorded a $5.0 million one-time payment to Ashford LLC upon entering into the Fourth Amended and Restated Advisory Agreement.

43

Transaction Costs. In the 2018 period, we recorded transaction costs of $949,000 primarily related to the acquisition of Ritz-Carlton, Sarasota. In the 2017 period, we recorded transaction costs of $6.4 million related to the acquisitions of Park Hyatt Beaver Creek and the Hotel Yountville.
Corporate General and Administrative. Corporate general and administrative expenses decreased $4.2 million, or 77.2%, to $1.2 million in the 2018 period compared to the 2017 period. In the 2017 period we incurred professional fees associated with the proxy contest and litigation of $2.0 million. In the 2018 period we recorded insurance recoveries related to the proxy contest and litigation of $1.2 million. This resulted in a decrease in professional fees associated with the proxy contest and litigation of $3.2 million in the 2018 period compared to the 2017 period. We also incurred lower other professional fees of $322,000, miscellaneous expenses of $281,000, public company costs of $172,000 and equity-based compensation to non-employee directors of $245,000 in the 2018 period compared to the 2017 period.
Equity in Earnings (Loss) of Unconsolidated Entity. We recorded equity in loss of unconsolidated entity of $65,000 in the 2018 period related to our investment in OpenKey. We did not have an investment in OpenKey during the 2017 period.
Interest Income. Interest income increased $153,000, or 55.2%, to $430,000 for the 2018 period compared to the 2017 period.
Gain (loss) on sale of hotel property. In the 2018 period, we recorded a gain of $15.7 million related the sale of the Tampa Renaissance on June 1, 2018.
Other Income (Expense). Other expense decreased $144,000 from $270,000 to $126,000 in the 2018 period compared to the 2017 period. In the 2018 period, we recorded other expense of $126,000 related to CMBX premiums and usage fees. In the 2017 period, we recognized a realized loss of $270,000 related to options on futures contracts.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $4.7 million, or 26.1%, to $22.9 million for the 2018 period compared to the 2017 period. The increase is primarily due to new mortgage loans associated with the acquisitions of the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota as well as a higher average LIBOR rate. The average LIBOR rates for the 2018 period and the 2017 period were 1.78% and 0.94%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees were $4.2 million for the 2018 period, resulting from the write-off of unamortized loan costs of $1.6 million and exit fees of $2.6 million associated with the refinancing of two mortgage loans. Write-off of loan costs and exit fees were $2.0 million for the 2017 period, resulting from the write-off of unamortized loan costs of $107,000 and exit fees of $1.9 million associated with the refinancing of three mortgage loans.
Unrealized Gain (Loss) on Investment in Ashford Inc. Unrealized gain (loss) on investment in Ashford Inc. changed $7.0 million, or 459.7%, from an unrealized gain of $1.5 million in the 2017 period to an unrealized loss of $5.5 million in the 2018 period. The fair value is based on the closing market price of Ashford Inc. common stock at the end of the period.
Unrealized Gain (Loss) on Derivatives. Unrealized loss on derivatives of $225,000 for the 2018 period consisted of a $261,000 unrealized loss on interest rate caps and a $84,000 unrealized loss on interest rate floors, partially offset by a $120,000 unrealized gain on CMBX credit default swaps. Unrealized loss on derivatives of $998,000 for the 2017 period consisted of a $894,000 unrealized loss on interest rate floors and a $317,000 unrealized loss on interest rate caps, partially offset by a $213,000 unrealized gain on options on futures contracts. The fair value of the interest rate caps and floors is primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of options on futures contracts is primarily based on the last reported settlement price as of the measurement date. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax (Expense) Benefit. Income tax expense increased $1.8 million, from $1,000 for the 2017 period to $1.8 million for the 2018 period. This change was primarily due to an increase in the profitability of our TRSs in the 2018 period compared to the 2017 period.
(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interest. Our noncontrolling interest partner in consolidated entities was allocated income of $47,000 and $1.6 million for the 2018 period and the 2017 period, respectively. At both June 30, 2018 and 2017, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net income of $1.5 million and net loss $598,000 for the 2018 period and the 2017 period, respectively. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 11.17% and 11.71% as of June 30, 2018 and 2017, respectively.

44

LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•
advisory fees payable to Ashford LLC;
•
recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
•
interest expense and scheduled principal payments on outstanding indebtedness, including our secured revolving credit facility (see “Contractual Obligations and Commitments”);
•
distributions, in the form of dividends on our capital stock, necessary to qualify for taxation as a REIT; and
•
capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our secured revolving credit facility.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments. We expect to meet our long-term liquidity requirements through various sources of capital, including our secured revolving credit facility and future equity and preferred equity issuances, existing working capital, net cash provided by operations, proceeds from insurance claims, hotel mortgage indebtedness and other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us. The success of our business strategy will depend, in part, on our ability to access these various capital sources.
Our hotel properties will require periodic capital expenditures and renovation to remain competitive. In addition, acquisitions, redevelopments or expansions of hotel properties may require significant capital outlays. We may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected.
Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties decline. When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan.
On December 5, 2017, our board of directors reapproved the 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 $50 million. The Board’s authorization replaced any previous repurchase authorizations. No shares were repurchased during the three and six months ended June 30, 2018, pursuant to this authorization.
On December 11, 2017, we entered into equity distribution agreements with Morgan Stanley & Co. LLC and UBS Securities LLC, each acting as a sales agent (the “Equity Distribution Agreements”). Pursuant to the Equity Distribution Agreements, we may sell from time to time through the sales agents shares of our common stock having an aggregate offering price of up to $50.0 million. Sales of shares of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for our common stock, or sales made to or through a market maker other than on an exchange or through an electronic communications network. We will pay each of the sales agents a commission, which in each case shall not be more than 2.0% of the gross sales price of the shares of our common stock sold through such sales agent. As of June 30, 2018, no shares of our common stock have been sold under this program.
On April 4, 2018, in connection with the acquisition of the 266-room Ritz-Carlton, Sarasota in Sarasota, Florida, the Company completed the financing of a $100 million mortgage loan. This mortgage loan provides for a floating interest rate of LIBOR + 2.65%. The mortgage loan is interest only until July 1, 2021 and then amortizes 1% annually for the remaining term. The stated maturity is April 2023.

45

On May 23, 2018, the Company refinanced two mortgage loans totaling $357.6 million with a new $435.0 million mortgage loan with a two-year initial term and five one-year extension options subject to the satisfaction of certain conditions. As a result of the refinance the Tampa Renaissance became unencumbered. The new mortgage loan is interest only and bears interest at a rate of LIBOR + 2.16%. The loan is secured by four hotels: Seattle Marriott Waterfront, San Francisco Courtyard Downtown, Philadelphia Courtyard Downtown and Sofitel Chicago Magnificent Mile.
Secured Revolving Credit Facility
We have a three-year, senior secured revolving credit facility in the amount of $100 million. It includes $15 million available in letters of credit and $15 million available in swingline loans. We believe the secured revolving credit facility will provide us with significant financial flexibility to fund future acquisitions and hotel redevelopments.
The secured revolving credit facility is provided by a syndicate of financial institutions with Bank of America, N.A., serving as the administrative agent to Braemar OP, as the borrower. We and certain of our subsidiaries guarantee the secured revolving credit facility, which is secured by a pledge of 100% of the equity interests we hold in Braemar OP and 100% of the equity interest issued by any guarantor (other than Braemar) or any other subsidiary of ours that is not restricted under its loan documents or organizational documents from having its equity pledged (subject to certain exclusions), all mortgage receivables held by the borrower or any guarantor, and certain deposit accounts and securities accounts held by the borrower and any guarantor. The proceeds of the secured revolving credit facility may be used for working capital, capital expenditures, property acquisitions, and any other lawful purposes.
The secured revolving credit facility also contains customary terms, covenants, negative covenants, events of default, limitations and other conditions for credit facilities of this type. Subject to certain exceptions, we are subject to restrictions on incurring additional indebtedness, mergers and fundamental changes, sales or other dispositions of property, changes in the nature of our business, investments and capital expenditures.
We also are subject to certain financial covenants, as set forth below, which are tested by the borrower on a consolidated basis (net of the amounts attributable to the non-controlling interest held by our partner in a majority-owned consolidated entity) and include, but are not limited to, the following:
•
Consolidated indebtedness (less cash and cash equivalents in excess of $10,000,000) to total asset value (based on property capitalization rates defined within the secured revolving credit facility agreement) not to exceed 60%. Our ratio was 49.9% at June 30, 2018.
•
Consolidated recourse indebtedness other than the secured revolving credit facility not to exceed $50,000,000.
•
Consolidated fixed charge coverage ratio not less than 1.40x initially, with such ratio being increased beginning October 1, 2017 to 1.50x. Our ratio was 2.12x at June 30, 2018.
•
Indebtedness of the consolidated parties that accrues interest at a variable rate (other than the secured revolving credit facility) that is not subject to a “cap,” “collar,” or other similar arrangement not to exceed 25% of consolidated indebtedness.
•
Consolidated tangible net worth not less than 75% of the consolidated tangible net worth on the closing date of the secured revolving credit facility plus 75% of the net proceeds of any future equity issuances.
•
Secured debt that is secured by real property not to exceed 70% of the as-is appraised value of such real property.
All financial covenants are tested and certified by the borrower on a quarterly basis. We were in compliance with all covenants at June 30, 2018.
The secured revolving credit facility includes customary events of default and the occurrence of an event of default will permit the lenders to terminate commitments to lend under the secured revolving credit facility and accelerate payment of all amounts outstanding thereunder. If a default occurs and is continuing, we will be precluded from making distributions on our shares of common stock (other than those required to allow us to qualify and maintain our status as a REIT, so long as such default does not arise from a payment default or event of insolvency).
Borrowings under the secured revolving credit facility bear interest, at our option, at either LIBOR for a designated interest period plus an applicable margin, or the base rate (as defined in the credit agreement) plus an applicable margin. The applicable margin for borrowings under the secured revolving credit facility for base rate loans range from 1.25% to 2.50% per annum and the applicable margin for borrowings under the secured revolving credit facility for LIBOR loans range from 2.25% to 3.50% per annum, depending on the ratio of consolidated indebtedness to EBITDA, with the lowest rate applying if such ratio is less than 4.0x and the highest rate applying if such ratio is greater than 6.0x.
The secured revolving credit facility is a three-year interest-only facility with all outstanding principal being due at maturity on November 10, 2019, subject to two one-year extension options if certain terms and conditions are satisfied and a 0.25% extension

46

fee. The secured revolving credit facility has an accordion feature whereby the aggregate commitments may be increased up to $250 million, subject to certain terms.
We intend to repay any indebtedness incurred under our secured revolving credit facility from time to time out of net cash provided by operations and from the net proceeds of issuances of additional equity and debt securities or sale of assets, as market conditions permit.
Sources and Uses of Cash
We had approximately $169.2 million and $137.5 million of cash and cash equivalents at June 30, 2018 and December 31, 2017, 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 $38.7 million and $30.6 million for the six months ended June 30, 2018 and 2017, respectively. Cash flows from operations are impacted by changes in hotel operations of our nine comparable hotel properties, the sale of the Plano Marriott Legacy Town Center on November 1, 2017 and the Tampa Renaissance on June 1, 2018 as well as the acquisitions of the Park Hyatt Beaver Creek on March 31, 2017, Hotel Yountville on May 11, 2017, and Ritz-Carlton, Sarasota on April 4, 2018. Cash flows from operations are also impacted by the timing of working capital cash flows such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers.
Net Cash Flows Provided by (Used in) Investing Activities. For the six months ended June 30, 2018, net cash flows used in investing activities were $122.3 million. These cash outflows were primarily attributable to $177.9 million for the acquisition of the Ritz-Carlton, Sarasota, $32.4 million of capital improvements made to various hotel properties and a $2.0 million investment in OpenKey, partially offset by $65.3 million of proceeds from the sale of the Tampa Renaissance and $24.7 million of insurance proceeds received related to the hurricanes. For the six months ended June 30, 2017, net cash flows used in investing activities were $263.1 million. These cash outflows were primarily attributable to $243.7 million for the acquisitions of the Park Hyatt Beaver Creek and Hotel Yountville and $21.7 million of capital improvements made to various hotel properties, partially offset by $2.3 million of proceeds received from the liquidation of our investment in the AQUA U.S. Fund. 
Net Cash Flows Provided by (Used in) Financing Activities. For the six months ended June 30, 2018, net cash flows provided by financing activities were $150.6 million. Cash inflows primarily consisted of borrowings on indebtedness of $575.0 million partially offset by $399.3 million for repayments of indebtedness, $15.1 million for payments of dividends and distributions and $9.4 million for payments of loan costs and exit fees. For the six months ended June 30, 2017, net cash flows provided by financing activities were $232.3 million. Cash inflows primarily consisted of borrowings on indebtedness of $483.5 million, proceeds of $66.5 million from the issuance of common stock and $40.2 million from the issuance of convertible preferred stock. These cash inflows were partially offset by $335.5 million for repayments of indebtedness, $12.1 million for payments of dividends and distributions and $9.8 million for payments of loan costs and exit fees.


47

Seasonality
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months and some during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that our cash flows from the operations of our properties and cash on hand will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations and cash on hand are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize borrowings to fund distributions required to maintain our REIT status. However, we cannot make any assurances that we will make distributions in the future.
Contractual Obligations and Commitments
There have been no material changes since December 31, 2017, outside of the ordinary course of business, to contractual obligations specified in the table of contractual obligations included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 10-K.
Off-Balance Sheet Arrangements
In the normal course of business, we may form or invest in partnerships or joint ventures. We evaluate each partnership and joint venture to determine whether the entity is a variable interest entity (“VIE”). If the entity is determined to be a VIE we assess whether we are the primary beneficiary and need to consolidate the entity. For further discussion see note 2 to our condensed consolidated financial statements.
We have no other off-balance sheet arrangements.
Critical Accounting Policies
Our accounting policies that are critical or most important to understanding our financial condition and results of operations and that require management to make the most difficult judgments are described in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 10-K. There have been no material changes in these critical accounting policies.
Non-GAAP Financial Measures
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, FFO and AFFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of loan costs, interest income, depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entity and Company’s portion of EBITDA of OpenKey. In addition, we excluded impairment on real estate, (gain) loss on sale of hotel property and Company’s portion of EBITDAre of OpenKey from EBITDA to calculate EBITDAre.
We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and management conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, contract modification cost, software implementation costs, uninsured hurricane and wildfire related costs, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/loss on investments, unrealized gain/ loss on derivatives and stock/unit-based compensation.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they reflect more accurately the ongoing performance of our hotel assets and other investments and provide more useful information to investors as they are indicators of our ability to meet our future debt payment requirements, working capital requirements and they provide an overall evaluation of our financial condition. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
Beginning on January 1, 2018, we began reporting EBITDA for real estate, or EBITDAre, as defined by NAREIT, and Adjusted EBITDAre. Previously, we reported Adjusted EBITDA. Adjusted EBITDAre is calculated in a similar manner as Adjusted EBITDA, with the exception of the adjustment for the consolidated noncontrolling interest’s pro rata share of Adjusted EBITDA. The rationale for including 100% of EBITDAre for consolidated noncontrolling interests is that the full amount of any debt of these entities is

48

reported in our consolidated balance sheet and therefore metrics using total debt to EBITDAre provide a better understanding of the Company’s leverage. This is also consistent with NAREIT’s definition of EBITDAre. All prior periods have been adjusted to conform to the current period presentation.
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,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
12,854

 
$
386

 
$
17,124

 
$
97

Interest income 
 
(230
)
 
(165
)
 
(430
)
 
(277
)
Interest expense and amortization of loan costs
 
12,678

 
9,931

 
22,857

 
18,133

Depreciation and amortization
 
14,811

 
13,469

 
27,817

 
25,440

Income tax expense (benefit)
 
1,202

 
479

 
1,774

 
1

Equity in (earnings) loss of unconsolidated entity
 
62

 
—

 
65

 
—

Company’s portion of EBITDA of OpenKey
 
(62
)
 
—

 
(64
)
 
—

EBITDA
 
41,315

 
24,100

 
69,143

 
43,394

Impairment charges on real estate
 
59

 
—

 
71

 
—

(Gain) loss on sale of hotel property
 
(15,711
)
 
—

 
(15,711
)
 
—

EBITDAre
 
25,663

 
24,100

 
53,503

 
43,394

Amortization of favorable (unfavorable) contract assets (liabilities)
 
49

 
44

 
92

 
93

Transaction and management conversion costs
 
462

 
2,112

 
965

 
6,440

Other (income) expense
 
63

 
113

 
126

 
270

Write-off of loan costs and exit fees
 
4,176

 
—

 
4,178

 
1,963

Unrealized (gain) loss on investment in Ashford Inc.
 
6,024

 
1,563

 
5,496

 
(1,528
)
Unrealized (gain) loss on derivatives
 
298

 
100

 
225

 
998

Non-cash stock/unit-based compensation
 
1,442

 
597

 
4,035

 
(1,071
)
Legal, advisory and settlement costs
 
197

 
3

 
(944
)
 
2,948

Contract modification cost
 
—

 
5,000

 
—

 
5,000

Software implementation costs
 
—

 
79

 
—

 
79

Uninsured hurricane and wildfire related costs
 
(55
)
 
—

 
412

 
—

Company’s portion of adjustments to EBITDAre of OpenKey
 
2

 
—

 
2

 
—

Adjusted EBITDAre
 
$
38,321

 
$
33,711

 
$
68,090

 
$
58,586

 
 
 
 
 

49

We calculate FFO and AFFO in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to the Company, computed in accordance with GAAP, excluding gains or losses on sales of hotel properties and extraordinary items as defined by GAAP, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership. 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 AFFO excludes preferred dividends, transaction and management conversion costs, write-off of loan costs and exit fees, legal, advisory and settlement costs, contract modification cost, software implementation costs, uninsured hurricane and wildfire related costs, other income/expense and non-cash items such as unrealized gain/loss on investments, unrealized gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of adjustments to FFO of OpenKey. FFO and AFFO exclude amounts attributable to the portion of a partnership owned by the third party. We consider FFO and AFFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and AFFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to GAAP net income or loss as an indication of our financial performance or GAAP cash flows from operating activities as a measure of our liquidity. FFO and AFFO are also not indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and AFFO should be considered along with our net income or loss and cash flows reported in our condensed consolidated financial statements.

50

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,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
12,854

 
$
386

 
$
17,124

 
$
97

(Income) loss from consolidated entities attributable to noncontrolling interest
 
(89
)
 
(1,614
)
 
(47
)
 
(1,593
)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership
 
(1,235
)
 
343

 
(1,527
)
 
598

Preferred dividends
 
(1,708
)
 
(1,707
)
 
(3,415
)
 
(3,380
)
Net income (loss) attributable to common stockholders
 
9,822

 
(2,592
)
 
12,135

 
(4,278
)
Depreciation and amortization on real estate (1)
 
14,052

 
12,752

 
26,310

 
24,003

Impairment charges on real estate
 
59

 
—

 
71

 
—

Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
 
1,235

 
(343
)
 
1,527

 
(598
)
Equity in (earnings) loss of unconsolidated entity
 
62

 
—

 
65

 
—

(Gain) loss on sale of hotel property
 
(15,711
)
 
—

 
(15,711
)
 
—

Company’s portion of FFO of OpenKey
 
(63
)
 
—

 
(65
)
 
—

FFO available to common stockholders and OP unitholders
 
9,456

 
9,817

 
24,332

 
19,127

Preferred dividends
 
1,708

 
1,707

 
3,415

 
3,380

Transaction and management conversion costs
 
462

 
2,112

 
965

 
6,440

Other (income) expense
 
63

 
113

 
126

 
270

Interest expense accretion on refundable membership club deposits
 
150

 
—

 
150

 
—

Write-off of loan costs and exit fees
 
4,176

 
—

 
4,178

 
1,963

Unrealized (gain) loss on investments
 
6,024

 
1,563

 
5,496

 
(1,528
)
Unrealized (gain) loss on derivatives
 
298

 
100

 
225

 
998

Non-cash stock/unit-based compensation
 
1,442

 
597

 
4,035

 
(1,071
)
Legal, advisory and settlement costs
 
197

 
3

 
(944
)
 
2,948

Contract modification cost
 
—

 
5,000

 
—

 
5,000

Software implementation costs
 
—

 
79

 
—

 
79

Uninsured hurricane and wildfire related costs
 
(55
)
 
—

 
412

 
—

Company’s portion of adjustments to FFO of OpenKey
 
2

 
—

 
2

 
—

Adjusted FFO available to the Company and OP unitholders
 
$
23,923

 
$
21,091

 
$
42,392

 
$
37,606

____________________
(1) 
Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for non-controlling interest for each line item:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Depreciation and amortization on real estate
 
$
(759
)
 
$
(717
)
 
$
(1,507
)
 
$
(1,437
)

51

Hotel Properties
The following table presents certain information related to our hotel properties:
Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
Fee Simple Properties
 
 
 
 
 
 
 
 
 
 
Hilton
 
Washington, D.C.
 
Full
 
550

 
75
%
 
413

Marriott
 
Seattle, WA
 
Full
 
361

 
100

 
361

Courtyard by Marriott (1)
 
Philadelphia, PA
 
Select
 
499

 
100

 
499

Courtyard by Marriott (1)
 
San Francisco, CA
 
Select
 
410

 
100

 
410

Chicago Sofitel Magnificent Mile
 
Chicago, IL
 
Full
 
415

 
100

 
415

Pier House Resort
 
Key West, FL
 
Full
 
142

 
100

 
142

Ritz-Carlton, St. Thomas (2)
 
St. Thomas, USVI
 
Full
 
180

 
100

 
180

Park Hyatt Beaver Creek
 
Beaver Creek, CO
 
Full
 
190

 
100

 
190

Hotel Yountville
 
Yountville, CA
 
Full
 
80

 
100

 
80

Ritz-Carlton, Sarasota (3)
 
Sarasota, FL
 
Full
 
266

 
100

 
266

Ground Lease Properties
 
 
 
 
 
 
 
 
 
 
Hilton (3)
 
La Jolla, CA
 
Full
 
394

 
75
%
 
296

Bardessono Hotel (4)
 
Yountville, CA
 
Full
 
62

 
100

 
62

Total
 
 
 
 
 
3,549

 
 
 
3,314

________
(1) 
Announced plans to convert to Autograph Collection. These hotel properties will be full service upon conversion.
(2) 
Due to the impact from hurricanes Irma and Maria the Ritz-Carlton, St. Thomas total rooms count was approximately 82 during the six months ended June 30, 2018. The hotel had 180 total rooms in service prior to the hurricanes.
(3) 
The ground lease expires in 2067.
(4) 
The initial ground lease expires in 2055. The ground lease contains two 25-year extension options, at our election.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates. To the extent that we acquire assets or conduct operations in an international jurisdiction, we will also have currency exchange risk. We may enter into certain hedging arrangements in order to manage interest rate and currency fluctuations. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
At June 30, 2018, our total indebtedness of $993.8 million was comprised of 100% variable-rate debt. The impact on the results of operations of a 25-basis point change in the interest rate on the outstanding balance of variable-rate debt at June 30, 2018, would be approximately $2.5 million per year.
The above amounts were determined based on the impact of hypothetical interest rates on our borrowings and assume no changes in our capital structure. The information presented above includes those exposures that existed at June 30, 2018, but it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
We use credit default swaps, tied to the CMBX index, to hedge financial and capital market risk. We have entered into credit default swap transactions with notional amounts totaling $50.0 million to hedge financial and capital market risk for upfront costs of $888,000, of which $269,000 has since been returned to us, and $619,000 remains held as collateral as of June 30, 2018. A credit default swap is a derivative contract that functions like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer (us) of protection in exchange for annual premium payments. If a default or a loss, as defined in the credit default swap agreements, occurs on the underlying bonds, then the buyer of protection is protected against those losses. The only liability for us, the buyer, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For all CMBX trades completed to date, we were the buyer of protection. Credit default swaps are subject to master-netting settlement arrangements and credit support annexes. Assuming the underlying bonds pay off at par over their remaining average life, our estimated total exposure for these trades was approximately $2.3 million at June 30, 2018.

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We hold interest rate floors with notional amounts totaling $6.9 billion and strike rates ranging from -0.25% to 1.50%. Our total exposure is capped at our initial total cost of $3.7 million. These instruments have termination dates ranging from March 2019 to July 2020.
ITEM 4.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2018 (“Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms; and (ii) is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does 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 or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to 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 or results of operations could be materially adversely affected in future periods.
ITEM 1A.
RISK FACTORS
The discussion of our business and operations should be read together with the risk factors contained in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies, or prospects in a material and adverse manner. As of June 30, 2018, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2017.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer
On December 5, 2017, our board of directors reapproved the 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 $50 million. The Board’s authorization replaced any previous repurchase authorizations. No shares were repurchased during the three and six months ended June 30, 2018, pursuant to this authorization.

53

The following table provides the information with respect to purchases and forfeitures of our common stock during each of the months in the second quarter of 2018:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of a Publicly Announced Plan
 
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plan
Common stock:
 
 
 
 
 
 
 
 
April 1 to April 30
 
14,316

 
$
10.46

(1) 
—

 
$
50,000,000

May 1 to May 31
 
1,448

 
$
—

(1) 
—

 
$
50,000,000

June 1 to June 30
 
—

 
$
—

 
—

 
$
50,000,000

Total
 
15,764

 
$
10.46

 
—

 
 
__________________
(1) 
There is no cost associated with the forfeiture of 1,910 and 1,448 restricted shares of our common stock in April and May, respectively.

54

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
ITEM 5.
OTHER INFORMATION
None.

55

ITEM 6.
EXHIBITS
Exhibit
 
Description
3.1
 
3.2
 
3.3
 
3.4
 
3.5
 
3.6
 
3.7
 
3.8
 
3.9
 
3.10
 
3.11
 
10.1
 
12*
 
31.1*
 
31.2*
 
32.1*
 
32.2*
 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 are formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements Comprehensive Income; (iii) Consolidated Statement of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements. In accordance with Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
 
 
 
101.INS
 
XBRL Instance Document
Submitted electronically with this report.
101.SCH
 
XBRL Taxonomy Extension Schema Document
Submitted electronically with this report.
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
Submitted electronically with this report.
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
Submitted electronically with this report.
101.LAB
 
XBRL Taxonomy Label Linkbase Document
Submitted electronically with this report.
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document
Submitted electronically with this report.
___________________________________
* Filed herewith.

56

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BRAEMAR HOTELS & RESORTS INC.
Date:
August 9, 2018
By:
/s/ RICHARD J. STOCKTON
 
 
 
 
Richard J. Stockton
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
Date:
August 9, 2018
By:
/s/ DERIC S. EUBANKS
 
 
 
 
Deric S. Eubanks
 
 
 
 
Chief Financial Officer
 


57