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 March 31,
2020
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 every
Interactive Data File required to be submitted 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 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 an 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
|
¨
|
Smaller reporting
company
|
¨
|
|
|
Emerging growth
company
|
¨
|
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) of 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
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
|
Title of each
class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which
registered
|
Common
Stock
|
|
BHR
|
|
New York
Stock Exchange
|
Preferred
Stock, Series B
|
|
BHR-PB
|
|
New York
Stock Exchange
|
Preferred
Stock, Series D
|
|
BHR-PD
|
|
New York
Stock Exchange
|
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
|
|
33,534,996
|
(Class)
|
|
Outstanding
at May 22, 2020
|
BRAEMAR
HOTELS & RESORTS INC.
FORM
10-Q
FOR THE
QUARTER ENDED MARCH 31,
2020
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)
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Investments in hotel
properties, gross
|
$
|
1,794,504
|
|
|
$
|
1,791,174
|
|
Accumulated
depreciation
|
(325,322
|
)
|
|
(309,752
|
)
|
Investments in hotel
properties, net
|
1,469,182
|
|
|
1,481,422
|
|
Cash and cash
equivalents
|
141,793
|
|
|
71,995
|
|
Restricted cash
|
45,418
|
|
|
58,388
|
|
Accounts receivable, net of
allowance of $220 and $153, respectively
|
13,834
|
|
|
19,053
|
|
Inventories
|
2,718
|
|
|
2,794
|
|
Prepaid expenses
|
6,603
|
|
|
4,992
|
|
Investment in unconsolidated
entity
|
1,885
|
|
|
1,899
|
|
Derivative assets
|
650
|
|
|
582
|
|
Operating lease right-of-use
assets
|
82,255
|
|
|
82,596
|
|
Other assets
|
15,446
|
|
|
13,018
|
|
Intangible assets,
net
|
4,924
|
|
|
5,019
|
|
Due from related parties,
net
|
854
|
|
|
551
|
|
Due from third-party hotel
managers
|
16,953
|
|
|
16,638
|
|
Total assets
|
$
|
1,802,515
|
|
|
$
|
1,758,947
|
|
LIABILITIES
AND EQUITY
|
|
|
|
Liabilities:
|
|
|
|
Indebtedness, net
|
$
|
1,134,488
|
|
|
$
|
1,058,486
|
|
Accounts payable and accrued
expenses
|
87,440
|
|
|
94,919
|
|
Dividends and distributions
payable
|
3,208
|
|
|
9,143
|
|
Due to Ashford
Inc.
|
3,248
|
|
|
4,344
|
|
Due to third-party hotel
managers
|
1,663
|
|
|
1,685
|
|
Operating lease
liabilities
|
61,064
|
|
|
61,118
|
|
Other liabilities
|
17,906
|
|
|
17,508
|
|
Total liabilities
|
1,309,017
|
|
|
1,247,203
|
|
Commitments and contingencies
(note 15)
|
|
|
|
5.50% Series B cumulative
convertible preferred stock, $0.01 par value, 5,031,473 and
5,008,421 shares issued and outstanding at March 31, 2020 and
December 31, 2019
|
107,352
|
|
|
106,920
|
|
Redeemable noncontrolling
interests in operating partnership
|
36,786
|
|
|
41,570
|
|
Equity:
|
|
|
|
Preferred stock, $0.01 value,
80,000,000 shares authorized:
|
|
|
|
Series D cumulative preferred
stock, 1,600,000 shares issued and outstanding at March 31, 2020
and December 31, 2019
|
16
|
|
|
16
|
|
Common stock, $0.01 par value,
250,000,000 shares authorized, 33,510,912 and 32,885,217 shares
issued and outstanding at March 31, 2020 and December 31, 2019,
respectively
|
335
|
|
|
329
|
|
Additional paid-in
capital
|
524,341
|
|
|
519,551
|
|
Accumulated
deficit
|
(166,108
|
)
|
|
(150,629
|
)
|
Total stockholders’ equity of
the Company
|
358,584
|
|
|
369,267
|
|
Noncontrolling interest in
consolidated entities
|
(9,224
|
)
|
|
(6,013
|
)
|
Total equity
|
349,360
|
|
|
363,254
|
|
Total liabilities and
equity
|
$
|
1,802,515
|
|
|
$
|
1,758,947
|
|
See Notes to
Condensed Consolidated Financial Statements.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited,
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
REVENUE
|
|
|
|
Rooms
|
$
|
70,468
|
|
|
$
|
76,731
|
|
Food and beverage
|
28,803
|
|
|
32,114
|
|
Other
|
18,249
|
|
|
19,663
|
|
Total hotel
revenue
|
117,520
|
|
|
128,508
|
|
Other
|
—
|
|
|
5
|
|
Total revenue
|
117,520
|
|
|
128,513
|
|
EXPENSES
|
|
|
|
Hotel operating
expenses:
|
|
|
|
Rooms
|
17,880
|
|
|
16,982
|
|
Food and beverage
|
23,901
|
|
|
22,210
|
|
Other expenses
|
42,090
|
|
|
38,895
|
|
Management fees
|
3,877
|
|
|
4,416
|
|
Total hotel operating
expenses
|
87,748
|
|
|
82,503
|
|
Property taxes, insurance and
other
|
7,660
|
|
|
7,460
|
|
Depreciation and
amortization
|
18,338
|
|
|
16,686
|
|
Advisory services
fee
|
5,069
|
|
|
6,024
|
|
Transaction costs
|
—
|
|
|
634
|
|
Corporate general and
administrative
|
1,932
|
|
|
1,126
|
|
Total expenses
|
120,747
|
|
|
114,433
|
|
OPERATING
INCOME (LOSS)
|
(3,227
|
)
|
|
14,080
|
|
Equity in earnings (loss) of
unconsolidated entity
|
(40
|
)
|
|
(50
|
)
|
Interest income
|
129
|
|
|
362
|
|
Other income
(expense)
|
(138
|
)
|
|
(117
|
)
|
Interest expense and
amortization of loan costs
|
(11,897
|
)
|
|
(14,193
|
)
|
Write-off of loan costs and
exit fees
|
—
|
|
|
(312
|
)
|
Unrealized gain (loss) on
investment in Ashford Inc.
|
—
|
|
|
707
|
|
Unrealized gain (loss) on
derivatives
|
1,156
|
|
|
(872
|
)
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
(14,017
|
)
|
|
(395
|
)
|
Income tax (expense)
benefit
|
(1,370
|
)
|
|
(927
|
)
|
NET INCOME
(LOSS)
|
(15,387
|
)
|
|
(1,322
|
)
|
(Income) loss attributable to
noncontrolling interest in consolidated entities
|
572
|
|
|
(99
|
)
|
Net (income) loss attributable
to redeemable noncontrolling interests in operating
partnership
|
1,885
|
|
|
440
|
|
NET INCOME
(LOSS) ATTRIBUTABLE TO THE COMPANY
|
(12,930
|
)
|
|
(981
|
)
|
Preferred
dividends
|
(2,555
|
)
|
|
(2,532
|
)
|
NET INCOME
(LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
|
(15,485
|
)
|
|
$
|
(3,513
|
)
|
INCOME
(LOSS) PER SHARE - BASIC:
|
|
|
|
Net income (loss) attributable
to common stockholders
|
$
|
(0.48
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares
outstanding – basic
|
32,474
|
|
|
32,115
|
|
INCOME
(LOSS) PER SHARE - DILUTED:
|
|
|
|
Net income (loss) attributable
to common stockholders
|
$
|
(0.48
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares
outstanding – diluted
|
32,474
|
|
|
32,115
|
|
See Notes to
Condensed Consolidated Financial Statements.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(unaudited,
in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
NET INCOME
(LOSS)
|
$
|
(15,387
|
)
|
|
$
|
(1,322
|
)
|
OTHER
COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
|
|
Total other comprehensive
income (loss)
|
—
|
|
|
—
|
|
TOTAL
COMPREHENSIVE INCOME (LOSS)
|
(15,387
|
)
|
|
(1,322
|
)
|
Comprehensive (income) loss
attributable to noncontrolling interest in consolidated
entities
|
572
|
|
|
(99
|
)
|
Comprehensive (income) loss
attributable to redeemable noncontrolling interests in operating
partnership
|
1,885
|
|
|
440
|
|
COMPREHENSIVE
INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY
|
$
|
(12,930
|
)
|
|
$
|
(981
|
)
|
See Notes
to Condensed
Consolidated Financial
Statements.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS
OF EQUITY
(unaudited,
in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.25% Series
D Cumulative Preferred Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Noncontrolling
Interest in Consolidated Entities
|
|
Total
|
|
5.50% Series
B Cumulative Convertible
Preferred
Stock
|
|
Redeemable
Noncontrolling Interests in Operating Partnership
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Shares
|
|
Amount
|
|
Balance at December 31,
2019
|
1,600
|
|
|
$
|
16
|
|
|
32,885
|
|
|
$
|
329
|
|
|
$
|
519,551
|
|
|
$
|
(150,629
|
)
|
|
$
|
(6,013
|
)
|
|
$
|
363,254
|
|
|
5,008
|
|
|
$
|
106,920
|
|
|
$
|
41,570
|
|
Purchase of common
stock
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,424
|
|
|
—
|
|
|
—
|
|
|
1,424
|
|
|
—
|
|
|
—
|
|
|
561
|
|
Issuance of restricted
shares/units
|
—
|
|
|
—
|
|
|
311
|
|
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeiture of restricted
common shares
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of preferred
stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
432
|
|
|
—
|
|
Dividends declared – preferred
stock - Series B ($0.34/share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,730
|
)
|
|
—
|
|
|
(1,730
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends declared – preferred
stock - Series D ($0.52/share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(825
|
)
|
|
—
|
|
|
(825
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Distributions to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,639
|
)
|
|
(2,639
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Redemption/conversion of
operating partnership units
|
—
|
|
|
—
|
|
|
339
|
|
|
3
|
|
|
3,451
|
|
|
—
|
|
|
—
|
|
|
3,454
|
|
|
—
|
|
|
—
|
|
|
(3,454
|
)
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,930
|
)
|
|
(572
|
)
|
|
(13,502
|
)
|
|
—
|
|
|
—
|
|
|
(1,885
|
)
|
Redemption value
adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Balance at March 31,
2020
|
1,600
|
|
|
$
|
16
|
|
|
33,511
|
|
|
$
|
335
|
|
|
$
|
524,341
|
|
|
$
|
(166,108
|
)
|
|
$
|
(9,224
|
)
|
|
$
|
349,360
|
|
|
5,031
|
|
|
$
|
107,352
|
|
|
$
|
36,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.25% Series
D Cumulative Preferred Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Noncontrolling
Interest in Consolidated Entities
|
|
Total
|
|
5.50% Series
B Cumulative Convertible
Preferred Stock
|
|
Redeemable
Noncontrolling Interests in Operating Partnership
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Shares
|
|
Amount
|
|
Balance at December 31,
2018
|
1,600
|
|
|
$
|
16
|
|
|
32,512
|
|
|
$
|
325
|
|
|
$
|
512,545
|
|
|
$
|
(115,410
|
)
|
|
$
|
(5,391
|
)
|
|
$
|
392,085
|
|
|
4,966
|
|
|
$
|
106,123
|
|
|
$
|
44,885
|
|
Impact of adoption of new
accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
—
|
|
|
(103
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase of common
stock
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
(202
|
)
|
|
—
|
|
|
—
|
|
|
(202
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity-based
compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
978
|
|
|
—
|
|
|
—
|
|
|
978
|
|
|
—
|
|
|
—
|
|
|
550
|
|
Preferred stock offering
costs
|
|
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of restricted
shares/units
|
—
|
|
|
—
|
|
|
237
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Forfeiture of restricted
common shares
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends declared – common
stock ($0.16/share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,329
|
)
|
|
—
|
|
|
(5,329
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends declared – preferred
stock - Series B ($0.34/share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,707
|
)
|
|
—
|
|
|
(1,707
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends declared – preferred
stock - Series D ($0.52/share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(825
|
)
|
|
—
|
|
|
(825
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Distributions to
noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(778
|
)
|
Redemption/conversion of
operating partnership units
|
—
|
|
|
—
|
|
|
110
|
|
|
1
|
|
|
1,433
|
|
|
(285
|
)
|
|
—
|
|
|
1,149
|
|
|
—
|
|
|
—
|
|
|
(1,149
|
)
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(981
|
)
|
|
99
|
|
|
(882
|
)
|
|
—
|
|
|
—
|
|
|
(440
|
)
|
Redemption value
adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,935
|
)
|
|
—
|
|
|
(7,935
|
)
|
|
—
|
|
|
—
|
|
|
7,935
|
|
Balance at March 31,
2019
|
1,600
|
|
|
$
|
16
|
|
|
32,841
|
|
|
$
|
328
|
|
|
$
|
514,739
|
|
|
$
|
(132,575
|
)
|
|
$
|
(5,292
|
)
|
|
$
|
377,216
|
|
|
4,966
|
|
|
$
|
106,123
|
|
|
$
|
51,010
|
|
See Notes
to Condensed
Consolidated Financial
Statements.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited,
in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
CASH FLOWS
FROM OPERATING ACTIVITIES
|
|
|
|
Net income (loss)
|
$
|
(15,387
|
)
|
|
$
|
(1,322
|
)
|
Adjustments to reconcile net
income (loss) to net cash flows provided by (used in) operating
activities:
|
|
|
|
Depreciation and
amortization
|
18,338
|
|
|
16,686
|
|
Equity-based
compensation
|
1,985
|
|
|
1,528
|
|
Bad debt expense
|
269
|
|
|
87
|
|
Amortization of loan
costs
|
1,071
|
|
|
1,180
|
|
Write-off of loan costs and
exit fees
|
—
|
|
|
312
|
|
Amortization of
intangibles
|
207
|
|
|
119
|
|
Amortization of non-refundable
membership initiation fees
|
(82
|
)
|
|
(27
|
)
|
Interest expense accretion on
refundable membership club deposits
|
213
|
|
|
225
|
|
Unrealized (gain) loss on
investment in Ashford Inc.
|
—
|
|
|
(707
|
)
|
Realized and unrealized (gain)
loss on derivatives
|
(1,081
|
)
|
|
937
|
|
Net settlement of trading
derivatives
|
1,330
|
|
|
(925
|
)
|
Equity in (earnings) loss of
unconsolidated entity
|
40
|
|
|
50
|
|
Deferred income tax expense
(benefit)
|
(5
|
)
|
|
179
|
|
Changes in operating assets
and liabilities, exclusive of the effect of hotel acquisitions and
dispositions:
|
|
|
|
Accounts receivable and
inventories
|
4,003
|
|
|
(9,354
|
)
|
Prepaid expenses and other
assets
|
(2,719
|
)
|
|
(1,536
|
)
|
Accounts payable and accrued
expenses
|
(8,315
|
)
|
|
(49
|
)
|
Operating lease right-of-use
assets
|
134
|
|
|
115
|
|
Due to/from related parties,
net
|
(303
|
)
|
|
(493
|
)
|
Due to/from third-party hotel
managers
|
(337
|
)
|
|
(2,518
|
)
|
Due to/from Ashford
Inc.
|
(439
|
)
|
|
1,113
|
|
Operating lease
liabilities
|
(54
|
)
|
|
(30
|
)
|
Other liabilities
|
267
|
|
|
(6,186
|
)
|
Net cash provided by (used in)
operating activities
|
(865
|
)
|
|
(616
|
)
|
|
|
|
|
|
CASH FLOWS
FROM INVESTING ACTIVITIES
|
|
|
|
Proceeds from property
insurance
|
948
|
|
|
—
|
|
Acquisition of hotel
properties, net of cash and restricted cash acquired
|
—
|
|
|
(112,095
|
)
|
Investment in unconsolidated
entity
|
(26
|
)
|
|
(156
|
)
|
Improvements and additions to
hotel properties
|
(7,509
|
)
|
|
(36,644
|
)
|
Net cash provided by (used in)
investing activities
|
(6,587
|
)
|
|
(148,895
|
)
|
|
|
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES
|
|
|
|
Borrowings on
indebtedness
|
75,000
|
|
|
249,000
|
|
Repayments of
indebtedness
|
—
|
|
|
(187,086
|
)
|
Payments of loan costs and
exit fees
|
—
|
|
|
(2,441
|
)
|
Payments for
derivatives
|
(37
|
)
|
|
(55
|
)
|
Purchase of common
stock
|
(28
|
)
|
|
(202
|
)
|
Payments for dividends and
distributions
|
(8,490
|
)
|
|
(7,979
|
)
|
Proceeds from issuance of
preferred stock
|
474
|
|
|
—
|
|
Preferred stock offering
costs
|
—
|
|
|
(110
|
)
|
Distributions to
noncontrolling interest in consolidated entities
|
(2,639
|
)
|
|
—
|
|
Other
|
—
|
|
|
7
|
|
Net cash provided by (used in)
financing activities
|
64,280
|
|
|
51,134
|
|
Net change in cash, cash
equivalents and restricted cash
|
56,828
|
|
|
(98,377
|
)
|
Cash, cash equivalents and
restricted cash at beginning of period
|
130,383
|
|
|
258,488
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
187,211
|
|
|
$
|
160,111
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
Interest paid
|
$
|
10,601
|
|
|
$
|
12,363
|
|
Income taxes paid
(refunded)
|
690
|
|
|
(1,224
|
)
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
|
|
|
|
Common stock purchases accrued
but not paid
|
$
|
82
|
|
|
$
|
—
|
|
Dividends and distributions
declared but not paid
|
3,208
|
|
|
9,174
|
|
Capital expenditures accrued
but not paid
|
17,040
|
|
|
14,891
|
|
Accrued but unpaid financing
costs
|
1,364
|
|
|
—
|
|
Accrued preferred stock
offering expenses
|
25
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
SUPPLEMENTAL
DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
|
|
|
|
Cash and cash equivalents at
beginning of period
|
$
|
71,995
|
|
|
$
|
182,578
|
|
Restricted cash at beginning
of period
|
58,388
|
|
|
75,910
|
|
Cash, cash equivalents and
restricted cash at beginning of period
|
$
|
130,383
|
|
|
$
|
258,488
|
|
|
|
|
|
Cash and cash equivalents at
end of period
|
$
|
141,793
|
|
|
$
|
73,802
|
|
Restricted cash at end of
period
|
45,418
|
|
|
86,309
|
|
Cash, cash equivalents and
restricted cash at end of period
|
$
|
187,211
|
|
|
$
|
160,111
|
|
See Notes
to Condensed
Consolidated Financial
Statements.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
Organization and Description of Business
Braemar Hotels
& Resorts Inc., together with its subsidiaries (“Braemar”), is
a Maryland corporation that invests primarily in high revenue per
available room (“RevPAR”) luxury hotels and resorts. High RevPAR,
for purposes of our investment strategy, means RevPAR of at least
twice the then-current U.S. national average RevPAR for all hotels
as determined by Smith Travel Research. Braemar has elected to be
taxed as a real estate investment trust (“REIT”) under the Internal
Revenue Code of 1986, as amended (the “Code”). Braemar conducts its
business and owns substantially all of its assets through its
operating partnership, Braemar Hospitality Limited Partnership
(“Braemar OP”). 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.
We do not operate
any of our hotel properties directly; instead we employ hotel
management companies to operate them for us under management
contracts. Remington Hotels, a subsidiary of Ashford Inc. after
November 6, 2019, manages three of our thirteen hotel properties. Third-party
management companies manage the remaining hotel
properties.
Ashford Inc. also
provides other products and services to us or our hotel properties
through certain entities in which Ashford Inc. has an ownership
interest. These products and services include, but are not limited
to project management services, debt placement services, audio
visual services, real estate advisory services, insurance claims
services, hypoallergenic premium rooms, watersport activities,
travel/transportation services and mobile key
technology.
The
accompanying condensed consolidated
financial
statements include the accounts of wholly-owned and majority-owned
subsidiaries of Braemar OP that as of March 31,
2020,
own thirteen hotel properties in
six
states, the
District of Columbia and the U.S. Virgin Islands (“USVI”). The
portfolio includes eleven 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 3,722 total rooms, or
3,487
net rooms,
excluding those attributable to our partner. As a REIT, Braemar is
required to comply with limitations imposed by the Internal Revenue
Code related to operating hotels. As of March 31,
2020, twelve of our thirteen hotel properties were leased
by wholly-owned or majority-owned subsidiaries that are treated as
taxable REIT subsidiaries (“TRS”) for federal income tax purposes
(collectively the TRS entities are referred to as “Braemar
TRS”). One hotel property, located in
the USVI, is owned by our USVI TRS. Braemar TRS then engages
third-party or affiliated hotel management companies to operate the
hotel properties under management contracts. Hotel operating
results related to the hotel properties are included in the
condensed
consolidated statements of
operations.
As of
March 31,
2020, ten of the thirteen 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 Management US Inc. (“Accor”), Hyatt Hotels
Corporation (“Hyatt”), Ritz-Carlton, Inc., a subsidiary of Marriott
(“Ritz-Carlton”) and Remington Hotels, which are eligible
independent contractors under the Internal Revenue
Code.
COVID-19,
Management’s Plans and Liquidity
In December 2019,
a novel strain of coronavirus (COVID-19) was identified in Wuhan,
China, which subsequently spread to other regions of the world, and
has resulted in significant travel restrictions and extended
shutdown of numerous businesses in every state in the United
States. In March 2020, the World Health Organization declared
COVID-19 to be a global pandemic. Since late February, we have
experienced a significant decline in occupancy and RevPAR and we
expect the significant occupancy and RevPAR reduction associated
with COVID-19 to continue as we are experiencing significant
reservation cancellations as well as a significant reduction in new
reservations relative to prior expectations. The prolonged presence
of the virus has resulted in health or other government authorities
imposing widespread restrictions on travel and other businesses.
The hotel industry and our portfolio have experienced the
postponement or cancellation of a significant number of business
conferences and similar events. Following the government mandates
and health official orders, the Company temporarily suspended
operations at 11 of its 13 hotels and dramatically reduced staffing
and expenses at its hotels that remain operational. Operations will
remain suspended until state and
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
local government
restrictions and requirements are lifted and the Company can be
confident that reopening the hotels will not jeopardize the health
and safety of guests, hotel employees and local communities.
COVID-19 has had a significant negative impact on the Company’s
operations and financial results to date. The full financial impact
of the reduction in hotel demand caused by the pandemic and
suspension of operations at the Company’s hotels cannot be
reasonably estimated at this time due to uncertainty as to its
severity and duration. The Company expects that the COVID-19
pandemic will have a significant negative impact on the Company’s
results of operations, financial position and cash flow in 2020. As
a result, in March 2020, the Company fully drew down on its
$75
million secured revolving credit
facility, suspended the quarterly cash dividend on its common
shares for the first quarter of 2020 and likely the remainder of
2020, reduced planned capital expenditures and reduced the
compensation of its board of directors, and, working closely with
its hotel managers, significantly reduced its hotels’ operating
expenses. The Company’s advisor adopted a remote-work policy at its
corporate office in an effort to protect the health and safety of
its employees and does not anticipate these policies to have any
adverse impact on its ability to continue to operate its
business.
As of March 31,
2020, the Company maintained unrestricted cash of
$141.8
million.
All of the Company’s property-level debt is non-recourse. Although
the Company was in compliance with all its debt covenants as of
March 31, 2020, subsequent to March 31, 2020 the Company did not
make at least one interest payment on nearly all of its mortgage
and mezzanine loans, which constituted an “Event of Default” as
such term is defined under the applicable loan documents. Further,
the Company triggered an "Event of Default," as defined under the
secured revolving credit facility agreement as a result of the
Company being in default on mortgage and mezzanine loans with an
aggregate principal amount in excess of $200
million.
Pursuant to the terms of the applicable mortgage loan, such an
Event of Default caused an automatic increase in the interest rate
on its outstanding loan balance for the period such Event of
Default remains outstanding. Following an Event of Default, the
Company’s lenders can generally elect to accelerate all principal
and accrued interest payments that remain outstanding under the
applicable mortgage loan and foreclose on the applicable hotel
properties that are security for such loans. Additionally,
subsequent to March 31, 2020, the Company did not make rental
payments under two ground leases that are paid monthly. The Company
is actively negotiating the terms for forbearance agreements or
waivers with its lenders and landlords. Based on these factors, the
Company has determined that there is substantial doubt about the
Company’s ability to continue as a going concern within one year
after the date the financial statements are issued. U.S. generally
accepted accounting principles requires that in making this
determination, the Company cannot consider any remedies that are
outside of the Company’s control and have not been fully
implemented. As a result, the Company could not consider future
potential fundraising activities, whether through equity or debt
offerings, dispositions of hotel properties or the likelihood of
obtaining forbearance agreements as we could not conclude they were
probable of being effectively implemented. Any forbearance
agreement will most likely lead to increased costs, increased
interest rates, additional restrictive covenants and other possible
lender protections. In addition to or in lieu of obtaining
forbearance agreements as described above, the Company could turn
over the hotels securing the mortgage loans to the respective
lenders.
The consolidated
financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments
that might result from the outcome of this
uncertainty.
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
2019 Annual Report on Form 10-K, as originally filed with the
Securities and Exchange Commission (“SEC”) on March 13,
2020.
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,
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
dispositions,
financings, restructurings or other transactions with sellers,
purchasers, lenders, brokers, agents and other applicable
representatives, are subject to the approval of our wholly-owned
subsidiary, Braemar OP General Partner LLC, its general partner. As
such, we consolidate Braemar OP.
The following
items affect reporting comparability of our historical
condensed
consolidated financial
statements:
|
|
•
|
historical
seasonality patterns at some of our hotel properties cause
fluctuations in our overall operating results. Consequently,
operating results for the three months ended
March 31,
2020, are
not necessarily indicative of the results that may be expected for
the year ending December 31,
2020;
and
|
|
|
•
|
on January 15,
2019, we acquired the Ritz-Carlton, Lake Tahoe. The operating
results of the hotel property have been included in the results of
operations as of its acquisition date.
|
Use of Estimates—The preparation of
these condensed consolidated
financial
statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes—On March 27, 2020, the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”) was signed into law and includes certain income tax
provisions relevant to businesses. The Company is required to
recognize the effect on the consolidated financial statements in
the period the law was enacted, which is the period ended March 31,
2020. For the period ended March 31, 2020, the CARES Act did not
have a material impact on the Company’s consolidated financial
statements. At this time, the Company does not expect the impact of
the CARES Act to have a material impact on the Company’s
consolidated financial statements for the year ended December 31,
2020.
Recently Adopted Accounting Standards—In June 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards
Updated (“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. In
November 2018, the FASB issued ASU 2018-19, Codification
Improvements to Topic 326, Financial Instruments – Credit
Losses (“ASU
2018-19”).
ASU 2018-19
clarifies that receivables arising from operating leases are not
within the scope of Subtopic 326-20. Instead, impairment of
receivables arising from operating leases should be accounted for
in accordance with Topic 842, Leases.
In November 2019, the FASB issued ASU
2019-10, Financial
Instruments – Credit Losses (Topic 326), Derivatives and
Hedging (Topic 815) and Leases (Topic 842): Effective Dates
(“ASU
2019-10”). ASU 2019-10 updates the effective dates for ASU
2016-13, but there is no change for public companies. In November
2019, the FASB issued ASU 2019-11, Codification
Improvements to Topic 326, Financial Instruments – Credit
Losses (“ASU 2019-11”). ASU
2019-11, clarifies specific issues within the amendments of ASU
2016-13. We adopted the standard effective January 1, 2020 and the
adoption of this standard did not have a material impact on
our condensed consolidated
financial
statements.
Recently Issued Accounting Standards—In January 2020, the FASB
issued ASU 2020-01, Investments
– Equity Securities (Topic 321), Investments—Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)
– Clarifying the Interactions between Topic 321, Topic 323, and
Topic 815 (a consensus of the Emerging Issues Task
Force) (“ASU 2020-01”), which
clarifies the interaction between the accounting for equity
securities, equity method investments, and certain derivative
instruments. The ASU, among other things, clarifies that a company
should consider observable transactions that require a company to
either apply or discontinue the equity method of accounting
under Topic
323, Investments—Equity Method and Joint
Ventures,
for the purposes of applying the measurement alternative in
accordance with Topic 321 immediately before applying or upon
discontinuing the equity method. ASU 2020-01 is effective for
fiscal years beginning after December 15, 2020, and interim periods
within those fiscal years and should be applied prospectively.
Early adoption is permitted. We are currently evaluating the impact
that ASU 2020-01 may have on our condensed consolidated
financial
statements and related disclosures.
In March 2020,
the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04
contains practical expedients for reference rate reform related
activities that impact debt, leases, derivatives and other
contracts. The guidance in ASU 2020-04 is optional and may be
elected over time as reference rate reform activities occur. The
Company continues to evaluate the impact of the guidance and may
apply the elections as applicable as changes in the market
occur.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
3.
Revenue
The following
tables present our revenue disaggregated by geographical areas (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
Primary
Geographical Market
|
|
Number of
Hotels
|
|
Rooms
|
|
Food and
Beverage
|
|
Other
Hotel
|
|
Other
|
|
Total
|
California
|
|
5
|
|
$
|
23,987
|
|
|
$
|
7,771
|
|
|
$
|
4,418
|
|
|
$
|
—
|
|
|
$
|
36,176
|
|
Colorado
|
|
1
|
|
8,151
|
|
|
4,255
|
|
|
2,905
|
|
|
—
|
|
|
15,311
|
|
Florida
|
|
2
|
|
13,989
|
|
|
7,743
|
|
|
4,694
|
|
|
—
|
|
|
26,426
|
|
Illinois
|
|
1
|
|
2,621
|
|
|
852
|
|
|
296
|
|
|
—
|
|
|
3,769
|
|
Pennsylvania
|
|
1
|
|
4,466
|
|
|
1,206
|
|
|
236
|
|
|
—
|
|
|
5,908
|
|
Washington
|
|
1
|
|
3,698
|
|
|
791
|
|
|
358
|
|
|
—
|
|
|
4,847
|
|
Washington, D.C.
|
|
1
|
|
6,535
|
|
|
3,491
|
|
|
506
|
|
|
—
|
|
|
10,532
|
|
USVI
|
|
1
|
|
7,021
|
|
|
2,694
|
|
|
4,836
|
|
|
—
|
|
|
14,551
|
|
Total
|
|
13
|
|
$
|
70,468
|
|
|
$
|
28,803
|
|
|
$
|
18,249
|
|
|
$
|
—
|
|
|
$
|
117,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2019
|
Primary
Geographical Market
|
|
Number of
Hotels
|
|
Rooms
|
|
Food and
Beverage
|
|
Other
Hotel
|
|
Other
|
|
Total
|
California
|
|
5
|
|
$
|
29,914
|
|
|
$
|
10,165
|
|
|
$
|
3,926
|
|
|
$
|
—
|
|
|
$
|
44,005
|
|
Colorado
|
|
1
|
|
9,597
|
|
|
4,836
|
|
|
3,666
|
|
|
—
|
|
|
18,099
|
|
Florida
|
|
2
|
|
14,996
|
|
|
8,096
|
|
|
4,822
|
|
|
—
|
|
|
27,914
|
|
Illinois
|
|
1
|
|
3,323
|
|
|
1,138
|
|
|
296
|
|
|
—
|
|
|
4,757
|
|
Pennsylvania
|
|
1
|
|
4,237
|
|
|
808
|
|
|
229
|
|
|
—
|
|
|
5,274
|
|
Washington
|
|
1
|
|
5,116
|
|
|
1,814
|
|
|
383
|
|
|
—
|
|
|
7,313
|
|
Washington, D.C.
|
|
1
|
|
8,708
|
|
|
4,561
|
|
|
382
|
|
|
—
|
|
|
13,651
|
|
USVI
|
|
1
|
|
840
|
|
|
696
|
|
|
5,959
|
|
|
—
|
|
|
7,495
|
|
Corporate
entities
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Total
|
|
13
|
|
$
|
76,731
|
|
|
$
|
32,114
|
|
|
$
|
19,663
|
|
|
$
|
5
|
|
|
$
|
128,513
|
|
For the
three
months
ended March 31, 2020
and
2019, the Company recorded
revenue from business interruption losses associated with lost
profits from Hurricane Irma of $3.6 million
and
$6.0
million,
respectively.
4.
Investments in Hotel Properties, net
Investments in
hotel properties, net consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Land
|
$
|
455,298
|
|
|
$
|
455,298
|
|
Buildings and
improvements
|
1,185,545
|
|
|
1,173,151
|
|
Furniture, fixtures and
equipment
|
132,946
|
|
|
129,595
|
|
Construction in
progress
|
20,715
|
|
|
33,130
|
|
Total cost
|
1,794,504
|
|
|
1,791,174
|
|
Accumulated
depreciation
|
(325,322
|
)
|
|
(309,752
|
)
|
Investments in hotel
properties, net
|
$
|
1,469,182
|
|
|
$
|
1,481,422
|
|
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
Impairment Charges and Insurance Recoveries
For the
three
months
ended March 31, 2020
and
2019, the Company recorded
revenue from business interruption losses associated with lost
profits from Hurricane Irma of $3.6 million
and
$6.0
million,
respectively. These revenues are included in “other” hotel revenue
in our condensed consolidated
statements of
operations. For the three months ended
March 31,
2020 and 2019, the Company received
proceeds of $2.0 million
and
$0.0
million,
respectively, from our insurance carriers for property damage and
business interruption from the hurricanes.
During the
three
months
ended March 31, 2020
and
2019, no impairment charges were
recorded. As of March 31,
2020, the
Company recorded an insurance receivable of $3.3
million,
related to business interruption insurance recoveries that are
realizable. The Company also had a liability of $2.2
million,
included in “other liabilities” on the condensed consolidated
balance sheet, as
it has received insurance proceeds in excess of property damage
claims that are not yet settled as of March 31,
2020. 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.
5.
Investment in Unconsolidated Entity
OpenKey is a
hospitality-focused mobile key platform that provides a universal
smart phone app and related hardware and software for keyless entry
into hotel guest rooms. In 2018, the Company made an initial
$2.0
million investment in OpenKey, which
is controlled and consolidated by Ashford Inc., for an
initial 8.2% ownership interest. An
additional investment of $26,000 was made during the
three
months
ended March 31,
2020. All
investments were recommended by our Related Party Transactions
Committee and unanimously approved by the independent members of
our board of directors. As of March 31,
2020, the
Company has made investments in OpenKey totaling
$2.4
million.
Our investment is
recorded as “investment in unconsolidated entity” in our
condensed
consolidated balance sheets and is
accounted for under the equity method of accounting as we have been
deemed to have significant influence over the entity under the
applicable accounting guidance. We review our investment in OpenKey
for impairment in each reporting period pursuant to the applicable
authoritative accounting guidance. An investment is impaired when
its estimated fair value is less than the carrying amount of the
investment. Any impairment is recorded in equity in earnings (loss)
of unconsolidated entity. No such impairment was recorded
for the three months ended
March 31,
2020 and 2019.
The following
table summarizes our carrying value and ownership interest in
OpenKey:
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Carrying value of the
investment in OpenKey (in thousands)
|
$
|
1,885
|
|
|
$
|
1,899
|
|
Ownership interest in
OpenKey
|
8.6
|
%
|
|
8.6
|
%
|
The following
table summarizes our equity in earnings (loss) in OpenKey (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
Line
Item
|
|
2020
|
|
2019
|
Equity in earnings (loss) of
unconsolidated entity
|
|
$
|
(40
|
)
|
|
$
|
(50
|
)
|
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
6.
Indebtedness, net
Indebtedness, net
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness
|
|
Collateral
|
|
Maturity
|
|
Interest
Rate
|
|
March 31,
2020
|
|
December 31,
2019
|
Secured revolving credit
facility (3)
|
|
Equity
|
|
October 2022
|
|
Base Rate (2)
+ 1.25% to 2.50%
or LIBOR (1) +
2.25% to 3.50%
|
|
$
|
75,000
|
|
|
$
|
—
|
|
Mortgage loan
(4)
|
|
Park Hyatt Beaver
Creek
|
|
April 2020
|
|
LIBOR (1)
+
2.75%
|
|
67,500
|
|
|
67,500
|
|
Mortgage loan
(5)
|
|
The Notary
Hotel
|
|
June 2020
|
|
LIBOR (1) +
2.16%
|
|
435,000
|
|
|
435,000
|
|
|
|
Courtyard San Francisco
Downtown
|
|
|
|
|
|
|
|
|
|
|
Sofitel Chicago Magnificent
Mile
|
|
|
|
|
|
|
|
|
|
|
Marriott Seattle
Waterfront
|
|
|
|
|
|
|
|
|
Mortgage loan
(6)
|
|
Ritz-Carlton, St.
Thomas
|
|
August 2021
|
|
LIBOR (1) +
3.95%
|
|
42,500
|
|
|
42,500
|
|
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
|
|
|
100,000
|
|
Mortgage loan
|
|
Ritz-Carlton, Lake
Tahoe
|
|
January 2024
|
|
LIBOR(1)
+
2.10%
|
|
54,000
|
|
|
54,000
|
|
Mortgage loan
|
|
Capital Hilton
|
|
February 2024
|
|
LIBOR
(1) +
1.70%
|
|
195,000
|
|
|
195,000
|
|
|
|
Hilton La Jolla Torrey
Pines
|
|
|
|
|
|
|
|
|
Mortgage loan
|
|
Pier House
Resort
|
|
September 2024
|
|
LIBOR (1) +
1.85%
|
|
80,000
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
1,140,000
|
|
|
1,065,000
|
|
Deferred loan costs,
net
|
|
|
|
|
|
|
|
(5,512
|
)
|
|
(6,514
|
)
|
Indebtedness,
net
|
|
|
|
|
|
|
|
$
|
1,134,488
|
|
|
$
|
1,058,486
|
|
__________________
|
|
(1)
|
LIBOR rates
were 0.993% and 1.763% at March 31, 2020
and
December 31,
2019,
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, or (ii)
federal funds rate + 0.5%, or (iii) LIBOR +
1.0%.
|
|
|
(3)
|
On March 10, 2020
and March 13, 2020, we drew $25.0 million
and
$50.0
million,
respectively, on our secured revolving credit facility with a
borrowing capacity of $75.0 million
and there
is no additional capacity remaining.
The secured revolving credit facility has two one-year extension options,
subject to the satisfaction of certain conditions.
|
|
|
(4)
|
This mortgage loan
has three one-year extension options,
subject to satisfaction of certain conditions, of which the second
was exercised in April 2020.
|
|
|
(5)
|
This mortgage loan
has five one-year extension options,
subject to satisfaction of certain conditions.
|
|
|
(6)
|
The interest rate
spread on this mortgage loan changed from 4.95% as of December 31, 2019,
to 3.95% as of March 31,
2020, based
on an appraisal received in accordance with the August 5, 2019 loan
amendment.
|
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 March 31,
2020, we
were in compliance in all material respects with all covenants or
other requirements set forth in our debt agreements as amended.
Subsequent to March 31, 2020 the Company did not make at least one
interest payment on nearly all of its mortgage and mezzanine loans,
which constituted an “Event of Default” as such term is defined
under the applicable loan documents. Further, the Company triggered
an "Event of Default," as defined under the secured revolving
credit facility agreement as a result of the Company being in
default on mortgage and mezzanine loans with an aggregate principal
amount in excess of $200
million.
See note 1.
7.
Derivative Instruments
Interest Rate Derivatives—We are exposed to risks
arising from our business operations, economic conditions and
financial markets. To manage these risks, we primarily use interest
rate derivatives to hedge our debt and our cash flows. 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.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
The following
table summarizes the interest rate derivatives we entered into over
the applicable periods:
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
Interest rate caps:
|
2020
|
|
2019
|
Notional amount (in
thousands)
|
$
|
167,500
|
|
|
$
|
177,500
|
|
Strike rate low end of
range
|
3.00
|
%
|
|
3.00
|
%
|
Strike rate high end of
range
|
3.50
|
%
|
|
7.80
|
%
|
Effective date
range
|
March 2020
|
|
|
January 2019 - March
2019
|
|
Termination date
range
|
April 2021
|
|
|
March 2020 - February
2021
|
|
Total cost of interest rate
caps (in thousands)
|
$
|
38
|
|
|
$
|
55
|
|
|
|
|
|
Interest rate floors:
|
|
|
|
Notional amount (in
thousands)
|
$
|
—
|
|
|
$
|
2,000,000
|
|
Strike rate
|
|
|
|
1.63
|
%
|
Effective date
|
|
|
January 2019
|
|
Termination date
|
|
|
March 2020
|
|
Total cost of interest rate
floors (in thousands)
|
$
|
—
|
|
|
$
|
75
|
|
_______________
No instruments
were designated as cash flow hedges for during the
three
months
ended March 31, 2020
and
2019.
Interest rate
derivatives consisted of the following:
|
|
|
|
|
|
|
|
|
Interest rate caps: (1)
|
March 31,
2020
|
|
December 31,
2019
|
Notional amount (in
thousands)
|
$
|
1,037,500
|
|
|
$
|
968,000
|
|
Strike rate low end of
range
|
3.00
|
%
|
|
3.00
|
%
|
Strike rate high end of
range
|
4.00
|
%
|
|
7.80
|
%
|
Termination date
range
|
April 2020 - October
2021
|
|
|
January 2020 - October
2021
|
|
Aggregate principal balance on
corresponding mortgage loans (in thousands)
|
$
|
870,000
|
|
|
$
|
870,000
|
|
|
|
|
|
Interest rate floors: (1)
(2)
|
|
|
|
Notional amount (in
thousands)
|
$
|
3,000,000
|
|
|
$
|
5,000,000
|
|
Strike rate low end of
range
|
(0.25
|
)%
|
|
(0.25
|
)%
|
Strike rate high end of
range
|
(0.25
|
)%
|
|
1.63
|
%
|
Termination date
range
|
July 2020
|
|
|
March 2020 - 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 March 31,
2020, 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 $2.2
million as
of March 31,
2020. 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.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
8.
Fair Value Measurements
Fair Value Hierarchy—Our financial instruments
measured at fair value either on a recurring or a non-recurring
basis are classified in a hierarchy for disclosure purposes
consisting of three levels based on the observability of inputs in
the 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.
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
counterparties, which we consider significant (10% or more) to the overall
valuation of our derivatives, the derivative valuations in their
entirety are classified in Level 3 of the fair value hierarchy.
Transfers of inputs between levels are determined at the end of
each reporting period. In determining the fair values of our
derivatives at March 31,
2020, the
LIBOR interest rate forward curve (Level 2 inputs) assumed a
downtrend from 0.993% to 0.211% for
the remaining term of our derivatives. Credit spreads (Level 3
inputs) used in determining the fair values derivatives assumed an
uptrend in nonperformance risk for us and all of our counterparties
through the maturity dates.
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
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Derivative
assets:
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives -
caps
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
Credit default
swaps
|
—
|
|
|
831
|
|
|
—
|
|
|
(200
|
)
|
|
631
|
|
|
|
$
|
—
|
|
|
$
|
850
|
|
|
$
|
—
|
|
|
$
|
(200
|
)
|
|
$
|
650
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2019
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Derivative
assets:
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives -
floors
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
53
|
|
|
Interest rate derivatives -
caps
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Credit default
swaps
|
—
|
|
|
(550
|
)
|
|
—
|
|
|
1,078
|
|
|
528
|
|
|
|
$
|
—
|
|
|
$
|
(548
|
)
|
|
$
|
—
|
|
|
$
|
1,130
|
|
|
$
|
582
|
|
(2)
|
__________________
|
|
(1)
|
Represents net
cash collateral posted between us and our
counterparties.
|
|
|
(2)
|
Reported as
“derivative assets” in our condensed consolidated
balance
sheets.
|
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
Effect of Fair Value Measured Assets and Liabilities on
Condensed Consolidated
Statements of Operations
The following
table summarizes the effect of fair value measured assets and
liabilities on our condensed consolidated
statements of
operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
Three Months
Ended March 31,
|
|
|
2020
|
|
2019
|
|
Assets
|
|
|
|
|
Derivative
assets:
|
|
|
|
|
Interest rate derivatives -
floors
|
$
|
—
|
|
|
$
|
(68
|
)
|
|
Interest rate derivatives -
caps
|
(19
|
)
|
|
(71
|
)
|
|
Credit default
swaps
|
1,100
|
|
(1)
|
(798
|
)
|
(1)
|
Total derivative
assets
|
$
|
1,081
|
|
|
$
|
(937
|
)
|
|
|
|
|
|
|
|
|
Non-derivative
assets:
|
|
|
|
|
Investment in Ashford
Inc.
|
—
|
|
|
707
|
|
|
Total
|
$
|
1,081
|
|
|
$
|
(230
|
)
|
|
Total
combined
|
|
|
|
|
Interest rate derivatives -
floors
|
$
|
75
|
|
|
$
|
(3
|
)
|
|
Interest rate derivatives -
caps
|
(19
|
)
|
|
(71
|
)
|
|
Credit default
swaps
|
1,100
|
|
|
(798
|
)
|
|
Unrealized gain (loss) on
derivatives
|
1,156
|
|
|
(872
|
)
|
|
Realized gain (loss) on
interest rate floors
|
(75
|
)
|
(2)
|
(65
|
)
|
(2)
|
Unrealized gain (loss) on
investment in Ashford Inc.
|
—
|
|
|
707
|
|
|
Net
|
$
|
1,081
|
|
|
$
|
(230
|
)
|
|
_______________
|
|
(1)
|
Excludes costs
associated with credit default swaps of $63 for both the
three months
ended March 31, 2020
and
2019, respectively, which is
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.
|
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
9.
Summary of Fair Value of Financial Instruments
Determining the
estimated fair values of certain financial instruments such as
indebtedness requires considerable judgment to interpret market
data. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair
value amounts. Accordingly, the estimates presented are not
necessarily indicative of the amounts at which these instruments
could be purchased, sold or settled.
The carrying
amounts and estimated fair values of financial instruments were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
Financial
assets and liabilities measured at fair value:
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
650
|
|
|
$
|
650
|
|
|
$
|
582
|
|
|
$
|
582
|
|
Financial
assets not measured at fair value:
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
141,793
|
|
|
$
|
141,793
|
|
|
$
|
71,995
|
|
|
$
|
71,995
|
|
Restricted cash
|
|
45,418
|
|
|
45,418
|
|
|
58,388
|
|
|
58,388
|
|
Accounts receivable,
net
|
|
13,834
|
|
|
13,834
|
|
|
19,053
|
|
|
19,053
|
|
Due from related parties,
net
|
|
854
|
|
|
854
|
|
|
551
|
|
|
551
|
|
Due from third-party hotel
managers
|
|
16,953
|
|
|
16,953
|
|
|
16,638
|
|
|
16,638
|
|
Financial
liabilities not measured at fair value:
|
|
|
|
|
|
|
|
|
Indebtedness, net
|
|
$
|
1,140,000
|
|
|
$1,035,450 to
$1,144,444
|
|
|
$
|
1,065,000
|
|
|
$1,003,863 to
$1,109,532
|
|
Accounts payable and accrued
expenses
|
|
87,440
|
|
|
87,440
|
|
|
94,919
|
|
|
94,919
|
|
Dividends and distributions
payable
|
|
3,208
|
|
|
3,208
|
|
|
9,143
|
|
|
9,143
|
|
Due to Ashford
Inc.
|
|
3,248
|
|
|
3,248
|
|
|
4,344
|
|
|
4,344
|
|
Due to third-party hotel
managers
|
|
1,663
|
|
|
1,663
|
|
|
1,685
|
|
|
1,685
|
|
Cash, cash
equivalents and restricted cash. These financial assets have
maturities of less than 90 days and most bear interest
at market rates. The carrying value approximates fair value due to
their short-term nature. This is considered a Level 1 valuation
technique.
Accounts
receivable, net, due to/from related parties, net, accounts payable
and accrued expenses, dividends and distributions payable, due to
Ashford Inc. and due to/from third-party hotel
managers.
The carrying values of these financial instruments approximate
their fair values due to the short-term nature of these financial
instruments. This is considered a Level 1 valuation
technique.
Derivative
assets.
Fair value of interest rate caps 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 7 and 8 for a complete description of
the methodology and assumptions utilized in determining fair
values.
Indebtedness,
net. Fair
value of indebtedness is determined using future cash flows
discounted at current replacement rates for these instruments. Cash
flows are determined using a forward interest rate yield curve. The
current replacement rates are determined by using the U.S. Treasury
yield curve or the index to which these financial instruments are
tied, and adjusted for the credit spreads. Credit spreads take into
consideration general market conditions, maturity and collateral.
We estimated the fair value of the total indebtedness to be
approximately 90.8% to 100.4% of the carrying value
of $1.1
billion at March 31,
2020, and
approximately 94.3% to 104.2% of the carrying value
of $1.1
billion at December 31,
2019.
These fair value estimates are considered a Level 2 valuation
technique.
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
10. Income
(Loss) Per Share
The following
table reconciles the amounts used in calculating basic and diluted
income (loss) per share (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
Net income (loss) attributable to common stockholders - basic and
diluted:
|
|
|
|
Net income (loss) attributable
to the Company
|
$
|
(12,930
|
)
|
|
$
|
(981
|
)
|
Less: Dividends on preferred
stock
|
(2,555
|
)
|
|
(2,532
|
)
|
Less: Dividends on common
stock
|
—
|
|
|
(5,158
|
)
|
Less: Dividends on unvested
performance stock units
|
—
|
|
|
(75
|
)
|
Less: Dividends on unvested
restricted shares
|
—
|
|
|
(96
|
)
|
Undistributed net income
(loss) allocated to common stockholders
|
(15,485
|
)
|
|
(8,842
|
)
|
Add back: Dividends on common
stock
|
—
|
|
|
5,158
|
|
Distributed
and undistributed net income (loss) - basic and
diluted
|
$
|
(15,485
|
)
|
|
$
|
(3,684
|
)
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
Weighted average common shares
outstanding – basic and diluted
|
32,474
|
|
|
32,115
|
|
|
|
|
|
Income (loss) per share - basic:
|
|
|
|
Net income (loss) allocated to
common stockholders per share
|
$
|
(0.48
|
)
|
|
$
|
(0.11
|
)
|
Income (loss) per share - diluted:
|
|
|
|
Net income (loss) allocated to
common stockholders per share
|
$
|
(0.48
|
)
|
|
$
|
(0.11
|
)
|
Due to their
anti-dilutive effect, the computation of diluted income (loss) per
share does not reflect the adjustments for the following items (in
thousands):
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
Net income (loss) allocated to
common stockholders is not adjusted for:
|
|
|
|
Income (loss) allocated to
unvested restricted shares
|
$
|
—
|
|
|
$
|
96
|
|
Income (loss) allocated to
unvested performance stock units
|
—
|
|
|
75
|
|
Income (loss) attributable to
redeemable noncontrolling interests in operating
partnership
|
(1,885
|
)
|
|
(440
|
)
|
Dividends on preferred stock -
Series B
|
1,730
|
|
|
1,707
|
|
Total
|
$
|
(155
|
)
|
|
$
|
1,438
|
|
Weighted average diluted
shares are not adjusted for:
|
|
|
|
Effect of unvested restricted
shares
|
76
|
|
|
87
|
|
Effect of unvested performance
stock units
|
—
|
|
|
288
|
|
Effect of assumed conversion
of operating partnership units
|
4,112
|
|
|
4,342
|
|
Effect of assumed conversion
of preferred stock - Series B
|
6,728
|
|
|
6,569
|
|
Effect of advisory services
incentive fee shares
|
361
|
|
|
73
|
|
Total
|
11,277
|
|
|
11,359
|
|
11.
Redeemable Noncontrolling Interests in Operating
Partnership
Redeemable
noncontrolling interests in the operating partnership represents
the limited partners’ proportionate share of equity and their
allocable share of equity in earnings/losses of Braemar OP, which
is an allocation of net income/loss attributable to the common
unitholders based on the weighted average ownership percentage of
these limited partners’ common units of limited partnership
interest in the operating partnership (the “common units”) and
units issued under our Long-Term Incentive Plan (the “LTIP units”)
that are vested. Each common unit may be redeemed, by the holder,
for either cash or, at our sole discretion, up
to one share of our REIT common stock, which is either:
(i) issued pursuant to an effective registration statement;
(ii) included in
BRAEMAR
HOTELS & RESORTS INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(unaudited)
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. In March
2020, 83,000 LTIP units with a fair value
of approximately $364,000 and a vesting period
of three years were
granted.
The compensation
committee of the board of directors of the Company may authorize
the issuance of Performance LTIP units to certain executive
officers and directors from time to time. The award agreements
provide for the grant of a target number of Performance LTIP units
that will be settled in common units of Braemar OP, if, when and to
the extent the applicable vesting criteria have been achieved
following the end of the performance and service period, which is
generally three years
from the grant
date. The number of Performance LTIP units actually earned may
range from 0% to 200% of target 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 March 31,
2020,
there were approximately 431,000 Performance LTIP units,
representing 200% of the target, outstanding.
The performance criteria for the Performance LTIP units are based
on market conditions under the relevant literature, and the
Performance LTIP units were granted to non-employees. In March
2020, 160,000 Performance LTIP units with a
fair value of approximately $281,000 and a vesting period
of three years were
granted.
As of
March 31,
2020, we
have issued a total of 1.3 million
LTIP units
(including Performance LTIP units), net of cancellations, all of
which, other than approximately 183,000 LTIP units and
220,000
Performance LTIP
units issued from March 2015 to March 2020, had reached full
economic parity with, and are convertible into, common
units.
The following
table presents the common units redeemed and the fair value at
redemption (in thousands):
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Three Months
Ended March 31,
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2020
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2019
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