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 September 30, ~~2017~~2018



¨	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

~~ASHFORD HOSPITALITY PRIME,~~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 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	¨	~~(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) ifof 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		~~31,932,838~~32,512,029
(Class)		Outstanding at November ~~6, 2017~~5, 2018

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2018

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2018 and December 31, ~~2016~~2017	2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	4
Condensed Consolidated Statement of Equity for the Nine Months Ended September 30, ~~2017~~2018	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017	6
Notes to Condensed Consolidated Financial Statements	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2934
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5154
ITEM 4. CONTROLS AND PROCEDURES	5255
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	5255
ITEM 1A. RISK FACTORS	5255
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5355
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	5356
ITEM 4. MINE SAFETY DISCLOSURES	5356
ITEM 5. OTHER INFORMATION	5356
ITEM 6. EXHIBITS	5456
SIGNATURES	5558

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share amounts)


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
ASSETS
Investments in hotel properties, gross	$	1,529,111		$	1,258,412		$	1,536,078		$	1,403,110
Accumulated depreciation	(297,976		)	(243,880		)	(252,686		)	(257,268		)
Investments in hotel properties, net	1,231,135			1,014,532			1,283,392			1,145,842
Cash and cash equivalents	126,771			126,790			163,825			137,522
Restricted cash	31,609			37,855			74,973			47,820
Accounts receivable, net of allowance of $236 and $96, respectively	20,493			18,194
Accounts receivable, net of allowance of $129 and $94, respectively							23,715			14,334
Insurance receivable	19,037			—			—			8,825
Inventories	1,739			1,479			1,836			1,425
Note receivable	8,098			8,098			—			8,098
Deferred costs, net	745			1,020			387			656
Prepaid expenses	4,493			3,669			5,966			3,670
Investment in Ashford Inc., at fair value	11,810			8,407			14,786			18,124
Investment in unconsolidated entity							1,854			—
Derivative assets	758			1,149			827			594
Other assets	4,524			2,249			8,486			9,426
Intangible assets, net	22,615			22,846			27,836			22,545
Due from Ashford Trust OP, net	—			488
Due from AQUA U.S. Fund	—			2,289
Due from related party, net	645			377			—			349
Due from third-party hotel managers	7,492			7,555			1,960			4,589
Total assets	$	1,491,964		$	1,256,997		$	1,609,843		$	1,423,819
LIABILITIES AND EQUITY
Liabilities:
Indebtedness, net	$	906,820		$	764,616		$	985,716		$	820,959
Accounts payable and accrued expenses	59,912			44,791			67,441			56,803
Dividends and distributions payable	8,599			5,038			8,840			8,146
Due to Ashford Inc.	1,380			5,085			3,182			1,703
Due to affiliate	—			2,500
Due to related party, net							8			—
Due to third-party hotel managers	2,633			973			2,608			1,709
Intangible liability, net	3,583			3,625			—			3,569
Other liabilities	1,576			1,432			16,734			1,628
Total liabilities	984,503			828,060			1,084,529			894,517
Commitments and contingencies (note 15)
5.50% Series B cumulative convertible preferred stock, $0.01 par value, 4,965,850 and 2,890,850 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	106,123			65,960
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 September 30, 2018 and December 31, 2017							106,123			106,123
Redeemable noncontrolling interests in operating partnership	45,782			59,544			49,726			46,627
Equity:
Common stock, $0.01 par value, 200,000,000 shares authorized, 31,950,777 and 26,021,552 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	319			260
Common stock, $0.01 par value, 200,000,000 shares authorized, 32,523,680 and 32,120,210 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively							325			321
Additional paid-in capital	467,460			401,790			474,043			469,791
Accumulated deficit	(106,941		)	(93,254		)	(99,238		)	(88,807		)
Total stockholders’ equity of the Company	360,838			308,796			375,130			381,305
Noncontrolling interest in consolidated entity	(5,282		)	(5,363		)
Noncontrolling interest in consolidated entities							(5,665		)	(4,753		)
Total equity	355,556			303,433			369,465			376,552
Total liabilities and equity	$	1,491,964		$	1,256,997		$	1,609,843		$	1,423,819

See Notes to Condensed Consolidated Financial Statements.

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
REVENUE
Rooms	$	77,336		$	73,944		$	224,203		$	222,778		$	74,358		$	77,336		$	218,304		$	224,203
Food and beverage	23,147			20,106			75,600			72,022			21,171			23,147			70,064			75,600
Other	7,597			5,568			21,588			16,977			13,317			7,597			44,085			21,588
Total hotel revenue	108,080			99,618			321,391			311,777			108,846			108,080			332,453			321,391
Other	39			33			116			103			—			39			—			116
Total revenue	108,119			99,651			321,507			311,880			108,846			108,119			332,453			321,507
EXPENSES
Hotel operating expenses:
Rooms	17,698			16,926			51,108			49,841			16,624			17,698			48,194			51,108
Food and beverage	17,766			15,944			53,890			51,656			16,171			17,766			49,078			53,890
Other expenses	35,182			28,249			94,934			86,923			32,058			35,182			95,490			94,934
Management fees	3,889			3,820			11,643			11,958			3,963			3,889			12,081			11,643
Total hotel expenses	74,535			64,939			211,575			200,378			68,816			74,535			204,843			211,575
Property taxes, insurance and other	5,197			5,120			15,641			14,677			6,835			5,197			18,516			15,641
Depreciation and amortization	14,133			11,175			39,573			34,342			14,474			14,133			42,291			39,573
Impairment charges	1,008			—			1,008			—			—			1,008			71			1,008
Advisory services fee	1,814			4,454			5,822			12,353			5,733			1,814			15,857			5,822
Contract modification cost	—			—			5,000			—			—			—			—			5,000
Transaction costs	244			63			6,638			501			—			244			949			6,638
Corporate general and administrative	1,602			2,653			7,007			16,414			1,765			1,602			2,999			7,007
Total expenses	98,533			88,404			292,264			278,665			97,623			98,533			285,526			292,264
OPERATING INCOME (LOSS)	9,586			11,247			29,243			33,215			11,223			9,586			46,927			29,243
Equity in earnings (loss) of unconsolidated entity	—			—			—			(2,587		)	(81		)	—			(146		)	—
Interest income	198			50			475			132			540			198			970			475
Gain (loss) on sale of hotel property	—			26,359			—			26,359			—			—			15,711			—
Other income (expense)	(22		)	(78		)	(292		)	(88		)	(64		)	(22		)	(190		)	(292		)
Interest expense and amortization of loan costs	(10,610		)	(9,795		)	(28,743		)	(31,066		)	(13,084		)	(10,610		)	(35,941		)	(28,743		)
Write-off of loan costs and exit fees	(380		)	(2,595		)	(2,343		)	(2,595		)	—			(380		)	(4,178		)	(2,343		)
Unrealized gain (loss) on investment in Ashford Inc.	1,875			(458		)	3,403			(1,091		)	2,158			1,875			(3,338		)	3,403
Unrealized gain (loss) on derivatives	(531		)	(3,912		)	(1,529		)	2,218			(578		)	(531		)	(803		)	(1,529		)
INCOME (LOSS) BEFORE INCOME TAXES	116			20,818			214			24,497			114			116			19,012			214
Income tax (expense) benefit	(333		)	504			(334		)	(1,022		)	(740		)	(333		)	(2,514		)	(334		)
NET INCOME (LOSS)	(217		)	21,322			(120		)	23,475			(626		)	(217		)	16,498			(120		)
(Income) loss from consolidated entities attributable to noncontrolling interests	(1,143		)	(2,504		)	(2,736		)	(2,569		)
(Income) loss attributable to noncontrolling interest in consolidated entities													(1,695		)	(1,143		)	(1,742		)	(2,736		)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	360			(1,960		)	958			(1,994		)	452			360			(1,075		)	958
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	(1,000		)	16,858			(1,898		)	18,912			(1,869		)	(1,000		)	13,681			(1,898		)
Preferred dividends	(1,707		)	(994		)	(5,087		)	(2,866		)	(1,707		)	(1,707		)	(5,122		)	(5,087		)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(2,707	)	$	15,864		$	(6,985	)	$	16,046		$	(3,576	)	$	(2,707	)	$	8,559		$	(6,985	)
INCOME (LOSS) PER SHARE - BASIC:
Net income (loss) attributable to common stockholders	$	(0.09	)	$	0.61		$	(0.25	)	$	0.58		$	(0.12	)	$	(0.09	)	$	0.25		$	(0.25	)
Weighted average common shares outstanding – basic	31,483			25,554			30,089			27,261			32,023			31,483			31,905			30,089
INCOME (LOSS) PER SHARE - DILUTED:
Net income (loss) attributable to common stockholders	$	(0.09	)	$	0.55		$	(0.25	)	$	0.56		$	(0.12	)	$	(0.09	)	$	0.25		$	(0.25	)
Weighted average common shares outstanding – diluted	31,483			33,874			30,089			31,887			32,023			31,483			31,922			30,089
Dividends declared per common share	$	0.16		$	0.12		$	0.48		$	0.34		$	0.16		$	0.16		$	0.48		$	0.48

See Notes to Condensed Consolidated Financial Statements.

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
NET INCOME (LOSS)	$	(217	)	$	21,322		$	(120	)	$	23,475		$	(626	)	$	(217	)	$	16,498		$	(120	)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Total other comprehensive income (loss)	—			—			—			—			—			—			—			—
TOTAL COMPREHENSIVE INCOME (LOSS)	(217		)	21,322			(120		)	23,475			(626		)	(217		)	16,498			(120		)
Comprehensive (income) loss attributable to noncontrolling interests in consolidated entities	(1,143		)	(2,504		)	(2,736		)	(2,569		)
Comprehensive (income) loss attributable to noncontrolling interest in consolidated entities													(1,695		)	(1,143		)	(1,742		)	(2,736		)
Comprehensive (income) loss attributable to redeemable noncontrolling interests in operating partnership	360			(1,960		)	958			(1,994		)	452			360			(1,075		)	958
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY	$	(1,000	)	$	16,858		$	(1,898	)	$	18,912		$	(1,869	)	$	(1,000	)	$	13,681		$	(1,898	)

See Notes to Condensed Consolidated Financial Statements.

~~ASHFORD HOSPITALITY PRIME,~~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			Redeemable Noncontrolling Interests in Operating Partnership				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						Accumulated Deficit				Noncontrolling Interest in Consolidated Entities			Shares							Amount					Shares				Accumulated Deficit				Noncontrolling Interest in Consolidated Entities			Amount
Balance at January 1, 2017	26,022		$	260	Additional Paid-in Capital			$	401,790			$	(93,254	)		$	Total	(5,363	)	$	303,433			$	59,544
Balance at January 1, 2018																								32,120		$	321		Additional Paid-in Capital	$	469,791		$	(88,807	)		$	(4,753	)	Total			$	376,552	4,966		$	106,123			$	46,627
Purchase of common stock	(17	)	—		(195		)		—				—				(195		)	—				(19	)	—			(204		)	—				—				(204		)		—	—			—
Equity-based compensation	—		—		(600		)		—				—				(600		)	(1,392		)		—		—			4,402			—				—				4,402				—	—			1,307
Issuance of common stock	5,750		57		66,385				—				—				66,442			—
Issuance of restricted shares/units	195		2		(2		)		—				—				—			21				429		4			54			—				—				58				—	—			18
Forfeiture of restricted common shares	(5	)	—		—				—				—				—			—				(6	)	—			—			—				—				—				—	—			—
Dividends declared – common stock	—		—		—				(15,545		)		—				(15,545		)	—				—		—			—			(15,823		)		—				(15,823		)		—	—			—
Dividends declared – preferred stock	—		—		—				(5,087		)		—				(5,087		)	—				—		—			—			(5,122		)		—				(5,122		)		—	—			—
Distributions to noncontrolling interests	—		—		—				—				(2,655		)		(2,655		)	(2,508		)		—		—			—			—				(2,654		)		(2,654		)		—	—			(2,468		)
Redemption/conversion of operating partnership units	6		—		82				—				—				82			(82		)
Net income (loss)	—		—		—				(1,898		)		2,736				838			(958		)		—		—			—			13,681				1,742				15,423				—	—			1,075
Redemption value adjustment	—		—		—				8,843				—				8,843			(8,843		)		—		—			—			(3,167		)		—				(3,167		)		—	—			3,167
Balance at September 30, 2017	31,951		$	319	$	467,460			$	(106,941	)		$	(5,282	)		$	355,556		$	45,782
Balance at September 30, 2018																								32,524		$	325		$	474,043		$	(99,238	)		$	(5,665	)		$	369,465			4,966	$	106,123		$	49,726

See Notes to Condensed Consolidated Financial Statements.

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(120	)	$	23,475		$	16,498		$	(120	)
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization	39,573			34,342			42,291			39,573
Equity-based compensation	(1,992		)	3,539			5,709			(1,992		)
Bad debt expense	172			156			186			172
Amortization of loan costs	3,754			2,406			3,157			3,754
Write-off of loan costs and exit fees	2,343			2,595			4,178			2,343
Amortization of intangibles	136			71			143			136
Amortization of non-refundable membership initiation fees							(18		)	—
Interest expense accretion on refundable membership club deposits							376			—
(Gain) loss on sale of hotel property	—			(27,150		)	(15,711		)	—
Impairment charges	1,008			—			71			1,008
Unrealized (gain) loss on investment in Ashford Inc.	(3,403		)	1,091			3,338			(3,403		)
Realized and unrealized (gain) loss on derivatives	1,800			(2,140		)	803			1,800
Net settlement of trading derivatives	(1,062		)	—			(688		)	(1,062		)
Equity in (earnings) loss of unconsolidated entity	—			2,587			146			—
Deferred tax expense (benefit)	119			357			136			119
Payments for derivatives	—			(114		)
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions:
Changes in operating assets and liabilities, exclusive of the effect of hotel acquisitions and dispositions:
Accounts receivable and inventories	260			(4,082		)	(5,593		)	260
Insurance receivable	(276		)	—			—			(276		)
Prepaid expenses and other assets	(758		)	(1,346		)	922			(758		)
Accounts payable and accrued expenses	5,100			7,928			(2,609		)	5,100
Due to/from related party, net	(255		)	(104		)	344			(255		)
Due to affiliate	(2,500		)	—			—			(2,500		)
Due to/from third-party hotel managers	5,798			4,027			5,578			5,798
Due to/from Ashford Trust OP, net	488			(535		)	—			488
Due to/from Ashford Inc.	(3,705		)	(359		)	1,479			(3,705		)
Other liabilities	144			173			(7,851		)	144
Net cash provided by (used in) operating activities	46,624			46,917			52,885			46,624

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from property insurance							24,663			—
Acquisition of hotel properties, net of cash and restricted cash acquired	(243,693		)	—			(177,874		)	(243,693		)
Investment in unconsolidated entity							(2,000		)	—
Proceeds from liquidation of AQUA U.S. Fund	2,289			43,489			—			2,289
Net proceeds from sales of hotel property	—			82,732
Net proceeds from sale of hotel property							65,336			—
Improvements and additions to hotel properties	(32,744		)	(16,615		)	(51,610		)	(32,744		)
Net cash provided by (used in) investing activities	(274,148		)	109,606			(141,485		)	(274,148		)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on indebtedness	523,500			—			575,000			523,500
Repayments of indebtedness	(376,385		)	(71,283		)	(399,804		)	(376,385		)
Payments of loan costs and exit fees	(10,733		)	(2,664		)	(9,407		)	(10,733		)
Payments for derivatives	(347		)	(5		)	(348		)	(347		)
Purchase of common stock	(195		)	(39,224		)	(204		)	(195		)
Payments for dividends and distributions	(19,579		)	(12,284		)	(22,661		)	(19,579		)
Issuance of preferred stock	40,163			4,233			—			40,163
Issuance of common stock	66,442			—			—			66,442
Distributions to a noncontrolling interest in a consolidated entity	(1,628		)	(3,766		)
Distributions to noncontrolling interest in consolidated entities							(538		)	(1,628		)
Other	21			19			18			21
Net cash provided by (used in) financing activities	221,259			(124,974		)	142,056			221,259
Net change in cash, cash equivalents and restricted cash	(6,265		)	31,549			53,456			(6,265		)
Cash, cash equivalents and restricted cash at beginning of period	164,645			138,174			185,342			164,645
Cash, cash equivalents and restricted cash at end of period	$	158,380		$	169,723		$	238,798		$	158,380


	Nine Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2018		2017
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid	$	26,385	$	29,039	$	31,641	$	26,385
Income taxes paid	1,025		379
Income taxes paid (refund)					1,626		1,025
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Dividends and distributions declared but not paid	$	8,599	$	4,876	8,840		8,599
Capital expenditures accrued but not paid	2,721		1,181		5,167		2,721
Receivable related to liquidation of AQUA U.S. Fund	—		2,289
Accrued preferred stock offering expenses	—		479
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	$	126,790	$	105,039	$	137,522	$	126,790
Restricted cash at beginning of period	37,855		33,135		47,820		37,855
Cash, cash equivalents and restricted cash at beginning of period	$	164,645	$	138,174	$	185,342	$	164,645

Cash and cash equivalents at end of period	$	126,771	$	128,625	$	163,825	$	126,771
Restricted cash at end of period	31,609		41,098		74,973		31,609
Cash, cash equivalents and restricted cash at end of period	$	158,380	$	169,723	$	238,798	$	158,380

See Notes to Condensed Consolidated Financial Statements.

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~~ASHFORD HOSPITALITY PRIME,~~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 (“~~Ashford Prime”~~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. ~~Ashford Prime~~Braemar has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code. ~~Ashford Prime~~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~~Partnership) (“~~Ashford Prime~~Braemar OP”). In this report, the terms “the Company,” “we,” “us” or “our” refers to ~~Ashford Hospitality Prime,~~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.~~, which was spun-off from Ashford Hospitality Trust, Inc. (“Ashford Trust”).~~ 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 September 30, ~~2017,~~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 ~~thirteen~~twelve hotel properties. Third-party management companies managed the remaining hotel properties. On August 8, 2018, Ashford Inc., the parent company of the Advisor, completed its acquisition of Remington Holdings, L.P.’s project management business. See note 18.

The accompanying condensed consolidated financial statements include the accounts of such wholly-owned and majority owned subsidiaries of ~~Ashford Prime~~Braemar OP that as of September 30, ~~2017,~~2018, own ~~and operate thirteen~~twelve hotel properties in ~~seven~~six states, the District of Columbia and the U.S. Virgin Islands. The portfolio includes ~~eleven~~ten wholly-owned hotel properties and two hotel properties that are owned through a partnership in which ~~Ashford Prime~~Braemar OP has a controlling interest. These hotel properties represent ~~3,978~~3,549 total rooms, or ~~3,743~~3,314 net rooms, excluding those attributable to our partner. As a REIT, ~~Ashford Prime~~Braemar needs to comply with limitations imposed by the Internal Revenue Code related to operating hotels. As of September 30, ~~2017, twelve~~2018, eleven of our ~~thirteen~~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 ~~“Prime~~“Braemar TRS”). One hotel property, located in the U.S. Virgin Islands, is owned by our U.S. Virgin Islands TRS. ~~Prime~~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 September 30, ~~2017, ten~~2018, nine of the ~~thirteen~~twelve hotel properties were leased by ~~Ashford Prime’s~~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 ~~Prime~~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 ~~Ashford Hospitality Prime,~~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 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017.~~

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~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~Ashford Prime~~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, as subsequently amended.

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 ~~Ashford Prime~~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,~~LLC), its general partner. As such, we consolidate ~~Ashford Prime~~Braemar OP.

The following items affect reporting comparability of our historical condensed consolidated financial statements:

~~Historical~~historical seasonality patterns at some of our hotel properties cause fluctuations in our overall operating results. Consequently, operating results for the three and nine months ended September 30, ~~2017,~~2018, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018;

~~On July 1, 2016, we sold the Courtyard Seattle Downtown.~~

Onon March 31, 2017, we acquired the Park Hyatt Beaver Creek ~~Resort & Spa,~~ 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.~~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. ~~We early adopted Accounting Standards Updates (“ASU”) 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~effective January 1, 2017. See discussion in recently adopted accounting standards below.~~

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. WeAsset write-downs resulting from property damage are recorded ~~impairment charges~~up to the amount of ~~$1.0 million to investments~~the allocable property insurance deductible in ~~hotel properties for~~ the ~~three and nine months ended September 30, 2017 due to Hurricanes Irma and Maria. No impairment charges were recorded for~~period that the ~~three and nine months ended September 30, 2016.~~property damage occurs. See note 3.4.

Investment in Ashford Inc.—We hold approximately 195,000 shares of Ashford Inc. common stock, which represented an approximate ~~9.6%~~8.2% ownership interest in Ashford Inc. and had a fair value of ~~$11.8~~$14.8 million at September 30, ~~2017.~~2018. This investment would typically be accounted for under the equity method of accounting, under Accounting ~~Standards~~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.

~~Revenue Recognition~~Investment in Unconsolidated Entity—~~Hotel revenues, including room, food, beverage~~Investment in unconsolidated entity, in which we have ownership interest of 8.2% at September 30, 2018, is accounted for under the equity method of accounting by recording the initial investment and ~~ancillary revenues~~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

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 nine months ended September 30, 2018.

Our investment in unconsolidated entity is considered to be a variable interest in the underlying entity. VIEs, as ~~long-distance telephone service, laundry, parking~~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 ~~space rentals, are recognized when services~~(ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have ~~been rendered. Taxes collected from customers~~the power and ~~submitted~~financial responsibility to ~~taxing authorities~~direct the unconsolidated entity’s activities and operations, we are not ~~recorded in revenue.~~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/~~Prior to the adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) in the third quarter of 2018, stock/unit-based compensation for non-employees iswas 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~~resulted 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~~were accounted for at fair value at period end based on a Monte Carlo

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~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

simulation valuation model that ~~results~~resulted 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~~shares/units 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.

After the adoption of ASU 2018-07 in the third quarter of 2018, stock/unit-based compensation for non-employees is measured at the grant date and expensed ratably over the vesting period based on the original measurement as of the grant date. This results in the recording of expense, included in “advisory services fee” and “management fees,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. PSUs and Performance LTIP units granted to certain executive officers vest based on time and market conditions and are measured at the grant date fair value based on a Monte Carlo simulation valuation model. The subsequent expense is then ratably recognized over the service period as the service is rendered regardless of when, if ever, the market conditions are satisfied. This results in recording expense, included in “advisory services fee,” equal to the ratable amount of the grant date fair value based on the requisite service period satisfied during the period. Stock/unit grants to independent directors are measured at the grant date based on the market price of the shares/units at grant date, which amount is fully expensed as the grants of stock/units are fully vested on the date of grant.

Recently Adopted ~~Accounting Standards—In November 2016, the~~ ~~Financial Accounting Standards Board (“FASB”) issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ (“ASU 2016-18”), which clarifies the presentation of restricted cash and restricted cash equivalents in the statements of cash flows. Under ASU 2016-18 restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. ASU 2016-18 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, 2017 on a retrospective basis. The adoption of this standard resulted in the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows for all periods presented. As a result net cash provided by operating activities increased $13.1 million and net cash provided by investing activities decreased $5.2 million for the nine months ended September 30, 2016. Our beginning-of-period cash, cash equivalents and restricted cash increased $37.9 million and $33.1 million in 2017 and 2016, respectively.

~~Recently Issued~~ Accounting Standards—In May 2014, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued 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 ~~will replace~~replaces most existing revenue recognition guidance in U.S. ~~GAAP when it becomes effective. 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.~~GAAP. The standard permits the use of either the full retrospective or cumulative effect ~~(modified)~~(modified retrospective) transition method. ~~We are continuing~~This standard, referred to ~~evaluate each of our revenue streams under~~as “Topic 606,” does not materially affect the ~~new standard and because of the short-term, day-to-day nature of hotel revenues, our pattern~~amount or timing of revenue recognition ~~is not expected to change significantly.~~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, ~~ASU No. 2014-09 will~~Topic 606 does not impact the recognition of hotel sales. We ~~presently expect to select~~adopted this standard effective January 1, 2018, under the modified retrospective ~~method. We do not expect~~method, and the adoption of this standard ~~will~~did not have a material impact on our condensed consolidated financial statements. ~~We continue to evaluate the~~See related ~~disclosure requirements.~~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 ~~OCI~~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 do not expect that ASU 2016-01 will have a material impact on our condensed consolidated financial statements and related disclosures.~~

~~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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The accounting for leases under which we are the lessor remains largely unchanged. While we are currently in the initial stages of assessing 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.

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~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments -Credit Losses (Topic 326): Measurement~~eligible for early adoption. We adopted this standard effective January 1, 2018. The adoption of ~~Credit Losses~~this standard did not have a material impact 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 theour 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~~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 ~~are currently evaluating the~~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 ~~that ASU 2016-15 will have~~ on our condensed consolidated ~~financial~~ statements ~~and related disclosures.~~of cash flows.

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. ~~While we are currently evaluating~~We adopted this standard effective January 1, 2018. Under the ~~potential impact of the~~new standard, ~~we currently expect that~~ 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”~~2017-05”), which clarifies the scope of ASC Subtopic 610-20,Other Income-Gains and Losses from the Derecognition of Nonfinancial Assetsand 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 ~~approach.~~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.

In June 2018, the FASB issued ASU 2018-07, which expanded 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. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2018-07 effective July 1, 2018. The adoption of ASU 2018-07 has a material impact on our consolidated financial statements because the compensation expense related to our equity awards is now determined based on the grant date fair value of the awards and will be ratably recognized over the service period as the service is rendered as opposed to being marked-to-market in periods prior to adoption. For all existing equity awards, future equity-based compensation expense is based on the fair value of the awards on July 1, 2018. See the Equity-Based Compensation section included above in our Significant Accounting Policies for further details.

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") 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. 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

lease data collection and analysis, and evaluating accounting policies and internal controls that will be impacted by the new standards. We have also engaged a third party valuation expert to assist us in determining the value of our ROU assets and operating lease liabilities including the determination of our incremental borrowing rate. We expect to use the transition method that includes the practical expedient that allows us to adopt effective January 1, 2019 and not reevaluate or recast prior periods, however we are still evaluating the available transition methods.

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 ~~2017-05~~2016-13 will have on our condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies certain disclosure requirements related to fair value measurements including requiring disclosures on changes in unrealized gains and losses in other comprehensive income for recurring Level 3 fair value measurements and a requirement to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that ASU 2018-13 will have on the condensed consolidated financial statements.

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 condensed 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 nine months ended September 30, 2018, the Company recorded $0 and $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.

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following tables present our revenue disaggregated by geographical areas (in thousands):



	Three Months Ended September 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	26,368	$	5,209	$	2,404	$	—	$	33,981
Colorado	1	3,178		3,112		2,438		—		8,728
Florida	2	8,194		4,335		3,420		—		15,949
Illinois	1	8,157		2,280		327		—		10,764
Pennsylvania	1	7,137		1,422		267		—		8,826
Washington	1	11,035		1,799		380		—		13,214
Washington, D.C.	1	8,638		2,729		264		—		11,631
USVI	1	1,651		285		3,817		—		5,753
Total	12	$	74,358	$	21,171	$	13,317	$	—	$	108,846



	Three Months Ended September 30, 2017
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	24,578	$	5,160	$	2,228	$	—	$	31,966
Colorado	1	3,203		3,156		2,355		—		8,714
Florida	1	2,884		587		258		—		3,729
Illinois	1	7,144		2,014		221		—		9,379
Pennsylvania	1	6,341		1,095		159		—		7,595
Washington	1	10,850		1,710		323		—		12,883
Washington, D.C.	1	9,518		3,136		295		—		12,949
USVI	1	4,641		2,943		1,474		—		9,058
Sold hotel properties	2	8,177		3,346		284		—		11,807
Corporate entities	—	—		—		—		39		39
Total	13	$	77,336	$	23,147	$	7,597	$	39	$	108,119



	Nine Months Ended September 30, 2018
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	69,007	$	18,163	$	8,258	$	—	$	95,428
Colorado	1	14,736		9,676		7,712		—		32,124
Florida	2	24,474		12,191		7,343		—		44,008
Illinois	1	19,359		6,100		908		—		26,367
Pennsylvania	1	21,641		4,314		867		—		26,822
Washington	1	25,587		5,164		1,006		—		31,757
Washington, D.C.	1	30,390		10,965		884		—		42,239
USVI	1	4,939		616		13,616		—		19,171
Sold hotel properties	1	8,171		2,875		3,491		—		14,537
Total	13	$	218,304	$	70,064	$	44,085	$	—	$	332,453

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



	Nine Months Ended September 30, 2017
Primary Geographical Market	Number of Hotels	Rooms		Food and Beverage		Other Hotel		Other		Total
California	4	$	61,157	$	16,612	$	6,392	$	—	$	84,161
Colorado	1	4,920		4,700		4,040		—		13,660
Florida	1	13,253		2,660		954		—		16,867
Illinois	1	18,441		5,604		506		—		24,551
Pennsylvania	1	19,082		3,372		688		—		23,142
Washington	1	25,024		6,153		872		—		32,049
Washington, D.C.	1	32,908		11,896		977		—		45,781
USVI	1	21,713		11,014		6,102		—		38,829
Sold hotel properties	2	27,705		13,589		1,057		—		42,351
Corporate entities	—	—		—		—		116		116
Total	13	$	224,203	$	75,600	$	21,588	$	116	$	321,507

4. Investments in Hotel Properties, net

Investments in hotel properties, net consisted of the following (in thousands):


	September 30, 2017			December 31, 2016			September 30, 2018			December 31, 2017
Land	$	347,662		$	210,696		$	428,567		$	344,937
Buildings and improvements	1,076,366			972,412			984,285			962,478
Furniture, fixtures and equipment	96,845			70,922			99,101			87,796
Construction in progress	8,238			4,382			24,125			7,899
Total cost	1,529,111			1,258,412			1,536,078			1,403,110
Accumulated depreciation	(297,976		)	(243,880		)	(252,686		)	(257,268		)
Investments in hotel properties, net	$	1,231,135		$	1,014,532		$	1,283,392		$	1,145,842

~~Park Hyatt Beaver Creek~~Impairment Charges and Insurance Recoveries

~~On March~~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, ~~we acquired a 100% interest~~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 ~~Park Hyatt Beaver Creek Resort & Spa~~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 ~~Beaver Creek, Colorado for total consideration~~our consolidated statement of ~~$145.5 million. Concurrent with the closing~~operations, $3.3 million represented reimbursement of incurred expenses in excess of the ~~acquisition, we completed~~deductible of $1.1 million and $3.7 million was recorded as a reduction to insurance receivable.

For the ~~financing~~three and nine months ended September 30, 2018, the Company recorded revenue from business interruption losses associated with lost profits from the hurricanes of ~~a $67.5~~$3.8 million ~~mortgage loan. See note 7.~~

~~We prepared~~and $13.9 million, respectively, which are included in “other” hotel revenue in our condensed consolidated statements of operations. The Company received proceeds of $0 and $34.0 million from our insurance carriers for property damage and business interruption from the ~~purchase price allocation of the assets acquired and liabilities assumed. The final purchase price allocation was completed with the assistance of a third party appraisal firm~~hurricanes during the three and nine months ended ~~June~~September 30, ~~2017.~~2018. Additionally, during the three and nine months ended September 30, 2018, the Company recorded revenue of $0 and $1.9 million, net of deductibles of $500,000, for business interruption losses associated with lost profits at the Bardessono Hoteland 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 nine months ended September 30, 2018, we recorded impairment charges of $0 and $71,000 as a result of a change in estimate of property damage as a result of the hurricanes. As of September 30, 2018, the Company had a net liability of $5.4 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 September 30, 2018. The ~~final purchase price allocation resulted in adjustments to land, buildings~~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 ~~improvements and furniture, fixtures and equipment. These adjustments did not result in any changes to depreciation expense as~~ the ~~acquisition closed on March 31, 2017. This valuation~~amount is ~~considered a Level 3 valuation technique.~~realizable.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Ritz-Carlton, Sarasota

On April 4, 2018, the Company acquired a 100% interest in the 266-room Ritz-Carlton, Sarasota in Sarasota, Florida for $171.4 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.

The following table summarizes the preliminary estimated fair value of the assets acquired in the acquisition (in thousands):


	Preliminary Allocations as of March 31, 2017		Adjustments			Final Allocations as of June 30, 2017
Land	$	92,470	$	(3,353	)	$	89,117
Land ⁽¹⁾								$	83,630
Buildings and improvements	47,724		3,545			51,269		86,042
Furniture, fixtures and equipment	5,306		(192		)	5,114		13,740
Customer relationships								5,682
Refundable membership club deposits ⁽²⁾								(9,960		)
Income guarantee ⁽³⁾								2,000
	$	145,500	$	—		$	145,500	$	181,134
Net other assets (liabilities)	$	4,528	$	(721	)	$	3,807	$	(3,260	)

The results of operations of the hotel property have been included in our results of operations since the acquisition date. For the three and nine months ended September 30, 2017, we have included total revenue of $8.7 million and $13.7 million, net loss of $23,000 and $2.1 million, respectively, in our condensed consolidated statements of operations. The unaudited pro forma results of operations as if the acquisition had occurred on January 1, 2016 are included below under “Pro Forma Financial Results.”________

~~Hotel Yountville~~

On May 11, 2017, we acquired a 100% interest in the Hotel Yountville in Yountville, California for total consideration of $96.5 million. Concurrent with the closing of the acquisition, we completed the financing of a $51.0 million mortgage loan. See note 7.

We prepared a purchase price allocation of the assets acquired and liabilities assumed. The final purchase price allocation was prepared with the assistance of a third-party appraisal firm during the three months ended September 30, 2017.We are in the process of evaluating property level working capital balances, which amounted to a net liability of $2.1 million. This valuation is considered a Level 3 valuation technique.

~~The following table summarizes the estimated fair value of the assets acquired in the acquisition (in thousands):~~

Final Allocations as of September 30, 2017
Land $ 47,849
Buildings and improvements 41,216
Furniture, fixtures and equipment 7,351
96,416
Inventories 84
96,500


⁽¹⁾	Amount includes the$9.7 million, 22-acre plot of vacant land.


⁽²⁾	Recorded within “other liabilities” on our condensed consolidated balance sheet.


⁽³⁾	Recorded within “other assets” on our condensed consolidated balance sheet.

The results of operations of the hotel property have been included in our results of operations as of the acquisition date. ~~For both~~The table below summarizes the total revenue and net income (loss) in our condensed consolidated statements of operations for the three and nine months ended September 30, ~~2017, we have included total revenue of $4.7 million and $7.1 million, net income of $1.2 million and $1.5 million, respectively, in our condensed consolidated statements of operations.~~ 2018:



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
Total revenue	11,233		26,360
Net income (loss)	(3,506	)	(4,225	)

The unaudited pro forma results of operations as if the acquisition had occurred on January 1, ~~2016~~2017 are included ~~below.~~below under “Pro Forma Financial Results.”

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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, ~~2016,~~2017, and the removal of ~~$5.3 million~~$949,000 of non-recurring transaction costs directly attributable to the acquisitions for the nine months ended September 30, ~~2017~~2018 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total revenue $ 108,119
$ 113,504
$ 344,593
$ 355,642
Net income (loss) (217 ) 23,087
9,536
29,141
Net income (loss) attributable to common stockholders (2,707 ) 17,434
1,458
21,024
Pro Forma income per share:
Basic $ (0.09 ) $ 0.67
$ 0.03
$ 0.76
Diluted $ (0.09 ) $ 0.60
$ 0.03
$ 0.74
Weighted average common shares outstanding (in thousands):
Basic 31,483
25,554
30,089
27,261
Diluted 31,483
33,874
30,235
31,887

~~Impairment Charges and Insurance Recoveries~~

~~In September 2017, the~~ ~~Ritz-Carlton, St. Thomas~~ ~~located in St. Thomas, USVI,~~ ~~Key West Pier House~~ ~~located in Key West, FL and~~ ~~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 three and nine months ended September 30, 2017, the Company recognized impairment charges, net of anticipated insurance recoveries of $1.0 million. Additionally, the Company recognized remediation and other costs, net of anticipated insurance recoveries of $3.6 million, included primarily in other hotel operating expenses. As of September 30, 2017, the Company has recorded an insurance receivable of $19.0 million, net of deductibles of $4.6 million, related to the anticipated insurance recoveries. The Company will not record an insurance recovery receivable for business interruption losses associated with lost profits until the amount for such recoveries is known and the amount is realizable.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
Total revenue	$	108,846		$	119,438		$	352,526	$	367,566
Net income (loss)	(626		)	(2,760		)	20,216		(723		)
Net income (loss) attributable to common stockholders	(3,576		)	(6,267		)	11,861		(9,562		)
Pro Forma income per share:
Basic	$	(0.12	)	$	(0.20	)	$	0.36	$	(0.33	)
Diluted	$	(0.12	)	$	(0.20	)	$	0.36	$	(0.33	)
Weighted average common shares outstanding (in thousands):
Basic	32,023			31,483			31,905		30,089
Diluted	32,023			31,483			31,922		30,089

4.5. Hotel ~~Disposition~~Dispositions

On ~~July~~November 1, ~~2016,~~2017, the Company sold the ~~Courtyard Seattle Downtown~~Plano Marriott Legacy Town Center for ~~$84.5~~$104.0 million in cash. The sale resulted in a gain of ~~$26.4~~$23.8 million for the year ended December 31, ~~2016.~~ 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 the nine months ended September 30, 2018 and is included in “gain (loss) on sale of hotel property” in our condensed consolidated statements of operations.

Since the ~~sale~~sales of the hotel ~~property~~properties did not represent a strategic shift that has (or will have) a major effect on our operations or financial results, ~~its~~the hotel properties’ results of operations were not reported as discontinued operations in ~~the~~our condensed consolidated financial statements.

We included the results of operations for these hotel properties through the dates of disposition in net income (loss) as shown in our condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017. The following table includes the condensed financial information from these hotel properties (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
Total hotel revenue	$	—	$	11,807		$	14,537		$	42,351
Total hotel operating expenses	—		(7,713		)	(7,500		)	(26,795		)
Operating income (loss)	—		4,094			7,037			15,556
Property taxes, insurance and other	—		(504		)	(486		)	(1,876		)
Depreciation and amortization	—		(2,176		)	(1,294		)	(6,477		)
Impairment charges	—		(10		)	(12		)	(10		)
Gain (loss) on sale of hotel property	—		—			15,711			—
Interest expense and amortization of loan costs	—		(1,183		)	(791		)	(3,320		)
Income (loss) before income taxes	—		221			20,165			3,873
(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership	—		(26		)	(2,253		)	(454		)
Income (loss) before income taxes attributable to the Company	$	—	$	195		$	17,912		$	3,419

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

~~We included the results of operations for these assets through the date of disposition as shown in the condensed consolidated statements of operations for the~~ ~~three and nine~~ ~~months ended September 30, 2016~~. ~~The following table includes the condensed financial information from this hotel property (in thousands):~~

Three Months Ended Nine Months Ended
September 30, 2016 September 30, 2016
Total hotel revenue $ —
$ 7,995
Total hotel operating expenses —
(4,463 )
Operating income (loss) —
3,532
Property taxes, insurance and other —
(333 )
Depreciation and amortization —
(834 )
Gain (loss) on sale of hotel property 26,359
26,359
Interest expense and amortization of loan costs —
(1,709 )
Income (loss) before income taxes 26,359
27,015
(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership (2,899 ) (2,972 )
Income (loss) before income taxes attributable to the Company $ 23,460
$ 24,043

5.6. Note Receivable

As of ~~September 30, 2017 and~~ December 31, ~~2016,~~2017, we ~~owned~~held a note receivable of $8.1 million from the city of Philadelphia, ~~Pennsylvania.~~Pennsylvania, which had a stated interest rate of 12.85%. The note ~~bears interest at a rate of 12.85% and matures~~matured in June 2018. ~~The~~Prior to maturity the interest income recorded on the note receivable iswas offset against the interest expense recorded on the TIF loan of the same amount. See note 7.8.

6.7. Investment in Unconsolidated Entity

Ashford Inc.

As of September 30, ~~2017~~2018 and December 31, ~~2016,~~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 ~~$60.60~~$75.87 and ~~$43.14~~$93.00 as of September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. This represented an approximate ~~9.6%~~8.2% and 9.3% ownership interest in Ashford Inc. for ~~both~~ September 30, ~~2017~~2018 and December 31, ~~2016.~~2017, respectively. See notes 1011 and ~~11.~~12.

~~As we exercise significant influence over Ashford Inc., this investment would typically be accounted for under the equity method of accounting, under ASC 323-10 -~~ ~~Investments - Equity Method and Joint Ventures. However, we~~We have elected to ~~record~~use the fair value option, under the applicable accounting guidance, to account for our investment in Ashford Inc. ~~using the fair value option under ASC 825-10 -~~ ~~Fair Value Option - Financial Assets and Financial Liabilities~~ 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.

The following tables summarize the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017, and the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, of Ashford Inc. (in thousands):

Ashford Inc.

Condensed Consolidated Balance Sheets

(unaudited)



	September 30, 2018		December 31, 2017
Total assets	$	389,818	$	114,810
Total liabilities	121,763		78,742
Series B cumulative convertible preferred stock	200,578		—
Redeemable noncontrolling interests	3,778		5,111
Total stockholders’ equity of Ashford Inc.	63,050		30,185
Noncontrolling interests in consolidated entities	649		772
Total equity	63,699		30,957
Total liabilities and equity	$	389,818	$	114,810
Our investment in Ashford Inc., at fair value	$	14,786	$	18,124

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following tables summarize the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, and the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016, of Ashford Inc. (in thousands):

~~Ashford Inc.~~

~~Condensed Consolidated Balance Sheets~~

~~(unaudited)~~

September 30, 2017 December 31, 2016
Total assets $ 84,012
$ 129,797
Total liabilities 49,754
38,168
Redeemable noncontrolling interests 1,936
1,480
Total stockholders’ equity of Ashford Inc. 31,862
37,377
Noncontrolling interests in consolidated entities 460
52,772
Total equity 32,322
90,149
Total liabilities and equity $ 84,012
$ 129,797
Our investment in Ashford Inc., at fair value $ 11,810
$ 8,407

Ashford Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Total revenue	$	19,255		$	16,538		$	51,907		$	48,099		$	41,565		$	19,255		$	144,544		$	51,907
Total operating expenses	(21,595		)	(16,673		)	(54,965		)	(50,938		)	(53,069		)	(21,595		)	(150,214		)	(54,965		)
Operating income (loss)	(2,340		)	(135		)	(3,058		)	(2,839		)	(11,504		)	(2,340		)	(5,670		)	(3,058		)
Realized and unrealized gain (loss) on investment in unconsolidated entity	—			—			—			(1,460		)
Realized and unrealized gain (loss) on investments	—			(441		)	(91		)	(5,889		)
Other	57			59			185			(21		)
Realized and unrealized gain (loss) on investments, net													—			—			—			(91		)
Interest expense and loan amortization cost													(419		)	(20		)	(770		)	(35		)
Other income (expense)													25			77			(50		)	220
Income tax (expense) benefit	25			(575		)	(9,248		)	(560		)	13,904			25			11,593			(9,248		)
Net income (loss)	(2,258		)	(1,092		)	(12,212		)	(10,769		)	2,006			(2,258		)	5,103			(12,212		)
(Income) loss from consolidated entities attributable to noncontrolling interests	102			486			267			6,852			413			102			704			267
Net (income) loss attributable to redeemable noncontrolling interests	300			321			995			794			968			300			817			995
Net income (loss) attributable to Ashford Inc.	$	(1,856	)	$	(285	)	$	(10,950	)	$	(3,123	)	$	3,387		$	(1,856	)	$	6,624		$	(10,950	)
Preferred dividends													(1,675		)	—			(1,675		)	—
Amortization of preferred stock discounts													(303		)	—			(303		)	—
Net income attributable to common shareholders													$	1,409		$	(1,856	)	$	4,646		$	(10,950	)
Our unrealized gain (loss) on investment in Ashford Inc.	$	1,875		$	(458	)	$	3,403		$	(1,091	)	$	2,158		$	1,875		$	(3,338	)	$	3,403

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.

The following table summarizes our carrying value and ownership interest in OpenKey:



	September 30, 2018			December 31, 2017
Carrying value of the investment in OpenKey (in thousands)	$	1,854		$	—
Ownership interest in OpenKey	8.2		%	—

The following table summarizes our equity in earnings (loss) in OpenKey (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
Line Item	2018			2017		2018			2017
Equity in earnings (loss) of unconsolidated entity	$	(81	)	$	—	$	(146	)	$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7.8. Indebtedness

Indebtedness consisted of the following (in thousands):


Indebtedness	Collateral	Maturity	Interest Rate	September 30, 2017			December 31, 2016			Collateral	Maturity	Interest Rate	September 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%	$	—		$	—		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^{(4) (5)}	1 hotel	April 2017	5.91%	—			32,879			Ritz-Carlton, St. Thomas	December 2018	LIBOR⁽¹⁾ + 4.95%	42,000			42,000
Mortgage loan⁽⁴⁾⁽⁵⁾	1 hotel	April 2017	5.95%	—			55,915
Mortgage loan⁽⁴⁾	3 hotels	April 2017	5.95%	—			245,307
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⁾	1 hotel	December 2017	LIBOR⁽¹⁾+4.95%	—			40,000			Sofitel Chicago Magnificent Mile	March 2019	LIBOR⁽¹⁾+ 2.55%	—			80,000
Mortgage loan⁽⁷⁾	1 hotel	December 2017	LIBOR⁽¹⁾ + 4.95%	42,000			42,000
Mortgage loan⁽⁸⁾	1 hotel	March 2018	LIBOR⁽¹⁾+ 2.30%	80,000			80,000			Pier House Resort	March 2019	LIBOR⁽¹⁾ + 2.25%	70,000			70,000
Mortgage loan⁽⁹⁾	1 hotel	March 2018	LIBOR⁽¹⁾ + 2.25%	70,000			70,000			Park Hyatt Beaver Creek	April 2019	LIBOR⁽¹⁾+ 2.75%	67,500			67,500
TIF loan⁽⁵⁾⁽¹⁰⁾	1 hotel	June 2018	12.85%	8,098			8,098
Mortgage loan^{(4) (5)}	5 hotels	February 2019	LIBOR⁽¹⁾ + 2.58%	365,000			—
Mortgage loan⁽⁷⁾	1 hotel	April 2019	LIBOR⁽¹⁾+ 2.75%	67,500			—
Mortgage loan⁽¹¹⁾	2 hotels	November 2019	LIBOR⁽¹⁾ + 2.65%	190,481			192,765
Mortgage loan⁽¹⁰⁾										Capital Hilton	November 2019	LIBOR⁽¹⁾ + 2.65%	187,834			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	1 hotel	May 2022	LIBOR⁽¹⁾ + 2.55%	51,000			—			Hotel Yountville	May 2022	LIBOR⁽¹⁾ + 2.55%	51,000			51,000
Mortgage loan⁽⁶⁾	1 hotel	August 2022	LIBOR⁽¹⁾+ 2.55%	40,000			—
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			—
				914,079			766,964						993,334			826,236
Deferred loan costs, net				(7,259		)	(2,348		)				(7,618		)	(5,277		)
Indebtedness, net				$	906,820		$	764,616					$	985,716		$	820,959

__________________


⁽¹⁾	LIBOR rates were ~~1.232%~~2.261% and ~~0.772%~~1.564% at September 30, ~~2017~~2018 and December 31, ~~2016,~~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⁾	~~On January 18, 2017, we refinanced three mortgage loans totaling $333.7 million set to mature in April 2017 with a new $365.0 million mortgage~~The TIF loan ~~with a two-year initial term and five one~~-~~year extension options subject to the satisfaction of certain conditions. The new loan is interest only and bears interest at a rate of LIBOR + 2.58%.~~ matured on June 30, 2018. See note 6.


⁽⁵⁾	~~These loans are collateralized by the same hotel property. This hotel property is now included in the $365 million mortgage loan.~~


⁽⁶⁾	On August 18, 2017, we refinanced our $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 at a rate of LIBOR + 2.55% and has a five-year term.


⁽⁷⁾	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 ~~2017.~~2018.


⁽⁹⁾	This mortgage loan has three one-year extension options, subject to satisfaction of certain ~~conditions, of which the first was exercised in March 2017.~~conditions.


⁽¹⁰⁾	~~The interest expense from the TIF loan is offset against interest income recorded on the note receivable of the same amount. See note 5.~~


⁽¹¹⁾	This mortgage loan has two one-year extension options, subject to satisfaction of certain conditions.

On January 18, 2017, we refinanced three mortgage loans with existing outstanding balances totaling approximately $333.7 million. The previous mortgage loans had final maturity dates in April 2017. The new mortgage loan totals $365.0 million and has a stated maturity of February 2019 with five one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is interest only and provides for a floating interest rate of LIBOR + 2.58%. The mortgage loan is secured by five hotel properties: Plano Marriott Legacy Town Center, Seattle Marriott Waterfront, Tampa Renaissance, San Francisco Courtyard Downtown and Philadelphia Courtyard Downtown.

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.

~~Table of Contents~~

~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

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.

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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 September 30, ~~2017,~~2018, we were in compliance in all material respects with all covenants or other requirements set forth in our debt agreements as amended.

8.9. 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 September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net income (loss) attributable to common stockholders - basic and diluted:
Net income (loss) attributable to the Company	$	(1,000	)	$	16,858		$	(1,898	)	$	18,912		$	(1,869	)	$	(1,000	)	$	13,681		$	(1,898	)
Less: Dividends on preferred stock	(1,707		)	(994		)	(5,087		)	(2,866		)	(1,707		)	(1,707		)	(5,122		)	(5,087		)
Less: Dividends on common stock	(5,038		)	(3,064		)	(15,107		)	(9,041		)	(5,126		)	(5,038		)	(15,364		)	(15,107		)
Less: Dividends on unvested performance stock units	(85		)	(19		)	(238		)	(73		)	(72		)	(85		)	(216		)	(238		)
Less: Dividends on unvested restricted shares	(75		)	(12		)	(200		)	(34		)	(78		)	(75		)	(243		)	(200		)
Less: Net (income) loss allocated to unvested performance stock units	—			(142		)	—			(15		)
Less: Net (income) loss allocated to unvested restricted shares	—			(63		)	—			(32		)
Undistributed net income (loss) allocated to common stockholders	(7,905		)	12,564			(22,530		)	6,851			(8,852		)	(7,905		)	(7,264		)	(22,530		)
Add back: Dividends on common stock	5,038			3,064			15,107			9,041			5,126			5,038			15,364			15,107
Distributed and undistributed net income (loss) - basic and diluted	$	(2,867	)	$	15,628		$	(7,423	)	$	15,892		$	(3,726	)	$	(2,867	)	$	8,100		$	(7,423	)
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership	—			1,960			—			1,994
Dividends on preferred stock	—			994			—			—
Distributed and undistributed net income (loss) - diluted	$	(2,867	)	$	18,582		$	(7,423	)	$	17,886

Weighted average common shares outstanding:
Weighted average common shares outstanding – basic and diluted	31,483			25,554			30,089			27,261
Effect of assumed conversion of operating partnership units	—			4,395			—			4,524
Effect of assumed conversion of preferred stock	—			3,824			—			—
Incentive fee shares	—			101			—			102
Weighted average common shares outstanding – basic													32,023			31,483			31,905			30,089
Advisory services incentive fee shares													—			—			17			—
Weighted average common shares outstanding – diluted	31,483			33,874			30,089			31,887			32,023			31,483			31,922			30,089

Income (loss) per share - basic and diluted:
Income (loss) per share - basic:
Net income (loss) allocated to common stockholders per share	$	(0.09	)	$	0.61		$	(0.25	)	$	0.58		$	(0.12	)	$	(0.09	)	$	0.25		$	(0.25	)
Income (loss) per share - diluted:
Net income (loss) allocated to common stockholders per share	$	(0.09	)	$	0.55		$	(0.25	)	$	0.56		$	(0.12	)	$	(0.09	)	$	0.25		$	(0.25	)

1720

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~~ASHFORD HOSPITALITY PRIME,~~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 September 30,					Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016		2017			2016		2018			2017			2018		2017
Net income (loss) allocated to common stockholders is not adjusted for:
Income (loss) allocated to unvested restricted shares	$	75		$	75	$	200		$	66	$	78		$	75		$	243	$	200
Income (loss) allocated to unvested performance stock units	85			161		238			88		72			85			216		238
Income (loss) attributable to redeemable noncontrolling interests in operating partnership	(360		)	—		(958		)	—		(452		)	(360		)	1,075		(958		)
Dividends on preferred stock	1,707			—		5,087			2,866		1,707			1,707			5,122		5,087
Total	$	1,507		$	236	$	4,567		$	3,020	$	1,405		$	1,507		$	6,656	$	4,567
Weighted average diluted shares are not adjusted for:
Effect of unvested restricted shares	79			56		81			55		81			79			57		81
Effect of unvested performance stock units	—			65		—			58		52			—			23		—
Effect of assumed conversion of operating partnership units	4,256			—		4,256			—		4,173			4,256			4,137		4,256
Effect of assumed conversion of preferred stock	6,569			—		5,893			3,608		6,569			6,569			6,569		5,893
Effect of incentive fee shares	132			—		146			—
Effect of advisory services incentive fee shares											32			132			—		146
Total	11,036			121		10,376			3,721		10,907			11,036			10,786		10,376

9.10. 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 nine months ended September 30, 2018 and 2017, we entered into interest rate caps with notional amounts totaling $659.5 million and strike rates ranging from 3.00% to 5.35%. These interest rate caps have effective dates from January 2017 to August 2017, maturity dates from March 2018 to September 2019, and a total cost of $347,000. Thesederivatives as summarized in the table below:



	Nine Months Ended September 30,
Interest rate caps:	2018			2017
Notional amount (in thousands)	$	685,000		$	659,500
Strike rate low end of range	2.43		%	3.00		%
Strike rate high end of range	7.80		%	5.35		%
Effective date range	February 2018 - May 2018			January 2017 - August 2017
Maturity date range	March 2019 - June 2020			March 2018 - September 2019
Total cost of interest rate cap (in thousands)	$	348		$	347

Interest rate floors:
Notional amount (in thousands)	$	4,000,000		$	1,600,000
Strike rate low end of range	1.38		%	1.00		%
Strike rate low end of range	2.00		%	1.00		%
Effective date	July 2018			September 2017
Maturity date range	June 2019 - September 2019			December 2018
Total cost of interest rate floors (in thousands)	$	138		$	65

_______________

No instruments were ~~not~~ designated as cash flow ~~hedges. We also entered into an interest rate floor with a notional amount and strike rate~~hedges

Table of ~~$1.6 billion and 1.00%, respectively, which had an effective date of September 2017 and a maturity date of December 2018, for a total cost of $65,000.~~Contents

During the nine months ended September 30, 2016, concurrent with the extension of our $80.0 million mortgage loan, we extended our existing interest rate cap with a notional amount of $80.0 million, maturity date of March 2017 and a strike rate of 5.78% for a total cost of $5,000. This instrument was not designated as a cash flow hedge.BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of September 30, ~~2017,~~2018, we held interest rate ~~caps with notional amounts totaling $887.5 million and strike rates ranging from 2.00% to 5.43%. These~~ instruments ~~cap~~as summarized in the interest rates on our mortgage loans with an aggregate principal balance of $914.1 million and maturity dates from December 2017 to August 2022. These instruments have maturity dates ranging from ~~December 2017~~ to September 2019. As of September 30, 2017, we held interest rate floors with notional amounts totaling $4.6 billion and strike rates ranging from -0.25% to 1.00%. These instruments have termination dates ranging from March 2019 to ~~July 2020~~.table below:



Interest rate caps:⁽¹⁾
Notional amount (in thousands)	$	1,393,200
Strike rate low end of range	2.43		%
Strike rate low end of range	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)	$	993,334

Interest rate floors: ^{(1) (2)}
Notional amount (in thousands)	$	10,850,000
Strike rate low end of range	(0.25		)%
Strike rate low end of range	2.00		%
Effective date range	July 2015 - July 2018
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 September 30, ~~2017,~~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 ~~$2.8~~$2.3 million as of September 30, ~~2017.~~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.

~~Table of Contents~~

~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

~~Options on Futures Contracts~~—During the nine months ended September 30, 2016, we purchased options on Eurodollar futures for a total cost of $124,000 and a maturity date of June 2017. During the nine months ended September 30, 2017, we made no such purchases.

~~10.~~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~~

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BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

(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 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 September 30, ~~2017,~~2018, the LIBOR interest rate forward curve (Level 2 inputs) assumed an uptrend from ~~1.232%~~2.261% to ~~1.779%~~3.032% 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.

1923

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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			Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting⁽¹⁾		Total
September 30, 2017
September 30, 2018
Assets
Derivative assets:
Interest rate derivatives - floors	$	—	$	130	$	—	$	47	$	177		$	—	$	72	$	—	$	41	$	113
Interest rate derivatives - caps	—		6		—		—		6			—		82		—		—		82
Credit default swaps	—		512		—		63		575			—		13		—		619		632
	—		648		—		110		758		⁽²⁾	—		167		—		660		827		⁽²⁾
Non-derivative assets:
Investment in Ashford Inc.	11,810		—		—		—		11,810			14,786		—		—		—		14,786
Total	$	11,810	$	648	$	—	$	110	$	12,568		$	14,786	$	167	$	—	$	660	$	15,613


	Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Counterparty and Cash Collateral Netting⁽¹⁾		Total			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, 2016
December 31, 2017
Assets
Derivative assets:
Interest rate derivatives - floors	$	—	$	1,091	$	—	$	—	$	1,091		$	—	$	118	$	—	$	12	$	130
Options on futures contracts	58		—		—		—		58
Interest rate derivatives - caps												—		4		—		—		4
Credit default swaps												—		102		—		358		460
	58		1,091		—		—		1,149		⁽¹⁾	—		224		—		370		594		⁽²⁾
Non-derivative assets:
Investment in Ashford Inc.	8,407		—		—		—		8,407			18,124		—		—		—		18,124
Total	$	8,465	$	1,091	$	—	$	—	$	9,556		$	18,124	$	224	$	—	$	370	$	18,718

__________________


⁽¹⁾	Represents net cash collateral posted between us and our counterparties.


⁽²⁾	Reported as “derivative assets” in ~~the~~our condensed consolidated balance sheets.

2024

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~~ASHFORD HOSPITALITY PRIME,~~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															Gain (Loss) Recognized in Income
	Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended September 30,								Nine Months Ended September 30,
	2017			2016				2017				2016				2018				2017				2018				2017
Assets
Derivative assets:
Interest rate derivatives - floors	$	(132	)	$	(3,911	)		$	(1,026	)		$	2,336			$	(134	)		$	(132	)		$	(218	)		$	(1,026	)
Interest rate derivatives - caps	(24		)	(2		)		(341		)		(62		)		(10		)		(24		)		(271		)		(341		)
Credit default swaps ⁽¹⁾	(375		)	—				(375		)		—				(434		)	⁽¹⁾	(375		)	⁽¹⁾	(314		)	⁽¹⁾	(375		)	⁽¹⁾
Options on futures contracts	—			(77		)		(58		)		(134		)		—				—				—				(58		)
Total derivative assets	$	(531	)	$	(3,990	)		$	(1,800	)		$	2,140			$	(578	)		$	(531	)		$	(803	)		$	(1,800	)

Non-derivative assets:
Investment in Ashford Inc.	1,875			(458		)		3,403				(1,091		)		2,158				1,875				(3,338		)		3,403
Total	$	1,344		$	(4,448	)		$	1,603			$	1,049			$	1,580			$	1,344			$	(4,141	)		$	1,603
Total combined
Interest rate derivatives - floors	$	(132	)	$	(3,911	)		$	(1,026	)		$	2,336			$	(134	)		$	(132	)		$	(218	)		$	(1,026	)
Interest rate derivatives - caps	(24		)	(2		)		(341		)		(62		)		(10		)		(24		)		(271		)		(341		)
Credit default swaps	(375		)	—				(375		)		—				(434		)		(375		)		(314		)		(375		)
Options on futures contracts	—			1				213				(56		)		—				—				—				213
Unrealized gain (loss) on derivatives	(531		)	(3,912		)		(1,529		)		2,218				(578		)		(531		)		(803		)		(1,529		)
Realized gain (loss) on options on futures contracts	—			(78		)	⁽²⁾	(271		)	⁽²⁾	(78		)	⁽²⁾	—				—				—				(271		)	⁽²⁾
Unrealized gain (loss) on investment in Ashford Inc.	1,875			(458		)		3,403				(1,091		)		2,158				1,875				(3,338		)		3,403
Net	$	1,344		$	(4,448	)		$	1,603			$	1,049			$	1,580			$	1,344			$	(4,141	)		$	1,603

_______________


⁽¹⁾	Excludes costs of ~~$22~~$64 and $190 associated with credit default swaps for the three and nine months ended September 30, 2018 and $22 for both the three and nine months ended September 30, 2017, included in “other income (expense)” in ~~the~~our condensed consolidated statements of operations.


⁽²⁾	Included in “other income (expense)” in ~~the~~our condensed consolidated statements of operations.

~~11.~~

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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.

~~Table of Contents~~

~~ASHFORD HOSPITALITY PRIME, 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):


	September 30, 2017				December 31, 2016				September 30, 2018				December 31, 2017
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial assets and liabilities measured at fair value:
Investment in Ashford Inc.	$	11,810	$	11,810	$	8,407	$	8,407	$	14,786	$	14,786	$	18,124	$	18,124
Derivative assets	758		758		1,149		1,149		827		827		594		594
Financial assets not measured at fair value:
Cash and cash equivalents	$	126,771	$	126,771	$	126,790	$	126,790	$	163,825	$	163,825	$	137,522	$	137,522
Restricted cash	31,609		31,609		37,855		37,855		74,973		74,973		47,820		47,820
Accounts receivable, net	20,493		20,493		18,194		18,194		23,715		23,715		14,334		14,334
Insurance receivable	19,037		19,037		—		—		—		—		8,825		8,825
Note receivable	8,098		8,189 to 9,051		8,098		8,511 to 9,407		—		—		8,098		8,020 to 8,864
Due from Ashford Trust OP, net	—		—		488		488
Due from AQUA U.S. Fund	—		—		2,289		2,289
Due from related party, net	645		645		377		377		—		—		349		349
Due from third-party hotel managers	7,492		7,492		7,555		7,555		1,960		1,960		4,589		4,589
Financial liabilities not measured at fair value:
Indebtedness	$	914,079	$863,534 to $954,431		$	766,964	$ 726,774 to $ 803,276		$	993,334	$939,985 to $1,038,930		$	826,236	$ 780,243 to $ 862,372
Accounts payable and accrued expenses	59,912		59,912		44,791		44,791		67,441		67,441		56,803		56,803
Dividends and distributions payable	8,599		8,599		5,038		5,038		8,840		8,840		8,146		8,146
Due to Ashford Inc.	1,380		1,380		5,085		5,085		3,182		3,182		1,703		1,703
Due to affiliate	—		—		2,500		2,500
Due to related party, net									8		8		—		—
Due to third-party hotel managers	2,633		2,633		973		973		2,608		2,608		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 AQUA U.S. Fund, due~~ to/from related party, net, accounts payable and accrued expenses, dividends and distributions payable, due ~~to/from Ashford Trust OP, net, due~~ to Ashford Inc.~~, due to affiliate~~ 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 ~~September 30, 2017 and~~ December 31, ~~2016.~~2017. We estimated the fair value of the note receivable to be approximately ~~1.1%~~1.0% lower to ~~11.8% higher than the carrying value of $8.1 million at September 30, 2017 and approximately 5.1% to 16.2%~~9.5% higher than the carrying value of $8.1 million at December 31, ~~2016.~~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~~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. ~~Fair value of options on futures contracts are valued at their last reported settlement price as of the measurement date.~~ See notes ~~2, 9~~10 and 1011 for a complete description of the methodology and assumptions utilized in determining fair values.

2226

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~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

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 ~~94.5%~~94.6% to 104.6% of the carrying value of $993.3 million at September 30, 2018, and approximately 94.4% to 104.4% of the carrying value of ~~$914.1 million at September 30, 2017, and approximately 94.8% to 104.7% of the carrying value of $767.0~~$826.2 million at December 31, ~~2016.~~2017. This is considered a Level 2 valuation technique.

~~12.~~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 ~~Ashford Prime~~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. ~~Beginning one year after issuance, each~~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~~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 the issuance of 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 ~~the Ashford Prime~~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% ~~of the target number~~ 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 September 30, ~~2017, a total of 983,000~~2018, there are approximately 804,000 performance-based LTIP units, representing 200% of the target, ~~were issued.~~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.

~~The unamortized~~ Upon the adoption of ASU 2018-07, the corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of ~~performance-based LTIP units~~the award, regardless of ~~$930,000~~the actual outcome of the market condition as opposed to being accounted for at ~~September 30, 2017 will be expensed over a period~~fair value based on the market price of ~~2.3 years, subject to future mark to market adjustments. We recorded credits to compensation expense in~~ the amount of $633,000 and $1.7 million for the three and nine months ended September 30, 2017, respectively, due to lower fair values as compared to prior periods. For the three and nine months ended September 30, 2016, this expense was $363,000 and $1.1 million, respectively. The related amounts are included in “advisory services fee” on our condensed consolidated statements of operations.shares at each quarterly measurement date.

As of September 30, ~~2017,~~2018, we have issued a total of ~~1.5~~1.9 million LTIP units (including performance-based LTIP units), net of forfeitures, all of which, other than approximately ~~3,000~~155,000 LTIP units and 593,000 performance based LTIP units issued infrom March 2015 6,000 LTIP units issued in May 2015, 389,000 performance-based LTIP units issued in June 2015, 312,000 performance-based LTIP units issued in October 2016, 141,000 LTIP units issued in April 2017, 281,000 performance-based LTIP units issued in April 2017 and 6,000 LTIP units issued in June 2017,to August 2018 had reached full economic parity with, and are convertible into, common units. ~~For the three and nine months ended September 30, 2017,~~

The following table presents compensation expense ~~of $108,000 and $281,000, respectively, was recorded related to the~~for performance LTIP units ~~issued to Ashford LLC’s employees. For the three~~ and nine months ended September 30, 2016, this expense was $375,000 and $1.1 million respectively. These amounts are included in “advisory services fee.” Expense of $0 and $64,000 was recorded for the three and nine months ended September 30, 2017, respectively, and expense of $0 and $44,000 was recorded for the three and nine months ended September 30, 2016, respectively, which was related to LTIP units issued to our independent directors. These amounts are included in “corporate general and administrative” expense in our condensed consolidated statements of operations. The fair value of the unrecognized cost of LTIP units, which was $1.1 million at September 30, 2017, will be amortized over a period of 2.6 years, subject to future mark to market adjustments.(in thousands):



		Three Months Ended September 30,						Nine Months Ended September 30,
Type	Line Item	2018		2017				2018		2017
Performance LTIP units	Advisory services fee	$	245	$	(633	)	(1)	$	539	$	(1,737	)	(1)
LTIP units	Advisory services fee	269		108				707		281
LTIP units - independent directors	Corporate, general and administrative	61		—				61		64

2327

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~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)


⁽¹⁾	The credit to compensation expense is a result of lower fair values as compared to prior periods.

The unamortized cost of the unvested performance-based LTIP units of $1.8 million at September 30, 2018, will be expensed over a period of 2.3 years. The unamortized cost of the unvested LTIP units of $2.1 million at September 30, 2018, will be amortized over a period of 2.5 years.

During the three and nine months ended September 30, 2017, approximately 0 and 6,000 common units, with an aggregate redemption fair value of $0 and $82,000, ~~respectively,~~ were redeemed by the holders and, at our election, we issued shares of our common stock to satisfy the redemption. During the three and nine months ended September 30, ~~2016,~~2018, no common units were redeemed.

~~Redeemable~~The following table presents the redeemable noncontrolling interests in ~~Ashford Prime~~Braemar OP ~~as of September 30, 2017~~(in thousands) and ~~December 31, 2016, were $45.8 million and $59.5 million, respectively, which represented~~the corresponding approximate ownership percentage of our operating partnerships of 11.72% and 13.19%, respectively. The carrying value of redeemable noncontrolling interests as of September 30, 2017 and December 31, 2016, included adjustments of $0 and $8.9 million, respectively, to reflect the excess of redemption value over the accumulated historical costs. For the three and nine months ended September 30, 2017, wepartnership:



	September 30, 2018			December 31, 2017
Redeemable noncontrolling interests in Braemar OP	$	49,726		$	46,627
Adjustments to redeemable noncontrolling interests ⁽¹⁾	3,167			—
Ownership percentage of operating partnership	11.22		%	11.43		%


⁽¹⁾	Reflects the excess of the redemption value over the accumulated historical costs

We allocated net ~~loss of $360,000 and $958,000~~income (loss) to the redeemable noncontrolling interests ~~respectively. For the three~~ and nine months ended September 30, 2016, we allocated net income of $2.0 million and $2.0 million to the redeemable noncontrolling interests, respectively. For the three and nine months ended September 30, 2017, we declared aggregate cash distributions to the holders of common units and holders of LTIP units, of $858,000 and $2.5 million, respectively. For the three and nine months ended September 30, 2016, we declared aggregate cash distributions to holders of common units and holders of LTIP units of $572,000 and $1.7 million, respectively. These distributionswhich are recorded as a reduction of redeemable noncontrolling interests in operating ~~partnership.~~partnership, as illustrated in the table below (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
Allocated net (income) loss to the redeemable noncontrolling interests	$	452	$	360	$	(1,075	)	$	958
Aggregate distributions to holders of common units, LTIP units and performance LTIP units	824		859		2,468			2,508

~~13.~~14. Equity and Stock-Based Compensation

~~Equity Offering~~—On March 1, 2017, we commenced an underwritten public offering of approximately 5.8 million shares of common stock at $12.15 per share for gross proceeds of $69.9 million. The offering closed on March 7, 2017. The net proceeds from the sale of the shares after underwriting discounts and offering expense were approximately $66.4 million.

Dividends—~~Common~~The following table summarizes the common stock dividends declared ~~for~~during the three and nine months ended September 30, 2017, were $5.2 million and $15.5 million, respectively. Common stock dividends declared for the three and nine months ended September 30, 2016, were $3.1 million and $9.1 million, respectively.period (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Common stock dividends declared	$	5,204	$	5,112	$	15,607	$	15,307

Performance Stock Units—The compensation committee of the board of directors of the Company approves the issuance of 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, ofgenerally, 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 September 30, 2017,~~Upon the ~~outstanding PSUs had a~~adoption of ASU 2018-07, the corresponding compensation cost is recognized ratably over the service period for the award as the service is rendered, based on the grant date fair value of ~~$1.2 million. We recorded credits~~the award, regardless of the actual outcome of the market condition as opposed to being accounted for at fair value based on the market price of the shares at each quarterly measurement date.

Table of Contents

BRAEMAR HOTELS & RESORTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table summarizes the compensation expense infor PSUs (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
Line Item	2018		2017			2018		2017
Advisory services fee	$	287	$	(668	)	$	2,156	$	(1,476	)

During the ~~amount of $669,000 and $1.5 million for the three and~~ nine months ended September 30, ~~2017, respectively, due to lower fair values~~2018, approximately $1.6 million of the ~~PSUs. We recorded~~compensation expense was related to the accelerated vesting of ~~$291,000 and $703,000 for~~PSUs granted to one of our executive officers upon his death, in accordance with the ~~three and nine months ended September 30, 2016, respectively,~~terms of the awards. These amounts are included in “advisory services fee” on our condensed consolidated statements of operations.

As of September 30, ~~2017,~~2018, we had unamortized compensation expense of ~~$883,000~~$2.3 million related to PSUs which is expected to be recognized over a period of 2.3 ~~years, subject to future mark to market adjustments.~~years.

Restricted Stock Units—~~Stock-based~~We incur stock-based compensation expense ~~of $245,000 and $634,000 was recognized for the three and nine months ended September 30, 2017, respectively,~~ in connection with restricted stock units awarded to employees of Ashford LLC, ~~and is~~ included in “advisory services ~~fee”~~fee,” on our condensed consolidated statements of ~~operations. For the three and nine months ended September 30, 2016, this expense was $129,000 and $374,000, respectively. There were also restricted stock units granted to certain~~operations, employees of Remington Lodging, ~~and the associated expenses are recorded as a component of~~included in “management fees” on our condensed consolidated statements of ~~operations. For the three~~operations and nine months ended September 30, 2017, expense related to such grants was $27,000 and $61,000, respectively. For the three and nine months ended September 30, 2016, this expense was $26,000 and $50,000, respectively. In addition, stock-based compensation expense of $0 and $181,000 was recognized for the three and nine months ended September 30, 2017, respectively, and expense of $50,000 and $227,000 was recognized for the three and nine months ended September 30, 2016, respectively, in connection with common stock issued to our independent directors, which ~~vested~~ immediately vests, and is included in “corporate general and administrative” expense on our condensed consolidated statements of operations.

At September 30, ~~2017,~~2018, the outstanding restricted shares had a fair value of ~~$4.5~~$5.8 million. At September 30, ~~2017,~~2018, the unamortized cost of the unvested shares of restricted stock was ~~$3.5~~$4.4 million, which will be expensed over a period of ~~4.1~~3.1 years, ~~subject to future mark to market adjustments,~~ and have vesting dates between ~~February 2018~~March 2019 and November 2021.

The following table summarizes the stock-based compensation expense for restricted stock units (in thousands):

~~Table of Contents~~

~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~



	Three Months Ended September 30,				Nine Months Ended September 30,
Line Item	2018		2017		2018		2017
Advisory services fee	$	515	$	245	$	1,838	$	634
Management fees	53		27		164		61
Corporate general and administrative	243		—		243		181
	$	811	$	272	$	2,245	$	876

During the nine months ended September 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 death, in accordance with the terms of the awards.

Stock Repurchases—On ~~October 27, 2014,~~December 5, 2017, our board of directors ~~approved a share~~reapproved the stock repurchase program ~~under~~pursuant to which the ~~Company may purchase up~~board of directors granted a repurchase authorization to ~~$100 million~~acquire shares of the Company’s common stock, ~~from time to time. The repurchase program does not have~~par value $0.01 per share having an ~~expiration date. The specific timing, manner, price, amount and other terms~~aggregate value of the repurchases is at management’s discretion and depends on market conditions, corporate and regulatory requirements and other factors. The Company is not required to repurchase shares under the repurchase program, and may modify, suspend or terminate the repurchase program at any time for any reason. On April 8, 2016, our board of directors authorized utilizing up to $50 ~~million to~~million. The board of directors’ authorization replaced any previous repurchase ~~common stock.~~ authorizations.

No shares were repurchased during the three and nine months ended September 30, 2018 and 2017, pursuant to this authorization. During the three months ended September 30, 2016, we repurchased 630,000 shares of our common stock for approximately $9.0 million. During the nine months ended September 30, 2016, we repurchased 2.9 million shares of our common stock for approximately $39.0 million. As of September 30, ~~2017,~~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, as subsequently amended, 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 September 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 ~~$(5.3)~~$(5.7) million and ~~$(5.4)~~$(4.8) million at September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. ~~Our ownership interest is reported in equity in~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table summarizes the ~~condensed consolidated balance sheets. Noncontrolling~~(income) loss allocated to noncontrolling interests in consolidated entities were allocated net income of $1.1 million and $2.7 million for the three and nine months ended September 30, 2017, respectively, and allocated income of $2.5 million and $2.6 million for the three and nine months ended September 30, 2016, respectively.(in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
(Income) loss allocated to noncontrolling interests	$	(1,695	)	$	(1,143	)	$	(1,742	)	$	(2,736	)

~~14.~~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 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 April 26, 2016,~~Additionally, the Series B Convertible Preferred Stock contains cash redemption features that consist of: 1) an optional redemption in ~~connection with a previously announced required public offering, we issued 290,850~~which on or after June 11, 2020, the Company may redeem shares of ~~our~~the Series B Convertible Preferred Stock, in whole or in part, for cash at ~~$17.24~~a redemption price of $25.00 per share, ~~for gross proceeds of $5.0 million. The Series B Preferred Stock offering includes~~plus any accumulated, accrued and unpaid ~~dividends since April 15, 2016. The offering closed~~dividends; 2) a special optional redemption, in which on ~~April 29, 2016. The net proceeds, after deducting underwriting discounts, advisory fees, commissions and other estimated offering expenses payable by~~or prior to the ~~company, were approximately $4.2 million. Dividends~~occurrence of a Change of Control (as defined), the Company may redeem shares of the Series B Convertible Preferred Stock, in whole or in part, for cash at a redemption price of $25.00 per share plus a make-whole premium equal to the present value, computed using a discount rate of 5.5% per annum compounded quarterly, of all dividend payments on the Series B Convertible Preferred Stock ~~accrue~~for all remaining dividend periods (excluding any accumulated dividend amount) from the date of such exercise up to but excluding June 11, 2019; and 3) a REIT Termination Event and Listing Event Redemption, in which at any time (i) a ~~rate~~REIT Termination Event (defined below) occurs or (ii) the Company’s common stock fails to be listed on the NYSE, NYSE American, or NASDAQ, or listed or quoted on an exchange or quotation system that is a successor thereto (each a “National Exchange”), the holder of ~~5.50% on~~Series B Cumulative Preferred Stock shall have the right to require the Company to redeem any or all shares of Series B Cumulative Preferred Stock at 103% of the liquidation preference ~~of $25.00~~($25.00 per ~~share.~~share, plus any accumulated, accrued, and unpaid dividends) in cash.

A REIT Termination Event, shall mean the earliest of:


(i)	filing of income tax return where the Company does not compute its income as a REIT;


(ii)	stockholders’ approval on ceasing to be qualified as a REIT;


(iii)	board of directors’ approval on ceasing to be qualified as a REIT;


(iv)	board’s determination based on advise of the counsel to cease to be qualified as a REIT; or


(v)	determination within the meaning of Section 1313(a) of IRC to cease to be qualified as a REIT.

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

At September 30, ~~2017,~~2018, we had 5.0 million outstanding shares of Series B Convertible Preferred Stock ~~which~~that do not meet the requirements for permanent equity classification prescribed by the authoritative guidance because ~~these contain~~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. ~~For the three and nine months ended September 30, 2017, we~~

The following table summarizes dividends declared ~~dividends of $1.7 million and $5.1 million respectively, with respect to~~

(in thousands):

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~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

shares of Series B Preferred Stock. For the three and nine months ended September 30, 2016, we declared dividends of $994,000 and $2.9 million, respectively, with respect to shares of Series B Preferred Stock.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Series B convertible preferred stock	$	1,707	$	1,707	$	5,122	$	5,087

~~15.~~16. Commitments and Contingencies

Restricted Cash—Under certain management and debt agreements for our hotel properties existing at September 30, ~~2017,~~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 September 30, ~~2017,~~2018, we pay a) monthly property management fees equal to the greater of ~~$10,000 (CPI adjusted since 2003)~~$14,000 (increased annually based on consumer price index adjustments) or 3% of gross revenues, or in some cases 3%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 ~~2013~~2014 through ~~2016~~2017 remain subject to potential examination by certain federal and state taxing authorities.

Litigation—~~Jesse Small v. Monty J. Bennett, et al., Case No. 24-C-16006020 (Md. Cir. Ct.)~~ On November 16, 2016, Jesse Small, a purported shareholder of Ashford Prime, commenced a derivative action in Maryland Circuit Court for Baltimore City asserting causes of action for breach of fiduciary duty, corporate waste, and declaratory relief against the members of the Ashford Prime board of directors, David Brooks (collectively, the “Individual Defendants”), Ashford Inc. and Ashford LLC. Ashford Prime is named as a nominal defendant. The complaint alleges that the Individual Defendants breached their fiduciary duties to Ashford Prime by negotiating and approving the termination fee provision set forth in Ashford Prime’s advisory agreement with Ashford LLC, that Ashford Inc. and Ashford LLC aided and abetted the Individual Defendants’ fiduciary duty breaches, and that the Ashford Prime board of directors committed corporate waste in connection with Ashford Prime’s purchase of 175,000 shares of Ashford Inc. common stock. The complaint seeks monetary damages and declaratory and injunctive relief, including a declaration that the termination fee provision is unenforceable. The defendants filed motions to dismiss the complaint on March 24, 2017. On June 6, 2017, the plaintiff notified the court that the plaintiff intends to dismiss the action as moot and seek a mootness fee and costs. On July 25, 2017, the action was dismissed with prejudice as to the plaintiff. A hearing on the plaintiff’s fee petition was held on October 25, 2017. A ruling from the court is currently pending. It is not possible to accurately predict the outcome of this remaining action or the range of any potential loss.

We are engaged in ~~other~~ 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.

~~16.~~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 September 30, ~~2017~~2018 and December 31, ~~2016,~~2017, all of our hotel properties were in the U.S. and its territories.

~~17.~~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

~~Table~~ 1/12th of ~~Contents~~

~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

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 ~~earned annually by Ashford LLC in each~~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”)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Condition, as defined in the advisory ~~agreement.~~agreement, which relates to the ratio of adjusted EBITDA to fixed charges. We also reimburse Ashford LLC for certain reimbursable overhead and internal audit, ~~insurance claims~~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.

On January 24, 2017, we entered into an amended and restated advisory agreement with Ashford Inc. (the “Fourth Amended and Restated Advisory Agreement”) that amends and restates our advisory agreement discussed herein. On June 9, 2017, our stockholders approved the Fourth Amended and Restated Advisory Agreement which became effective on June 21, 2017. The material terms of the Fourth Amended and Restated Advisory Agreement include:

we made a cash payment to Ashford LLC of $5.0 million on June 21, 2017, which is included in “contract modification cost” on our condensed consolidated statements of operations for the nine months ended September 30, 2017, at which time the Fourth Amended and Restated Advisory Agreement became effective;

~~the termination fee payable to Ashford LLC has been amended by eliminating the 1.1x multiplier and tax gross up components of the fee;~~

Ashford Inc. will disclose publicly the revenues and expenses used to calculate “Net Earnings” on a quarterly basis which is used to calculate the termination fee; Ashford LLC will retain an accounting firm to provide a quarterly report to us on the reasonableness of Ashford LLC’s determination of expenses, which will be binding on the parties;

~~the right of Ashford LLC to appoint a “Designated CEO” has been eliminated;~~

~~the right of Ashford LLC to terminate the advisory agreement due to a change in a majority of the “Company Incumbent Board” (as defined in the current advisory agreement) has been eliminated;~~

we will be incentivized to grow our assets under a “growth covenant” in the Fourth Amended and Restated Advisory Agreement under which we will receive a deemed credit against a base amount of $45.0 million for: 3.75% of the total purchase price of each hotel acquired after the date of the Fourth Amended and Restated Advisory Agreement that was recommended by Ashford LLC, netted against 3.75% of the total sale price of each hotel sold after the date of the Fourth Amended and Restated Advisory Agreement. The difference between $45.0 million and such net credit, if any, is referred to as the “Uninvested Amount.” If the Fourth Amended and Restated Advisory Agreement is terminated, other than due to certain acts by Ashford LLC, we must pay Ashford LLC the Uninvested Amount, in addition to any termination fee payable under the Fourth Amended and Restated Advisory Agreement;

the Fourth Amended and Restated Advisory Agreement requires us to maintain a net worth of not less than $390 million plus 75% of the equity proceeds from the sale of securities by us after December 31, 2016 and a covenant prohibiting us from paying dividends except as required to maintain our REIT status if paying the dividend would reduce our net worth below the required minimum net worth;

the initial term of the Fourth Amended and Restated Advisory Agreement ends on the 10th anniversary of its effective date, subject to renewal by Ashford LLC for up to seven additional successive 10-year terms;

~~the base management fee payable to Ashford LLC will be fixed at 0.70%, and the fee will be payable on a monthly basis;~~

~~reimbursements of expenses to Ashford LLC will be made monthly in advance, based on an annual expense budget, with a quarterly true-up for actual expenses;~~

~~our right to terminate the advisory agreement due to a change of control of Ashford LLC has been eliminated;~~

our rights to terminate the advisory agreement at the end of each term upon payment of the termination fee based on the parties being unable to agree on new market-based fees or advisor’s performance have been eliminated; however, the Fourth Amended and Restated Advisory Agreement provides a mechanism for the parties to renegotiate the fees payable to Ashford LLC at the end of each term based on then prevailing market conditions, subject to floors and caps on the changes;

if a Change of Control (as defined in the Fourth Amended and Restated Advisory Agreement) is pending, we have agreed to deposit not less than 50%, and in certain cases 100%, of the applicable termination fee in escrow, with the payment of any remaining amounts owed to Ashford LLC secured by a letter of credit and/or first priority lien on certain assets;

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~~ASHFORD HOSPITALITY PRIME, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(unaudited)~~

our ability to terminate the Fourth Amended and Restated Advisory Agreement due to a material default by Ashford LLC is limited to instances where a court finally determines that the default had a material adverse effect on us and Ashford LLC fails to pay monetary damages in accordance with the Fourth Amended and Restated Advisory Agreement; and

if we repudiate the Fourth Amended and Restated Advisory Agreement through actions or omissions that constitute a repudiation as determined by a final non-appealable order from a court of competent jurisdiction, we will be liable to Ashford LLC for a liquidated damages amount.

The following table summarizes the advisory services ~~fee~~fees incurred (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016		2018		2017			2018		2017
Advisory services fee
Base advisory fee	$	2,300		$	2,103	$	6,579		$	6,334	$	2,508	$	2,300		$	6,928	$	6,579
Reimbursable expenses ⁽¹⁾	462			730		1,541			2,027		529		462			1,448		1,541
Equity-based compensation ⁽²⁾	(948		)	1,134		(2,298		)	3,220		1,316		(948		)	5,240		(2,298		)
Incentive fee	—			487		—			772		1,380		—			2,241		—
Total	$	1,814		$	4,454	$	5,822		$	12,353	$	5,733	$	1,814		$	15,857	$	5,822

________


⁽¹⁾	Reimbursable expenses include overhead, internal audit, ~~insurance claims~~risk management advisory and asset management services.


⁽²⁾	Equity-based compensation is associated with equity grants of ~~Ashford Prime’s~~Braemar’s common stock, PSUs, LTIP units and Performance LTIP units awarded to officers and employees of Ashford LLC.

~~At December 31, 2016,~~In connection with the ~~balance~~acquisition of the Bardessono Hotel in ~~“due from~~2015 and Ashford ~~Trust OP, net,”~~Inc.’s engagement to provide hotel advisory services to us, Ashford Inc. agreed to provide $2.0 million of ~~$488,000~~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 $252,000 was ~~associated with certain expenses. At~~recognized for the three and nine months ended September 30, ~~2017~~2018, respectively, and ~~December 31, 2016,~~was included in “other” hotel expense in the balance in “due to Ashford Inc.,” which is primarily associated with advisory services fee payable, was $1.4 million and $5.1 million, respectively. In addition, at December 31, 2016, we held a receivable from the AQUA U.S. Fundconsolidated statements of ~~$2.3 million, associated with the hold back from the AQUA U.S. Fund, of which the funds were received during the first quarter of 2017. During~~operations. For the three and nine months ended September 30, 2017, ~~we incurred debt placement fees of $225,000 for services provided by a subsidiary of Ashford Inc. These costs are capitalized as deferred loan costs~~this expense was $84,000 and ~~presented as a reduction of indebtedness. See note 7.~~$252,000.

Certain employees of Remington Lodging, who perform work on behalf of ~~Ashford Prime,~~Braemar, were granted approximately 22,000 and ~~22,000~~21,000 shares of restricted stock under the ~~Ashford Prime~~Braemar Stock Plan in ~~2016~~2017 and ~~2017,~~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 nine months ended September 30, 2018, expense related to such grants was $53,000 and $164,000, respectively. For both the three and nine months ended September 30, 2017, expense related to such grants was $27,000 and ~~$61,000. For the three and nine months ended September 30, 2016, this expense was $26,000 and $50,000,~~$61,000, respectively. The unamortized ~~fair value~~compensation expense of these grants was ~~$259,000~~$363,000 as of September 30, ~~2017,~~2018, which will be amortized over a period of 2.5 years.

~~18. Subsequent Event~~

On ~~October 10, 2017, we received a firm commitment from a buyer, and on November 1, 2017, we~~August 8, 2018, Ashford Inc. completed the ~~sale~~acquisition of Premier Project Management LLC (“Premier”), the ~~404-room Plano Marriott Legacy Town Center for $104.0 million in cash. The carrying value~~project management business formerly conducted by certain affiliates of Remington Lodging, including construction management, interior design, architectural oversight, and the ~~land, building~~purchasing, freight management, and supervision of installation of furniture, fixtures, and equipment, ~~was approximately $78.7 million at September 30, 2017. We repaid approximately $85.0 million on~~and related services. As a result of Ashford Inc.’s acquisition, the ~~mortgage loan~~project management services that ~~was~~were previously ~~secured in part~~provided by Remington Lodging will now be provided by a subsidiary of Ashford Inc. under the ~~hotel property.~~respective project management agreement with each customer, including Ashford Trust and Braemar.

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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 us or 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 recorded by us for those services and the applicable classification on our condensed consolidated financial statements (in thousands):



		Three Months Ended September 30, 2018
Company	Product or Service	Total, net		Investments in Hotel Properties, net (1)		Indebtedness, net (2)		Other Hotel Expenses		Corporate General and Administrative
OpenKey	Mobile key app	$	5	$	—	$	—	$	5	$	—
Pure Rooms	Hypoallergenic premium rooms	128		117		—		11		—
RED Leisure	Watersports activities and travel/transportation services	180		—		—		180		—
Premier	Project management services	1,125		1,125		—		—		—
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.



		Nine Months Ended September 30, 2018
Company	Product or Service	Total, net		Investments in Hotel Properties, net (1)		Indebtedness, net (2)			Other Hotel Expenses		Corporate General and Administrative
OpenKey	Mobile key app	$	17	$	—	$	—		$	17	$	—
Pure Rooms	Hypoallergenic premium rooms	147		117		—			30		—
RED Leisure	Watersports activities and travel/transportation services	540		—		—			540		—
Premier	Project management services	1,125		1,125		—			—		—
Lismore Capital	Mortgage placement services	999		—		(999		)	—		—
Ashford LLC	Insurance claims services	100		—		—			—		100

________


⁽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):



		September 30, 2018		December 31, 2017
Company	Product or Service	Due to Ashford Inc.
Ashford LLC	Advisory services	$	2,525	$	1,654
Ashford LLC	Insurance claims services	30		—
OpenKey	Mobile key app	2		4
Pure Rooms	Hypoallergenic premium rooms	—		45
Premier	Project management services	625		—
		$	3,182	$	1,703

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 ~~“Ashford Prime”~~“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,~~Partnership), a Delaware limited partnership, which we refer to as “our operating partnership” or ~~“Ashford Prime~~“Braemar OP.” “Ashford Trust” ~~or “AHT”~~ 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, which we refer to as “Ashford Trust OP.”~~partnership. “Ashford LLC” refers to Ashford Hospitality Advisors LLC, a Delaware limited liability company and a ~~wholly-owned~~ subsidiary of Ashford Inc. “Remington Lodging” refers to Remington Lodging ~~and~~& Hospitality, LLC, a Delaware limited liability company, which (together with its affiliates) is 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,~~Corporation), a Delaware corporation, which we refer to as ~~“Ashford Prime~~“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 debt and equity 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, ~~2016,~~2017, as originally filed with the Securities and Exchange Commission (the “SEC”) on ~~February 28,~~March 14, 2018 (the “ 2017 ~~and amended on March 16, 2017 (the “2016~~ 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;

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 ~~2016~~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. We became a public company on November 19,~~ 2013 ~~when~~as Ashford ~~Trust, a NYSE-listed REIT, completed the spin-off of~~Hospitality Prime, Inc. and changed our ~~company through the distribution of our outstanding common stock~~name to ~~the Ashford Trust stockholders.~~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 ~~$162~~$167 for the year ended December 31, ~~2016.~~2017. We have elected to be taxed as a REIT under the Internal Revenue Code beginning ~~in the~~with our short taxable year ended December 31, 2013. We conduct our business and own substantially all of our assets through our operating partnership, ~~Ashford Prime~~Braemar OP.

We operate in the direct hotel investment segment of the hotel lodging industry. As of ~~November 6, 2017,~~October 31, 2018, we ~~own~~owned interests in twelve hotel properties in six states, the District of Columbia and St. Thomas, U.S. Virgin Islands with ~~3,574~~3,549 total rooms, or ~~3,339~~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 ~~Fourth~~Fifth Amended and Restated Advisory Agreement, the revenues and expenses used to calculate Net Earnings (as defined) for the twelve months ended September 30, ~~2017,~~2018, are as follows (in thousands):


Revenues	$	11,263	$	21,835
Expenses	2,762		(9,544		)
Net Earnings	$	8,501	$	12,291

Recent Developments

On ~~January 18, 2017,~~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 $171.4 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 +

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 ~~three~~two mortgage loans totaling $357.6 million with ~~existing outstanding balances totaling approximately $333.7 million. The previous mortgage loans that were refinanced had final maturity dates in April 2017. The~~a new $435.0 million mortgage loan ~~totals $365.0 million~~with a two-year initial term and ~~has a stated maturity of February 2019 with~~ 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 ~~provides for~~bears interest at a ~~floating interest~~ rate of LIBOR + ~~2.58%~~2.16%. The ~~mortgage~~ loan is secured by ~~five hotel properties: Plano Marriott Legacy Town Center,~~four hotels: Seattle Marriott Waterfront, ~~Tampa Renaissance,~~ San Francisco Courtyard Downtown, ~~and~~ Philadelphia Courtyard ~~Downtown.~~Downtown and Sofitel Chicago Magnificent Mile.

On ~~January 24, 2017,~~June 1, 2018, the Company ~~announced refinements to its strategy in an effort to enhance shareholder value. The refinements, which have been unanimously endorsed by the Board of Directors, include the following:~~

~~Focused Portfolio:~~ Going forward, the Company's portfolio will be predominantly focused on investing in the luxury chain scale segment. Empirical evidence has shown the luxury segment has had greater RevPAR growth over the long term. The Company will continue to target acquisitions of hotels with a RevPAR of at least 2.0x the national average. As a result, four hotel properties have been designated as non-core to the portfolio, including the Courtyard Philadelphia Downtown Hotel, Courtyard San Francisco Downtown Hotel, Renaissance Tampa Hotel and Marriott Legacy Center Hotel in Plano, Texas. To date, the Company has sold the Marriott Legacy Center Hotel, announced plans to convert the

Courtyard Philadelphia Downtown Hotel and the Courtyard San Francisco Downtown to Autograph Collection properties and listed the Renaissance Tampa Hotel for sale. The Company will also simultaneously pursue new acquisitions in order to grow the portfolio consistent with its stated strategy. Luxury hotels have proven to have superior long-term RevPAR growth versus other chain scales, and the Company believes its exclusive focus of investing in luxury hotels should generate attractive returns for its shareholders.

~~Increased Dividend:~~ The Company's 2017 dividend policy will be amended commencing with the first quarter by increasing the expected quarterly cash dividend for the Company's common stock by 33%, from $0.12 per diluted share to $0.16 per diluted share. This equates to an annual rate of $0.64 per diluted share, representing a 4.5% yield based on the Company's closing stock price on January 23, 2017;

~~Reaffirming Conservative Leverage:~~ ~~The Company will continue to target conservative leverage, with a target leverage level of 45% net debt to gross assets;~~

~~Strong Liquidity:~~ The Company will continue to focus on having access to liquidity for both opportunistic investments and as a hedge against economic uncertainty. The Company will target holding 10-15% of its gross debt balance in cash.

On January 24, 2017, we entered into the Fourth Amended and Restated Advisory Agreement with Ashford Inc. that amends and restates our advisory agreement discussed herein. On June 9, 2017, we held our annual meeting of stockholders, at which our stockholders approved the Fourth Amended and Restated Advisory Agreement. The material terms of the Fourth Amended and Restated Advisory Agreement include:

~~we made a cash payment to Ashford LLC of $5.0 million on June 21, 2017 at which time the Fourth Amended and Restated Advisory Agreement became effective;~~

~~the termination fee payable to Ashford LLC has been amended by eliminating the 1.1x multiplier and tax gross up components of the fee;~~

~~the right of Ashford LLC to appoint a “Designated CEO” has been eliminated;~~

~~the right of Ashford LLC to terminate the advisory agreement due to a change in a majority of the “Company Incumbent Board” (as defined in the current advisory agreement) has been eliminated;~~

~~the base management fee payable to Ashford LLC will be fixed at 0.70%, and the fee will be payable on a monthly basis;~~

~~reimbursements of expenses to Ashford LLC will be made monthly in advance, based on an annual expense budget, with a quarterly true-up for actual expenses;~~

~~our right to terminate the advisory agreement due to a change of control of Ashford LLC has been eliminated;~~

On March 1, 2017, we commenced an underwritten public offering of approximately 5.8 million shares of our common stock at $12.15 per share for gross proceeds of $69.9 million. The offering closed on March 7, 2017. The net proceeds from the sale of the shares after underwriting discounts and offering expenses were approximately $66.4 million.

On March 7, 2017, we closed an offering of approximately 2.0 million shares of our 5.5% Series B Cumulative Convertible Preferred Stock (the “Series B Preferred Stock”) at $20.19 per share for gross proceeds of $39.9 million. The net proceeds, after underwriting discounts and offering expenses were approximately $38.2 million. Dividends on the Series B 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 Preferred Stock, which closed on April 5, 2017. The net proceeds from the partially exercised over-allotment after underwriting discounts were approximately $1.9 million.

On March 31, 2017, we acquired a 100% interest in the Park Hyatt Beaver Creek Resort & Spa in Beaver Creek, Colorado for total consideration of $145.5 million. Concurrent with the closing of the acquisition, 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. The mortgage loan is secured by the Park Hyatt Beaver Creek.

On April 27, 2017, Mr. Douglas A. Kessler resigned from the Board of Directors of Ashford Prime and no longer is President of Ashford Prime as a result of being appointed Chief Executive Officer of Ashford Trust.

On May 11, 2017, we acquired a 100% interest in Hotel Yountville in Yountville, California for total consideration of $96.5 million. Concurrent with the closing of the acquisition, 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 Hotel Yountville.

~~On June 20, 2017, we announced that we have entered into an agreement with Marriott to convert the Philadelphia Courtyard to an Autograph Collection property.~~

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 a stated maturity date of August 2022. The mortgage loan is secured by the Bardessono Hotel.

~~On October 10, 2017, we received a firm commitment from a buyer, and on November 1, 2017, we~~ completed the sale of the ~~404-room Plano Marriott Legacy Town Center~~293-room Tampa Renaissance in Tampa, Florida for ~~$104.0~~$68.0 million. The sale resulted in a gain of $15.7 million for both the three and nine months ended September 30, 2018 and is included in ~~cash. We repaid approximately $85.0 million~~“gain (loss) on sale of hotel property” in our condensed consolidated statements of operations. The closing of the ~~mortgage loan~~sale completed a reverse 1031 exchange that was ~~previously secured in part by~~initiated to acquire the ~~hotel property.~~

~~On November 1, 2017, we announced plans to convert the San Francisco Courtyard Downtown to an Autograph Collection property and that we listed the Tampa Renaissance for sale.~~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 ~~71.6%~~68.3% and ~~69.8%~~65.7% of our total hotel revenue for the three and nine months ended September 30, ~~2017, respectively,~~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 (“~~EBITDA”~~EBITDAre”) and Adjusted ~~EBITDA~~EBITDAre as measures of the operating performance of our business. See “Non-GAAP Financial Measures.”

RESULTS OF OPERATIONS

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended September 30, 2018 and 2017 (in thousands except percentages):



	Three Months Ended September 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change
Revenue
Rooms	$	74,358		$	77,336		$	(2,978	)	(3.9	)%
Food and beverage	21,171			23,147			(1,976		)	(8.5	)
Other	13,317			7,597			5,720			75.3
Total hotel revenue	108,846			108,080			766			0.7
Other	—			39			(39		)	(100.0	)
Total revenue	108,846			108,119			727			0.7
Expenses
Hotel operating expenses:
Rooms	16,624			17,698			1,074			6.1
Food and beverage	16,171			17,766			1,595			9.0
Other expenses	32,058			35,182			3,124			8.9
Management fees	3,963			3,889			(74		)	(1.9	)
Total hotel expenses	68,816			74,535			5,719			7.7
Property taxes, insurance and other	6,835			5,197			(1,638		)	(31.5	)
Depreciation and amortization	14,474			14,133			(341		)	(2.4	)
Impairment charges	—			1,008			1,008			100.0
Advisory services fee	5,733			1,814			(3,919		)	(216.0	)
Transaction costs	—			244			244			100.0
Corporate general and administrative	1,765			1,602			(163		)	(10.2	)
Total expenses	97,623			98,533			910			0.9
Operating income (loss)	11,223			9,586			1,637			17.1
Equity in earnings (loss) of unconsolidated entity	(81		)	—			(81		)
Interest income	540			198			342			172.7
Other income (expense)	(64		)	(22		)	(42		)	(190.9	)
Interest expense and amortization of loan costs	(13,084		)	(10,610		)	(2,474		)	(23.3	)
Write-off of loan costs and exit fees	—			(380		)	380			100.0
Unrealized gain (loss) on investment in Ashford Inc.	2,158			1,875			283			15.1
Unrealized gain (loss) on derivatives	(578		)	(531		)	(47		)	(8.9	)
Income (loss) before income taxes	114			116			(2		)	(1.7	)
Income tax (expense) benefit	(740		)	(333		)	(407		)	(122.2	)
Net income (loss)	(626		)	(217		)	(409		)	(188.5	)
(Income) loss from consolidated entities attributable to noncontrolling interest	(1,695		)	(1,143		)	(552		)	(48.3	)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	452			360			92			25.6
Net income (loss) attributable to the Company	$	(1,869	)	$	(1,000	)	$	(869	)	86.9	%

All hotel properties owned for the three months ended September 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 September 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
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 September 30,
	2018			2017
Occupancy	85.86		%	83.71		%
ADR (average daily rate)	$	272.72		$	254.65
RevPAR (revenue per available room)	$	234.17		$	213.17
Rooms revenue (in thousands)	$	74,358		$	77,336
Total hotel revenue (in thousands)	$	108,846		$	108,080

The following table illustrates the key performance indicators of the eleven hotel properties that were included for the full three months ended September 30, 2018 and 2017:



	Three Months Ended September 30,
	2018			2017
Occupancy	87.71		%	85.68		%
ADR (average daily rate)	$	271.22		$	270.27
RevPAR (revenue per available room)	$	237.88		$	231.55
Rooms revenue (in thousands)	$	69,714		$	69,159
Total hotel revenue (in thousands)	$	97,613		$	96,273

Net Income (Loss) Attributable to the Company. Net loss attributable to the Company increased $869,000, to $1.9 million for the three months ended September 30, 2018 (the “2018 quarter”) compared to $1.0 million for the three months ended September 30, 2017 (the “2017 quarter”) as a result of the factors discussed below.

Rooms Revenue. Rooms revenue decreased $3.0 million, or 3.9%, to $74.4 million during the 2018 quarter compared to the 2017 quarter. During the 2018 quarter, we experienced a 7.1% increase in room rates and an 215 basis point increase in occupancy. Rooms revenue at our eleven comparable hotel properties increased $555,000 due to a 203 basis point increase in occupancy and an increase in room rates of 0.4%. Rooms revenue decreased (i) $3.0 million at the Ritz-Carlton, St. Thomas due to the negative impact caused by Hurricanes Irma and Maria (during the 2018 quarter approximately 83 rooms were in service as the hotel is being renovated); (ii) $4.6 million at the Plano Marriott Legacy Town Center as a result of its sale on November 1, 2017; (iii) $3.6 million at the Tampa Renaissance as a result of its sale on June 1, 2018; (iv) $880,000 at the Capital Hilton as a result of 3.84% lower room rates and a 514 basis point decrease in occupancy at the hotel due to a renovation during the 2018 quarter; (v) $411,000 at the Hotel Yountville due to the negative impact caused by Napa wildfires during the 2018 quarter; (vi) $304,000 at the Bardessono Hotel due to the negative impact caused by Napa wildfires during the 2018 quarter; and (vii) $25,000 at the Park Hyatt Beaver Creek as a result of 4.4% lower room rates, partially offset by a 272 basis point decrease in occupancy at the hotel. These decreases were partially offset by increases of (i) $4.6 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018; (ii) $2.2 million at the San Francisco Courtyard Downtown as a result of 8.18% higher room rates and a 1,229 basis point increase in occupancy at the hotel due to its renovation in the 2017 quarter; (iii) $1.0 million at the Chicago Sofitel Magnificent Mile as a result of 9.5% higher room rates and a 375 basis point increase in occupancy; (iv) $797,000 at the Philadelphia Courtyard as a result of 7.14% higher room rates and a 421 basis point increase in occupancy at the hotel; (v) $666,000 at the Key West Pier House as a result of 0.3% higher room

rates and a 1,464 basis point increase in occupancy due the negative impact caused by Hurricanes Irma and Maria in the 2017 quarter; (vi) $332,000 at the Hilton La Jolla Torrey Pines as a result of 5.6% higher room rates, partially offset by a 85 basis point decrease in occupancy at the hotel; and (vi) $185,000 at the Seattle Marriott Waterfront as a result of 4.21% higher room rates, partially offset by a 252 basis point decrease in occupancy at the hotel.

Food and Beverage Revenue. Food and beverage revenue decreased $2.0 million, or 8.5%, to $21.2 million during the 2018 quarter compared to the 2017 quarter. This decrease is primarily attributable to a decrease in food and beverage revenue of $2.7 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes; $2.1 million at the Plano Marriott Legacy Town Center and $1.3 million 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 $685,000 at the Capital Hilton, Hilton La Jolla Torrey Pines, Bardessono Hotel, and Park Hyatt Beaver Creek. These decreases were partially offset by increases in food and beverage revenue of $3.7 million at the Ritz-Carlton, Sarasota due to its acquisition on April 4, 2018 and an aggregate increase of $1.0 million at the Philadelphia Courtyard, Chicago Sofitel Magnificent Mile, San Francisco Courtyard Downtown, Hotel Yountville, Seattle Marriott Waterfront, and Key West Pier House.

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 $5.7 million, or 75.3%, to $13.3 million during the 2018 quarter compared to the 2017 quarter. During the 2018 quarter we recognized business interruption revenue of $3.8 million at the Ritz-Carlton, St. Thomas as a result of the Hurricanes Irma and Maria. This increase is also attributable to an increase in other hotel revenue of $2.9 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018. There was also an aggregate increase of $816,000 at the Key West Pier House, Bardessono Hotel, Philadelphia Courtyard, Chicago Sofitel Magnificent Mile, Park Hyatt Beaver Creek, Seattle Marriott Waterfront, and San Francisco Courtyard Downtown. These increases were partially offset by lower other hotel revenue of $216,000 at the Plano Marriott Legacy Town Center and $68,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $1.5 million at the Ritz-Carlton, St. Thomas, Hotel Yountville, Capital Hilton, and Hilton La Jolla Torrey Pines.

Other Non-Hotel Revenue. Other non-hotel revenue decreased $39,000, 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 $1.1 million, or 6.1%, to $16.6 million in the 2018 quarter compared to the 2017 quarter. This decrease is attributable to $1.4 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $874,000 at the Plano Marriott Legacy Town Center and $748,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively. There was also an aggregate decrease of $348,000 at the Capital Hilton, Bardessono Hotel, Chicago Sofitel Magnificent Mile, Hotel Yountville, and Hilton La Jolla Torrey Pines. This decrease was partially offset by an increase of $1.4 million at the Ritz-Carlton, Sarasota, as a result of its acquisitions on April 4, 2018, and an aggregate increase in rooms expense of $795,000 at the San Francisco Courtyard Downtown, Philadelphia Courtyard, Park Hyatt Beaver Creek, Seattle Marriott Waterfront, and Key West Pier House. Rooms expense included $193,000 of hurricane related costs at the Ritz-Carlton, St. Thomas in the 2017 quarter.

Food and Beverage Expense. Food and beverage expense decreased $1.6 million, or 9.0%, to $16.2 million during the 2018 quarter compared to the 2017 quarter. The decrease is attributable $2.6 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $1.3 million at the Plano Marriott Legacy Town Center and $970,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively. These decreases were partially offset by increases of $3.1 million at the Ritz-Carlton, Sarasota as a result of its acquisitions on April 4, 2018, and an aggregate increase of $158,000 at our remaining comparable hotel properties. Food and beverage expense included $380,000 of hurricane related costs at the Ritz-Carlton, St. Thomas in the 2017 quarter.

Other Operating Expenses. Other operating expenses decreased $3.1 million, or 8.9%, to $32.1 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 $1.0 million in direct expenses and a decrease of $4.2 million in indirect expenses and incentive management fees in the 2018 quarter as compared to the 2017 quarter. Direct expenses were 3.4% 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 $1.7 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018, and an aggregate increase of $36,000 at our remaining comparable hotel properties. The increase was partially offset by decreases in other operating expenses of $631,000 at Ritz-Carlton, St. Thomas as a result of the hurricanes, and $74,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales. Direct expenses included $82,000 of hurricane related costs at the Ritz-Carlton, St. Thomas in the 2017 quarter. The decrease in indirect expenses is attributable to decreases in (i) general and administrative costs of $4.8 million including $2.7 million at Ritz-Carlton, St. Thomas as a result of the hurricane related expenses incurred in the 2017 quarter, $1.3 million from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales, and $2.4 million at our remaining comparable hotel properties. The decrease was partially

offset by an increase of $1.6 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018; (ii) energy costs of $499,000, comprised of a decrease of $334,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales, $442,000 at the Ritz-Carlton, St. Thomas of which $104,000 is a result of the hurricane expenses incurred in the 2017 quarter, and $143,000 at our remaining comparable hotel properties, partially offset by an increase of $419,000 at the Ritz-Carlton, Sarasota; (iii) marketing costs of $463,000, comprised of a decrease of $1.1 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $416,000 at the Ritz-Carlton, St. Thomas of which $55,000 is a result of the hurricane expenses incurred in the 2017 quarter, partially offset by an increase of $873,000 at the Ritz-Carlton, Sarasota and $137,000 at our remaining comparable hotel properties; and (iv) lease expense of $34,000, comprised of a decrease of $155,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance and $46,000 at the Ritz-Carlton, St. Thomas, partially offset by increases of $14,000 at the Ritz-Carlton, Sarasota and $153,000 at our remaining comparable hotel properties. These decreases were partially offset by increases in (i) incentive management fees of $1.6 million including $667,000 at the Ritz-Carlton, St. Thomas, $5,000 from the sales of the Plano Marriott Legacy Town Center and Tampa Renaissance, and $1.0 million at our remaining comparable hotel properties; and (ii) repairs and maintenance of $19,000 including $637,000 at the Ritz-Carlton, Sarasota and $50,000 at our remaining comparable hotel properties, partially offset by decreases of $543,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $125,000 at the Ritz-Carlton, St. Thomas of which $62,000 is a result of the hurricane expenses incurred in the 2017 quarter.

Management Fees. Base management fees increased $74,000, or 1.9%, to $4.0 million in the 2018 quarter compared to the 2017 quarter. The increase is comprised of an increase of $339,000 at the Ritz-Carlton, Sarasota and $166,000 at our remaining comparable hotel properties. These increases were partially offset by a decrease of $333,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales, and $98,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.

Property Taxes, Insurance and Other. Property taxes, insurance and other increased $1.6 million, or 31.5%, to $6.8 million in the 2018 quarter compared to the 2017 quarter, which is attributable to increases of $688,000 at the Ritz-Carlton, Sarasota as a result of its acquisition in April 2018, and $1.5 million at our remaining comparable hotel properties. These increases were partially offset by a decrease of $210,000 at the Plano Marriott Legacy Town Center and $294,000 at the Tampa Renaissance as a result of their sales in November 2017 and June 2018, respectively.

Depreciation and Amortization. Depreciation and amortization increased $341,000, or 2.4%, to $14.5 million for the 2018 quarter compared to the 2017 quarter, which is due to an increase of $2.3 million at the Ritz-Carlton, Sarasota and $980,000 at our remaining comparable hotel properties, partially offset by a decrease of $2.2 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $807,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.

Impairment Charges. No impairment charges were recorded in the 2018 quarter. We recorded impairment charges of $1.0 million in the 2017 quarter. The impairment charges are related to damages incurred at the Ritz-Carlton, St. Thomas, Key West Pier House, and Tampa Renaissance from Hurricanes Irma and Maria. See note 4 to our condensed consolidated financial statements.

Advisory Services Fee. Advisory services fee increased $3.9 million, or 216.0%, to $5.7 million in the 2018 quarter compared to the 2017 quarter due to increases in equity-based compensation of $2.3 million, incentive fee of $1.4 million, base advisory fee of $207,000, and $67,000 in reimbursable expenses. In the 2018 quarter, we recorded an advisory services fee of $5.7 million, which included a base advisory fee of $2.5 million, reimbursable expenses of $529,000, an incentive fee of $1.4 million and $1.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. In the 2017 quarter, we recorded an advisory services fee of $1.8 million which included a base advisory fee of $2.3 million, reimbursable expenses of $462,000 and a credit to equity-based compensation expense of $948,000 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 September 30, 2017 as compared to December 31, 2016.

Transaction Costs. In the 2018 quarter, we incurred no transaction costs. In the 2017 quarter, we recorded transaction costs of $244,000 primarily related to the acquisitions of the Hotel Yountville and Park Hyatt Beaver Creek.

Corporate General and Administrative. Corporate general and administrative expenses increased $163,000, or 10.2%, to $1.8 million in the 2018 quarter compared to the 2017 quarter. The increase is a result of increases in professional fees of $241,000, miscellaneous expenses of $152,000, public company costs of $110,000 and equity-based compensation to non-employee directors of $304,000 in the 2018 quarter compared to the 2017 quarter. These increases were partially offset by lower professional fees of $644,000 associated with the prior proxy contest and litigation. In the 2017 quarter we incurred professional fees associated with the proxy contest and litigation of $531,000 and in the 2018 quarter we recorded insurance recoveries related to the proxy contest and litigation of $113,000.

Equity in Earnings (Loss)of Unconsolidated Entity. We recorded equity in loss of unconsolidated entity of $81,000 in the 2018 quarter related to our investment in OpenKey. We did not have an investment in OpenKey during the 2017 quarter.

Interest Income. Interest income increased $342,000, or 172.7%, to $540,000 for the 2018 quarter compared to the 2017 quarter.

Other Income (Expense). Other expense increased $42,000 from $22,000 to $64,000 in the 2018 quarter compared to the 2017 quarter. In the 2018 quarter, we recorded other expense of $64,000 related to CMBX premiums and usage fees. In the 2017 quarter, we recorded other expense of $22,000 related to CMBX premiums and usage fees.

Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $2.5 million, or 23.3%, to $13.1 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, our May 2018 mortgage loan refinance and higher average LIBOR rate. The average LIBOR rates for the 2018 quarter and the 2017 quarter were 2.11% and 1.23%, respectively.

Write-off of Loan Costs and Exit Fees. There were no write-off of loan costs and exit fees during the 2018 quarter. Write-off of loan costs and exit fees was $380,000 for the 2017 quarter, resulting from the write-off of unamortized loan costs of $188,000 and exit costs of $191,000 associated with the refinancing of the Bardessono Hotel mortgage loan. The mortgage loan was refinanced with a $40.0 million mortgage loan due August 2022.

Unrealized Gain (Loss) on Investment in Ashford Inc. Unrealized gain on investment in Ashford Inc. increased $283,000, or 15.1%, to $2.2 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 $578,000 for the 2018 quarter consisted of a $434,000 unrealized loss on CMBX credit default swaps, a $134,000 unrealized loss on interest rate floors, and a $10,000 unrealized loss on interest rate caps. Unrealized loss on derivatives of $531,000 for the 2017 quarter consisted of a $375,000 unrealized loss associated with credit default swaps, a $132,000 unrealized loss on interest rate floors and a $24,000 unrealized loss on interest rate caps. 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 $407,000, or 122.2%, to $740,000 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 $1.7 million and $1.1 million for the 2018 quarter and the 2017 quarter, respectively. At September 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 loss of $452,000 and $360,000 for the 2018 quarter and the 2017 quarter, respectively. Redeemable noncontrolling interests in Braemar OP represented ownership interests of 11.22% and 11.72% as of September 30, 2018 and 2017, respectively.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2018 and 2017 (in thousands except percentages):



	Nine Months Ended September 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change
Revenue
Rooms	$	218,304		$	224,203		$	(5,899	)	(2.6	)%
Food and beverage	70,064			75,600			(5,536		)	(7.3	)
Other	44,085			21,588			22,497			104.2
Total hotel revenue	332,453			321,391			11,062			3.4
Other	—			116			(116		)	(100.0	)
Total revenue	332,453			321,507			10,946			3.4
Expenses
Hotel operating expenses:
Rooms	48,194			51,108			2,914			5.7
Food and beverage	49,078			53,890			4,812			8.9
Other expenses	95,490			94,934			(556		)	(0.6	)
Management fees	12,081			11,643			(438		)	(3.8	)
Total hotel expenses	204,843			211,575			6,732			3.2
Property taxes, insurance and other	18,516			15,641			(2,875		)	(18.4	)
Depreciation and amortization	42,291			39,573			(2,718		)	(6.9	)
Impairment charges	71			1,008			937			93.0
Advisory services fee	15,857			5,822			(10,035		)	(172.4	)
Contract modification cost	—			5,000			5,000			100.0
Transaction costs	949			6,638			5,689			85.7
Corporate general and administrative	2,999			7,007			4,008			57.2
Total expenses	285,526			292,264			6,738			2.3
Operating income (loss)	46,927			29,243			17,684			60.5
Equity in earnings (loss) of unconsolidated entity	(146		)	—			(146		)
Interest income	970			475			495			104.2
Gain (loss) on sale of hotel property	15,711			—			15,711
Other income (expense)	(190		)	(292		)	102			34.9
Interest expense and amortization of loan costs	(35,941		)	(28,743		)	(7,198		)	(25.0	)
Write-off of loan costs and exit fees	(4,178		)	(2,343		)	(1,835		)	(78.3	)
Unrealized gain (loss) on investment in Ashford Inc.	(3,338		)	3,403			(6,741		)	(198.1	)
Unrealized gain (loss) on derivatives	(803		)	(1,529		)	726			47.5
Income (loss) before income taxes	19,012			214			18,798			8,784.1
Income tax (expense) benefit	(2,514		)	(334		)	(2,180		)	(652.7	)
Net income (loss)	16,498			(120		)	16,618			13,848.3
(Income) loss from consolidated entities attributable to noncontrolling interests	(1,742		)	(2,736		)	994			36.3
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	(1,075		)	958			(2,033		)	(212.2	)
Net income (loss) attributable to the Company	$	13,681		$	(1,898	)	$	15,579		820.8	%

All hotel properties owned for the nine months ended September 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 nine months ended September 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:



	Nine Months Ended September 30,
	2018			2017
Occupancy	83.19		%	82.16		%
ADR (average daily rate)	$	272.85		$	258.79
RevPAR (revenue per available room)	$	226.99		$	212.63
Rooms revenue (in thousands)	$	218,304		$	224,203
Total hotel revenue (in thousands)	$	332,453		$	321,391

The following table illustrates the key performance indicators of the nine hotel properties that were included for the full nine months ended September 30, 2018 and 2017:



	Nine Months Ended September 30,
	2018			2017
Occupancy	85.22		%	84.47		%
ADR (average daily rate)	$	258.34		$	268.52
RevPAR (revenue per available room)	$	220.15		$	226.82
Rooms revenue (in thousands)	$	175,220		$	185,523
Total hotel revenue (in thousands)	$	247,495		$	258,327

Net Income (Loss) Attributable to the Company. Net income (loss) attributable to the Company changed $15.6 million, from a net loss of $1.9 million for the nine months ended September 30, 2017 (the “2017 period”), to net income of $13.7 million for the nine months ended September 30, 2018 (the “2018 period”), as a result of the factors discussed below.

Rooms Revenue. Rooms revenue decreased $5.9 million, or 2.6%, to $218.3 million during the 2018 period compared to the 2017 period. During the 2018 period, we experienced a 5.4% increase in room rates and a 103 basis point increase in occupancy. Rooms revenue at our nine comparable hotel properties decreased $10.3 million due to a decrease in room rates of 3.8%, partially offset by a 75 basis point increase in occupancy. Rooms revenue decreased (i) $16.8 million at the Ritz-Carlton, St. Thomas due to the negative impact caused by Hurricanes Irma and Maria (during the 2018 period approximately 83 rooms were in service as the hotel is being renovated); (ii) $14.9 million at the Plano Marriott Legacy Town Center as a result of its sale on November 1, 2017; (iii) $4.6 million at the Tampa Renaissance as a result of its sale on June 1, 2018; (iv) $2.5 million at the Capital Hilton as a result of 1.9% lower room rates and a 531 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; and (v) $472,000 at the Bardessono Hotel as a result of a 483 basis point decrease in occupancy, partially offset by 1.7% higher room rates at the hotel due to the negative impact caused by the Napa wildfires. These decreases were partially offset by increases of (i) $10.9 million at the Ritz-Carlton, Sarasota as a result of its acquisition on April 4, 2018; (ii) $9.8 million at the Park Hyatt Beaver Creek as a result of its acquisition on March 31, 2017; (iii) $3.2 million at the Hotel Yountville as a result of its acquisition on May 11, 2017 (2018 period results were negatively

impacted by the Napa wildfires); (iv) $4.2 million at the San Francisco Courtyard Downtown as a result of 5.6% higher room rates and a 797 basis point increase in occupancy at the hotel due to its renovation in the 2017 period; (v) $2.6 million at the Philadelphia Courtyard as a result of 7.2% higher room rates and a 478 basis point increase in occupancy at the hotel due to a renovation during the 2017 period; (vi) $975,000 at the Hilton La Jolla Torrey Pines as a result of 2.6% higher room rates and a 201 basis point increase in occupancy at the hotel; (vii) $919,000 at the Chicago Sofitel Magnificent Mile as a result of a 6.6% higher room rates, partially offset by a 120 basis point decrease in occupancy, as a result of a renovation at the hotel; (viii) $563,000 at the Seattle Marriott Waterfront as a result of 4.9% higher room rates, partially offset by a 282 basis point decrease in occupancy at the hotel; and (ix) $280,000 at the Key West Pier House as a result of a 243 basis point increase in occupancy, partially offset by 0.9% lower room rates at the hotel.

Food and Beverage Revenue. Food and beverage revenue decreased $5.5 million, or 7.3%, to $70.1 million during the 2018 period compared to the 2017 period. This overall decrease is due to a decrease of $10.4 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes; $8.7 million at the Plano Marriott Legacy Town Center and $2.1 million 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 $2.4 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, $616,000 at the Hotel Yountville and $9.8 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 $2.5 million at the Philadelphia Courtyard, Hilton La Jolla Torrey Pines, 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 $22.5 million, or 104.2%, to $44.1 million during the 2018 period compared to the 2017 period. During the 2018 period we recognized business interruption revenue of $13.9 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. The overall increase is also attributable to an increase in other hotel revenue of $3.7 million at the Park Hyatt Beaver Creek, $306,000 at the Hotel Yountville and $5.6 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 $1.5 million at the Chicago Sofitel Magnificent Mile, Key West Pier House, Bardessono Hotel, Philadelphia Courtyard, San Francisco Courtyard Downtown and Seattle Marriott Waterfront. These increases were partially offset by lower other hotel revenue of $746,000 at the Plano Marriott Legacy Town Center and $135,000 at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, $6.0 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes and an aggregate decrease of $831,000 at the Hilton La Jolla Torrey Pines and Capital Hilton.

Other Non-Hotel Revenue. Other non-hotel revenue decreased $116,000, 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 $2.9 million, or 5.7%, to $48.2 million in the 2018 period compared to the 2017 period. The decrease is attributable to a decrease of $5.2 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $2.8 million at the Plano Marriott Legacy Town Center and $1.0 million at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively. There was also an aggregate decrease of $994,000 at the Capital Hilton, Chicago Sofitel Magnificent Mile, Bardessono Hotel and Key West Pier House. This decrease was partially offset by an increase of $1.6 million at the Park Hyatt Beaver Creek, $838,000 at the Hotel Yountville and $3.2 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 $1.4 million at the San Francisco Courtyard Downtown, Philadelphia Courtyard, Hilton La Jolla Torrey Pines and Seattle Marriott Waterfront. Rooms expense included $193,000 of hurricane related costs at the Ritz-Carlton, St. Thomas in the 2017 period.

Food and Beverage Expense. Food and beverage expense decreased $4.8 million, or 8.9%, to $49.1 million during the 2018 period compared to the 2017 period. The decrease is attributable to $8.9 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $4.5 million at the Plano Marriott Legacy Town Center and $1.4 million at the Tampa Renaissance due to their sales on November 1, 2017 and June 1, 2018, respectively, and an aggregate decrease of $763,000 at our remaining comparable hotel properties. These decreases were partially offset by increases of $3.2 million at the Park Hyatt Beaver Creek, $561,000 at the Hotel Yountville and $7.0 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively. Food and beverage expense included $380,000 of hurricane related costs at the Ritz-Carlton, St. Thomas in the 2017 period.

Other Operating Expenses. Other operating expenses increased $556,000, or 0.6%, to $95.5 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 $2.3 million in direct expenses, partially offset by a decrease of $1.7 million in indirect expenses and incentive management fees in the 2018 period compared to the 2017 period. Direct expenses were 2.9% of total hotel revenue for the 2018 period and 2.3% for the 2017 period. The increase in direct expenses is primarily attributable to increases of $1.8 million at the Park Hyatt Beaver Creek, $164,000 at the Hotel Yountville and $3.3 million at the Ritz-Carlton, Sarasota as a result of their acquisitions on March 31, 2017, May 11, 2017 and April 4, 2018, respectively. The increase was partially offset by decreases of $2.5 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes, $297,000 at our remaining comparable hotel properties and $140,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales. Direct expenses included $82,000 of hurricane related expenses at the Ritz-Carlton, St. Thomas in the 2017 period. The decreases in indirect expenses are attributable to decreases in (i) general and administrative costs of $4.4 million, comprised of $4.4 million at the Ritz-Carlton, St. Thomas of which $2.7 million is a result of the hurricane related expenses incurred in the 2017 period; $3.2 million from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales; and $1.6 million at our remaining comparable hotel properties, partially offset by an increase of $4.8 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota as a result of their acquisitions; (ii) marketing costs of $231,000, including $2.5 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $1.5 million at the Ritz-Carlton, St. Thomas; partially offset by an increase of $2.5 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and an aggregate increase of $1.2 million at our remaining comparable hotel properties; (iii) energy costs of $101,000, comprised of a decrease of $759,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $486,000 at the Ritz-Carlton, St. Thomas of which $104,000 is a result of the hurricane related expenses incurred in the 2017 period, partially offset by an increase of $1.2 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota, and $93,000 at our remaining comparable hotel properties; and (iv) lease expense of $32,000 comprised of a decrease of $220,000 at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $64,000 at the Ritz-Carlton, St. Thomas, partially offset by an increase of $94,000 from the Plano Marriott Legacy Town Center and Tampa Renaissance and $158,000 at our remaining comparable hotel properties. These decreases were partially offset by increases in (i) incentive management fees of $3.0 million including $1.8 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and an aggregate increase of $2.0 million at our remaining comparable hotel properties, partially offset by decreases of $769,000 from the sales of the Plano Marriott Legacy Town Center and Tampa Renaissance; and (ii) repairs and maintenance of $38,000 including $1.8 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $163,000 at our remaining comparable hotel properties, partially offset by a decrease of $1.2 million from the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $753,000 at the Ritz-Carlton, St. Thomas of which $62,000 is a result of the hurricane related expenses incurred in the 2017 period.

Management Fees. Base management fees increased $438,000, or 3.8%, to $12.1 million in the 2018 period compared to the 2017 period. The increase is comprised of an increase of $1.5 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $363,000 at our remaining comparable hotel properties. These increases are partially offset by a decrease of $806,000 at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $589,000 at the Ritz-Carlton, St. Thomas as a result of the hurricanes.

Property Taxes, Insurance and Other. Property taxes, insurance and other increased $2.9 million, or 18.4%, to $18.5 million in the 2018 period compared to the 2017 period, which is attributable to increases of $714,000 at the Park Hyatt Beaver Creek, $351,000 at the Hotel Yountville and $1.4 million at the Ritz-Carlton, Sarasota as a result of their acquisitions in March 2017, May 2017 and April 2018, respectively, and $1.9 million at our remaining comparable hotel properties. These increases were partially offset by a decrease $1.0 million at the Plano Marriott Legacy Town Center and $350,000 at the Tampa Renaissance as a result of their sales in November 2017 and June 2018, respectively, and $78,000 at the Ritz-Carlton, St. Thomas.

Depreciation and Amortization. Depreciation and amortization increased $2.7 million, or 6.9%, to $42.3 million for the 2018 period compared to the 2017 period due to an aggregate increase of $6.6 million at the Park Hyatt Beaver Creek, Hotel Yountville and Ritz-Carlton, Sarasota and $3.4 million at our remaining comparable hotel properties, partially offset by a decrease of $5.2 million at the Plano Marriott Legacy Town Center and Tampa Renaissance as a result of their sales and $2.1 million at the Ritz-Carlton, St. Thomas as a result of the hurricanes.

Impairment Charges. We recorded impairment charges of $71,000 and $1.0 million in the 2018 period and 2017 period, respectively. 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. We recorded impairment charges of $1.0 million in the 2017 period related to Hurricanes Irma and Maria damages incurred at the Ritz-Carlton, St. Thomas, Key West Pier House, and Tampa Renaissance. See note 4 to our condensed consolidated financial statements.

Advisory Services Fee. Advisory services fee increased $10.0 million, or 172.4%, to $15.9 million in the 2018 period compared to the 2017 period due to increases in equity-based compensation of $7.5 million, incentive fee of $2.2 million and base advisory fee of $349,000. These increases were partially offset by a decrease of $93,000 in reimbursable expenses. In the 2018 period, we recorded an advisory services fee of $15.9 million, which included a base advisory fee of $6.9 million, reimbursable expenses of

$1.4 million, an incentive fee of $2.2 million and $5.2 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. During the 2018 period, 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 death, in accordance with the terms of the awards. In the 2017 period, we recorded an advisory services fee of $5.8 million which included a base advisory fee of $6.6 million, reimbursable expenses of $1.5 million and a credit to equity-based compensation expense in the amount of $2.3 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 September 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.

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 $6.6 million related to the acquisitions of Park Hyatt Beaver Creek and the Hotel Yountville.

Corporate General and Administrative. Corporate general and administrative expenses decreased $4.0 million, or 57.2%, to $3.0 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 $2.6 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 $3.8 million in the 2018 period compared to the 2017 period. We also incurred lower professional fees of $81,000, miscellaneous expenses of $129,000, public company costs of $63,000 and higher equity-based compensation to non-employee directors of $59,000 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 $146,000 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 $495,000, or 104.2%, to $970,000 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 $102,000 from $292,000 to $190,000 in the 2018 period compared to the 2017 period. In the 2018 period, we recorded other expense of $190,000 related to CMBX premiums and usage fees. In the 2017 period, we recognized a realized loss of $271,000 related to the maturity of options on futures contracts and expense of $21,000 related to CMBX premiums and usage fee.

Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $7.2 million, or 25.0%, to $35.9 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, our May 2018 mortgage loan refinance and higher average LIBOR rate. The average LIBOR rates for the 2018 period and the 2017 period were 1.89% and 1.04%, respectively.

Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was $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 was $2.3 million for the 2017 period, resulting from the write-off of unamortized loan costs of $295,000 and exit costs of $2.0 million associated with the refinancing of four mortgage loans, including the refinancing of three mortgage loans maturing April 2017 and the refinancing of the Bardessono Hotel mortgage loan.

Unrealized Gain (Loss) on Investment in Ashford Inc. Unrealized gain (loss) on investment in Ashford Inc. changed $6.7 million, or 198.1%, from an unrealized gain of $3.4 million in the 2017 period to an unrealized loss of $3.3 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 $803,000 for the 2018 period consisted of a $271,000 unrealized loss on interest rate caps, and a $218,000 unrealized loss on interest rate floors and a $314,000 unrealized loss on CMBX credit default swaps. Unrealized loss on derivatives of $1.5 million for the 2017 period consisted of a $1.0 million unrealized loss on interest rate floors, and a $341,000 unrealized loss on interest rate caps, and a $375,000 unrealized loss on CMBX credit default swaps, 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 $2.2 million, from $334,000 for the 2017 period to $2.5 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 $1.7 million and $2.7 million for the 2018 period and the 2017 period, respectively. At both September 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 $1.1 million and a net loss $958,000 for the 2018 period and the 2017 period, respectively. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 11.22% and 11.72% as of September 30, 2018 and 2017, respectively.

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 ~~hotels,~~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 ~~common~~capital stock, necessary to qualify for taxation as a REIT;

~~dividends on preferred stock;~~ and

capital expenditures to improve our ~~hotels.~~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. Based on our current level of operations, management believes that our cash flow from operations and our existing cash balances should be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for federal income tax purposes.

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. Cash is distributed to us only after certain items are paid, including deposits into ground lease and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and ground lease expenses.

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 ~~October 27, 2014,~~December 5, 2017, our board of directors ~~approved a share~~reapproved the stock repurchase program ~~under~~pursuant to which the ~~Company may purchase up~~Board granted a repurchase authorization to ~~$100 million~~acquire shares of the Company’s common stock, ~~from time to time. The repurchase program does not have~~par value $0.01 per share having an ~~expiration date. The specific timing, manner, price, amount and other terms~~aggregate value of the repurchases are at management’s discretion and depend on market conditions, corporate and regulatory requirements and other factors. The Company is not required to repurchase shares under the repurchase program, and may modify, suspend or terminate the repurchase program at any time for any reason. On April 8, 2016, our board of directors authorized utilizing up to $50 ~~million to~~million. The Board’s authorization replaced any previous repurchase ~~common stock.~~authorizations. No shares were repurchased during the three and nine months ended September 30, ~~2017,~~2018, pursuant to this authorization. ~~As of November 6,~~

On December 11, 2017, we ~~have purchased~~entered into equity distribution agreements with Morgan Stanley & Co. LLC and UBS Securities LLC, each acting as a ~~cumulative 4.3 million~~sales agent (the “Equity Distribution Agreements”), as subsequently amended. 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 ~~approximately $63.2 million, since~~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 ~~program’s inception on November 4, 2014.~~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 September 30, 2018, no shares of our common stock have been sold under this program.

On ~~January 18, 2017,~~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.

On March 1, 2017, we commenced an underwritten public offering of approximately 5.8 million shares of our common stock at $12.15 per share for gross proceeds of $69.9 million. The offering closed on March 7, 2017. The net proceeds from the sale of the shares after underwriting discountsDowntown and ~~offering expense were approximately $66.4 million.~~

On March 7, 2017, we closed an offering of approximately 2.0 million shares of our Series B Preferred Stock at $20.19 per share for gross proceeds of $39.9 million. The net proceeds, after underwriting discounts and offering expenses were approximately $38.2 million. Dividends on the Series B 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 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.

On March 31, 2017, in connection with the acquisition of 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. The mortgage loan is secured by the Park Hyatt Beaver Creek.

On May 11, 2017, in connection with the acquisition of 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.

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 a stated maturity date of August 2022. The mortgage loan is secured by the Bardessono Hotel.

On October 10, 2017, we received a firm commitment from a buyer, and on November 1, 2017, we completed the sale of the 404-room Plano Marriott Legacy Town Center for $104.0 million in cash. We repaid approximately $85.0 million on the mortgage loan that was previously secured in part by the hotel property.

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 ~~Ashford Prime~~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 ~~Ashford Prime~~Braemar OP and 100% of the equity interest issued by any guarantor (other than ~~Ashford Prime)~~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~~consolidated indebtedness (less cash and cash equivalents ~~and amounts represented by marketable securities)~~in excess of $10,000,000) to ~~EBITDA~~total asset value (based on property capitalization rates defined within the secured revolving credit facility agreement) not to exceed ~~6.00x initially, with such ratio being reduced beginning October 1, 2017 to 5.75x and beginning October 1, 2019 to 5.50x.~~60%. Our ratio was ~~5.97x~~48.5% at September 30, 2017. The credit facility agreement allows for the ability to exceed such ratio by 0.5x for three quarters following a significant acquisition. The Hotel Yountville, acquired on May 11, 2017, qualified as a significant acquisition.2018.

~~Consolidated~~consolidated recourse indebtedness other than the secured revolving credit facility not to exceed $50,000,000.

~~Consolidated~~consolidated fixed charge coverage ratio not less than 1.40x initially, with such ratio being increased beginning October 1, 2017 to 1.50x. ~~This~~Our ratio was ~~2.09x~~2.06x at September 30, ~~2017.~~2018.

~~Indebtedness~~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~~

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~~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 September 30, ~~2017.~~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, ~~described above,~~ with the lowest rate applying if such ratio is less than ~~4x,~~4.0x and the highest rate applying if such ratio is greater than ~~6.5x.~~6.0x.

The secured revolving credit facility ~~is a three-year interest-only facility with all outstanding principal being due at maturity~~matures on November 10, 2019, ~~subject to~~has two one-year extension options if certain terms and conditions are satisfied and a 0.25% extension ~~fee.~~fee is paid. The secured revolving credit facility has an accordion feature whereby the aggregate commitments may be increased up to $250 million, subject to certain terms. ~~No amounts were drawn under the secured revolving credit facility as of September 30, 2017.~~

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 ~~$126.8~~$163.8 million and $137.5 million of cash and cash equivalents at ~~both~~ September 30, ~~2017~~2018 and December 31, ~~2016.~~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 ~~$46.6~~$52.9 million and ~~$46.9~~$46.6 million for the nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Cash flows from operations are impacted by changes in hotel operations of our ~~eleven~~nine comparable hotel properties, the ~~sale~~sales of the ~~Seattle Courtyard Downtown~~Plano Marriott Legacy Town Center on ~~July~~November 1, ~~2016~~2017 and the Tampa Renaissance on June 1, 2018 as well as the acquisitions of the Park Hyatt Beaver Creek on March 31, 2017, ~~and~~ Hotel Yountville on May 11, ~~2017.~~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 nine months ended September 30, 2018, net cash flows used in investing activities were $141.5 million. These cash outflows were primarily attributable to $177.9 million for the acquisition of the Ritz-Carlton, Sarasota, $51.6 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 nine months ended September 30, 2017, net cash flows used in investing activities were $274.1 million. These cash outflows were primarily attributable to $243.7 million for the acquisitions of the Park Hyatt Beaver Creek and Hotel Yountville and $32.7 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. For the nine months ended September 30, 2016, net cash flows provided by investing activities were $109.6 million. These cash inflows were primarily attributable to cash inflows of $43.5 million of net proceeds received from the liquidation of AQUA U.S. Fund and $82.7 million of net cash proceeds from the sale of the Seattle Courtyard Downtown. These cash inflows were partially offset by $16.6 million of capital improvements made to various hotel properties.

Net Cash Flows Provided by (Used in) Financing Activities. For the nine months ended September 30, 2018, net cash flows provided by financing activities were $142.1 million. Cash inflows primarily consisted of borrowings on indebtedness of $575.0 million partially offset by $399.8 million for repayments of indebtedness, $22.7 million for payments of dividends and distributions and $9.4 million for payments of loan costs and exit fees. For the nine months ended September 30, 2017, net cash flows provided by financing activities were $221.3 million. Cash inflows primarily consisted of borrowings on indebtedness of $523.5 million, proceeds of $66.4 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 $376.4 million for repayments of indebtedness, $19.6 million for payments of dividends

and distributions, $10.7 million for payments of loan costs and exit fees and $1.6 million for distributions to the holder of a noncontrolling interest in consolidated entities. For the nine months ended September 30, 2016, net cash flows used in financing activities were $125.0 million. Cash outflows primarily consisted of $39.2 million for the repurchase of common stock primarily under our share repurchase program, $12.3 million for payments of dividends and distributions, $71.3 million for repayments of indebtedness, $3.8 million for distributions to the holder of a noncontrolling interest in consolidated entities and $2.7 million for payments of loan costs and exit fees. These cash outflows were partially offset by $4.2 million of net proceeds from the issuance of preferred stock.

~~RESULTS OF OPERATIONS~~

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

The following table summarizes changes in key line items from our condensed consolidated statements of operations for the three months ended September 30, 2017 and 2016 (in thousands except percentages):

Three Months Ended September 30, Favorable (Unfavorable)
2017 2016 $ Change % Change
Revenue
Rooms $ 77,336
$ 73,944
$ 3,392
4.6 %
Food and beverage 23,147
20,106
3,041
15.1
Other 7,597
5,568
2,029
36.4
Total hotel revenue 108,080
99,618
8,462
8.5
Other 39
33
6
18.2
Total revenue 108,119
99,651
8,468
8.5
Expenses
Hotel operating expenses:
Rooms 17,698
16,926
(772 ) (4.6 )
Food and beverage 17,766
15,944
(1,822 ) (11.4 )
Other expenses 35,182
28,249
(6,933 ) (24.5 )
Management fees 3,889
3,820
(69 ) (1.8 )
Total hotel expenses 74,535
64,939
(9,596 ) (14.8 )
Property taxes, insurance and other 5,197
5,120
(77 ) (1.5 )
Depreciation and amortization 14,133
11,175
(2,958 ) (26.5 )
Impairment charges 1,008
—
(1,008 )

Advisory services fee 1,814
4,454
2,640
59.3
Transaction costs 244
63
(181 ) (287.3 )
Corporate general and administrative 1,602
2,653
1,051
39.6
Total expenses 98,533
88,404
(10,129 ) (11.5 )
Operating income (loss) 9,586
11,247
(1,661 ) (14.8 )
Interest income 198
50
148
296.0
Gain (loss) on sale of hotel property —
26,359
(26,359 ) (100.0 )
Other income (expense) (22 ) (78 ) 56
71.8
Interest expense and amortization of loan costs (10,610 ) (9,795 ) (815 ) (8.3 )
Write-off of loan costs and exit fees (380 ) (2,595 ) 2,215
85.4
Unrealized gain (loss) on investment in Ashford Inc. 1,875
(458 ) 2,333
509.4
Unrealized gain (loss) on derivatives (531 ) (3,912 ) 3,381
86.4
Income (loss) before income taxes 116
20,818
(20,702 ) (99.4 )
Income tax (expense) benefit (333 ) 504
(837 ) (166.1 )
Net income (loss) (217 ) 21,322
(21,539 ) (101.0 )
(Income) loss from consolidated entities attributable to noncontrolling interest (1,143 ) (2,504 ) 1,361
54.4
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 360
(1,960 ) 2,320
118.4
Net income (loss) attributable to the Company $ (1,000 ) $ 16,858
$ (17,858 ) (105.9 )%

All hotel properties owned for the three months ended September 30, 2017 and 2016 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the three months ended September 30, 2017 and 2016. 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~~
~~Seattle Courtyard Downtown~~	~~Seattle, WA~~	~~Disposition~~	~~July 1, 2016~~
~~Park Hyatt Beaver Creek~~ ⁽¹⁾	~~Beaver Creek, CO~~	~~Acquisition~~	~~March 31, 2017~~
~~Hotel Yountville~~ ⁽¹⁾	~~Yountville, CA~~	~~Acquisition~~	~~May 11, 2017~~

~~________~~


⁽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 September 30,
2017 2016
Occupancy 83.00 % 86.89 %
ADR (average daily rate) $ 254.65
$ 249.86
RevPAR (revenue per available room) $ 211.36
$ 217.11
Rooms revenue (in thousands) $ 77,336
$ 73,944
Total hotel revenue (in thousands) $ 108,080
$ 99,618

~~The following table illustrates the key performance indicators of the eleven hotel properties that were included for the full three months ended September 30, 2017 and 2016:~~

Three Months Ended September 30,
2017 2016
Occupancy 83.59 % 86.89 %
ADR (average daily rate) $ 245.75
$ 249.86
RevPAR (revenue per available room) $ 205.42
$ 217.11
Rooms revenue (in thousands) $ 70,060
$ 73,944
Total hotel revenue (in thousands) $ 94,668
$ 99,618

~~Net Income (Loss) Attributable to the Company.~~ Net income (loss) attributable to the Company changed $17.9 million, or 105.9%, from net income of $16.9 million for the three months ended September 30, 2016 (the “2016 quarter”) to net loss of $1.0 million for the three months ended September 30, 2017 (the “2017 quarter”), as a result of the factors discussed below.

~~Rooms Revenue~~. Rooms revenue increased $3.4 million, or 4.6%, to $77.3 million during the 2017 quarter compared to the 2016 quarter. During the 2017 quarter, we experienced a 1.9% increase in room rates and a 389 basis point decrease in occupancy. Rooms revenue from our eleven comparable hotel properties decreased $3.9 million due to a decrease in room rates of 1.6% and a 330 basis point decrease in occupancy. Rooms revenue increased (i) $4.1 million at the ~~Hotel Yountville~~ ~~as a result of its acquisition on May 11, 2017; (ii) $3.2 million at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~as a result of its acquisition on March 31, 2017; (iii) $664,000 at the~~ ~~Seattle Marriott Waterfront~~ ~~due to a 3.3% increase in room rates and a 232 basis point increase in occupancy at the hotel; (iv) $531,000 at the~~ ~~Hilton La Jolla Torrey Pines~~ ~~as a result of a 7.4% increase in room rates and a 43 basis point increase in occupancy at the hotel; (v) $325,000 at the~~ ~~Tampa Renaissance~~ ~~as a result of a 3.7% decrease in room rates and a 467 basis point increase in occupancy at the hotel, and (vi) $147,000 at the~~ ~~Bardessono Hotel~~ ~~as a result of an 8.4% increase in room rates, partially offset by a 430 basis point decrease in occupancy at the hotel. These increases were partially offset by decreases of (i) $1.9 million at the~~ ~~Philadelphia Courtyard~~ ~~as a result of a 21.5% decrease in room rates and a 134 basis point decrease in occupancy at the hotel; (ii) $948,000 at the~~ ~~San Francisco Courtyard Downtown~~ ~~as a result of a 1,248 basis point decrease in occupancy due to a major renovation during the 2017 quarter, partially offset by 3.2% higher room rates at the hotel; (iii) $907,000 at the~~ ~~Chicago Sofitel Magnificent Mile~~ ~~as a result of 7.4% lower room rates and a 386 basis point decrease in occupancy at the hotel; (iv) $906,000 at the~~ ~~Key West Pier House~~ as a result of a 2,357 basis point decrease in occupancy, partially offset by 4.0% higher room rates at the hotel. The results of operations of the hotel were negatively impacted by Hurricane Irma; (v) $564,000 at the ~~Ritz-Carlton, St. Thomas~~ as

a result of a 1,322 basis point decrease in occupancy, partially offset by 6.8% higher room rates at the hotel. The results of operations of the hotel were negatively impacted by Hurricanes Irma and Maria; (vi) $202,000 at the ~~Capital Hilton~~ ~~as a result of a 48 basis point decrease in occupancy and 1.6% lower room rates at the hotel, and (vii) $158,000 at the~~ ~~Plano Marriott Legacy Town Center~~ ~~as a result of a 256 basis point decrease in occupancy, partially offset by 0.3% higher room rates at the hotel.~~

~~Food and Beverage Revenue~~. Food and beverage revenue increased $3.0 million, or 15.1%, to $23.1 million during the 2017 quarter compared to the 2016 quarter. This increase is primarily attributable to an increase in food and beverage revenue of $3.2 million at the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $382,000 at the~~ ~~Hotel Yountville~~ ~~due to their acquisitions on March 31, 2017 and May 11, 2017, respectively. We experienced an additional aggregate increase in food and beverage revenue of $365,000 at the~~ ~~Hilton La Jolla Torrey Pines~~, ~~Seattle Marriott Waterfront~~, ~~San Francisco Courtyard Downtown~~, ~~Philadelphia Courtyard, and~~ ~~Ritz-Carlton, St. Thomas. These increases were partially offset by an aggregate decrease of $862,000 at the~~ ~~Chicago Sofitel Magnificent Mile~~, ~~Key West Pier House~~, ~~Capital Hilton~~, ~~Tampa Renaissance~~, ~~Plano Marriott Legacy Town Center, and~~ ~~Bardessono Hotel~~.

~~Other Hotel Revenue~~. Other hotel revenue, which consists mainly of telecommunications, parking and rentals, increased $2.0 million, or 36.4%, to $7.6 million during the 2017 quarter compared to the 2016 quarter. The increase is primarily attributable to an increase in other hotel revenue of $2.4 million at the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $243,000 at the~~ ~~Hotel Yountville~~ ~~due to their acquisitions on March 31, 2017 and May 11, 2017, respectively. There was also an aggregate increase in other hotel revenue of $221,000 at the~~ ~~Hilton La Jolla Torrey Pines~~ ~~and~~ ~~Seattle Marriott Waterfront. These increases were partially offset by a lower aggregate other hotel revenue of $790,000 at the~~ ~~Ritz-Carlton, St. Thomas~~, ~~Tampa Renaissance~~, ~~Capital Hilton~~, ~~Philadelphia Courtyard~~, ~~Key West Pier House~~, ~~Plano Marriott Legacy Town Center~~, ~~Bardessono Hotel~~, ~~Chicago Sofitel Magnificent Mile, and~~ ~~San Francisco Courtyard Downtown~~.

~~Other Non-Hotel Revenue~~. Other non-hotel revenue increased $6,000, or 18.2%, to $39,000 in the 2017 quarter compared to the 2016 quarter. The increase is attributable to higher Texas margin tax recoveries from guests.

~~Rooms Expense~~. ~~Rooms expense increased $772,000, or 4.6%, to $17.7 million in the 2017 quarter compared to the 2016 quarter. This increase is attributable to an increase of $790,000 at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $618,000 at the~~ ~~Hotel Yountville~~ ~~as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively. There was also an aggregate increase of $257,000 at the~~ ~~Seattle Marriott Waterfront~~, ~~Hilton La Jolla Torrey Pines, and~~ ~~Capital Hilton. These increases were partially offset by an aggregate decrease in rooms expense of $892,000 at the~~ ~~Philadelphia Courtyard~~, ~~San Francisco Courtyard Downtown~~, ~~Key West Pier House~~, ~~Chicago Sofitel Magnificent Mile~~, ~~Plano Marriott Legacy Town Center~~, ~~Ritz-Carlton, St. Thomas~~, ~~Bardessono Hotel, and~~ ~~Tampa Renaissance. Rooms expense included $193,000 of hurricane related costs at the~~ ~~Ritz-Carlton, St. Thomas~~.

~~Food and Beverage Expense~~. Food and beverage expense increased $1.8 million, or 11.4%, to $17.8 million during the 2017 quarter compared to the 2016 quarter. The increase is attributable to an aggregate increase of $2.3 million associated with the acquisitions of the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~on March 31, 2017 and the~~ ~~Hotel Yountville~~ on May 11, 2017, partially offset by lower food and beverage expense of $524,000 at our eleven comparable hotel properties. Food and beverage expense included $380,000 of hurricane related costs at the ~~Ritz-Carlton, St. Thomas~~.

~~Other Operating Expenses~~. Other operating expenses increased $6.9 million, or 24.5%, to $35.2 million in the 2017 quarter compared to the 2016 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 $900,000 in direct expenses and an increase of $6.0 million in indirect expenses and incentive management fees in the 2017 quarter as compared to the 2016 quarter. Direct expenses were 2.5% of total hotel revenue for the 2017 quarter and 1.8% for the 2016 quarter. The increase in direct expenses is comprised of an increase of $1.2 million as a result of the acquisitions of the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~in 2017, partially offset by an aggregate decrease of $320,000 from our eleven comparable hotel properties. Direct expenses included $82,000 of hurricane related costs at the~~ ~~Ritz-Carlton, St. Thomas~~. The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $5.5 million, including $4.2 million from our eleven comparable hotel properties, of which $2.9 million was related to the hurricanes, and $1.4 million from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville; (ii) marketing costs of $984,000, comprised of $807,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $177,000 from our eleven comparable hotel properties, of which $55,000 related to the hurricanes; (iii) energy costs of $573,000, comprised of increases of $331,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $242,000 from our eleven comparable hotel properties, of which $104,000 is related to the hurricanes; (iv) repairs and maintenance of $65,000, including an increase of $367,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ and $62,000 of hurricane related costs, partially offset by a decrease of $302,000 from our eleven comparable hotel properties; and (v) lease expense of $74,000, comprised of an increase of $69,000 from our eleven comparable hotel properties and $5,000 from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~. These increases were partially offset by an overall decrease of $1.3 million in incentive management fees from our eleven comparable hotel properties resulting from lower rooms revenue in the 2017 quarter.

~~Management Fees~~. ~~Base management fees increased $69,000, or 1.8%, to $3.9 million in the 2017 quarter compared to the 2016 quarter. The increase is comprised of $382,000 from~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville. These increases are partially offset by an aggregate decrease of $291,000 from our eleven comparable hotel properties.~~

~~Property Taxes, Insurance and Other~~. ~~Property taxes, insurance and other increased $77,000, or 1.5%, to $5.2 million in the 2017 quarter compared to the 2016 quarter, which is comprised of increases of $819,000 from~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $323,000 from the~~ ~~Hotel Yountville. These increases were partially offset by an aggregate decrease of $1.1 million from our eleven comparable hotel properties.~~

~~Depreciation and Amortization~~. Depreciation and amortization increased $3.0 million, or 26.5%, to $14.1 million for the 2017 quarter compared to the 2016 quarter, which is due to an aggregate increase of $1.5 million from our eleven comparable hotel properties and an increase of $1.5 million from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~.

~~Impairment Charges.~~ ~~We recorded impairment charges of $1.0 million in the 2017 quarter. The impairment charges are related to damages incurred at the~~ ~~Ritz-Carlton, St. Thomas~~, ~~Key West Pier House, and~~ ~~Tampa Renaissancefrom Hurricanes Irma and Maria~~. ~~See note 3 to our condensed consolidated financial statements.~~

~~Advisory Services Fee.~~ Advisory services fee decreased $2.6 million, or 59.3%, to $1.8 million in the 2017 quarter compared to the 2016 quarter due to decreases in equity-based compensation of $2.1 million, incentive fee of $487,000 and reimbursable expenses of $268,000. These decreases were partially offset by an increase of $197,000 in the base advisory fee. In the 2017 quarter, we recorded an advisory services fee of $1.8 million which included a base advisory fee of $2.3 million, reimbursable expenses of $462,000 and a credit to equity-based compensation expense in the amount of $948,000 associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. In the 2016 quarter, we incurred an advisory services fee of $4.5 million, which included a base advisory fee of $2.1 million, equity-based compensation of $1.1 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $730,000 and an incentive fee of $487,000.

~~Transaction Costs.~~ ~~In the 2017 quarter, we recorded transaction costs of $244,000 primarily related to the acquisitions of the~~ ~~Hotel Yountville~~ ~~and~~ ~~Park Hyatt Beaver Creek Resort & Spa. In the 2016 quarter, we recorded transaction costs of $63,000 related to payment of transfer taxes.~~

~~Corporate General and Administrative~~. Corporate general and administrative expense decreased $1.1 million, or 39.6%, to $1.6 million in the 2017 quarter compared to the 2016 quarter as a result of decreases in professional fees of $1.0 million, primarily related to the proxy contest and litigation in 2016 and equity-based compensation to non-employee directors of $50,000.

~~Interest Income~~. ~~Interest income increased $148,000, or 296.0%, to $198,000 for the 2017 quarter compared to the 2016 quarter.~~

~~Gain on sale of hotel property.In the 2016 quarter, we recorded a gain of $26.4 million related the sale of the Seattle Courtyard Downtown on July 1, 2016.~~

~~Other Income (Expense)~~. We recorded other expense of $22,000 related to CMBX premiums and usage fees in the 2017 quarter. In the 2016 quarter, we recognized a realized loss of $78,000 related to the maturity of options on futures contracts.

~~Interest Expense and Amortization of Loan Costs~~. Interest expense and amortization of loan costs increased $815,000, or 8.3%, to $10.6 million for the 2017 quarter compared to the 2016 quarter. The increase is primarily due to higher interest expense and amortization of loan costs associated with the new mortgage loans secured by the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ as well as higher average LIBOR rates, partially offset by lower interest expense from the refinancing of four mortgage loans. The average LIBOR rates for the 2017 quarter and the 2016 quarter were 1.23% and 0.51%, respectively.

~~Write-off of Loan Costs and Exit Fees.~~ Write-off of loan costs and exit fees was $380,000 for the 2017 quarter, resulting from the write-off of unamortized loan costs of $188,000 and exit costs of $191,000 associated with the refinancing of the ~~Bardessono Hotel~~ mortgage loan. The mortgage loan was refinanced with a $40.0 million mortgage loan due August 2022. Write-off of loan costs and exit fees was $2.6 million for the 2016 quarter, resulting from the write-off of unamortized loan costs of $2.5 million and exit costs of $108,000 related to the sale of the Seattle Courtyard Downtown.

~~Unrealized Gain (Loss) on Investment in Ashford Inc.~~ Unrealized gain (loss) on investment in Ashford Inc. changed $2.3 million, or 509.4%, from an unrealized loss of $458,000 in the 2016 quarter to an unrealized gain of $1.9 million in the 2017 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 $531,000 for the 2017 quarter consisted of a $375,000 unrealized loss associated with credit default swaps, a $132,000 unrealized loss on interest rate floors and a $24,000 unrealized loss on interest rate caps. Unrealized loss on derivatives of $3.9 million for the 2016 period consisted primarily of a $3.9 million unrealized

loss on interest rate floors and an unrealized loss on interest rate caps of $2,000. The fair value of 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 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) benefit changed $837,000, or 166.1%, from income tax benefit of $504,000 for the 2016 quarter to income tax expense of $333,000 for the 2017 quarter. This change was primarily due to an increase in the profitability of the Company’s taxable REIT subsidiaries in the 2017 quarter compared to the 2016 quarter.

~~(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interest.~~Our noncontrolling interest partner in consolidated entities was allocated income of $1.1 million and $2.5 million for the 2017 quarter and the 2016 quarter, respectively. At September 30, 2017, 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 a net loss of $360,000 and net income of $2.0 million for the 2017 quarter and the 2016 quarter, respectively. Redeemable noncontrolling interests in Ashford Prime OP represented ownership interests of 11.72% and 13.19% as of September 30, 2017 and 2016, respectively.

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~The following table summarizes changes in key line items from our condensed consolidated statements of operations for the nine months ended September 30, 2017 and~~ ~~2016~~ ~~(in thousands except percentages):~~

Nine Months Ended September 30, Favorable (Unfavorable)
2017 2016 $ Change % Change
Revenue
Rooms $ 224,203
$ 222,778
$ 1,425
0.6 %
Food and beverage 75,600
72,022
3,578
5.0
Other 21,588
16,977
4,611
27.2
Total hotel revenue 321,391
311,777
9,614
3.1
Other 116
103
13
12.6
Total revenue 321,507
311,880
9,627
3.1
Expenses
Hotel operating expenses:
Rooms 51,108
49,841
(1,267 ) (2.5 )
Food and beverage 53,890
51,656
(2,234 ) (4.3 )
Other expenses 94,934
86,923
(8,011 ) (9.2 )
Management fees 11,643
11,958
315
2.6
Total hotel expenses 211,575
200,378
(11,197 ) (5.6 )
Property taxes, insurance and other 15,641
14,677
(964 ) (6.6 )
Depreciation and amortization 39,573
34,342
(5,231 ) (15.2 )
Impairment charges 1,008
—
(1,008 )

Advisory services fee 5,822
12,353
6,531
52.9
Contract modification cost 5,000
—
(5,000 )

Transaction costs 6,638
501
(6,137 ) (1,225.0 )
Corporate general and administrative 7,007
16,414
9,407
57.3
Total expenses 292,264
278,665
(13,599 ) (4.9 )
Operating income (loss) 29,243
33,215
(3,972 ) (12.0 )
Equity in earnings (loss) of unconsolidated entity —
(2,587 ) 2,587
100.0
Interest income 475
132
343
259.8
Gain (loss) on sale of hotel property —
26,359
(26,359 ) (100.0 )
Other income (expense) (292 ) (88 ) (204 ) (231.8 )
Interest expense and amortization of loan costs (28,743 ) (31,066 ) 2,323
7.5
Write-off of loan costs and exit fees (2,343 ) (2,595 ) 252
9.7
Unrealized gain (loss) on investment in Ashford Inc. 3,403
(1,091 ) 4,494
411.9
Unrealized gain (loss) on derivatives (1,529 ) 2,218
(3,747 ) (168.9 )
Income (loss) before income taxes 214
24,497
(24,283 ) (99.1 )
Income tax (expense) benefit (334 ) (1,022 ) 688
67.3
Net income (loss) (120 ) 23,475
(23,595 ) (100.5 )
(Income) loss from consolidated entities attributable to noncontrolling interests (2,736 ) (2,569 ) (167 ) (6.5 )
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 958
(1,994 ) 2,952
148.0
Net income (loss) attributable to the Company $ (1,898 ) $ 18,912
$ (20,810 ) (110.0 )%

All hotel properties owned for the nine months ended September 30, 2017 and 2016 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the nine months ended September 30, 2017 and 2016. 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~~
~~Seattle Courtyard Downtown~~	~~Seattle, WA~~	~~Disposition~~	~~July 1, 2016~~
~~Park Hyatt Beaver Creek~~ ⁽¹⁾	~~Beaver Creek, CO~~	~~Acquisition~~	~~March 31, 2017~~
~~Hotel Yountville~~ ⁽¹⁾	~~Yountville, CA~~	~~Acquisition~~	~~May 11, 2017~~

~~________~~


⁽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:~~

Nine Months Ended September 30,
2017 2016
Occupancy 81.92 % 83.65 %
ADR (average daily rate) $ 258.79
$ 251.27
RevPAR (revenue per available room) $ 212.01
$ 210.20
Rooms revenue (in thousands) $ 224,203
$ 222,778
Total hotel revenue (in thousands) $ 321,391
$ 311,777

~~The following table illustrates the key performance indicators of the eleven hotel properties that were included for the full nine months ended September 30, 2017 and 2016:~~

Nine Months Ended September 30,
2017 2016
Occupancy 82.76 % 83.65 %
ADR (average daily rate) $ 254.76
$ 254.34
RevPAR (revenue per available room) $ 210.84
$ 212.76
Rooms revenue (in thousands) $ 213,229
$ 215,809
Total hotel revenue (in thousands) $ 300,678
$ 303,783

~~Net Income (Loss) Attributable to the Company.~~ Net income (loss) attributable to the Company changed $20.8 million, or 110.0%, from a net income of $18.9 million for the nine months ended September 30, 2016 (the “2016 period”), to a net loss of $1.9 million for the nine months ended September 30, 2017 (the “2017 period”), as a result of the factors discussed below.

~~Rooms Revenue~~. Rooms revenue increased $1.4 million, or 0.6%, to $224.2 million during the 2017 period compared to the 2016 period. During the 2017 period, we experienced a 3.0% increase in room rates and a 173 basis point decrease in occupancy. Rooms revenue from our eleven comparable hotel properties decreased $2.6 million due to an 89 basis point decrease in occupancy partially offset by higher room rates of 0.2%. Rooms revenue increased (i) $6.1 million at the ~~Hotel Yountville~~ ~~as a result of its acquisition on May 11, 2017; (ii) $4.9 million at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~as a result of its acquisition on March 31, 2017; (iii) $2.0 million at the~~ ~~Seattle Marriott Waterfront~~ ~~as a result of 2.4% higher room rates and a 524 basis point increase in occupancy at the hotel; (iv) $1.8 million at the~~ ~~Capital Hilton~~ ~~as a result of 4.2% higher room rates and a 175 basis point increase in occupancy at the hotel; (v) $1.1 million at the~~ ~~Hilton La Jolla Torrey Pines~~ ~~as a result of 5.4% higher room rates and a 99 basis point increase in occupancy at the hotel; (vi) $440,000 at the~~ ~~Bardessono Hotel~~ ~~as a result of 8.3% higher room rates, partially offset by a 291 basis point decrease in occupancy at the hotel; (vii) $183,000 at the~~ ~~Tampa Renaissance~~ ~~as a result of 1.2% higher room rates and a 52 basis point increase in occupancy at the hotel; and (viii) $59,000 at the~~ ~~Ritz-Carlton, St. Thomas~~ as a result of 8.6% higher room rates partially offset by a 598 basis point decrease in occupancy at the hotel. The results of operations of the hotel were negatively impacted by Hurricanes Irma and Maria. These increases were partially offset by decreases of (i) $7.0 million at the ~~Seattle Courtyard Downtown~~ ~~as a result of its sale on July 1, 2016; (ii) $3.4 million at the~~ ~~San Francisco Courtyard Downtown~~ ~~as a result of a 921 basis point decrease in occupancy and 2.1% lower room rates due to a major renovation at the hotel during the 2017 period; (iii) $1.9 million at the~~ ~~Philadelphia Courtyard~~ ~~as a result of 8.2% lower room rates and a 58 basis point decrease in~~

~~occupancy at the hotel; (iv) $1.6 million at the~~ ~~Chicago Sofitel Magnificent Mile~~ ~~as a result of 6.6% lower room rates and a 72 basis point decrease in occupancy at the hotel; (v) $986,000 at the~~ ~~Key West Pier House~~ as a result of a 997 basis point decrease in occupancy, partially offset by 5.1% higher room rates at the hotel. The results of operations of the hotel were negatively impacted by Hurricane Irma; and (vi) $351,000 at the ~~Plano Marriott Legacy Town Center~~ ~~as a result of 3.0% lower room rates, partially offset by an 80 basis point increase in occupancy at the hotel.~~

~~Food and Beverage Revenue~~. ~~Food and beverage revenue increased $3.6 million, or 5.0%, to $75.6 million during the 2017 period compared to the 2016 period. This increase is due to an increase of $4.7 million at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $656,000 at the~~ ~~Hotel Yountville~~ ~~due to their acquisitions on March 31, 2017 and May 11, 2017, respectively. We experienced an additional aggregate increase in food and beverage revenue of $1.5 million at the~~ ~~Seattle Marriott Waterfront~~, ~~Plano Marriott Legacy Town Center~~, ~~Key West Pier House~~, ~~Philadelphia Courtyard, and~~ ~~Hilton La Jolla Torrey Pines. These increases were partially offset by an aggregate decrease in food and beverage revenue of $2.6 million at the~~ ~~Chicago Sofitel Magnificent Mile~~, ~~Ritz-Carlton, St. Thomas~~, ~~Tampa Renaissance~~, ~~Capital Hilton~~, ~~San Francisco Courtyard Downtown, and~~ ~~Bardessono Hotel~~ ~~and a decrease of $623,000 at the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale on July 1, 2016.~~

~~Other Hotel Revenue~~. Other hotel revenue, which consists mainly of telecommunications, parking and rentals, increased $4.6 million, or 27.2%, to $21.6 million during the 2017 period compared to the 2016 period. This increase is attributable to an increase in other hotel revenue of $4.0 million at the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $342,000 at the~~ ~~Hotel Yountville~~ ~~as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively. There was also an aggregate increase of $1.3 million at the~~ ~~Hilton La Jolla Torrey Pines, and~~ ~~Ritz-Carlton, St. Thomas. These increases were partially offset by lower aggregate other hotel revenue of $709,000 at the~~ ~~Bardessono Hotel~~, ~~San Francisco Courtyard Downtown~~, ~~Key West Pier House~~, ~~Tampa Renaissance~~, ~~Plano Marriott Legacy Town Center~~, ~~Chicago Sofitel Magnificent Mile~~, ~~Philadelphia Courtyard~~, ~~Capital Hilton, and~~ ~~Seattle Marriott Waterfront~~ ~~and lower other hotel revenue of $403,000 at the~~ ~~Seattle Courtyard Downtown~~ ~~due to its sale on July 1, 2016.~~

~~Other Non-Hotel Revenue~~. ~~Other non-hotel revenue increased $13,000, or 12.6%, to $116,000 in the 2017 period compared to the 2016 period. The increase is attributable to higher Texas margin tax recoveries from guests.~~

~~Rooms Expense~~.~~Rooms expense increased $1.3 million, or 2.5%, to $51.1 million in the 2017 period compared to the 2016 period. The increase is attributable to an increase of $1.4 million at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $945,000 at the~~ ~~Hotel Yountville~~ ~~as a result of their acquisitions on March 31, 2017 and May 11, 2017, respectively. There was also an aggregate increase of $1.3 million at the~~ ~~Capital Hilton~~, ~~Seattle Marriott Waterfront~~, ~~Ritz-Carlton, St. Thomas, and~~ ~~Hilton La Jolla Torrey Pines. This increase was partially offset by an aggregate decrease in rooms expense of $1.3 million at the~~ ~~San Francisco Courtyard Downtown~~, ~~Philadelphia Courtyard~~, ~~Chicago Sofitel Magnificent Mile~~, ~~Key West Pier House~~, ~~Tampa Renaissance~~, ~~Bardessono Hotel~~ ~~and~~ ~~Plano Marriott Legacy Town Center~~ ~~and $1.1 million at the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale on July 1, 2016. Rooms expense included $193,000 of hurricane related costs at the~~ ~~Ritz-Carlton, St. Thomas~~

~~Food and Beverage Expense~~. Food and beverage expense increased $2.2 million, or 4.3%, to $53.9 million during the 2017 period compared to the 2016 period. The increase is attributable to an aggregate increase of $3.9 million associated with the acquisitions of the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~on March 31, 2017 and the~~ ~~Hotel Yountville~~ ~~on May 11, 2017, partially offset by lower food and beverage revenue of $1.2 million at our eleven comparable hotel properties and $469,000 at the~~ ~~Seattle Courtyard Downtown~~ ~~due to its sale on July 1, 2016. Food and beverage expense included $380,000 of hurricane related costs at the~~ ~~Ritz-Carlton, St. Thomas~~.

~~Other Operating Expenses~~. Other operating expenses increased $8.0 million, or 9.2%, to $94.9 million in the 2017 period compared to the 2016 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 $2.0 million in direct expenses and an increase of $6.0 million in indirect expenses and incentive management fees in the 2017 period compared to the 2016 period. Direct expenses were 2.3% of total hotel revenue for the 2017 period and 1.7% for the 2016 period. The increase in direct expenses is primarily attributable to an increase of $2.1 million at the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $134,000 at the~~ ~~Hotel Yountville~~ as a result of their acquisitions in March 31, 2017 and May 11, 2017, respectively. This increase was partially offset by a decrease in other operating expenses of $149,000 at our eleven comparable hotel properties, and $37,000 at the ~~Seattle Courtyard Downtown~~ ~~as a result of its sale. Direct expenses included $82,000 of hurricane related costs at the~~ ~~Ritz-Carlton, St. Thomas~~. The increase in indirect expenses is attributable to increases in (i) general and administrative costs of $6.8 million, including $4.8 million from our eleven comparable hotel properties, of which $2.9 million was related to the hurricanes and $2.7 million from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville, partially offset by a decrease of $691,000 from the sale of the~~ ~~Seattle Courtyard Downtown; (ii) energy costs of $1.0 million, comprised of an increase of $581,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $575,000 from our eleven comparable hotel properties, of which $104,000 is related to the hurricanes, partially offset by a decrease of $142,000 from the~~ ~~Seattle Courtyard Downtown; as a result of its sale; (iii) marketing costs of $1,014,000, including $1.4 million from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $55,000 related to the hurricanes, partially offset by a decrease of $469,000 at the~~ ~~Seattle~~

~~Courtyard Downtown~~ as a result of its sale and $38,000 from our eleven comparable hotel properties,; (iv) lease expense of $229,000, comprised of an increase of $223,000 from our eleven comparable hotel properties and $10,000 from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville, partially offset by a decrease of $4,000 at the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale; and (v) repairs and maintenance of $153,000, including $706,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $62,000 of hurricane related costs, partially offset by a decrease of $373,000 from our eleven comparable hotel properties and $180,000 at the~~ ~~Seattle Courtyard Downtown~~ as a result of its sale. These increases were partially offset by a decrease in incentive management fees of $3.2 million, including $2.0 million from our eleven comparable hotel properties primarily related to the ~~San Francisco Courtyard Downtown~~ ~~as a result of its renovation, $438,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and $790,000 from the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale.~~

~~Management Fees~~. ~~Base management fees decreased $315,000, or 2.6%, to $11.6 million in the 2017 period compared to the 2016 period. The decrease is comprised of a decrease of $560,000 at the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale and $257,000 associated with the lower hotel revenue at the~~ ~~San Francisco Courtyard Downtown~~ ~~due to ongoing renovations. The ten remaining hotel properties also incurred an aggregate decrease of $98,000. These decreases are partially offset by an aggregate increase of $588,000 from the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~.

~~Property Taxes, Insurance and Other~~. ~~Property taxes, insurance and other increased $964,000, or 6.6%, to $15.6 million in the 2017 period compared to the 2016 period, which is attributable to increases of $1.6 million at the~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and $555,000 at the~~ ~~Hotel Yountville~~ as a result of their acquisitions in March 2017 and May 2017, respectively. These increases were partially offset by a decrease of $1.1 million from our eleven comparable hotel properties and $344,000 from the ~~Seattle Courtyard Downtown~~ ~~as a result of its sale.~~

~~Depreciation and Amortization~~. Depreciation and amortization increased $5.2 million, or 15.2%, to $39.6 million for the 2017 period compared to the 2016 period due to an aggregate increase of $3.3 million from our eleven comparable hotel properties and $2.7 million from the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville, partially offset by a decrease of $834,000 from the~~ ~~Seattle Courtyard Downtown~~ ~~as a result of its sale.~~

~~Impairment Charges.~~ ~~We recorded impairment charges of $1.0 million in the 2017 period related to Hurricanes Irma and Maria damages incurred at the~~ ~~Ritz-Carlton, St. Thomas~~, ~~Key West Pier House, and~~ ~~Tampa Renaissance. See note 3 to our condensed consolidated financial statements.~~

~~Advisory Services Fee.~~ Advisory services fee decreased $6.5 million, or 52.9%, to $5.8 million in the 2017 period compared to the 2016 period due to decreases in equity-based compensation of $5.5 million, incentive fee of $772,000 and reimbursable expenses of $486,000. These decreases were partially offset by an increase of $245,000 in the base advisory fee. In the 2017 period, we recorded an advisory services fee of $5.8 million, which included a base advisory fee of $6.6 million, reimbursable expenses of $1.5 million and a credit to equity-based compensation expense in the amount of $2.3 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 September 30, 2017 as compared to December 31, 2016. In the 2016 period we incurred an advisory services fee of $12.4 million, which included a base advisory fee of $6.3 million, equity-based compensation of $3.2 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc., reimbursable expenses of $2.0 million and an incentive fee of $772,000.

~~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.~~

~~Transaction Costs.~~ ~~In the 2017 period, we recorded transaction costs of $6.6 million primarily related to the acquisitions of~~ ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~and transfer taxes. In the 2016 period, we recorded transaction costs of $501,000 related to payment of transfer taxes.~~

~~Corporate General and Administrative~~. Corporate general and administrative expenses decreased $9.4 million, or 57.3%, to $7.0 million in the 2017 period compared to the 2016 period as a result of lower professional fees of $9.7 million, primarily related to the proxy contest and litigation in 2016, lower public company costs of $31,000, and lower equity-based compensation to non-employee directors of $26,000. These decreases were partially offset by higher miscellaneous expenses of $345,000.

~~Equity in Earnings (Loss)of Unconsolidated Entity~~. We recorded equity in loss of unconsolidated entity of $2.6 million in the 2016 period related to our investment in the AQUA U.S. Fund. We did not have any equity in earnings (loss) in the 2017 period as this investment was liquidated in June 2016.

~~Interest Income~~. ~~Interest income increased $343,000, or 259.8%, to $475,000 for the 2017 period compared to the 2016 period.~~

~~Gain on sale of hotel property.~~ ~~For the 2016 period, we recorded a gain of $26.4 million related the sale of the Seattle Courtyard Downtown on July 1, 2016.~~

~~Other Income (Expense)~~. Other expense increased $204,000 from $88,000 to $292,000 in the 2017 period compared to the 2016 period. In the 2017 period, we recognized a realized loss of $271,000 related to the maturity of options on futures contracts and expense of $21,000 related to CMBX premiums and usage fee. In the 2016 period, we recognized a realized loss of $78,000 related to the maturity of options on futures contracts and $10,000 of commissions paid upon purchasing options on futures contracts.

~~Interest Expense and Amortization of Loan Costs~~. Interest expense and amortization of loan costs decreased $2.3 million, or 7.5%, to $28.7 million for the 2017 period compared to the 2016 period. The decrease is primarily due to lower interest expense from the sale of the ~~Seattle Courtyard Downtown~~ on July 1, 2016 and the refinancing of four mortgage loans, partially offset by higher interest expense and amortization of loan costs associated with the new mortgage loans associated with the acquisitions of the ~~Park Hyatt Beaver Creek Resort & Spa~~ ~~and~~ ~~Hotel Yountville~~ ~~as well as a higher average LIBOR rate. The average LIBOR rates for the 2017 period and the 2016 period were 1.04% and 0.45%, respectively.~~

~~Unrealized Gain (Loss) on Investment in Ashford Inc.~~ Unrealized gain (loss) on investment in Ashford Inc. changed $4.5 million, or 411.9%, from an unrealized loss of $1.1 million in the 2016 period to an unrealized gain of $3.4 million in the 2017 period. The fair value is based on the closing market price of Ashford Inc. common stock at the end of the period.

~~Write-off of Loan Costs and Exit Fees.~~ Write-off of loan costs and exit fees was $2.3 million for the 2017 period, resulting from the write-off of unamortized loan costs of $295,000 and exit costs of $2.0 million associated with the refinancing of four mortgage loans, including the refinancing of three mortgage loans maturing April 2017 and the refinancing of the ~~Bardessono Hotel~~ mortgage loan. Write-off of loan costs and defeasance costs was $2.6 million for the 2016 period, resulting from the write-off of unamortized loan costs of $2.5 million and exit costs of $108,000 related to the sale of the Seattle Courtyard Downtown.

~~Unrealized Gain (Loss) on Derivatives~~. Unrealized loss on derivatives of $1.5 million for the 2017 period consisted of a $1.0 million unrealized loss on interest rate floors, a $341,000 unrealized loss on interest rate caps, and a $375,000 unrealized loss associated with CMBX tranches, partially offset by a $213,000 unrealized gain on options on futures contracts. Unrealized gain on derivatives of $2.2 million for the 2016 period consisted of a $2.3 million unrealized gain on interest rate floors, partially offset by a $56,000 unrealized loss on options on futures contracts and an unrealized loss on interest rate caps of $62,000. The fair value of 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 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 decreased $688,000, or 67.3%, to $334,000 in the 2017 period compared to the 2016 period. This decrease was primarily due to a decrease in the profitability of the Company’s taxable REIT subsidiaries in the 2017 period compared to the 2016 period.

~~(Income) Loss from Consolidated Entities Attributable to Noncontrolling Interest~~. Our noncontrolling interest partner in consolidated entities was allocated income of $2.7 million and $2.6 million for the 2017 period and the 2016 period, respectively. At both September 30, 2017 and 2016, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.

~~Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership.~~ Noncontrolling interests in operating partnership were allocated a net loss of $958,000 and net income $2.0 million for the 2017 period and the 2016 period, respectively. Redeemable noncontrolling interests represented ownership interests in Ashford Prime OP of 11.72% and 13.19% as of September 30, 2017 and 2016, respectively.

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, ~~2016,~~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 ~~2016~~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 ~~2016~~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 ~~EBITDA,~~EBITDAre, FFO and AFFO are ~~made~~presented to help our investors evaluate our operating performance.

EBITDA is defined as net income (loss) ~~attributable to the Company~~ before interest expense and amortization of loan costs, ~~interest income,~~ depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entity and ~~redeemable noncontrolling interests in~~after the ~~operating partnership.~~ 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 ~~EBITDA~~EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and management conversion costs, ~~(gain) loss on sale of hotel property,~~ write-off of loan costs and exit fees, legal, advisory and settlement costs, advisory services incentive fee, contract modification cost, software implementation costs, ~~impairment charges and~~ uninsured hurricane and wildfire related costs, other/income expense, Company’s portion of adjustments to EBITDAre of OpenKey and non-cash items such as ~~other (income) expense,~~ unrealized ~~(gain)~~ gain/loss on investments, unrealized ~~(gain)~~gain/ loss on derivatives and stock/unit-based compensation and the Company’s portion of unrealized (gain) loss of investment in securities investment fund. Unless otherwise indicated, EBITDA and Adjusted EBITDA exclude amounts attributable to the portion of a partnership owned by the third party. compensation.

We present EBITDA, EBITDAre and Adjusted ~~EBITDA~~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 ~~EBITDA~~EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted ~~EBITDA~~EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted ~~EBITDA~~EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted ~~EBITDA~~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 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 ~~EBITDA~~EBITDAre (in thousands) (unaudited):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income (loss) $ (217 ) $ 21,322
$ (120 ) $ 23,475
(Income) loss from consolidated entities attributable to noncontrolling interest (1,143 ) (2,504 ) (2,736 ) (2,569 )
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership 360
(1,960 ) 958
(1,994 )
Net income (loss) attributable to the Company (1,000 ) 16,858
(1,898 ) 18,912
Interest income⁽¹⁾
(195 ) (50 ) (470 ) (132 )
Interest expense and amortization of loan costs ⁽¹⁾
10,111
9,380
27,338
29,839
Depreciation and amortization ⁽¹⁾
13,406
10,459
37,409
32,216
Income tax expense (benefit) ⁽¹⁾
426
(504 ) 319
1,022
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership (360 ) 1,960
(958 ) 1,994
EBITDA available to the Company and OP unitholders 22,388
38,103
61,740
83,851
Amortization of favorable (unfavorable) contract assets (liabilities) 43
43
136
69
Transaction and management conversion costs 260
63
6,700
501
Other (income) expense 22
78
292
88
(Gain) loss on sale of hotel property —
(26,359 ) —
(26,359 )
Write-off of loan costs and exit fees 380
2,595
2,343
2,595
Unrealized (gain) loss on investments (1,875 ) 458
(3,403 ) 1,091
Unrealized (gain) loss on derivatives 531
3,912
1,529
(2,218 )
Non-cash stock/unit-based compensation (921 ) 1,234
(1,992 ) 3,541
Legal, advisory and settlement costs 560
1,830
3,508
14,056
Contract modification cost —
—
5,000
—
Software implementation costs —
—
79
—
Impairment and uninsured hurricane related costs 4,581
—
4,581
—
Company’s portion of unrealized (gain) loss of investment in securities investment fund —
—
—
2,587
Adjusted EBITDA available to the Company and OP unitholders $ 25,969
$ 21,957
$ 80,513
$ 79,802



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Net income (loss)	$	(626	)	$	(217	)	$	16,498		$	(120	)
Interest expense and amortization of loan costs	13,084			10,610			35,941			28,743
Depreciation and amortization	14,474			14,133			42,291			39,573
Income tax expense (benefit)	740			333			2,514			334
Equity in (earnings) loss of unconsolidated entity	81			—			146			—
Company’s portion of EBITDA of OpenKey	(79		)	—			(143		)	—
EBITDA	27,674			24,859			97,247			68,530
Impairment charges on real estate	—			1,008			71			1,008
(Gain) loss on sale of hotel property	—			—			(15,711		)	—
EBITDAre	27,674			25,867			81,607			69,538
Amortization of favorable (unfavorable) contract assets (liabilities)	51			43			143			136
Transaction and management conversion costs	—			260			965			6,700
Other (income) expense	64			22			190			292
Write-off of loan costs and exit fees	—			380			4,178			2,343
Unrealized (gain) loss on investment in Ashford Inc.	(2,158		)	(1,875		)	3,338			(3,403		)
Unrealized (gain) loss on derivatives	578			531			803			1,529
Non-cash stock/unit-based compensation	1,674			(921		)	5,709			(1,992		)
Legal, advisory and settlement costs	277			560			(667		)	3,508
Advisory services incentive fee	1,380			—			2,241			—
Contract modification cost	—			—			—			5,000
Software implementation costs	—			—			—			79
Uninsured hurricane and wildfire related costs	—			3,573			412			3,573
Company’s portion of adjustments to EBITDAre of OpenKey	2			—			4			—
Adjusted EBITDAre	$	29,542		$	28,440		$	98,923		$	87,303

~~__________________~~



⁽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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Interest expense and amortization of loan costs $ (499 ) $ (415 ) $ (1,405 ) $ (1,227 )
Depreciation and amortization (727 ) (716 ) (2,164 ) (2,126 )
Interest income 3
—
5
—
Income tax expense (benefit) 93
—
(15 ) —

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.~~partnership and adjustments for unconsolidated entities. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of AFFO excludes preferred dividends, transaction and management conversion costs, write-off of loan costs and exit fees, amortization of loan costs, legal, advisory and settlement costs, advisory services incentive fee, contract modification cost, software implementation costs, uninsured hurricane and wildfire related costs, other income/expense and non-cash items such as ~~other (income) expense,~~ unrealized ~~(gain)~~ gain/loss on investments, interest expense accretion on refundable membership club deposits, unrealized ~~(gain)~~ gain/loss on derivatives, stock/unit-based compensation and the Company’s portion of ~~unrealized (gain) loss~~adjustments to FFO of ~~investment in securities investment fund.~~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 ~~the~~our condensed consolidated financial statements.

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net income (loss)	$	(217	)	$	21,322		$	(120	)	$	23,475		$	(626	)	$	(217	)	$	16,498		$	(120	)
(Income) loss from consolidated entities attributable to noncontrolling interest	(1,143		)	(2,504		)	(2,736		)	(2,569		)	(1,695		)	(1,143		)	(1,742		)	(2,736		)
Net (income) loss attributable to redeemable noncontrolling interests in operating partnership	360			(1,960		)	958			(1,994		)	452			360			(1,075		)	958
Preferred dividends	(1,707		)	(994		)	(5,087		)	(2,866		)	(1,707		)	(1,707		)	(5,122		)	(5,087		)
Net income (loss) attributable to common stockholders	(2,707		)	15,864			(6,985		)	16,046			(3,576		)	(2,707		)	8,559			(6,985		)
Depreciation and amortization on real estate (1)	13,406			10,459			37,409			32,216			13,720			13,406			40,030			37,409
Impairment charges on real estate	1,008			—			1,008			—			—			1,008			71			1,008
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership	(360		)	1,960			(958		)	1,994			(452		)	(360		)	1,075			(958		)
Equity in (earnings) loss of unconsolidated entity													81			—			146			—
(Gain) loss on sale of hotel property	—			(26,359		)	—			(26,359		)	—			—			(15,711		)	—
Company’s portion of FFO of OpenKey													(81		)	—			(146		)	—
FFO available to common stockholders and OP unitholders	11,347			1,924			30,474			23,897			9,692			11,347			34,024			30,474
Preferred dividends	1,707			994			5,087			2,866			1,707			1,707			5,122			5,087
Transaction and management conversion costs	260			63			6,700			501			—			260			965			6,700
Other (income) expense	22			78			292			88			64			22			190			292
Interest expense accretion on refundable membership club deposits													226			—			376			—
Write-off of loan costs and exit fees	380			2,595			2,343			2,595			—			380			4,178			2,343
Unrealized (gain) loss on investments	(1,875		)	458			(3,403		)	1,091
Amortization of loan costs													1,070			1,331			3,084			3,679
Unrealized (gain) loss on investment in Ashford Inc.													(2,158		)	(1,875		)	3,338			(3,403		)
Unrealized (gain) loss on derivatives	531			3,912			1,529			(2,218		)	578			531			803			1,529
Non-cash stock/unit-based compensation	(921		)	1,234			(1,992		)	3,541			1,674			(921		)	5,709			(1,992		)
Legal, advisory and settlement costs	560			1,830			3,508			14,056			277			560			(667		)	3,508
Advisory services incentive fee													1,380			—			2,241			—
Contract modification cost	—			—			5,000			—			—			—			—			5,000
Software implementation costs	—			—			79			—			—			—			—			79
Uninsured hurricane related costs	3,573			—			3,573			—
Company’s portion of unrealized (gain) loss of investment in securities investment fund	—			—			—			2,587
Uninsured hurricane and wildfire related costs													—			3,573			412			3,573
Company’s portion of adjustments to FFO of OpenKey													2			—			4			—
Adjusted FFO available to the Company and OP unitholders	$	15,584		$	13,088		$	53,190		$	49,004		$	14,512		$	16,915		$	59,779		$	56,869

____________________


⁽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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Depreciation and amortization on real estate $ (727 ) $ (716 ) $ (2,164 ) $ (2,126 )



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Depreciation and amortization on real estate	$	(754	)	$	(727	)	$	(2,261	)	$	(2,164	)
Amortization of loan costs	(24		)	(25		)	(73		)	(75		)

Hotel Properties

The following table presents certain information related to our hotel properties:


Hotel Property	Location	Service Type	Total Rooms	% Owned		Owned Rooms	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	408	100		408
Capital Hilton							Washington, D.C.	Full	550	75	%	413
Seattle Marriott Waterfront							Seattle, WA	Full	361	100		361
Philadelphia Courtyard⁽¹⁾							Philadelphia, PA	Select	499	100		499
San Francisco Courtyard Downtown⁽¹⁾							San Francisco, CA	Select	410	100		410
Chicago Sofitel Magnificent Mile	Chicago, IL	Full	415	100		415	Chicago, IL	Full	415	100		415
Pier House Resort	Key West, FL	Full	142	100		142	Key West, FL	Full	142	100		142
Ritz-Carlton, St. Thomas(2)	St. Thomas, USVI	Full	180	100		180	St. Thomas, USVI	Full	180	100		180
Park Hyatt Beaver Creek	Beaver Creek, CO	Full	190	100		190	Beaver Creek, CO	Full	190	100		190
Hotel Yountville	Yountville, CA	Full	80	100		80	Yountville, CA	Full	80	100		80
Ritz-Carlton, Sarasota ⁽³⁾							Sarasota, FL	Full	266	100		266
Ground Lease Properties
Hilton ⁽²⁾	La Jolla, CA	Full	394	75	%	296
Renaissance ⁽³⁾	Tampa, FL	Full	293	100		293
Hilton La Jolla Torrey Pines ⁽³⁾							La Jolla, CA	Full	394	75	%	296
Bardessono Hotel ⁽⁴⁾	Yountville, CA	Full	62	100		62	Yountville, CA	Full	62	100		62
Total			3,574			3,339			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 83 during the nine months ended September 30, 2018. The ~~ground lease expires~~hotel had 180 total rooms in ~~2067.~~service prior to the hurricanes.


⁽³⁾	The ground lease expires in ~~2080.~~2067.


⁽⁴⁾	The initial ground lease expires in ~~2055.~~2065. The ground lease contains two 25-year extension options, at our election.


*	~~This table excludes the Plano Marriott Legacy Town Center, which was sold on November 1, 2017.~~


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 September 30, ~~2017,~~2018, our total indebtedness of ~~$914.1~~$993.3 million ~~included $906.0 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 September 30, ~~2017,~~2018, would be approximately ~~$2.3~~$2.5 million per year. ~~Interest rate changes will have no impact on the remaining $8.1 million of fixed rate debt.~~

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 September 30, ~~2017,~~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 ~~were subsequently~~$269,000 has since been returned to us, and $619,000 remains held as collateral ~~by our counterparties.~~as of September 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 ~~$2.8~~$2.3 million at September 30, ~~2017.~~2018.

We hold interest rate floors with notional amounts totaling ~~$4.6~~$10.9 billion and strike rates ranging from ~~-0.25%~~(0.25)% to ~~1.00%~~2.00%. Our total exposure is capped at our initial total cost of ~~$3.6~~$3.8 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 September 30, ~~2017 (“Evaluation~~2018 (the “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~~effective: (i) 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

~~Jesse Small v. Monty J. Bennett, et al., Case No. 24-C-16006020 (Md. Cir. Ct.)~~ On November 16, 2016, Jesse Small, a purported shareholder of Ashford Prime, commenced a derivative action in Maryland Circuit Court for Baltimore City asserting causes of action for breach of fiduciary duty, corporate waste, and declaratory relief against the members of the Ashford Prime board of directors, David Brooks (collectively, the “Individual Defendants”), Ashford Inc. and Ashford LLC. Ashford Prime is named as a nominal defendant. The complaint alleges that the Individual Defendants breached their fiduciary duties to Ashford Prime by negotiating and approving the termination fee provision set forth in Ashford Prime’s advisory agreement with Ashford LLC, that Ashford Inc. and Ashford LLC aided and abetted the Individual Defendants’ fiduciary duty breaches, and that the Ashford Prime board of directors committed corporate waste in connection with Ashford Prime’s purchase of 175,000 shares of Ashford Inc. common stock. The complaint seeks monetary damages and declaratory and injunctive relief, including a declaration that the termination fee provision is unenforceable. The defendants filed motions to dismiss the complaint on March 24, 2017. On June 6, 2017, the plaintiff notified the court that the plaintiff intends to dismiss the action as moot and seek a mootness fee and costs. On July 25, 2017, the action was dismissed with prejudice as to the plaintiff. A hearing on the plaintiff’s fee petition was held on October 25, 2017. A ruling from the court is currently pending. It is not possible to accurately predict the outcome of this remaining action or the range of any potential loss.


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, ~~2016,~~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. AtAs of September 30, ~~2017,~~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, ~~2016.~~2017.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

On ~~October 27, 2014,~~December 5, 2017, our board of directors ~~approved a share~~reapproved the stock repurchase program ~~under~~pursuant to which the ~~Company may purchase up~~Board granted a repurchase authorization to ~~$100 million~~acquire shares of the Company’s common stock, ~~from time to time. The repurchase program does not have~~par value $0.01 per share having an ~~expiration date. The specific timing, manner, price, amount and other terms~~aggregate value of the repurchases is at management’s discretion and depends on market conditions, corporate and regulatory requirements and other factors. The Company is not required to repurchase shares under the repurchase program, and may modify, suspend or terminate the repurchase program at any time for any reason. On April 8, 2016, our board of directors authorized utilizing up to $50 ~~million to~~million. The Board’s authorization replaced any previous repurchase ~~common stock.~~authorizations. No shares were repurchased during the three and nine months ended September 30, ~~2017,~~2018, pursuant to this authorization. During the three months ended September 30, 2016, we repurchased 630,000 shares of our common stock for approximately $9.0 million. During the nine months ended September 30, 2016, we repurchased 2.9 million shares of our common stock for approximately $39.0 million. As of September 30, 2017, 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.

The following table provides the information with respect to purchases and forfeitures of our common stock during each of the months in the third quarter of ~~2017:~~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		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:
July 1 to July 31	439	⁽¹⁾	$	10.28	⁽²⁾	—	$	36,787,500
July1 to July 31									912	$	—	⁽¹⁾	—	$	50,000,000
August 1 to August 31	602	⁽¹⁾	$	10.54	⁽²⁾	—	$	36,787,500	—	$	—		—	$	50,000,000
September 1 to September 30	718	⁽¹⁾	$	9.80	⁽²⁾	—	$	36,787,500	88	$	—	⁽¹⁾	—	$	50,000,000
Total	1,759		$	10.21		—			1,000	$	—		—

__________________


⁽¹⁾	Includes 54, 14 and 20 shares in July, August and September, respectively that were repurchased from Ashford Trust when former Ashford Trust employees who held restricted shares of Ashford Prime common stock they received in the spin-off, forfeited the shares to Ashford Trust upon termination of employment.


⁽²⁾	There is no cost associated with the forfeiture of 912 and 88 restricted shares ~~of 385, 588 and 698~~ of our common stock in July ~~August~~ and September, respectively.


ITEM 3.	~~DEFAULT~~DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

None.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS



Exhibit		Description
3.1		Articles of Amendment and Restatement of ~~Ashford Hospitality Prime,~~Braemar Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on April 29, 2016)
3.2		Articles Supplementary of Braemar Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on May 18, 2015)
3.3		Articles of Amendment of ~~Ashford Hospitality Prime,~~Braemar Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on April 29, 2016)
~~3.3~~		~~Articles Supplementary of Ashford Hospitality Prime, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on May 18, 2015)~~
3.4		Articles Supplementary for 5.50% Series A Cumulative Convertible Preferred Stock of Ashford Hospitality Prime, Inc., as amended by a Certificate of Correction, as filed with the State Department of Assessments and Taxation Maryland on June 11, 2015 (incorporated by reference to Exhibit 3.4Amendment Number One to the ~~Current Report on Form 8-K filed on April 29, 2016)~~
~~3.5~~		Articles ~~Supplementary for 5.50% Series B Cumulative Convertible Preferred Stock~~ of ~~Ashford Hospitality Prime, Inc., accepted for record~~Amendment and ~~certified by the Maryland State Department~~Restatement of ~~Assessments and Taxation on December 4, 2015 (incorporated by reference to Exhibit 3.5 to the Current Report on Form 8-K filed on April 29, 2016)~~
~~3.6~~		Articles Supplementary for the Series C Preferred Stock of Ashford Hospitality Prime, Inc., as filed with the State Department of Assessments and Taxation of Maryland on February 1, 2016 (incorporated by reference to Exhibit 3.6 to the Current Report on Form 8-K filed on April 29, 2016)
~~3.7~~		Articles Supplementary Establishing Additional Shares of Series B Preferred Stock of Ashford Hospitality Prime, Inc., accepted for record and certified by the Maryland State Department of Assessments and Taxation on April 27, 2016 (incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K filed on April 29, 2016)
~~3.8~~		Articles Supplementary Establishing Additional Shares of Series B Preferred Stock of Ashford Hospitality Prime, Inc., accepted for record and certified by the Maryland State Department of Assessments and Taxation on March 3, 2017. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on March 7, 2017)
~~3.9~~		~~Second Amended and Restated Bylaws of Ashford Hospitality Prime,~~Braemar Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on ~~August 9, 2016)~~December 8, 2017)
12*3.5		~~Statement Regarding Computation~~Amendment Number Two to Articles of ~~Ratios~~Amendment and Restatement of ~~Earnings~~Braemar Hotels & Resorts Inc. (incorporated by reference to ~~Combined Fixed Charges~~Exhibit 3.1 to the Current Report on Form 8-K filed on April 23, 2018)
3.6		Third Amended and ~~Preferred Stock Dividends~~Restated Bylaws of Braemar Hotels & Resorts Inc. (incorporated by reference to Exhibit 3.11 to the Quarterly Report on Form 10-Q filed on May 9, 2018)
31.1*		Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended
31.2*		Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of Securities Exchange Act of 1934, as amended
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2017~~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.

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.

~~ASHFORD HOSPITALITY PRIME,~~BRAEMAR HOTELS & RESORTS INC.



Date:	November ~~8, 2017~~7, 2018	By:	/s/ RICHARD J. STOCKTON
			Richard J. Stockton
			President and Chief Executive Officer

Date:	November ~~8, 2017~~7, 2018	By:	/s/ DERIC S. EUBANKS
			Deric S. Eubanks
			Chief Financial Officer

5558



	Final Allocations as of September 30, 2017
Land	$	47,849
Buildings and improvements	41,216
Furniture, fixtures and equipment	7,351
	96,416
Inventories	84
	96,500



	Three Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2016
Total hotel revenue	$	—		$	7,995
Total hotel operating expenses	—			(4,463		)
Operating income (loss)	—			3,532
Property taxes, insurance and other	—			(333		)
Depreciation and amortization	—			(834		)
Gain (loss) on sale of hotel property	26,359			26,359
Interest expense and amortization of loan costs	—			(1,709		)
Income (loss) before income taxes	26,359			27,015
(Income) loss before income taxes attributable to redeemable noncontrolling interests in operating partnership	(2,899		)	(2,972		)
Income (loss) before income taxes attributable to the Company	$	23,460		$	24,043