Braemar Hotels & Resorts(BHR) - 2019 Q4 - Annual Report

PART I Item 1. Business The company is a Maryland REIT investing in high RevPAR luxury hotels, advised by Ashford LLC, with 13 properties totaling 3,722 rooms Our Company Braemar Hotels & Resorts Inc. is a Maryland REIT focused on luxury hotels, advised by Ashford LLC, and impacted by COVID-19 - Braemar Hotels & Resorts Inc., formed in 2013, invests primarily in high RevPAR luxury hotels and resorts and has elected to be taxed as a REIT[11] - As of March 10, 2020, the company owned interests in thirteen hotel properties with 3,722 total rooms (3,487 net rooms), predominantly in U.S. urban and resort locations[11] - Ashford LLC, a subsidiary of Ashford Inc., serves as the company's advisor, providing asset management functions including acquisitions, renovations, financing, and operational oversight[11] - The company does not directly operate its hotels; Remington Hotels, an Ashford Inc. subsidiary, manages three properties, with third-party companies managing the rest[11] - The company no longer qualifies as an 'emerging growth company' as of December 31, 2019, subjecting it to increased disclosure and compliance requirements[12] - The COVID-19 pandemic has caused a significant and rapid decline in hotel revenue, occupancy, and RevPAR across the portfolio, leading to substantial erosion in hotel cash flow[12] Our Investment and Growth Strategies The company aims for attractive returns and long-term cash flow growth through focused investment and active asset management - The company's principal business objectives are to generate attractive returns on invested capital and long-term growth in cash flow to maximize stockholder returns[13] - The focused investment strategy targets premium branded and high-quality independent luxury hotels and resorts in North America with anticipated RevPAR at least twice the U.S. lodging industry average[13] - An active asset management strategy involves Ashford LLC maximizing operating performance, cash flow, and value by closely monitoring hotel managers, expenses, and implementing cost-cutting and revenue-driving initiatives[13] - A disciplined capital allocation strategy guides the acquisition, operation, disposition, and financing of assets, with selective sales of properties that no longer align with the investment strategy or have maximized returns[13][14] Our Hotels The company owns a diverse portfolio of thirteen high-quality luxury hotels, with performance data detailed for 2019 - As of March 10, 2020, the company owns interests in a geographically diverse portfolio of thirteen high-quality hotel properties with 3,722 total rooms (3,487 net rooms)[15] - Eight of the thirteen hotels operate under premium brands affiliated with Marriott International and Hilton Worldwide, with others managed by Accor, Hyatt, and Remington Hotels[15] - For the year ended December 31, 2019, approximately 76% of rooms revenue came from transient business, 23% from group sales, and 1% from contract sales[15] Hotel Property Performance (Year Ended December 31, 2019) | Hotel Property | Location | Total Rooms | % Owned | Occupancy | ADR | RevPAR | Hotel EBITDA (1) | |:---|:---|:---|:---|:---|:---|:---|:---| | Hilton La Jolla Torrey Pines (2) | La Jolla, CA | 394 | 75% | 83.06% | $216.18 | $179.56 | $15,695 | | Capital Hilton | Washington, D.C. | 550 | 75% | 82.95% | $232.62 | $192.95 | $14,141 | | Seattle Marriott Waterfront | Seattle, WA | 361 | 100% | 83.22% | $266.62 | $221.87 | $14,250 | | Courtyard San Francisco Downtown (3) | San Francisco, CA | 410 | 100% | 89.99% | $301.30 | $271.14 | $14,248 | | The Notary Hotel | Philadelphia, PA | 499 | 100% | 72.15% | $197.97 | $142.84 | $9,850 | | Ritz-Carlton, Lake Tahoe (4) | Truckee, CA | 170 | 100% | 67.39% | $556.11 | $374.76 | $7,286 | | Ritz-Carlton, Sarasota | Sarasota, FL | 266 | 100% | 73.40% | $391.92 | $287.68 | $13,626 | | Chicago Sofitel Magnificent Mile | Chicago, IL | 415 | 100% | 82.35% | $203.34 | $167.46 | $7,169 | | Pier House Resort | Key West, FL | 142 | 100% | 82.14% | $451.84 | $371.12 | $11,700 | | Bardessono Hotel (5) | Yountville, CA | 65 | 100% | 75.11% | $792.41 | $595.19 | $5,610 | | Ritz-Carlton, St. Thomas (6) | St. Thomas, U.S. Virgin Islands | 180 | 100% | 48.61% | $616.91 | $299.87 | $11,399 | | Park Hyatt Beaver Creek | Beaver Creek, CO | 190 | 100% | 59.06% | $444.54 | $262.57 | $10,142 | | Hotel Yountville | Yountville, CA | 80 | 100% | 73.91% | $558.52 | $412.82 | $6,202 | | Total / Weighted Average (7) | | 3,722 | | 78.85% | $294.93 | $232.56 | $141,318 | Asset Management Ashford LLC's team provides asset management services, maximizing profitability and monitoring hotel operations - Ashford LLC's senior management team provides all asset management services, including for properties acquired after the spin-off from Ashford Trust[69] - The asset management team proactively works with third-party hotel management companies and Remington Hotels to maximize profitability by monitoring performance, reviewing budgets, and identifying ROI initiatives[69] - The company retains approval rights on key staffing positions (e.g., general manager, director of sales) at many hotels to ensure operational standards and asset value preservation[69] Hotel Management Remington Hotels, an Ashford Inc. subsidiary, provides comprehensive hotel management services for the company's properties - Following Ashford Inc.'s November 2019 acquisition of Remington Lodging's hotel management business, Remington Hotels (an Ashford Inc. subsidiary) now provides hotel management services to the company[71] - These services include hotel operations, sales and marketing, revenue management, budget oversight, guest service, and asset maintenance (excluding capital expenditures)[71] Project Management Ashford Inc.'s subsidiary, Premier, offers project management services including construction, design, and FF&E supervision - Ashford Inc., through its subsidiary Premier (acquired August 2018), provides project management services to the company[72] - Services include construction management, interior design, architectural oversight, and purchasing/installation supervision of furniture, fixtures, and equipment (FF&E)[72] Third-Party Agreements The company has various agreements with brand companies and affiliates for hotel management, advisory, and project management services - Ten of the company's hotel properties are operated under management agreements with four brand hotel management companies (Marriott, Hilton, Accor, Hyatt), and three by Remington Hotels (an Ashford Inc. subsidiary)[73] - Each hotel management company receives a base management fee (2.0%-7.0% of gross revenues) and an incentive management fee if hotel operating income exceeds certain thresholds[73][92] - The Ritz-Carlton, St. Thomas is subject to a License and Royalty Agreement allowing use of the Ritz-Carlton brand for fifty years, with a royalty fee of 2.6% of gross revenues and an incentive royalty of 20% of operating profit in excess of owner's priority[73] Hotel Management Agreements Management agreements with brand companies and Remington Hotels detail base and incentive fees for hotel operations - Ten hotel properties are managed by brand companies (Hilton, Marriott, Accor, Hyatt), and three by Remington Hotels (Ashford Inc. subsidiary)[73][90] - Management fees range from 2.0% to 7.0% of gross revenues, plus incentive fees based on hotel operating income exceeding thresholds[92] Hotel Management Agreement Terms (Base and Incentive Fees) | Hotel | Management Fee (1) | Incentive Fee | |:---|:---|:---| | Hilton La Jolla Torrey Pines | 3% | 20% of operating cash flow (after deduction for capital renewals reserve and owner's priority) | | Capital Hilton | 3% | 20% of operating cash flow (after deduction for capital renewals reserve and owner's priority) | | Seattle Marriott Waterfront (3) | 2% | After payment of owner's 1st priority, remaining operating profit is split between owner and manager, such that manager receives 30% of remaining operating profit that is less than the sum of $15,133,000 plus 10.75% of owner-funded capital expenses, and 50% of the operating profit in excess of such sum | | Courtyard San Francisco Downtown | 7% | 50% of the excess of operating profit (after deduction for contributions to the FF&E reserve) over owner's priority | | The Notary Hotel | 4.0% | 20% of the excess of operating profit over owner's priority | | Chicago Sofitel Magnificent Mile | 3% | 20% of the amount by which the hotel's annual net operating income exceeds a threshold amount (equal to 8% of our total investment in the hotel), capped at 2.5% of gross hotel revenues | | Pier House Resort | Greater of $14,104.81 monthly or 3% | The lesser of 1% of gross revenues or the amount by which actual house profit exceeds budgeted house profit | | Bardessono Hotel | Greater of $14,104.81 monthly or 3% | The lesser of 1% of gross revenues or the amount by which actual house profit exceeds budgeted house profit | | Ritz-Carlton, St. Thomas | 3.0% (0.4% management, 2.6% royalty) | 20% of the excess, if any, of Operating Profit for such Fiscal Year over Owner's Priority for such Fiscal Year | | Park Hyatt Beaver Creek | Greater of 3.0% or $2,035,009 (increased annually by lesser of CPI or 8% of prior year management fee) | 12.5% Profit plus 15% of Profit less the Base Fee that is in excess of $4 million | | Hotel Yountville | Greater of $14,104.81 monthly or 3% | The lesser of 1% of gross revenues or the amount by which actual house profit exceeds budgeted house profit | | Ritz-Carlton, Sarasota | 3% | 20% of Available cash flow defined as Net Operating Income minus the Owner's Priority | | Ritz-Carlton, Lake Tahoe | 3% | The sum of (i) 15% by which Adjusted House Profit ("AHP") for such Fiscal Year exceeds the Owner's Priority but is less than $10.8 million plus (ii) 20% of the amount by which AHP exceeds $10.8 million; provided, however, that in no event shall the total, aggregate sum of the Base Fee and the Incentive Fee paid to Operator in any given year exceed 2.5% of gross revenues | Marriott Management Agreements Marriott agreements feature long terms, performance termination rights, and a right of first negotiation for hotel sales - Marriott management agreements have remaining base terms of 8 to 46 years, with automatic extension options for the manager (two to five 10-year extensions)[98] - Performance termination rights allow the company to terminate without a fee if operating profit and RevPAR penetration index fall below specified thresholds for two consecutive fiscal years, unless due to extraordinary events or major renovations[100] - Marriott has a right of first negotiation for hotel sales, and sales are subject to conditions including the purchaser not being a competitor and having sufficient financial resources[100] Hilton Management Agreements Hilton agreements include extension options, performance termination clauses, and a right of first negotiation for sales - Hilton management agreements have been extended through December 31, 2023, with three remaining 10-year automatic extension options at the manager's discretion[101] - Performance termination rights exist if operating cash flow is less than 85% of the owner's priority return and the hotel's yield index is below 90% for two consecutive fiscal years[103] - The manager can cure a performance default by paying the deficiency, but only up to four times per initial or extension term[103] - Hilton management agreements include a right of first negotiation for hotel sales or leases, requiring the manager to respond within 30 days[103] Accor Management Agreement The Accor agreement has renewal terms, performance termination rights, and specific assignment conditions - The Accor management agreement for the Chicago Sofitel Magnificent Mile expires December 31, 2030, with three consecutive 10-year renewal terms[105] - Performance termination allows the company to terminate without a fee if RevPAR is less than 90% of the competitive set and adjusted net operating income is negative for two consecutive operating years[105] - The manager has a right to cure performance termination up to three times in any eight-year period by paying a cure amount[105] - Assignment of the agreement without consent is permitted to affiliates or persons meeting specific criteria (not a competitor, good repute, minimum net worth)[105] Hyatt Beaver Creek Management Agreement The Hyatt agreement includes extension options and termination rights for casualty or eminent domain, with sale requiring Hyatt approval - The Hyatt Beaver Creek management agreement was extended through December 31, 2029, with one remaining 10-year extension option[107] - The company can terminate for substantial damage by casualty (cost >= 25% of replacement cost if insured, 10% if uninsured) or if the hotel is rendered untenantable by eminent domain[107] - Sale or assignment of the hotel requires prior Hyatt approval, which cannot be unreasonably withheld, based on the assignee's financial ability, reputation, and potential conflicts of interest[107] Remington Hotels Master Hotel Management Agreement The master agreement with Remington Hotels outlines management terms, fees, and termination conditions for managed properties - The master hotel management agreement with Remington Hotels (an Ashford Inc. subsidiary) governs management for the Pier House Resort, Bardessono Hotel, and Hotel Yountville, and future acquisitions[108] - The initial term is 10 years per hotel, renewable by Remington Hotels for three 7-year periods and a final 4-year term, subject to performance tests[108] - Remington Hotels receives a monthly base management fee (greater of $14,105 or 3% of gross revenues) and an annual incentive fee (lesser of 1% of gross revenues or actual house profit exceeding target)[110] - Termination fees are payable in certain early termination scenarios (e.g., sale within first year, casualty after first year, or failure to satisfy performance test after cure period), but not for condemnation or force majeure[110][111] Our Financing Strategy The company finances growth and liquidity through operating cash flow, equity, debt, and maintains a target leverage of 45% - As of December 31, 2019, property-level indebtedness was approximately $1.1 billion, with a weighted average interest rate of 4.04% per annum, and 100% variable-rate debt (LIBOR plus 2.28%)[74] - The company intends to finance long-term growth and liquidity with operating cash flow, equity issuances (common and preferred stock), joint ventures, a revolving line of credit, and secured/unsecured debt[74] - A target leverage of 45% net debt to gross assets is maintained; Lismore Capital LLC (an Ashford Inc. subsidiary) may provide debt placement services[74] Certain Agreements Various agreements govern advisory services, acquisition funding, project management, and property leasing with related parties - The company is advised by Ashford LLC under an advisory agreement, which outlines fees, expense reimbursements, and conflict of interest policies[77] - The ERFP Agreement, effective January 15, 2019, obligates Ashford LLC to provide up to $50 million (optionally $100 million) in funding for hotel acquisitions in exchange for FF&E, leased back rent-free[87] - Mutual exclusivity agreements with Remington Hotels and Premier grant the company a first right of refusal for certain lodging investment opportunities and obligate the company to engage them for management/project management services under specific conditions[124][130] - The company's TRS lessees lease hotel properties under percentage leases, requiring a reserve account of at least 4% of gross revenues for capital expenditures[136] The Advisory Agreement Ashford LLC advises the company, managing investments and operations under a long-term agreement with specific fee structures - Ashford LLC, a subsidiary of Ashford Inc., acts as the company's advisor, responsible for implementing investment strategies and managing day-to-day operations under board supervision[77] - The initial term of the advisory agreement expires January 24, 2027, with up to seven successive 10-year extensions at Ashford LLC's option[79] - The company pays a monthly base fee (1/12th of 0.70% of total market capitalization plus Net Asset Fee Adjustment, with a minimum) and an annual incentive fee based on total stockholder return exceeding a peer group average[80][82] - The advisory agreement includes provisions to minimize conflicts of interest, requiring independent director approval for certain actions and giving the company a preferential right to investment opportunities that satisfy its guidelines[84] ERFP Agreement The ERFP agreement obligates Ashford LLC to provide funding for hotel acquisitions in exchange for rent-free FF&E leases - The Enhanced Return Funding Program (ERFP) Agreement, effective January 15, 2019, replaced previous 'key money investments' and obligates Ashford LLC to provide up to $50 million (optionally $100 million) for hotel acquisitions[87] - Ashford LLC provides 10% of the acquired hotel's purchase price in exchange for FF&E, which is then leased back to the company's TRSs on a rent-free basis[87] - Funding is conditional on Ashford LLC's unrestricted cash balance exceeding $15 million and the absence of material breaches of the advisory agreement[89] - The initial term is two years, automatically renewable for one-year periods unless notice of non-renewal is given; repayment of funded amounts is required if a Company Change of Control or advisory agreement termination occurs within two years of FF&E acquisition[89] Premier Master Project Management Agreement Premier provides project management services under a master agreement, with fees based on project costs and specific termination clauses - Premier, an Ashford Inc. subsidiary, provides project management services to all hotels under a master project management agreement, with an initial term of 10 years per hotel[118] - Fees include a project management fee (4% of total project costs, reduced to 3% for costs exceeding 5% of gross revenues) and additional fees for architectural, construction management, interior design, and FF&E purchasing services[119] - Termination fees are payable for early termination for convenience, but not for sale of a hotel, casualty, condemnation, or force majeure[120] Mutual Exclusivity Agreements MEAs with Remington Hotels and Premier grant the company first refusal rights and obligate engagement for management/project services - The hotel management MEA with Remington Hotels grants the company a first right of refusal for certain lodging investment opportunities and requires the company to engage Remington Hotels for management services under specific conditions[124][126] - The project management MEA with Premier similarly grants the company a first right of refusal for lodging investment opportunities and requires engaging Premier for project management services[130] - Both MEAs have an initial term of 10 years from November 19, 2013, with automatic extensions for up to 35 years[124][130] - Material modification of investment guidelines without consent can lead to loss of exclusivity rights for the company[126][130] Ashford Trust Right of First Offer Agreement This agreement grants the company a first right to acquire Ashford Trust hotels and vice versa for portfolio transactions - The agreement grants the company the first right to acquire subject hotels owned by Ashford Trust if they are marketed for sale and meet the company's investment guidelines[133] - The company has 30 days to agree to sale terms; if rejected, Ashford Trust can sell to a third party within 180 days at not less than 95% of the offered price[133] - The company also grants Ashford Trust a right of first offer for properties acquired in portfolio transactions that meet Ashford Trust's guidelines[135] - The agreement has an initial term of 10 years with automatic one-year renewals, terminable upon default, bankruptcy, or a change of control (excluding spin-offs)[135] TRS Leases Most hotels are leased to TRSs under percentage leases, requiring capital expenditure reserves and outlining termination conditions - Most acquired hotels are leased to Taxable REIT Subsidiaries (TRSs) under percentage leases, with terms ranging from five years (expiring between 2020 and 2023)[136] - TRS lessees pay base rent plus percentage rent based on gross revenue exceeding a threshold, and are required to fund a reserve account (at least 4% of gross revenues) for capital expenditures[136] - The company is responsible for non-routine capital expenditures and property/casualty insurance, while TRS lessees handle routine repairs and other insurance[136][138] - Leases can be terminated early due to specified damages, condemnation, sale of the hotel, or uncured events of default, potentially requiring termination fees[136][139][140] Ground Leases Two hotels are subject to long-term ground leases with rent adjustments and extension options - Two hotels, Hilton La Jolla Torrey Pines and Bardessono Hotel, are subject to ground leases expiring in 2067 and 2065, respectively[141] - Rent for ground leases is the greater of minimum rent or percentage rent, with annual adjustments based on actual rents or CPI[141] - The Hilton La Jolla Torrey Pines ground lease may be extended by 10 or 20 years based on capital expenditures; the Bardessono Hotel lease has two 25-year extension options[141] Regulation Hotels are subject to various federal, state, and local regulations, including ADA compliance and environmental laws - Hotels are subject to various U.S. federal, state, and local laws, including common area, fire, and safety requirements, and are believed to have necessary permits[143] - Compliance with the Americans with Disabilities Act (ADA) is required, potentially necessitating structural barrier removal and equivalent services for disabled persons, with non-compliance risking fines or damages[144] - Environmental laws may impose liability for contamination (hazardous substances, mold) regardless of fault, potentially leading to substantial cleanup costs, third-party liability, or adverse effects on property value/saleability[145][146] - The hotel industry is highly competitive, based on location, brand, price, and services, facing competition from other hotels, less expensive accommodations, and home-sharing companies[148][150] Employees The company has no direct employees, relying on Ashford LLC's 116 full-time staff for all operational functions - The company has no direct employees; all officers and services are provided by Ashford LLC, which has approximately 116 full-time employees performing various functions[151] Seasonality Hotel operations are seasonal, causing quarterly fluctuations in revenue, with cash flows managed for REIT distribution requirements - Hotel operations are seasonal, with higher occupancy rates during summer or winter months, causing quarterly fluctuations in lease revenue[152] - Cash flows from operations are expected to be sufficient for quarterly distributions to maintain REIT status; shortfalls may be covered by cash on hand or borrowings[152] Access to Reports and Other Information The company provides SEC filings and corporate governance documents free on its website and the SEC's website - The company makes its SEC filings (10-K, 10-Q, 8-K) and corporate governance documents available free of charge on its website (www.bhrreit.com) and the SEC's website (www.sec.gov)[153](index=153&type=chunk) - Investors should monitor the company's website for company information, as it may be deemed material[153] Item 1A. Risk Factors The company faces risks from economic downturns, dependence on Ashford LLC, acquisition challenges, REIT compliance, and stock price volatility - The company's business is highly susceptible to adverse economic conditions in its concentrated hotel markets (e.g., Washington D.C., San Francisco) and the overall hotel industry, particularly the luxury segment, which is more volatile during economic downturns[154][157] - Dependence on Ashford LLC for operations and key personnel, along with potential conflicts of interest arising from shared management with Ashford Trust and Ashford Inc. subsidiaries (Remington Hotels, Premier), could adversely affect operating performance and decision-making[159][160][189][191] - Growth is limited by the ability to acquire additional hotel properties on attractive terms amidst significant competition and the challenges of successfully integrating new acquisitions[161][162] - A significant amount of variable-rate debt ($1.1 billion as of Dec 31, 2019) exposes the company to interest rate increases and refinancing risks, potentially limiting cash flow for distributions and increasing default risk[179][182][183][185] - Failure to qualify or remain qualified as a REIT would result in corporate taxation, substantially reducing funds available for distributions and adversely affecting stock value[239] - The market price of common stock is volatile, influenced by operating results, market valuations, management changes, and future offerings of debt or equity securities that could dilute existing stockholders[258][259] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[263] Item 2. Properties The company owns interests in thirteen consolidated hotel properties totaling 3,722 rooms across the U.S. and USVI, all encumbered by loans - The company leases its headquarters at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254[263] - As of December 31, 2019, the company owned interests in thirteen consolidated hotel properties (eleven directly owned, two through a 75% equity joint venture), totaling 3,722 rooms (3,487 net rooms) in the U.S. and U.S. Virgin Islands[264] - Each of the thirteen hotel properties is encumbered by loans[264] Hotel Property Information (December 31, 2019) | Hotel Property | Location | Total Rooms | % Owned | Owned Rooms | Occupancy | ADR | RevPAR | |:---|:---|:---|:---|:---|:---|:---|:---| | Fee Simple Properties | | | | | | | | | Capital Hilton | Washington D.C. | 550 | 75% | 413 | 82.95% | $232.62 | $192.95 | | Seattle Marriott Waterfront | Seattle, WA | 361 | 100% | 361 | 83.22% | $266.62 | $221.87 | | The Notary Hotel | Philadelphia, PA | 499 | 100% | 499 | 72.15% | $197.97 | $142.84 | | San Francisco Courtyard Downtown (1) | San Francisco, CA | 410 | 100% | 410 | 89.99% | $301.30 | $271.14 | | Chicago Sofitel Magnificent Mile | Chicago, IL | 415 | 100% | 415 | 82.35% | $203.34 | $167.46 | | Pier House Resort | Key West, FL | 142 | 100% | 142 | 82.14% | $451.84 | $371.12 | | Ritz-Carlton, St. Thomas (2) | St. Thomas, USVI | 180 | 100% | 180 | 48.61% | $616.91 | $299.87 | | Park Hyatt Beaver Creek | Beaver Creek, CO | 190 | 100% | 190 | 59.06% | $444.54 | $262.57 | | Hotel Yountville | Yountville, CA | 80 | 100% | 80 | 73.91% | $558.52 | $412.82 | | Ritz-Carlton, Sarasota | Sarasota, FL | 266 | 100% | 266 | 73.40% | $391.92 | $287.68 | | Ritz-Carlton, Lake Tahoe (3) | Truckee, CA | 170 | 100% | 170 | 67.39% | $556.11 | $374.76 | | Ground Lease Properties | | | | | | | | | Hilton La Jolla Torrey Pines (4) | La Jolla, CA | 394 | 75% | 296 | 83.06% | $216.18 | $179.56 | | Bardessono Hotel (5) | Yountville, CA | 65 | 100% | 65 | 75.11% | $792.41 | $595.19 | | Total | | 3,722 | | 3,487 | 78.85% | $294.93 | $232.56 | Item 3. Legal Proceedings The company is involved in legal proceedings, including a dispute with Accor, with management believing no material adverse effect is likely - On October 24, 2019, the company notified Accor of a material breach of its management agreement for the Sofitel Chicago Magnificent Mile[266] - Accor filed a complaint on November 7, 2019, seeking a declaratory judgment that no breach occurred; the company's subsidiary, Ashford TRS Chicago II, filed a counter-complaint on January 6, 2020, alleging breach and seeking termination rights[266] - Management believes the ultimate resolution of current legal proceedings will not have a material adverse effect on consolidated financial position or results of operations, but outcomes are uncertain and could be materially adverse if losses exceed estimates[266] Item 4. Mine Safety Disclosures The company is not subject to mine safety disclosures - Mine Safety Disclosures are not applicable to the company[266] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on NYSE, with 560 holders; 2020 dividend policy is under review due to COVID-19 impact - The company's common stock is listed and traded on the NYSE under the symbol 'BHR'; as of March 10, 2020, there were 560 holders of record[266] - Dividends declared per common share were $0.64 for both 2019 and 2018; the board expects to reconsider its 2020 dividend policy due to the impact of COVID-19, potentially eliminating or significantly reducing it[268] Characterization of Distributions Per Common Stock (Cash) | Category | 2019 Amount | 2019 % | 2018 Amount | 2018 % | 2017 Amount | 2017 % | |:---|:---|:---|:---|:---|:---|:---| | Ordinary income | $— | —% | $— | —% | $0.1338 (1) | 27.8755% | | Capital gain | $— | — | $— | — | $0.0297 (1) | 6.1817 | | Unrecaptured 1250 gain | $— | — | $— | — | $0.0671 (1) | 13.9757 | | Return of capital | $0.6400 (4) | 100.0000 | $0.6400 (3) | 100.0000 | $0.2494 (1) | 51.9671 | | Total | $0.6400 | 100.0000% | $0.6400 | 100.0000% | $0.4800 | 100.0000% | - As of December 31, 2019, 2,423,983 securities remained available for future issuance under equity compensation plans[273] - The board approved a $50 million stock repurchase program on December 5, 2017; no shares were purchased in 2019 under this authorization, but 15,205 shares were purchased in Q4 2019 (including 14,559 for tax-withholding)[273][274] Item 6. Selected Financial Data Selected consolidated financial and operating data from 2015-2019, including statements of operations, balance sheets, and key metrics Statements of Operations Data (in thousands, except per share amounts) | Indicator | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\ | Total revenue | $487,614 | $431,398 | $414,063 | $405,857 | $349,545 | | Total operating expenses | $448,375 | $381,311 | $375,221 | $358,716 | $303,569 | | Gain (loss) on insurance settlement, disposition of assets and sale of hotel properties | $25,165 | $15,738 | $23,797 | $26,359 | $— | | Operating income | $64,404 | $65,825 | $62,639 | $73,500 | $45,976 | | Net income (loss) | $1,196 | $2,585 | $28,324 | $24,320 | $(4,691) | | Net income (loss) attributable to the Company | $371 | $1,320 | $23,022 | $19,316 | $(6,712) | | Net income (loss) attributable to common stockholders | $(9,771) | $(5,885) | $16,227 | $15,456 | $(8,698) | | Diluted income (loss) per common share | $(0.32) | $(0.19) | $0.51 | $0.55 | $(0.34) | | Weighted average diluted common shares | 32,289 | 31,944 | 34,706 | 31,195 | 25,888 | Balance Sheet Data (in thousands) | Indicator | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\ | Investments in hotel properties, gross | $1,791,174 | $1,562,806 | $1,403,110 | $1,258,412 | $1,315,621 | | Accumulated depreciation | $(309,752) | $(262,905) | $(257,268) | $(243,880) | $(224,142) | | Investments in hotel properties, net | $1,481,422 | $1,299,901 | $1,145,842 | $1,014,532 | $1,091,479 | | Cash and cash equivalents | $71,995 | $182,578 | $137,522 | $126,790 | $105,039 | | Restricted cash | $58,388 | $75,910 | $47,820 | $37,855 | $33,135 | | Note receivable | $— | $— | $8,098 | $8,098 | $8,098 | | Total assets | $1,758,947 | $1,636,487 | $1,423,819 | $1,256,997 | $1,352,750 | | Indebtedness, net | $1,058,486 | $985,873 | $820,959 | $764,616 | $835,592 | | Total stockholders' equity of the Company | $369,267 | $397,476 | $381,305 | $308,796 | $338,859 | Other Data (in thousands, except per share amounts) | Indicator | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---|:---|:---|:---|:---|\ | Cash provided by (used in) operating activities | $66,262 | $70,733 | $70,608 | $58,607 | $8,972 | | Cash provided by (used in) investing activities | $(226,425) | $(166,824) | $(173,942) | $103,489 | $(179,347) | | Cash provided by (used in) financing activities | $32,058 | $169,237 | $124,031 | $(135,625) | $107,464 | | Cash dividends declared per common share | $0.64 | $0.64 | $0.64 | $0.46 | $0.35 | | EBITDAre (unaudited) (1) | $102,418 | $96,400 | $96,272 | $86,313 | $77,225 | | Hotel EBITDA (unaudited) (1) | $141,318 | $137,621 | $128,300 | $128,995 | $114,469 | | Funds From Operations (FFO) (unaudited) (1) | $30,788 | $32,057 | $44,897 | $34,050 | $31,859 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Detailed analysis of financial condition and operations for 2019 and 2018, covering business overview, COVID-19 impact, key performance indicators, and non-GAAP measures Overview Braemar Hotels & Resorts Inc. is a Maryland REIT investing in luxury hotels, advised by Ashford LLC, with no direct employees - Braemar Hotels & Resorts Inc., a Maryland corporation formed in April 2013, invests primarily in high RevPAR luxury hotels and resorts, operating as a REIT through Braemar OP[285] - As of March 10, 2020, the company owned interests in thirteen hotel properties (3,722 total rooms, 3,487 net rooms) in six states, D.C., and St. Thomas, U.S. Virgin Islands[285] - Ashford LLC, a subsidiary of Ashford Inc., advises and asset-manages the hotel portfolio; the company has no employees, relying on Ashford LLC for all services[285] Advisory Agreement Net Earnings (Year Ended December 31, 2019) | Category | Amount (in thousands) | |:---|:---|\ | Revenues | $29,636 | | Expenses | $(11,081) | | Net Earnings | $18,555 | Recent Developments Recent developments include the significant impact of COVID-19, the acquisition of Ritz-Carlton Lake Tahoe, and various financing activities - The COVID-19 pandemic has caused a significant and rapidly accelerating decline in hotel revenue, occupancy, and RevPAR across the portfolio, leading to substantial erosion in hotel cash flow[287] - On January 15, 2019, the company acquired the Ritz-Carlton, Lake Tahoe for $120.0 million, financed with a $54.0 million mortgage loan (LIBOR + 2.10%, five-year term)[289] - The company entered into the ERFP Agreement with Ashford Inc., where Ashford LLC provides up to $50 million (optionally $100 million) for property acquisitions in exchange for FF&E, leased back rent-free[289] - Other key developments in 2019 include refinancing several mortgage loans, investing in OpenKey, distributing Ashford Inc. common stock, and establishing a new $75.0 million secured revolving credit facility[289][290][291] Key Indicators of Operating Performance Occupancy, ADR, and RevPAR are key indicators for hotel performance, alongside non-GAAP measures like FFO and EBITDAre - The company uses Occupancy, ADR (Average Daily Rate), and RevPAR (Revenue Per Available Room) as key indicators to evaluate hotel operating performance[293] - RevPAR is a leading indicator of core revenues, with improvements driven by occupancy increasing variable operating costs, while improvements driven by ADR have a greater impact on operating margins[293] - Rooms revenue comprised approximately 62% of total hotel revenue for the year ended December 31, 2019[293] - Non-GAAP measures like FFO, AFFO, EBITDAre, and Adjusted EBITDAre are also used to evaluate operating performance and ability to meet financial obligations[293] Principal Factors Affecting Our Results of Operations Operating results are influenced by hotel demand, supply, and the ability of management to control revenues and expenses - Operating results are primarily affected by overall demand for hotel rooms relative to supply, and the ability of third-party management companies to increase revenues while controlling expenses[294] - Demand for lodging correlates directly with the overall economy (e.g., GDP growth), with historical periods of strong demand following declines[294] - New hotel development (supply) is influenced by construction costs, financing availability, and existing hotel performance; supply growth in certain markets may negatively impact performance[294] - Revenue is primarily derived from rooms (major driver), food and beverage, and other hotel services (e.g., parking, resort fees)[296] - Hotel operating expenses include rooms, food and beverage, management fees, and other hotel expenses (e.g., administrative, marketing, utilities); variable expenses fluctuate with occupancy, while ADR changes have a more significant impact on operating margins[296] RESULTS OF OPERATIONS Analysis of consolidated statements of operations for 2019 and 2018, detailing changes in revenue, expenses, and net income Consolidated Statements of Operations Summary (in thousands) | Category | 2019 | 2018 | Favorable (Unfavorable) $ Change | % Change | |:---|:---|:---|:---|:---|\ | Total revenue | $487,614 | $431,398 | $56,216 | 13.0% | | Total expenses | $448,375 | $381,311 | $(67,064) | (17.6)% | | Gain (loss) on insurance settlement, disposition of assets and sale of hotel properties | $25,165 | $15,738 | $(9,427) | (59.9)% | | Operating income (loss) | $64,404 | $65,825 | $(1,421) | (2.2)% | | Net income (loss) | $1,196 | $2,585 | $(1,389) | (53.7)% | | Net income (loss) attributable to the Company | $371 | $1,320 | $(949) | (71.9)% | - Net income attributable to the Company decreased by $949,000 (71.9%) from $1.3 million in 2018 to $371,000 in 2019[303] - Rooms revenue increased by $21.1 million (7.5%) to $303.8 million in 2019, driven by acquisitions (Ritz-Carlton, Sarasota; Ritz-Carlton, Lake Tahoe) and higher room rates at some comparable properties, partially offset by decreased occupancy and property dispositions[303] - Food and beverage revenue increased by $20.4 million (21.6%) to $115.1 million, primarily due to acquisitions[305] - Other hotel revenue increased by $14.7 million (27.3%) to $68.7 million, also largely due to acquisitions and business interruption revenue[306] - Total hotel operating expenses increased by $51.0 million (18.7%) to $323.6 million, mainly due to acquisitions and increased direct and indirect expenses[298][305][306] - Advisory services fee increased by $515,000 (2.6%) to $20.5 million, reflecting higher base fees and equity-based compensation, partially offset by a lower incentive fee[307] - Gain on insurance settlement, disposition of assets, and sale of hotel properties was $25.2 million in 2019, including $26.2 million from Hurricane Irma settlements, partially offset by a $1.2 million loss on FF&E disposition[307] Indebtedness Details of the company's $1.1 billion gross outstanding indebtedness as of December 31, 2019, including interest rates and maturity dates - As of December 31, 2019, gross outstanding indebtedness was approximately $1.1 billion, with a weighted average interest rate of 4.04%[310] Indebtedness Summary (December 31, 2019) | Loan/Property(ies) | Number of Assets Encumbered | Outstanding Balance at Dec 31, 2019 | Interest Rate at Dec 31, 2019 | Amortization | Maturity Date (1) | Fully Extended Maturity Date | |:---|:---|:---|:---|:---|:---|:---|\ | JPMorgan (2) Park Hyatt Beaver Creek, Beaver Creek, CO | 1 | $67,500 | 4.51% | Interest only | Apr-2020 | Apr-2022 | | BAML (3) The Notary Hotel, Philadelphia, PA Courtyard San Francisco Downtown, San Francisco, CA Seattle Marriott Waterfront, Seattle, WA Chicago Sofitel Magnificent Mile, Chicago, IL | 4 | $435,000 | 3.92% | Interest only | Jun-2020 | Jun-2025 | | Apollo (4) Ritz-Carlton, St. Thomas, USVI | 1 | $42,500 | 6.71% | Interest only | Aug-2021 | Aug-2024 | | BAML (5) Hotel Yountville, Yountville, CA | 1 | $51,000 | 4.31% | Interest only | May-2022 | May-2022 | | BAML (6) Bardessono Hotel, Yountville, CA | 1 | $40,000 | 4.31% | Interest only | Aug-2022 | Aug-2022 | | BAML (7) Ritz-Carlton, Sarasota, FL | 1 | $100,000 | 4.41% | Interest only | Apr-2023 | Apr-2023 | | BAML (8) Ritz-Carlton, Lake Tahoe, CA | 1 | $54,000 | 3.86% | Interest only | Jan-2024 | Jan-2024 | | Prudential (9) Capital Hilton, Washington, D.C. Hilton La Jolla Torrey Pines, La Jolla, CA | 2 | $195,000 | 3.46% | Interest only | Feb-2024 | Feb-2024 | | BAML (10) Pier House Resort, Key West, FL | 1 | $80,000 | 3.61% | Interest only | Sep-2024 | Sep-2024 | | Total/Weighted Average | 13 | $1,065,000 | 4.04% | | | | - Several loans include financial cash trap triggers (e.g., 1.20x debt service coverage ratio, 9.0% debt yield), which, if triggered, divert hotel profits to lenders, potentially affecting liquidity and REIT distribution ability[312] - The company refinanced multiple mortgage loans in 2019, including a $186.8 million loan with a new $195.0 million loan for Capital Hilton and Hilton La Jolla Torrey Pines, and a $70.0 million loan with a new $80.0 million loan for Pier House Resort[311][312] - A new $75.0 million secured revolving credit facility was established on October 25, 2019, replacing the previous one, with a three-year term and two one-year extension options, and $25.0 million was borrowed on March 10, 2020[312] LIQUIDITY AND CAPITAL RESOURCES The company manages short-term and long-term liquidity through cash from operations, credit facilities, and capital market activities - Short-term liquidity requirements include operating expenses, advisory fees, recurring maintenance, debt interest/principal payments, and common/preferred stock distributions[313] - Short-term liquidity is met through net cash from operations, existing cash balances, and short-term borrowings from the secured revolving credit facility[313] - Long-term liquidity needs for acquisitions, redevelopments, and capital expenditures are met through the revolving credit facility, equity/preferred equity issuances, working capital, and debt financings[313] - The company's ability to fund capital improvements from retained earnings is limited by the REIT distribution requirement (at least 90% of REIT taxable income)[315] - The company has a $75 million senior secured revolving credit facility, with $25 million outstanding as of March 10, 2020, and was in compliance with all financial covenants at December 31, 2019[318][320][321] Sources and Uses of Cash Analysis of cash flows from operating, investing, and financing activities for 2019, showing changes in cash balances - As of December 31, 2019, cash and cash equivalents were $72.0 million, down from $182.6 million at December 31, 2018[322] - Net cash flows from operating activities were $66.3 million in 2019, down from $70.7 million in 2018, impacted by hotel operations, acquisitions, and dispositions[322] - Net cash flows used in investing activities were $226.4 million in 2019, primarily for the Ritz-Carlton, Lake Tahoe acquisition ($111.8 million) and capital improvements ($136.3 million)[322] - Net cash flows provided by financing activities were $32.1 million in 2019, including $329.5 million in borrowings and $0.6 million from preferred stock issuance, offset by $257.1 million in debt repayments and $33.4 million in dividends[322] Inflation The company's ability to manage inflation depends on hotel performance and managers' capacity to increase room rates and control costs - The company relies on hotel property performance and managers' ability to increase revenues to keep pace with inflation[325] - Hotel operators can generally increase room rates quickly, but competitive pressures may limit the ability to outpace inflation[325] - General and administrative costs, property taxes, insurance, and utilities are also subject to inflation[325] Off-Balance Sheet Arrangements The company evaluates partnerships and joint ventures for consolidation but reports no other off-balance sheet arrangements - The company may form or invest in partnerships or joint ventures, evaluating each for consolidation as a variable interest entity (VIE)[326] - As of the reporting date, the company has no other off-balance sheet arrangements[326] Contractual Obligations and Commitments Summary of contractual obligations including long-term debt, operating leases, and capital commitments as of December 31, 2019 Contractual Obligations and Commitments (December 31, 2019, in thousands) | Obligation | < 1 Year | 1-3 Years | 3-5 Years | > 5 Years | Total | |:---|:---|:---|:---|:---|:---|\ | Long-term debt obligations | $502,500 | $135,000 | $427,500 | $— | $1,065,000 | | (1) Estimated interest obligations | $31,282 | $39,730 | $16,097 | $— | $87,109 | | Operating lease obligations | $3,258 | $6,493 | $6,453 | $148,440 | $164,644 | | Capital commitments | $27,167 | $— | $— | $— | $27,167 | | Total contractual obligations | $564,207 | $181,223 | $450,050 | $148,440 | $1,343,920 | - The company also has management agreements requiring monthly management fees, incentive fees, and other general fees, expiring between December 2023 and December 2065[327] - Compliance with financial covenants in loan agreements is critical; violations could require early debt repayment or restrict borrowing; the company was in compliance at December 31, 2019[327] Critical Accounting Policies Key accounting policies include impairment of hotel investments and income taxes, with a valuation allowance against deferred tax assets - Impairment of Investments in Hotel Properties: Hotels are reviewed for impairment when carrying amounts may not be recoverable, measured by comparing carrying amount to estimated future undiscounted cash flows; an impairment charge is recognized if net book value exceeds estimated fair value[327] - Income Taxes: The company accounts for income taxes related to its TRSs using the asset and liability method; a valuation allowance of $11.6 million was recorded at December 31, 2019, against deferred tax assets due to uncertainty of realization[330] - Tax positions are evaluated for sustainability upon examination by taxing authorities; tax years 2015-2019 remain subject to potential examination[331] Recently Adopted Accounting Standards The company adopted ASU 2016-02, Leases (Topic 842), in 2019, recognizing ROU assets and lease liabilities - The company adopted ASU 2016-02, Leases (Topic 842), effective January 1, 2019, on a modified retrospective basis, recognizing ROU assets and lease liabilities for leases longer than 12 months[333] - Upon adoption, operating lease liabilities of $60.6 million and a corresponding ROU asset of $82.5 million (including reclassified intangible assets of $22.3 million) were recorded[335] - The adoption did not materially impact consolidated statements of operations and cash flows[335] Recently Issued Accounting Standards The company is evaluating ASU 2016-13 and ASU 2020-01 regarding financial instruments and equity securities - The company is evaluating ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), effective for fiscal years beginning after December 15, 2019, which replaces the 'incurred loss' method with an 'expected credit loss' impairment model[336] - ASU 2020-01, Investments – Equity Securities (Topic 321), effective for fiscal years beginning after December 15, 2020, clarifies interactions between accounting for equity securities, equity method investments, and derivative instruments[336] Non-GAAP Financial Measures Non-GAAP measures like EBITDAre, Adjusted EBITDAre, FFO, and AFFO are presented to evaluate operating performance and financial obligations - The company presents non-GAAP measures: EBITDA, EBITDAre, Adjusted EBITDAre, FFO, and AFFO, to evaluate operating performance and provide useful information to investors[337] - EBITDAre is defined as net income (loss) before interest expense, depreciation, amortization, income taxes, equity in (earnings) loss of unconsolidated entity, impairment charges, and (gain) loss on disposition of hotel properties[337] - Adjusted EBITDAre further adjusts EBITDAre for items like amortization of favorable/unfavorable contracts, transaction costs, write-off of loan costs, legal/advisory costs, and non-cash items[337] Reconciliation of Net Income (Loss) to EBITDA, EBITDAre, and Adjusted EBITDAre (in thousands) | Category | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net income (loss) | $1,196 | $2,585 | $28,324 | | Interest expense and amortization of loan costs | 54,507 | 49,653 | 38,937 | | Depreciation and amortization | 70,112 | 57,383 | 52,262 | | Income tax expense (benefit) | 1,764 | 2,432 | (522) | | Equity in (earnings) loss of unconsolidated entities | 199 | 234 | — | | Company's portion of EBITDA of OpenKey | (195) | (220) | — | | EBITDA | 127,583 | 112,067 | 119,001 | | Impairment charges on real estate | — | 71 | 1,068 | | (Gain) loss on insurance settlement, disposition of assets and sale of hotel properties | (25,165) | (15,738) | (23,797) | | EBITDAre | 102,418 | 96,400 | 96,272 | | Amortization of favorable (unfavorable) contract assets (liabilities) | 651 | 195 | 180 | | Transaction and conversion costs | 2,076 | 2,965 | 6,774 | | Other (income) expense | 13,947 | 253 | 377 | | Write-off of loan costs and exit fees | 647 | 4,178 | 3,874 | | Unrealized (gain) loss on investment in Ashford Inc. | (7,872) | 8,010 | (9,717) | | Unrealized (gain) loss on derivatives | 1,103 | 82 | 2,056 | | Non-cash stock/unit-based compensation | 7,943 | 7,004 | (1,327) | | Legal, advisory and settlement costs | 527 | (241) | 3,711 | | Contract modification cost | — | — | 5,000 | | Software implementation costs | — | — | 79 | | Uninsured hurricane and wildfire related costs | — | 412 | 3,821 | | Company's portion of adjustments to EBITDAre of OpenKey | 25 | 7 | — | | Adjusted EBITDAre | $121,465 | $119,265 | $111,100 | Reconciliation of Net Income (Loss) to FFO and Adjusted FFO (in thousands) | Category | 2019 | 2018 | 2017 | |:---|:---|:---|:---|\ | Net income (loss) | $1,196 | $2,585 | $28,324 | | Income from consolidated entities attributable to noncontrolling interest | (2,032) | (2,016) | (3,264) | | Net (Income) loss attributable to redeemable noncontrolling interests in operating partnership | 1,207 | 751 | (2,038) | | Preferred dividends | (10,142) | (7,205) | (6,795) | | Net income (loss) attributable to common stockholders (1) | (9,771) | (5,885) | 16,227 | | Depreciation and amortization on real estate | 66,933 | 54,350 | 49,361 | | Impairment charges on real estate | — | 71 | 1,068 | | Net income (loss) attributable to redeemable noncontrolling interests in operating partnership | (1,207) | (751) | 2,038 | | Equity in (earnings) loss of unconsolidated entity | 199 | 234 | — | | (Gain) loss on insurance settlement, disposition of assets and sale of hotel properties | (25,165) | (15,738) | (23,797) | | Company's portion of FFO of OpenKey | (201) | (224) | — | | FFO available to common stockholders and OP unitholders | 30,788 | 32,057 | 44,897 | | Series B Cumulative Convertible Preferred Stock dividends | 6,842 | 6,829 | 6,795 | | Transaction and conversion costs | 2,076 | 2,965 | 6,774 | | Other (income) expense | 13,947 | 253 | 377 | | Interest expense accretion on refundable membership club benefits | 864 | 676 | — | | Write-off of loan costs and exit fees | 647 | 4,178 | 3,874 | | Amortization of loan costs (1) | 4,263 | 4,164 | 4,804 | | Unrealized (gain) loss on investment in Ashford Inc. | (7,872) | 8,010 | (9,717) | | Unrealized (gain) loss on derivatives (1) | 1,103 | 82 | 2,053 | | Non-cash stock/unit-based compensation | 7,943 | 7,004 | (1,327) | | Legal, advisory and settlement costs | 527 | (241) | 3,711 | | Contract modification cost | — | — | 5,000 | | Software implementation costs | — | — | 79 | | Uninsured hurricane and wildfire related costs | — | 412 | 3,821 | | Tax reform (1) | — | — | (161) | | Company's portion of adjustments to FFO of OpenKey | 28 | 7 | — | | AFFO available to common stockholders and OP unitholders | $61,156 | $66,396 | $70,980 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate exposure on $1.1 billion variable-rate debt, managed with derivatives like caps and floors - The primary market risk exposure is to changes in interest rates on variable-rate debt; as of December 31, 2019, all $1.1 billion of gross indebtedness was variable-rate[357] - A 25-basis point change in interest rates on variable-rate debt would impact annual results of operations by approximately $2.7 million[357] - The company uses credit default swaps (notional amount $50.0 million, estimated total exposure $1.2 million) tied to the CMBX index to hedge financial and capital market risk[359] - Interest rate floors with notional amounts totaling $5.0 billion and strike rates from -0.25% to 1.63% are held, with total exposure capped at an initial cost of $3.6 million[360] - Changes in LIBOR reporting practices or the use of alternative reference rates (like SOFR) could adversely affect financing costs[187][188] Item 8. Financial Statements and Supplementary Data Audited consolidated financial statements for 2017-2019, including balance sheets, statements of operations, and notes, with an unqualified audit opinion - The consolidated financial statements for the years ended December 31, 2019, 2018, and 2017 are presented, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows[362] - BDO USA, LLP, the independent registered public accounting firm, expressed an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[364][365] - The company adopted ASU No. 2016-02, Leases (Topic 842), in 2019, changing its method of accounting for leases[366] Report of Independent Registered Public Accounting Firms BDO USA, LLP issued an unqualified opinion on the financial statements and internal controls for 2019 - BDO USA, LLP audited the consolidated financial statements for the period ended December 31, 2019, and expressed an unqualified opinion, stating they present fairly the financial position and results of operations in conformity with GAAP[364] - The firm also audited the company's internal control over financial reporting as of December 31, 2019, based on COSO criteria, and expressed an unqualified opinion on its effectiveness[365] - The company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases, using the modified retrospective method[366] Consolidated Balance Sheets — December 31, 2019 and 2018 Consolidated balance sheets for 2019 and 2018, detailing assets, liabilities, and equity Consolidated Balance Sheets (in thousands) | Asset/Liability | December 31, 2019 | December 31, 2018 | |:---|:---|:---|\ | ASSETS | | | | Investments in hotel properties, net | $1,481,422 | $1,299,901 | | Cash and cash equivalents | $71,995 | $182,578 | | Restricted cash | $58,388 | $75,910 | | Operating lease right-of-use assets | $82,596 | $— | | Total assets | $1,758,947 | $1,636,487 | | LIABILITIES AND EQUITY | | | | Indebtedness, net | $1,058,486 | $985,873 | | Accounts payable and accrued expenses | $94,919 | $64,116 | | Operating lease liabilities | $61,118 | $— | | Total liabilities | $1,247,203 | $1,093,394 | | Total stockholders' equity of the Company | $369,267 | $397,476 | | Total liabilities and equity | $1,758,947 | $1,636,487 | Consolidated Statements of Operations — Years Ended December 31, 2019, 2018 and 2017 Consolidated statements of operations for 2017-2019, showing revenue, expe