Braemar Hotels & Resorts(BHR) - 2020 Q3 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This report is Braemar Hotels & Resorts Inc.'s Form 10-Q for Q3 2020, confirming compliance with filing requirements as an Accelerated Filer - Company Name: BRAEMAR HOTELS & RESORTS INC.[1] - Reporting Period: Quarter ended September 30, 2020[1] - Filing Status: Accelerated Filer[3] Registered Securities Information | Security Type | Ticker | Exchange | | :--------------------------------- | :------- | :----------------------------------- | | Common Stock | BHR | New York Stock Exchange | | Preferred Stock, Series B | BHR-PB | New York Stock Exchange | | Preferred Stock, Series D | BHR-PD | New York Stock Exchange | | Common Stock (par value $0.01 per share) | | 36,686,729 shares (as of November 5, 2020) | TABLE OF CONTENTS TABLE OF CONTENTS This section provides an organized list of all chapters and sub-sections within the report for easy navigation PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows CONDENSED CONSOLIDATED BALANCE SHEETS As of September 30, 2020, total assets decreased to $1.702 billion, while total liabilities increased to $1.282 billion, and total equity declined to $282.582 million Condensed Consolidated Balance Sheets Key Data (Units: thousands of dollars) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Assets | | | | Investments in hotel properties, net | 1,436,679 | 1,481,422 | | Cash and cash equivalents | 88,227 | 71,995 | | Restricted cash | 34,658 | 58,388 | | Total assets | 1,702,144 | 1,758,947 | | Liabilities | | | | Indebtedness, net | 1,132,987 | 1,058,486 | | Accounts payable and accrued expenses | 64,931 | 94,919 | | Total liabilities | 1,282,497 | 1,247,203 | | Equity | | | | Equity attributable to company's stockholders | 296,209 | 369,267 | | Total equity | 282,582 | 363,254 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended September 30, 2020, total revenue significantly decreased by 62.4% to $44,754 thousand, leading to an expanded net loss of $23,057 thousand and a basic and diluted loss per share of $0.63 Condensed Consolidated Statements of Operations Key Data (Units: thousands of dollars, except per share amounts) | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Total revenue | 44,754 | 118,884 | | Total hotel operating expenses | 37,806 | 79,147 | | Operating income (loss) | (14,319) | 7,320 | | Income (loss) before income taxes | (24,602) | (8,799) | | Net income (loss) | (23,057) | (8,954) | | Net income (loss) attributable to the company | (18,677) | (9,388) | | Net income (loss) attributable to common stockholders | (21,231) | (11,921) | | Basic and diluted net income (loss) per share | (0.63) | (0.37) | | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Total revenue | 175,169 | 365,913 | | Total hotel operating expenses | 146,093 | 238,378 | | Operating income (loss) | (57,401) | 34,118 | | Income (loss) before income taxes | (99,171) | (14,406) | | Net income (loss) | (94,549) | (15,899) | | Net income (loss) attributable to the company | (79,538) | (14,879) | | Net income (loss) attributable to common stockholders | (87,202) | (22,476) | | Basic and diluted net income (loss) per share | (2.63) | (0.71) | CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the three months ended September 30, 2020, the company reported a total comprehensive loss of $23,057 thousand, with $18,677 thousand attributable to the company, indicating a widened loss compared to the prior year Condensed Consolidated Statements of Comprehensive Income (Loss) Key Data (Units: thousands of dollars) | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Net income (loss) | (23,057) | (8,954) | | Other comprehensive income (loss), net of tax | — | — | | Total comprehensive income (loss) | (23,057) | (8,954) | | Comprehensive income (loss) attributable to the company | (18,677) | (9,388) | | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income (loss) | (94,549) | (15,899) | | Other comprehensive income (loss), net of tax | — | — | | Total comprehensive income (loss) | (94,549) | (15,899) | | Comprehensive income (loss) attributable to the company | (79,538) | (14,879) | CONDENSED CONSOLIDATED STATEMENTS OF EQUITY As of September 30, 2020, total equity decreased to $282,582 thousand from $363,254 thousand at December 31, 2019, primarily due to common stock issuance, equity compensation, preferred stock dividends, and net loss Condensed Consolidated Statements of Equity Key Data (Units: thousands of dollars, except per share amounts) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | 8.25% Series D Preferred Stock shares | 1,600 | 1,600 | | 8.25% Series D Preferred Stock amount | 16 | 16 | | Common Stock shares | 36,600 | 32,885 | | Common Stock amount | 365 | 329 | | Additional paid-in capital | 533,641 | 519,551 | | Accumulated deficit | (237,813) | (150,629) | | Total equity attributable to company's stockholders | 296,209 | 369,267 | | Noncontrolling interests in consolidated entities | (13,627) | (6,013) | | Total equity | 282,582 | 363,254 | | 5.50% Series B Convertible Preferred Stock shares | 5,031 | 5,008 | | 5.50% Series B Convertible Preferred Stock amount | 107,352 | 106,920 | | Redeemable noncontrolling interests in operating partnership | 29,713 | 41,570 | - As of September 30, 2020, 3,046 thousand common shares were issued, increasing additional paid-in capital by $6,380 thousand[12] - For the three months ended September 30, 2020, preferred stock dividends of $2,554 thousand were paid[12] - Net loss for the three months ended September 30, 2020, increased the accumulated deficit by $18,677 thousand[12] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2020, operating activities resulted in a $35,629 thousand outflow, investing activities a $18,949 thousand outflow, while financing activities generated a $47,085 thousand inflow, with total cash, cash equivalents, and restricted cash at period-end reaching $122,885 thousand Condensed Consolidated Statements of Cash Flows Key Data (Units: thousands of dollars) | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash flow from operating activities | (35,629) | 48,966 | | Net cash flow from investing activities | (18,949) | (209,965) | | Net cash flow from financing activities | 47,085 | 42,461 | | Net change in cash, cash equivalents, and restricted cash | (7,493) | (118,538) | | Cash, cash equivalents, and restricted cash at end of period | 122,885 | 139,950 | - Operating cash outflow was primarily driven by a net loss of $94,549 thousand, partially offset by depreciation and amortization of $55,398 thousand[16] - Investing cash outflow was mainly for capital improvements to hotel properties totaling $21,451 thousand, partially offset by insurance proceeds of $2,528 thousand[16] - Financing cash inflow primarily resulted from borrowings of $109,317 thousand, partially offset by debt repayments of $46,033 thousand and dividend and distribution payments of $13,599 thousand[16] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering organization, accounting policies, revenue, investments, debt, derivatives, fair value measurements, earnings per share, equity, and related party transactions 1. Organization and Description of Business Braemar Hotels & Resorts Inc. invests in high-RevPAR luxury hotels and resorts, operates as a REIT through Braemar OP, and is advised by Ashford Hospitality Advisors LLC, owning 13 hotel properties as of September 30, 2020 - Company investment strategy: high RevPAR luxury hotels and resorts, with RevPAR at least twice the national U.S. average[21] - REIT status: has elected to be taxed as a Real Estate Investment Trust (REIT)[21] - Operating model: owns assets through operating partnership Braemar OP, advised by Ashford LLC for advisory and asset management services, and engages hotel management companies for operations[21][22][23] - Hotel portfolio: as of September 30, 2020, owns 13 hotel properties with 3,722 guestrooms across 6 states, the District of Columbia, and the U.S. Virgin Islands[25] - COVID-19 impact: significant decline in occupancy and RevPAR since late February 2020, with 11 hotels temporarily suspending operations, expected to materially negatively impact operations, financial condition, and cash flows for the remainder of 2020 and 2021[27][29] - Liquidity measures: fully drew down $75 million secured revolving credit facility (later converted to a term loan), suspended common stock cash dividends, and significantly reduced capital expenditures and hotel operating expenses[29] - Debt defaults and waivers: almost all loan agreements were in default for interest payments starting April 1, 2020, but through forbearance and other agreements with lenders, all loans were no longer in default as of September 30, 2020[30] - Going concern assessment: management believes significant doubt about the company's ability to continue as a going concern has been alleviated based on completed credit agreement amendments, forbearance agreements, existing cash, and operating projections for the next 12 months[36] 2. Significant Accounting Policies These condensed consolidated financial statements are prepared under GAAP and Form 10-Q requirements, consolidating Braemar Hotels & Resorts Inc. and its majority-owned subsidiaries, including Braemar OP as a Variable Interest Entity - Preparation basis: prepared in accordance with GAAP and Form 10-Q interim financial information requirements, including normal recurring accruals[37] - Consolidation principles: include Braemar Hotels & Resorts Inc. and its majority-owned subsidiaries and controlled entities, with all significant intercompany accounts and transactions eliminated[37] - Variable Interest Entity: Braemar OP is considered a Variable Interest Entity (VIE), with the company as its primary beneficiary, thus consolidated[38] - Comparability impact: historical seasonality patterns and the acquisition of Ritz-Carlton, Lake Tahoe on January 15, 2019, affect financial statement comparability[39] - New accounting standards: ASU 2016-13 (Financial Instruments—Credit Losses) adopted January 1, 2020, had no material impact; ASU 2020-01 (Investments—Equity Securities), ASU 2020-04 (Reference Rate Reform), and ASU 2020-06 (Convertible Instruments) are being evaluated for potential impact[44][45][46][47] 3. Revenue For the three months ended September 30, 2020, total hotel revenue significantly decreased to $44,754 thousand year-over-year, with California contributing the highest room revenue and USVI hotels also showing significant revenue Hotel Revenue by Geographic Region (Units: thousands of dollars) | Geographic Region | Number of Hotels | Total Hotel Revenue for Three Months Ended September 30, 2020 | | :---------------- | :--------------- | :---------------------------------------------------- | | California | 5 | 15,935 | | Colorado | 1 | 4,039 | | Florida | 2 | 13,540 | | Illinois | 1 | 2,073 | | Pennsylvania | 1 | 1,155 | | Washington | 1 | 1,177 | | Washington D.C. | 1 | 627 | | USVI | 1 | 6,208 | | Total | 13 | 44,754 | | Geographic Region | Number of Hotels | Total Hotel Revenue for Three Months Ended September 30, 2019 | | :---------------- | :--------------- | :---------------------------------------------------- | | California | 5 | 45,701 | | Colorado | 1 | 9,069 | | Florida | 2 | 15,666 | | Illinois | 1 | 10,217 | | Pennsylvania | 1 | 8,459 | | Washington | 1 | 12,392 | | Washington D.C. | 1 | 12,955 | | USVI | 1 | 4,423 | | Total | 13 | 118,884 | | Geographic Region | Number of Hotels | Total Hotel Revenue for Nine Months Ended September 30, 2020 | | :---------------- | :--------------- | :--------------------------------------------------- | | California | 5 | 54,811 | | Colorado | 1 | 19,827 | | Florida | 2 | 47,228 | | Illinois | 1 | 6,257 | | Pennsylvania | 1 | 7,680 | | Washington | 1 | 6,155 | | Washington D.C. | 1 | 11,513 | | USVI | 1 | 21,698 | | Total | 13 | 175,169 | | Geographic Region | Number of Hotels | Total Hotel Revenue for Nine Months Ended September 30, 2019 | | :---------------- | :--------------- | :--------------------------------------------------- | | California | 5 | 127,737 | | Colorado | 1 | 31,688 | | Florida | 2 | 65,796 | | Illinois | 1 | 26,017 | | Pennsylvania | 1 | 22,149 | | Washington | 1 | 29,637 | | Washington D.C. | 1 | 43,835 | | USVI | 1 | 19,047 | | Total | 13 | 365,913 | - In Q3 2020, the company reported $0 in business interruption losses due to Hurricane Irma, compared to $4 million in the prior-year period[52] - For the nine months ended September 30, 2020, business interruption losses from Hurricane Irma were $4 million, compared to $16.6 million in the prior-year period[52] 4. Investments in Hotel Properties, net As of September 30, 2020, net investments in hotel properties decreased to $1,436,679 thousand from $1,481,422 thousand at December 31, 2019, primarily due to increased accumulated depreciation and reduced construction in progress, with a $10.1 million gain recognized from a Hurricane Irma insurance settlement Investments in Hotel Properties, net (Units: thousands of dollars) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Land | 455,298 | 455,298 | | Buildings and improvements | 1,187,947 | 1,173,151 | | Furniture, fixtures, and equipment | 127,553 | 129,595 | | Construction in progress | 9,758 | 33,130 | | Total cost | 1,780,556 | 1,791,174 | | Accumulated depreciation | (343,877) | (309,752) | | Investments in hotel properties, net | 1,436,679 | 1,481,422 | - In September 2020, the company reached a final settlement for Hurricane Irma insurance claims, recognizing a $10.1 million gain as proceeds exceeded the hotel property's book value at the time of loss[55] - As of September 30, 2020, the company had $6.5 million in accounts receivable related to insurance settlements[55] - For the nine months ended September 30, 2020, the company received $8 million from insurers for Hurricane Irma property damage and business interruption, compared to $14.9 million in the prior-year period[56] - No impairment charges were recorded for the three and nine months ended September 30, 2020, or 2019[57] 5. Investment in Unconsolidated Entity The company's investment in OpenKey, a hotel mobile key platform, is accounted for using the equity method, with a total investment of $2.4 million and a carrying value of $1,787 thousand as of September 30, 2020, reflecting an 8.2% ownership stake and equity losses for the period - Investment target: OpenKey, a hotel mobile key platform[58] - Accounting method: accounted for using the equity method due to the company's significant influence[59] OpenKey Investment Summary (Units: thousands of dollars) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Investment carrying value | 1,787 | 1,899 | | Ownership percentage | 8.2% | 8.6% | | Equity income (loss) | | | | Three Months Ended September 30, 2020 | (58) | (48) | | Nine Months Ended September 30, 2020 | (138) | (149) | - Additional investment of $26 thousand was made during the nine months ended September 30, 2020[58] 6. Indebtedness, net As of September 30, 2020, net indebtedness increased to $1,132,987 thousand from $1,058,486 thousand at December 31, 2019, primarily comprising multiple mortgage loans and a $65 million secured term loan, with prior defaults resolved through forbearance agreements and $9.9 million in capitalized default interest and late fees Indebtedness, net Composition (Units: thousands of dollars) | Debt Type | Collateral | Maturity Date | Interest Rate (LIBOR+) | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :--------------------------------------- | :------------ | :------------- | :----------------- | :---------------- | | Secured Revolving Credit Facility | Equity | October 2022 | 1.25%-3.50% | — | — | | Mortgage Loan | Park Hyatt Beaver Creek | April 2021 | 2.75% | 67,500 | 67,500 | | Mortgage Loan | The Notary Hotel, etc. | June 2021 | 2.16% | 435,000 | 435,000 | | Mortgage Loan | Ritz-Carlton, St. Thomas | August 2021 | 3.95% | 42,500 | 42,500 | | Mortgage Loan | Hotel Yountville | May 2022 | 2.55% | 51,000 | 51,000 | | Mortgage Loan | Bardessono Hotel | August 2022 | 2.55% | 40,000 | 40,000 | | Term Loan | Equity | October 2022 | 1.25%-3.50% | 63,284 | — | | Mortgage Loan | Ritz-Carlton, Sarasota | April 2023 | 2.65% | 100,000 | 100,000 | | Mortgage Loan | Ritz-Carlton, Lake Tahoe | January 2024 | 2.10% | 54,000 | 54,000 | | Mortgage Loan | Capital Hilton, etc. | February 2024 | 1.70% | 197,229 | 195,000 | | Mortgage Loan | Pier House Resort | September 2024 | 1.85% | 80,000 | 80,000 | | Total Indebtedness | | | | 1,130,513 | 1,065,000 | | Capitalized default interest and late fees | | | | 8,610 | — | | Deferred loan costs, net | | | | (6,136) | (6,514) | | Indebtedness, net | | | | 1,132,987 | 1,058,486 | - On June 8, 2020, the company converted its $75 million secured revolving credit facility into a $65 million secured term loan, repaying $10 million in principal[63] - Starting April 1, 2020, almost all loan agreements were in default for interest payments, but through forbearance and other agreements with lenders, all loans were no longer in default as of September 30, 2020[64][65] - $9.9 million in default interest and late fees were capitalized into loan balances and will be amortized over the remaining loan terms using the effective interest method[67] - For the nine months ended September 30, 2020, the company repaid $34.3 million in PPP loans[62] 7. Derivative Instruments The company primarily uses interest rate derivatives, including interest rate caps and floors, to hedge debt and cash flow risks, and credit default swaps linked to the CMBX index to hedge financial and capital market risks, with notional amounts of $779,000 thousand for interest rate caps and $50,000 thousand for credit default swaps as of September 30, 2020 - Interest rate derivatives: primarily used to hedge debt and cash flow risks, including interest rate caps and floors[68] Interest Rate Derivative Summary (Units: thousands of dollars) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Interest rate cap notional amount | 779,000 | 968,000 | | Interest rate cap strike rate range | 3.00%-4.00% | 3.00%-7.80% | | Interest rate floor notional amount | — | 5,000,000 | - Credit default swaps: used to hedge financial and capital market risks, linked to the CMBX index; as of September 30, 2020, the notional amount was $50,000 thousand, with an estimated total exposure of approximately $1.2 million[71] 8. Fair Value Measurements The company measures financial instruments using a three-level fair value hierarchy, with credit default swaps valued by third parties as Level 2 inputs, but classified as Level 3 if valuation adjustments using unobservable inputs like credit spreads are significant to the overall valuation, resulting in $777 thousand in derivative assets as of September 30, 2020 - Fair value hierarchy: categorized into three levels based on the observability of market inputs[72] - Credit default swaps: fair value obtained from third parties, classified as Level 2 inputs[73] - Derivative valuation: when valuation adjustments use Level 3 inputs (e.g., credit spreads) and are significant to the overall valuation, derivative valuations are classified as Level 3 overall[74] Assets and Liabilities Measured at Fair Value by Level (Units: thousands of dollars) | Indicator | Total as of September 30, 2020 | Total as of December 31, 2019 | | :--------------------------------- | :----------------------------- | :---------------------------- | | Assets | | | | Derivative assets: | | | | Credit default swaps | 777 | 528 | | Interest rate derivatives - floors | — | 53 | | Interest rate derivatives - caps | — | 1 | | Total Derivative Assets | 777 | 582 | Impact of Fair Value Measured Assets and Liabilities on Consolidated Statements of Operations (Units: thousands of dollars) | Indicator | Gain (Loss) for Three Months Ended September 30, 2020 | Gain (Loss) for Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Interest rate derivatives - floors | — | (717) | | Interest rate derivatives - caps | (30) | (26) | | Credit default swaps | 51 | (61) | | Total Derivative Assets | 21 | (804) | | Unrealized gain (loss) on Ashford Inc. investment | — | (1,471) | | Total | 21 | (2,275) | 9. Summary of Fair Value of Financial Instruments As of September 30, 2020, the company's derivative assets had a carrying and fair value of $777 thousand, while short-term financial instruments like cash and accounts receivable approximated fair value, and debt's fair value was estimated between 78.3% and 86.5% of its carrying value, reflecting market interest rates and credit spreads Carrying Value and Estimated Fair Value of Financial Instruments (Units: thousands of dollars) | Financial Instrument Type | Carrying Value as of September 30, 2020 | Estimated Fair Value as of September 30, 2020 | Carrying Value as of December 31, 2019 | Estimated Fair Value as of December 31, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------------ | :----------------------------------- | :----------------------------------------- | | Derivative assets | 777 | 777 | 582 | 582 | | Cash and cash equivalents | 88,227 | 88,227 | 71,995 | 71,995 | | Restricted cash | 34,658 | 34,658 | 58,388 | 58,388 | | Accounts receivable, net | 17,335 | 17,335 | 19,053 | 19,053 | | Indebtedness | 1,130,513 | 884,893 to 978,040 | 1,065,000 | 1,003,863 to 1,109,532 | | Accounts payable and accrued expenses | 64,931 | 64,931 | 94,919 | 94,919 | - The carrying value of cash, cash equivalents, and restricted cash approximates fair value due to their short maturities and market interest rates, classified as Level 1 valuation techniques[81] - Short-term financial instruments like accounts receivable and accounts payable approximate fair value, classified as Level 1 valuation techniques[82] - The fair value of indebtedness is determined by discounting future cash flows at current replacement rates, classified as Level 2 valuation techniques; as of September 30, 2020, debt fair value was estimated between 78.3% and 86.5% of its carrying value[84] 10. Income (Loss) Per Share For the three months ended September 30, 2020, net loss attributable to common stockholders was $21,231 thousand, resulting in a basic and diluted loss per share of $0.63, with certain items excluded from diluted EPS calculation due to their anti-dilutive effect Income (Loss) Per Share Calculation Summary (Units: thousands of dollars, except per share amounts) | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Net income (loss) attributable to the company | (18,677) | (9,388) | | Less: Preferred stock dividends | (2,554) | (2,533) | | Net income (loss) attributable to common stockholders | (21,231) | (11,921) | | Weighted-average common shares outstanding – basic and diluted | 33,923 | 32,347 | | Basic and diluted net income (loss) per share | (0.63) | (0.37) | | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income (loss) attributable to the company | (79,538) | (14,879) | | Less: Preferred stock dividends | (7,664) | (7,597) | | Net income (loss) attributable to common stockholders | (87,202) | (22,476) | | Weighted-average common shares outstanding – basic and diluted | 33,103 | 32,259 | | Basic and diluted net income (loss) per share | (2.63) | (0.71) | - Due to their anti-dilutive effect, unvested restricted stock, unvested performance share units, redeemable noncontrolling interests in the operating partnership, Series B preferred stock dividends, advisory services incentive fee shares, and contingently issuable shares were not reflected in the diluted earnings (loss) per share calculation[87] 11. Redeemable Noncontrolling Interests in Operating Partnership Redeemable noncontrolling interests represent limited partners' proportional equity and income/loss allocations in Braemar OP, with common and LTIP units convertible into common stock or cash, totaling $29,713 thousand and representing 10.08% ownership as of September 30, 2020 - Redeemable noncontrolling interests: represent the proportional equity share and income/loss allocations of limited partners in Braemar OP[88] - LTIP units: typically have a three-year vesting period and are convertible into common units upon achieving economic parity, which can then be redeemed for cash or converted into company common stock[90] - Director compensation adjustment: for fiscal year 2020, independent directors will receive full annual cash retainers, with 25% paid in fully vested common stock or LTIP units and 75% in cash (with an option to convert to stock or LTIP units)[91] - Performance LTIP units: granted to executives and directors, with the actual number earned ranging from 0% to 200% of the target based on relative total shareholder return performance[93] Redeemable Noncontrolling Interests in Operating Partnership Summary (Units: thousands of dollars) | Indicator | September 30, 2020 | December 31, 2019 | | :--------------------------------- | :----------------- | :---------------- | | Redeemable noncontrolling interests | 29,713 | 41,570 | | Operating partnership ownership percentage | 10.08% | 10.96% | | Net income (loss) attributable to redeemable noncontrolling interests | | | | Three Months Ended September 30, 2020 | 2,381 | 1,465 | | Nine Months Ended September 30, 2020 | 10,036 | 2,770 | 12. Equity and Stock-Based Compensation The company suspended common stock dividends in 2020 but continued Series D cumulative preferred stock dividends, granted Performance Share Units (PSUs) and Restricted Stock Units (RSUs) as equity incentives, and issued 3 million common shares for $7.7 million through an "at-the-market" equity distribution program as of September 30, 2020 - Common stock dividends: no common stock dividends paid for the nine months ended September 30, 2020, compared to $16,004 thousand paid in the prior-year period[99] - Performance Share Units (PSUs): 225,000 PSUs granted in March 2020 with a fair value of approximately $790 thousand and a three-year vesting period[99] - Restricted Stock Units (RSUs): 311,000 RSUs granted in March 2020 with a fair value of approximately $1.4 million and a three-year vesting period; independent directors also received immediately vested common stock[100][101][102] - Series D cumulative preferred stock dividends: $2,475 thousand paid for the nine months ended September 30, 2020, consistent with the prior-year period[103] - Stock repurchase program: board approved a $50 million stock repurchase program, with $50 million remaining authorized and unused as of September 30, 2020[103][104] "At-the-Market" Common Stock Equity Distribution Program Issuance Activity (Units: thousands of dollars) | Indicator | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | | :--------------------------------- | :------------------------------------ | :----------------------------------- | | Common shares issued | 3,046 | 3,046 | | Gross proceeds received | 7,715 | 7,715 | | Commissions and other fees | 97 | 97 | | Net proceeds | 7,618 | 7,618 | 13. 5.50% Series B Cumulative Convertible Preferred Stock Series B cumulative convertible preferred stock is convertible into common stock at the holder's option at $18.70 per share, or at the company's option under specific conditions, and includes cash redemption features; for the nine months ended September 30, 2020, the company issued 23 thousand Series B preferred shares for $432 thousand net proceeds and paid $5,189 thousand in dividends - Conversion feature: holders may elect to convert into common stock at a conversion price of $18.70 per share (conversion rate of 1.3372 common shares)[107] - Company optional conversion: under certain conditions, the company may elect to convert all or part of the Series B preferred stock into common stock[108] - Cash redemption features: include optional redemption (at $25.00 per share), special optional redemption (at $25.00 per share), and REIT termination event and listing event redemption (at 103% of liquidation preference)[109][110] Series B Cumulative Convertible Preferred Stock Issuance Activity (Units: thousands of dollars) | Indicator | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | | :--------------------------------- | :------------------------------------ | :----------------------------------- | | Shares issued | — | 23 | | Gross proceeds received | — | 439 | | Commissions and other fees | — | 7 | | Net proceeds | — | 432 | - Dividend payments: $5,189 thousand in dividends paid for the nine months ended September 30, 2020, compared to $5,122 thousand in the prior-year period[114] 14. Related Party Transactions The company engages in various related party transactions with Ashford Inc. and its subsidiaries, including advisory agreements, Lismore advisory fees, Ashford Securities investment, Enhanced Return Funding Program (ERFP), and project and hotel management agreements, involving advisory fees, equity compensation, debt restructuring service fees, operating expense allocations, and hotel management fees - Advisory agreement: the company pays Ashford LLC monthly base advisory fees (based on total market capitalization and net asset fee adjustments), reimburses certain expenses, and includes equity incentive compensation and incentive fees[114][115][116] Advisory Services Fees Summary (Units: thousands of dollars) | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Base advisory fee | 2,386 | 2,650 | | Reimbursable expenses | 404 | 645 | | Equity incentive compensation | 1,785 | 1,995 | | Incentive fee | — | (132) | | Total | 4,575 | 5,158 | | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Base advisory fee | 7,579 | 8,170 | | Reimbursable expenses | 1,360 | 1,906 | | Equity incentive compensation | 5,606 | 5,426 | | Incentive fee | — | 77 | | Total | 14,545 | 15,579 | - Lismore advisory fees: the company entered an agreement with Lismore, an Ashford Inc. subsidiary, to seek loan modifications, forbearances, or refinancings, paying up to 50 basis points in advisory fees; as of September 30, 2020, approximately $4.1 million was paid to Lismore, with $1.3 million recorded in "other assets"[118][119][120][122] - Ashford Securities: the company co-invested with Ashford Inc. to form Ashford Securities for retail capital raising; as of September 30, 2020, Braemar had contributed approximately $996 thousand[123] - Enhanced Return Funding Program (ERFP): Ashford LLC provides up to $50 million (expandable to $100 million) in funding to facilitate property acquisitions, with each funding representing 10% of the property acquisition price[125][126] - Project management agreements: the company contracts with Premier Project Management LLC (an Ashford Inc. subsidiary) for project management services, including construction management, interior design, and FF&E procurement, paying associated fees[128] - Hotel management agreements: Remington Hotels (an Ashford Inc. subsidiary) manages 3 of the company's 13 hotels, with the company paying monthly hotel management fees (approximately $14 thousand per hotel or 3% of gross revenue) and annual incentive management fees[129][130] 15. Commitments and Contingencies The company faces various commitments and contingencies, including restricted cash, hotel management fee obligations, income tax examinations, and multiple lawsuits, notably an Accor management agreement dispute, California employment law class actions, and an SEC administrative subpoena; management believes the ultimate resolution of these matters, except for specific litigation, will not materially adversely affect the consolidated financial position or results of operations - Restricted cash: required escrow payments for insurance, real estate taxes, and debt service, and capital improvement reserves of 4% to 5% of gross revenue under hotel management and debt agreements[134] - Hotel management fees: under hotel management agreements, the company pays monthly hotel management fees (approximately $14 thousand per hotel or 2.5% to 7.0% of gross revenue) and annual incentive management fees, with agreement terms ranging from December 2023 to December 2065[135] - Income taxes: tax years 2016 through 2019 remain subject to examination by federal and various state tax authorities[138] - Accor management agreement litigation: the company is in litigation with Accor regarding a breach of the management agreement for the Sofitel Chicago Magnificent Mile hotel, involving a dispute over "cure amounts" for failing performance tests[139] - California employment law litigation: a hotel management company associated with the company is involved in multiple lawsuits concerning California hotel employment policies and practices, with one class action potentially costing the company $300 thousand to $500 thousand; another class action has been certified, but potential losses cannot be reasonably estimated[140][142] - SEC investigation: the company, Ashford Trust, Ashford Inc., and Lismore received SEC administrative subpoenas in June 2020, requesting documents and information related to related party transactions, accounting policies, and internal controls since January 1, 2018; company Chairman Monty J. Bennett also received a similar subpoena[141] 16. Segment Reporting The company operates solely within one business segment: direct hotel investments, reporting operating results on an aggregated basis due to similar economic characteristics and long-term financial performance across all hotel properties, which are all located in the U.S. and its territories as of September 30, 2020 - Business segment: direct hotel investments, referring to owning hotel properties through acquisition or new development[145] - Reporting basis: all hotel investments share similar economic characteristics and long-term financial performance, thus operating results are reported on an aggregated basis[145] - Geographical location: as of September 30, 2020, and December 31, 2019, all hotel properties are located in the U.S. and its territories[145] 17. Correction of Immaterial Error The company corrected an immaterial accounting error related to distressed debt restructuring, where default interest and late fees were improperly expensed instead of capitalized and amortized, resulting in a $4.6 million increase in interest expense for the three and six months ended June 30, 2020, and corresponding impacts on net income (loss) and EPS - Error nature: incorrect accounting treatment of default interest and late fees in distressed debt restructuring, which should have been capitalized and amortized instead of immediately expensed[146] - Error impact: the error amounted to $4.6 million for the three and six months ended June 30, 2020[146] - Correction impact: resulted in a $4.6 million increase in interest expense for the three and six months ended June 30, 2020, with corresponding adjustments to net income (loss) and earnings (loss) per share[148] - Management assessment: management assessed that the error's impact on the company's consolidated financial statements was immaterial[147] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, liquidity, and operational performance, including the impact of COVID-19, key performance indicators, and non-GAAP financial measures Overview Braemar Hotels & Resorts Inc. is a Maryland-based REIT focused on investing in high-RevPAR luxury hotels and resorts, owning 13 properties through Braemar OP as of September 30, 2020, with advisory and asset management services provided by Ashford LLC - Company positioning: a REIT investing in high-RevPAR luxury hotels and resorts[160] - Investment portfolio: as of September 30, 2020, owns 13 hotel properties with 3,722 guestrooms, primarily located in U.S. urban and resort areas[161] - Management structure: Ashford LLC provides advisory and asset management services, and the company engages hotel management companies for operations rather than direct management[163][164] - Related parties: Ashford Inc. and its subsidiaries (including Ashford LLC and Remington Hotels) provide various products and services; company Chairman Monty J. Bennett and his father Archie Bennett, Jr. hold significant equity in both Ashford Inc. and the company[165][166][167] Recent Developments This section outlines recent events and their impact on the company, particularly focusing on the effects of the COVID-19 pandemic, management's strategic responses, and the company's liquidity position COVID-19, Management's Plans and Liquidity The COVID-19 pandemic severely impacted operations and liquidity, leading to significant declines in occupancy and RevPAR; the company responded by drawing down credit, suspending dividends, cutting expenses, and securing forbearance agreements, alleviating going concern doubts - COVID-19 impact: significant decline in occupancy and RevPAR since late February 2020, with 11 hotels temporarily suspending operations, expected to materially negatively impact operations, financial condition, and cash flows for the remainder of 2020 and 2021[169] - Liquidity measures: fully drew down $75 million secured revolving credit facility (later converted to a term loan), suspended common stock cash dividends, reduced annual capital expenditures to approximately $25 million, and significantly cut hotel operating expenses[169][172] - Debt defaults and waivers: almost all loan agreements were in default for interest payments starting April 1, 2020, but through forbearance and other agreements with lenders, all loans were no longer in default as of September 30, 2020[171] - Cash position: as of September 30, 2020, the company held $88.2 million in unrestricted cash and $34.7 million in restricted cash; cash, cash equivalents, and restricted cash usage in Q3 was $21.1 million[174] - Going concern assessment: management believes significant doubt about the company's ability to continue as a going concern has been alleviated based on completed credit agreement amendments, forbearance agreements, existing cash, and operating projections for the next 12 months[175] - Lismore agreement: the company entered an agreement with Lismore Capital LLC to seek loan modifications, forbearances, or refinancings, paying advisory fees; as of September 30, 2020, approximately $4.1 million was paid to Lismore[178][179] - Revolving credit facility converted to term loan: on June 8, 2020, the $75 million revolving credit facility was converted to a $65 million term loan, with modified financial covenant terms including a waiver of the fixed charge coverage ratio until March 31, 2021[180] Key Indicators of Operating Performance The company assesses hotel operating performance using key metrics such as occupancy, Average Daily Rate (ADR), and Revenue Per Available Room (RevPAR, a core measure of hotel operations), alongside non-GAAP financial measures like FFO, Adjusted FFO, EBITDAre, and Adjusted EBITDAre - Occupancy: measures the utilization of available hotel rooms[184] - Average Daily Rate (ADR): measures the average room price of a hotel[184] - Revenue Per Available Room (RevPAR): a core metric for hotel operations, calculated by multiplying ADR by occupancy, excluding non-room revenue like food and beverage[184] - RevPAR change impact: increased occupancy leads to higher variable operating costs, while increased ADR has a greater impact on operating margins and profitability[185] - Non-GAAP financial measures: FFO, Adjusted FFO, EBITDAre, and Adjusted EBITDAre are used to evaluate operating performance[187] - Accounting error correction: the company corrected an accounting error related to default interest and late fees in distressed debt restructuring, leading to increased interest expense and affecting FFO and Adjusted FFO[187] RESULTS OF OPERATIONS This section provides a detailed comparison of the company's operating results for the three and nine months ended September 30, 2020, against the corresponding periods in 2019, highlighting the impact of the COVID-19 pandemic on revenue, expenses, and profitability Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 In Q3 2020, total revenue declined by 62.4% to $44,754 thousand due to COVID-19, expanding net loss to $18,677 thousand, despite a 7.8% increase in ADR, as occupancy significantly dropped by 5,633 basis points, and hotel operating expenses were substantially reduced 2020 Q3 vs 2019 Q3 Operating Results Comparison (Units: thousands of dollars, except percentages) | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | Change Amount | Change Percentage | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :------------ | :---------------- | | Total revenue | 44,754 | 118,884 | (74,130) | (62.4)% | | Total hotel operating expenses | 37,806 | 79,147 | 41,341 | 52.2% | | Operating income (loss) | (14,319) | 7,320 | (21,639) | (295.6)% | | Net income (loss) | (23,057) | (8,954) | (14,103) | (157.5)% | | Net income (loss) attributable to the company | (18,677) | (9,388) | (9,289) | (98.9)% | 2020 Q3 vs 2019 Q3 Hotel Key Performance Indicators Comparison | Indicator | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | | :--------------------------------- | :------------------------------------ | :------------------------------------ | | Occupancy | 26.88% | 83.21% | | ADR | $304.68 | $282.72 | | RevPAR | $81.89 | $235.24 | | Room revenue | $28,118 | $76,808 | | Total hotel revenue | $44,754 | $118,882 | - Room revenue decreased by $48.7 million (63.4%), primarily due to a 5,633 basis point decline in occupancy, partially offset by a 7.8% increase in room rates[192] - Food and beverage revenue decreased by $17.9 million (67.7%), and other hotel revenue decreased by $7.6 million (48.3%), both primarily due to the COVID-19 pandemic[193][194] - Hotel operating expenses (room, food and beverage, other operating expenses, and management fees) significantly decreased due to the pandemic-driven revenue decline[196][197][198][199] - Insurance settlement and asset disposition gain: $10.1 million gain recognized in Q3 2020, primarily from the Hurricane Irma insurance settlement[204] - Interest expense and loan cost amortization decreased by $4.8 million (35.1%), mainly due to lower LIBOR rates, partially offset by increased company term loan and default interest[207] - Unrealized gain on derivative instruments of $3.6 million, primarily from unrealized gains on interest rate floors and CMBX credit default swaps[211] Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 For the nine months ended September 30, 2020, total revenue decreased by 52.1% to $175,169 thousand, expanding net loss to $79,538 thousand, as occupancy fell by 4,844 basis points despite an 11.5% increase in ADR, and hotel operating expenses were substantially reduced, with $10.1 million in insurance settlement gains recognized 2020 YTD vs 2019 YTD Operating Results Comparison (Units: thousands of dollars, except percentages) | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | Change Amount | Change Percentage | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :------------ | :---------------- | | Total revenue | 175,169 | 365,913 | (190,744) | (52.1)% | | Total hotel operating expenses | 146,093 | 238,378 | 92,285 | 38.7% | | Operating income (loss) | (57,401) | 34,118 | (91,519) | (268.2)% | | Net income (loss) | (94,549) | (15,899) | (78,650) | (494.7)% | | Net income (loss) attributable to the company | (79,538) | (14,879) | (64,659) | (434.6)% | 2020 YTD vs 2019 YTD Hotel Key Performance Indicators Comparison | Indicator | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Occupancy | 31.11% | 79.55% | | ADR | $330.77 | $296.62 | | RevPAR | $102.90 | $235.97 | | Room revenue | $105,119 | $228,660 | | Total hotel revenue | $175,169 | $365,906 | - Room revenue decreased by $123.5 million (54.0%), primarily due to a 4,844 basis point decline in occupancy, partially offset by an 11.5% increase in room rates[221] - Food and beverage revenue decreased by $44.9 million (53.3%), and other hotel revenue decreased by $22.3 million (42.1%), both primarily due to the COVID-19 pandemic[223][224] - Hotel operating expenses (room, food and beverage, other operating expenses, and management fees) significantly decreased due to the pandemic-driven revenue decline[226][227][228][229] - Insurance settlement and asset disposition gain: $10.1 million gain recognized for the nine months ended September 30, 2020, primarily from the Hurricane Irma insurance settlement[236] - Interest expense and loan cost amortization decreased by $3.7 million (8.9%), mainly due to lower LIBOR rates, partially offset by increased company term loan and default interest[239] - Unrealized gain on derivative instruments of $3.7 million, primarily from unrealized gains on interest rate floors and CMBX credit default swaps[242] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity position, capital resources, and management's strategies to address financial needs, particularly in light of the COVID-19 pandemic and its impact on hotel operations COVID-19, Management's Plans and Liquidity The COVID-19 pandemic severely impacted liquidity, leading to reduced hotel operations; the company responded by drawing down credit, suspending dividends, cutting expenses, and securing forbearance agreements, alleviating going concern doubts with $88.2 million in unrestricted cash and $34.7 million in restricted cash as of September 30, 2020 - COVID-19 impact: significant decline in occupancy and RevPAR, with 11 hotels temporarily suspending operations, expected to materially negatively impact operations, financial condition, and cash flows for the remainder of 2020 and 2021[247] - Liquidity measures: fully drew down $75 million secured revolving credit facility (later converted to a term loan), suspended common stock cash dividends, reduced annual capital expenditures to approximately $25 million, and significantly cut hotel operating expenses[247][251] - Debt defaults and waivers: almost all loan agreements were in default for interest payments starting April 1, 2020, but through forbearance and other agreements with lenders, all loans were no longer in default as of September 30, 2020[248] - Cash position: as of September 30, 2020, the company held $88.2 million in unrestricted cash and $34.7 million in restricted cash; cash, cash equivalents, and restricted cash usage in Q3 was $21.1 million[253] - Going concern assessment: management believes significant doubt about the company's ability to continue as a going concern has been alleviated based on completed credit agreement amendments, forbearance agreements, existing cash, and operating projections for the next 12 months[254] - Short-term liquidity needs: primarily include operating expenses, advisory fees, maintenance expenses, debt interest and principal payments, REIT dividends, and preferred stock dividends[255] - Long-term liquidity needs: primarily for acquisitions, redevelopments, renovations, and capital expenditures, expected to be met through equity offerings, operating cash flow, insurance proceeds, and debt financing[258] - Cash trap provisions: some loan agreements contain cash trap provisions that may be triggered by declining hotel performance, potentially impacting the company's liquidity[262] - Stock repurchase program: board approved a $50 million stock repurchase program, with $50 million remaining authorized and unused as of September 30, 2020[263] - "At-the-market" common stock equity distribution program: as of September 30, 2020, 3 million common shares were issued, generating $7.7 million in gross proceeds[264] - Non-traded preferred stock offering: S-3 registration statement filed for planned offerings of Series E and Series M redeemable preferred stock, not yet issued as of November 5, 2020[265] - Series B cumulative convertible preferred stock issuance: approximately 63,000 shares issued through an "at-the-market" equity offering program, generating approximately $1.2 million in gross proceeds[266][268] - Dividend policy: common stock dividend payments suspended in 2020, with the board continuing to review the dividend policy[269] Secured Revolving Credit Facility and Secured Term Loan The company's $75 million secured revolving credit facility was converted to a $65 million secured term loan on June 8, 2020, featuring a LIBOR plus 3.50% interest rate, quarterly $5 million principal amortization, and revised financial covenants including a fixed charge coverage ratio waiver until March 31, 2021, and new minimum liquidity requirements - Credit facility conversion: on June 8, 2020, the $75 million secured revolving credit facility was converted to a $65 million secured term loan[277] - Interest rate: term loan interest rate is LIBOR plus 3.50% or base rate plus 2.50% (until June 30, 2021)[277] - Principal amortization: quarterly principal amortization of $5 million added, starting March 31, 2021[277] - Financial covenant modifications: waiver of the Consolidated Fixed Charge Coverage Ratio until March 31, 2021, and a new minimum liquidity (unrestricted cash) requirement of $20 million[278] - Restrictions: until June 30, 2021, the company is restricted from incurring additional debt, placing liens, making restricted payments, selling assets, making capital expenditures, or additional investments[279] - Mandatory prepayments: 50% of net proceeds from asset sales, equity offerings, or debt incurrence must be used for prepayment, with 25% of the first $50 million of net proceeds from common stock offerings also required for prepayment[279] - Compliance: as of September 30, 2020, the company was in compliance with all covenants[279] Sources and Uses of Cash As of September 30, 2020, cash and cash equivalents totaled $88.2 million; for the nine months ended September 30, 2020, operating activities used $35.6 million, investing activities used $18.9 million, and financing activities provided $47.1 million, with cash flows influenced by the COVID-19 pandemic, hotel operations, and working capital timing - Cash and cash equivalents: $88.2 million as of September 30, 2020, compared to $72.0 million as of December 31, 2019[280] - Operating cash flow: outflow of $35.6 million for the nine months ended September 30, 2020, compared to an inflow of $48.7 million in the prior-year period, primarily impacted by the COVID-19 pandemic and changes in hotel operations[281] - Investing cash flow: outflow of $18.9 million for the nine months ended September 30, 2020, primarily for capital improvements of $21.5 million, partially offset by insurance proceeds of $2.5 million[282] - Financing cash flow: inflow of $47.1 million for the nine months ended September 30, 2020, mainly from borrowings of $109.3 million and net proceeds from common stock issuance of $6.4 million, partially offset by debt repayments of $46.0 million and dividend payments of $13.6 million[283][284] Seasonality The company's hotel operations are seasonal, leading to quarterly rental revenue fluctuations, which can be further impacted by uncontrollable events like COVID-19, extreme weather, and economic factors; the company plans to use available cash, borrowings, and common stock to meet REIT distribution requirements - Seasonality patterns: hotel operations are seasonal, causing fluctuations in quarterly rental revenue[286] - Adverse factors: COVID-19 pandemic, government travel restrictions, extreme weather, natural disasters, terrorist attacks, and economic factors may adversely affect quarterly revenue[286] - Funding sources: expects to utilize cash on hand, borrowings, and common stock to meet REIT distribution requirements[286] Contractual Obligations and Commitments The company defaulted on interest payments for almost all loan agreements after April 1, 2020, but resolved these defaults through forbearance and other agreements with lenders by September 30, 2020, and also addressed rent payment defaults on two ground leases - Debt defaults: starting April 1, 2020, the company defaulted on interest payments for almost all loan agreements, constituting "events of default"[287] - Default resolution: defaults were resolved through forbearance and other agreements with lenders, with all loans no longer in default as of September 30, 2020[287] - Ground leases: the company failed to pay rent on two ground leases but resolved potential default events through forbearance agreements and rent deferral letters, with rent payments current as of September 30, 2020[288] Off-Balance Sheet Arrangements The company may form or invest in partnerships or joint ventures in the normal course of business, evaluating them as Variable Interest Entities (VIEs) to determine consolidation requirements, but has no other off-balance sheet arrangements - Partnerships/Joint Ventures: the company evaluates whether they are Variable Interest Entities (VIEs) to determine consolidation requirements[289] - No other off-balance sheet arrangements[289] Critical Accounting Policies The preparation of the company's financial statements requires management's estimates and assumptions; no significant changes to critical accounting policies are noted in this report, with detailed policies available in the company's 2019 Form 10-K report - Estimates and assumptions: financial statement preparation requires management to make estimates and assumptions, and actual results may differ from these estimates[291] - No significant changes: no significant changes to critical accounting policies are noted in this report, with detailed policies available in the company's 2019 Form 10-K report[291] Non-GAAP Financial Measures The company utilizes non-GAAP financial