BRAEMAR HOTELS & RESORTS INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K) – Marketscreener.com

Overview
Liquidity
Recent Developments
In December 2021, the Company made an additional investment of approximately $116,000 in OpenKey.
Key Indicators of Operating Performance
Principal Factors Affecting Our Results of Operations
expected to have supply growth below historical averages, we may experience supply growth, in certain markets, in excess of national averages that may negatively impact performance. Beginning in 2020, the COVID-19 pandemic had a direct impact on supply.
Revenue. Substantially all of our revenue is derived from the operation of hotels. Specifically, our revenue is comprised of:
•Rooms revenue: Occupancy and ADR are the major drivers of rooms revenue. Rooms revenue accounts for the substantial majority of our total revenue.
•Other hotel revenue: Occupancy and the nature of the property are the main drivers of other ancillary revenue, such as telecommunications, parking and leasing services.
Hotel Operating Expenses. The following presents the components of our hotel operating expenses:
RESULTS OF OPERATIONS
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following table summarizes changes in key line items from our consolidated statements of operations for the years ended December 31, 2021 and 2020 (in thousands except percentages):
Gain (loss) on insurance settlement and disposition of assets
Equity in earnings (loss) of unconsolidated entity (252)
Interest expense and amortization of discounts and loan costs
Net income (loss) attributable to the Company $ (26,664)
The following table illustrates the key performance indicators of all hotel properties for the periods indicated:
RevPAR (revenue per available room) $ 202.76 $ 99.83 Rooms revenue (in thousands)
Total hotel revenue (in thousands) $ 427,542 $ 226,974
RevPAR (revenue per available room) $ 202.61 $ 99.83 Rooms revenue (in thousands)
Total hotel revenue (in thousands) $ 420,949 $ 226,974
Net Income (Loss) Attributable to the Company. Net loss attributable to the Company decreased $78.6 million, from $105.3 million for the year ended December 31, 2020 (“2020”), to $26.7 million for the year ended December 31, 2021 (“2021”), as a result of the factors discussed below.
Fluctuations in rooms revenue between 2021 and 2020 is a result of the changes in occupancy and ADR between 2021 and 2020 as reflected in the table below (dollars in thousands):
(1) The hotel was closed from April 2020 through mid-August in 2020.
(2) The hotel was being renovated during 2020. Additionally the hotel was closed from April 11, 2020 through September 30, 2020.
Other Hotel Revenue. Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking, rentals and business interruption revenue, increased $16.2 million, or 40.1%, to $56.7 million during 2021 compared to 2020.
During 2020, we also recognized business interruption revenue of $4.0 million at The Ritz-Carlton St. Thomas as a result of Hurricane Irma.
Food and Beverage Expense. Food and beverage expense increased $28.9 million, or 62.6%, to $75.2 million during 2021 compared to 2020.
Gain on Legal Settlement. In 2021, we recognized a gain of $728,000 related to the settlement of a transfer tax matter with the City of San Francisco and $189,000 related to a billing dispute. In 2020, there was no such gain recognized.
Transaction Costs. In 2021, we recognized $563,000 of transaction costs associated with the acquisition of the Mr. C Beverly Hills Hotel. There were no transaction costs in 2020.
Corporate General and Administrative. Corporate general and administrative expense was $8.7 million in 2021 and $6.7 million in 2020. The increase in corporate general and administrative expenses is primarily due to higher public company costs of $658,000, higher miscellaneous expenses of $575,000 and an increase of $1.3 million related to our share of the reimbursed operating expenses of Ashford Securities, partially offset by lower professional fees of $497,000.
Gain (loss) on Insurance Settlement and Disposition of Assets. In 2020, we recognized a gain of $10.1 million as a result of finalizing the insurance settlement from Hurricane Irma. In 2021, we recognized a gain of $481,000 associated with proceeds received from an insurance claim, a gain of $18,000 upon disposition of certain fixed assets, as well as a gain of $197,000 associated with the sale of certain ERFP assets to Ashford Inc.
Equity in Earnings (Loss) of Unconsolidated Entity. In 2021 and 2020, we recorded equity in loss of unconsolidated entity of $252,000 and $217,000, respectively, related to our investment in OpenKey.
Interest Income. Interest income decreased $128,000, or 72.7%, to $48,000 for 2021 compared to 2020.
Income Tax (Expense) Benefit. Income tax expense changed $5.7 million, from an income tax benefit of $4.4 million in 2020 to income tax expense of $1.3 million in 2021. This change was primarily due to an increase in the profitability of our TRS entities in 2021 compared to 2020.
Indebtedness
The following table sets forth our indebtedness (dollars in thousands):
(1) Maturity date assumes no future extensions.
(8) Interest rate is variable at LIBOR plus 1.70%.
(10) Interest rate is variable at LIBOR plus 1.85%, with a LIBOR floor of 0.25%. This mortgage loan requires that we maintain an interest rate cap agreement with a counterparty, and the terms of that agreement provide for a LIBOR cap of 3.5%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
•advisory fees payable to Ashford LLC;
•recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
•interest expense and scheduled principal payments on outstanding indebtedness, including our secured term loan (see “Contractual Obligations and Commitments”);
•distributions, if any, in the form of dividends on our common stock, necessary to qualify for taxation as a REIT;
•dividends on our preferred stock; and
•capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, capital market activities and existing cash balances.
of the debt due in the next twelve months except for $68.5 million. $67.5 million relates to the mortgage loan secured by the Park Hyatt Beaver Creek Resort & Spa that was refinanced on February 2, 2022. Additionally we have mortgage loan payments of approximately $1.0 million due in the next twelve months.
As discussed in note 17 to our consolidated financial statements, under our operating leases we have current obligations of approximately $3.3 million and long-term obligations of approximately $156.9 million. Additionally, as discussed in note 16 to our consolidated financial statements, we have short-term capital commitments of approximately $23.0 million.
Equity Transactions
time of sale. As of March 8, 2022, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.
Debt Transactions
Sources and Uses of Cash
We had approximately $216.0 million and $78.6 million of cash and cash equivalents at December 31, 2021 and December 31, 2020, respectively.
Beverly Hills Hotel and earnest money associated with the pending acquisition of Dorado Beach, a Ritz-Carlton Reserve, partially offset by proceeds of $1.8 million from the sale of certain ERFP assets to Ashford Inc.
Inflation
Critical Accounting Policies
Recently Adopted Accounting Standards
Recently Issued Accounting Standards
Non-GAAP Financial Measures
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, Funds From Operations (“FFO”) and Adjusted FFO are presented to help our investors evaluate our operating performance.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) (unaudited):
Year Ended December 31,
$ (32,911) $ (124,677) $ 1,196 Interest expense and amortization of loan costs
Amortization of favorable (unfavorable) contract assets (liabilities)
Corporate / Braemar Hotels
$ 17,453 $ (1,630) $ 17,368 $ (50,279) $ (32,911) Non-property adjustments (2)
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
Magnificent Mile Hotel and Spa Resort & Spa Hotel Yountville Resort & Spa
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
868 $ 1,609 $ (493) $ 3,739 $ (484) $
(1)Represents expenses not recorded at the individual hotel property level. (2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
$ (32,911) $ (124,677) $ 1,196 (Income) loss attributable to noncontrolling interest in consolidated entities
Net (Income) loss attributable to redeemable noncontrolling interests in operating partnership
Net income (loss) attributable to redeemable noncontrolling interests in operating partnership
Interest expense accretion on refundable membership club benefits
Adjusted FFO available to common stockholders, OP unitholders, Series B Cumulative Convertible preferred stockholders and convertible note holders on an “as converted” basis
(1)Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for noncontrolling interests for each line item:
December 31,
(2,690) $ (2,945) $ (3,179)
(87) (77) (80)
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