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Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments Interest Rate Derivatives—We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage these risks, we primarily use interest rate derivatives to hedge our debt and our cash flows. The interest rate derivatives include interest rate caps and interest rate floors, which are subject to master netting settlement arrangements. All derivatives are recorded at fair value. The following table summarizes the interest rate derivatives we entered into over the applicable periods:
| Nine Months Ended September 30,
Interest rate caps:(1) | 2021 |  | 2020 |  |
Notional amount (in thousands) | $ | 882,500 |  |  | $ | 602,500 |  |  |
Strike rate low end of range | 0.75 | % |  | 3.00 | % |  |
Strike rate high end of range | 4.00 | % |  | 4.00 | % |  |
Effective date range | January 2021- September 2021 |  | March 2020 - June 2020 |  |
Termination date range | February 2022- August 2024 |  | April 2021 - June 2021 |  |
Total cost of interest rate caps (in thousands) | $ | 200 |  |  | $ | 92 |  |  |
_______________ (1) No instruments were designated as cash flow hedges. Interest rate derivatives consisted of the following:
Interest rate caps: (1) | September 30, 2021 |  | December 31, 2020
Notional amount (in thousands) | $ | 962,500 |  |  | $ | 779,000 |
Strike rate low end of range | 0.75 | % |  | 3.00 | %
Strike rate high end of range | 4.00 | % |  | 4.00 | %
Termination date range | October 2021 - August 2024 |  | February 2021 - October 2021
Aggregate principal balance on corresponding mortgage loans (in thousands) | $ | 857,250 |  |  | $ | 779,000 |
_______________ (1)No instruments were designated as cash flow hedges. Warrants—On August 5, 2021, as part of the consideration paid to acquire the Mr. C Beverly Hills Hotel and five adjacent luxury residences, the Company issued 500,000 warrants for the purchase of Braemar common stock with a $6.00 strike price on or after the August 5, 2021 until August 5, 2024. The holder can choose to exercise the warrant by cash or by net issue exercise, in which event the Company shall issue to the holder a number of warrant shares which reflects the fair market value of the Company’s common stock. As of September 30, 2021, no warrants have been exercised. The initial fair value of the warrant was calculated using a Black-Scholes option pricing model with the following assumptions: three-year contractual term; 97.93% volatility; 0% dividend rate; and a risk-free interest rate of 0.38%. The estimated fair value of the warrants was approximately $1.5 million on the date of issuance. The warrants are re-valued at each reporting period with the change in fair value recorded through earnings. In applying the guidance in ASC 815, it was determined that the warrants should be classified as a liability as a result of certain settlement provisions. The warrants are included in derivative liabilities on the condensed consolidated balance sheet and changes in value are reported as a component of unrealized gain (loss) on derivatives on the condensed consolidated statements of operations. This is a Level 2 valuation technique.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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