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Derivative Instruments | 9 Months Ended
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Sep. 30, 2023
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, which include interest rate caps. All derivatives are recorded at fair value. Payments from counterparties on in-the-money interest rate caps are recognized as realized gains on our consolidated statements of operations. The following table summarizes the interest rate derivatives we entered into over the applicable periods:
| Nine Months Ended September 30,
Interest rate caps:(1) | 2023 |  | 2022 |  |
Notional amount (in thousands) | $ | 576,180 |  |  | $ | 676,500 |  |  |
Strike rate low end of range | 3.50 | % |  | 3.50 | % |  |
Strike rate high end of range | 5.25 | % |  | 4.00 | % |  |
Effective date range | January 2023 - September 2023 |  | February 2022-September 2022 |  |
Termination date range | October 2023 - October 2024 |  | May 2023- February 2024 |  |
Total cost of interest rate caps (in thousands) | $ | 3,981 |  |  | $ | 2,092 |  |  |
_______________ (1) No instruments were designated as cash flow hedges. Interest rate derivatives consisted of the following:
Interest rate caps: (1) | September 30, 2023 |  | December 31, 2022
Notional amount (in thousands) | $ | 856,680 |  |  | $ | 960,500 |
Strike rate low end of range | 2.00 | % |  | 2.00 | %
Strike rate high end of range | 5.25 | % |  | 4.50 | %
Termination date range | October 2023 - January 2025 |  | January 2023- January 2025
Aggregate principal balance on corresponding mortgage loans (in thousands) | $ | 863,680 |  |  | $ | 959,000 |
_______________ (1)No instruments were designated as cash flow hedges. Warrants—On August 5, 2021, as part of the consideration paid to acquire the Cameo Beverly Hills (formerly known as 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 August 5, 2021 until August 5, 2024. The holder can choose to exercise the warrants by cash or by net issue exercise, in which event the Company shall issue to the holder a number of warrant shares which reflect the fair market value of the Company’s common stock. As of September 30, 2023, no warrants have been exercised. The initial fair value of the warrants 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 sheets and changes in value are reported as a component of “realized and 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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