8-K: Braemar Hotels & Resorts Reports Solid Q1 Performance, Announces Shareholder Value Creation Plan

Braemar Hotels & Resorts reported first quarter results with comparable RevPAR essentially flat year-over-year, while announcing a plan to enhance shareholder value through asset sales and share repurchases.

Summary

• Braemar Hotels & Resorts reported a comparable RevPAR of $368 for the first quarter of 2024, which was similar to the same period last year.
• The company's luxury resort portfolio showed positive growth in both RevPAR and Hotel EBITDA, with a combined Hotel EBITDA of $65 million.
• The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale at Troon North continue to exceed initial expectations.
• The Ritz-Carlton Reserve Dorado Beach achieved a RevPAR of $2,162, reflecting a 23.4% increase year-over-year.
• The Four Seasons Resort Scottsdale saw a slight RevPAR decrease of 1.4% due to tough comparisons, but still had a strong quarter with Hotel EBITDA up almost $800,000.
• Braemar has refinanced, extended, or paid off almost all of its 2024 debt maturities.
• A Shareholder Value Creation Plan was announced, including the sale of the Hilton La Jolla Torrey Pines for $165 million, a $50 million preferred share redemption program, and a $50 million common share buyback authorization.
• The company reported net income attributable to common stockholders of $3.5 million, or $0.05 per diluted share, and AFFO per diluted share of $0.42.
• Adjusted EBITDAre for the quarter was $66.2 million.
• The company's total combined loans had a blended average interest rate of 7.8%, with 77% of the debt effectively fixed.
• The company ended the quarter with $137.1 million in cash and cash equivalents and $82.4 million in restricted cash.
• The company announced a quarterly common stock dividend of $0.05 per share, or $0.20 per diluted share on an annualized basis.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strong performance of the luxury resort portfolio, successful debt management, and the announcement of a shareholder value creation plan. However, the flat overall RevPAR and challenges in urban assets temper the overall optimism.

Positives

• The luxury resort portfolio is performing strongly, showing positive growth in both RevPAR and Hotel EBITDA.
• The Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale are exceeding initial expectations.
• The company has successfully managed its 2024 debt maturities.
• The Shareholder Value Creation Plan is expected to enhance shareholder value.
• Group bookings are increasing, with 2025 pacing ahead by 10%.
• The company is controlling expense growth, leading to margin improvements.
• Ancillary revenue streams are growing, particularly in urban assets.
• The company has a solid liquidity position with $137.1 million in cash and cash equivalents.

Negatives

• Comparable RevPAR was essentially flat year-over-year.
• Urban assets experienced a slight RevPAR decrease and were impacted by a $2.2 million property tax refund in the prior year quarter at the Sofitel Chicago.
• The Four Seasons Resort Scottsdale saw a slight RevPAR decrease of 1.4% due to difficult same quarter comps from last year.

Risks

• The company faces challenging year-over-year comparisons at some properties due to prior year events.
• The company is subject to interest rate risk, although 77% of its debt is effectively fixed.
• The company is exposed to market fluctuations and economic conditions that could impact hotel performance.
• The company is involved in ongoing litigation resulting from an activist campaign.

Future Outlook

Braemar believes it is well-positioned to perform well in both the near and long term, with a solid balance sheet and promising outlook. The company anticipates continued momentum in its luxury resort portfolio and is optimistic about the impact of its Shareholder Value Creation Plan.

Management Comments

• We are pleased with our portfolios first quarter performance, in light of challenging year-over-year comparisons.
• Our last two acquisitions are each performing well and continue to exceed our original underwriting.
• We have refinanced, extended or paid down almost all of our 2024 debt maturities.
• We are excited to have announced a Shareholder Value Creation Plan.
• We believe these announcements reflect our commitment to maximize value for our shareholders.
• We continue to be pleased with the performance of our hotels.
• We also remain very well positioned with a solid balance sheet and promising outlook.

Industry Context

The report indicates a mixed performance in the hospitality sector, with luxury resorts showing strength while urban assets face some challenges. The focus on group bookings and ancillary revenue streams aligns with industry trends to diversify revenue and enhance profitability. The company's strategic asset sales and share repurchases reflect a broader trend of companies optimizing their capital structure and shareholder value.

Comparison to Industry Standards

• Braemar's luxury resort portfolio performance is strong, with The Ritz-Carlton Reserve Dorado Beach achieving a 23.4% RevPAR increase, which is above average for luxury resorts in the Caribbean.
• The Four Seasons Resort Scottsdale's performance, while slightly down in RevPAR, still shows strong EBITDA growth, indicating effective cost management, which is a key focus for luxury hotel operators.
• The company's focus on refinancing and extending debt maturities is a common strategy in the hospitality industry to manage financial risk, similar to actions taken by other REITs like Host Hotels & Resorts and Park Hotels & Resorts.
• The Shareholder Value Creation Plan, including asset sales and share repurchases, is a strategy used by other REITs to address valuation gaps and improve shareholder returns, similar to actions taken by companies like Pebblebrook Hotel Trust.
• The company's capital expenditure plans, ranging from $85 million to $105 million, are in line with industry standards for maintaining and enhancing luxury hotel properties, comparable to investments made by companies like DiamondRock Hospitality.

Legal Proceedings

• The company is involved in ongoing litigation resulting from an activist campaign, and will not be responding to questions on that specific matter.

Stakeholder Impact

• Shareholders are expected to benefit from the Shareholder Value Creation Plan, including share repurchases and potential increases in dividends.
• Employees may see positive impacts from the company's focus on operational improvements and capital expenditures.
• Customers are expected to benefit from ongoing renovations and enhanced guest experiences.
• Creditors are likely to view the company's debt management and asset sales positively.
• Suppliers may see increased business opportunities due to the company's capital expenditure plans.

Next Steps

• The company plans to complete the sale of the Hilton La Jolla Torrey Pines by the end of August.
• The company will execute a $50 million preferred share redemption program.
• The company will execute a $50 million common share buyback authorization.
• The company will continue to work through its Shareholder Value Creation Plan.
• The company will continue to implement capital expenditure plans for various properties.

Key Dates

Keywords

RevPAR, Hotel EBITDA, Luxury Resorts, Debt Refinancing, Shareholder Value Creation, Asset Sales, Share Repurchase, Capital Expenditures, Group Bookings, Ancillary Revenue