Company Overview

Braemar Hotels & Resorts Inc. (BHR) is a real estate investment trust (REIT) that specializes in acquiring and investing in high-revenue-per-available-room (RevPAR) luxury hotels and resorts. Headquartered in Dallas, Texas, the company's portfolio currently consists of 15 properties with 3,667 net rooms across seven states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Braemar is advised by Ashford Hospitality Advisors LLC, a subsidiary of Ashford Inc.

History and Background

Braemar's history can be traced back to 2013, when the company was formed as a Maryland corporation and elected to be taxed as a REIT. The company conducts its business and owns substantially all of its assets through its operating partnership, Braemar Hospitality Limited Partnership. Over the years, the company has strategically expanded its footprint, acquiring and operating high-end hotel assets in prime urban and resort locations. Braemar's portfolio includes iconic properties such as The Ritz-Carlton Lake Tahoe, The Ritz-Carlton Sarasota, and the Capital Hilton in Washington, D.C.

Challenges and Milestones

Throughout its history, Braemar has faced various challenges and achieved notable milestones. In 2016, the company encountered a legal hurdle when a class action lawsuit was filed against one of its hotel management companies, alleging violations of certain California employment laws. This litigation is ongoing, with the court ordering the parties to complete a second mediation by January 2025. More recently, in 2023, Braemar experienced a cyber incident that resulted in the potential exposure of certain personal information, leading to two class action lawsuits being filed against the company.

Despite these challenges, Braemar has made significant strides in strengthening its financial position. In 2021, the company entered into equity distribution agreements to sell shares of its Series E Redeemable Preferred Stock and Series M Redeemable Preferred Stock, successfully raising capital. Furthermore, in 2024, Braemar closed on a refinancing involving five of its hotel properties, which helped reduce interest costs and extend maturities.

Financials

The company's financial performance has been marked by a mix of successes and challenges in recent years. For the fiscal year 2023, Braemar reported total revenue of $739.34 million, with a net loss of $27.02 million. The company generated operating cash flow (OCF) of $84.71 million and free cash flow (FCF) of $84.64 million in 2023.

As of the latest reported quarter (Q3 2024), Braemar's total assets stood at $2.2 billion, with a net debt to gross assets ratio of 41%. The company's revenue for the third quarter of 2024 was $148.4 million, a 7.1% decrease from the same period in the previous year. This decrease was primarily due to the disposition of the Hilton La Jolla Torrey Pines hotel property. Braemar reported net income attributable to common stockholders of $12.60 million for the quarter, a significant improvement from a net loss of $22.03 million in the prior-year period. This increase was primarily due to an $88.21 million gain on the sale of the Hilton La Jolla Torrey Pines hotel property.

For Q3 2024, Braemar generated OCF of $9.00 million, down from $22.20 million in the same quarter of the previous year, due to changes in working capital. However, FCF increased to $39.23 million from $13.61 million, primarily due to lower capital expenditures.

The company's performance varies across its geographic markets, which include California (5 hotels), Puerto Rico (1 hotel), Arizona (1 hotel), Colorado (1 hotel), Florida (2 hotels), Illinois (1 hotel), Pennsylvania (1 hotel), Washington (1 hotel), Washington D.C. (1 hotel), and U.S. Virgin Islands (1 hotel).

Liquidity

Braemar's liquidity position remains robust, with $168.68 million in cash and cash equivalents as of September 30, 2024. The company has a $200 million secured credit facility, which was fully available as of the same date. Braemar's debt-to-equity ratio stood at 4.36, while its current ratio and quick ratio were 1.77 and 1.74, respectively, indicating a solid short-term financial position.

The company has taken proactive steps to strengthen its financial position and enhance shareholder value. In July 2024, Braemar announced the sale of the Hilton La Jolla Torrey Pines for $165 million, which allowed it to address all of its 2024 debt maturities. Additionally, the company has implemented a $50 million preferred share redemption program and a $50 million common share buyback authorization as part of its Shareholder Value Creation Plan.

Recent Performance and Outlook

Despite the challenging environment, Braemar's management team has navigated the company through the difficulties. The company's urban hotel portfolio has continued to demonstrate strength, with a 6% increase in RevPAR during the third quarter compared to the prior-year period. Braemar's resort properties, however, have experienced a slight decline in leisure demand, contributing to the overall performance.

Looking ahead, Braemar's management remains cautiously optimistic about the company's future prospects. The group pace for the first quarter of 2025 is currently up nearly 40%, and the company's October 2024 performance, with a 7.5% increase in Comparable RevPAR and almost 11% growth in Comparable Total Revenue, has set the stage for a stronger fourth quarter. Management expressed encouragement with these data points and believes Braemar is well-positioned to perform well in both the near- and long-term.

Nonetheless, Braemar continues to navigate various industry challenges, including the impact of the 2023 election cycle on government-related travel, as well as the lingering effects of hurricanes Helene and Milton on its Ritz-Carlton Sarasota property. The company's ability to effectively manage these headwinds will be crucial in determining its future performance.

Conclusion

In conclusion, Braemar Hotels & Resorts has demonstrated resilience in the face of industry-wide turbulence. The company's focus on high-end, luxury hotel assets, coupled with its proactive approach to balance sheet management and shareholder value creation, positions it well to capitalize on the anticipated recovery in the hospitality sector. As Braemar continues to navigate the evolving market landscape, investors will closely monitor the company's ability to drive growth and deliver sustainable returns in its diverse portfolio of luxury properties across key urban and resort markets in the United States and Caribbean.