Braemar Hotels & Resorts Inc (NYSE:BHR) is a real estate investment trust (REIT) that primarily invests in high revenue per available room (RevPAR) luxury hotels and resorts across the United States. The company's portfolio consists of 15 hotel properties with 3,667 net rooms, strategically located in urban markets and resort destinations. Braemar's focus on luxury hospitality assets has allowed it to deliver consistent financial performance and navigate industry challenges with resilience.

Business Overview and History

Braemar Hotels & Resorts Inc. was formed as a Maryland corporation in April 2013, with the primary focus of investing in high RevPAR luxury hotels and resorts. The company elected to be taxed as a REIT under the Internal Revenue Code and conducts its business through its operating partnership, Braemar Hospitality Limited Partnership.

In 2016, Braemar faced an early challenge when a class action lawsuit was filed against one of its hotel management companies, alleging violations of certain California employment laws. The court granted class certification, and the case is still pending resolution.

The COVID-19 pandemic in 2020 significantly impacted Braemar's financial performance, resulting in a net loss of $124.7 million for the year. In response, the company took steps to improve its liquidity, including obtaining waivers from lenders and raising additional capital through preferred stock offerings.

Despite these challenges, Braemar continued to expand its portfolio in 2021, acquiring several new hotel properties. However, the company reported a net loss of $32.9 million for that year as it worked to optimize its operations and cost structure.

In 2018, Braemar entered into an advisory agreement with Ashford Hospitality Advisors LLC, a subsidiary of Ashford Inc., to provide investment management and other services. This partnership has helped strengthen the company's strategic positioning in the luxury hotel market.

More recently, in 2023, Braemar faced a cyber incident that resulted in the potential exposure of certain personal information. However, the related costs were ultimately deemed immaterial to the company's operations.

Financial Performance and Metrics

Braemar's financial performance has been resilient, with the company navigating industry challenges effectively. For the full year 2023, the company reported annual revenue of $739.34 million and a net loss of $27.02 million. The company's adjusted EBITDA for the year was $160.03 million, showcasing its ability to generate strong operating cash flows. Operating cash flow for 2023 was $84.71 million, with free cash flow at $84.64 million.

Financials

In terms of liquidity, Braemar maintained a healthy balance sheet as of September 30, 2024, with $168.7 million in cash and cash equivalents and $48.5 million in restricted cash. The company's total debt stood at $1.22 billion, resulting in a net debt to gross assets ratio of 41%. Braemar's weighted average debt maturity was 4.2 years, providing ample flexibility to manage its capital structure.

For the third quarter of 2024, Braemar reported revenue of $148.40 million, representing a 7.1% decrease compared to the same period in the previous year. However, the company's net income significantly improved, reaching $39.84 million, compared to a loss of $22.61 million in Q3 2023. This substantial increase in net income was primarily attributed to an $88.21 million gain on the sale of the Hilton La Jolla Torrey Pines hotel property.

Liquidity

During the third quarter of 2024, Braemar reported a net loss attributable to common stockholders of $1.4 million, or $0.02 per diluted share. The company's adjusted FFO per diluted share was negative $0.24 for the quarter. While the results were impacted by industry-wide challenges, Braemar's diversified portfolio and proactive asset management strategies have enabled it to navigate the turbulent environment.

In August 2024, Braemar refinanced its secured credit facility, increasing it to a $407 million loan with a two-year initial term and three one-year extension options. This refinancing provides additional financial flexibility for the company.

Operational Highlights and Outlook

One of the key strengths of Braemar's portfolio is its exposure to urban markets, which have demonstrated resilience in the post-pandemic recovery. During the third quarter of 2024, the company's urban hotel portfolio achieved a 6% year-over-year increase in RevPAR, underscoring the robust demand for luxury accommodations in major metropolitan areas.

Additionally, Braemar has seen a resurgence in group bookings, with the company's group pace for the first quarter of 2025 currently up nearly 40% year-over-year. This trend highlights the gradual return of corporate and event-driven travel, which is expected to be a key driver of the company's performance going forward.

To bolster its competitive positioning, Braemar has been actively engaged in value-enhancing capital projects across its portfolio. During the third quarter, the company completed several transformative renovations at its flagship property, The Ritz-Carlton Lake Tahoe, which are expected to improve the guest experience and drive incremental revenues.

Looking ahead, Braemar is well-positioned to capitalize on the continued recovery in the luxury hotel segment. The company's management team has demonstrated its ability to navigate industry challenges and adapt its strategies to changing market conditions. With a strong balance sheet, a diversified portfolio, and a focus on operational excellence, Braemar is poised to deliver long-term value for its shareholders.

Recent performance indicators have been encouraging, with comparable RevPAR for the portfolio increasing 7.5% in October, accompanied by comparable total revenue growth of almost 11%. Management expressed optimism about these trends, stating that they believe the company is well-positioned to perform strongly in both the near and long term.

Risks and Challenges

While Braemar's business model has proven resilient, the company is not immune to industry-wide risks and challenges. The hospitality sector remains susceptible to macroeconomic fluctuations, geopolitical tensions, and evolving consumer preferences. Additionally, the company's reliance on third-party hotel management companies and its exposure to labor shortages could potentially impact its operational performance.

Furthermore, Braemar's concentration in the luxury hotel segment exposes it to heightened competition and the risk of oversupply in certain markets. The company's ability to continue identifying and acquiring high-quality assets at attractive valuations will be crucial to its long-term growth.

Geographic Presence

Braemar's hotel properties are strategically located across the United States, including seven states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. This geographic diversification helps mitigate risks associated with regional economic fluctuations and provides exposure to various high-value markets. While the company does not provide detailed geographic breakdowns of its financial performance, this broad presence allows Braemar to capitalize on different regional trends and demand patterns in the luxury hospitality sector.

Conclusion

Braemar Hotels & Resorts Inc (NYSE:BHR) has established itself as a leading player in the luxury hotel REIT space, leveraging its focus on high-RevPAR properties to deliver consistent financial performance. The company's diversified portfolio, proactive asset management strategies, and strong balance sheet have enabled it to navigate industry challenges and position itself for continued growth. As the hospitality sector continues to recover, Braemar's unique positioning and experienced management team make it a compelling investment opportunity for those seeking exposure to the high-end hotel segment.

The company's recent financial results, including the significant improvement in net income and the positive trends in RevPAR and group bookings, demonstrate its ability to adapt to changing market conditions. With a refined portfolio of luxury assets and a focus on operational excellence, Braemar is well-equipped to capitalize on the ongoing recovery in the hospitality industry and drive long-term value for its shareholders.