Executive Summary / Key Takeaways

• Growth Inflection Point: Braemar Hotels & Resorts has achieved three consecutive quarters of comparable RevPAR growth, signaling a significant turnaround driven by strong performance in both its luxury resort and urban hotel segments, supported by robust group bookings.
• Strategic Deleveraging & Capital Management: The company has proactively addressed all 2025 debt maturities through strategic refinancings at competitive rates and the sale of non-core assets like the Marriott Seattle Waterfront, significantly improving its balance sheet flexibility and maturity schedule.
• Operational Excellence & Value Enhancement: Focused capital expenditures on ROI-generating projects and aggressive cost containment initiatives are driving margin expansion and enhancing asset value, exemplified by successful renovations and operational optimizations at properties like The Ritz-Carlton Lake Tahoe and The Ritz-Carlton Reserve Dorado Beach.
• Favorable Industry Tailwinds: BHR is well-positioned to capitalize on historically low new hotel supply growth, particularly in the high-barrier-to-entry luxury resort segment, which is expected to support sustained RevPAR expansion and profitability.
• Shareholder Value Focus: Ongoing preferred stock redemptions and a stated openness to common share buybacks underscore management's commitment to improving cash flow per share and enhancing shareholder returns.

A New Chapter for Luxury Lodging: Braemar's Strategic Ascent

Braemar Hotels & Resorts Inc. (NYSE:BHR), established in April 2013, operates as a real estate investment trust (REIT) dedicated to investing in high revenue per available room (RevPAR) luxury hotels and resorts. This focused investment strategy, targeting properties with RevPAR at least twice the U.S. national average, underpins its distinct market positioning. BHR conducts its business primarily through its operating partnership and leverages an advisory agreement with Ashford Hospitality Advisors LLC for all operational services, opting for third-party hotel management to maintain its REIT status. This model allows BHR to concentrate on strategic asset ownership and portfolio optimization rather than direct hotel operations.

The hospitality industry, particularly the luxury segment, is currently experiencing a compelling dynamic characterized by historically low supply growth. With the construction pipeline for new hotels projected at approximately 0.8% net new rooms annually over the next three years, significantly below the historical mean of 2%, the market presents an "incredible setup to drive RevPAR growth." This favorable supply-demand imbalance is further accentuated in the resort segment due to higher barriers to entry, offering a robust backdrop for BHR's specialized luxury portfolio.

BHR's competitive advantage is not rooted in proprietary technology but rather in its strategic asset selection, brand partnerships, and operational excellence. Despite lacking proprietary, quantifiable technology differentiators, the company's approach to technology involves leveraging existing, best-in-class hospitality platforms and implementing innovative operational strategies to enhance guest experience, drive revenue, and improve efficiency. For instance, the residential rental program at The Ritz-Carlton Reserve Dorado Beach has been enhanced by onboarding to the Marriott Homes and Villas platform, contributing to a 15% increase in residents' revenue in Q2 2025. Operationally, BHR's asset management teams have driven efficiencies through initiatives like consolidating PBX and room service operations and optimizing housekeeping, leading to payroll savings exceeding $200,000 at The Ritz-Carlton Reserve Dorado Beach. While competitors like Marriott International (MAR) and Hilton Worldwide Holdings (HLT) emphasize "digital innovation" and "technology-driven guest experiences," BHR differentiates through direct asset control and tailored luxury execution, utilizing technology as an enabler rather than a core moat.

Financial Performance: A Turnaround Story

After enduring six consecutive quarters of declining RevPAR, Braemar has decisively turned a corner, reporting its third consecutive quarter of comparable RevPAR growth in Q2 2025. This marks an "important inflection point in our performance," as noted by management. For the second quarter ended June 30, 2025, the portfolio achieved a 1.5% increase in comparable RevPAR and a 3.7% increase in comparable total hotel EBITDA, supported by slightly stronger margins. This positive momentum follows a robust Q1 2025, which saw a 4.2% comparable RevPAR growth—the highest quarterly RevPAR Braemar has ever achieved—and a 5.3% increase in comparable hotel EBITDA.

The company's operational effectiveness is evident in its margin performance. In Q2 2025, comparable hotel EBITDA margin improved by 11 basis points year-over-year, despite temporary disruptions from renovations at Park Hyatt Beaver Creek and Hotel Yountville. Excluding these properties, comparable hotel EBITDA growth for the remainder of the portfolio was 6.3%. This margin expansion is a direct result of disciplined cost controls and a focus on high-margin ancillary revenue streams. Food and beverage revenue, for example, increased by 6.6% in Q2 2025, outpacing rooms revenue growth and contributing to a 110 basis point margin improvement in this segment.

Both the resort and urban segments contributed to this renewed growth. The luxury resort portfolio, comprising nine of BHR's fifteen hotels, delivered a 1.6% increase in comparable RevPAR and a 6.9% increase in combined comparable hotel EBITDA in Q2 2025. Standout performers included The Ritz-Carlton Lake Tahoe, with approximately 39% growth in total revenue, and The Ritz-Carlton Reserve Dorado Beach, showing approximately 14% growth. The urban portfolio also delivered a 0.5% comparable RevPAR growth in Q2 2025, with The Clancy in San Francisco achieving 14% total revenue growth as citywide conference calendars improved. This diversified growth across segments underscores the resilience and strategic positioning of BHR's assets.

Strategic Initiatives and Capital Deployment

BHR's recent strategic initiatives have centered on refining its portfolio, strengthening its balance sheet, and enhancing asset value. A key component of its Shareholder Value Creation Plan involved the divestiture of non-core assets. The sale of the Hilton La Jolla Torrey Pines in July 2024 for $165 million (a 7.2% capitalization rate on trailing 12-month net operating income) and the subsequent agreement to sell the Marriott Seattle Waterfront for $145 million (an 8.1% capitalization rate on trailing 12-month net operating income) are pivotal steps. The Marriott Seattle Waterfront sale, which closed on August 11, 2025, "aligns nicely with our strategic objective to deleverage the portfolio while sharpening our focus on the luxury hotel sector."

Debt management has been a paramount focus. BHR has proactively addressed all its 2025 debt maturities. In March 2025, the company refinanced two mortgage loans into a new $363 million loan secured by five hotels. This transaction not only resolved the sole remaining final debt maturity for 2025 but also resulted in a lower cost of capital (SOFR + 2.52% compared to previous rates of SOFR + 2.66% and SOFR + 4.75%) and an extended weighted average maturity to 2030. The successful extension of The Ritz-Carlton Lake Tahoe mortgage loan in Q1 2025 with a $10 million paydown further demonstrates BHR's proactive approach to optimizing its debt structure. As of Q2 2025, BHR's total combined loans had a blended average interest rate of 7.1% (including in-the-money interest rate caps), with approximately 22% of its debt effectively fixed and 78% effectively floating. The company's net debt to gross assets stood at 44.2%.

Capital expenditures are strategically deployed to enhance the luxury portfolio and drive long-term value. For 2025, BHR expects to spend between $75 million and $95 million on CapEx. These investments include guestroom renovations at Hotel Yountville and Park Hyatt Beaver Creek, aimed at elevating their luxury positioning and alpine experience, respectively. At Four Seasons Scottsdale, underutilized space is being converted into a cafe and gelato shop to "enhance the guest experience and generate new revenue streams." Similarly, the construction of five luxury beachside cabanas at The Ritz-Carlton St. Thomas and planned enhancements at The Ritz-Carlton Reserve Dorado Beach (including additional cabanas and a new event lawn) are designed to "enhance experiential amenities to drive additional revenue." Notably, prior ROI-focused projects at The Ritz-Carlton Lake Tahoe, such as converting back-of-house space and adding amenities, generated approximately $300,000 in NOI through Q2 2025, "significantly outperforming initial underwriting expectations."

BHR's strategic partnerships also play a crucial role. The transition of the 415-room Sofitel Chicago Magnificent Mile to a franchise structure managed by Remington Hospitality in May 2025 is expected to provide a "meaningful uplift in the value of the property" due to the management agreement being terminable on sale, making it a more attractive, unencumbered asset. This move also leverages Remington's "strong operational alignment with our ownership strategy and their proven ability to drive performance."

Outlook and Risks

The outlook for Braemar Hotels & Resorts remains promising, underpinned by strong forward bookings and favorable industry dynamics. The company's group pace for 2025 is up 8.6%, with 2026 showing continued growth at 3.6%. Specific properties are demonstrating exceptional group booking strength, with Four Seasons Scottsdale pacing ahead by 20.3%, The Ritz-Carlton Sarasota by 26.9%, and The Ritz-Carlton Lake Tahoe by 44% for full-year 2025 group revenue, with the latter's group catering pace up over 100%. Management "continues to believe our urban hotels will be the primary driver of growth for our portfolio in the coming quarters," complementing the normalized growth trajectory of its resort assets.

While the company's strategic focus and market positioning offer significant opportunities, certain risks warrant consideration. Ongoing renovations, such as those at Park Hyatt Beaver Creek and Hotel Yountville, can cause temporary displacement and "mute results to some extent." The luxury travel segment, while robust, remains sensitive to macroeconomic shifts, and "extreme softness out of the government segment" has impacted urban properties like Capital Hilton. External events, including California wildfires and hurricanes (Helene and Milton in late 2024), have caused localized disruptions and property damage, though BHR's proactive risk management has minimized operational impact. Litigation, including class action lawsuits related to California employment laws and a cyber incident, has resulted in accrued settlement liabilities, though the cyber incident settlement of approximately $485,000 is expected to be reimbursed through insurance.

BHR's dividend policy for 2025 anticipates a quarterly cash dividend of $0.05 per share, or $0.20 per share on an annualized basis. The Board of Directors reviews this policy quarterly, emphasizing flexibility. The company's commitment to shareholder value is further demonstrated by its preferred stock redemption program, having redeemed approximately $107 million (23% of the original capital raise) of its non-traded preferred stock to date, with expectations to continue these redemptions to deleverage and improve cash flow per share. While no further property sales are planned for 2025, management remains open to assessing additional sales in 2026, anticipating an improving transaction environment.

Conclusion

Braemar Hotels & Resorts is executing a compelling investment narrative, marked by a significant turnaround in performance and a disciplined strategic approach. The company's return to consistent RevPAR growth, driven by its high-RevPAR luxury portfolio and operational efficiencies, positions it favorably within a supply-constrained hospitality market. Proactive debt management, strategic asset recycling, and targeted capital investments are strengthening its financial foundation and enhancing long-term value.

Despite inherent risks associated with luxury travel and operational execution, BHR's focused strategy, coupled with a favorable industry backdrop, suggests a continued path of performance improvement. The company's commitment to deleveraging and enhancing shareholder returns through preferred redemptions further solidifies its investment appeal. As BHR continues to refine its luxury portfolio and capitalize on market opportunities, its trajectory points towards sustained growth and value creation for investors.