DEFA14A: Braemar Hotels & Resorts Announces Sale of Hilton Torrey Pines and $50 Million Share Repurchase Program

Braemar Hotels & Resorts announces the sale of Hilton Torrey Pines for $165 million, a $50 million preferred share redemption program, and a $50 million common share repurchase authorization as part of its Shareholder Value Creation Plan.

Summary

• Braemar Hotels & Resorts has entered into an agreement to sell the Hilton La Jolla Torrey Pines for $165 million in cash.
• The sale is expected to close in the second quarter of 2024, subject to customary closing conditions.
• The company's board approved a Shareholder Value Creation Plan, including the hotel sale, repayment of 2024 debt maturities, a $50 million preferred share redemption program, and a $50 million common share repurchase authorization.
• Braemar intends to begin share repurchases as soon as practicable, subject to market conditions.
• The company has fully repaid the $30 million loan associated with the Cameo Beverly Hills hotel.
• The company is evaluating the sale of two more hotels, subject to market conditions, to be completed in 2024 and 2025, respectively.
• The company plans to redeem $50 million of its non-traded preferred and/or public preferred stock this year, utilizing proceeds from the sale of the Hilton Torrey Pines.
• The board authorized a new stock repurchase program of up to $50 million.

Sentiment

Score: 7

Explanation: The announcement is generally positive, with the sale of an asset, debt repayment, and share repurchase program. However, the dependence on market conditions and closing conditions introduces some uncertainty.

Positives

• The sale of Hilton Torrey Pines for $165 million will provide significant cash inflow.
• The repayment of the $30 million loan associated with the Cameo Beverly Hills hotel reduces debt.
• The preferred share redemption program will enhance the efficiency of the company's funding and capital structure.
• The share repurchase program could increase shareholder value.
• The company is actively managing its portfolio by evaluating the sale of additional hotels.

Negatives

• The sale of Hilton Torrey Pines is subject to customary closing conditions, and there is no assurance it will be completed.
• The timing and amount of share repurchases are subject to the company's discretion and market conditions, so the program may be suspended or terminated at any time.
• The company is evaluating the sale of two more hotels, subject to market conditions, to be completed in 2024 and 2025, respectively.

Risks

• The completion of the Hilton Torrey Pines sale is subject to customary closing conditions and may not occur.
• The share repurchase program is subject to market conditions and may be suspended or terminated.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
• The company's ability to complete the shareholder value creation plan on a timely basis is not assured.
• The company's ability to repay, refinance or restructure its debt and the debt of certain of its subsidiaries is not assured.

Future Outlook

The company intends to continue evaluating the sale of two more hotels in 2024 and 2025, and will continue to execute its Shareholder Value Creation Plan.

Management Comments

• Todays announcements reflect our commitment to reduce the Companys dividend and interest expense, enhance our capital structure and financial flexibility, as well as create value for our shareholders, said Richard J. Stockton, Braemars President and Chief Executive Officer.
• The planned sale of the Hilton La Jolla Torrey Pines at an attractive cap rate, demonstrates the high-quality nature of the Braemar portfolio.
• We continue to be excited about the future prospects for Braemar.

Industry Context

The sale of the Hilton Torrey Pines and the capital allocation strategy reflect a broader trend in the hospitality industry of REITs optimizing their portfolios and returning capital to shareholders.

Comparison to Industry Standards

• A 7.2% capitalization rate is within the typical range for hotel transactions, but the attractiveness depends on the specific market and property characteristics.
• Comparable REITs like Host Hotels & Resorts and Park Hotels & Resorts also engage in asset sales and share repurchase programs to enhance shareholder value.
• The $50 million share repurchase program is a moderate amount compared to the market capitalization of Braemar Hotels & Resorts.

Stakeholder Impact

• Shareholders may benefit from the share repurchase program and potential increase in share value.
• Employees at Hilton Torrey Pines may be affected by the change in ownership.
• Creditors benefit from the debt repayment.
• Preferred stockholders may have their shares redeemed.

Next Steps

• Complete the sale of Hilton La Jolla Torrey Pines.
• Begin share repurchases under the new program.
• Redeem $50 million of preferred stock.
• Evaluate the sale of two additional hotels.
• File a definitive proxy statement for the Annual Meeting.

Key Dates

Keywords

share repurchase, hotel sale, preferred stock, debt repayment, Braemar Hotels & Resorts, Hilton Torrey Pines, capital allocation, REIT