8-K: Braemar Hotels & Resorts Reports Mixed Q1 2024 Results Amid Strategic Portfolio Adjustments

Braemar Hotels & Resorts reported a slight decrease in comparable RevPAR for the first quarter of 2024, alongside strategic moves including loan extensions, a property sale, and plans for further asset dispositions.

Summary

• Braemar Hotels & Resorts announced its financial results for the first quarter of 2024, showing a mixed performance.
• Comparable Revenue Per Available Room (RevPAR) decreased slightly by 0.2% year-over-year to $368.
• The Average Daily Rate (ADR) also saw a decrease of 1.0% to $563, while occupancy increased by 0.8% to 65.4%.
• Net income attributable to common stockholders was $3.5 million, or $0.05 per diluted share.
• Adjusted Funds From Operations (AFFO) was $0.42 per diluted share, and Adjusted EBITDAre was $66.2 million.
• Comparable Hotel EBITDA was reported at $71.0 million for the quarter.
• The company ended the quarter with $137.1 million in cash and cash equivalents, and $82.4 million in restricted cash.
• Net debt to gross assets stood at 39.6% at the end of the first quarter.
• Capital expenditures for the quarter totaled $23.3 million.
• The company extended mortgage loans for the Pier House Resort & Spa and the Ritz-Carlton St. Thomas.
• A six-month forbearance was received on the mortgage loan for the Hilton La Jolla Torry Pines.
• Braemar completed financing for the Ritz-Carlton Reserve Dorado Beach.
• Subsequent to the quarter, a $30 million mortgage loan for the Cameo Beverly Hills was paid off.
• A definitive agreement was signed to sell the Hilton La Jolla Torrey Pines for $165 million, with Braemar holding a 75% ownership interest in the joint venture.
• The company is also evaluating the sale of two more hotels in 2024 and 2025, respectively, and has authorized a $50 million preferred share redemption program and a $50 million share buyback.
• The company declared a quarterly cash dividend of $0.05 per diluted share for the second quarter ending June 30, 2024, payable on July 15, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positive aspects like strategic asset sales and loan extensions, the decrease in key metrics like RevPAR and ADR, along with the forbearance on a loan, temper the overall outlook.

Positives

• Occupancy increased by 0.8% to 65.4%.
• The company ended the quarter with a strong cash position of $137.1 million.
• The company successfully extended mortgage loans for key properties.
• The company completed financing for the Ritz-Carlton Reserve Dorado Beach.
• The company paid off a $30 million mortgage loan for the Cameo Beverly Hills.
• The company has a definitive agreement to sell the Hilton La Jolla Torrey Pines for $165 million.
• The company has authorized a $50 million preferred share redemption program and a $50 million share buyback.
• The company declared a quarterly cash dividend of $0.05 per diluted share.

Negatives

• Comparable RevPAR decreased slightly by 0.2% year-over-year.
• Comparable ADR decreased by 1.0% year-over-year.
• Hotel net income (loss) margin decreased from 17.38% to 16.36%.
• Hotel EBITDA margin decreased from 33.52% to 32.05%.

Risks

• The company's ability to repay, refinance, or restructure its debt is a risk.
• The completion of pending transactions, including the sale of the Hilton La Jolla Torrey Pines, is subject to customary conditions and may not occur.
• The company's dividend policy is subject to the board's discretion and may not be maintained at current levels.
• The company faces risks related to market trends, competition, interest rates, and the general economy.
• The company's forward-looking statements are subject to numerous assumptions and uncertainties, and actual results may differ materially.

Future Outlook

The company believes its portfolio is well-positioned to outperform in both the near-term and long-term, and is focused on maximizing value for investors through strategic asset sales, a preferred share redemption program, and a share buyback authorization. The company is also evaluating the sale of two more hotels in 2024 and 2025.

Management Comments

• Several of our resort properties delivered strong performance during the first quarter, noted Richard J. Stockton, Braemar's President and Chief Executive Officer.
• Despite a challenging year-over-year comparison from the 2023 Super Bowl, our Four Seasons Resort Scottsdale at Troon North achieved almost 8% growth in Hotel EBITDA.
• Our Ritz-Carlton Reserve Dorado Beach also had a great quarter with Hotel EBITDA growth of 24% during the quarter.
• We are also pleased to report that we have repaid the loan on the Cameo Beverly Hills with cash on hand.
• As we look ahead, we believe our portfolio is well-positioned to outperform in both the near-term and long-term.
• We are also pleased to announce the planned sale of the Hilton La Jolla Torrey Pines at an attractive cap rate, the preferred share redemption program, and the share buyback authorization.
• Our recently announced shareholder value creation plan demonstrates our focus on maximizing value for our investors.

Industry Context

The mixed results reflect the ongoing challenges and opportunities in the hospitality sector, with some properties performing well while others face headwinds. The strategic moves to sell assets and manage debt are in line with industry trends of portfolio optimization and capital allocation.

Comparison to Industry Standards

• Braemar's RevPAR of $368 is comparable to other luxury hotel REITs, but the slight decrease indicates a need for improvement in revenue management.
• The occupancy rate of 65.4% is within the expected range for luxury hotels, but there is room for growth to match top-performing peers.
• The company's net debt to gross assets ratio of 39.6% is moderate compared to some highly leveraged hotel REITs, but the company is actively managing its debt through extensions and paydowns.
• The planned sale of the Hilton La Jolla Torrey Pines at a 7.2% cap rate is a positive move, as it is in line with current market valuations for similar assets.
• The company's focus on strategic asset sales and capital allocation is similar to other REITs that are actively managing their portfolios to maximize shareholder value.
• The company's performance is mixed compared to peers such as Host Hotels & Resorts and Park Hotels & Resorts, which have shown stronger RevPAR growth in some markets.

Stakeholder Impact

• Shareholders will be impacted by the dividend declaration, share buyback, and preferred share redemption program.
• Employees may be affected by the potential sale of additional hotels.
• Customers may experience changes in service or offerings at hotels that are sold or undergo renovations.
• Creditors will be impacted by the company's debt management strategies, including loan extensions and paydowns.
• Suppliers may be affected by changes in the company's portfolio and operations.

Next Steps

• The company plans to complete the sale of the Hilton La Jolla Torrey Pines by August 2024.
• The company is evaluating the sale of two more hotels in 2024 and 2025.
• The company will implement a $50 million preferred share redemption program.
• The company will execute a $50 million share buyback authorization.
• The Board of Directors will review its dividend policy on a quarter-to-quarter basis.

Key Dates

Keywords

Hotel REIT, Luxury Hotels, Financial Results, RevPAR, EBITDA, Mortgage Loans, Property Sale, Share Buyback, Dividends, Capital Expenditures