8-K: Braemar Hotels & Resorts Reports Mixed Second Quarter 2024 Results Amidst Strategic Asset Sales

Braemar Hotels & Resorts reported a net loss for the second quarter of 2024, despite some positive performance in urban hotels and strategic asset sales.

Summary

• Braemar Hotels & Resorts announced its financial results for the second quarter of 2024, ending June 30th.
• Comparable RevPAR decreased by 1.5% year-over-year to $305, while comparable ADR decreased by 4.1% to $418.
• However, comparable occupancy increased by 2.7% to 72.8%.
• The company reported a net loss attributable to common stockholders of $(21.9) million, or $(0.33) per diluted share.
• Adjusted funds from operations (AFFO) was $0.10 per diluted share, and adjusted EBITDAre was $42.7 million.
• Comparable Hotel EBITDA was $51.1 million for the quarter.
• Braemar ended the quarter with $120.3 million in cash and cash equivalents, and $60.7 million in restricted cash.
• Net debt to gross assets was 40.4% at the end of the second quarter.
• Capital expenditures for the quarter totaled $15.9 million.
• The company sold the Hilton La Jolla Torrey Pines for $165 million, representing a 7.2% capitalization rate on net operating income for the trailing twelve months ended March 31, 2024.
• Braemar has also initiated a shareholder value creation plan, including potential additional hotel sales, a $50 million preferred share redemption program, and a new $50 million share buyback authorization.
• A quarterly cash dividend of $0.05 per diluted share was declared for the third quarter, payable on October 15, 2024.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the reported net loss and declines in key performance indicators like RevPAR and ADR. While there are positive aspects such as the asset sale and shareholder value creation plan, the overall financial results are concerning.

Positives

• Urban hotels reported a RevPAR increase of 6.3% over the prior year quarter.
• The company successfully sold the Hilton La Jolla Torrey Pines for $165 million.
• Braemar has initiated a shareholder value creation plan, including potential asset sales and share buybacks.
• The company has redeemed approximately $40.1 million of its non-traded preferred stock.
• Approximately 77% of the company's consolidated debt is effectively fixed, mitigating interest rate risk.

Negatives

• Comparable RevPAR for all hotels decreased by 1.5% year-over-year.
• Comparable ADR decreased by 4.1% year-over-year.
• The company reported a net loss attributable to common stockholders of $(21.9) million.
• Hotel EBITDA margins decreased year-over-year.
• The company's resort properties experienced a decrease in revenue and profitability.

Risks

• The company's ability to repay, refinance, or restructure its debt is a risk.
• There are risks associated with the company's ability to effectuate its dividend policy.
• The company is subject to general volatility of the capital markets and the market price of its stock.
• Changes in interest rates or the general economy could negatively impact the company.
• The company faces competition in the markets in which it operates.

Future Outlook

The company believes its portfolio is well-positioned to outperform in both the near-term and long-term, and will continue to execute its shareholder value creation plan, including potential asset sales, share buybacks, and preferred stock redemptions. The Board of Directors will review its dividend policy on a quarter-to-quarter basis, with a view to increasing it as financial performance continues to improve.

Management Comments

• We are very pleased with the performance of our urban hotels during the quarter, which reported a RevPAR increase of 6.3% over the prior year quarter, noted Richard J. Stockton, Braemars President and Chief Executive Officer.
• As we look ahead, we believe our portfolio is well-positioned to outperform in both the near-term and long-term.
• Additionally, we continue to make meaningful progress executing against our recently announced shareholder value creation plan.
• Demonstrating our focus on maximizing value for our investors, this includes our recent sale of the Hilton La Jolla Torrey Pines at a very attractive cap rate, the continued evaluation of additional potential asset sales, our $50 million preferred share redemption program, and the $50 million share buyback authorization.

Industry Context

The results reflect a mixed performance in the hospitality sector, with urban hotels showing strength while resort properties face challenges. The strategic asset sales and capital allocation plans indicate a focus on optimizing the portfolio and returning value to shareholders, which is a common theme among REITs in the current economic environment.

Comparison to Industry Standards

• Braemar's RevPAR decrease of 1.5% contrasts with some industry reports suggesting a slight overall increase in RevPAR for the luxury hotel segment during the same period, indicating potential underperformance relative to peers.
• The 4.1% decrease in ADR is also concerning, as many luxury hotel operators have been able to maintain or slightly increase their rates.
• Companies like Host Hotels & Resorts (HST) and Park Hotels & Resorts (PK) have reported varying results, with some showing stronger RevPAR growth, suggesting Braemar may be facing specific challenges.
• The sale of the Hilton La Jolla Torrey Pines at a 7.2% cap rate is within the range of recent hotel transactions, but the company's overall profitability metrics are lagging behind some of its competitors.
• For example, Pebblebrook Hotel Trust (PEB) has focused on operational improvements and cost management to drive better results, which Braemar may need to emulate.
• The company's net debt to gross assets ratio of 40.4% is within the typical range for hotel REITs, but the blended average interest rate of 8.1% is relatively high, which could impact future profitability.

Stakeholder Impact

• Shareholders may be concerned about the net loss and declining RevPAR and ADR, but may be encouraged by the share buyback and preferred stock redemption programs.
• Employees may be affected by potential asset sales and restructuring.
• Customers may not be directly impacted by this report, but the company's financial health could affect service quality and future investments in properties.
• Suppliers and creditors may be concerned about the company's financial performance and ability to meet its obligations.

Next Steps

• The company will continue to evaluate potential asset sales.
• Braemar will execute its $50 million preferred share redemption program.
• The company will implement its $50 million share buyback authorization.
• The Board of Directors will review its dividend policy on a quarter-to-quarter basis.
• Braemar will conduct a conference call on August 1, 2024, to discuss the results.

Key Dates

Keywords

Hotel REIT, Real Estate Investment Trust, Luxury Hotels, Hotel Performance, RevPAR, ADR, Occupancy, Hotel EBITDA, Asset Sales, Share Buyback, Preferred Stock Redemption, Dividends