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

Braemar Hotels & Resorts reported a net loss of $(1.4) million for the third quarter of 2024, with a decrease in comparable RevPAR and ADR, but an increase in occupancy, while also completing strategic asset sales and refinancing.

Summary

• Braemar Hotels & Resorts announced its financial results for the third quarter ended September 30, 2024, revealing a net loss attributable to common stockholders of $(1.4) million, or $(0.02) per diluted share.
• The company's comparable RevPAR decreased by 1.6% year-over-year to $261, while comparable ADR decreased by 3.8% to $383, and comparable occupancy increased by 2.3% to 68.2%.
• Adjusted funds from operations (AFFO) was $(0.24) per diluted share, and adjusted EBITDAre was $18.5 million for the quarter.
• Comparable Hotel EBITDA was $24.7 million for the quarter.
• The company ended the quarter with $168.7 million in cash and cash equivalents, and $48.5 million in restricted cash.
• Net debt to gross assets was 41.0% at the end of the third quarter.
• Capital expenditures during the quarter totaled $15.6 million.
• Braemar completed the sale of 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.
• The company also closed on a $407 million refinancing of five hotels, with a two-year initial term and three one-year extension options, taking the final maturity to 2029.
• The company declared a quarterly cash dividend of $0.05 per diluted share for the fourth quarter ending December 31, 2024, payable on January 15, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company has made strategic moves like asset sales and refinancing, the core operating metrics like RevPAR and ADR are down, and the company reported a net loss. The positive comments from management are balanced by the mixed financial results.

Positives

• Occupancy increased by 2.3% compared to the same quarter last year, indicating a higher demand for rooms.
• The sale of the Hilton La Jolla Torrey Pines for $165 million demonstrates the company's ability to realize value from its assets.
• The refinancing of five hotels for $407 million provides more favorable terms and extends the debt maturity to 2029.
• The company's urban hotels showed strong performance with a 6% RevPAR increase over the prior year period.
• The company's uninsured losses from recent storms are only expected to be approximately $3 million, with minimal operational impact.
• The company redeemed approximately $50 million of non-traded preferred stock.

Negatives

• The company reported a net loss of $(1.4) million for the quarter.
• Comparable RevPAR decreased by 1.6% compared to the same quarter last year.
• Comparable ADR decreased by 3.8% compared to the same quarter last year.
• Adjusted funds from operations (AFFO) was negative at $(0.24) per diluted share.
• The company's total combined loans had a blended average interest rate of 7.6%.

Risks

• The company's financial performance is subject to risks and uncertainties, including its ability to repay, refinance, or restructure its debt.
• The company's performance is subject to market trends, competition, and changes in interest rates or the general economy.
• Approximately 77% of the company's consolidated debt is effectively floating, making it vulnerable to interest rate fluctuations.
• The company's dividend policy is subject to review and may not be maintained at current levels.
• The company's portfolio mix changes from time to time, so will the seasonality for Comparable Hotel EBITDA and Comparable Hotel EBITDA Margin.

Future Outlook

The company believes its portfolio is well-positioned to outperform in both the near-term and long-term, and 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

• Richard J. Stockton, Braemar's President and Chief Executive Officer, noted that they were very pleased with the strong third quarter performance of their urban hotels, which reported a RevPAR increase of 6% over the prior year period.
• Mr. Stockton also stated that they continue to make meaningful progress executing against their recently announced shareholder value creation plan.
• Mr. Stockton mentioned that their asset management and risk management teams did a remarkable job protecting their assets during the recent storms, and were pleased to report that their uninsured losses from those storms are only expected to be approximately $3 million, and they had minimal operational impact in the third quarter.

Industry Context

This announcement comes at a time when the hospitality industry is navigating a complex landscape of fluctuating demand, rising interest rates, and economic uncertainty. Braemar's strategic asset sales and refinancing efforts reflect a broader trend among hotel REITs to optimize their portfolios and strengthen their balance sheets. The mixed results, with decreased RevPAR and ADR but increased occupancy, highlight the challenges in balancing pricing and occupancy in the current market.

Comparison to Industry Standards

• While Braemar's occupancy increased by 2.3%, the decrease in RevPAR by 1.6% and ADR by 3.8% suggests that the company may be facing pricing pressures compared to some of its peers.
• Companies like Host Hotels & Resorts and Park Hotels & Resorts, which also focus on upscale hotels, have been reporting varying results, with some showing stronger RevPAR growth but also facing challenges in certain markets.
• The sale of the Hilton La Jolla Torrey Pines at a 7.2% capitalization rate is within the range of recent hotel transactions, but the specific cap rate is dependent on the quality and location of the asset.
• The refinancing of $407 million at SOFR + 3.24% is a competitive rate given the current interest rate environment, but the overall debt level of 41% net debt to gross assets is higher than some of its peers.
• The company's urban hotels outperforming resort properties is a trend seen in other hotel REITs, as urban markets have seen a stronger recovery in demand.

Stakeholder Impact

• Shareholders may be concerned about the net loss and decreased RevPAR and ADR, but may be encouraged by the strategic asset sales and refinancing.
• Employees may be affected by any potential changes in operations or asset sales.
• Customers may not be directly impacted by this report, but the company's performance could affect the quality and availability of its services.
• Suppliers and creditors may be impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue to evaluate additional potential asset sales.
• The Board of Directors will review its dividend policy on a quarter-to-quarter basis.
• The company will conduct a conference call on November 7, 2024, to discuss the results.

Key Dates

Keywords

Hotel REIT, Luxury Hotels, Hotel Performance, RevPAR, ADR, Occupancy, Hotel EBITDA, Asset Sales, Refinancing, Dividends