8-K: Braemar Hotels & Resorts Reports Strong Urban Hotel Performance and Progress on Value Creation Plan

Braemar Hotels & Resorts reported solid third-quarter results, highlighted by strong urban hotel performance and progress on its shareholder value creation plan.

Summary

• Braemar Hotels & Resorts held an earnings conference call on November 7, 2024, to discuss their third-quarter results ending September 30, 2024.
• The company reported a net loss attributable to common stockholders of $(1.4) million, or $(0.02) per diluted share, and an AFFO per diluted share of negative $(0.24).
• Adjusted EBITDAre for the quarter was $18.5 million.
• Comparable RevPAR for the portfolio was $261, a 1.6% decrease compared to the same quarter last year, primarily due to renovations at The Ritz-Carlton Lake Tahoe and normalization of resort demand.
• Urban hotels showed strong performance with a 6% increase in Comparable RevPAR.
• The company sold the Hilton La Jolla Torrey Pines for $165 million, representing a 7.2% capitalization rate on net operating income.
• Braemar redeemed approximately $50 million of non-traded preferred stock.
• A new $407 million loan was secured for five hotels with a floating interest rate of SOFR + 3.24%, extending the maturity to 2029.
• The company's group pace for the first quarter of 2025 is up nearly 40%.
• Capital expenditures for 2024 are expected to range between $70 million and $90 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong urban hotel performance and progress on the value creation plan, but tempered by the reported net loss and decrease in overall RevPAR.

Positives

• Urban hotels are performing strongly, with a 6% increase in Comparable RevPAR.
• The company successfully executed the sale of the Hilton La Jolla Torrey Pines at a 7.2% capitalization rate.
• The redemption of $50 million of non-traded preferred stock improves the company's capital structure.
• The new $407 million loan extends debt maturities and reduces the cost of capital.
• Group revenue is increasing, with a 14% increase year-to-date and a 40% increase in group pace for the first quarter of 2025.
• The company has addressed all 2024 debt maturities.
• The company is seeing a 14% increase in leads compared to the prior year quarter.

Negatives

• The company reported a net loss of $(1.4) million and negative AFFO per diluted share of $(0.24).
• Comparable RevPAR for the overall portfolio decreased by 1.6% year-over-year.
• The third quarter is the weakest quarter of the year for the portfolio due to seasonality.
• Resort hotels are experiencing a slight decline in leisure demand year-over-year.
• The company has not bought back any common shares as of the end of the quarter.

Risks

• The company is exposed to interest rate risk, with 77% of its debt being effectively floating.
• The company is still working on refinancing its 2025 debt maturity.
• The company is subject to the impact of weather events, such as hurricanes, which can cause damage and operational disruptions.
• The company is exposed to the risk of softening trends industry-wide.

Future Outlook

The company is encouraged by the strong performance of its urban hotels and the positive group pace for the first quarter of 2025. They expect to complete the refinancing of their 2025 debt maturity early next year and continue to evaluate the sale of additional hotel properties.

Management Comments

• Richard Stockton stated that the company's urban hotels delivered strong performance again this quarter with impressive Comparable RevPAR growth of 6%.
• Richard Stockton mentioned that the company has no remaining final debt maturities in 2024 and is working on refinancing its sole 2025 maturity.
• Richard Stockton expressed pleasure with the progress made on the Shareholder Value Creation Plan.
• Deric Eubanks noted that approximately 23% of the company's debt is effectively fixed and 77% is effectively floating.
• Chris Nixon highlighted that group revenue has increased 14% this year through the third quarter compared to the prior year period.

Industry Context

The company's performance is being impacted by industry-wide trends such as the normalization of leisure demand in resort locations and the typical negative impact of an election year on government business. However, the company is seeing strength in its urban hotel segment, which aligns with the broader trend of recovery in urban travel.

Comparison to Industry Standards

• The company's urban hotel RevPAR growth of 6% is a positive sign, indicating a strong recovery in this segment, which is in line with trends seen in other major urban markets.
• The sale of the Hilton La Jolla Torrey Pines at a 7.2% capitalization rate is a reasonable valuation, comparable to other recent hotel transactions.
• The company's debt refinancing strategy, including the new $407 million loan, is a common practice in the hotel industry to manage debt maturities and reduce borrowing costs.
• The company's focus on capital expenditures for renovations and upgrades is consistent with industry best practices to maintain and enhance property value and guest experience.
• The company's group pace for the first quarter of 2025 being up nearly 40% is a strong indicator of future demand, which is a positive sign compared to industry averages.

Stakeholder Impact

• Shareholders may be concerned about the net loss and negative AFFO per share, but encouraged by the progress on the value creation plan.
• Employees may benefit from the company's investments in renovations and upgrades.
• Customers should experience improved guest experiences due to the ongoing renovations.
• Creditors may be reassured by the company's debt refinancing efforts and improved maturity schedule.

Next Steps

• The company will continue to evaluate the sale of additional hotel properties.
• The company expects to complete the refinancing of its 2025 debt maturity early next year.
• The company plans to begin renovations at fine dining restaurants at The Ritz-Carlton Lake Tahoe and Ritz-Carlton Reserve Dorado Beach.
• The company will start construction on five luxury beachside cabanas at The Ritz-Carlton St. Thomas.

Key Dates

Keywords

Hotel, RevPAR, EBITDA, Refinancing, Debt, Asset Sales, Shareholder Value, Preferred Stock, Capital Expenditures, Urban Hotels, Resort Hotels