BHR

Braemar Hotels & Resorts Inc. - Q2 2024 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2024. Braemar Hotels & Resorts Inc. is a Maryland corporation taxed as a Real Estate Investment Trust (REIT) that invests primarily in high revenue per available room (RevPAR) luxury hotels and resorts. As of June 30, 2024, the portfolio consisted of 16 hotel properties with 4,201 total rooms located in seven U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The company is advised by Ashford Hospitality Advisors LLC.

Key Financial Metrics

Note: Net income attributable to common stockholders is negative due to significant preferred stock dividend obligations ($10.3 million in Q2 and $20.7 million YTD) and deemed dividends.

Material Changes vs. Prior Period

• Revenue: Total hotel revenue increased 0.5% in Q2 2024 compared to Q2 2023, driven by a 9.2% increase in "Other" revenue, partially offset by slight declines in Rooms (-0.8%) and Food & Beverage (-0.4%) revenue.
• Operating Performance: Occupancy increased 191 basis points to 72.82% in Q2 2024, while Average Daily Rate (ADR) decreased 3.6% to $415.24. RevPAR decreased slightly to $302.37.
• Expenses: Interest expense increased 15.6% to $27.3 million in Q2 2024 due to higher average interest rates (SOFR averaged 5.33% vs. 4.74% in the prior year). Depreciation and amortization increased 9.4% to $24.7 million.
• Profitability: Net loss attributable to the Company widened significantly in Q2 2024 ($11.6 million loss) compared to Q2 2023 ($1.8 million loss), primarily due to higher interest costs and lower interest income.

Guidance, Outlook, and Material Events

• Asset Sale: The company sold the Hilton La Jolla Torrey Pines on July 17, 2024, for $165 million in cash. The property was classified as "held for sale" as of June 30, 2024.
• Refinancing: On August 7, 2024, the company closed a $407 million refinancing for five hotels with a floating rate of SOFR + 3.24% and a final maturity of 2029.
• Capital Allocation: The board approved a $50 million common share repurchase program and a $50 million preferred share redemption program in May 2024. No common shares were repurchased as of June 30, 2024.
• Dividend Policy: The company declared a quarterly common stock dividend of $0.05 per share for Q2 and Q3 2024.
• Legal Proceedings: The company reached an agreement to settle a class action lawsuit regarding employee wages at Hilton La Jolla Torrey Pines for approximately $371,000. A consolidated class action regarding a 2023 cyber incident remains pending.
• Corporate Governance: In July 2024, the company entered into a Cooperation Agreement with Blackwells Capital to withdraw a proxy contest and dismiss pending litigation, including a standstill agreement through 2034.

Investor Verification Checklist

• Debt Maturities: Verify the status of the $293 million mortgage loan maturing in June 2025 secured by four properties (The Notary, The Clancy, Sofitel Chicago, Marriott Seattle), noting the August 2024 waiver agreement regarding potential foreclosure risks.
• Preferred Stock Obligations: Confirm the impact of preferred dividends (Series B, D, E, M) on distributable cash flow, as these obligations significantly reduce net income available to common shareholders.
• Interest Rate Exposure: Assess the sensitivity of future earnings to SOFR fluctuations, given that approximately $1.1 billion of the $1.2 billion debt portfolio is variable-rate.
• Asset Disposition Proceeds: Monitor the closing and net proceeds from the Hilton La Jolla Torrey Pines sale and the deployment of those funds toward debt reduction or capital returns.
• Legal Contingencies: Track the resolution of the consolidated cyber incident class action lawsuit and the California employment law class action.