Braemar Hotels & Resorts Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited results are for a luxury hotel REIT with 13 hotels and 3,719 total rooms across six states, Washington, D.C., and the U.S. Virgin Islands. The company reported one operating segment.
Financial performance and key metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $118.9 million | $108.8 million | $365.9 million | $332.5 million |
| Operating income | $7.3 million | $11.2 million | $34.1 million | $62.6 million |
| Net income (loss) attributable to the company | $(9.4) million | $(1.9) million | $(14.9) million | $13.7 million |
| Net income (loss) attributable to common stockholders | $(11.9) million | $(3.6) million | $(22.5) million | $8.6 million |
| Basic and diluted EPS | $(0.37) | $(0.12) | $(0.71) | $0.25 |
| Adjusted EBITDAre | $28.6 million | $29.5 million | $95.9 million | $98.9 million |
| Adjusted FFO available to common stockholders and OP unitholders | $12.4 million | $14.5 million | $49.4 million | $59.8 million |
Operating margin was approximately 6.2% in Q3 2019 versus 10.3% in Q3 2018, and 9.3% for the first nine months versus 18.8% a year earlier. These calculations use reported operating income divided by total revenue.
- Hotel indicators: Q3 occupancy was 83.21% versus 85.86%; ADR was $282.72 versus $272.72; and RevPAR was $235.24 versus $234.17. For the 12 hotels owned throughout both quarters, RevPAR declined to $228.25 from $234.17.
- Cash flow: Nine-month operating cash flow was $49.0 million, compared with $52.9 million. Investing outflow was $210.0 million, including $111.8 million for the Lake Tahoe acquisition and $108.2 million of hotel improvements. Financing provided $42.5 million. Cash, cash equivalents and restricted cash ended at $140.0 million, including $82.6 million unrestricted cash and $57.4 million restricted cash.
- Debt and liquidity: Debt principal was $1.065 billion ($1.057 billion net of deferred loan costs), up from $992.6 million at year-end 2018. The company had $100 million of revolving capacity and no revolver borrowings at September 30. It reported compliance with debt covenants; its consolidated debt-to-asset-value ratio was 58.1% against a 60% maximum, and fixed-charge coverage was 1.56x against a 1.50x minimum. All debt was variable-rate; a 25-basis-point rate change was estimated to affect annual results by about $2.7 million.
- Capital and dividends: Hotel properties, net, were $1.472 billion. Common dividends declared were $0.16 per share for the quarter; Series B and Series D preferred dividends were also declared. Dividends and distributions paid during the first nine months totaled $24.9 million.
Material changes versus comparable periods
- Revenue rose 9.2% in Q3 and 10.1% for the nine-month period, but operating income fell 34.8% and 45.5%, respectively. Hotel operating expenses grew faster than revenue; depreciation and interest costs also increased.
- Comparisons include the January 2019 acquisition of the Ritz-Carlton, Lake Tahoe, the April 2018 acquisition of the Ritz-Carlton, Sarasota, and the June 2018 sale of the Tampa Renaissance. On a comparable-hotel basis, nine-month RevPAR declined to $224.42 from $229.05.
- Q3 results included a $1.2 million loss on asset dispositions, primarily FF&E removed during The Notary Hotel renovation, and a $1.5 million unrealized loss on the Ashford Inc. investment. The comparable 2018 period included a $15.7 million gain on the Tampa Renaissance sale. For the nine months, the Ashford Inc. investment generated an unrealized loss of $5.4 million.
- Hurricane-related business-interruption revenue was $4.0 million in Q3 and $16.6 million year to date, versus $3.8 million and $13.9 million in 2018. Ritz-Carlton, St. Thomas was closed for renovation throughout Q3, with all rooms out of service; the filing states that its hurricane-related insurance revenue is included in other hotel revenue.
Outlook, risks and unusual items
- The filing gives no specific earnings or operating guidance. Management said cash flow from operations and existing cash balances should cover anticipated interest and principal payments, working capital, capital expenditures and REIT-required dividends over the next 12 months, excluding potential final maturity principal payments.
- Management cautioned that seasonal hotel demand, renovation closures, access to debt and equity markets, lender restrictions, and property performance can affect liquidity. Certain loans have cash-trap provisions that could restrict access to hotel cash and distributions. REIT distribution requirements limit retained cash available for capital spending.
- Subsequent to quarter-end, Braemar replaced its prior revolver with a $75 million three-year secured facility, with two one-year extension options and expansion capacity up to $250 million. The prior facility had no amounts outstanding. The filing also reports post-quarter completion of Ashford Inc.’s acquisition of Remington’s hotel-management business.
- The company had agreed to contribute, together with Ashford Trust, up to $15 million toward Ashford Securities; Braemar had funded approximately $165,000 by September 30. The company disclosed extensive service, advisory and management arrangements involving Ashford Inc. affiliates and Remington Lodging, including ownership and governance relationships that may create conflicts of interest.
- On November 5, 2019, Braemar distributed its remaining Ashford Inc. shares to stockholders and OP unitholders; it reported no continuing ownership after the distribution. Legal proceedings were ongoing, but management did not expect their resolution to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
Most important facts for investors to verify
- Whether comparable-hotel demand, particularly occupancy and RevPAR, improves after renovations and the St. Thomas reopening; separate organic performance from acquisition-driven revenue growth.
- Whether operating costs and interest expense continue to outpace revenue, and how reported losses compare with non-GAAP adjusted EBITDAre and FFO measures.
- Debt maturities, refinancing terms, covenant headroom and interest-rate exposure, including the terms and actual availability of the post-quarter credit facility.
- The timing, amount and collectability of remaining hurricane-insurance recoveries, and the status of the $14.3 million net insurance-related liability disclosed at quarter-end.
- The economics and governance of related-party advisory, management, project, funding and service arrangements, and any remaining obligations connected with Ashford Securities or the Ashford Inc. share distribution.