Braemar Hotels & Resorts Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Braemar is a REIT focused on luxury hotels and resorts. At quarter-end it owned interests in 13 hotels, with 3,722 total rooms (3,487 net rooms). COVID-19 continued to depress travel demand; 11 hotels had temporarily suspended operations following restrictions in March 2020.
Key financial and operating metrics
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Total hotel revenue | $83.8 million | $117.5 million | Down 28.7% |
| Operating income (loss) | $(3.7) million | $(3.2) million | Loss increased $0.5 million |
| Net loss attributable to the Company | $(8.7) million | $(12.9) million | Loss narrowed $4.2 million |
| Net loss attributable to common stockholders | $(11.2) million; $(0.28) per share | $(15.5) million; $(0.48) per share | Weighted-average shares rose to 39.6 million from 32.5 million |
| EBITDAre / Adjusted EBITDAre | $13.7 million / $16.6 million | $16.2 million / $18.5 million | Both declined |
| Occupancy / ADR / RevPAR | 37.01% / $436.98 / $161.73 | 59.77% / $348.16 / $208.10 | Occupancy fell 22.76 percentage points; ADR rose 25.5%; RevPAR fell 22.3% |
| Cash from operating activities | $12.0 million | $(0.9) million | 2021 cash generation included significant working-capital movements |
| Cash and cash equivalents | $85.7 million | $78.6 million at Dec. 31, 2020 | Restricted cash was an additional $39.3 million |
| Indebtedness, net | $1.119 billion | $1.131 billion at Dec. 31, 2020 | All debt was variable-rate |
Hotel operating expenses fell 36.1% to $56.0 million, less than the 28.7% revenue decline in absolute terms but reflecting substantial cost reductions. Interest expense and loan-cost amortization fell to $6.8 million from $11.9 million, partly due to lower LIBOR. Q1 2021 included a $0.5 million insurance/disposition gain and a $0.35 million write-off of loan costs and exit fees.
Material changes, outlook and risks
- COVID-19 remained the principal operating risk. Management expected it to continue negatively affecting results, financial position and cash flow in 2021 and potentially longer; it could not reliably estimate when hotel operations would normalize.
- Management reduced operating costs, suspended common dividends, and projected 2021 capital expenditures of approximately $20–$30 million. The company said the completed loan amendments, forbearance agreements, cash resources and forecast supported its conclusion that its plans alleviated substantial doubt about its ability to continue as a going concern for the next year.
- A February 2021 term-loan amendment extended waivers on most covenants through Q4 2021 and provided a reduced fixed-charge coverage covenant through 2022; testing was to begin with the quarter ending March 31, 2022. The amendment also permitted use of approximately $9.3 million of certain FF&E reserves for discretionary capital expenditures. Braemar reported no loans in default and compliance with covenants at March 31, 2021. Some property loans had previously been in default and were subject to forbearance or troubled-debt-restructuring terms.
- Debt and refinancing remain material risks: approximately $1.1 billion of debt was variable-rate, and the filing estimated that a 25-basis-point rate increase would add about $2.8 million of annual interest expense. Lenders may have acceleration and foreclosure rights if defaults recur. A major mortgage listed a June 2021 current maturity, subject to extension provisions; investors should verify its subsequent status.
- Financing activity included $18.2 million of common-stock proceeds in Q1 and a standby equity distribution agreement for up to 7.78 million shares. Subsequent to quarter-end, the company also agreed to a common-stock purchase facility of up to $35 million. These financings can dilute shareholders; the term loan also requires specified prepayments from equity proceeds.
- Disclosure controls were reported ineffective because a material weakness concerning accounting for troubled debt restructurings had not been remediated. Management nevertheless stated the financial statements were fairly stated in all material respects. The company and related parties were responding to SEC subpoenas concerning related-party transactions and controls.
- Contingencies include an Accor management-agreement dispute with no amount accrued; approximately $0.5 million accrued for a California employment matter; and a certified California employee class action for which a potential loss was not estimable and no amount was accrued.
Most important facts for investors to verify
- Hotel reopening, occupancy, ADR and RevPAR trends, particularly whether improving room rates can offset weak occupancy and lower total revenue.
- Cash availability and use: distinguish unrestricted cash from restricted reserves and manager-held funds; assess whether operating cash flow is sustainable apart from working-capital timing.
- Current status and extension/refinancing terms of near-term property debt, covenant testing beginning in 2022, and any continuing forbearance or cash-trap restrictions.
- Progress in remediating the troubled-debt-restructuring control weakness and any material developments in the SEC inquiry and litigation.
- Expected share issuance under equity facilities, associated dilution and mandatory debt-prepayment requirements; confirm whether and when common dividends may resume.