Braemar Hotels & Resorts Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing was signed March 12, 2020. This is an annual report, not a standalone fourth-quarter report. Braemar is an externally advised hotel REIT focused on luxury properties. At year-end it held interests in 13 hotels with 3,722 rooms (3,487 net rooms); 12 properties were in the U.S. and one in the U.S. Virgin Islands.
Financial and operating results
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Total revenue | $487.6 million | $431.4 million | +13.0% |
| Operating income | $64.4 million | $65.8 million | −2.2% |
| Net income attributable to Braemar | $0.4 million | $1.3 million | −71.9% |
| Net loss attributable to common stockholders | $9.8 million | $5.9 million | Loss widened |
| Diluted loss per common share | $0.32 | $0.19 | Loss widened |
| Operating cash flow | $66.3 million | $70.7 million | −6.3% |
| Hotel EBITDA (non-GAAP) | $141.3 million | $137.6 million | +2.7% |
| Adjusted EBITDAre (non-GAAP) | $121.5 million | $119.3 million | +1.8% |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $30.8 million | $32.1 million | −4.0% |
Revenue growth reflected the full-year contribution from the Ritz-Carlton, Sarasota, acquired in April 2018, and the Ritz-Carlton, Lake Tahoe, acquired in January 2019. Comparable-hotel occupancy declined to 79.91% from 81.76%; comparable RevPAR slipped to $220.46 from $221.46 as higher ADR did not offset lower occupancy. Across the portfolio, occupancy was 78.73%, ADR was $295.94 and RevPAR was $232.99.
Total operating expenses rose 17.6% to $448.4 million, faster than revenue. Depreciation and amortization increased 22.2% to $70.1 million, while interest expense and loan-cost amortization increased 9.8% to $54.5 million. Results also included $25.2 million of gains on insurance settlements and asset dispositions. Hotel EBITDA and EBITDAre are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Balance sheet, debt and liquidity
- At December 31, 2019, cash and cash equivalents were $72.0 million, down from $182.6 million; restricted cash was $58.4 million. Restricted cash is subject to specified uses and should not be treated as freely available liquidity.
- Gross debt was $1.065 billion ($1.058 billion net of deferred loan costs), versus $992.6 million gross a year earlier. Total assets were $1.759 billion and company stockholders’ equity was $369.3 million.
- All mortgage debt was variable-rate, with a 4.04% weighted-average rate at year-end. Management estimated a 25-basis-point rate increase would add about $2.7 million in annual interest expense. Debt included cash-trap triggers tied to property performance.
- The $75 million secured revolving facility had no balance at year-end; it matures in October 2022, with two conditional one-year extensions and potential expansion to $250 million. Braemar subsequently borrowed $25 million on March 10, 2020.
- Debt obligations due within one year totaled $502.5 million before extensions, a significant refinancing concern. Management said it expected operating cash and existing cash to cover anticipated needs for the next 12 months, excluding potential final-maturity principal payments.
- 2019 investing cash outflow was $226.4 million, including $111.8 million for the Lake Tahoe acquisition and $136.3 million of hotel improvements. Estimated 2020 capital expenditures were $45–$65 million; estimated 2020 debt interest was approximately $34 million, based on the filing’s stated assumptions.
Material changes and unusual items
- Revenue rose 13%, but operating expenses grew faster and operating income declined. Common-stockholder results remained negative after preferred dividends.
- The Ritz-Carlton, Lake Tahoe was acquired for $120 million; the company also refinanced or amended several property loans and replaced its revolver with the $75 million facility.
- The Ritz-Carlton, St. Thomas underwent hurricane-related restoration and was closed for renovation from March through November 2019. The company recorded $19.3 million of hurricane business-interruption revenue and a $26.2 million insurance-settlement gain during 2019. These items materially affected reported results and are not necessarily recurring.
- Common dividends were $0.64 per share in 2019, as in 2018. The board had expected to pay $0.16 quarterly in 2020 but said it would reconsider, including possible elimination or significant reduction, in light of COVID-19.
- After year-end, management reported rapidly worsening COVID-19 effects, including cancellations and reduced new bookings, and expected substantial hotel cash-flow erosion until travel returned to more customary levels. The duration and financial impact were not quantified clearly in the filing.
- Braemar completed distribution of its remaining Ashford Inc. shares in November 2019. It also reported a dispute and litigation with Accor concerning management of the Chicago Sofitel and the company’s asserted termination rights.
Outlook, risks and contingencies
The filing provides no quantified earnings or occupancy guidance. Management described the COVID-19 demand shock as significant and accelerating, while noting that cost reductions might not offset lost revenue. Key risks include travel and economic downturns, luxury-hotel operating volatility, the high variable-rate debt load and refinancing needs, cash traps, property-level capital requirements, and dependence on external adviser Ashford LLC and third-party hotel operators. Related-party relationships with Ashford Inc., Remington Hotels and Premier create potential conflicts; the filing describes governance review processes but does not eliminate those risks. The Accor litigation outcome and any resulting costs or management transition remained uncertain. The company stated other pending legal matters were not expected to have a material adverse effect based on current estimates, while cautioning that outcomes cannot be predicted.
Most important facts for investors to verify
- COVID-19-related booking cancellations, occupancy, RevPAR, hotel closures and cash burn in subsequent filings, along with the actual effects on liquidity and dividends.
- The status, extension or refinancing of the $502.5 million of debt scheduled within one year, covenant compliance, cash-trap status and availability of the revolver.
- Whether 2019 earnings and hotel cash flow were materially supported by hurricane business-interruption revenue and insurance-settlement gains, and whether any further insurance recoveries or liabilities remain.
- Comparable-property performance and margin trends, separating acquisitions, renovations and property closures from underlying operations.
- Developments in the Accor dispute and the terms, fees and oversight of related-party advisory, management, project-management and capital-raising arrangements.