Braemar Hotels & Resorts Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company is an externally advised hotel REIT focused on luxury properties. At year-end it held interests in 16 hotels with 4,192 rooms (3,957 net rooms); two properties are held in a joint venture in which Braemar owns 75%.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total hotel revenue | $739.3 million | $669.6 million |
| Operating income | $61.7 million | $68.4 million |
| Net income (loss) | $(30.6) million | $19.3 million |
| Net income (loss) attributable to Braemar | $(27.0) million | $17.8 million |
| Net loss attributable to common stockholders; diluted EPS | $(74.0) million; $(1.13) | $(10.7) million; $(0.15) |
| Adjusted EBITDAre (non-GAAP) | $176.7 million | $172.4 million |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $10.7 million | $64.3 million |
| Adjusted FFO available to common stockholders and OP unitholders (non-GAAP) | $43.9 million | $93.1 million |
| Net cash provided by operating activities | $84.7 million | $109.5 million |
Revenue rose 10.4%, but the comparison includes the Ritz-Carlton Reserve Dorado Beach and Four Seasons Resort Scottsdale, acquired in 2022. Across the 14 hotels owned for both full years, revenue declined to $591.4 million from $603.1 million; RevPAR fell to $266.10 from $275.18 as ADR declined despite improved occupancy. For all hotels, occupancy was 66.94% versus 65.62%, ADR was essentially flat at $451.48, and RevPAR increased 2.0% to $302.20.
Higher interest expense was a major pressure: it rose to $94.2 million from $52.2 million, reflecting higher rates and the Scottsdale acquisition. Property taxes, insurance and other costs increased 25.6% to $38.6 million, while depreciation and amortization rose 19.4% to $93.3 million. No hotel impairment charges were recorded in 2023.
Debt, liquidity and capital
- At December 31, 2023, debt principal was approximately $1.173 billion; reported indebtedness, net, was $1.162 billion. Weighted-average interest was 7.42%, considering in-the-money caps. Approximately 92.6% of debt was variable rate; the filing estimates a 25-basis-point rate increase would add about $2.7 million in annual interest before considering caps.
- Cash and cash equivalents were $85.6 million, down from $261.5 million. Restricted cash was $80.9 million, largely lender- and manager-held reserves; $17.7 million was due from hotel managers. Net debt to gross assets was 39.7%, above the company’s 35% target.
- The year-end maturity schedule showed $582.8 million due in 2024 and $536.9 million in 2026, assuming no extension options. The company said it had extension options on near-term debt other than $219.1 million; extensions and amendments completed after year-end changed some maturities.
- Operating cash flow was $84.7 million; investing cash outflow was $77.1 million, including $77.1 million of hotel improvements; financing cash outflow was $156.8 million. Capital improvements included $54.6 million of return-on-investment projects and $22.6 million of renewal and replacement work.
- During 2023, Braemar repaid $534.3 million of debt and borrowed $370.6 million, issued preferred stock for net proceeds of $97.9 million, paid $52.6 million in dividends and distributions, and repurchased 3.9 million common shares for approximately $18.9 million. The $25 million repurchase authorization was completed.
Changes, outlook and significant matters
- Despite higher reported revenue, net income attributable to Braemar moved from $17.8 million of income to a $27.0 million loss. Interest costs, depreciation, property-level expenses and the mix of acquired versus comparable hotels contributed to the change.
- Management expects 2024 common dividends of $0.05 per share quarterly ($0.20 annualized), subject to board review and available funds. It estimates 2024 capital expenditures of $90–$100 million and interest payments of approximately $89.6 million using the December 31, 2023 one-month SOFR rate. The company cautions that dividends are not guaranteed.
- Management stated that operating cash flow and cash balances should cover anticipated interest and principal payments, working capital, capital expenditures and REIT-required distributions for the next 12 months, excluding potential final-maturity principal payments and paydowns required for extension tests. This qualification is important given the stated maturities and refinancing needs.
- After year-end, the Hilton La Jolla Torrey Pines loan was amended to a six-month forbearance, with a remaining balance of $66.6 million and a fixed 9.0% rate during the period; the company is considering refinancing or a possible sale. The Pier House and Ritz-Carlton St. Thomas loans were extended. A $62 million, two-year interest-only loan secured by Dorado Beach closed in March 2024 at SOFR + 4.75%.
- The company’s $200 million secured credit facility includes a $150 million term loan and $50 million revolving facility, with leverage and fixed-charge coverage covenants. Braemar reported covenant compliance at December 31, 2023. The Ritz-Carlton Lake Tahoe was in a cash trap, although no cash was trapped at year-end.
- Risks include substantial floating-rate debt and refinancing exposure, hotel demand and cost volatility, and reliance on an external advisor and related-party service providers. Ashford LLC and affiliates provide advisory, management, financing and project services; 2023 advisory fees were $31.1 million. The filing describes potential conflicts of interest and minimum advisory and hotel-management fees.
- Contingencies include a California employment class action for which no loss was accrued because the potential loss was not estimable; a separate Hilton-related matter included an accrued estimated $371,000 allocation to the La Jolla hotel. Two lawsuits relating to a 2023 cyber incident were filed in February 2024; potential loss was not estimable. The incident may have exposed employee information; the company said it had identified no customer information exposure and restored systems.
- The company reported that its 2022 material weakness involving accounting for deemed dividends on redeemable preferred stock was remediated in 2023. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Current debt maturities, extension-option conditions, refinancing progress and the outcome of the Hilton La Jolla forbearance or potential sale.
- Whether cash, operating cash flow and financing capacity can cover 2024 interest, planned capital expenditures and required debt paydowns without constraining distributions.
- Comparable-hotel revenue, ADR and RevPAR trends, and whether expense growth and higher rates continue to pressure earnings and cash generation.
- Preferred-stock dividend and redemption obligations, common-share dilution, and the sustainability of the announced common dividend.
- Developments in employment and cyber litigation, and the costs and oversight of transactions with Ashford Inc. and its affiliates.