Braemar Hotels & Resorts Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing was signed March 10, 2022. Braemar is an externally advised hotel REIT focused on luxury, high-RevPAR properties. At year-end it owned interests in 14 hotels with 3,875 rooms (3,640 net rooms), including two hotels held through a 75%-owned joint venture. Ashford LLC provides advisory and asset-management services; third-party operators run the hotels, including Ashford affiliate Remington Hotels at four properties.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total hotel revenue | $427.5 million | $227.0 million |
| Operating income (loss) | $1.4 million | $(79.9) million |
| Net income (loss) | $(32.9) million | $(124.7) million |
| Net income (loss) attributable to the Company | $(26.7) million | $(105.3) million |
| Net loss attributable to common stockholders | $(40.0) million; $(0.76) per share | $(115.5) million; $(3.39) per share |
| Cash provided by (used in) operating activities | $64.0 million | $(50.3) million |
| Adjusted EBITDAre | $87.5 million | $(4.5) million |
| FFO available to common stockholders and operating-partnership unitholders | $26.8 million | $(68.2) million |
| Adjusted FFO | $57.0 million | $(41.7) million |
Portfolio occupancy was 52.47%, ADR was $386.45 and RevPAR was $202.76, compared with 30.27%, $329.83 and $99.83, respectively, in 2020. Hotel EBITDA across the 14 properties was $108.0 million; this includes the full results of the two joint-venture hotels, not just Braemar’s share. Results include Mr. C Beverly Hills only from its August 5, 2021 acquisition date.
At December 31, 2021, total assets were $1.88 billion, indebtedness net of discounts and costs was $1.17 billion, and total equity was $382.3 million. Gross debt was $1.18 billion, with a weighted-average interest rate of 2.65%; approximately 92.7% was variable-rate debt. Unrestricted cash was $216.0 million, restricted cash was $47.4 million, and $27.5 million was due from hotel managers, primarily cash held for hotel operating costs. Three loans totaling approximately $684 million were in cash traps, restricting access to property cash flows.
Changes versus the prior comparable period
- Revenue increased 88.4%, reflecting recovery from pandemic-related disruption and the partial-year contribution from Mr. C Beverly Hills. Occupancy, ADR and RevPAR all improved substantially from 2020 but remained below pre-pandemic levels across the portfolio.
- Net loss attributable to the Company narrowed by $78.6 million. Operating income returned to positive territory, and Adjusted EBITDAre and FFO also improved materially.
- Interest expense and amortization declined to $30.9 million from $45.1 million, mainly due to lower average LIBOR, repayment of the secured term loan and related accounting effects; this was partly offset by new convertible notes and the Mr. C mortgage.
- Operating cash flow swung to $64.0 million from a $50.3 million use of cash. Cash and cash equivalents rose to $216.0 million from $78.6 million, aided in part by financing activity, including $102.5 million of common-stock proceeds and $83.2 million of net proceeds from convertible notes.
- Common shares outstanding increased substantially during 2021. The company issued equity through multiple offerings and exchanged approximately 2.0 million Series B preferred shares for approximately 7.3 million common shares, among other issuances.
Outlook, risks and unusual items
- Outlook: The filing provides no formal revenue or earnings guidance. Management said operating levels’ return to normal was uncertain and believed cash and operating cash flow would 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.
- Capital needs and maturities: Management estimated 2022 hotel capital expenditures of $60–$70 million and interest payments of approximately $30.2 million using the December 2021 LIBOR rate. Contractual debt maturities listed for 2022 were $546 million, although extension options were available on most of that debt. The Park Hyatt Beaver Creek loan was refinanced in February 2022 with a $70.5 million, interest-only loan at SOFR plus 2.86%. Bardessono and Hotel Yountville loans were extended in 2021.
- Pending acquisition: Braemar announced a pending acquisition of Dorado Beach, a Ritz-Carlton Reserve in Puerto Rico, for $104 million cash and 6.0 million common shares, and expected to assume a mortgage of approximately $54 million. The stated expected closing date was on or about March 11, 2022, subject to customary conditions.
- COVID-19 and operating risks: The pandemic continued to affect travel demand and hotel results; renewed cases, restrictions, weak business/group travel, seasonality, labor and operating costs, weather events, and local market conditions could further affect performance and liquidity.
- Debt and liquidity risks: Variable-rate exposure, refinancing requirements, lender cash traps and covenants could constrain cash available for operations or distributions. A 25-basis-point rate change on year-end variable-rate debt would affect annual results by approximately $2.7 million, before considering hedges or changes in debt.
- Dividends: Braemar paid no common-stock dividends in 2020 or 2021. In March 2022, the board declared a $0.01-per-share common dividend for first-quarter 2022 and revised its 2022 dividend expectation; future dividends remain discretionary. Preferred dividends continued to be declared in 2021.
- Related-party structure: Ashford LLC and its affiliates provide advisory, management, project and other services. The filing describes minimum advisory and hotel-management fees, expense reimbursements and potential conflicts of interest. The ERFP funding agreement with the advisor terminated January 15, 2022 after the advisor elected not to renew.
- Legal and other items: The SEC informed the company in January 2022 that its investigation was concluded and staff did not intend to recommend action against Braemar. A dispute with Accor was settled in February 2022, including agreed cure amounts for 2018 and 2019 and arbitration over 2020 and 2021 performance tests. A California employment-litigation settlement resulted in an estimated company loss of $448,000, partly subject to indemnification; approximately $500,000 was accrued at year-end. No hotel-property impairment charge was recorded in 2021.
- Audit: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned valuation and purchase-price allocation for the Mr. C Beverly Hills acquisition.
Important facts for investors to verify
- Whether hotel demand and operating results continue recovering, particularly occupancy, ADR, RevPAR and property-level EBITDA versus pre-pandemic periods.
- How the company will address 2022 and later debt maturities, cash-trap restrictions, extension conditions and the cost of transitioning LIBOR-linked loans to SOFR or other reference rates.
- Whether projected capital spending, pending acquisition funding and debt service can be met without further material equity issuance or additional leverage; assess the resulting dilution.
- The terms, closing status and financing impact of the Dorado Beach acquisition, including the 6.0 million-share consideration and assumed mortgage.
- The sustainability of cash available for common and preferred dividends, given debt restrictions, capital needs and the company’s continuing net loss.
- Related-party fees, reimbursements and governance safeguards involving Ashford LLC, Remington Hotels, Premier and other Ashford affiliates.
- The outcome of the Accor performance-test arbitration and any remaining employment or other legal contingencies.