Braemar Hotels & Resorts Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Braemar is a REIT focused on luxury, high-RevPAR hotels and resorts. At quarter-end it owned interests in 15 hotels with 3,971 total rooms (3,736 net rooms). Results include the Ritz-Carlton Reserve Dorado Beach, acquired in March 2022; the Mr. C Beverly Hills acquisition in August 2021 also affects comparisons.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Hotel revenue | $161.2 million | $116.2 million | $498.0 million | $297.1 million |
| Operating income (loss) | $3.1 million | $1.1 million | $56.3 million | $(5.4) million |
| Net income (loss) | $(8.4) million | $(8.2) million | $23.9 million | $(30.6) million |
| Net income (loss) attributable to common stockholders | $(14.1) million | $(9.0) million | $7.6 million | $(35.7) million |
| Adjusted EBITDAre | $34.0 million | $21.9 million | $133.3 million | $58.1 million |
| Adjusted FFO available to common stockholders and OP unitholders | $12.6 million | $11.3 million | $80.6 million | $31.1 million |
- Q3 revenue rose 38.7%; nine-month revenue rose 67.6%. Q3 occupancy was 71.50% versus 61.64%, ADR was $398.16 versus $357.99, and RevPAR was $284.69 versus $220.66. For the nine months, RevPAR was $297.66 versus $190.58.
- Operating margin, calculated as operating income divided by hotel revenue, was about 1.9% in Q3 2022 versus 0.9% in Q3 2021, and 11.3% for the 2022 nine-month period versus negative 1.8% in 2021. Higher interest costs and preferred dividends meant Q3 remained loss-making for common stockholders.
- Interest expense and loan-cost amortization was $14.5 million in Q3 and $33.3 million for the nine-month period, up 73.2% and 49.0%, respectively. Management cited higher rates and debt associated with acquisitions.
- Nine-month operating cash flow was $104.0 million, compared with $55.1 million. Investing activities used $123.6 million, including $86.8 million for the Dorado Beach acquisition and $36.5 million of hotel improvements. Financing provided $169.1 million, principally reflecting $185.2 million of preferred-stock proceeds and $70.5 million of borrowings, partly offset by debt repayments and distributions.
- At September 30, cash and cash equivalents were $358.9 million and restricted cash was $53.9 million. Debt, net, was $1.237 billion; total liabilities were $1.455 billion. Stockholders’ equity was $432.4 million. Series E and M redeemable preferred stock totaled $230.5 million on the balance sheet.
Changes, outlook, and risks
- Revenue growth reflected recovery from the pandemic, improved occupancy and room rates, and the acquired hotels. Q3 comparable-hotel occupancy increased nearly 10 percentage points; comparable RevPAR increased from $221.43 to $269.76.
- Operating costs also rose with hotel activity, including food and beverage, labor-related and other operating costs, marketing, repairs, and energy. Q3 corporate general and administrative expense rose to $8.1 million from $2.1 million, partly due to an approximately $5.2 million revised Ashford Securities expense estimate. Advisory services fees rose to $8.9 million from $4.8 million.
- About $1.2 billion of debt was variable-rate. Management estimated that a 25-basis-point rate change would affect annual results by approximately $2.9 million before considering interest-rate caps. Interest-rate caps had $940.5 million notional at quarter-end. The company reported compliance with debt covenants; a $435 million mortgage loan was in a cash trap.
- Management said operating cash flow and existing cash were expected to cover anticipated needs for the next 12 months, including interest and principal payments excluding potential final-maturity payments, working capital, capital expenditures, and REIT-required dividends. It cautioned that access to debt and equity capital could be affected by markets, leverage, operating performance, lender restrictions, and pandemic effects. No specific earnings or operating guidance was provided.
- Inflation, rising interest rates, recession concerns, supply-chain disruption, and geopolitical events were identified as risks to hotel demand, operating costs, borrowing costs, and financing access. Hotel results are seasonal and can be affected by renovations, weather, and travel disruptions.
- Related-party exposure is significant: Ashford LLC advises and asset-manages the portfolio, while Ashford affiliates provide other services; Remington, an Ashford subsidiary, manages four hotels. The filing reports the $5.2 million Ashford Securities estimate revision and other advisory and reimbursable fees.
- The Accor dispute settlement produced an approximately $868,000 first-quarter reduction in management fees; arbitration over 2020–2021 performance tests remained pending, with a decision deadline of December 9, 2022. A certified California employment class action had no accrual because the potential loss was not reasonably estimable.
- After quarter-end, Braemar agreed to buy the 210-room Four Seasons Resort Scottsdale at Troon North for $267.8 million in cash, with $26.8 million deposited in escrow and closing expected by December 31, subject to customary conditions. It also reported subsequent net proceeds from Series E and M preferred issuances.
Important facts for investors to verify
- Whether occupancy, ADR, and RevPAR gains continue and translate into stronger operating margins as hotel expenses rise.
- Debt maturities, extension conditions, cash-trap status, covenant headroom, and the protection actually provided by rate caps as floating rates change.
- Liquidity and funding for the Scottsdale acquisition and future capital needs, including the potential dilution and dividend burden from preferred-stock and common-stock financing.
- The effect of preferred dividends and redeemable preferred-stock terms on cash available to common stockholders; Q3 common-stockholder loss was $14.1 million despite higher revenue.
- Resolution of the Accor arbitration and the potential exposure in the California class action, for which no loss was accrued.
- Related-party fees, expense allocations, and governance safeguards involving Ashford Inc. and its affiliates.