Braemar Hotels & Resorts Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Braemar is a REIT focused on luxury, high-RevPAR hotels. At quarter-end it owned interests in 15 hotels with 3,971 rooms (3,736 net rooms).
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Hotel revenue | $161.9 million | $83.8 million |
| Operating income (loss) | $26.5 million | $(3.7) million |
| Net income (loss) | $15.6 million | $(11.0) million |
| Net income (loss) attributable to the Company | $14.7 million | $(8.7) million |
| Net income (loss) attributable to common stockholders | $11.4 million; $0.17 basic EPS and $0.15 diluted EPS | $(11.2) million; $(0.28) basic and diluted EPS |
| Adjusted EBITDAre | $49.2 million | $16.6 million |
| Cash from operating activities | $28.8 million | $12.0 million |
Hotel revenue rose 93.1%. Occupancy increased to 54.95% from 37.01%, ADR to $543.79 from $436.98, and RevPAR to $298.79 from $161.73. For the 13 hotels held throughout both periods, RevPAR was $286.18 versus $161.73. The filing attributes the improvement primarily to recovery from COVID-19 disruption, with additional revenue from the Mr. C Beverly Hills and Dorado Beach acquisitions.
Total expenses increased to $135.4 million from $88.1 million, reflecting higher activity and operating costs as hotels recovered and the acquired properties entered the portfolio. Operating income was 16.3% of hotel revenue; the prior-period operating result was a loss. Interest expense and loan-cost amortization rose 26.1% to $8.5 million, partly due to higher average LIBOR and acquisition-related debt.
Cash, cash equivalents and restricted cash totaled $226.3 million at March 31, 2022, including $185.2 million unrestricted cash. Net cash used in investing was $97.7 million, including approximately $87.0 million for Dorado Beach and $10.8 million in hotel improvements. Financing provided $31.9 million, including $33.7 million of preferred-stock proceeds and $70.5 million of borrowings, partly offset by $67.8 million of debt repayments. Cash and cash equivalents declined from $216.0 million at year-end 2021.
Indebtedness, net was $1.238 billion, compared with $1.173 billion at December 31, 2021. The debt schedule includes a $435 million mortgage shown with a June 2022 current maturity, as well as other loans with near-term maturities and extension options. The company reported that no loans were in default and that it was in compliance with debt covenants at quarter-end. Approximately $1.2 billion of debt was variable-rate; management estimated a 25-basis-point rate change would affect annual results by approximately $2.9 million. Interest-rate caps had $928 million of notional amount at quarter-end.
Management believed operating cash flow and existing cash would cover anticipated interest and principal payments, working capital, capital expenditures and required REIT distributions for the next 12 months, excluding potential final-maturity principal payments. The filing does not provide numeric full-year earnings or revenue guidance.
Material changes and notable transactions
- On March 11, 2022, Braemar acquired the 96-room Ritz-Carlton Reserve Dorado Beach for $104 million cash and 6.0 million common shares valued at approximately $35 million, and assumed a mortgage with a fair value of approximately $58.6 million. The acquired hotel contributed $7.5 million of revenue and $3.5 million of net income from acquisition through quarter-end. The shares were registered for resale after quarter-end.
- In August 2021, Braemar acquired Mr. C Beverly Hills; its inclusion also affects year-over-year comparability.
- In February 2022, Braemar refinanced the Park Hyatt Beaver Creek loan with a $70.5 million, interest-only, floating-rate loan at SOFR plus 2.86%, initially due in 2024 with extension options.
- The company issued approximately 1.48 million Series E preferred shares during the quarter for net proceeds of $33.2 million. Series E and Series M shares have redemption features and are classified outside permanent equity. Common shares outstanding increased to approximately 71.3 million from 65.4 million at year-end, including shares issued for the Dorado acquisition.
- Adoption of the convertible-instrument accounting standard increased reported indebtedness and reduced stockholders’ equity by approximately $5.6 million at adoption; it reduced Q1 interest expense by $273,000.
Outlook, risks and unusual items
- Management cited hotel demand recovery but warned that COVID-19 resurgence, travel restrictions and broader lodging-market conditions could adversely affect results. Hotel performance is seasonal, and Q1 results are not necessarily indicative of full-year performance.
- Refinancing and liquidity depend on capital-market access, operating performance and lender conditions. Floating-rate exposure, rising interest rates, substantial leverage and scheduled maturities are material risks. Some mortgage loans have cash-trap provisions; the $54 million Dorado Beach mortgage was in a cash trap, with approximately $60,000 of restricted cash subject to it.
- The common dividend policy for 2022 was a quarterly $0.01 per share, subject to future board approval. Management cautioned that the policy does not commit the board to future dividends. Preferred dividends add to cash obligations.
- Related-party relationships are significant: Ashford LLC advises and asset-manages the portfolio, and Ashford Inc. affiliates provide services and manage four hotels. Q1 advisory fees were $7.3 million, including a $977,000 incentive fee and equity-based compensation; the filing also describes potential conflicts of interest. A waiver permitted cash incentive compensation for the advisor’s personnel during the first two quarters of 2022.
- Unusual items included an approximately $868,000 gain from the Accor settlement, recorded as a reduction of management fees, and a California employment-litigation settlement that resulted in an approximately $448,000 loss to the company; approximately $500,000 was accrued and the settlement was paid after quarter-end. A separate employment class action remained unresolved, with potential loss not reasonably estimable and no accrual recorded.
- The company reported no material changes to its 2021 Form 10-K risk factors. The COO’s departure was disclosed as a subsequent event, with the effective resignation date not specified in the filing text provided.
Most important facts for investors to verify
- Whether the hotel recovery and comparable-property RevPAR gains persist, and how labor, energy and other operating-cost increases affect margins.
- Near-term debt maturities, extension requirements, refinancing terms, cash-trap status and sensitivity to floating interest rates.
- Liquidity after acquisition spending, preferred and common distributions, capital improvements and any required debt repayments.
- Dilution and redemption obligations from acquisition shares, common-equity programs, convertible securities and redeemable preferred stock.
- Developments in the unresolved employment litigation, the Accor arbitration for 2020–2021 performance tests, and related-party fees and governance.