Braemar Hotels & Resorts Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context and reporting period
Braemar is a REIT focused on luxury hotels and resorts. At quarter-end, it held interests in 14 hotels with 3,865 total rooms (3,630 net rooms). Results improved as hotel demand recovered from the severe COVID-19 disruption in 2020. Comparisons also reflect the August 5 acquisition of the Mr. C Beverly Hills Hotel and five adjacent residences.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total hotel revenue | $116.2 | $44.8 | $297.1 | $175.2 |
| Operating income (loss) | $1.1 | $(14.3) | $(5.4) | $(57.4) |
| Net income (loss) | $(8.2) | $(23.1) | $(30.6) | $(94.5) |
| Net loss attributable to common stockholders | $(9.0); $(0.15) per share | $(21.2); $(0.63) per share | $(35.7); $(0.73) per share | $(87.2); $(2.63) per share |
| Adjusted EBITDAre (non-GAAP) | $21.9 | $(3.1) | $58.1 | $(3.2) |
| FFO available to common stockholders and OP unitholders (non-GAAP) | $7.8 | $(16.0) | $13.2 | $(54.2) |
| Adjusted FFO (non-GAAP) | $13.7 | $(9.3) | $36.8 | $(33.8) |
Q3 occupancy rose to 61.64% from 26.88%, ADR to $357.99 from $304.68, and RevPAR to $220.66 from $81.89. For the nine-month period, occupancy was 49.46% versus 31.11%, ADR $385.28 versus $330.77, and RevPAR $190.58 versus $102.90. Management attributed the gains primarily to recovery in hotel operations; the new acquisition contributed only part-period results.
Operating cash flow was $55.1 million for the first nine months, versus cash used of $35.6 million in 2020. Investing activities used $23.7 million, including $15.8 million of hotel improvements and acquisition-related cash outlay. Financing activities provided $95.6 million, reflecting equity and note issuance proceeds partly offset by debt repayments and distributions.
Financial position, liquidity and debt
- At September 30, cash and cash equivalents were $195.5 million, restricted cash $44.8 million, and amounts due from third-party hotel managers $20.4 million. Total assets were $1.84 billion and total liabilities $1.35 billion.
- Indebtedness, net, was $1.17 billion, compared with $1.13 billion at year-end 2020. The filing reports approximately $1.1 billion of variable-rate debt; a 25-basis-point rate increase would add approximately $2.7 million of annual interest expense, based on quarter-end balances.
- In May, Braemar issued $86.25 million of 4.50% convertible senior notes due June 2026, receiving approximately $82.8 million net. The notes are convertible at an initial approximate $6.34 per share. Proceeds partly repaid a secured term loan.
- At the Mr. C acquisition, Braemar assumed a $50 million mortgage and repaid $20 million at closing. The filing states that no loans were in default at September 30 and the company was in compliance with debt covenants.
- Mortgage maturities remain a key consideration: listed loans include maturities in 2022 and 2023, with extension options or amendments for certain loans. The filing says management expects available cash, operations and capital-market activity to meet near-term needs, but excludes potential final-maturity principal payments from its stated 12-month liquidity assessment.
Material changes and unusual items
- Revenue increased 159.6% in Q3 and 69.6% for the nine months year over year. Profitability also improved, but Braemar remained loss-making under GAAP. 2020 comparisons included a $10.1 million Hurricane Irma insurance settlement gain; 2021 included a $0.8 million San Francisco transfer-tax settlement gain and other smaller gains.
- The company acquired the Mr. C Beverly Hills Hotel and adjacent residences for cash, operating partnership units and warrants, and assumed mortgage debt. Preliminary acquisition valuation remains subject to change; the hotel contributed $2.3 million of revenue and a $1.2 million loss after acquisition through September 30.
- Common shares outstanding increased materially, from 38.3 million at December 31, 2020 to 64.0 million at September 30, 2021. Common-stock issuance generated approximately $100.0 million in the first nine months. Additional equity programs could create further dilution.
- The common dividend remained suspended. Preferred dividends continued, and newly issued Series E and Series M preferred shares carry redemption features and dividend obligations.
- Hotel operating expenses rose alongside reopening and higher occupancy. Property taxes, insurance and other costs also increased, including higher assessments at two hotels. Certain loan agreements have cash-trap provisions that have been triggered on some loans, potentially restricting hotel cash available to the company.
Outlook, risks and contingencies
Management provided no quantified revenue or earnings guidance. It stated that operating levels may not return to normal on a predictable timetable and warned that renewed COVID-19 surges, travel restrictions or shutdowns could reduce demand. Seasonality also makes interim results an uncertain indicator of full-year performance. The common dividend suspension was intended to protect liquidity, with future declarations to be reviewed quarterly.
Key risks include access to capital, refinancing and maturity payments, variable interest rates, hotel demand recovery, cash-trap restrictions, potential equity dilution, and conflicts involving Ashford Inc. and its affiliates, which provide advisory and other services. The SEC has outstanding administrative subpoenas to Braemar and related parties concerning related-party transactions, accounting policies and controls; the company says it is responding. A California employment-related matter has approximately $0.5 million accrued, while other litigation includes matters for which losses are not currently estimable. The filing also references a material weakness risk in its forward-looking risk discussion; its controls section separately states disclosure controls were effective at quarter-end and no material quarterly change in internal control over financial reporting occurred.
Important facts for investors to verify
- Whether hotel recovery and operating cash flow remain strong enough to support debt service and capital spending, especially if travel demand weakens.
- The timing, extension conditions and refinancing plans for 2022–2023 mortgage maturities, and the effect of cash traps on accessible liquidity.
- Further common or preferred issuance, resulting dilution, preferred redemption terms and dividend burden, and any decision on reinstating common dividends.
- Progress and potential consequences of the SEC inquiry, related-party arrangements, and the material weakness reference in the risk discussion.
- Final acquisition valuation for Mr. C Beverly Hills and the performance of the property after integration.