Braemar Hotels & Resorts Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Braemar invests in luxury hotels and resorts and reported 16 properties with 4,192 rooms (3,957 net rooms). Comparisons are affected by acquisitions of The Ritz-Carlton Reserve Dorado Beach in March 2022 and Four Seasons Resort Scottsdale in December 2022.
Financial performance and liquidity
Amounts in millions, except per-share data and operating statistics.
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Hotel revenue | $215.3 | $161.9 |
| Operating income | $37.8 | $26.5 |
| Operating margin | 17.6% | 16.3% |
| Net income | $16.6 | $15.6 |
| Net income attributable to Braemar | $16.0 | $14.7 |
| Net income attributable to common stockholders | $3.2 | $11.4 |
| Basic / diluted EPS | $0.05 / $0.05 | $0.17 / $0.15 |
| Cash from operating activities | $42.3 | $28.8 |
| Adjusted EBITDAre | $66.1 | $49.2 |
| FFO available to common stockholders and OP unitholders | $25.3 | $30.1 |
| Adjusted FFO | $32.1 | $34.8 |
- Hotel revenue increased 33.0%, while operating expenses rose 31.1%. Company-wide occupancy was 64.85% versus 54.95%, ADR was $559.16 versus $543.79, and RevPAR was $362.62 versus $298.79. For the 14 hotels owned in both periods, RevPAR increased to $307.68 from $285.04, while ADR declined to $468.30 from $519.94.
- Interest expense and loan-cost amortization increased to $22.9 million from $8.5 million, primarily due to higher variable rates and debt associated with acquired hotels. The $2.3 million debt-extinguishment gain from repaying the Dorado Beach loan partly offset this increase. Higher preferred dividends and $2.5 million of deemed preferred dividends contributed to the decline in common-stockholder earnings.
- At March 31, cash and cash equivalents were $281.5 million; restricted cash was $63.1 million. Cash, cash equivalents and restricted cash totaled $344.6 million. Operating cash flow was $42.3 million; investing cash outflow was $18.7 million, mainly hotel improvements; financing cash inflow was $5.3 million.
- Indebtedness, net of discounts and costs, was $1.278 billion, down from $1.334 billion at December 31, 2022. Total debt was approximately $1.3 billion, including approximately $1.2 billion of variable-rate debt; net debt to gross assets was 37.1%. The filing reports compliance with debt covenants at quarter-end.
Material changes and financing
- Braemar repaid the $54.0 million Dorado Beach mortgage in January 2023. In April, after quarter-end, it amended the Ritz-Carlton Sarasota and Hotel Yountville loans, converting their reference rates to SOFR and extending current maturities to October and November 2023, respectively, each with a conditional six-month extension option.
- The $435 million mortgage loan was subject to a cash trap at quarter-end, with approximately $440,000 of cash restricted by that provision. The filing identifies additional near-term loan maturities; extension options and conditions are relevant to assessing refinancing needs.
- The company issued preferred stock and received $98.0 million net proceeds during the quarter. It repurchased approximately 3.9 million common shares for $18.9 million and completed its $25 million repurchase authorization. Preferred stock issuance increased materially year over year and carries cumulative dividend and redemption features.
- The board’s stated 2023 policy anticipates quarterly common dividends of $0.05 per share, or $0.20 annualized; future dividends remain subject to board review. Management believes cash and operating cash flow will cover anticipated needs over the next 12 months, excluding potential final maturity principal payments and extension-related paydowns.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or hotel-performance guidance. Management notes seasonality and says first-quarter results are not necessarily indicative of full-year results.
- Key risks include rising interest rates and inflation, capital-market access, lodging demand, refinancing and extension conditions, cash traps, and potential volatility or loss of access to cash held at financial institutions. The company reported no direct exposure to Silicon Valley Bank, Signature Bank or First Republic Bank.
- About $1.2 billion of debt is variable-rate. The filing estimates that a 25-basis-point rate change would affect annual results by approximately $3.0 million before considering interest-rate caps.
- A California employment class action involving a hotel manager affects two properties. A loss was considered reasonably possible but not reasonably estimable, and no amount was accrued at March 31, 2023. The company says other pending matters are not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- Management reported a material weakness in controls over accounting for complex transactions affecting earnings per share, identified in the 2022 close and not remediated during Q1. Disclosure controls were therefore deemed ineffective. Management nevertheless concluded the quarter’s financial statements were fairly stated in all material respects.
- Related-party arrangements merit attention: Ashford LLC advises and asset-manages the portfolio, and Ashford-affiliated businesses provide services, including hotel management. Advisory fees were $7.9 million for the quarter.
Most important facts for investors to verify
- Near-term debt maturities, extension-option requirements, refinancing terms and the duration or release conditions for the $435 million loan cash trap.
- Variable-rate exposure, interest-rate-cap coverage and the sensitivity of interest expense to rates.
- Preferred share redemption rights, cumulative dividend obligations and their effect on cash available to common stockholders.
- Comparable-hotel operating trends versus the reported portfolio-wide growth, which includes two acquired hotels.
- Progress remediating the EPS-related material weakness and whether controls are tested and shown to operate effectively.
- Developments in the employment class action, including class size, potential exposure and any change in the company’s ability to estimate or accrue a loss.