Braemar Hotels & Resorts Inc (BHR)

A. Company Overview

Braemar Hotels & Resorts Inc. is an externally-advised Maryland corporation established in 2013, primarily focused on investing in luxury hotels and resorts that exhibit high revenue per available room (RevPAR). The investment strategy targets properties that can generate RevPAR at least twice the current U.S. national average for all hotels, as assessed by STR, LLC. As a result, the company's investment approach is selective, concentrating on premium-branded and high-quality independent properties situated predominantly in North American urban and resort markets. The firm has elected to be taxed as a Real Estate Investment Trust (REIT) under the U.S. Internal Revenue Code since its inception.

Braemar owns and operates a portfolio of hotel properties primarily through its operating partnership, Braemar OP. As of March 12, 2024, the company has interests in 16 hotel properties located across seven U.S. states, the District of Columbia, Puerto Rico, and St. Thomas in the U.S. Virgin Islands, totaling 4,192 rooms, with 3,957 net rooms when excluding those tied to a joint venture partner. The portfolio is predominantly composed of hotels located in areas with favorable growth characteristics driven by multiple demand generators.

B. Business Strategy

Investment Objectives

Braemar's core business goals revolve around achieving attractive returns on invested capital and fostering long-term growth in cash flow to maximize shareholder value. The company pursues several key investment strategies:

Focused Investment Strategy

The strategy emphasizes investment in high-quality assets expected to achieve RevPAR considerably above industry averages. The company seeks markets exhibiting significant growth potential while considering potential supply risks. RevPAR forecasts encompass aspects such as potential conversions, capital plans, and improvements expected to enhance revenue after stabilization, typically anticipated within 12 to 24 months post-investment.

Active Asset Management Strategy

Braemar entrusts its asset management functions to Ashford LLC, ensuring each hotel property consistently achieves optimal operational performance, cash flow, and asset value. This management encompasses performance benchmarking, expense monitoring, cost-cutting initiatives, and sales and marketing enhancement, thus ensuring accountability among hotel managers and maximizing ancillary revenue streams.

Disciplined Capital Allocation Strategy

Braemar adheres to a structured capital allocation approach concerning the acquisition, operation, and financing of both current and prospective assets. The company evaluates opportunities to sell non-core assets when beneficial and aims to reallocate the generated capital into higher-return investments or share repurchases.

C. Portfolio of Hotels

The company boasts a diverse portfolio of luxurious properties that cater to different segments of the market. The hotels under its management include properties held directly as well as those owned in conjunction with joint ventures.

High-Quality Locations and Management

Among the portfolio, several hotel properties operate under well-known premium brands. For instance, nine hotels are affiliated with Marriott International and Hilton Worldwide, while additional properties are managed by renowned operators such as Four Seasons and Hyatt. The hotels generally attract transient business, group sales, and some contract sales, with approximately 76% of the room revenue in 2023 sourced from transient guests.

Notable Properties

1. Hilton La Jolla Torrey Pines - Located in La Jolla, California, this property features 394 guest rooms and offers extensive meeting space and premium dining options. Its proximity to the famous Torrey Pines Golf Course and natural reserves makes it an appealing destination.
2. Capital Hilton - This Washington D.C. property has historical significance and is strategically placed near government facilities, catering to both business and leisure travelers.
3. Marriott Seattle Waterfront - Situated in Seattle, it boasts water-view rooms and substantial meeting space, drawing leisure travelers and business events alike.
4. Four Seasons Resort Scottsdale - This luxurious resort in Arizona specializes in spacious accommodations and offers upscale amenities, set within a vibrant outdoor landscape.
5. The Ritz-Carlton St. Thomas - Known for its scenic beachfront location and luxurious rooms, it underwent significant renovations to restore its status as a full-service luxury resort.

Management and Operational Structure

Braemar opts not to manage its hotel properties directly; instead, it collaborates with established hotel management companies through contractual agreements to oversee day-to-day operations. Remington Hospitality, a subsidiary of Ashford Inc., manages several properties within the portfolio, while third-party firms operate the remaining hotels.

D. Financial and Structural Framework

Debt and Financing Strategy

By December 31, 2023, Braemar's total indebtedness stood at approximately $1.2 billion, facilitated at a competitive average interest rate. The financial strategy aims to support growth and liquidity through operational cash flow, stock offerings, joint ventures, and staggered-debt maturities. The target leverage ratio is approximately 35% net debt to gross assets.

Advisory and Management Services

Ashford LLC serves as the primary advisor, providing a range of services essential for operational and financial performance. This includes strategic guidance for investments, performance monitoring of hotel properties, and overall management coordination. Key executive officers of the Company are affiliated with Ashford LLC, facilitating alignment in operations and strategic decisions.