Braemar Hotels & Resorts(BHR) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the unaudited condensed consolidated financial statements for Q2 and H1 2019, showing total assets increasing to $1.76 billion, a net loss of $5.6 million for Q2, and decreased operating cash flow Condensed Consolidated Balance Sheets As of June 30, 2019, total assets increased to $1.76 billion from $1.64 billion at year-end 2018, driven by hotel property investments, while total liabilities grew to $1.24 billion Condensed Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $1,760,439 | $1,636,487 | | Investments in hotel properties, net | $1,460,415 | $1,299,901 | | Cash and cash equivalents | $80,360 | $182,578 | | Total Liabilities | $1,238,511 | $1,093,394 | | Indebtedness, net | $1,047,681 | $985,873 | | Total Equity | $373,730 | $392,085 | Condensed Consolidated Statements of Operations For Q2 2019, the company reported a net loss of $5.6 million, a reversal from $12.9 million net income in Q2 2018, with total revenues slightly decreasing to $118.5 million Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $118,516 | $121,118 | $247,029 | $223,607 | | Net Income (Loss) | ($5,623) | $12,854 | ($6,945) | $17,124 | | Net Income (Loss) Attributable to Common Stockholders | ($7,042) | $9,822 | ($10,555) | $12,135 | | Basic EPS | ($0.22) | $0.30 | ($0.34) | $0.37 | | Diluted EPS | ($0.22) | $0.29 | ($0.34) | $0.37 | Condensed Consolidated Statements of Cash Flows For H1 2019, net cash from operating activities was $32.5 million, down from $38.7 million in H1 2018, while net cash used in investing activities increased to $183.2 million due to hotel acquisitions and capital improvements Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $32,479 | $38,661 | | Net cash used in investing activities | ($183,194) | ($122,299) | | Acquisition of hotel properties | ($111,751) | ($177,875) | | Improvements and additions to hotel properties | ($72,707) | ($32,423) | | Net cash provided by financing activities | $42,651 | $150,627 | | Net change in cash, cash equivalents and restricted cash | ($108,064) | $66,989 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures, covering the company's structure as a luxury hotel REIT, the adoption of ASC 842, the $120.0 million Ritz-Carlton acquisition, $1.05 billion in indebtedness, and related-party transactions - The company invests in high RevPAR luxury hotels, advised by Ashford Hospitality Advisors LLC, with a portfolio of thirteen hotel properties as of June 30, 2019[22][23][26] - On January 15, 2019, the company acquired the 170-room Ritz-Carlton, Lake Tahoe for $120.0 million, financed by a new $54.0 million mortgage loan[61] - Effective January 1, 2019, the company adopted ASC 842, recognizing operating lease right-of-use assets of $82.5 million and operating lease liabilities of $60.6 million[47][48] - The company pays advisory fees to Ashford LLC, a subsidiary of Ashford Inc., totaling $4.4 million for Q2 2019, based on market capitalization, incentive fees, and expense reimbursements[152][153][157] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance, highlighting a net loss for Q2 and H1 2019, impacted by acquisitions, dispositions, renovations, and lower comparable hotel RevPAR, along with details on liquidity and non-GAAP measures Results of Operations For Q2 2019, total revenue decreased 2.1% to $118.5 million, resulting in a net loss of $4.5 million attributable to common stockholders, primarily due to a hotel sale and renovation disruption impacting RevPAR Key Performance Indicators (Q2 2019 vs Q2 2018) | Metric | All Properties (Q2 2019) | All Properties (Q2 2018) | Comparable Properties (Q2 2019) | Comparable Properties (Q2 2018) | | :--- | :--- | :--- | :--- | :--- | | Occupancy | 79.98% | 84.90% | 82.80% | 85.74% | | ADR | $290.81 | $278.96 | $281.10 | $278.63 | | RevPAR | $232.60 | $236.85 | $232.76 | $238.89 | Key Performance Indicators (H1 2019 vs H1 2018) | Metric | All Properties (H1 2019) | All Properties (H1 2018) | Comparable Properties (H1 2019) | Comparable Properties (H1 2018) | | :--- | :--- | :--- | :--- | :--- | | Occupancy | 77.69% | 81.87% | 78.70% | 81.79% | | ADR | $304.19 | $272.91 | $281.14 | $274.56 | | RevPAR | $236.33 | $223.45 | $221.26 | $224.57 | - The net loss in Q2 2019 was primarily driven by lower rooms revenue from decreased occupancy, the absence of a $15.7 million gain on sale in Q2 2018, and increased depreciation and interest expenses[202][206][207] Liquidity and Capital Resources The company's primary liquidity sources include cash from operations, $80.4 million in existing cash, and a $100 million revolving credit facility, deemed adequate for short-term needs, with long-term needs relying on capital markets - Short-term liquidity is met through cash from operations, existing cash of $80.4 million, and a revolving credit facility, which management believes are adequate for the next 12 months[269][271][272] - In January 2019, the company refinanced an existing mortgage loan for $195.0 million and secured a new $54.0 million mortgage loan to fund the Ritz-Carlton, Lake Tahoe acquisition[277][278] Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDAre and Adjusted FFO to evaluate performance, with Q2 2019 Adjusted EBITDAre at $32.8 million and Adjusted FFO at $18.0 million ($0.43 per diluted share) Reconciliation of Net Income (Loss) to Adjusted EBITDAre (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | ($5,623) | $12,854 | ($6,945) | $17,124 | | EBITDAre | $27,311 | $25,893 | $57,796 | $53,933 | | Adjusted EBITDAre | $32,773 | $39,242 | $67,529 | $69,381 | Reconciliation of Net Income (Loss) to Adjusted FFO (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) Attributable to Common Stockholders | ($7,042) | $9,822 | ($10,555) | $12,135 | | FFO available to common stockholders and OP unitholders | $9,755 | $9,456 | $21,705 | $24,332 | | Adjusted FFO available to common stockholders and OP unitholders | $18,023 | $25,664 | $37,212 | $45,267 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company's primary market risk is interest rate fluctuations, with 100% of its $1.1 billion total indebtedness being variable-rate, where a 25-basis point change would impact annual results by $2.6 million - The company's entire $1.1 billion debt portfolio is variable-rate, creating significant interest rate risk[313] - A 25-basis point change in interest rates would result in an approximate annual impact of $2.6 million[313] CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the evaluation date, June 30, 2019[317] PART II. OTHER INFORMATION LEGAL PROCEEDINGS The company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial position or results of operations - Management does not believe ongoing legal proceedings will have a material adverse effect on the company's financial condition[319] RISK FACTORS No material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018, were reported - No material changes to risk factors were reported since the last annual report[320] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company has a $50 million stock repurchase program, but no shares were repurchased under this authorization during the quarter, with 16,375 shares acquired primarily for tax obligations on vested restricted stock - No shares were repurchased under the company's $50 million stock repurchase program during the three and six months ended June 30, 2019[321]