Braemar Hotels & Resorts(US:BHR)2023-11-07 16:00PART I. FINANCIAL INFORMATION This section details the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements This section presents Braemar Hotels & Resorts Inc.'s unaudited condensed consolidated financial statements for the period ended September 30, 2023 Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $2.40 billion at year-end 2022 to $2.27 billion as of September 30, 2023, primarily driven by a reduction in cash and cash equivalents, while total liabilities also decreased from $1.57 billion to $1.42 billion mainly due to reduced net indebtedness Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $149,496 | $261,541 | | Investments in hotel properties, net | $1,882,175 | $1,884,601 | | Total Assets | $2,267,627 | $2,397,714 | | Liabilities & Equity | | | | Indebtedness, net | $1,178,720 | $1,334,130 | | Total Liabilities | $1,416,426 | $1,571,712 | | Total Equity | $326,945 | $393,763 | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2023, the company reported a net loss of $9.1 million, a significant shift from a net income of $23.9 million in the same period of 2022, primarily due to a substantial increase in interest expense to $69.8 million from $33.3 million year-over-year, despite a 12.8% increase in total hotel revenue Statement of Operations Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total hotel revenue | $561,809 | $497,963 | | Total operating expenses | $505,973 | $441,638 | | Operating income | $55,836 | $56,325 | | Interest expense | ($69,779) | ($33,293) | | Net income (loss) | ($9,145) | $23,901 | | Net income (loss) attributable to common stockholders | ($42,922) | $2,792 | | Income (loss) per share - diluted | ($0.63) | $0.04 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities was $73.0 million, down from $104.0 million in the prior year period, with net cash used in investing activities of $55.6 million primarily for hotel improvements, and net cash used in financing activities of $126.3 million driven by debt repayments and stock repurchases, leading to a net decrease in cash of $108.9 million Cash Flow Summary (Nine Months Ended, in thousands) | Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $73,001 | $103,986 | | Net cash used in investing activities | ($55,578) | ($123,618) | | Net cash provided by (used in) financing activities | ($126,290) | $169,068 | | Net change in cash, cash equivalents and restricted cash | ($108,867) | $149,436 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on the company's accounting policies, business organization, revenue breakdown, indebtedness, equity structure, derivative instruments, and related party transactions, highlighting key events such as the transition of variable rate debt from LIBOR to SOFR, a new $200 million secured credit facility, and the completion of a $25 million stock repurchase program - The company is advised by Ashford Hospitality Advisors LLC, a subsidiary of Ashford Inc., and does not have any employees, with all services provided by Ashford LLC18 - Total net indebtedness decreased from $1.33 billion at year-end 2022 to $1.18 billion as of September 30, 202356 - On July 31, 2023, the company entered into a new $200 million secured credit facility, consisting of a $150 million term loan and a $50 million revolving credit facility, to repay existing mortgage loans3263 - The company completed its $25 million stock repurchase program, having repurchased 3.9 million shares for approximately $18.9 million during the nine months ended September 30, 2023133 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes the company's financial condition and operational results for the third quarter and nine months of 2023, focusing on key performance indicators, revenue, expenses, liquidity, and capital resources Overview Braemar is a REIT focused on high RevPAR luxury hotels and resorts, with a portfolio of 16 properties and 4,192 total rooms as of September 30, 2023, externally advised by Ashford LLC and utilizing third-party and affiliated management companies to operate its hotels - The company's investment strategy targets luxury hotels with RevPAR at least twice the U.S. national average225 - As of September 30, 2023, the company owned interests in 16 hotel properties with 4,192 total rooms (3,957 net rooms)196 Results of Operations For Q3 2023, total hotel revenue slightly decreased by 0.9% to $159.8 million, with RevPAR declining to $259.78, while for the nine-month period, total hotel revenue grew 12.8% to $561.8 million, with RevPAR increasing to $308.88, resulting in a net loss attributable to common stockholders of $33.1 million for the quarter and $42.9 million for the nine months, primarily due to significantly higher interest expense Q3 2023 vs Q3 2022 Key Performance Indicators (All Hotels) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Occupancy | 68.37% | 71.50% | | ADR | $379.97 | $398.16 | | RevPAR | $259.78 | $284.69 | | Total hotel revenue (in thousands) | $159,801 | $161,189 | Nine Months 2023 vs 2022 Key Performance Indicators (All Hotels) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Occupancy | 68.06% | 66.00% | | ADR | $453.87 | $451.01 | | RevPAR | $308.88 | $297.66 | | Total hotel revenue (in thousands) | $561,809 | $497,963 | - Interest expense for the nine months ended Sep 30, 2023, increased by 109.6% to $69.8 million compared to the same period in 2022, primarily due to higher average interest rates297 Liquidity and Capital Resources The company's liquidity is sourced from cash from operations, capital markets, and its revolving credit facility, holding $149.5 million in cash and cash equivalents as of September 30, 2023, with key financing activities including a new $200 million credit facility, a $435 million mortgage loan extension with a $142 million paydown, and the completion of a $25 million stock repurchase program, expecting to meet short-term needs but relying on debt or equity capital for long-term requirements - As of September 30, 2023, the company held cash and cash equivalents of $149.5 million and restricted cash of $57.3 million305 - The company entered into a new $200 million secured credit facility on July 31, 2023, to repay mortgage debt on three properties342343 - The company extended a $435 million mortgage loan in June 2023, paying down $142 million to reduce the balance to approximately $293 million341 - The company's dividend policy for 2023 is a quarterly cash dividend of $0.05 per common share319 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to changes in interest rates on its variable-rate debt, which constituted approximately $1.1 billion of its $1.2 billion total indebtedness as of September 30, 2023, mitigated by interest rate caps - A hypothetical 25-basis point change in interest rates would impact the results of operations by approximately $2.8 million per year on the outstanding variable-rate debt, though this is partially mitigated by interest rate caps417 Controls and Procedures Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were not effective due to a previously identified material weakness in internal control over financial reporting related to the accounting for deemed dividends on redeemable preferred stock, which impacts the calculation of earnings per share, with remediation efforts underway but not completed during the quarter - A material weakness was identified in the company's internal control over financial reporting related to the calculation of earnings per share due to an error in the treatment of deemed dividends on redeemable preferred stock390 - As a result of this material weakness, the CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023360 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, and exhibits for the company Legal Proceedings The company is involved in a class action lawsuit filed against one of its hotel management companies in California concerning alleged violations of employment laws affecting two of its hotels, where a loss is reasonably possible but cannot be estimated, and a cyber incident occurred during the quarter with potential exposure of employee data, but related costs to date are immaterial - A class action lawsuit in California alleges violations of employment laws regarding rest breaks at two company-owned hotels, where the potential loss is not reasonably estimable at this time363 - A cyber incident in Q3 2023 resulted in potential exposure of employee personal information, but not customer data, with the company believing insurance coverage is sufficient and costs incurred are immaterial394 Risk Factors This section highlights a key risk factor concerning the company's cash holdings, as it maintains cash balances at financial institutions that exceed FDIC insurance limits, posing a risk of loss if these institutions were to fail, as exemplified by recent bank failures in the U.S - The company faces risk from holding cash and cash equivalents at financial institutions in excess of FDIC insurance limits, which could be adversely affected by bank failures366396 Unregistered Sales of Equity Securities and Use of Proceeds The company reports on its stock repurchase activity, confirming that the previously announced $25 million stock repurchase program was completed as of September 30, 2023, with no shares repurchased during the third quarter of 2023 - The company's $25.0 million stock repurchase authorization has been completed as of September 30, 2023397 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 1 to July 31 | 0 | N/A | | August 1 to August 31 | 0 | N/A | | September 1 to September 30 | 0 | N/A | | Total | 0 | N/A | Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None398 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, material contracts such as the new Credit Agreement, and certifications by the CEO and CFO - Filed exhibits include the Credit Agreement dated July 31, 2023, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act399404