Braemar Hotel & Resorts Inc.
03/12/2025 | Press release | Distributed by Public on 03/12/2025 14:21
Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the accompanying notes thereto included in Item 8. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Item 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-K. See "Forward-Looking Statements."
This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Overview
We are a Maryland corporation formed in April 2013 that invests primarily in high revenue per available room ("RevPAR"), luxury hotels and resorts. High RevPAR, for purposes of our investment strategy, means RevPAR of at least twice the then-current U.S. national average RevPAR for all hotels as determined by STR, LLC. Two times the U.S. national average was $199 for the year ended December 31, 2024. We have elected to be taxed as a REIT under the Code. We conduct our business and own substantially all of our assets through our operating partnership, Braemar OP.
We operate in the direct hotel investment segment of the hotel lodging industry. As of December 31, 2024, we owned interests in 15 hotel properties in seven states, the District of Columbia, Puerto Rico and St. Thomas, U.S. Virgin Islands with 3,807 total rooms, or 3,667 net rooms, excluding those attributable to our joint venture partner. The hotel properties in our current portfolio are predominantly located in U.S. urban markets and resort locations with favorable growth characteristics resulting from multiple demand generators. We own 14 of our hotel properties directly, and the remaining one hotel property, through an investment in a majority-owned consolidated entity.
We are advised by Ashford LLC through an advisory agreement. All of the hotel properties in our portfolio are currently asset-managed by Ashford LLC. We do not have any employees. All of the services that might be provided by employees are provided to us by Ashford LLC.
We do not operate any of our hotel properties directly; instead, we contractually engagehotel management companies to operate them for us under management contracts. As of December 31, 2024, Remington Hospitality, a subsidiary of Ashford Inc., managed four of our 15hotel properties. Third-party management companies managed the remaining hotel properties.
Ashford Inc. also provides other products and services to us or our hotel properties through certain entities in which Ashford Inc. has an ownership interest. These products and services include, but are not limited to, design and construction services, debt placement and related services, broker-dealer and distribution services, audio visual services, real estate advisory and brokerage services, insurance policies covering general liability, workers compensation and claims services, hypoallergenic premium rooms, watersport activities, travel/transportation services, mobile key technology and cash management services.
Recent Developments
On July 2, 2024, Braemar, Ashford Trust and Ashford Inc. (collectively with the Company, Ashford Trust and each of Ashford Inc.'s, the Company's and Ashford Trust's respective affiliates (including Stirling Hotels & Resorts, Inc.) and any entity advised by Ashford Inc., the "Company Group") entered into a Cooperation Agreement (the "Agreement") with Blackwells Capital LLC, Blackwells Onshore I LLC, Blackwells Holding Co. LLC, Vandewater Capital Holdings, LLC, Blackwells Asset Management LLC, BW Coinvest Management I LLC and Jason Aintabi (collectively, the "Blackwells Parties") regarding the withdrawal of the Blackwells Parties' proxy campaign, dismissal of pending litigation involving the parties and certain other matters.
Pursuant to the Agreement, the Blackwells Parties have agreed to withdraw (i) the notice delivered to the Company on March 10, 2024 purporting to nominate four director candidates to the Company's board of directors (the "Board") and make certain other proposals and (ii) the definitive proxy statement filed with the U.S. Securities and Exchange Commission (the "SEC") on April 3, 2024 to solicit proxies from stockholders of the Company to vote in favor of the Blackwells Parties' director nominees and proposals.
The Blackwells Parties have also agreed to specified standstill restrictions with respect to the Company Group, which will expire on July 2, 2034. During the standstill period, the Blackwells Parties are required to (i) appear in person or by proxy at each meeting of stockholders of the members of the Company Group in which they beneficially own shares of stock and vote any Blackwells Parties' shares then beneficially owned by them in accordance with the recommendation of the board of directors of such member of the Company Group on any proposals considered at such meeting and (ii) deliver consents or consent revocations in any action by written consent by stockholders of any member of the Company Group in which they beneficially own shares in accordance with the recommendation of the board of directors of such member of the Company Group.
The Agreement also provides for the voluntary dismissal, with prejudice, of the consolidated action previously pending in the U.S. District Court for the Northern District of Texas to which the Company, Blackwells Capital LLC and certain of their respective related parties are parties (the "Consolidated Litigation"). Pursuant to the Agreement, the Consolidated Litigation was voluntarily dismissed, with prejudice, on July 3, 2024. The Company has agreed to reimburse Blackwells Capital LLC, in an amount agreed upon by the parties, for the Blackwells Parties' reasonable attorneys' fees and expenses incurred in connection with the Consolidated Litigation and related matters.
Additionally, pursuant to the Agreement, the Board was required to take steps to identify and select one additional individual to be appointed to the Board as an independent director (the "Additional Board Member"). The Board was required to promptly notify Blackwells Capital LLC of its selection of the Additional Board Member and to consider any input Blackwells Capital LLC may have with respect to the Additional Board Member. In accordance with the Cooperation Agreement, on October 4, 2024, the Board increased the number of directors of the Company from eight to nine and appointed Mr. Jay H. Shah as the Additional Board Member to serve until the Company's next annual meeting of stockholders and until his successor is duly elected and qualified.
The Agreement contains various other obligations and provisions applicable to the Company Group and the Blackwells Parties, including a mutual release of claims and mutual non-disparagement.
Concurrently and in connection with the Agreement, certain of the parties thereto have also entered into a Share Ownership Agreement (the "Share Ownership Agreement") and a Loan Agreement (the "Loan Agreement"), pursuant to which agreements the Company will provide to BW Coinvest I, LLC ("Borrower") an unsecured loan (the "Loan"). The proceeds from the Loan will be used to reimburse Borrower for 70% of the amount expended by Borrower to purchase on the open market a total of 3,500,000 shares of the Company's common stock (the "Purchased Shares") within six months of the date of Loan Agreement, at a price per Purchased Share not to exceed $10 and subject to the other limitations set forth therein. The Loan has a term of five years (the "Term"), is guaranteed by Jason Aintabi, Vandewater Capital Holdings, LLC, Blackwells Holding Co. LLC, and Blackwells Asset Management LLC and shall bear payment-in-kind interest during the Term at a rate equal to the sum of (a) Term SOFR (as defined in the Loan Agreement) and (b) 3.00% (three hundred basis points) per annum. The Company has agreed to reimburse Blackwells Capital LLC, in an amount agreed upon by the parties, for the Blackwells Parties' reasonable due diligence expenses incurred on or prior to the date of the Share Ownership Agreement. As of March 10, 2025, the Company has loaned approximately $8.1 million that has been used to purchase 3.5 million shares of Braemar common stock.
The Company, Braemar OP, Braemar TRS, Ashford Inc. and Ashford Hospitality Advisors LLC (together with Ashford Inc., the "Advisor"), are parties to that certain Fifth Amended and Restated Advisory Agreement, dated as of April 23, 2018 (as amended, the "Advisory Agreement").
The Company has a mortgage loan maturing in June 2025 with an outstanding principal balance of approximately $293 million (the "Mortgage Loan") secured by four hotel properties: The Notary Hotel; The Clancy; Sofitel Chicago Magnificent Mile; and Marriott Seattle Waterfront (the "Hotel Properties"). On August 8, 2024, the parties to the Advisory Agreement entered into a Limited Waiver Under Advisory Agreement (the "Waiver Agreement") that provides, among other things, as follows:
(i) From August 8, 2024 until the earlier of (a) November 15, 2025 and (b) the refinancing of the Mortgage Loan (the "Loan Outside Date"), the Advisor waives the operation of Section 12.4(a) of the Advisory Agreement that would permit the Advisor to terminate the Advisory Agreement occurring solely as a result from the sale or disposition of one or more of the Hotel Properties as a result of a mortgage foreclosure, deed-in-lieu of mortgage foreclosure, mezzanine loan foreclosure or an assignment in-lieu of a mezzanine loan foreclosure following the failure of the Company to pay, upon the maturity of the Mortgage Loan, all amounts due and payable thereunder (the "Limited Waiver");
(ii) Upon the satisfaction of certain conditions, the Company may request the Advisor agree to amend the Waiver Agreement to extend the Loan Outside Date for a period not to exceed ninety (90) days from November 15, 2025 and if the Advisor agrees to such amendment, the Advisor shall not be entitled to any further consideration in respect thereof;
(iii) If the members of the board of directors change such that members who constitute the Board as of August 8, 2024 (the "Incumbent Board") no longer constitute at least a majority of the board of directors (other than those whose election to the board of directors is approved or recommended to stockholders of the Company by a vote of at least a majority of the Incumbent Board), the Limited Waiver shall be null and void ab initio (but the consideration provided by the Company to the Advisor as described in item (iv) below shall remain in force); and
(iv) In exchange for the Limited Waiver and the other agreements provided by the Advisor in the Waiver Agreement, the Company agrees to pay the Advisor an amount equal to the Advisor's obligation under the Advisor's current employment agreement with Richard J. Stockton, the Company's President and Chief Executive Officer (the "Stockton Employment Agreement"), to pay Mr. Stockton a multiple of his Base Salary (as defined in the Stockton Employment Agreement) that becomes payable by the Advisor to Mr. Stockton as the result of the occurrence of certain events as more fully described in the Waiver Agreement.
On January 14, 2025, the Company amended its mortgage loan secured by the 170-room Ritz-Carlton Lake Tahoe. The terms of the amendment included a $10.0 million principal pay down, extending the current maturity date to July 2025, an interest rate reduction to SOFR + 3.25%, and one six-month extension option subject to satisfaction of certain conditions. The mortgage loan had an initial maturity date in January 2025.
On March 7, 2025, the Company refinanced its $293.2 million mortgage loan secured by The Clancy, The Notary Hotel, Marriott Seattle Waterfront, and Sofitel Chicago Magnificent Mile, which had an interest rate of SOFR + 2.66% and a final maturity date in June of 2025 and its $62.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach, which had an interest rate of SOFR + 4.75% and a final maturity date in March of 2026. The new $363.0 million mortgage loan bears interest at a floating interest rate of SOFR + 2.52% and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by five hotels: The Clancy, The Notary Hotel, Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, and The Ritz-Carlton Reserve Dorado Beach. The $363.0 million mortgage loan amount represents an approximate 49% loan-to-value based on third-party appraisals completed by the lender. The appraisals valued the hotels at approximately $742 million based on the sum of their "as-is" values.
On March 10, 2025, we entered into a Limited Waiver Under Advisory Agreement with Ashford Inc. and Ashford LLC (the "2025 Advisory Agreement Limited Waiver"). Pursuant to the 2025 Advisory Agreement Limited Waiver, the Company, the Operating Partnership, TRS and the Advisor waive the operation of any provision in our advisory agreement that would otherwise limit the ability of the Company in its discretion, at the Company's cost and expense, to award during the first and second fiscal quarters of calendar year 2025, cash incentive compensation to employees and other representatives of the Advisor.
Key Indicators of Operating Performance
We use a variety of operating and other information to evaluate the operating performance of our business. These key indicators include financial information that is prepared in accordance with GAAP, as well as other financial measures that are non-GAAP measures. In addition, we use other information that may not be financial in nature, including statistical information and comparative data. We use this information to measure the operating performance of our individual hotels, groups of hotels and/or business as a whole. We also use these metrics to evaluate the hotels in our portfolio and potential acquisitions to determine each hotel's contribution to cash flow and its potential to provide attractive long-term total returns. These key indicators include:
•Occupancy. Occupancy means the total number of hotel rooms sold in a given period divided by the total number of rooms available. Occupancy measures the utilization of our hotels' available capacity. We use occupancy to measure demand at a specific hotel or group of hotels in a given period.
•ADR. ADR means average daily rate and is calculated by dividing total hotel rooms revenues by total number of rooms sold in a given period. ADR measures average room price attained by a hotel and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. We use ADR to assess the pricing levels that we are able to generate.
•RevPAR. RevPAR means revenue per available room and is calculated by multiplying ADR by the average daily occupancy. RevPAR is one of the commonly used measures within the hotel industry to evaluate hotel operations. RevPAR does not include revenues from food and beverage sales or parking, telephone or other non-rooms revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire period). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases
in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.
RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (including housekeeping services, utilities and room supplies) and could also result in increased other operating department revenue and expense. Changes in ADR typically have a greater impact on operating margins and profitability as they do not have a substantial effect on variable operating costs.
Occupancy, ADR and RevPAR are commonly used measures within the lodging industry to evaluate operating performance. RevPAR is an important statistic for monitoring operating performance at the individual hotel level and across our entire business. We evaluate individual hotel RevPAR performance on an absolute basis with comparisons to budget and prior periods, as well as on a regional and company-wide basis. ADR and RevPAR include only rooms revenue. Rooms revenue is dictated by demand (as measured by occupancy), pricing (as measured by ADR) and our available supply of hotel rooms.
We also use funds from operations ("FFO"), Adjusted FFO, earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") and Adjusted EBITDAre as measures of the operating performance of our business. See "Non-GAAP Financial Measures."
Principal Factors Affecting Our Results of Operations
The principal factors affecting our operating results include overall demand for hotel rooms compared to the supply of available hotel rooms, and the ability of our third-party management companies to increase or maintain revenues while controlling expenses.
Demand.The demand for lodging, including business travel, is directly correlated to the overall economy; as GDP increases, lodging demand typically increases. Historically, periods of declining demand are followed by extended periods of relatively strong demand, which typically occurs during the growth phase of the lodging cycle.
Supply.The development of new hotels is driven largely by construction costs, the availability of financing and expected performance of existing hotels. Short-term supply is also expected to be below long-term averages. While the industry is expected to have supply growth below historical averages, we may experience supply growth, in certain markets, in excess of national averages that may negatively impact performance.
We expect that our ADR, occupancy and RevPAR performance will be impacted by macroeconomic factors such as national and local employment growth, personal income and corporate earnings, GDP, consumer confidence, office vacancy rates and business relocation decisions, airport and other business and leisure travel, new hotel construction, the pricing strategies of competitors and currency fluctuations. In addition, our ADR, occupancy and RevPAR performance are dependent on the continued success of the Marriott, Hilton, Four Seasons, Hyatt and Sofitel brands.
Revenue.Substantially all of our revenue is derived from the operation of hotels. Specifically, our revenue is comprised of:
•Rooms revenue: Occupancy and ADR are the major drivers of rooms revenue. Rooms revenue accounts for the substantial majority of our total revenue.
•Food and beverage revenue: Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel's food and beverage outlets or meeting and banquet facilities).
•Other hotel revenue: Occupancy and the nature of the property are the main drivers of other ancillary revenue, such as telecommunications, parking and leasing services.
Hotel Operating Expenses.The following presents the components of our hotel operating expenses:
•Rooms expense: These costs include housekeeping wages and payroll taxes, reservation systems, room supplies, laundry services and front desk costs. Like rooms revenue, occupancy is the major driver of rooms expense and, therefore, rooms expense has a significant correlation to rooms revenue. These costs can increase based on increases in salaries and wages, as well as the level of service and amenities that are provided.
•Food and beverage expense: These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions generally are more profitable than restaurant, bar or other on-property food and beverage outlets) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue.
•Management fees: Base management fees are computed as a percentage of gross revenue. Incentive management fees generally are paid when operating profits exceed certain threshold levels.
•Other hotel expenses: These expenses include labor and other costs associated with the other operating department revenues, as well as labor and other costs associated with administrative departments, franchise fees, sales and marketing, repairs and maintenance and utility costs.
Most categories of variable operating expenses, including labor costs such as housekeeping, fluctuate with changes in occupancy. Increases in occupancy are accompanied by increases in most categories of variable operating expenses, while increases in ADR typically only result in increases in limited categories of operating costs and expenses, such as franchise fees, management fees and credit card processing fee expenses which are based on hotel revenues. Thus, changes in ADR have a more significant impact on operating margins than changes in occupancy.
RESULTS OF OPERATIONS
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table summarizes changes in key line items from our consolidated statements of operations for the year ended December 31, 2024 and 2023 (in thousands except percentages):
| Year Ended December 31, | Favorable (Unfavorable) | ||||||||||||||||||||||
| 2024 | 2023 | $ Change | % Change | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Rooms | $ | 452,361 | $ | 464,899 | $ | (12,538) | (2.7) | % | |||||||||||||||
| Food and beverage | 181,250 | 185,331 | (4,081) | (2.2) | |||||||||||||||||||
| Other | 94,793 | 89,113 | 5,680 | 6.4 | |||||||||||||||||||
| Total hotel revenue | 728,404 | 739,343 | (10,939) | (1.5) | |||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Hotel operating expenses: | |||||||||||||||||||||||
| Rooms | 106,465 | 105,439 | (1,026) | (1.0) | |||||||||||||||||||
| Food and beverage | 145,901 | 144,544 | (1,357) | (0.9) | |||||||||||||||||||
| Other expenses | 225,864 | 227,913 | 2,049 | 0.9 | |||||||||||||||||||
| Management fees | 23,500 | 23,261 | (239) | (1.0) | |||||||||||||||||||
| Total hotel operating expenses | 501,730 | 501,157 | (573) | (0.1) | |||||||||||||||||||
| Property taxes, insurance and other | 42,508 | 38,629 | (3,879) | (10.0) | |||||||||||||||||||
| Depreciation and amortization | 98,733 | 93,272 | (5,461) | (5.9) | |||||||||||||||||||
| Advisory services fee | 30,487 | 31,089 | 602 | 1.9 | |||||||||||||||||||
| Corporate general and administrative | 14,361 | 13,523 | (838) | (6.2) | |||||||||||||||||||
| Total expenses | 687,819 | 677,670 | (10,149) | (1.5) | |||||||||||||||||||
|
Gain (loss) on disposition of assets and hotel property
|
88,165 | - | 88,165 | ||||||||||||||||||||
| Operating income (loss) | 128,750 | 61,673 | 67,077 | 108.8 | |||||||||||||||||||
| Equity in earnings (loss) of unconsolidated entity | (1,608) | (253) | (1,355) | (535.6) | |||||||||||||||||||
| Interest income | 7,135 | 6,401 | 734 | 11.5 | |||||||||||||||||||
| Other income (expense) | - | 293 | (293) | (100.0) | |||||||||||||||||||
| Interest expense and amortization of discounts and loan costs | (108,124) | (94,219) | (13,905) | (14.8) | |||||||||||||||||||
| Write-off of loan costs and exit fees | (6,111) | (3,489) | (2,622) | (75.2) | |||||||||||||||||||
| Gain (loss) on extinguishment of debt | (22) | 2,318 | (2,340) | (100.9) | |||||||||||||||||||
| Realized and unrealized gain (loss) on derivatives | 585 | (663) | 1,248 | (188.2) | |||||||||||||||||||
| Income (loss) before income taxes | 20,605 | (27,939) | 48,544 | 173.7 | |||||||||||||||||||
| Income tax (expense) benefit | (842) | (2,689) | 1,847 | 68.7 | |||||||||||||||||||
| Net income (loss) | 19,763 | (30,628) | 50,391 | 164.5 | |||||||||||||||||||
| (Income) loss attributable to noncontrolling interest in consolidated entities | (25,928) | (1,619) | 24,309 | 1,501.5 | |||||||||||||||||||
| Net (income) loss attributable to redeemable noncontrolling interests in operating partnership | 4,472 | 5,230 | 758 | 14.5 | |||||||||||||||||||
| Net income (loss) attributable to the Company | $ | (1,693) | $ | (27,017) | $ | 25,324 | 93.7 | % | |||||||||||||||
All hotel properties owned for the year ended December 31, 2024 and 2023 have been included in our results of operations during the respective periods in which they were owned. Based on when a hotel property was acquired or disposed of, operating results for certain hotel properties are not comparable for the year ended December 31, 2024 and 2023. The hotel properties listed below are not comparable hotel properties for the periods indicated and all other hotel properties are considered comparable hotel properties. The following disposition affects reporting comparability related to our consolidated financial statements:
| Hotel Property | Location | Type | Date | |||||||||||||||||
|
Hilton La Jolla Torrey Pines
|
La Jolla, California
|
Disposition
|
July 17, 2024 | |||||||||||||||||
The following table illustrates the key performance indicators of all hotel properties that were included in our results of operations during the year ended December 31, 2024 and 2023:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Occupancy | 67.63 | % | 66.94 | % | |||||||
| ADR (average daily rate) | $ | 452.03 | $ | 451.48 | |||||||
| RevPAR (revenue per available room) | $ | 305.72 | $ | 302.20 | |||||||
| Rooms revenue (in thousands) | $ | 452,361 | $ | 464,899 | |||||||
| Total hotel revenue (in thousands) | $ | 728,404 | $ | 739,343 | |||||||
The following table illustrates the key performance indicators of the 15 hotel properties that were owned for the full year ended December 31, 2024 and 2023:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Occupancy | 67.00 | % | 65.72 | % | |||||||
| ADR (average daily rate) | $ | 465.21 | $ | 475.92 | |||||||
| RevPAR (revenue per available room) | $ | 311.68 | $ | 312.76 | |||||||
| Rooms revenue (in thousands) | $ | 436,861 | $ | 436,164 | |||||||
| Total hotel revenue (in thousands) | $ | 700,504 | $ | 688,628 | |||||||
Net Income (Loss) Attributable to the Company.Net loss attributable to the Company decreased $25.3 million from a net loss of $27.0 million for the year ended December 31, 2023 ("2023") to $1.7 million for the year ended December 31, 2024 ("2024"), as a result of the factors discussed below.
Rooms Revenue.Rooms revenue decreased $12.5 million to $452.4 million during 2024 compared to 2023 primarily due to the sale of the Hilton La Jolla Torrey Pines in July 2024. During 2024, we experienced an increase of 0.1% in room rates and a 69 basis point increase in occupancy compared to 2023.
Fluctuations in rooms revenue between 2024 and 2023 are a result of the changes in occupancy and ADR between 2024 and 2023 as reflected in the table below (dollars in thousands):
| Hotel Property | Favorable (Unfavorable) | |||||||||||||||||||
| Rooms Revenue |
Occupancy (change in bps) |
ADR (change in %) |
||||||||||||||||||
| Comparable | ||||||||||||||||||||
|
Capital Hilton (1) (2)
|
$ | 5,549 | 571 | 4.9 | % | |||||||||||||||
|
Marriott Seattle Waterfront
|
1,907 | 227 | 3.1 | % | ||||||||||||||||
| The Notary Hotel | 2,420 | 456 | 1.5 | % | ||||||||||||||||
|
The Clancy
|
(2,747) | (453) | (2.4) | % | ||||||||||||||||
| Sofitel Chicago Magnificent Mile | 2,437 | 223 | 5.9 | % | ||||||||||||||||
| Pier House Resort & Spa | (1,123) | (130) | (3.2) | % | ||||||||||||||||
|
The Ritz-Carlton St. Thomas (1)
|
(2,929) | (264) | (2.5) | % | ||||||||||||||||
| Park Hyatt Beaver Creek Resort & Spa | (1,284) | 70 | (6.6) | % | ||||||||||||||||
| Hotel Yountville | (978) | (102) | (6.6) | % | ||||||||||||||||
|
The Ritz-Carlton Sarasota (1) (2)
|
(672) | (52) | (1.2) | % | ||||||||||||||||
|
Bardessono Hotel and Spa (1)
|
(1,691) | (526) | (2.8) | % | ||||||||||||||||
|
The Ritz-Carlton Lake Tahoe (1) (2)
|
1,449 | 218 | 1.1 | % | ||||||||||||||||
|
Cameo Beverly Hills
|
(2,115) | (583) | (11.1) | % | ||||||||||||||||
| The Ritz-Carlton Reserve Dorado Beach | (442) | (146) | 1.4 | % | ||||||||||||||||
| Four Seasons Resort Scottsdale | 915 | 549 | (8.2) | % | ||||||||||||||||
| Total | $ | 696 | 128 | (2.3) | % | |||||||||||||||
| Non-comparable | ||||||||||||||||||||
| Hilton La Jolla Torrey Pines | $ | (13,234) | 29 | (0.9) | % | |||||||||||||||
________
(1)This hotel was under renovation during 2024.
(2)This hotel was under renovation during 2023.
Food and Beverage Revenue.Food and beverage revenue decreased $4.1 million, or 2.2%, to $181.3 million during 2024 compared to 2023. We experienced an aggregate decrease in food and beverage revenue of $4.7 million at seven comparable hotel properties as well as a decrease of $6.6 million at Hilton La Jolla Torrey Pines. These decreases were partially offset by an aggregate increase of approximately $7.2 million at Four Seasons Resort Scottsdale, The Ritz-Carlton St. Thomas, The Notary Hotel, Sofitel Chicago Magnificent Mile, Marriott Seattle Waterfront, Capital Hilton, Hotel Yountville, and Pier House Resort & Spa.
Other Hotel Revenue.Other hotel revenue, which consists mainly of condo management fees, health center fees, resort fees, golf, telecommunications, parking and rentals, increased $5.7 million, or 6.4%, to $94.8 million during 2024 compared to 2023. This increase is attributable to higher other hotel revenue of $9.6 million at 12 comparable hotel properties. These increases were partially offset by a decrease of $3.0 million at Hilton La Jolla Torrey Pines as well as an aggregate decrease of approximately $943,000 at The Ritz-Carlton Reserve Dorado Beach, The Ritz-Carlton Lake Tahoe, and The Ritz-Carlton St. Thomas.
Rooms Expense.Rooms expense increased $1.0 million, or 1.0%, to $106.5 million in 2024 compared to 2023. This increase is attributable to an aggregate increase in rooms expense of $4.3 million at nine comparable hotel properties. These increases were partially offset by an aggregate decrease of approximately $1.0 million at The Ritz-Carlton St. Thomas, Bardessono Hotel and Spa, Hotel Yountville, The Clancy, Park Hyatt Beaver Creek Resort & Spa and Cameo Beverly Hills, as well as a decrease of $2.3 million at Hilton La Jolla Torrey Pines.
Food and Beverage Expense.Food and beverage expense increased $1.4 million, or 0.9%, to $145.9 million during 2024 compared to 2023. This increase is attributable to higher food and beverage expense of $6.3 million at twelve comparable hotel properties. These increases were partially offset by an aggregate decrease of approximately $1.5 million at The Ritz-Carlton Lake Tahoe, Cameo Beverly Hills and Bardessono Hotel and Spa, as well as a decrease of $3.5 million at Hilton La Jolla Torrey Pines.
Other Operating Expenses.Other operating expenses decreased $2.0 million, or 0.9%, to $225.9 million in 2024 compared to 2023. Other operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and incentive management fees.
We experienced an increase of $938,000 in direct expenses and a decrease of $3.0 million in indirect expenses and incentive management fees in 2024 compared to 2023. Direct expenses were 4.5% of total hotel revenue in 2024 and 4.3% in 2023.
The increase in direct expenses is associated with higher direct expenses of approximately $1.8 million at nine comparable hotel properties. These increases were partially offset by lower direct expenses of $471,000 at The Ritz-Carlton Reserve Dorado Beach, Bardessono Hotel and Spa, Cameo Beverly Hills, The Clancy, The Notary Hotel, and Capital Hilton, as well as $402,000 at Hilton La Jolla Torrey Pines.
The decrease in indirect expenses comprises decreases in: (i) incentive management fees of $1.9 million comprising an aggregate decrease of $1.8 million at our 15 comparable hotel properties and a decrease of $89,000 at the one disposed hotel property; (ii) lease expense of $2.3 million comprising of a decrease of $2.3 million at the one disposed hotel property partially offset by an aggregate increase of $8,000 at our 15 comparable hotel properties; (iii) energy costs of $907,000 comprising a decrease of $911,000 at the one disposed hotel property partially offset by an aggregate decrease of $4,000 at our 15 comparable hotel properties.
These decreases are partially offset by increases in: (i) general and administrative costs of $618,000 comprising an aggregate increase of $2.2 million at our 15 comparable hotel properties partially offset by a decrease of $1.6 million at the one disposed hotel property; (ii) repairs and maintenance of $1.1 million comprising an aggregate increase of $1.6 million at our 15 comparable hotel properties partially offset by a decrease of $516,000 at the one disposed hotel property; and (ii) marketing costs of $334,000 comprising an aggregate increase of $1.9 million at our 15 comparable hotel properties partially offset by a decrease of $1.6 million at the one disposed hotel property.
Management Fees.Base management fees increased $239,000, or 1.0%, to $23.5 million in 2024 compared to 2023. Management fees increased $1.4 million at seven comparable hotel properties. These increases were partially offset by an aggregate decrease of $448,000 at Cameo Beverly Hills, The Ritz-Carlton Reserve Dorado Beach, The Ritz-Carlton St. Thomas, Bardessono Hotel and Spa, The Clancy, Pier House Resort & Spa, Park Hyatt Beaver Creek Resort & Spa, and Hotel Yountville, as well as a decrease of $685,000 at Hilton La Jolla Torrey Pines.
Property Taxes, Insurance and Other.Property taxes, insurance and other increased $3.9 million, or 10.0%, to $42.5 million in 2024 compared to 2023. This increase is primarily attributable to an increase of $4.1 million at the Sofitel Chicago
Magnificent Mile related to a property tax refund received in 2023 and an aggregate increase of $2.7 million at 12 comparable hotel properties. These increases were partially offset by an aggregate decrease of approximately $620,000 at Four Seasons Resort Scottsdale and Park Hyatt Beaver Creek Resort & Spa and a decrease of $1.2 million at Hilton La Jolla Torrey Pines.
Depreciation and Amortization.Depreciation and amortization increased $5.5 million, or 5.9%, to $98.7 million for 2024 compared to 2023. This increase is comprised of an aggregate increase of $11.6 million at ten comparable hotel properties. These increases were partially offset by an aggregate decrease of $4.3 million at The Notary Hotel, The Clancy, Pier House Resort & Spa, The Ritz-Carlton St. Thomas and Sofitel Chicago Magnificent Mile, primarily due to fully depreciated assets, as well as a decrease of $1.8 million at Hilton La Jolla Torrey Pines.
Advisory Services Fee. Advisory services fee decreased $602,000, or 1.9%, to $30.5 million in 2024 compared to 2023 due to lower equity-based compensation of $6.5 million and base advisory fee of $144,000, partially offset by higher reimbursable expenses of $3.3 million and a higher incentive fee of $2.7 million.
In 2024, we recorded an advisory services fee of $30.5 million, which included a base advisory fee of $13.8 million, reimbursable expenses of $11.6 million, $2.3 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc. and an incentive fee of $2.7 million.
In 2023, we recorded an advisory services fee of $31.1 million, which included a base advisory fee of $14.0 million, reimbursable expenses of $8.4 million and $8.8 million associated with equity grants of our common stock and LTIP units awarded to the officers and employees of Ashford Inc.
Corporate General and Administrative.Corporate general and administrative expense was $14.4 million in 2024 compared to expense of $13.5 million in 2023. The increase in corporate general and administrative expenses is primarily attributable to higher professional fees of $3.9 million and $6.0 million of reimbursed legal costs in 2024 as well as higher public company costs of $69,000. These increases were partially offset by lower miscellaneous expenses of $299,000 and lower reimbursed operating expenses of Ashford Securities of $8.9 million. The decrease in Ashford Securities reimbursed operations expenses was related to a revision to the estimated contribution amount associated with the Fourth Amended and Restated Contribution Agreement with Ashford Securities that resulted in a $4.5 million credit to expense in 2024.
Gain (loss) on disposition of assets and hotel property. In 2024, we recorded a gain of approximately $88.2 million primarily related to the sale of Hilton La Jolla Torrey Pines. There was no such gain (loss) recorded for 2023.
Equity in Earnings (Loss) of Unconsolidated Entity.In 2024 and 2023, we recorded equity in loss of unconsolidated entity of $1.6 million and $253,000, respectively, related to our investment in OpenKey. In 2024, equity in loss included an impairment charge to the OpenKey investment of $1.4 million. There was no such impairment recorded in 2023.
Interest Income.Interest income was $7.1 million and $6.4 million in 2024 and 2023, respectively. The increase in interest income in 2024 was primarily attributable to higher average excess cash balances in 2024 compared to 2023, as well as by interest income associated with a tranche of CMBS included in investment in securities.
Other Income (Expense).In 2023, we recorded $293,000 of miscellaneous income.
Interest Expense and Amortization of Discounts and Loan Costs.Interest expense and amortization of discounts and loan costs increased $13.9 million, or 14.8%, to $108.1 million for 2024 compared to 2023. The increase is primarily due to higher interest expense from higher average interest rates in 2024 and higher amortization of loan costs of approximately $3.0 million in 2024 compared to 2023. The average SOFR rates for 2024 and 2023 were 5.15% and 4.91%, respectively.
Write-off of Loan Costs and Exit Fees. Write-off of loan costs and exit fees was $6.1 million in 2024 related to various loan refinances and modifications. Write-off of loan costs and exit fees was $3.5 million in 2023 related to related to various loan modifications.
Gain (loss) on Extinguishment of Debt.In 2024, we recognized a loss of $22,000 attributable to the discount associated with the Cameo Beverly Hills mortgage loan that was repaid on April 9, 2024. Gain on extinguishment of debt was $2.3 million in 2023 due to the payoff of The Ritz-Carlton Reserve Dorado Beach mortgage loan. The gain was primarily attributable to the premium that was recorded upon the assumption of the mortgage loan when the hotel was acquired.
Realized and Unrealized Gain (Loss) on Derivatives.Realized and unrealized gain on derivatives of $585,000 for 2024 consisted of an unrealized gain on warrants of $12,000 and a realized gain of $4.7 million associated with payments received from counterparties on in-the-money interest rate caps, partially offset by an unrealized loss on interest rate caps of approximately $4.1 million.
Realized and unrealized loss on derivatives of $663,000 for 2023 consisted of unrealized loss on interest rate caps of approximately $8.7 million, partially offset by an unrealized gain on warrants of $272,000 and a realized gain of $7.8 million associated with payments received from counterparties on in-the-money interest rate caps.
Income Tax (Expense) Benefit.Income tax expense decreased $1.8 million, from $2.7 million in 2023 to $842,000 in 2024. This decrease was primarily due to a decrease in the taxable income of certain of our TRS entities in 2024 compared to 2023.
(Income) Loss Attributable to Noncontrolling Interest in Consolidated Entities.Our noncontrolling interest partner in consolidated entities was allocated income of $25.9 million and $1.6 million in 2024 and 2023, respectively. The allocated income for 2024 includes our partner's share of gain on the sale of the Hilton La Jolla Torrey Pines. At December 31, 2024, noncontrolling interest in consolidated entities represented an ownership interest of 25% in one hotel property held by one entity. At December 31, 2023, noncontrolling interest in consolidated entities represented an ownership interest of 25% in two hotel properties held by one entity.
Net (Income) Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated a net loss of $4.5 million in 2024 and $5.2 million in 2023. Redeemable noncontrolling interests represented ownership interests in Braemar OP of approximately 8.05% and 6.63% as of December 31, 2024 and 2023, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our hotel properties, including:
•advisory fees payable to Ashford LLC;
•recurring maintenance necessary to maintain our hotel properties in accordance with brand standards;
•interest expense and scheduled principal payments on outstanding indebtedness;
•dividends on our common stock;
•dividends on our preferred stock;
•redemptions of our non-traded preferred stock; and
•capital expenditures to improve our hotel properties.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, capital market activities, asset sales and existing cash balances.
Pursuant to the advisory agreement between us and our Advisor, we must pay our Advisor on a monthly basis a base advisory fee, subject to a minimum base advisory fee. The minimum base advisory fee is equal to the greater of: (i) 90% of the base fee paid for the same month in the prior fiscal year; and (ii) 1/12thof the "G&A Ratio" for the most recently completed fiscal quarter multiplied by our total market capitalization on the last balance sheet date included in the most recent quarterly report on Form 10-Q or annual report on Form 10-K that we file with the SEC. Thus, even if our total market capitalization and performance decline, we will still be required to make payments to our Advisor equal to the minimum base advisory fee, which could adversely impact our liquidity and financial condition.
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotel properties and redevelopments, renovations, expansions and other capital expenditures that need to be made periodically with respect to our hotel properties and scheduled debt payments. We expect to meet our long-term liquidity requirements through various sources of capital, including future common and preferred equity issuances, existing working capital, net cash provided by operations, hotel mortgage indebtedness and other secured and unsecured borrowings. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity and market perceptions about us. The success of our business strategy will depend, in part, on our ability to access these various capital sources. While management cannot provide any assurances, management believes that our cash flow from operations and our existing cash balances will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt (excluding any potential final maturity principal payments and paydowns for extension tests), working capital, and capital expenditures for the next 12 months and dividends required to maintain our status as a REIT for U.S. federal income tax purposes.
Our hotel properties will require periodic capital expenditures and renovation to remain competitive. In addition, acquisitions, redevelopments or expansions of hotel properties may require significant capital outlays. We may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions or hotel redevelopment through retained earnings is very limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations and prospects could be materially and adversely affected.
Certain of our loan agreements contain cash trap provisions that may be triggered if the performance of our hotel properties declines. When these provisions are triggered, substantially all of the profit generated by the hotel properties securing such loan is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. This could affect our liquidity and our ability to make distributions to our stockholders until such time that a cash trap is no longer in effect for such loan. These cash trap provisions have been triggered on one mortgage loan, as discussed below. Our loan that is in a cash trap may remain subject to the cash trap provisions for a substantial period of time which could limit our flexibility and adversely affect our financial condition or our qualification as a REIT. As of December 31, 2024, the mortgage loan secured by The Ritz-Carlton Lake Tahoe was in a cash trap. The amount of cash in the cash trap as of December 31, 2024 was $0.
As of December 31, 2024, the Company held cash and cash equivalents of $135.5 million and restricted cash of $49.6 million, the vast majority of which is comprised of lender and manager-held reserves. As of December 31, 2024, $22.9 million was also due to the Company from third-party hotel managers, most of which is held by one of the Company's managers and is available to fund hotel operating costs. At December 31, 2024, our net debt to gross assets was 40.8%.
The Company's cash and cash equivalents are primarily comprised of corporate cash invested in short-term U.S. Treasury securities with maturity dates of less than 90 days and corporate cash held at commercial banks in Insured Cash Sweep ("ICS") accounts, which are fully insured by the FDIC. The Company's cash and cash equivalents also includes property-level operating cash deposited with commercial banks that have been designated as a Global Systemically Important Bank ("G-SIB") by the Financial Stability Board ("FSB") and a small amount deposited with other commercial banks.
Our estimated future obligations as of December 31, 2024 include both current and long-term obligations. With respect to our indebtedness, as discussed in note 7 to our consolidated financial statements, we have current obligations of $417.1 million and long-term obligations of $805.9 million. As of December 31, 2024, we held extension options to extend the principal for all of the debt due in 2025 except for $293.2 million. Subsequent to December 31, 2024, we extended two mortgage loans and refinanced our $293.2 million mortgage loan with a final maturity in June 2025 and our $62 million mortgage loan with a final maturity in March 2026. See discussions below in "Debt Transactions."
As discussed in note 19 to our consolidated financial statements, under our operating leases we have current obligations of approximately $1.2 million and long-term obligations of approximately $56.7 million. Additionally, as discussed in note 18 to our consolidated financial statements, we have short-term capital commitments of approximately $29.1 million.
Equity Transactions
On November 13, 2019, we filed an initial registration statement with the SEC, as amended on January 24, 2020, for shares of our non-traded Series E Redeemable Preferred Stock (the "Series E Preferred Stock") and our non-traded Series M Redeemable Preferred Stock (the "Series M Preferred Stock"). The registration statement became effective on February 21, 2020, and contemplates the issuance and sale of up to 20,000,000 shares of Series E Preferred Stock or Series M Preferred Stock in a primary offering and up to 8,000,000 shares of Series E Preferred Stock or Series M Preferred Stock pursuant to a dividend reinvestment plan. On February 25, 2020, we filed our prospectus with the SEC. Ashford Securities, a subsidiary of Ashford Inc., serves as the dealer manager and wholesaler of the Series E Preferred Stock and Series M Preferred Stock. On April 2, 2021, the Company filed with the State Department of Assessments and Taxation of the State of Maryland (the "SDAT") articles supplementary to the Company's Articles of Amendment and Restatement that provided for: (i) reclassifying the existing 28,000,000 shares of Series E Preferred Stock and 28,000,000 shares of Series M Preferred Stock as unissued shares of preferred stock; (ii) reclassifying and designating 28,000,000 shares of the Company's authorized capital stock as shares of the Series E Preferred Stock (the "Series E Articles Supplementary"); and (iii) reclassifying and designating 28,000,000 shares of the Company's authorized capital stock as shares of the Series M Preferred Stock (the "Series M Articles Supplementary"). The Series E Articles Supplementary and Series M Articles Supplementary were filed to revise the preferred stock terms related to the dividend rate, our optional redemption right and certain other voting rights. The Company also caused its operating partnership to execute Amendment No. 5 to the Third Amended and Restated Agreement of Limited Partnership to
amend the terms of its operating partnership agreement to conform to the terms of the Series E Articles Supplementary and Series M Articles Supplementary. The Company issued approximately 16.4 million shares of Series E Preferred Stock and received net proceeds of approximately $369.5 million and issued approximately 2.0 million shares of Series M Preferred Stock and received net proceeds of approximately $47.6 million. On February 21, 2023, the Company announced the closing of its offering of the Series E Preferred Stock and Series M Preferred Stock.
On July 12, 2021, the Company entered into an equity distribution agreement (the "Virtu July 2021 EDA") with Virtu to sell from time to time shares of our common stock having an aggregate offering price of up to $100 million. We will pay Virtu a commission of approximately 1.0% of the gross sales price of the shares of our common stock sold. The Company may also sell some or all of the shares of our common stock to Virtu as principal for its own account at a price agreed upon at the time of sale. As of March 10, 2025, the Company has sold approximately 4.7 million shares of common stock under the Virtu July 2021 EDA and received gross proceeds of approximately $24.0 million.
On May 3, 2024, our board of directors approved a new share repurchase program, pursuant to which the board of directors granted a repurchase authorization to acquire shares of the Company's common stock, par value $0.01 per share, having an aggregate value of up to $50 million. The Company intends to begin share repurchases as soon as practicable and may repurchase shares through open market transactions, privately negotiated transactions or other means. The timing and amount of any transactions will be subject to the discretion of the Company based upon market conditions, and the program may be suspended or terminated at any time by the Company at its discretion without prior notice. The board of directors' authorization replaced any previous repurchase authorizations. As of March 10, 2025, the Company has not repurchased any common stock pursuant to the plan.
Debt Transactions
On March 7, 2024, the Company closed on a $62.0 million non-recourse loan secured by the Ritz-Carlton Reserve Dorado Beach. The mortgage loan had a two-year term, was interest only and provided for a floating interest rate of SOFR + 4.75%.
In April 2024, the Company repaid the $30.0 million mortgage loan secured by the Cameo Beverly Hills hotel.
On July 17, 2024, the Company sold the Hilton La Jolla Torrey Pines pursuant to an Agreement of Purchase and Sale, entered into effective May 6, 2024, for $165 million in cash, subject to customary pro-rations and adjustments. The Company owned an indirect 75% equity interest in the hotel property. Additionally, the Company repaid the $66.6 million mortgage loan secured by the hotel property.
On August 7, 2024, the Company closed on a refinancing involving five hotels. The new mortgage loan totals $407.0 million and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions, taking the final maturity to 2029. The loan is interest only and provides for a floating interest rate of SOFR + 3.24%. As part of this financing, the Company acquired a tranche of CMBS with a par value of $42.2 million and a rate of SOFR + 5.20%. The loan is secured by five hotels: Pier House Resort & Spa, Bardessono Hotel & Spa, Hotel Yountville, The Ritz-Carlton Sarasota, and The Ritz-Carlton St. Thomas. The new loan refinanced the $80.0 million loan secured by the Pier House Resort & Spa which had an interest rate of SOFR + 3.60% and had a final maturity date in September 2026, the $42.5 million loan secured by The Ritz-Carlton St. Thomas which had an interest rate of SOFR + 4.35% and had a final maturity date in August 2026, and the $200.0 million secured credit facility secured by The Ritz-Carlton Sarasota, Hotel Yountville, and Bardessono Hotel & Spa which had an interest rate of SOFR + 3.10% and had a final maturity date in July 2027. The $407.0 million mortgage loan amount represents an approximate 43% loan-to-value based on third-party appraisals completed by the lender. The appraisals valued the hotels at $953 million based on the sum of their "as-is" values.
On January 14, 2025, the Company amended its mortgage loan secured by the 170-room Ritz-Carlton Lake Tahoe. The terms of the amendment included a $10.0 million principal pay down, extending the current maturity date to July 2025, an interest rate reduction to SOFR + 3.25%, and one six-month extension option subject to satisfaction of certain conditions. The mortgage loan had an initial maturity date in January 2025. The $43.4 million current mortgage loan amount represents an approximate 27% loan-to-value based on a third-party appraisal completed by the lender. The appraisal valued the hotel at $160 million based on its "as-is" value.
On March 7, 2025, the Company refinanced its $293.2 million mortgage loan secured by The Clancy, The Notary Hotel, Marriott Seattle Waterfront, and Sofitel Chicago Magnificent Mile, which had an interest rate of SOFR + 2.66% and a final maturity date in June of 2025 and its $62.0 million mortgage loan secured by The Ritz-Carlton Reserve Dorado Beach, which had an interest rate of SOFR + 4.75% and a final maturity date in March of 2026. The new $363.0 million mortgage loan bears interest at a floating interest rate of SOFR + 2.52% and has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions. The mortgage loan is secured by five hotels: The Clancy, The Notary Hotel, Marriott Seattle Waterfront, Sofitel Chicago Magnificent Mile, and The Ritz-Carlton Reserve Dorado Beach. The $363.0
million mortgage loan amount represents an approximate 49% loan-to-value based on third-party appraisals completed by the lender. The appraisals valued the hotels at $742 million based on the sum of their "as-is" values.
Sources and Uses of Cash
We had approximately $135.5 million and $85.6 million of cash and cash equivalents at December 31, 2024 and December 31, 2023, respectively.
We anticipate using funds to pay for capital expenditures for our 15 hotel properties, estimated to be between approximately $75.0 million to $95.0 million in fiscal year 2025 and debt interest payments, estimated to be approximately $80.0 million in 2025 based on future payments using the one month SOFR rate as of December 31, 2024. This estimate will fluctuate based on changes in the one-month SOFR rate and any future changes in outstanding indebtedness.
Net Cash Flows Provided by (Used in) Operating Activities.Net cash flows provided by operating activities were $66.8 million and $84.7 million for the year ended December 31, 2024 and 2023, respectively. Cash flows from operations were impacted by changes in hotel operations and the disposition of a hotel property. Cash flows from operations are also impacted by the timing of working capital cash flows, such as collecting receivables from hotel guests, paying vendors, settling with derivative counterparties, settling with related parties and settling with hotel managers.
Net Cash Flows Provided by (Used in) Investing Activities.For the year ended December 31, 2024, net cash flows provided by investing activities were $35.5 million. The cash inflows were primarily attributable to $155.6 million from the sale of Hilton La Jolla Torrey Pines and $958,000 from property insurance proceeds, partially offset by cash outflows of $42.3 million from the purchase of a tranche of CMBS, $70.6 million of capital improvements made to various hotel properties, $8.1 million from the issuance of a note receivable and a $79,000 loan to OpenKey. Our capital improvements consisted of approximately $49.6 million of return on investment capital projects and approximately $21.0 million of renewal and replacement capital projects.
For the year ended December 31, 2023, net cash flows used in investing activities were $77.1 million. These cash outflows were primarily attributable to $77.1 million of capital improvements made to various hotel properties and a $238,000 loan to OpenKey partially offset by cash inflows of $361,000 related to proceeds from property insurance. Our capital improvements consisted of approximately $54.6 million of return on investment capital projects and approximately $22.6 million of renewal and replacement capital projects. Return on investment capital projects are designed to improve the positioning of our hotel properties within their markets and competitive sets. Renewal and replacement capital projects are designed to maintain the quality and competitiveness of our hotels.
Net Cash Flows Provided by (Used in) Financing Activities.For the year ended December 31, 2024, net cash flows used in financing activities were $83.8 million. Cash outflows primarily consisted of $184.1 million of repayments of indebtedness, $51.6 million of dividend and distribution payments, $1.6 million to purchase interest rate caps, $15.4 million of payments of loan costs and exit fees, $27.0 million distributions to noncontrolling interest in consolidated entities, and $45.6 million for cash redemptions of Series E and Series M preferred stock. These cash outflows were partially offset by cash inflows of $234.0 million from borrowings on indebtedness, $4.9 million of proceeds from in-the-money interest rate caps and $3.0 million of contributions from noncontrolling interest in consolidated entities.
For the year ended December 31, 2023, net cash flows used in financing activities were $156.8 million. Cash outflows primarily consisted of repayments of indebtedness of $534.3 million, $52.6 million of dividend and distribution payments, $19.3 million of payments to repurchase common stock, payments of $7.2 million for the redemption of operating partnership units, $5.1 million to purchase interest rate caps, $2.7 million of distributions to a noncontrolling interest in consolidated entities, $11.6 million payments of loan costs and exit fees, and $9.8 million for cash redemptions of Series E and Series M preferred stock. These cash outflows were partially offset by cash inflows of $370.6 million from borrowings on indebtedness, $97.9 million from the issuance of preferred stock, $9.5 million of contributions from a noncontrolling interest in consolidated entities and $7.7 million of proceeds from in-the-money interest rate caps.
Inflation
We rely entirely on the performance of our properties and the ability of the properties' managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates rather quickly, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, and utilities are subject to inflation as well.
Critical Accounting Policies and Estimates
Our accounting policies are fully described in note 2 to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data." We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, complex judgments and can include significant estimates.
Impairment of Investments in Hotel Properties. Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of the hotel is measured by comparison of the carrying amount of the hotel to the estimated future undiscounted cash flows, which take into account current market conditions and our intent with respect to holding or disposing of the hotel. If our analysis indicates that the carrying value of the hotel is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the property's net book value exceeds its estimated fair value, or fair value, less cost to sell. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. Fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions and third-party appraisals, where considered necessary. Asset write-downs resulting from property damage are recorded up to the amount of the allocable property insurance deductible in the period that the property damage occurs. There were no impairment charges recorded for the years ended December 31, 2024, 2023 and 2022.
Income Taxes. At December 31, 2024 and 2023, we had a valuation allowance of approximately $16.5 million and $16.2 million, respectively, to partially reserve our deferred tax assets of our TRSs. At each reporting date, we evaluate whether it is more likely than not that we will utilize all or a portion of our deferred tax assets. We consider all available positive and negative evidence, including historical results of operations, projected future taxable income, carryback potential and scheduled reversals of deferred tax liabilities. In evaluating the objective evidence that historical results provide, we consider three years of consolidated cumulative operating income (loss). At December 31, 2024, we had TRS net operating loss carry forwards for U.S. federal income tax purposes of $65.3 million, of which $45.8 million is subject to expiration and will begin to expire in 2025. The remainder was generated after December 31, 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. The loss carry forwards subject to expiration may be available to offset future taxable income, if any, for 2025 through 2035, with the remainder available to offset taxable income beyond 2035; however, there could be substantial limitations on their use imposed by the Code. Management determined that it is more likely than not that $16.5 million of our net deferred tax assets will not be realized and a valuation allowance has been recorded accordingly. At December 31, 2024, Braemar Hotels & Resorts Inc., our REIT, had net operating loss carryforwards for U.S. federal income tax purposes of $109.7 million based on the latest filed tax return. Of this amount, $2.2 million is subject to expiration in 2033. The remainder is not subject to expiration under the Tax Cuts and Jobs Act.
The "Income Taxes" Topic of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") addresses the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The guidance requires us to determine whether tax positions we have taken or expect to take in a tax return are more likely than not to be sustained upon examination by the appropriate taxing authority based on the technical merits of the positions. Tax positions that do not meet the more likely than not threshold would be recorded as additional tax expense in the current period. We analyze all open tax years, as defined by the statute of limitations for each jurisdiction, which includes the federal jurisdiction and various states. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2020 through 2024 remain subject to potential examination by certain federal and state taxing authorities.
Recently Adopted Accounting Standards
In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280):Improvements to Reportable Segment Disclosures,which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. We adopted the standard effective for the year ended December 31, 2024. See note 23 to our consolidated financial statements.
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which eliminated the historic requirement that entities disclose information concerning unrecognized tax benefits having a reasonable possibility of significantly increasing or decreasing in the 12 months following the reporting date. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025.
Early adoption is permitted. We are currently evaluating the impact that ASU 2023-09 will have on our consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expensesthat requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion) included in certain expense captions presented on the face of the statement of operations.
In January 2025, the FASB issued ASU 2025-01 which amends the effective date of the new disaggregation of income statement expenses standard to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is still permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact this ASU will have on our disclosures.
Non-GAAP Financial Measures
The following non-GAAP presentations of EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Adjusted FFO are presented to help our investors evaluate our operating performance.
EBITDA is defined as net income (loss) before interest expense and amortization of loan costs, depreciation and amortization, income taxes, equity in (earnings) loss of unconsolidated entity and after the Company's portion of EBITDA of OpenKey. In addition, we exclude impairment on real estate, (gain) loss on disposition of assets and hotel property and the Company's portion of EBITDAre of OpenKey from EBITDA to calculate EBITDA for real estate, or EBITDAre, as defined by NAREIT.
We then further adjust EBITDAre to exclude certain additional items such as amortization of favorable (unfavorable) contract assets (liabilities), transaction and conversion costs, other income/expense, write-off of loan costs and exit fees, gain/loss on insurance settlements, legal, advisory and settlement costs, advisory services incentive fee, gain/loss on extinguishment of debt, stock/unit-based compensation and the Company's portion of adjustments to EBITDAre of OpenKey and non-cash items such as unrealized gain/ loss on derivatives.
We present EBITDA, EBITDAre and Adjusted EBITDAre because we believe they are useful to an investor in evaluating our operating performance because they provide investors with an indication of our ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into our business. We also believe they help investors meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our asset base (primarily depreciation and amortization) from our operating results. Our management team also uses EBITDA as one measure in determining the value of acquisitions and dispositions. EBITDA, EBITDAre and Adjusted EBITDAre as calculated by us may not be comparable to EBITDA, EBITDAre and Adjusted EBITDAre reported by other companies that do not define EBITDA, EBITDAre and Adjusted EBITDAre exactly as we define the terms. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as determined by GAAP as an indicator of liquidity.
The following table reconciles net income (loss) to EBITDA, EBITDAre and Adjusted EBITDAre (in thousands) (unaudited):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Net income (loss) | $ | 19,763 | $ | (30,628) | $ | 19,348 | |||||||||||
| Interest expense and amortization of loan costs | 108,124 | 94,219 | 52,166 | ||||||||||||||
| Depreciation and amortization | 98,733 | 93,272 | 78,122 | ||||||||||||||
| Income tax expense (benefit) | 842 | 2,689 | 4,043 | ||||||||||||||
| Equity in (earnings) loss of unconsolidated entity | 1,608 | 253 | 328 | ||||||||||||||
| Company's portion of EBITDA of OpenKey | (268) | (274) | (334) | ||||||||||||||
|
EBITDA
|
228,802 | 159,531 | 153,673 | ||||||||||||||
|
(Gain) loss on disposition of assets and hotel property
|
(88,165) | - | - | ||||||||||||||
| EBITDAre | 140,637 | 159,531 | 153,673 | ||||||||||||||
| Amortization of favorable (unfavorable) contract assets (liabilities) | 453 | 474 | 463 | ||||||||||||||
|
Transaction and conversion costs (1)
|
(4,447) | 4,561 | 9,679 | ||||||||||||||
| Write-off of premiums, loan costs and exit fees | 6,111 | 3,489 | 146 | ||||||||||||||
| Realized and unrealized (gain) loss on derivatives | (585) | 663 | (4,961) | ||||||||||||||
| Stock/unit-based compensation | 2,611 | 9,244 | 11,285 | ||||||||||||||
| Legal, advisory and settlement costs | 12,676 | 1,397 | 2,170 | ||||||||||||||
| (Gain) loss on extinguishment of debt | 22 | (2,318) | - | ||||||||||||||
|
Other (income) expense
|
- | (293) | - | ||||||||||||||
|
(Gain) loss on insurance settlements
|
(8) | - | (55) | ||||||||||||||
|
Severance
|
102 | - | - | ||||||||||||||
| Company's portion of adjustments to EBITDAre of OpenKey | 3 | - | 8 | ||||||||||||||
| Adjusted EBITDAre | $ | 157,575 | $ | 176,748 | $ | 172,408 | |||||||||||
__________________
(1)Includes amounts associated with to funding certain expenses of Ashford Securities LLC, in which 2024 include a true up of these expenses.
The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year ended December 31, 2024. The results of the Hilton La Jolla Torrey Pines are excluded from its disposition date through December 31, 2024 (in thousands) (unaudited):
| Year Ended December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Hilton | Hilton La Jolla Torrey Pines | Sofitel Chicago Magnificent Mile | Bardessono Hotel and Spa | Pier House Resort & Spa | Hotel Yountville | Park Hyatt Beaver Creek Resort & Spa | The Notary Hotel | The Clancy | The Ritz-Carlton Sarasota | The Ritz-Carlton Lake Tahoe | Marriott Seattle Waterfront | The Ritz-Carlton St. Thomas | Cameo Beverly Hills | The Ritz-Carlton Dorado Beach | Four seasons Resort Scottsdale | Hotel Total |
Corporate / Allocated(1)
|
Braemar Hotels & Resorts Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (5,023) | $ | 94,906 | $ | 1,178 | $ | 876 | $ | 6,903 | $ | 1,875 | $ | 1,200 | $ | 6,009 | $ | (2,607) | $ | 13,728 | $ | (9,085) | $ | 6,172 | $ | 9,312 | $ | (5,778) | $ | 5,762 | $ | (452) | $ | 124,976 | $ | (105,213) | $ | 19,763 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-property adjustments (2)
|
151 | (88,115) | - | - | - | - | (50) | - | - | - | 5 | (8) | 2,086 | - | - | - | (85,931) | 85,931 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | (196) | (273) | 1 | - | - | - | - | (88) | (240) | (224) | (244) | (122) | (145) | - | (12) | (250) | (1,793) | 1,793 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 10,049 | - | - | - | 4,262 | - | 5,752 | - | - | 618 | 4,758 | 80 | 2,779 | 763 | 5,101 | 12,684 | 46,846 | 54,891 | 101,737 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of loan costs | 46 | - | - | - | 377 | - | 69 | - | - | - | 154 | - | - | 46 | 637 | 937 | 2,266 | 4,121 | 6,387 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 13,690 | 2,328 | 4,515 | 2,692 | 1,950 | 1,809 | 5,099 | 5,983 | 8,122 | 7,403 | 8,468 | 7,841 | 8,655 | 2,621 | 7,198 | 10,359 | 98,733 | - | 98,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 192 | 155 | - | - | - | - | - | (26) | - | - | - | - | 91 | - | 434 | - | 846 | (4) | 842 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-hotel EBITDA ownership expense (income) | 48 | 103 | 48 | 868 | 112 | 270 | 22 | 71 | 458 | 399 | 1,031 | 33 | (2,158) | 863 | 18 | 8 | 2,194 | (2,194) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Hotel EBITDA including amounts attributable to noncontrolling interest(3)
|
18,957 | 9,104 | 5,742 | 4,436 | 13,604 | 3,954 | 12,092 | 11,949 | 5,733 | 21,924 | 5,087 | 13,996 | 20,620 | (1,485) | 19,138 | 23,286 | 188,137 | 39,325 | 227,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: EBITDA adjustments attributable to consolidated noncontrolling interest | (4,740) | (2,276) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (7,016) | 7,016 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in earnings (loss) of unconsolidated entities | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,608 | 1,608 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company's portion of EBITDA of OpenKey | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (268) | (268) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hotel EBITDA attributable to the Company and OP unitholders | $ | 14,217 | $ | 6,828 | $ | 5,742 | $ | 4,436 | $ | 13,604 | $ | 3,954 | $ | 12,092 | $ | 11,949 | $ | 5,733 | $ | 21,924 | $ | 5,087 | $ | 13,996 | $ | 20,620 | $ | (1,485) | $ | 19,138 | $ | 23,286 | $ | 181,121 | $ | 47,681 | $ | 228,802 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
__________________
(1)Represents expenses not recorded at the individual hotel property level.
(2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
(3)Referred to as hotel adjusted EBITDA in note 23 to the Company's consolidated financial statements.
The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year ended December 31, 2023 (in thousands) (unaudited):
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Hilton | Hilton La Jolla Torrey Pines | Sofitel Chicago Magnificent Mile | Bardessono Hotel and Spa | Pier House Resort & Spa | Hotel Yountville | Park Hyatt Beaver Creek Resort & Spa | The Notary Hotel | The Clancy | The Ritz-Carlton Sarasota | The Ritz-Carlton Lake Tahoe | Marriott Seattle Waterfront | The Ritz-Carlton St. Thomas | Cameo Beverly Hills | The Ritz-Carlton Dorado Beach |
Four Seasons Resort Scottsdale
|
Hotel Total |
Corporate / Allocated(1)
|
Braemar Hotels & Resorts Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 4,934 | $ | 12,836 | $ | 3,392 | $ | 1,428 | $ | 6,799 | $ | 871 | $ | 1,088 | $ | 2,071 | $ | (462) | $ | 11,171 | $ | (4,690) | $ | 5,471 | $ | 8,322 | $ | (4,222) | $ | 13,480 | $ | 1,138 | $ | 63,627 | $ | (94,255) | $ | (30,628) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-property adjustments (2)
|
- | - | - | - | - | - | - | - | - | - | 249 | - | - | (292) | - | 495 | 452 | (452) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | (237) | (346) | - | - | - | - | - | (41) | (137) | (235) | 128 | (73) | (44) | - | - | (140) | (1,125) | 1,125 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | - | - | - | 1,756 | 5,555 | 2,263 | 5,639 | - | - | 5,096 | 4,002 | 80 | 3,892 | 2,688 | 281 | 10,046 | 41,298 | 49,538 | 90,836 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of loan costs | - | - | - | - | 321 | 24 | 809 | - | - | 95 | 183 | - | 63 | 176 | 711 | 2,382 | 1,001 | 3,383 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 9,859 | 4,176 | 4,697 | 2,328 | 2,290 | 1,643 | 4,624 | 8,062 | 9,785 | 6,155 | 5,243 | 7,252 | 8,672 | 2,251 | 6,609 | 9,626 | 93,272 | - | 93,272 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 126 | 173 | - | - | - | - | - | 10 | - | - | - | - | 1,662 | - | 476 | - | 2,447 | 242 | 2,689 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-hotel EBITDA ownership expense (income) | 745 | 450 | 94 | 555 | 46 | 114 | 113 | 215 | 90 | 99 | 967 | 86 | 61 | 386 | 78 | (13) | 4,086 | (4,086) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Hotel EBITDA including amounts attributable to noncontrolling interest(3)
|
15,427 | 17,289 | 8,183 | 6,067 | 15,011 | 4,915 | 12,273 | 10,317 | 9,276 | 22,381 | 6,082 | 12,816 | 22,628 | 987 | 20,924 | 21,863 | 206,439 | (46,887) | 159,552 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: EBITDA adjustments attributable to consolidated noncontrolling interest | (3,857) | (4,322) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (8,179) | 8,179 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in earnings (loss) of unconsolidated entities | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 253 | 253 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company's portion of EBITDA of OpenKey | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (274) | (274) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hotel EBITDA attributable to the Company and OP unitholders | $ | 11,570 | $ | 12,967 | $ | 8,183 | $ | 6,067 | $ | 15,011 | $ | 4,915 | $ | 12,273 | $ | 10,317 | $ | 9,276 | $ | 22,381 | $ | 6,082 | $ | 12,816 | $ | 22,628 | $ | 987 | $ | 20,924 | $ | 21,863 | $ | 198,260 | $ | (38,729) | $ | 159,531 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
_____________
(1)Represents expenses not recorded at the individual hotel property level.
(2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
(3)Referred to as hotel adjusted EBITDA in note 23 to the Company's consolidated financial statements.
The following table reconciles net income (loss) to EBITDA attributable to the Company and OP unitholders on a property-by-property basis for each of our hotel properties owned and on a corporate basis during the year ended December 31, 2022. The results of The Ritz-Carlton Reserve Dorado Beach and Four Seasons Resort Scottsdale are included from its acquisition date through December 31, 2022 (in thousands) (unaudited):
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Hilton | Hilton La Jolla Torrey Pines | Sofitel Chicago Magnificent Mile | Bardessono Hotel and Spa | Pier House Resort & Spa | Hotel Yountville | Park Hyatt Beaver Creek Resort & Spa | The Notary Hotel | The Clancy | The Ritz-Carlton Sarasota | The Ritz-Carlton Lake Tahoe | Marriott Seattle Waterfront | The Ritz-Carlton St. Thomas |
Cameo Beverly Hills
|
The Ritz-Carlton Dorado Beach |
Four Seasons Resort Scottsdale
|
Hotel Total |
Corporate / Allocated(1)
|
Braemar Hotels & Resorts Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,125 | $ | 13,162 | $ | 2,226 | $ | 4,488 | $ | 12,377 | $ | 2,547 | $ | 5,668 | $ | (505) | $ | (2,872) | $ | 17,641 | $ | 5,020 | $ | 3,790 | $ | 18,920 | $ | (1,390) | $ | 7,583 | $ | 933 | $ | 90,713 | $ | (71,365) | $ | 19,348 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Non-property adjustments (2)
|
- | - | - | - | - | - | 76 | (16) | - | - | - | - | (40) | - | - | - | 20 | (20) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | (55) | (73) | - | - | - | - | - | (5) | (24) | (52) | - | (12) | (8) | - | - | (4) | (233) | 233 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | - | - | - | 1,674 | 2,802 | 2,165 | 3,228 | - | - | 4,919 | 2,017 | 26 | 2,557 | 1,822 | 1,747 | - | 22,957 | 26,753 | 49,710 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of loan costs | - | - | - | 135 | 307 | 102 | 713 | - | - | 370 | 150 | - | 43 | 167 | - | - | 1,987 | 469 | 2,456 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 7,420 | 4,118 | 5,975 | 2,371 | 2,611 | 2,046 | 3,932 | 8,028 | 11,226 | 5,326 | 3,234 | 5,406 | 8,072 | 2,452 | 5,124 | 781 | 78,122 | - | 78,122 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | - | - | - | - | - | - | - | 19 | - | - | - | - | 415 | - | 333 | - | 767 | 3,276 | 4,043 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-hotel EBITDA ownership expense (income) | 1,684 | 121 | 87 | 459 | 18 | 98 | 3 | 152 | 24 | 2,173 | 962 | 7 | 178 | 106 | 100 | - | 6,172 | (6,172) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Hotel EBITDA including amounts attributable to noncontrolling interest (3)
|
10,174 | 17,328 | 8,288 | 9,127 | 18,115 | 6,958 | 13,620 | 7,673 | 8,354 | 30,377 | 11,383 | 9,217 | 30,137 | 3,157 | 14,887 | 1,710 | 200,505 | (46,826) | 153,679 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: EBITDA adjustments attributable to consolidated noncontrolling interest | (2,543) | (4,333) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (6,876) | 6,876 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity in earnings (loss) of unconsolidated entities | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 328 | 328 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company's portion of EBITDA of OpenKey | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (334) | (334) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hotel EBITDA attributable to the Company and OP unitholders | $ | 7,631 | $ | 12,995 | $ | 8,288 | $ | 9,127 | $ | 18,115 | $ | 6,958 | $ | 13,620 | $ | 7,673 | $ | 8,354 | $ | 30,377 | $ | 11,383 | $ | 9,217 | $ | 30,137 | $ | 3,157 | $ | 14,887 | $ | 1,710 | $ | 193,629 | $ | (39,956) | $ | 153,673 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
__________________
(1)Represents expenses not recorded at the individual hotel property level.
(2)Includes allocated amounts which were not specific to hotel properties, such as gain on sale of hotel property, corporate taxes, insurance and legal expenses.
(3)Referred to as hotel adjusted EBITDA in note 23 to the Company's consolidated financial statements.
FFO is calculated on the basis defined by NAREIT, which is net income (loss) attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses on disposition of assets, plus impairment charges on real estate, depreciation and amortization of real estate assets, and after redeemable noncontrolling interests in the operating partnership and adjustments for unconsolidated entities. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of Adjusted FFO excludes transaction and conversion costs, other income/expense, write-off of premiums, loan costs and exit fees, legal, advisory and settlement costs, stock/unit-based compensation, severance, gain/loss on insurance settlements, gain/loss on extinguishment of debt, and non-cash items such as deemed dividends on redeemable preferred stock, interest expense accretion on refundable membership club deposits, amortization of loan costs, unrealized gain/loss on derivatives and the Company's portion of adjustments to FFO of OpenKey. FFO and Adjusted FFO exclude amounts attributable to the portion of a partnership owned by the third party. We present FFO and Adjusted FFO because we consider FFO and Adjusted FFO important supplemental measures of our operational performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO and Adjusted FFO when reporting their results. FFO and Adjusted FFO are intended to exclude GAAP historical cost depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO and Adjusted FFO exclude depreciation and amortization related to real estate assets, gains and losses from real property dispositions and impairment losses on real estate assets, FFO and Adjusted FFO provide performance measures that, when compared year over year, reflect the effect to operations from trends in occupancy, guestroom rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We consider FFO and Adjusted FFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and Adjusted FFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to GAAP net income or loss as an indication of our financial performance or GAAP cash flows from operating activities as a measure of our liquidity. FFO and Adjusted FFO are also not indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and Adjusted FFO should be considered along with our net income or loss and cash flows reported in our consolidated financial statements.
The following table reconciles net income (loss) to FFO and Adjusted FFO (in thousands) (unaudited):
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Net income (loss) | $ | 19,763 | $ | (30,628) | $ | 19,348 | |||||||||||
| (Income) loss attributable to noncontrolling interest in consolidated entities | (25,928) | (1,619) | (2,063) | ||||||||||||||
| Net (Income) loss attributable to redeemable noncontrolling interests in operating partnership | 4,472 | 5,230 | 476 | ||||||||||||||
| Preferred dividends | (40,295) | (42,304) | (21,503) | ||||||||||||||
|
Deemed dividends on preferred stock
|
(8,958) | (4,719) | (6,954) | ||||||||||||||
| Net income (loss) attributable to common stockholders | (50,946) | (74,040) | (10,696) | ||||||||||||||
|
Depreciation and amortization on real estate (1)
|
94,944 | 90,031 | 75,508 | ||||||||||||||
| Net income (loss) attributable to redeemable noncontrolling interests in operating partnership | (4,472) | (5,230) | (476) | ||||||||||||||
| Equity in (earnings) loss of unconsolidated entity | 1,608 | 253 | 328 | ||||||||||||||
|
(Gain) loss on disposition of assets and hotel property (1)
|
(61,925) | - | - | ||||||||||||||
| Company's portion of FFO of OpenKey | (322) | (296) | (333) | ||||||||||||||
| FFO available to common stockholders and OP unitholders | (21,113) | 10,718 | 64,331 | ||||||||||||||
|
Deemed dividends on preferred stock
|
8,958 | 4,719 | 6,954 | ||||||||||||||
|
Transaction and conversion costs (2)
|
(4,447) | 4,561 | 9,679 | ||||||||||||||
| Write-off of premiums, loan costs and exit fees | 6,111 | 3,489 | 146 | ||||||||||||||
| Unrealized (gain) loss on derivatives | 4,071 | 8,413 | (4,464) | ||||||||||||||
| Stock/unit-based compensation | 2,611 | 9,244 | 11,285 | ||||||||||||||
| Legal, advisory and settlement costs | 12,676 | 1,397 | 2,170 | ||||||||||||||
| Interest expense accretion on refundable membership club deposits | 616 | 671 | 723 | ||||||||||||||
|
Amortization of loan costs (1)
|
6,080 | 3,289 | 2,365 | ||||||||||||||
| (Gain) loss on extinguishment of debt | 22 | (2,318) | - | ||||||||||||||
|
Other (income) expense
|
- | (293) | - | ||||||||||||||
|
(Gain) loss on insurance settlements
|
(8) | - | (55) | ||||||||||||||
|
Severance
|
102 | - | - | ||||||||||||||
| Company's portion of adjustments to FFO of OpenKey | 3 | - | 8 | ||||||||||||||
| Adjusted FFO available to common stockholders and OP unitholders | $ | 15,682 | $ | 43,890 | $ | 93,142 | |||||||||||
____________________
(1)Net of adjustment for noncontrolling interest in consolidated entities. The following table presents the amounts of the adjustments for noncontrolling interests for each line item:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Depreciation and amortization on real estate | $ | (3,789) | $ | (3,241) | $ | (2,614) | |||||||||||
| Amortization of loan costs | (307) | (94) | (91) | ||||||||||||||
|
Gain (loss) on disposition of assets and hotel property
|
26,240 | - | - | ||||||||||||||
(2) Includes amounts associated with to funding certain expenses of Ashford Securities LLC, in which 2024 include a true up of these expenses.