Braemar Hotels & Resorts Inc. (BHR)

Executive Summary / Key Takeaways

• Strategic Sale Process Initiated: Braemar Hotels announced in August 2025 that it is exploring a sale of the entire company, creating a potential catalyst for shareholders while management simultaneously executes a portfolio refinement strategy through selective asset dispositions and debt optimization.

• Operational Inflection Point Achieved: The luxury hotel REIT delivered four consecutive quarters of comparable RevPAR growth through Q3 2025, with hotel EBITDA margins expanding 160 basis points year-over-year, demonstrating that fundamental performance has turned despite renovation headwinds affecting three key properties.

• Portfolio Quality Commands Premium: With 14 luxury hotels and resorts averaging $257 RevPAR in Q3 2025, Braemar maintains the highest RevPAR portfolio in the lodging REIT sector, concentrated in high-barrier markets where new supply growth is projected at just 0.8% annually versus the historical 2% mean.

• Balance Sheet Actively Deleveraged: Management has addressed all 2025 debt maturities through refinancings at improved spreads, sold two properties for $129.1 million in gains, and is redeeming non-traded preferred equity, reducing net debt to gross assets to 43.2% as of September 2025.

• Key Risk Asymmetry: The $480 million advisory agreement termination fee payable to Ashford Inc. (AINC) upon a company sale represents a material liability, while 87% floating-rate debt exposure creates earnings volatility if rate cuts disappoint, though interest rate caps provide some protection.

Setting the Scene: Luxury Hotel REIT in Transition

Braemar Hotels & Resorts, formed in April 2013 as a Maryland corporation, operates as a pure-play luxury hotel REIT with a distinctive externally-advised structure. Unlike traditional REITs with internal management teams, Braemar conducts all operations through its advisor Ashford Hospitality Advisors LLC, a subsidiary of Ashford Inc.. This arrangement means Braemar has no employees; every function from asset management to capital markets is outsourced. While this creates operational leverage at scale, it also introduces a permanent cost structure that includes a $7.92 million quarterly advisory fee and a potential $480 million termination liability if the company sale process succeeds.

The portfolio comprises 14 hotel properties with 3,438 total rooms as of September 30, 2025, concentrated exclusively in the luxury segment where properties achieve RevPAR levels multiples higher than the industry average. This positioning within the lodging value chain matters because luxury hotels command pricing power through scarcity—resort locations face geographic constraints while urban luxury properties benefit from irreplaceable real estate. The company generates revenue by owning hotel real estate and contracting with third-party managers like Remington Hospitality (an Ashford affiliate managing five properties) and global brands including Four Seasons, Ritz-Carlton, and Hilton (HLT).

Industry dynamics currently favor Braemar's strategy. The U.S. hotel market contains approximately six million rooms, with historical supply growth of 2% annually. The current construction pipeline represents just 3% of existing stock to be delivered over three years, implying 1% gross annual growth. After accounting for obsolescence, net supply growth projects to 0.8% annually—an "incredible setup" for RevPAR growth according to management. This supply constraint is particularly acute in luxury resorts, where high barriers to entry include limited developable land, stringent zoning, and the need for established brand partnerships.

Business Model & Segment Dynamics

Direct Hotel Investments: Two Distinct Portfolios

Braemar's sole reportable segment divides into Resort Properties (nine hotels) and Urban Properties (five hotels), each serving different demand drivers with distinct risk-return profiles. The resort portfolio caters primarily to leisure travelers who demonstrate reduced price sensitivity and increased ancillary spending on food, beverage, and experiences. The urban portfolio captures corporate travel, citywide conventions, and transient business demand, providing diversification that stabilizes occupancy across economic cycles.

Resort Performance Accelerates: In Q3 2025, resort comparable RevPAR increased 5.5% to $361 while comparable hotel EBITDA surged 58% to $13.1 million. This outperformance reflects both post-pandemic leisure normalization and strategic capital investments. The Four Seasons Resort Scottsdale delivered approximately 25% RevPAR growth and 231.6% GOP growth by converting underutilized space into a gelato shop, café, and market—demonstrating how targeted ROI projects unlock latent value. The Ritz-Carlton Reserve Dorado Beach achieved 20% RevPAR growth and 353% group room revenue growth through two back-to-back property buyouts, while its residential rental program commands average daily rates exceeding $7,900.

Urban Properties Face Near-Term Headwinds: Urban comparable RevPAR declined 3.9% in Q3 2025 due to extensive renovations at Cameo Beverly Hills (converting to Hilton's LXR luxury brand) and citywide occupancy weakness in Philadelphia affecting The Notary Hotel. However, excluding renovation-impacted properties, portfolio RevPAR growth would have been 3.4% for the quarter. The long-term urban thesis remains intact, as evidenced by Q1 2025 when the Capital Hilton achieved 19.3% RevPAR growth during the presidential inauguration, generating 30% more revenue than the comparable 2017 event. This illustrates how major citywide events create pricing power that Braemar can capture through its well-located assets.

Advisory Services: The Permanent Cost Structure

The advisory relationship with Ashford LLC represents both a strategic advantage and a structural cost. Ashford provides comprehensive services including design and construction oversight, debt placement, insurance, and cash management through a dedicated team with deep hospitality expertise. In Q3 2025, Braemar paid $7.92 million in advisory fees, down 8.3% year-over-year due to lower incentive fees and equity-based compensation. While this fee burden reduces net cash flow, it also eliminates the fixed overhead of an internal management team, creating variable cost leverage during downturns.

The critical consideration for investors is the $480 million termination fee negotiated as part of the sale process. This amount, while discounted from the contractual $574.8 million, still represents a substantial liability that will reduce proceeds to common equity holders. The $17 million payment made to Ashford upon execution is creditable against the fee if the sale closes before July 1, 2028, creating a ticking clock that adds urgency to the process.

Financial Performance: Evidence of Inflection

Braemar's financial results demonstrate a clear operational turnaround that supports the strategic sale timing. After six consecutive quarters of RevPAR decline through Q3 2024, the portfolio achieved positive comparable RevPAR growth in Q4 2024 and has accelerated since. This inflection is not coincidental—it reflects management's deliberate strategy to invest in renovations during the downturn and capture demand as luxury travel normalized.

Margin Expansion Validates Strategy: Q3 2025 comparable hotel EBITDA of $21.4 million increased 15.1% year-over-year despite a 3.3% decline in total hotel revenue to $143.6 million. This divergence—growing profits on declining sales—occurred because hotel EBITDA margins expanded 160 basis points. Property managers aggressively implemented cost controls at the start of 2025, reducing contract labor to just 2% of total labor and stabilizing wage growth (March increases were less than February, which were less than January). Food and beverage margins grew 110 basis points in Q2 2025, outpacing rooms revenue growth as luxury consumers increased on-property spending.

Capital Deployment Drives Returns: Braemar invested approximately $70 million in capital expenditures during 2024 and expects to spend $75-85 million in 2025. These investments are highly targeted: guestroom renovations at Hotel Yountville and Park Hyatt Beaver Creek, conversion of Cameo Beverly Hills to Hilton's LXR brand, and ROI-focused projects like the Four Seasons Scottsdale market conversion that generated $300,000 in incremental NOI through Q2 2025, outperforming underwriting expectations. This disciplined capital allocation demonstrates management's focus on value creation rather than growth for growth's sake.

Balance Sheet Transformation: As of September 30, 2025, Braemar held $116.3 million in cash and $47.7 million in restricted cash, with net debt to gross assets at 43.2%. The company addressed its final 2025 debt maturity through a March 2025 refinancing that consolidated five loans into a $363 million facility at SOFR + 2.52%, 100-200 basis points cheaper than replaced debt. An August 2025 refinancing of the Four Seasons Scottsdale loan increased principal to $180 million while reducing the rate to SOFR + 3% and extending maturity to 2028. These actions reduced interest expense and extended duration, improving financial flexibility ahead of a potential sale.

Strategic Actions: Portfolio Refinement and Exit Preparation

The sale of the Marriott (MAR) Seattle Waterfront in August 2025 for $145 million ($393,000 per key) at an 8.1% capitalization rate achieved two objectives: crystallizing a $41 million gain and demonstrating buyer appetite for Braemar's assets. The pending sale of The Clancy in San Francisco for $115 million ($280,000 per key) at a 5.2% cap rate further validates the portfolio's quality, with the buyer posting a $3.5 million nonrefundable deposit. Management stated no further 2025 sales are planned but remains open to 2026 dispositions as the transaction environment improves.

These asset sales align with the broader strategic objective to deleverage and sharpen focus on the luxury sector. The July 2024 sale of Hilton La Jolla Torrey Pines for $165 million generated an $88.1 million gain, providing capital for preferred equity redemptions. As of Q3 2025, Braemar had redeemed $125 million of non-traded preferred stock, representing 27% of the original capital raise. This deleveraging enhances the equity value remaining for common shareholders upon a company sale.

The August 2025 initiation of a formal sale process, with Robert W. Baird & Co engaged as financial adviser and a Special Committee of independent directors formed, signals management's confidence in achieving a premium valuation. Richard Stockton stated the portfolio is "the most attractive hotel portfolio on the market," noting that "the opportunity to acquire and own this kind of portfolio doesn't come around that long." This positioning suggests management believes the sum-of-the-parts value exceeds the public market valuation, particularly given the low supply growth environment and strong group booking pace (+9.1% for 2025, +10% for 2026).

Competitive Context: Niche Positioning Versus Scale Players

Braemar competes in the luxury hotel REIT space against larger, more diversified players including Host Hotels & Resorts (HST), Pebblebrook Hotel Trust (PEB), RLJ Lodging Trust (RLJ), and Sunstone Hotel Investors (SHO). Each competitor offers different risk-return tradeoffs that highlight Braemar's unique positioning.

Scale Versus Focus: Host Hotels & Resorts, with over 80 properties and $12.8 billion market cap, provides geographic and demand diversification that reduces volatility but limits upside from any single asset. Braemar's concentrated -property portfolio allows targeted value creation through renovations and brand conversions, as demonstrated by the Four Seasons Scottsdale's 25% RevPAR growth. However, this concentration creates higher idiosyncratic risk—renovations at three properties materially impacted Q3 2025 results, whereas Host's scale would dilute such effects.

Luxury Positioning Commands Premium Pricing: Braemar's Q3 2025 RevPAR of $257 significantly exceeds Pebblebrook's lifestyle-oriented portfolio and RLJ's convention-focused assets. This pricing power reflects genuine differentiation: the Ritz-Carlton Reserve Dorado Beach's $7,900+ residential rental rates and the Capital Hilton's ability to charge 30% more during the 2025 inauguration than in 2017 demonstrate scarcity value. While Pebblebrook targets similar affluent customers, its urban emphasis lacks the geographic barriers protecting Braemar's resort assets.

Financial Leverage Creates Asymmetry: Braemar's debt-to-equity ratio of 1.86x exceeds Host's 0.83x and Sunstone's 0.47x, creating higher risk but greater equity upside if performance improves. The floating-rate debt exposure (87% of total) amplifies this asymmetry—rate cuts would boost cash flow substantially, while further hikes would pressure margins. Competitors with more fixed-rate debt face less volatility but also less upside from potential Federal Reserve policy shifts.

External Advisory Model: Unlike all peers that internalize management, Braemar's advisory structure creates a permanent cost but eliminates corporate overhead. This matters because it makes the company "lean" during downturns (no fixed management salaries) but also caps operational leverage gains during upswings. The $480 million termination fee represents a liability unique to Braemar that would not affect peer valuations in a sale scenario.

Risks and Asymmetries: What Could Break the Thesis

Advisory Agreement Overhang: The $480 million termination fee payable to Ashford Inc. upon a successful sale represents a fixed claim on enterprise value that disproportionately impacts common equity. If the company sells for $1.5 billion enterprise value, this fee would consume 32% of proceeds before any debt repayment or preferred redemptions. The $17 million payment already made is creditable only if the sale closes before July 1, 2028, creating time pressure that could force suboptimal deal terms.

Floating Rate Exposure: With 87% of debt effectively floating, Braemar faces significant earnings volatility. A 100 basis point increase in SOFR would reduce annual cash flow by approximately $11 million based on the $1.1 billion debt load. While interest rate caps provide some protection, they also represent a cost that reduces net income. This exposure contrasts sharply with Host Hotels' predominantly fixed-rate debt profile, making Braemar more vulnerable to monetary policy shifts.

Renovation Execution Risk: Three major renovation projects—Cameo Beverly Hills, Park Hyatt Beaver Creek, and Hotel Yountville—are disrupting 2025 performance. While management expects these investments to generate ROI, any cost overruns or delayed completions could extend the period of subpar performance. The Cameo conversion to Hilton's LXR brand is particularly critical; failure to achieve projected rates would impair both asset value and the portfolio's luxury positioning.

Sale Process Uncertainty: Management has provided no deadline or assurance that the sale process will result in a transaction. If market conditions deteriorate or buyer appetite wanes, the process could be extended or terminated, leaving shareholders with a still-leveraged REIT trading at a discount. The Special Committee's independence is crucial, but the external advisory structure means Ashford Inc. retains significant influence over strategic decisions.

Government Shutdown Sensitivity: As a luxury hospitality provider, Braemar is exposed to federal government travel budgets and discretionary spending. A prolonged shutdown would reduce corporate travel and conference activity, directly impacting urban properties like the Capital Hilton and The Notary Hotel. While resorts are more insulated, the interconnected nature of travel demand means broad economic disruption would eventually affect leisure bookings.

Valuation Context: Pricing the Potential

At $2.67 per share, Braemar trades at an enterprise value of $1.27 billion, representing 9.14x trailing EBITDA. This multiple represents a discount to Host Hotels (11.16x) and Sunstone (12.63x) but is in line with RLJ (9.89x) and below Pebblebrook (12.68x). The discount reflects Braemar's smaller scale, higher leverage, and external advisory costs, but may undervalue the portfolio's quality and sale optionality.

Asset-Based Valuation: The recent sales provide clear valuation markers. The Marriott Seattle Waterfront traded at $393,000 per key with an 8.1% capitalization rate, while The Clancy is under contract at $280,000 per key with a 5.2% cap rate. Applying a blended $300,000 per key to the 3,438-room portfolio implies a gross asset value of $1.03 billion, before deducting debt and advisory fees. This suggests the market may be ascribing limited value to the platform itself, creating upside if a strategic buyer pays a premium for the assembled portfolio.

Dividend Yield: The $0.20 annual dividend represents a 7.46% yield at current prices, well above Host's 4.36% and Sunstone's 3.90%. This high yield reflects market skepticism about sustainability rather than generous policy—the payout ratio of 37.5% based on funds from operations appears manageable, but negative operating margins raise questions about long-term coverage. The dividend serves as a placeholder return while investors await the sale outcome.

Balance Sheet Considerations: Net debt of $1.15 billion against gross assets of $2.66 billion (implied by the 43.2% ratio) suggests substantial asset coverage. However, $1.86x debt-to-equity ratio indicates higher leverage than most peers. The $116.3 million cash position provides 12 months of runway at current burn rates, but restricted cash of $47.7 million and $23.1 million due from managers limit true liquidity. Investors must weigh the deleveraging progress against remaining financial risk.

Sale Process Valuation: If Braemar achieves a 7% cap rate on its $70 million trailing NOI (implied by Q3 2025 annualized EBITDA), enterprise value would approximate $1.0 billion. After deducting $480 million in advisory termination fees, $1.15 billion in net debt, and $125 million in preferred redemptions, common equity would be wiped out. This math suggests the sale thesis requires either substantially higher NOI from renovation benefits or a strategic premium that values the portfolio above recent comparable sales.

Conclusion: Asymmetric Bet on Luxury Recovery and Strategic Value

Braemar Hotels represents a unique investment proposition at the intersection of operational turnaround and strategic exit. Four consecutive quarters of RevPAR growth, combined with 160 basis points of margin expansion in Q3 2025, demonstrate that management's renovation strategy and cost controls are delivering results despite temporary disruptions. The luxury portfolio's quality—evidenced by $257 RevPAR and assets like the Ritz-Carlton Reserve Dorado Beach commanding $7,900 daily rates—provides genuine scarcity value in a supply-constrained environment.

The August 2025 initiation of a sale process creates a potential catalyst that distinguishes Braemar from other hotel REITs. While the $480 million advisory termination fee represents a material liability, the portfolio's concentration in high-barrier luxury markets and strong group booking pace (+9.1% for 2025, +10% for 2026) could attract strategic buyers willing to pay a premium for scale and quality. Recent asset sales at $280,000-$393,000 per key provide valuation anchors, but the ultimate outcome depends on whether bidders ascribe value to the assembled platform or simply sum the parts.

The key variables for investors to monitor are renovation completion timelines and the sale process trajectory. Successful conversion of Cameo Beverly Hills to Hilton's LXR brand and completion of Park Hyatt Beaver Creek renovations should drive meaningful RevPAR acceleration in 2026. Simultaneously, the Special Committee's ability to negotiate a favorable sale price—net of the advisory fee and debt—will determine whether shareholders realize equity value or face dilution from a deleveraging that primarily benefits preferred holders. With 87% floating-rate debt exposure, the timing of Federal Reserve policy could materially impact cash flow, adding another layer of optionality to this complex but potentially rewarding investment.