Braemar Hotels (BHR) Q1 2023: Urban Hotel EBITDA Jumps $9M as Group Demand Surges
Braemar Hotels posted a pivotal quarter, with urban hotels delivering $9 million in incremental EBITDA and group business up sharply, signaling a sustained urban recovery and robust luxury demand. Management’s capital strategy remains cautious, with refinancing extensions and buybacks completed, but acquisition appetite is tempered by debt market uncertainty and aggressive seller expectations. Operational focus on margin efficiency and asset upgrades sets the stage for continued outperformance, despite tough comps and a shifting revenue mix.
Summary
- Urban Recovery Accelerates: Urban hotels delivered strong EBITDA gains and group bookings outpaced prior years.
- Capital Flexibility Prioritized: Management extended key loans and completed a $25 million share buyback, emphasizing balance sheet strength.
- Luxury Asset Outperformance: Recent acquisitions materially exceeded underwriting, driving portfolio yield and future optimism.
Business Overview
Braemar Hotels & Resorts (BHR) is a real estate investment trust (REIT) specializing in luxury hotels and resorts, with a portfolio of 16 properties across high-barrier urban and resort markets. Revenue is generated through room bookings, food and beverage (F&B), and ancillary services, with a strategic focus on high-RevPAR (revenue per available room) assets. The portfolio is split between 10 resort destinations and 6 urban hotels, targeting both leisure and business travelers.
Performance Analysis
Braemar’s Q1 2023 results reflected a multi-pronged recovery, with urban hotels contributing $9.2 million in incremental comparable hotel EBITDA and group room revenue up 57% year-over-year. The portfolio’s comparable RevPAR rose 8% to $369, outpacing the national luxury average by 27%. Resort properties remained resilient, delivering $64 million in hotel EBITDA, while urban assets posted their eighth consecutive quarter of growth, benefiting from accelerating corporate and group demand.
Recent acquisitions, including the Four Seasons Scottsdale and Ritz-Carlton Reserve Dorado Beach, materially exceeded underwriting expectations, with RevPAR growth of 25% and 8.6% yield on cost at Dorado Beach. On the capital side, the company completed a $25 million share buyback and extended key mortgage loans, maintaining balance sheet flexibility amid volatile debt markets. Margins remained stable despite a shift in revenue mix toward lower-margin F&B and some tax-related noise, with departmental expenses down 5% per occupied room.
- Urban Hotel Momentum: All six urban properties posted positive EBITDA, with continued recovery in group and corporate segments.
- Group Business Foundation: Group booking volume for all future dates up 16%, and short-term group pickup surged 41% in the quarter.
- Luxury Asset Yield: Recent luxury acquisitions delivered yields and RevPAR well above underwriting, supporting portfolio returns.
Operationally, Braemar’s focus on efficiency and asset upgrades has delivered record hotel EBITDA at four properties, while capital investments of $70–80 million are planned for further enhancements in 2023.
Executive Commentary
"Our first quarter 2023 comparable hotel EBITDA of $72.8 million was driven by the continued strong performance at our resort properties and... strong growth from our urban hotels."
Richard Stockton, President and Chief Executive Officer
"During the first quarter, we completed this $25 million buyback program and acquired 5.4 million shares at an average price of $4.60 per share."
Derek Eubanks, Chief Financial Officer
Strategic Positioning
1. Urban Recovery and Group Demand
The urban portfolio is now a key growth engine, with strong group and corporate transient demand driving revenue and EBITDA gains. Management cited eight consecutive quarters of urban growth, with group room revenue and rates both up sharply. This signals a durable return of business and group travel, positioning urban assets to offset plateauing resort growth.
2. Luxury Asset Performance and Portfolio Quality
Recent luxury acquisitions have not only exceeded underwriting but also raised the overall quality and yield profile of the portfolio. The Four Seasons Scottsdale and Ritz-Carlton Reserve Dorado Beach delivered standout RevPAR and cash flow, validating Braemar’s strategy of focusing on high-barrier, high-RevPAR markets. These assets provide both operational upside and balance sheet strength.
3. Balance Sheet Flexibility and Capital Allocation
Management prioritized refinancing extensions, maintaining a blended average loan rate of 6.3% with 74% of debt effectively fixed. The completed $25 million buyback reflects conviction in intrinsic value, but further acquisitions are on pause until debt markets stabilize and seller expectations normalize. Capital allocation remains opportunistic, with a willingness to tap preferred equity if compelling opportunities arise.
4. Operational Efficiency and Margin Management
Braemar’s labor model and departmental expense controls have delivered permanent margin improvements of 100–200 basis points post-pandemic. While Q1 margins were flat year-over-year due to revenue mix and tax effects, management expects ongoing efficiency gains and productivity improvements to support future profitability.
5. Asset Enhancement and Development Pipeline
Ongoing renovations and development projects at key assets—including guest room upgrades, new meeting spaces, and residential development parcels—are set to unlock further value. The pipeline includes townhomes at Lake Tahoe, branded residences in Sarasota, and expansion potential at Four Seasons Scottsdale, supporting long-term NAV growth.
Key Considerations
This quarter underscores Braemar’s ability to capitalize on both urban and resort demand, while maintaining capital flexibility and operational discipline. The company’s approach balances near-term uncertainty with long-term value creation across its luxury portfolio.
Key Considerations:
- Urban Demand Strength: Group and business travel recovery in urban markets is driving incremental EBITDA and diversifying revenue streams.
- Luxury Asset Outperformance: Newly acquired properties are exceeding yield and RevPAR targets, supporting future cash flow and returns.
- Capital Market Caution: Management is deferring aggressive acquisitions until debt market conditions and seller pricing expectations normalize.
- Margin Management Focus: Structural labor efficiencies and expense controls are expected to sustain margin gains despite revenue mix shifts.
- Development Optionality: Entitled land and redevelopment projects offer future growth levers as market conditions allow.
Risks
Braemar faces ongoing risks from macroeconomic volatility, high interest rates, and potential demand softening in luxury travel. The company’s exposure to floating-rate debt, while partially hedged, remains sensitive to rate swings and cap costs. Acquisition activity is constrained by uncertain debt markets and unrealistic seller expectations, while tough year-over-year comps and revenue mix shifts may pressure margins in the near term. Regulatory and tax changes, as well as labor market dynamics, add further uncertainty.
Forward Outlook
For Q2 2023, Braemar expects:
- Group pace up 28% year-over-year, supporting continued urban and group-driven growth.
- Resort demand to plateau at elevated levels, while urban assets drive incremental gains.
For full-year 2023, management maintained a cautious but optimistic outlook:
- Continued strong cash flow from luxury resorts and accelerating recovery in urban hotels.
Management highlighted several factors that will shape results:
- Margin efficiency and labor discipline are expected to sustain profitability even as comps toughen.
- Acquisition activity will remain muted until capital markets stabilize and seller expectations reset.
Takeaways
Braemar’s Q1 results confirm a durable shift in urban hotel performance, with group and business travel recovery underpinning portfolio diversification and earnings growth.
- Urban Portfolio Drives Growth: Urban hotels are now a material EBITDA contributor, with group demand and corporate travel accelerating faster than anticipated.
- Capital Flexibility Maintained: Management’s measured approach to refinancing and buybacks preserves optionality in a volatile debt market, while luxury asset outperformance supports future capital deployment.
- Development and Asset Enhancement Provide Upside: Entitled land and ongoing renovations offer NAV growth potential, but timing will depend on market conditions and capital allocation discipline.
Conclusion
Braemar Hotels delivered a strategically important quarter, with urban hotels reemerging as growth engines and luxury assets exceeding expectations. Management’s focus on capital flexibility, operational efficiency, and measured expansion positions the company for continued outperformance, though near-term risks and tough comps warrant close monitoring.
Industry Read-Through
Braemar’s results offer a clear read-through for the luxury lodging and urban hotel sectors. Group and business travel are rebounding faster than many expected, particularly in high-barrier urban markets, while luxury resort demand remains resilient but is plateauing. Operators with diversified portfolios, capital flexibility, and a focus on asset quality are best positioned to outperform in a choppy macro environment. For industry peers, the bar for acquisitions remains high until debt markets stabilize and seller expectations recalibrate. Permanent margin gains from labor model changes post-pandemic appear sustainable, setting a new baseline for profitability across the sector.