Braemar Hotels & Resorts (BHR) Q2 2023: Urban Hotel EBITDA Climbs to $20M as Group Pace Jumps 20%
Urban hotels delivered a ninth straight quarter of EBITDA growth, powering Braemar’s results despite leisure normalization and macro volatility. Strategic asset management and capital allocation prioritized portfolio quality and liability reduction, while group bookings surged, supporting visibility into 2024. Management signals opportunity in luxury segment upgrades and Hilton partnership, but remains cautious on asset sales and buybacks amid tight debt markets and refinancing cycles.
Summary
- Urban Recovery Drives Upside: City hotels outperformed, with group and corporate demand accelerating into 2024.
- Luxury Asset Strategy Intensifies: Focus remains on high-RevPAR, best-in-class resorts and selective brand partnerships.
- Balance Sheet Flexibility Prioritized: Liability management and refinancing take precedence over buybacks or asset sales.
Business Overview
Braemar Hotels & Resorts is a publicly traded real estate investment trust (REIT) focused on owning and operating luxury hotels and resorts. The company’s portfolio spans 16 properties with nearly 4,000 rooms, divided between high-end resort destinations and urban hotels. Braemar generates revenue primarily from hotel operations, including room bookings, food and beverage, and ancillary services, with a business model centered on maximizing asset value through active management and targeted capital investment.
Performance Analysis
Braemar’s Q2 results reflect a portfolio balancing act between stabilizing resort demand and accelerating urban recovery. Comparable hotel EBITDA reached $53.7 million, with urban hotels contributing $20 million, marking their ninth consecutive quarter of growth. The resort portfolio delivered $33 million of hotel EBITDA, still outperforming 2019 levels, but facing modest year-over-year RevPAR declines due to tougher comps and airlift reductions in certain markets.
Group bookings and urban demand were the clear growth engines, as group room revenue rose 9% and forward pace for 2023 and 2024 increased by 20% and 16%, respectively. Recent acquisitions—Four Seasons Scottsdale and Ritz-Carlton Reserve Dorado Beach—continued to exceed underwriting expectations, demonstrating the effectiveness of Braemar’s luxury-focused acquisition strategy. Margin dynamics varied by segment, with urban ADRs at $280 and resorts at $681, reflecting both mix and rate pressure as leisure travel normalizes from post-pandemic highs.
- Urban Segment Momentum: Urban hotels posted a 13% YoY revenue gain, with renovated assets like Marriott Seattle Waterfront and The Notary in Philadelphia outperforming local markets.
- Luxury Resort Outperformance: Select resorts set all-time RevPAR records, notably Ritz-Carlton Reserve Dorado Beach, which delivered a 7.2% RevPAR increase and a 9.2% yield on cost.
- Capital Allocation Discipline: $200 million in new corporate financing and a $142 million debt paydown strengthened liquidity and extended maturities, underscoring a focus on liability management.
Despite a 4.2% portfolio-wide RevPAR decline, Braemar’s operational initiatives and group booking acceleration offset leisure headwinds, positioning the company for continued urban-led growth and luxury asset optimization.
Executive Commentary
"Our urban portfolio is in solid shape and as demonstrated by our second quarter performance, we continue to believe our urban hotels will be the primary driver of growth for our portfolio in the coming quarters."
Richard Stockton, President and Chief Executive Officer
"The corporate financing was something that we've been thinking about for a while...It's the cheapest source of debt capital that's available in the market today...In terms of restrictive covenants, there's nothing in the covenant package that gives us any concern at all and in fact we're very happy to have the line in place."
Derek Eubanks, Chief Financial Officer
Strategic Positioning
1. Urban Hotel Recovery as Growth Engine
Urban hotels are now the portfolio’s key growth lever, with nine consecutive quarters of EBITDA gains and a robust group booking pipeline. Corporate transient and group demand are rapidly returning, and renovated properties are capturing market share through higher conversion rates and premium positioning.
2. Luxury Asset Focus and Brand Partnerships
Braemar is doubling down on luxury, with recent acquisitions outperforming and a clear intent to upgrade portfolio quality. The Cameo Beverly Hills rebranding and Hilton LXR partnership aim to unlock new demand channels, especially on weekdays via Hilton’s corporate network and loyalty program. Management is prioritizing luxury over upper upscale assets, with a bias toward equity ownership to maximize asset management impact.
3. Liability Management Over Buybacks or Asset Sales
Capital allocation is defensive and opportunistic, as management prioritizes debt reduction and refinancing flexibility over share repurchases or asset sales. New credit facilities and loan extensions have reduced near-term risk, while asset sales are on hold due to illiquid transaction markets and wide bid-ask spreads.
4. Operational Excellence and Asset Optimization
Active asset management is central to Braemar’s model, with targeted renovations, revenue optimization, and digital initiatives driving both top-line and ancillary revenue growth. Spa and F&B initiatives at key resorts are delivering double-digit gains, while group sales technology is improving conversion rates and pipeline visibility.
Key Considerations
Braemar’s Q2 was defined by a shift in demand drivers, portfolio optimization, and a prudent approach to capital structure, all underpinned by a focus on luxury and operational agility.
Key Considerations:
- Urban Hotel Upside: Urban assets are expected to lead EBITDA and RevPAR growth as business and group travel rebound.
- Luxury Asset Differentiation: Newly acquired resorts and Hilton LXR partnership signal a commitment to premium positioning and brand leverage.
- Debt Market Navigation: Liability management and refinancing discipline reduce risk but constrain capital return options in the near term.
- Leisure Normalization: Resort RevPAR is stabilizing after outsized pandemic gains, with airlift and comp pressures affecting select markets.
- Group Booking Visibility: Strong group pace and longer booking windows provide insulation against potential leisure softness and macro uncertainty.
Risks
Refinancing risk remains elevated, especially for assets like Mr. C/Cameo Beverly Hills, where performance and loan size may challenge debt market appetite. Leisure travel normalization and airlift reductions could further pressure resort RevPAR, while macro volatility and higher rates limit asset sale options and raise capital costs. Any delay in urban demand recovery or disruption from renovations could temper growth expectations.
Forward Outlook
For Q3 2023, Braemar expects:
- Urban segment to continue leading EBITDA growth, with group pace flat in Q3 and up 23% in Q4 YoY.
- Resort segment to stabilize, with select assets maintaining record performance.
For full-year 2023, management maintained its dividend policy and signaled:
- Quarterly cash dividend of $0.05 per share, or $0.20 annualized.
Management emphasized:
- Group booking pace up 20% for 2023 and 16% for 2024, supporting rate growth and occupancy.
- Continued focus on liability management, refinancing, and portfolio quality upgrades.
Takeaways
Braemar’s Q2 highlights a pivotal shift toward urban-led growth, supported by group demand and operational execution, while luxury asset focus and liability management anchor the strategic agenda.
- Urban Outperformance: Urban hotels are now the primary growth engine, with strong group momentum and renovated assets driving premium results.
- Luxury Strategy Reinforced: Asset upgrades, Hilton partnership, and disciplined acquisitions are positioning the portfolio for superior long-term returns.
- Risk Management in Focus: Prudent debt management and refinancing discipline will remain key as market volatility and leisure normalization persist into 2024.
Conclusion
Braemar’s Q2 demonstrates the power of urban recovery, luxury asset discipline, and active portfolio management, even as leisure demand moderates. Strategic capital allocation and operational agility position the company to capitalize on group and corporate travel tailwinds, with a focus on quality and risk-adjusted growth.
Industry Read-Through
Braemar’s results underscore a broader industry pivot: Urban hotel recovery and group demand are now outpacing leisure, suggesting that the post-pandemic travel mix is normalizing. Luxury asset differentiation and brand partnerships are increasingly critical for rate and occupancy resilience, while refinancing risk and capital market constraints remain sector-wide headwinds. Operators with active asset management and balance sheet flexibility are best positioned to weather macro volatility and capture shifting demand patterns, a lesson for REITs and hotel owners across the spectrum.