Braemar Hotels & Resorts: A Strategic Shift to Maximize Shareholder Value
After thorough deliberation on strategic options, the Board of Braemar Hotels & Resorts has concluded that pursuing a sale is in the firm’s and its shareholders’ best interests. This decision comes as the company, along with its financial advisor Robert W. Baird & Co. Inc., initiates a sale process aimed at attracting potential buyers and sharing relevant information.
A Portfolio of Luxury Excellence
Braemar prides itself on a portfolio predominantly composed of luxury hotels, consistently achieving impressive Revenue Per Available Room (RevPAR) figures. As of June 30, 2025, their portfolio outperformed other publicly traded lodging Real Estate Investment Trusts (REITs) with a year-to-date RevPAR growth of 2.9%. This performance starkly contrasts with the broader U.S. hotel industry, which saw a mere 0.8% increase during the same period, indicating Braemar’s strong market positioning.
The company’s collection includes nine resorts and five urban properties operated under esteemed brands, including Ritz-Carlton Reserve, Four Seasons, and Hilton. The prime locations and limited competitive supply of these luxury properties have historically driven RevPAR growth, making them attractive assets for potential buyers.
The Importance of Strategic Consideration
Over the years, the high-quality nature of Braemar’s portfolio has captured the attention of several activist investors. However, the board believes that a luxury RevPAR lodging REIT like Braemar faces challenges in today’s market climate, particularly given the historically low EBITDA multiples that such REITs are achieving. This environment mirrors past situations encountered by Strategic Hotel & Resorts, which ultimately explored strategic alternatives and was sold after several years of undervaluation.
Insights from Leadership
Richard Stockton, CEO of Braemar, expressed optimism about the potential sale, noting improved economic conditions and robust industry performance. He emphasized that the combination of limited new room supply and strong consumer spending creates a favorable environment for attracting significant buyer interest.
Additionally, the Board has entered into a Letter Agreement with Ashford Inc., regarding a substantial advisory fee in connection with any change of control. This fee, set at $480 million, represents a significant discount based on previous calculations, illustrating the negotiations aimed at facilitating the sale process.
Detailed Financial Considerations
The calculation of the Company Sale Fee is intricately tied to Braemar’s net earnings from the Advisory Agreement. In its first quarter Form 10-Q for 2021, the company reported net earnings of $13.4 million. However, by March 31, 2025, this figure had risen to $38.7 million, highlighting the growth of the portfolio. The negotiated fee reflects a calculated net earnings figure lower than what might be expected based on the actual growth, demonstrating the complexities involved in this financial arrangement.
Ashford has received an advance of $17 million from the agreed fee, which will either be credited against the sale fee if a transaction occurs before July 1, 2028, or applied to any amounts due if no sale transpires. Moreover, buyers will be required to assume existing management agreements, with provisions allowing for cancellation upon an additional payment to Ashford.
Navigating Alternatives and Shareholder Interests
Rebeca "Becky" Odino-Johnson, Chairperson of the Special Committee, shed light on the various alternatives explored, including the potential internalization of management. However, the sustained gap between share price and the intrinsic value of Braemar’s portfolio led the Board to conclude that pursuing a sale could provide shareholders with a premium over the existing share price.
Monty J. Bennett, Chairman of the Board, reflected on the journey Braemar began in 2013, emphasizing the growth in property value even amidst an unwelcoming public market for lodging REITs. The Board is optimistic that the iconic nature of Braemar’s portfolio will attract robust interest from buyers worldwide.
Valuation and Assets Beyond Hotels
Beyond its hotel offerings, Braemar possesses excess land valued at approximately $36.9 million across several properties, adding another layer to its attractiveness as an acquisition target. Recent sales, such as the Marriott Seattle Waterfront, which generated $50.8 million in net proceeds, highlight the company’s potential for value creation amid ongoing strategic considerations.
Current Market Standing and Future Prospects
With total indebtedness around $1.172 billion and a liquidation value of outstanding preferred stock estimated at $473 million, Braemar has a complex financial profile. The ongoing interest from potential buyers underscores the company’s robust market positioning and the high value associated with its luxury portfolio.
Recently, Braemar entered a non-binding Letter of Intent for the sale of the Clancy hotel in San Francisco for $115 million, reflecting a healthy capitalization rate of 4.5%. The transaction, expected to close in the fourth quarter, is contingent upon standard closing conditions, with no guarantees that it will proceed as planned.
As Braemar embarks on this transition, engaging Baird as its financial advisor alongside White & Case LLP for legal guidance, the market eagerly anticipates the outcomes of this significant strategic shift. The company’s commitment to identifying the best course of action reflects a dedication to maximizing value for its shareholders amidst dynamic industry conditions.