Braemar Hotels & Resorts Q3 2025: Contradictions Emerge in CapEx and Portfolio Quality, Group Business Strategy, Sales and Asset Disposition, Government Pullback Impact, and Transaction Market Dynamics

Business Commentary:

• Portfolio Performance and Growth:
• Braemar Hotels & Resorts Inc. achieved 1.4% growth in comparable RevPAR in Q3, with total comparable hotel EBITDA growth of 15.1%.

• The growth was driven by strong performance in the resort segment, particularly the luxury resort portfolio returning to a normalized growth trajectory.

  

• Renovation Impact and Strategic Focus:

• Excluding hotels under renovation during the quarter, RevPAR growth was 3.4%.

• The company is strategically focused on renovations and repositioning to enhance portfolio quality and brand alignment.

• Liquidity Management and Debt Reduction:

• Braemar addressed its final 2025 debt maturity earlier this year, selling properties like the Marriott Seattle Waterfront and the Clancy in San Francisco.

• The company is actively reducing its leverage, which was evident in its net debt to gross assets ratio of 43.2% as of Q3.

• Leveraging Private Capital and Acquisition Appetite:

• The debt capital markets became more favorable, with increased debt and equity capital availability from private funds and equity capitalists.
• This favorable environment has attracted significant interest in hotel acquisitions, with Braemar's unique portfolio being particularly appealing.

Contradiction Point 1

CapEx Strategy and Portfolio Quality

It directly impacts expectations regarding the level of capital expenditure needed for maintaining and improving the portfolio, which affects operational costs and asset values.

What is a good maintenance run rate CapEx number for your portfolio, as a dollar amount or percentage of revenue? - Tyler Batory (Oppenheimer & Co. Inc., Research Division)

2025Q3: We typically target a low single-digit percentage of revenue for maintenance and mechanical CapEx. There is a process to prioritize and address mechanical projects, and no significant deferred CapEx is identified at this time. Our portfolio is in good shape with no major catch-ups needed. - Christopher Nixon(SVP & Head of Asset Management)

Is there a market or industry standard percentage for CapEx? Why is the current range 6% to 8% instead of 8% to 10%? - Deric Eubanks(CFO & Treasurer)

2025Q2: We're trying to hold it in the 6% to 8% range on a revenue basis. So that will give us capacity to continue to invest in our hotels while holding that number towards the low end of that range. - Deric Eubanks(CFO & Treasurer)

Contradiction Point 2

Strategic Focus on Group Business

It highlights a shift in the company's strategic focus on group business growth, which can impact revenue streams and operational strategies.

What maintenance CapEx run rate should be expected for your portfolio, as a dollar amount or percentage of revenue? - Tyler Batory (Oppenheimer & Co. Inc., Research Division)

2025Q3: We are looking to group up broadly across the portfolio. Additional group business insulates us from external headwinds. We focus on groups that generate additional catering and banquet spend. F&B revenue growth outpaced rooms revenue growth, achieving 110 basis points of margin growth through F&B. We're focused on funneling groups to slower demand months and off-season. - Christopher Nixon(SVP & Head of Asset Management)

Are you increasing the focus on grouping up and planning to apply this strategy to more properties? Is there a change in booking leads compared to signed contracts? - Daniel Patrick Hogan (Robert W. Baird & Co. Incorporated)

2025Q2: We are looking to group up broadly across the portfolio. Additional group business insulates us from external headwinds. We focus on groups that generate additional catering and banquet spend. F&B revenue growth outpaced rooms revenue growth, achieving 110 basis points of margin growth through F&B. We're focused on funneling groups to slower demand months and off-season. - Christopher Nixon(SVP & Head of Asset Management)

Contradiction Point 3

Sales Strategy and Asset Disposition

It involves changes in the company's strategic approach to asset sales and strategic initiatives, which can impact financial flexibility and long-term planning.

Have there been discussions about an internalization process? - Tyler Batory (Oppenheimer & Co. Inc., Research Division)

2025Q3: The Board has considered an internalization process but ultimately decided to pursue a company sale instead. - Richard Stockton(President, CEO & Director)

Will the Seattle sale reduce the urgency to sell additional assets? Does this impact upcoming transactions? - Daniel Patrick Hogan (Robert W. Baird & Co. Incorporated)

2025Q2: The sale of Seattle provides flexibility for various initiatives. No further property sales are planned for this year, but 2026 remains a possibility. The transaction environment is improving, and there was strong interest in the Seattle asset. Debt market improvements could lead to further interest in our assets next year. - Richard Stockton(President, CEO & Director)

Contradiction Point 4

Impact of Government Pullback

It highlights differing assessments of the impact of government spending reductions on the company's performance and market outlook.

How did the government pullback impact Q3 results? How might the shutdown affect near-term property performance? - Michael Bellisario (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: The government pullback primarily affected the Cap Hilton in DC, with minimal impact due to low government transient business. Group cancellations and catering impacts were mitigated by strong corporate business in other markets. - Christopher Nixon(SVP & Head of Asset Management)

Are there any notable trends in shortened booking windows, increased cancellations, or attrition on the group side, and any changes beyond booking pace due to macroeconomic volatility? - Jonathan Jenkins (Oppenheimer)

2025Q1: The government pullback in DC continued to impact demand trends, particularly in transient business at Cap. And while the portfolio delivered strong performance across the remainder of the portfolio, this was not enough to offset the impacts of the government pullback. - Richard Stockton(President & CEO)

Contradiction Point 5

Transaction Market Dynamics

It addresses the health and dynamics of the transaction market for hotel assets, which can impact the company's strategic decision-making and financial prospects.

What is the current acquisition environment for hotels, including appetite and capital availability? - Tyler Batory(Oppenheimer & Co. Inc., Research Division)

2025Q3: The acquisition backdrop for hotels is improving with increased interest from private equity funds and private players. Our portfolio is considered attractive, and there is growing interest in hotel assets. - Richard Stockton(CEO)

Will Blackwell's Q4 revenue be additive, and what's the expected gross margin exit rate? - Stacy Rasgon(Bernstein Research)

2024Q4: The Fed's latest move to increase rates 50 basis points was largely expected and with some uncertainty. - Deric Eubanks(CFO)