Braemar Hotels & Resorts: Unrated REIT Credit Rating Analysis

Braemar Hotels & Resorts Inc. is a real estate investment trust founded in 2013, headquartered in Denver, Colorado. The company provides credit rating services to unrated REITs, with a focus on analyzing the financial health and creditworthiness of these entities. Braemar's ratings help investors make informed decisions about their investments in the real estate market.

Braemar Hotels & Resorts Inc. (NYSE: BHR) is a real estate investment trust (REIT) that has been making waves in the financial sector by providing credit rating services for unrated REITs. Founded in 2013 and headquartered in Denver, Colorado, Braemar focuses on analyzing the financial health and creditworthiness of these entities to help investors make informed decisions.

Company Overview
Braemar Hotels & Resorts Inc. was founded in 2013 and is headquartered in Dallas, Texas. The company changed its name from Ashford Hospitality Prime, Inc. to Braemar Hotels & Resorts on April 24, 2018, as part of a strategic refocus on luxury hotels and resorts. As of the end of the first quarter of 2025, the company's total assets are close to $2 billion, with a current market capitalization of approximately $198 million. BHR operates a portfolio of 15 hotels, with 69% of its properties being resorts and 31% urban.

Financial Performance
At the time of writing, the common stock of BHR is trading at a market price of $2.67, with a 7.49% yield. The company has an asset coverage ratio of 172%, earning about 23.30% gross in rental. Operating expenses, excluding depreciation, represent approximately 86% of total revenue. Interest expenses are 9.21% from the debt. The asset yield, calculated by dividing total revenues by total asset value, is 34.5%. After applying a market-based adjustment using the price/book value ratio of 0.75, the calculated asset yield is 37.6%, and the market-adjusted asset coverage ratio is close to 157%. The forward P/FFO is 6.07, and the forward funds from operations yield is 16.47%.

Preferred Stocks
BHR has two preferred stocks, both of which are trading below par. (NYSE: BHR.PR.B) has a current yield of 10.26% and a market price of $13.09. (NYSE: BHR.PR.D) has a current yield of 10.23% and a market price of $20.16.

Credit Rating
Braemar uses the Moody's methodology to assess the creditworthiness of companies, with some adjustments. The company's total assets of $2 billion fall into a Baa3 equivalent rating. Approximately 30% of its assets are unencumbered by collateral, earning it a Caa2 rating. The level of secured debt stands at the B2 category. Total debt plus preferred stock as a percentage of gross assets gives a rating score equivalent to B2. The net debt to EBITDA ratio is close to 20.5, resulting in a solid Ca3 score. Fixed charge coverage, calculated as EBITDA divided by interest and dividend payments on its preferred stock, also results in a Ca3 score. Based on these scores, BHR gets an overall rating of 17.18, or a solid Caa1. The adjusted score is 17.27, equivalent to a Caa1 rating.

Market Positioning and Asset Quality
Braemar's market positioning is based on the cyclical nature of hotel revenue and the large operational risks associated with it. The company's credit rating for this metric is Ca3. The liquidity and access to capital are also assessed as Ca3, with operating expenses excluding amortization close to 85% and EBITDA not covering interest expenses and preferred stock dividends.

Conclusion
Despite the high yield of the preferred stocks, the overall credit standing of BHR is weak, with an ultimate rating of Caa1. The company is risky, with high leverage and low liquidity, insufficient coverage of interest and dividend payments, and the fact that it is in the hotel sector increases the risk even more. Therefore, investors should exercise caution when considering investments in BHR's financial instruments.

References
[1] https://seekingalpha.com/article/4801180-credit-rating-for-unrated-reits-part-8-braemar-hotels-and-resorts-inc
[2] https://www.zawya.com/en/economy/north-africa/egypt-bonyan-ipo-bringing-a-new-real-estate-investment-model-to-egx-hlf51u65