Braemar Hotels & Resorts is initiating a process for the sale of its company, the Dallas-based real estate investment trust announced Wednesday.
Though the REIT’s predominately luxury properties have logged above-average RevPAR growth in recent years, the company no longer believes “that a luxury RevPAR lodging REIT like Braemar can flourish in today's market environment,” and that it is in the best interests of the company and its shareholders to pursue a sale, according to a news release.
Meanwhile the company, which is under an advisory agreement with Ashford Inc., is asking for a $480 million termination fee to end Ashford’s advisory role.
Despite its high-quality hotel portfolio, “Braemar has been among the weakest-performing hotel REITs in recent years,” Alex Pettee, president and director of research and ETFs at investment advisory firm Hoya Capital, told Hotel Dive.
Hotel Dive spoke to experts about why Braemar is pursuing a sale — and why it’s doing so now.
A luxury-focused REIT
Braemar’s portfolio comprises nine resorts and five urban hotels, operated under Ritz-Carlton Reserve, Four Seasons, Ritz-Carlton, Park Hyatt, Autograph Collection by Marriott, Hilton and Sofitel brands.
As of the end of the second quarter, the portfolio achieved year-to-date RevPAR growth of 2.9% — significantly higher than the U.S. hotel industry’s overall rate of 0.8% for the same period, according to the REIT.
“Braemar has got a phenomenal portfolio — some very desirable, recognizable assets,” said David Auberbach, chief investment officer at Connecticut-based Hoya Capital. “Part of the reason as to why it's never performed the way that it should is because it's tied to the externally advised Ashford platform.”
Formerly called Ashford Prime, the REIT was spun out from Ashford in 2013 to focus on higher-RevPAR, luxury assets, while Ashford remains the external manager of Braemar and Ashford Hospitality Trust. But governance issues with Ashford “have kept a lid on valuations,” Pettee shared.
“Importantly, the announcement [Wednesday] noted that Ashford agreed to accept a fixed fee — $480 million — in a change of control,” Pettee said. “While still a massive number, it does remove uncertainty and could clear the way for a sale.”
With the $480 million termination fee, “Ashford secures its payday, but the move also finally removes a governance overhang that had deterred buyers,” Pettee added.
Though Ashford would get “a nine-figure payday in a sale, which critics might view as extractive,” Pettee noted, “the fact that they agreed to a fixed number suggests they are negotiable.”
Next steps for Braemar
One issue the sale seeks to address is “a sustained disconnect between our share price and our iconic portfolio's intrinsic real estate value,” Rebeca Odino-Johnson, chairperson of a special committee formed by Braemar’s board of directors to explore strategic alternatives to maximizing shareholder value, said in a statement.
According to a note published Wednesday by Baird Equity Research, Braemar’s shares have historically “traded at a significant [net asset value] discount primarily due to the external advisory agreement with Ashford Inc., which has negatively impacted the company's cost of capital.”
This has led to numerous activists over the years, per Baird.
In the note, Baird projected outcomes of either “an outright portfolio sale or several smaller portfolio sales (including single-asset dispositions).” Baird is serving as Braemar’s financial advisor in conjunction with its review of strategic alternatives.
In its Wednesday announcement, Braemar also noted that it had recently agreed to sell its 410-room Clancy hotel in San Francisco for $115 million.
“We believe buyer interest is relatively strong for high-RevPAR luxury hotels/resorts,” per Baird.
Earlier this month, a JLL report noted that while lingering capital market uncertainty and changing travel demand impacted hotel investment in the first half of the year, the luxury hotel segment and urban markets continued to offer opportunities for investors.
Braemar could not immediately be reached for comment.
