Executive Summary / Key Takeaways

• Braemar Hotels & Resorts ($BHR) is strategically refining its luxury hotel and resort portfolio, demonstrating a clear focus on high-RevPAR assets and operational excellence to drive shareholder value.
• The company has achieved four consecutive quarters of comparable RevPAR growth, signaling an important inflection point in performance, particularly within its resilient luxury resort segment.
• Aggressive asset management initiatives, including property-level enhancements and operational efficiencies, are yielding tangible financial benefits, such as increased ancillary revenue and improved EBITDA margins.
• A strong balance sheet position, bolstered by recent debt refinancings and strategic asset sales like the Marriott Seattle Waterfront and the planned sale of The Clancy, provides significant liquidity and flexibility for future initiatives.
• The ongoing process for a potential sale of the entire company, coupled with active preferred stock redemptions, underscores a commitment to maximizing investor returns amidst an improving hotel transaction market.

A Refined Vision in Luxury Hospitality

Braemar Hotels & Resorts Inc. ($BHR), established in April 2013, has consistently pursued a focused strategy: investing in high-RevPAR luxury hotels and resorts, defined as properties achieving at least twice the U.S. national average RevPAR. Operating as a Real Estate Investment Trust (REIT) through its operating partnership, Braemar Hospitality Limited Partnership, the company leverages an external advisory model, with Ashford Hospitality Advisors LLC providing advisory and asset management services. This model, coupled with third-party hotel management, allows Braemar to concentrate on strategic portfolio curation and value enhancement. As of September 30, 2025, Braemar's portfolio comprised 14 hotel properties, totaling 3,438 rooms across prime U.S. urban markets and resort destinations.

The company's historical journey is marked by active portfolio management, including strategic acquisitions, dispositions, and significant capital investments. Recent divestitures, such as the sale of the Marriott Seattle Waterfront for $145 million in August 2025 and the agreement to sell The Clancy in San Francisco for $115 million in November 2025, underscore a deliberate strategy to deleverage the balance sheet and sharpen the focus on core luxury assets. This strategic refinement is occurring within an industry landscape characterized by historically low supply growth, particularly in the high-barrier-to-entry resort segment, creating a favorable environment for RevPAR expansion.

Operational Innovation: Driving Value Beyond Traditional Technology

While Braemar does not highlight proprietary, patented core technologies in the traditional sense, its competitive edge is forged through sophisticated operational innovations and asset-level enhancements that directly translate into quantifiable financial benefits and an elevated guest experience. These initiatives are integral to its business model, acting as key differentiators in the luxury hospitality market.

For instance, at The Ritz-Carlton Lake Tahoe, strategic capital investments transformed approximately 3,000 square feet of previously underutilized back-of-house space into revenue-generating public areas. These enhancements, alongside the addition of cabanas, fire pits, and swing suites, collectively generated approximately $300,000 in Net Operating Income (NOI) through the second quarter of 2025, significantly outperforming initial underwriting expectations. Similarly, The Notary Hotel in Philadelphia implemented a $25 destination fee, which generated $254,000 in high-margin incremental revenue year-to-date through March 2025.

Further demonstrating this operational ingenuity, The Ritz-Carlton Reserve Dorado Beach refined its amenity fee structure, increasing the resort fee from $125 to $150. Operational efficiencies at this property, including the consolidation of PBX and room service operations and a strategic shift away from contract labor in housekeeping, resulted in over $200,000 in payroll savings. Bringing valet parking operations in-house in 2024 also contributed a $76,000 increase in parking revenue for the full year. The team also optimized the residential rental program, integrating it with the Marriott Homes and Villas (MAR) platform to expand revenue streams, leading to an 11.8% increase in residents revenue in Q3 2025.

These initiatives, ranging from strategic space conversions and amenity monetization to sophisticated labor management and platform integration, are Braemar's form of "technological differentiation." They directly contribute to the company's competitive moat by enhancing guest satisfaction, increasing ancillary spending, and improving operational margins, thereby bolstering financial performance and market positioning in a highly competitive luxury segment.

Financial Performance: An Inflection Point for Growth

Braemar's recent financial performance signals a positive trajectory, overcoming a prior period of RevPAR declines. The third quarter of 2025 marked the fourth consecutive quarter of comparable RevPAR growth, which management views as an important inflection point. The portfolio achieved 1.4% comparable RevPAR growth and a robust 15.1% total comparable hotel EBITDA growth in Q3 2025. Excluding hotels undergoing renovation, RevPAR growth was an even stronger 3.4%.

For the nine months ended September 30, 2025, total hotel revenue stood at $538.45 million, with hotel operating expenses at $372.37 million, resulting in a Gross Operating Profit (GOP) of $166.08 million. Hotel Adjusted EBITDA for the nine-month period was $144.10 million. While net income attributable to the company saw a decrease of $5.7 million for the nine months ended September 30, 2025, compared to the prior year, this was largely influenced by asset dispositions and associated gains in the comparative periods.

The luxury resort portfolio has been a standout performer, delivering 5.5% comparable RevPAR growth and a significant 58% increase in comparable hotel EBITDA in Q3 2025. Specific properties like the Four Seasons Resort Scottsdale reported approximately 25% comparable RevPAR growth, and The Ritz-Carlton Lake Tahoe saw total revenue increase roughly 32% year-over-year following recent renovations. The Ritz-Carlton Reserve Dorado Beach continued its impressive run with approximately 20% comparable RevPAR growth. This strong performance is underpinned by the luxury consumer's less price-sensitive behavior and increased ancillary spending on property.

Urban hotels, while experiencing some near-term softness with a 3.9% comparable RevPAR decrease in Q3 2025 due to renovations and citywide occupancy declines, demonstrated resilience earlier in the year. In Q1 2025, urban properties delivered 11.3% comparable RevPAR growth, with the Capital Hilton benefiting significantly from the presidential inauguration. Overall, the portfolio's GOP margin expanded by 160 basis points in Q3 2025 compared to the prior year, reflecting effective cost controls and operational efficiencies.

Liquidity and Capital Management

Braemar maintains a solid liquidity position, which has been strategically enhanced through recent capital market activities and asset dispositions. As of September 30, 2025, the company held $116.3 million in cash and cash equivalents, along with $47.7 million in restricted cash, primarily comprising lender and manager-held reserves. An additional $23.1 million was due from third-party hotel managers, available to fund hotel operating costs.

The company's debt profile has been actively managed. In March 2025, Braemar refinanced two mortgage loans into a new $363 million loan, addressing its final 2025 debt maturity and extending its weighted average maturity. This new loan, secured by five hotels, bears interest at SOFR + 2.52%, replacing higher-cost debt. The refinancing of the Four Seasons Scottsdale mortgage loan in August 2025 further improved terms, increasing the principal to $180 million and reducing the interest rate to SOFR + 3%. As of Q3 2025, the total combined loans had a blended average interest rate of 6.9%, with approximately 13% effectively fixed and 87% effectively floating. Braemar's net debt to gross assets stood at 43.2% as of September 30, 2025.

Strategic asset sales have been a key component of liquidity and deleveraging efforts. The sale of the Marriott Seattle Waterfront for $145 million in August 2025 and the planned sale of The Clancy for $115 million in November 2025 are expected to provide significant cash proceeds. These proceeds are earmarked for various shareholder value creation initiatives, including preferred equity redemptions, potential common share buybacks (for which authorization exists), and the retirement of a corporate convertible note maturing in the coming year. The company has already redeemed approximately $125 million of its non-traded preferred stock by Q3 2025, representing about 27% of the original capital raised.

Competitive Landscape and Strategic Positioning

Braemar operates in a competitive luxury hotel REIT sector, contending with larger, more diversified players such as Host Hotels & Resorts (HST), Pebblebrook Hotel Trust (PEB), Sunstone Hotel Investors (SHO), and Xenia Hotels & Resorts (XHR). While these competitors often boast greater scale and broader geographic diversification, Braemar distinguishes itself through a specialized focus on high-RevPAR luxury resorts and a commitment to asset-level operational innovation.

Compared to Host Hotels & Resorts, Braemar's portfolio, while smaller, emphasizes a niche in high-end experiential properties. While HST typically exhibits stronger financial health and operational efficiency due to its extensive network, Braemar's unique value proposition lies in its targeted approach to luxury resorts, which can command premium pricing and foster strong customer loyalty in leisure markets. Braemar's operational innovations, such as optimizing residential rental programs and enhancing on-property amenities, directly contribute to this differentiation.

Against Pebblebrook Hotel Trust, which specializes in urban and resort lifestyle hotels, Braemar shares a similar emphasis on lifestyle properties but aims for a more exclusive luxury positioning. While PEB is known for its agility in asset repositioning, Braemar's strategic capital expenditures and brand alignments (e.g., converting Cameo Beverly Hills to Hilton's (HLT) LXR luxury portfolio) are designed to elevate its properties and capture higher-end clientele.

Sunstone Hotel Investors, with its balanced mix of urban and resort assets, presents a strong competitor. Braemar's specialized resort expertise, however, allows it to potentially lead in customer loyalty for high-end leisure experiences, even if SHO's broader reach and financial metrics might appear more robust. Similarly, against Xenia Hotels & Resorts, both companies target luxury segments, but Braemar's resort-specific strategies, including tailored luxury experiences, aim to enhance differentiation and drive superior guest satisfaction.

The broader industry trend of historically low supply growth, particularly in the resort segment, provides a significant tailwind for Braemar. Richard Stockton, President and CEO, highlighted that the construction pipeline for new hotels is projected at approximately 0.8% net new rooms annually over the next three years, compared to a historical mean of 2%. This supply constraint, coupled with high barriers to entry for luxury resorts, creates an "incredible setup to drive RevPAR growth". Braemar's ability to consistently capture group demand within a competitive environment, as evidenced by its targeted sales strategies, further underscores its strong competitive positioning.

Outlook and Guidance

Braemar's outlook is optimistic, driven by improving industry fundamentals, sustained growth in its urban hotels, and an anticipated rebound in its resort segment. Management believes the resort segment is returning to steady growth, aided by supply constraints in the capital markets environment. The company's booking pace remains strong, with group pace for full year 2025 up 9.1% and 2026 showing continued growth at 3.6%.

Capital expenditures for 2025 are anticipated to be between $75 million and $85 million, focusing on high-impact renovations and value-enhancing projects. These include guestroom renovations at Hotel Yountville and Park Hyatt Beaver Creek, the conversion of Cameo Beverly Hills to Hilton's LXR luxury portfolio, and various enhancements at The Ritz-Carlton Reserve Dorado Beach and The Ritz-Carlton St. Thomas. These investments are expected to drive future performance, enhance guest experiences, and generate new revenue streams.

Management believes that cash flow from operations, existing cash balances, and investment in securities will be adequate to meet anticipated requirements for interest and principal payments, working capital, capital expenditures, and dividends for the next 12 months. The company expects to pay a quarterly cash dividend of $0.05 per share for common stock in 2025, equating to an annualized rate of $0.20 per share.

Risks and Challenges

Despite the positive outlook, Braemar faces several inherent risks. The company's properties are subject to seasonality, which can cause fluctuations in quarterly revenues. Economic downturns, extreme weather conditions, or other external events can adversely affect travel demand and, consequently, occupancy rates, ADR, and RevPAR. Recent examples include temporary disruptions from California wildfires and near-term softness in urban markets due to citywide occupancy declines.

A prolonged U.S. government shutdown could also negatively impact business, financial condition, and results of operations by reducing discretionary income for federal employees and disrupting travel infrastructure. Furthermore, the company's reliance on external advisory services means it is subject to minimum base advisory fees, which could impact liquidity if market capitalization and performance decline.

The company's debt agreements contain cash trap provisions that may be triggered by declining hotel performance, potentially diverting profits to lenders and affecting liquidity and dividend distributions. As of September 30, 2025, The Ritz-Carlton Lake Tahoe mortgage loan was in a cash trap, though with $0 cash currently held. While the hotel debt capital markets are improving, the ability to access capital on favorable terms for long-term liquidity needs remains subject to overall market conditions and the company's leverage.

Conclusion

Braemar Hotels & Resorts is at a pivotal juncture, having successfully navigated a challenging period to achieve consistent RevPAR growth and operational improvements. The company's core investment thesis rests on its high-quality luxury hotel and resort portfolio, strategically enhanced through targeted capital expenditures and innovative asset management. These operational innovations, while not traditional technology, are effectively driving competitive advantage through elevated guest experiences, increased ancillary revenues, and improved margins.

With a strengthened balance sheet, a clear focus on luxury assets through strategic dispositions, and an optimistic outlook for the hospitality sector driven by favorable supply-demand dynamics, Braemar is well-positioned for continued upside. The ongoing process for a potential company sale, coupled with active preferred stock redemptions, underscores a commitment to unlocking shareholder value. While macroeconomic headwinds and operational risks persist, Braemar's strategic refinement and asset-level leadership in the luxury segment present a compelling narrative for discerning investors seeking exposure to a resilient and growing hospitality market.