Throwing together a quick note on Braemar Hotels & Resorts (BHR) (~$180MM market cap) before I start a busy Friday, forgive me if there are any glaring mistakes, I'll come back and fix them over the weekend. Today, BHR announced the conclusion of their strategic review, originally it was a sale process, but now the luxury hotel REIT is going to internalize management and distance itself from its external manager, Ashford Inc. My first take is this move is designed to get Ashford Inc its $480MM termination fee without being subject to a shareholder vote (10% holder Al Shams Investments Ltd has been vocal in trying to block this payment to Monty Bennett) that would come with a full sale of the company. BHR recently announced the sale of 3 hotels for a total of $437.5MM (12.5x hotel EBITDA by my math) that along with cash on the balance sheet, should be sufficient to payoff Monty. Ashford directors are resigning, the board will be refreshed, and the new REIT will be free to pursue life without external management conflicts.
Post-internalization, this will be a pretty small subscale REIT that should attract takeover attention. Hotel REITs have been performing exceptionally this year, the top of the K-shaped economy is doing well, especially with all the Mag7 stock comp and AI IPO money hitting the upper class brokerage accounts. Below is my back of envelope of what BHR might fetch in a sale (so its not including corporate overhead as a standalone to be clear):
I own too much of this to begin with, but depending on where it trades today, could be provide an interesting entry point for those on the sideline now that Ashford will be out of the picture. Some of these properties are exceptional assets that any number of other REITs or private investors would gladly scoop up.
Disclosure: I own shares of BHR
https://mmx.prnewswire.com/media/MS1865353/Al_Shams_Letter_to_the_Board_re_Asset_Sale_vFINAL_-Letterhead.pdf?id=OA2715799&p=original
ReplyDeleteAl Shams response
Thanks! I bought some on Friday after reading this.
ReplyDeleteIs this Al Shams thing good or bad?
They might recover some money for shareholders but I would think litigation could delay a sale of the remainco.
Sort of both, I like that someone is trying to look out for shareholders, but I also wish Ashford could have sold the entire thing in one transaction, I think Al Shams prevented that by scaring off potential buyers who didn't want to get involved in a close merger vote. Hopefully they're able to get a board seat or two, but yes, I'd rather this get to a regular way REIT as soon as possible so it can re-rate or be sold.
DeleteWhat do you think about the risk of owning this before a new management team is selected? Could morph hands into another grifter. I still own it and the upside here is pretty large. Also any thoughts on the balance sheet, Common seems like such a small slice compared to debt / preferreds but I haven't studied it extensively.
ReplyDeleteAlso have you taken a look at ACR since they internalized the management. It's dropped quite a bit and trades at a large discount to book it seems. I know they issued the new shares at NAV but I'm assuming they marked up the purchased assets to compensate. Any thoughts?
BHR will be internally managed which I think is the big change here, if its truly an independent board with internal management, I can't imagine it'll stay public for too long. The balance sheet is pretty levered, but let's see where it ends up once the next couple assets are sold.
DeleteI did take a quick look at ACR, I like it, don't own it yet, but I think its interesting. Current management has done a nice job with it since taking it over, issuing shares at NAV is shareholder friendly (many external REITs will pay themselves in shares at market prices), get some asset management fees, etc.