Braemar Hotels & Resorts: HST Four Seasons Sale, Updated Thoughts

This week, Host Hotels & Resorts (HST) (the grand daddy of lodging REITs) announced the sale of two luxury properties, the Four Seasons Resort Orlando and the Four Seasons Jackson Hole for a total of $1.1B ($1.9MM/key):

The multiples provide a pretty good comp for Braemar Hotels & Resorts (BHR):

HST management was almost glowing at the current depth of buyers in the luxury market:

Michael Joseph Bellisario Robert W. Baird & Co. Incorporated, Research Division – Director and Senior Research Analyst

Jim, on the Four Seasons sales, certainly great execution there and you're proving out value. So of two parts here. One, how deep is that buyer pool today? And then two, can you, and next maybe, would you sell more of your top assets? Or what's the outlook and thinking around more high-value dispositions going forward?

 James F. Risoleo Host Hotels & Resorts, Inc. – President, CEO & Director

So are there other opportunities to maximize value within the portfolio? I think there is, we'll be opportunistic. The buyer pool for these types of assets is, I think, a lot deeper than people realize. There are a lot of sovereigns out there who are very interested in luxury hotels. There are high net worth individuals who are interested in luxury properties as well. And there are a couple of big private equity firms that have a lot of capital that have been sitting on the sidelines waiting to -- waiting for the inflection point to jump back into the market. And we're hopeful that this is the inflection point that we can prove out that there is value here, value to be created, and we're certainly hopeful that we're going to get the read through and see some multiple expansion as a result of not only this decision, but all the capital allocation decisions that we've made over the last 9 years.

Updating my math from September, and removing the Cameo Beverly Hills as it has undergone an extensive renovation/re-branding which has caused it to be NOI/EBITDA negative over the last twelve months: 

Not all of BHR's properties are luxury, about 25% of the portfolio is urban, so a full 15x hotel level EBITDA takeout is unlikely, but given how levered the capital structure with the termination fee is to the equity stub, there's a lot of potential upside here if BHR can get a similar transaction execution.  HST also called out the two sold hotels will need significant capex in the next few years, potentially suppressing the transaction multiple.  An advantage of the external management structure at BHR is Ashford gets paid as the project manager for any construction projects and the last twelve months of construction management fees are capitalized in the termination payment.  Ashford is incentivized to do renovation projects and following the completion of 3 hotel refurbishments in 2025, the portfolio should be pretty clean for a new owner, maybe getting us closer to 15x?

Another note of interest, BHR changed how they're handling preferred dividends to prepare for a sale, seems like they should be pretty close to wrapping this thing up.  I exercised my $2.50 call options that expired in January and have added to my position since.  I'm also up for any comments or thoughts on AHT, which recently announced a similar strategic alternatives process (is that different than BHR's "sale process"?) although they haven't announced a termination payment agreement with Ashford as BHR did.

Disclosure: I own shares of BHR and April $2.50 call options