Braemar Hotels & Resorts President and CEO Richard Stockton hopes the recently completed acquisition of the 138-room Mr. C Beverly Hills Hotel will provide a template for his company's future success.
That doesn't mean many — if any at all — of the company's future acquisition will mirror the unique construction of that deal, which included a combination $30 million in cash, assuming debt and issuing operating partnership units to the outgoing owners for a total combined price of $77.9 million. During an interview with Hotel News Now during the 2021 Americas Lodging Investment Summit, Stockton said he hopes Braemar will continue to be creative in pursuing deals that create value for the luxury hotel- and resort-focused real estate investment trust's shareholders.
Despite being more complicated than a typical hotel acquisition, the structure of the deal was a win because it was paid for mostly with cash on hand "using little or no leverage," Stockton said. That deal closed on Aug. 5.
"One of the things we found out with this crisis is leverage is not your friend," he said, adding his company has lowered its target debt levels and is now favoring something in the range of 35% net debt to gross assets.
Along with sister company Ashford Hospitality Trust, Braemar is externally managed by Ashford Inc., which also own hotel operator Remington Hotels.
Ashford Trust in particular faced challenges throughout the crisis due to its high levels of debt, and Stockton said there is a greater focus on being in line with other hotel REITs' debt levels going forward.
At the same time, Braemar didn't face many of the major challenges its sister REIT faced.
"We came through the crisis fine," he said. "We didn't taken any rescue capital. We didn't sell any assets. We didn't lose any assets to foreclosure."
While not all deals will look just like the Mr. C acquisition, Stockton said there are plenty of potential transactions in the marketplace right now.
"There's a lot of capital and a lot of opportunities, which for me started to appear around June 1," he said.
He said the pipeline includes assets being marketed and potential off-market deals. Some are motivated by owners who are "fatigued by the hotel business."
"They might only own one hotel, and they're willing to sell it because they just want out at this point," he said. "They may have a debt maturity coming that they're not sure they can refinance, or they don't want to reach into their pocket anymore. A lot of these things are starting to shake loose, so we're really encouraged by the deal flow."
Looking forward, Stockton said it's hard not to feel optimistic looking at the overall performance numbers during the summer leisure travel season. The company issued a preliminary performance update recently with July figures that showed metrics already exceeding 2019.
Occupancy across the company's 14-hotel, nearly 3,900-room portfolio reached 69.6% for the month with average daily rate of $387. Revenue per available room came in at $269 in July, which marked a 197% increase compared to the same month in 2020 and was 14% higher than July 19.
In pockets across Braemar's portfolio, the performance jumps are even starker, particularly among its resort properties.
"We have two properties that are doing over $1,000 RevPAR," he said.
And city-center properties haven't been as weak as feared.
"One of our urban properties — the Clancy in San Francisco — is going to do over 80% occupancy for July," he said.
One of the big challenges for luxury hotel owners and operators, though, is the shift in where demand comes from. Stockton said the leisure travelers who are filling hotel rooms today can be more taxing on an asset.
"The type of guest is from a different demographic" than the traditional luxury hotel guest, he said. "It's more from a lower income strata. And it's because they have cash in their pockets from the government. They have stimulus checks. They have unemployment benefits, and they have time. The combination of those things means they want to spend on luxury goods and want to spend on nice hotel vacations."
He said those hotel stays have seen "a bit more wear and tear" on the assets themselves, as guests often travel in family groups and bring more food into guestrooms.
"So we have to talk about when is the next renovation or are their stains on the rug," he said.