Exploring the Investment Opportunity in Braemar Hotels & Resorts’ 8.25% Series D Preferreds
Braemar Hotels & Resorts’ (BHR) 8.25% Series D Preferreds (BHR-PrD) have recently attracted the attention of income-focused investors due to their appealing yield and discount to liquidation value. With a current yield of 10.2%, these preferred shares offer a significant premium over the US 10-year Treasury yield, which was hovering around 2.8% at the time of writing. Additionally, the preferreds were trading at a roughly 18% discount to their liquidation value per share.
Strong Fourth Quarter Performance
The REIT’s fiscal 2024 fourth quarter financial results showed a 1.9% increase in comparable RevPAR (Revenue Per Available Room) compared to the same period in the previous year. This growth was driven by a 3.3% increase in average daily rate (ADR) and a 0.5% increase in occupancy. This positive trend indicates a steady recovery in the hospitality industry, which was significantly impacted by the COVID-19 pandemic.
Macro Uncertainty and US 10-Year Treasury Yield
Despite the attractive yield and solid financial performance, investors should be aware of the core risks and opportunities associated with the BHR-PrDs. Macro uncertainty, particularly the near-term movement of the US 10-year Treasury yield, is a significant factor to consider. As the yield rises, the discount to liquidation value for the preferreds may narrow, potentially reducing their appeal to income-focused investors.
Impact on Individual Investors
For individual investors seeking to add income-generating assets to their portfolios, the BHR-PrDs could be an attractive option due to their high yield and discount to liquidation value. However, it is essential to remember that preferred shares, like all investments, carry risks. The potential impact of rising interest rates, changes in the hotel industry, and the REIT’s overall financial performance are factors that should be carefully considered before investing.
Global Implications
The investment in BHR-PrDs may also have implications for the global economy. Real Estate Investment Trusts (REITs) like Braemar Hotels & Resorts contribute to economic growth by providing financing for real estate projects and generating income for their investors. A strong performance from the BHR-PrDs could signal a positive outlook for the hospitality sector and the broader REIT market, potentially leading to increased investor confidence and further economic growth.
Conclusion
Braemar Hotels & Resorts’ 8.25% Series D Preferreds present an intriguing investment opportunity for income-focused investors. With a high yield and substantial discount to liquidation value, these preferred shares offer a compelling premium compared to the US 10-year Treasury yield. However, macro uncertainty, particularly the near-term movement of the US 10-year Treasury yield, presents both risks and opportunities for investors. By carefully considering the financial performance of the REIT, the potential impact of rising interest rates, and the overall health of the hospitality industry, investors can make informed decisions about whether the BHR-PrDs are a suitable addition to their portfolios. Furthermore, a strong performance from the BHR-PrDs could have positive implications for the global economy, potentially leading to increased investor confidence and further economic growth.
- Braemar Hotels & Resorts’ 8.25% Series D Preferreds offer a high yield and substantial discount to liquidation value
- The financial performance of the REIT, potential impact of rising interest rates, and health of the hospitality industry should be considered before investing
- A strong performance from the BHR-PrDs could have positive implications for the global economy
