Technically a buy since May 18 (now Neutral ), this follows previous downgrades in November 2018, where B. Riley FBR dropped the rating from buy to hold , and reaffirmed that the BHPR JV shares had “pervasive legal risks.”
B. Riley FBR downgraded Braemar Hotels & Resorts, Inc. to Neutral from Buy , citing the impact of negative hotel fundamentals and ongoing legal issues in some of its JV properties.
The analyst commentary suggests that Braemar is, at this stage, missing out on healthier competition, and sales are suffering because of the company’s short-term focus on capturing revenue.
Hotel businesses are generally geared towards quickly turning on-demand rooms into cash over and above an airline-like fee per room night. The latter should allow hotels to immediately convert property revenue and turnover to cash rather than focusing on margins.
The market for hotel companies is extremely well-heeled, and hotels continue to sell over and above room rates, rising room rates should ultimately boost margins and profits.
Bhadran Gopal, analyst with B. Riley FBR, said that the well-heeled hotel market “bases itself on the high price they can command in the marketplace. It is very important to note that BHPR is a small cap company and pricing power is dependent on more than the differences between the price of rooms. Over-supply will reduce pricing power and drive margins lower.
“BHPR has too few hotels open for the pool of guests to be competitive,” Gopal continued. “Similar to the retail, hospitality and grocery industries, most of the upside is made up of supply and demand.”
Bhadran said that competition from smaller boutique-style hotels remains firm as they look to compete with BHPR on price and offer low rental rates for short-term rentals.
Shares of Braemar Hotels, which recently put up a $400 million share buyback program, has risen 6% in early trading.