Luxury Travel Trends Will Transform Upscale Hospitality

Key Takeaways

• Upscale travel demand, property enhancements, and expanded luxury services drive strong revenue growth and help Braemar achieve premium pricing and high occupancy rates.
  
• Streamlined operations, disciplined capital allocation, and reduced leverage improve margins, cash flow, and long-term financial stability.
  
• Heavy reliance on luxury properties, high leverage, climate risks, rising costs, and competition from alternatives threaten earnings stability, operational margins, and long-term market share.

Catalysts

Braemar Hotels & Resorts is a real estate investment trust (REIT) focused on investing in luxury hotels and resorts.

• Robust demand for luxury travel experiences and a rising appetite among affluent consumers for upscale accommodations continue to drive strong booking pace and group revenue growth, supporting higher occupancy rates and future increases in RevPAR, which should underpin topline revenue and EBITDA expansion.
  
• Sustained capital investments into property renovations and enhancements-such as new experiential amenities and luxury repositionings-are projected to further bolster Braemar's ability to command premium pricing and improve asset-level performance, with a positive impact on revenue growth and net margins.
  
• The company's disciplined capital allocation, including the redeployment of proceeds from non-core asset sales and consistent reduction of leverage, increases financial flexibility and supports steady AFFO and improved cash flow per share, both of which enhance long-term earnings stability.
  
• Technology upgrades, digital distribution optimization, and improved asset management practices are streamlining operations and reducing expense ratios across the portfolio, offering potential for ongoing margin expansion and stronger bottom-line earnings.
  
• Diversification of revenue through growing high-margin ancillary services (such as food, beverage, and residential programs), especially in destination resorts, leverages the industry's broader trend toward experiential luxury-contributing to both revenue and EBITDA growth in coming periods.

Braemar Hotels & Resorts Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Braemar Hotels & Resorts's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts are not forecasting that Braemar Hotels & Resorts will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Braemar Hotels & Resorts's profit margin will increase from -7.2% to the average US Hotel and Resort REITs industry of 4.2% in 3 years.
• If Braemar Hotels & Resorts's profit margin were to converge on the industry average, you could expect earnings to reach $30.2 million (and earnings per share of $0.38) by about August 2028, up from $-51.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, up from -2.8x today. This future PE is lower than the current PE for the US Hotel and Resort REITs industry at 28.5x.
• Analysts expect the number of shares outstanding to grow by 2.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Braemar Hotels & Resorts Future Earnings Per Share Growth

Risks

• The company's reliance on luxury and resort properties in premium destinations heightens exposure to economic downturns and potential shifts in luxury travel preferences; any softness in high-end leisure or group demand could suppress revenue and EBITDA, leading to increased earnings volatility.
  
• Heavy concentration in physical assets exposes Braemar to heightened climate-related risks (e.g., extreme weather, wildfires, hurricanes), which could significantly increase insurance costs and capex needs, as well as cause operational disruptions-potentially reducing net margins and property-level revenues.
  
• The company operates with a high percentage (78%) of floating rate debt and a net debt to gross assets ratio of 44.2%, implying material interest rate and refinancing risk; interest expense volatility or tightening credit markets could materially impact net income and cash flow available for dividends.
  
• Persistent inflationary pressures and rising labor costs (amid hospitality sector labor shortages) may outpace the company's ability to drive sufficient margin improvements or price increases, resulting in compressed hotel EBITDA margins and diminished earnings growth.
  
• Competition from alternative accommodations (e.g., Airbnb, Vrbo) and the need for ongoing investments in hotel automation, guest experience, and digital platforms place increasing pressure on capital expenditures and the company's ability to maintain or grow market share, risking long-term revenue performance and ROIC.

Valuation

• The analysts have a consensus price target of $2.0 for Braemar Hotels & Resorts based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $715.7 million, earnings will come to $30.2 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 12.3%.
• Given the current share price of $2.11, the analyst price target of $2.0 is 5.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.