Braemar Hotels and Resorts Prices High Yield Preferred

REIT Braemer Hotels and Resorts (NYSE:BHR) has priced a new preferred stock offering with a coupon of 8.25%.  The company will be selling 1.6 million shares with an overallotment available of 240,000 shares.

BHR is the old Ashford Hospitality Prime and is a small lodging REIT focusing on luxury properties.  The company owns just 12 properties.

The new issue has the normal terms with quarterly dividend payments, cumulative dividends and an early optional redemption period starting 11/20/2023.

The issue is fairly junky, in our opinion, but is unrated and thus assumed to be junk.

The pricing term sheet can be found here.

Shares will trade on the OTC Grey Market starting tomorrow (Wednesday) under the temporary ticker of BHRPP.

23 thoughts on “Braemar Hotels and Resorts Prices High Yield Preferred”

  1. The prospectus for the Braemar Hotels preferred says “The first dividend on the Series D Preferred Stock sold in this offering will be paid on January 15, 2019 and will be in the amount of $0.234896 per share.” That’s only 41 days worth, but the period 11/20/18 to 1/15/19 is 55 days. Can anyone explain why they don’t have to pay for the full time period? Wall St. just has so many ways to cheat investors.

    1. Andrew, its not as bad as it seems…See you are buying “premarket” on OTC. Its not “officially” trading until it gets assigned its real ticker symbol and trades on the exchange. So this isnt official accruing of dividend time…Standard practice… Im actually following the convertable instead and if it drops more, I may buy a few hundred tops of it…maybe…But Im thinking anyways.

      1. BHR just agreed to purchase a hotel today from Kennedy Wilson. A little over $600k per room. Ouch!

        If anyone really wants to get into the hotel sector, SHO-E is down a little below $25 as of today. Only yields about 7%, but SHO probably has the lowest leverage in the hotel industry.

        1. Ive heard they are known for premium price purchases, Lou….That is what largely keeps me on the sideline (well besides its small and a hospitality reit, too, lol) and that comment of yours isnt helping me leave the sideline either.

          1. Grid,

            Sorry- the purchase was actually announced in the past two weeks and not today. I’m guessing they are using the new preferred to help pay for this $120 million purchase. If I really had to enter the hospitality sector, it would be with SHO preferreds. I’m sure BHR has nice properties, but their leverage is also high.

            1. Lou, as long as you are incorrect about anything that scares me away, the better it is…I have no business in hospitality reits because I dont like them. But I like to think about it. Glad I only act on about 10% of what I think about.

      2. I have bought many issues in the OTC before the official listing. A few days is normal, but the issuer taking your money and not paying any interest for 2 full weeks is quite unusual.

        1. Andrew the issuer isnt selling you the shares, the underwriter is. They bought them already. They are taking the risk (outside of give backs if things go wrong) and decide when they are going to market They submit a request for permission to trade on NYSE at IPO which should take under 30 days. I would guess they will be very close to that 55 day period on NYSE that matches the accruel period. And this one isnt going well…Somebody is not going to get the money they were guessing they were. Caught a bad market timing and yield didnt match the needs of prebuyers.
          That being said, I get your beef, I was just adding a little color to explain the sausage process a bit. The entire process is very interesting in itself. Many people think the company is getting the money directly from the IPO and that isnt how it works. Actually this issuer had several underwriters so nobody was wanting this one all to themselves….And with good reason apparently.

          1. “this one isnt going well…” You can say that again, Gridbird! The last time this company issued preferreds, it only had to offer 5.5% interest. Up to 8.5% now is a HUGE drop in credit quality. And when they cheat you on the first interest payment, you just gotta ask yourself what other ways will they cheat me? You know for sure there will be other ways they cheat you. This security is for HIGH RISK investors only.

            1. Andrew I am not an expert on this, but at issuance, convertibles seem to catch a break on coming to market with lower yields than a true fixed issue does. Because you get the additional opportunity to “possibly” capture a cap gain trade. I noticed this with my CNIGP and CNIGO issues I own…They were offered to common stock holders of company at exact same time. CNIGO was a fixed term so its yield was 6%. CNIGO was an owner optional convertible with a 3 year longer term date, but is only 4.8% because of the convertible opportunity. Unlike the BHR convertible, my CNIGP is already convertible accretive. But I am holding way longer…
              Now that being said look at BHR convertible today and you are definitely correct. It has felt the burn. Its yield is almost the same as the new issue isnt it. And it also has a helpful penalty clause that the new issue doesn’t. But it wouldnt be a good sign if it was needed though.

              1. What is the helpful penalty clause? That sounds interesting. I haven’t read the prospectus of the old issue.

                1. If they suspend dividends for 6 quarters or missing upaid 6 even in nonconsectutive payments they have to up the payment 200 basis points on these dividends until repaid. So it is a penalty payment, but not one that one would want to see if they actually pay, lol.

  2. I did a shallow dive on BHR some time ago. My impression was that of a company that didn’t make much money, had a lot of debt and not a lot of common equity. I have no issue with the business model other than external management, which I inherently distrust. The temptation to screw over other interest holders is too much for the manager.

    If the finances are this poor with full occupancy how will they do in the downturn? To me, it makes sense that they have a 25$ par pref trading at under 18$, less than 3 years after issue.

    Am I missing something?

    1. Enstar Preferred IPO 7%
      Enstar Group Limited
      Depositary Shares
      Each Representing a 1/1,000th Interest in a Share of
      % Perpetual Non-Cumulative Preference Shares, Series E
      We are offering depositary shares, each of which represents a 1/1,000th interest in a share of our % Perpetual Non-Cumulative Preference Shares, Series E, $1.00 par value and $25,000 liquidation preference per share (equivalent to $25.00 per depositary share) (a “Preference Share”). Each depositary share, evidenced by a depositary receipt, entitles the holder, through the depositary, to a proportional fractional interest in all rights and preferences of the Preference Shares represented thereby (including any dividend, liquidation, redemption and voting rights).

      We will pay dividends on the Preference Shares when, as and if declared by our board of directors or a duly authorized committee thereof. Any such dividends will be payable from the date of original issuance on a non-cumulative basis, quarterly in arrears on the day of , , and of each year, beginning on , 2019, at a rate equal to ___% of the liquidation preference per annum. See “Description of the Preference Shares-Dividends.”

      So long as any Preference Shares remain outstanding, unless full dividends on all outstanding Preference Shares payable on a dividend payment date have been declared and paid or provided for, no dividend shall be paid or declared on our ordinary shares or any of our other securities ranking junior to the Preference Shares (other than a dividend payable solely in ordinary shares or in other junior shares) during the following dividend period.

      We are not allowed to redeem the Preference Shares before , 2024 except in specified circumstances relating to certain corporate, regulatory, rating agency or tax events. On and after that date, the Preference Shares will be redeemable at our option in whole or in part, at a redemption price of $25,000 per Preference Share (equivalent to $25.00 per depositary share), plus declared and unpaid dividends, if any, to, but excluding, the date of redemption, without interest on such unpaid dividends. The depositary shares will be redeemed if and to the extent the related Preference Shares are redeemed by us. See “Description of the Preference Shares-Optional Redemption.”

      Neither the depositary shares nor the Preference Shares represented thereby have a stated maturity, nor will they be subject to any sinking fund or mandatory redemption. The Preference Shares are not convertible into any other securities.
      The Preference Shares will not have voting rights, except as set forth under “Description of the Preference Shares-Voting Rights.” A holder of depositary shares representing fractional interests in the Preference Shares will be entitled to direct the depositary how to vote in such circumstances. See “Description of the Depositary Shares-Voting Rights.”
      There is currently no public market for the depositary shares or the Preference Shares represented thereby. We intend to apply to list the depositary shares representing the Preference Shares on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “ESGRO.” If the application is approved, we expect trading to commence within 30 days following the initial issuance of the depositary shares representing the Preference Shares.
      Investing in the depositary shares and the Preference Shares involves risks. You should carefully consider the discussion under “Risk Factors” beginning on page S-7 of this prospectus supplement and in the reports we file with the Securities and Exchange Commission that are incorporated by reference in this prospectus supplement and the accompanying prospectus before you make your investment decision.
      Neither the U.S. Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

  3. If it helps, I have spent extended time in 3 of their beautiful hotels: Ritz Carlton in US Virgin Islands, Courtyard in Philadelphia and San Diego Hilton Torrey Pines. What I find interesting is that each hotel was magnificent, but they were either remodeling part of the main hotel or they had signs “pardon our dust” as they continued to improve these iconic properties. I’m not sure just how they could be improved for a better guest experience. I would say each was either completely or almost 100%ish full and I occasionally had trouble getting the specific dates I needed. They are a small operator with 12 hotels with big plans for the future. I urge everyone to do their own deep due diligence (call the IR department or go visit a hotel) and diversify your portfolios so if any one investment blows up you are still able to sleep well. Wishing you profitable investing, Nomad

  4. Thanks Eugene–seems strange they would do another already–have to dig a bit on this one and see if something is up.

    1. Yes, it is their third one for very short period time.

      Meanwile, Enstar Group Limited offering Perpetual Non-Cumulative Preference Shares, Series E – ESGRO

      1. They just bought the Ritz Carlton in Tahoe for 120m.

        They were also had a buy recommendation from Brad Thomas in September.

        There last earnings was mixed:
        Braemar Hotels & Resorts (NYSE:BHR):
        Q3 FFO of $0.34 beats by $0.53; GAAP EPS of -$0.12 misses by $0.10.
        Revenue of $108.85M (+0.7% Y/Y) misses by $1.61M.

        I bought a few today as it looks like the short term looks ok.

        1. Yes libero I am sure they are probably ok short term–longer term when (and if) we have a soft economy I would be out quick.

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