Q2 2020 Braemar Hotels & Resorts Inc Earnings Call
Hello, and welcome to the Bray more hotels and resorts second quarter 2020 results conference call. At this time all participants are in listen only mode. If anyone should require operator assistance. Please press star zero under telephone keypad question answer session will follow the formal presentation.
As a reminder, this conference is being recorded its my pleasure to travel Clover for Jordan Geddings Investor Relations for bring more hotels <unk> resorts. Please go ahead.
Good morning, and welcome to today's call to review results for Braemar hotels, <unk> resorts for the second quarter 2020 and to update you on recent developments on the call today will be Richard Stockton, President and Chief Executive Officer, Deric, Eubanks, Chief Financial Officer, and Jeremy Welter, Chief operating officer.
The results as well as noted the stability of this conference call I listen only bases over the Internet were distributed yesterday in a press release.
At this time, let remind you that certain statements and assumptions and this conference call contain or are based upon forward looking information and are being made pursuant to the safe Harbor provisions at the federal Securities regulation.
Forward looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discuss any company filings with the securities and Exchange Commission.
The forward looking statements included in this conference call are only made as of the date of this call and then companies not obligated to publicly update or revise them.
Statements made during this call do not constitute an offer.
So ortho station of an offer to buy any securities.
Securities will be offered only by means of a registration statement and protect us what can be found at www dot FCC dot Gov.
In addition, certain terms using this call our non-GAAP financial measures reconciliations of which are provided in the company's earnings release, an accompanying tables or schedule, which haven't filed on form 8-K with the FTC on July Thirtyth 2020 may also be access to the company's website at www Dot DHR.
<unk> Dot com.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release Oh now I'll turn the call over to Richard talked and please go ahead Richard.
Morning.
Welcome to our second quarter 2020 earnings call Conference call I'll begin by providing an overview of our business and an update on our portfolio, including the reopening of almost all of our hotels.
After that Derek will provide a review of our financial results and then Jeremy will provide an update on our asset management activity.
Afterwards, we'll open the call for today.
The covert 19 global pandemic has created both social and economic disruption on an unprecedented level has created a volatile landscape throughout the hype hospitality industry.
As I have said previously this has been extraordinary period for all of us and our entire leadership team has been steadfast in our commitment to protect all of our stakeholders drawing this unprecedented time.
A few objectives have continued to guide us.
The health and wellbeing of the employees our hotels.
Hotel guests and the communities in which we operate I've been a top priority and we've taken a number of preventative measures to keep them safe.
I stayed home orders were implemented we quickly adapting to the restrictions and challenges affecting our properties and adjusted the staffing model at our hotels, while reducing other operating expenses in an effort to preserve cash and minimize near term losses.
The vast majority of our portfolio had suspended operations for a significant portion of the second quarter.
As we discussed on our last call. We believed that our portfolio is well positioned to benefit as our hotels resumed operations given that eight of our 13 hotels generated a significant amount of leisure demand.
These include the Ritz Carlton Sarasota, BARDA, So no hotel yacht Bill.
Ritz Carlton Lake Tahoe Pier House Resort Park, Hyatt Beaver Creek, Hilton La Jolla Torrey Pines.
And Ritz Carlton say Thomas.
We're pleased to report that this thesis has played out just as we expected.
We're seeing good results across our reopened hotels and it's clear from the feedback we're hearing that gets excited to be traveling again.
It's still early on that reopening process and the impact of the virus is still unpredictable, but we are encouraged so far.
As far as operating results, let's call. It in Sarasota Pier House resort and BARDA Sonal all had positive hotel EBITDA for the month of June.
The Ritz Carlton Sarasota, despite revpar being down over 60% during the quarter had positive hotel EBITDA for the entire second quarter.
This was a fantastic results given the this disruption to our business during this quarter as a testament not only to the team at the hotel, but also to the fact that a significant amount of the revenue at that property is recurring membership revenue, which is less volatile and more predictable then rooms in SMB revenue.
In fact, the property was also able to increase its EBITDA margin by 74 basis points during the second quarter a truly impressive result.
With nearly all of our hotels reopened to the public we continue to prioritize the health and safety of our guests and staff.
And we're being thoughtful deliberate and flexible as our hotels resume operations.
To ensure a guess safety our properties of institute in stringent safety measures and protocols consistent with evolving best practice recommendations regarding covert 19, ranging from enhanced hygiene standards to keyless check in and electrostatic sprayers to protect guests.
Additionally, in the near term we have specific plans to contain expenses at the portfolio continues the reopening process.
We're offering optional housekeeping service at some properties for stay overseas.
We're also eliminating van Transportation Airport Shuttle service valet parking services turned down service and all amenities that exceed brand standards. We're also suspending some services that call Sears lounges, M. clubs, and all spas and kids clubs, our asset management efforts had been relentless and have positioned us well for the impending ramp up in our proper.
It is that we now anticipate.
Looking ahead, a few months, we continue to be excited about the courtyard, San Francisco downtown and its upcoming conversion to the autograph collection under the name the Clancy.
The renovation continued during the second quarter with the completion of the lobby meeting space, New cafe market facade, and new front entrance.
We're currently working on the restaurant and bar and expect to have the renovation completed in September.
Given the current uncertainties, we've also taken proactive and aggressive actions to protect and enhance our corporate liquidity.
This included cutting expenses up the corporate level and significantly reducing our planned capex spend for the year.
We will continue to preserve cash until we have clarity on the recovery and Directionally economy.
All in we estimate that we have reduced our run rate corporate DNA and Reimbursable expenses under our advisory agreement by approximately 25%.
We also closed on an amendment to our corporate credit facility. The Paydown of $10 million. The amendment converted to $75 million corporate credit facility into a $65 million term loan with the same maturity date of October 20, Fiveth 2022.
We've also made significant progress in our discussions with our property level lenders Derek will discuss this in more detail.
We successfully navigated through a very challenging operating environment during the quarter and I believe we're set up very well for the ultimate recovery.
As I turn the call over to direct to discuss our financial results. Please keep in mind that almost all of our properties were closed during the second quarter. So all this quarter's financial metrics are interesting from a voyeuristic perspective, they provide little useful direction to inform investors on the state or potential the business.
I'll now turn the call over to Derek.
Thanks, Richard during the second quarter, we recognize $390000 a VI income for the Ritz Carlton Saint Thomas which is reflected in the other hotel revenue line of our income statement. These insurance recoveries related to the month of March through May 2020.
As I mentioned last quarter, we expect these insurance recoveries will taper off going forward.
For the second quarter 2020, we reported a net loss attributable to common stockholders of $46.3 million or $1.41 per diluted share for the quarter, we reported AFFO per diluted share of negative 58 cents.
Adjusted EBITDA are easy for the quarter was negative $18.5 million.
Quarters, and we had total assets of $1.7 billion, we had $1.1 billion of mortgage loans of which $49 million related to our joint venture partner share of alone on the capital Hilton and Hilton La Jolla, Torrey Pines, our total combined loans at a blended average interest rate of 2.6%.
Our loans are entirely floating rate and the vast majority of interest rate caps in place.
As of the ended the second quarter at approximately 53% net debt to gross assets.
We ended the quarter with cash and cash equivalents of $103 million and restricted cash of $41 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts.
At the ended the quarter. We also had $9 million undue from third party hotel managers. This represents cash held by one of our property managers, which is also available to fund hotel operating costs.
As Richard mentioned, we have been and continue to work with our property managers and lenders in order to utilize these lender and manager held reserves to fund the operating shortfalls at our hotels.
To date, we have signed forbearance agreement on five loans, including the mortgage loans on the hotel Yountville BARDA Sona Hotel Ritz Carlton like how Ho Ritz, Carlton Sarasota and Pier House resort.
The agreements typically allow the company to defer interest on the loans for a period of up to six months subject to certain conditions.
The forbearance agreement is also allow us to utilize lender and manager held reserve accounts, which are included in restricted cash on our balance sheet in order to fund operating shortfalls at the hotels.
We have signed an f. any use agreement on the for hotel portfolio loan that includes the Sofitel Chicago Marriott Seattle waterfront, the notary hotel and the courtyard San Francisco downtown. This agreement allows us to use the lender and manager held reserve accounts to fund operating shortfalls.
This agreement also provides for the exercise of the first of its five one year extensions.
We expect to have a forbearance agreement completed very soon on the loan secured by our capital Hilton and Hilton La Jolla, Torrey Pines, and anticipate keeping all of our loans current in accordance with the forbearance and other agreements we have in place.
In response to this pandemic, we've taken decisive measures to reduce our cash utilization.
We have reduced corporate DNA and Reimbursable expenses under our advisory agreement by approximately 25% on annual basis to further preserve our liquidity our board of directors decided to suspend our common stock dividend, which will save approximately $6 million on a quarterly basis.
We estimate that our current monthly cash utilization at our hotels given their current state of operations is approximately $5 million per month.
As I mentioned all of our debt is property level nonrecourse debt, except for our corporate term loan and the monthly interest was currently approximately $2.5 million per month.
Our run rate for corporate DNA and advisory fees is approximately $1.3 million per month.
Based on the anticipated reopening days for the remainder of our portfolio and realistic yet conservative assumptions for future Hotel operations, we believe that we have sufficient liquidity.
As of June 30, 2020, our portfolio consisted of 13 hotels with 3487 net rooms, our share count currently stands at 38 million fully diluted shares outstanding which is comprised of 33.5 million shares of common stock at $4.5 million LP units and our financial results. We also include approximately.
The 6.7 million shares in our fully diluted share count associated with our series B convertible preferred stock.
This concludes our financial review I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.
Are you Derek comparable revpar for our portfolio decreased 91.8% during the second quarter.
Business in April was driven by Kelvin 19, responders in healthcare workers with transient leisure travel, especially on weekends. Returning later in the quarter.
There's very little corporate business travel.
Generally revpar bottomed out by mid April.
Experienced steady week over week growth over the next few months.
When it became apparent that the Calvin 19 pandemic was going to severely impact or hotels performance. We took swift action put ourselves in position to whether this crisis.
During the second quarter, we significantly reduced operating expenses by 71.8% or $52.1 million relative to the second quarter 2019.
These cuts resulted in hotel EBITDA flow through a 49%, which is a remarkable accomplishment by our asset managers and our property managers working together.
We responded quickly and aggressively to reduce costs in response to the unprecedented decline and hotel revenues.
We also temporarily suspended services at 11 hotels.
None of those hotels of reopened for a total of 11 hotels operating for some period of time during the second quarter.
We suspended services at these hotels in order to minimize costs, where there was little business in the market.
These are unprecedented times.
Asset management property management and the brand are all working together.
We want to bring back as many associates as soon as we can once performance justifies bring bringing them back.
Our associates have been stretched to their limits working very challenging situation.
Folks have risen to the occasion.
We are proud as a management team to see how everyone has contributed well being asked to do more or less.
We're also seeing our property managers emphasize and focus on newly implemented cleanliness and safety standards.
Many of our hotels are in drive to leisure markets, which we believe we'll continue to experience a quicker recovery.
Since early May our focus has shifted to ensure we have strategies in place to comment.
Accommodate pent up leisure demand.
Specifically I would like to comment on our fourth of July results with 11 of our 13 hotels open and operating for the week, leading up to and including fourth of July weekend. We saw strong performance. These hotels achieved a rate of $337 an occupancy of 41% for the week ending July 4th.
And most of our markets in some markets, we are estimating negligible new supply growth over the next couple of years as well.
I also want to highlight the performance of six of our drive to leisure hotels.
The Ritz Carlton Sarasota has remained open throughout the pandemic.
And experience a steady ramp starting in May when Florida beaches began reopened.
The hotels Beach club revenue increased relative to last year with strong membership.
Usage and performance coupled with strong new membership sales.
Comparable revpar during the second quarter decreased 62.3%.
Impressively hotel EBITDA flow through was 82% any EBITDA margin actually increased 4%.
Four of our California markets that are considered drive to leisure hotels began to perform well once California allowed hotels to reopen for leisure travel on June 12, the Hilton La Jolla, Torrey Pines reopened on May 29, following its suspension of operations on April 20.
The hotel ramp even quicker than expected.
At the BARDA set of hotel and Hoteling out Bill higher weekend occupancy is in June led to some near sellout.
Hotels, both suspended operations on March 22nd and reopened June eight did two Napa County line hotels re up in June five.
The Ritz Carlton Lake Tahoe reopened June 19, following the suspension of services on March 21.
Upon reopening business was significantly stronger than originally expected benefiting from a particularly strong drive to market.
Comparable revpar for the Ritz Carlton Lake Tahoe for the second quarter decreased 86.9%.
However rate increased $40 or 11.2% and hotel EBITDA flow through was 94%.
Returning to Florida, the island of key West.
Allowed hotels to reopen June one with an occupancy cap a 50%.
On a percent of inventory is now available for sale.
Since reopening on June one the Pier House resort averaged 54% occupancy in June despite the accuracy cap for the first two weeks of them up occupancy average, 78% for the second half Jan.
Guestrooms and suite renovation was completed in May.
As we continue to look to our drive to leisure hotels to outperform in the near term remain excited about the future prospects of a portfolio.
Construction on the courtyard, San Francisco downtown upcoming conversion to the Clancy amass autograph collection resumed may construction has stopped in March due to the city of San Francisco's Grant of Irish related measures.
Temporary walls had been removed work on the restaurant and bar remains to be completed well work on next year continues.
Construction is scheduled to be completed in September.
I'll now turn to capital investment last year, we invested heavily in our portfolio to enhance our competitive position.
These investments include the conversion of the courtyard Philadelphia downtown to the notary Emeritus autograph collection. The completion of the three suite presidential Villa at Bardessono Hotel and value add projects during the rebuild of the Ritz Carlton Saint Thomas.
These initiatives have allowed us to be more judicious with our spending on capital invest expenditures during the cover 19 pandemic.
We've completed the guest rooms renovation the pier house resort in key West and we anticipate the completion of the courtyard, San Francisco Downtown's conversion Clancy and Marriott's autograph collection.
In total we expect to spend approximately $15 million to $25 million on capital expenditures in 2020.
Before we go to Kuni.
I would like to thank our brand partners Marriott.
And Hilton and Hyatt for the remarkable efforts on our behalf and their continued partnership with us during these unprecedented times.
Now I'll turn the call back over to Richard.
Final remarks.
Thank you Jeremy.
In summary.
Our focus during the quarter was on quickly adapting to the unprecedented disruptions and uncertainty caused by the covert 19 pandemic and wide ranging public health efforts to control.
We have taken decisive actions to navigate the near term challenges of this crisis and while we cannot predict the trajectory of the pandemic. We're encouraged as we look ahead.
I'm proud of our efforts to protect our assets and maintain financial flexibility to position us for future success.
We look forward to updating you on our progress as we move through the balance of this year.
This concludes our prepared remarks, and we will now open the call for QNX.
Thank you will now be conducting your question and answer session, if you'd like to be placing the question can you. Please press star one under telephone keypad, a confirmation tone will indicate your line is in the question Q you May press star to if you'd like to remove your question from the Q4 participants using speaker equipment, there may be necessary to pick up your handset before.
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One moment, please what we pull for questions.
Our first question today is coming from Bryan Maher from B. Riley FBR. Your line is now.
Good morning, everyone a couple of questions.
And I apologize if I missed it I'm guessing that the courtyard San Francisco is going to open when the construction is completed in September is that correct.
That's correct.
And then the capital to help what were the thoughts there on getting that reopened.
We're going to try to have that opened by the end of August.
Thanks.
And then maybe this is a question for Derek you ran through the numbers I guess on the monthly burn rate that you are pretty helpful. But just kind of clarify it's roughly 5 million for the hotels, two and a half million.
On interest expense was that all interest expense or was that just you know one component of it.
Yes, I know that includes all interest expense.
Even though we do have some forbearance agreements in place where you're not currently paying interest but it is assumes that we were paying the follow.
And what happens when is the interest that's being four Baird. When is that paid back at the end of the loan at some point over the next year to how is that handle.
Yes, it really it differs by agreement.
But on the on the five that that I mentioned.
We have signed that would be paid at the final maturity.
Okay.
And then the last component was I think you said 1.3 million a DNA.
Ish type expenses, so they get the about an $8.8 million burn rate it would that be roughly accurate.
Yes, that's right and let me just clarify on the DNA, but that is that includes both our corporate gionee and the Reimbursable expenses under our advisory agreement really have to kind of look at those together.
Okay, great that that's helpful.
And then can you talk briefly about.
You talked about 25% DNA cost savings how sustainable is that I mean, as you look out 612 18 months from now clearly, there's some things you're probably plenty putting in place that might carryover.
How should we think about that down about a little bit.
Yeah, I think thats, a sustainable run rate I think if you look at our second quarter numbers.
It won't fully reflect.
Those cuts there were some thing in the second quarter that just from a seasonal seasonality standpoint, we won't have going forward, but when you look at our ongoing annual run rate.
And excluding onetime items that we add back and when you combine DNA with the Reimbursable expenses, we feel very comfortable with that run rate going forward.
Great and then just last for me on the rich crops in Saint John can you give us an update on what's going on there as it relates to customers actually getting to that property for my airlift standpoint.
Yes, I I'll take this and then rich will jump in.
Yes, so the Ritz Carlton Saint Thomas.
Phenomenal after yes, we basically rebuilt hotel.
And it's just it's fantastic and there's just a lot of.
Pent up demand for folks to get out and travel.
There is a requirement coming from states it has.
Threshold of 10% positivity rate that you actually have to receive a negative.
I would test before you travel to the Dvds Virgin Islands, but that hasn't really hurt demand. So much because what we're seeing is is it a lot of folks that otherwise would want to go Ritz Carlton.
In locations that are other islands other countries.
In the Caribbean.
Sure.
We're in places like valley or wherever.
Yes, they want to get out and any included why as well.
They want to get out and travel and so we're getting is where we're getting a lot of first time guests to our hotel, which I think is a great opportunity for us because a lot of folks never really consider the us Virgin Islands are staying in the U.S. Virgin Islands, and so our our goal is to recapture that business going forward as well so.
So it's just a change in mix of demand, what we're getting but given that you know the fact that is not a drive to market.
We're seeing some pretty good numbers coming out of that hotel.
Much more so than we would have the ever anticipated if you asked us.
Four weeks ago, six weeks ago or eight weeks ago, It's just been.
Very positive rich you want to yeah, and I'm going to be little bit more specific with the numbers I think is we're saying yes.
To give you assess how surprise we are I mean, we're running over 70% occupancy at the hotel at a rate that is exceeding our pre normal levels.
So.
One of the things that the government Saint Thomas is doing is.
Requiring testing for people entering the country, we were concerned that that would dissuade people from traveling I think it's as much of a tractor in that people know that got us think Thomas they're relatively safe.
From a contracting the virus so.
It's a it's just it's just going great. It's it's been a fantastic investment, we're very happy with them.
Great. Thanks, Thats all for me.
Thank you as a reminder, that star one to be please and good question Q. Our next question today is coming from Tyler between from Janney Capital markets. Your line is now live.
Hi, Thank you good morning.
Couple of questions for me I first want just a follow up on Brian's question about the cash burn and I just wanted to be very clear on this.
Last quarter, you were talking about $14 million cash burn from our entire 5 million. So can you. Please elaborate on the delta between those two numbers.
Yes, I can just I think it's apples and oranges. The 14.3 was the all in number and 5 million is just the hotel level for so you want to compare the 14.3 to the 8.8.
8.8 is the total number coating DNA and as Darren mentioned that includes an interest expense that's kind of the accounting interest expense, but some of that has been deferred due to the forbearance agreements lets say about half of it as deferred.
Yes on the other factor there Tyler is.
Last quarter, we had the vast majority of our portfolio closed as if you just look at at the the operating for both the property level.
Obviously now open and the vast majority the portfolio open and operating and.
Generating revenues, that's what brought the number down.
Okay, perfect that's clear I appreciate that.
Are you guys can give guidance here, but there are lot of investors know trying to sort through what's going on in July here. So any comments you can make on on industry trends in July and I'm also wondering if you can discuss the boxers dr. specifically its performance thus far.
Any thoughts on.
What's that.
Sector of the industry may look like.
In the next couple of months here.
Sure Yeah, one thing that we've seen tyler's is that in the recovery in the ramp up it's not.
Necessarily wrapping up.
Differently. According the chain scale segment, but whether or not your urban or your resort.
And yes, there was a lot of enthusiasm about.
Drive to leisure demand, but as we've seen with the risk I'll say Thomas flat fly to leisure demand is is equally strong. So it's really those it that's the tale of two cities is it resort or urban and the resort. Our resort properties are we were opening many of them in June and now they have been fully open for July I'll give you.
A little insight.
We're averaging.
At least 50% occupancy at those properties with an 80, our that is approximately flat to 2019.
But if you look at the urban properties.
They're they're not performing very well at all in fact, we have to and that are closed right. So the one and the ones that are open.
We are doing something like 10% occupancy at a rate that's 25% down.
So luckily for US you our portfolio is majority resort.
And so we have eight properties that 13 that our resort and.
We're really benefiting from that I think we'll continue to benefit from that as we go into the fourth quarter.
The forward bookings look relatively healthy.
Yeah on its really because they're being propped up by the continued resort demand and advance bookings.
So as far as corporate transient is concerned and group business I think.
We're really waiting on further medical advancements to gives people confidence to to make that sort of travel a big contributor in and my concern is that probably will continue to be weak in the fourth quarter, but hopefully by the first quarter next year.
Assuming there is a vaccine.
That will begin to recover as well and I think when it does recover to recover pretty quickly.
One other things I want to add is it.
You look at some of our resort locations like BARDA. So now were yacht Bill or Pier House.
Pretty efficient boxes, I mean, there's just not a lot of overhead or labor and they get.
Generate pretty attractive 80 ours.
And so they can they can.
Cash flow, possibly at a much lower occupancy level than a lot of other traditional resource that you would think through so.
We've got that going for us and then as well as there is one anomaly that I want to point out and urban location is that.
I would tell we've actually had some demand for stationers folks that are now from from the suburbs of from other parts of Illinois, or northern Wisconsin that are kind of and staying in Chicago for the for the weaker weekend and so.
That's been a a little bit of positive sign that we've seen as well.
Okay I'll leave it there thank you.
Thank you. We appreciate about question answer session on let's turn the floor back over the management for any further closing comments.
Well. Thank you everybody for joining the call for our second quarter earnings and we look forward to speaking with you again on our next call.
Thank you that does conclude today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation today.