Q1 2021 Braemar Hotels & Resorts Inc Earnings Call
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Greetings and welcome to the Braemar hotels and Resorts, Inc. First quarter 2021 results call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host MS. Jordan Jennings manager of Investor Relations for Braemar hotels and resorts.
You may begin.
Good morning, and welcome to today's call to review the results for Braemar hotels and resorts for the first quarter of 2021 and to update you on recent developments.
On the call today will be Richard thoughts and President and Chief Executive Officer.
Gareth Eubanks, Chief Financial Officer, and Jeremy Welter, Chief operating officer, the results as well as notice of this that the ability of this conference call on a listen only basis over the Internet were distributed yesterday and a press release.
At this time of let me try and do that certain statements and assumptions and the conference call contain or are based upon forward looking information and are being made pursuant to the safe Harbor provisions of the federal Securities regulations.
Such forward looking statements are subject to numerous assumptions uncertainties, and non known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed and the company of filings with the Securities and Exchange Commission.
Forward looking statements included in the conference call are only made as of the day of this call and the company and not obligated to publicly update or revise them.
Payments made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities securities will be offered only by means of of a registration statement and prospectus, which can be found at www dot SEC dot Gov.
In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided and the accompanying the earnings release and accompanying tables or schedules, which have been filed on form 8-K with the SEC on May five 2021 and May also be accessed through the company's website at www Dot dot dot com.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the early on.
Now I'll turn the call over to Richard talked and please go ahead Richard.
Good morning, welcome to our first quarter earnings Conference call.
And what flooding and the overview of our business and an update on our portfolio, which includes our hotels again, achieving positive hotel EBITDA for the third quarter in a row.
After that Dara.
And we'll provide a review of our financial results and Jeremy will provide an update on our asset management activity afterward, we will open the call for Q&A.
Four key themes for today's call are the.
The outperformance of our luxury resort portfolio, resulting in $20 million and hotel EBITDA for our entire portfolio and and average daily rate of $433 for the quarter, which is the highest quarterly ADR and our history.
Our portfolio is well positioned to outperform with very strong forward bookings as we look at the second quarter.
We were cash flow positive at the corporate level for the quarter.
And on.
Our balance sheet is in good shape with no near term debt maturities.
I'm pleased to report the during the first quarter, we continued to achieve positive hotel EBITDA across our portfolio.
We reported hotel EBITDA of $25 million during the quarter driven by strong occupancy levels at our resort properties and the 25, 3% increase and the ADR over the prior year quarter, which resulted in the highest quarterly ADR and our history.
While leisure demand is ramping up quickly, particularly on weekends.
Any significant uptick in the Revpar performance is likely to rely on the recovery of corporate transient demand and ultimately group demand overall.
Overall, our resorts continue to perform well and forward bookings are strong throughout our portfolio.
For the month of April our preliminary Revpar was $177 with occupancy of 43, 9% and and ADR of $403.
Our current bookings for May and June also looks strong with current occupancy on the books of 32% from me and 27% for June.
Many of our hotels are and drive to leisure markets and have been well positioned to benefit from the resurgence of pent up leisure demand in recent months.
In total and eight of our 13 hotels are considered resort destinations.
These hotels include the Ritz Carlton Sarasota Artesano.
Hotel Yountville Ritz Carlton Lake Tahoe Pier House Resort Park Hyatt Beaver Creek.
Hilton La Jolla, Torrey Pines and.
And Ritz Carlton St Thomas.
We are pleased to report that this thesis continues to play out just as we expected as these hotels out of combined hotel EBITDA of $25 $7 million for the quarter.
Well it is still early and the recovery.
It is clear from the early feedback we are hearing that guests are enthusiastic about traveling again.
Additionally, we were cash flow positive at the corporate level for the quarter.
Our balance sheet was in good shape as we enter 2021 and this puts us in a much better position financially and it could not be more proud of the incredible work and dedication of the entire team.
Our unique portfolio focused on the luxury segment with many properties and drive to leisure markets positions us to perform well and the near term as well as for the ultimate recovery and our industry.
Looking forward, we continue to believe that Braemar presents a compelling opportunity and the lodging REIT space.
We are of differentiated stores with the majority of our assets and very desirable resort locations, the highest quality portfolio and the public markets a portfolio of that is generating positive hotel EBITDA and cash flow and.
And what we believe is a solid liquidity position and balance sheet with attractive debt financing in place.
I will now turn the call over to Derek Thanks, Richard for the first quarter of 2021, we reported a net loss attributable the common stockholders of $11 $2 million or 28 cents per diluted share for.
And for the quarter, we reported <unk> per diluted share of <unk> 20.
Which represents growth of 67% over the prior year quarter.
Adjusted EBITDA for the quarter was $16 $6 million.
At quarter, and we had total assets of $1 7 billion.
We had $1 1 billion of loans of which $49 million related to our joint venture partner share of the loan on the capital Hilton and Hilton La Jolla Torrey Pines.
Our total combined loans had a blended average interest rate of two 5%.
Our loans are entirely floating rate.
As of the end of the first quarter, we had approximately 52% net debt to gross assets and our next final debt maturity is in April of 2022.
We ended the quarter with cash and cash equivalents of $85 7 million and restricted cash of $39 $3 million.
The vast majority of that restricted cash is comprised of lender and manager held reserve accounts.
At the end of the quarter, we also had $18 $6 million and due from third party hotel managers.
This primarily represents cash held by one of our brand managers, which is also available to fund the hotel operating costs.
All of our loans are current and we have no defaults.
As Richard mentioned, our hotel EBITDA during the quarter was $25 million. Our current monthly run rate for debt service is approximately $2 6 million.
And our current monthly run rate for corporate G&A and advisory fees is approximately $1 5 million.
During the quarter and subsequent to the end of the quarter, we issued approximately two 7 million shares under our ATM raising approximately $16 $1 million of gross proceeds.
During the quarter. We also entered into a standby equity distribution agreement or Cedar pursuant to which we are able to sell up to approximately seven 8 million shares of our common stock to a counterparty at any time during a 36 month commitment period.
And thats entering into the Cedar we have issued one four of 5 million shares under the seta for approximately $8 4 million and proceeds.
We view these capital raising transactions as an opportunity as it is an important way to improve our liquidity as we continue to strengthen our balance sheet.
Since the beginning of the year. We've also completed several privately negotiated exchanges of our series B convertible preferred stock into shares of our common stock.
These exchanges of all been completed at a discount to the par value of the preferred stock and in total we've exchanged $1 237, and 557 shares of our series B preferred stock equating to 24, 6% of the original share count into approximately $4 5 million shares of our common stock.
These exchanges not only remove the cash dividend associated with these preferred shares but also serve to lower our leverage and increase our flow.
During the during the quarter, we completed an amendment to our term loan that extended our covenant waiver through the fourth quarter of 2021 and reduced our fixed charge covenant through the end of 2022.
As of March 31, 2021, our portfolio consisted of 13 hotels with 3487 net rooms.
And our share count currently stands at $52 4 million fully diluted shares outstanding which is comprised of $47 9 million shares of common stock and $4 $5 million of P units.
And our financial results. We include approximately $5 1 million shares and our fully diluted share count associated with our series B convertible preferred stock. This.
This concludes our financial review I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter. Thank you Derrick comparable revpar for our portfolio decreased 23% during the first quarter.
And we were able to generate hotel EBITDA flow through of 80%.
For the first quarter Braemar recorded an impressive 66% of its 2019 revpar compared to 58% the U S market as a whole.
We believe our market outperformance over the first quarter is a testament to the quality of this portfolio and the tireless efforts of our asset management team.
Our asset management team has worked relentlessly to drive performance at each of our hotels.
This is not only evident and our portfolio ADR, which was 35% higher and 2019 levels for the first quarter, but also and the overall strength of our hotel EBITDA recovery.
For example, our resort hotels delivered a noteworthy 81% of first quarter hotel EBITDA relative to the comparable 2019 period.
The Ritz Carlton St. Thomas just finished and incredibly strong March achieving $8 7 million and revenue, which is the highest total monthly revenue and the resort's history.
In addition, we saw strong occupancy numbers of 79% and the first quarter.
More impressively the hotel average over $1000 ADR for.
For the quarter and the.
In fact, one night and March the hotel achieved and ADR and excess of $600.
This outperformance is largely being driven by the spectacular renovation that was recently completed.
Looking ahead, we anticipate a continuation of strong leisure transient demand.
Currently transient pace is up more than 100% compared to the second quarter of 2017, the last comparable period prior to Hurricane Irma.
The Ritz Carlton Sarasota has been and standout performer and.
And March the resort finished the month with an impressive $3 $9 million and hotel EBITDA, which is the single highest month and the resorts history.
The team did an excellent job navigating the spring great demand and ensuring that strategies were optimized to drive ADR.
In fact, ADR was 32% higher during the first quarter than the comparable 2019 period.
Additionally, I want to mention how successful our membership program has been at the property.
We achieved $1 $4 million of membership revenue and the first quarter, which is up 17% over the same period and 2020.
The Ritz Carlton Lake Tahoe also had a strong quarter with hotel EBITDA coming in and 98% compared to the prior year period.
This was the result of a remarkable 96% hotel EBITDA flow through.
These results are especially meaningful when you consider the California was under a mandatory stay at home order from December 10th until January 25th which resulted in over $2 $8 million and cancellations for the hotel during the first quarter.
The success of this property can largely be attributable to the operational changes that our asset management team put in place such as labor reductions limiting and amenities and selectively opening F&B outlets to match projected occupancy.
The Pier House resort and Spa also had a solid first quarter with $4 $2 million and hotel EBITDA.
And that exceeds 2019 first quarter hotel EBITDA by 3%.
In addition to the pent up leisure demand that the key west market has seen the success is largely due to of marketing shift the focus on driving direct bookings and becoming less reliant on otas.
This campaign resulted in a shift towards higher rated business rather than discounted segments.
The strategy was overwhelmingly successful, resulting and one $7 million and revenue.
That strategy also helped push the hotel to over 95% occupancy.
41 out of 90 days during the quarter.
On those days Pier House average and outstanding $555 ADR.
With this new strategy, we anticipate that the hotel will continue to take advantage of the leisure demand during the summer months.
Moving on the capital investment we.
We invested heavily in our portfolio to enhance our competitive advantage.
These investments uniquely position our portfolio of the benefit from the pent up demand that we're seeing and the market.
And 2021, we are looking forward to restarting several value add projects across the portfolio.
These include adding 10 keys and the new Cafe at the Beach club.
And at the Ritz Carlton Sarasota, the construction of luxury retail space at the Ritz Carlton Lake Tahoe, and new grab and go market at Hilton La Jolla, Torrey Pines and of Guestroom renovation and Marriott Seattle the.
And the strategic renovations will take advantage of the current demand cycle in order to minimize the revenue displacement that we typically encounter when doing these types of projects.
In total we anticipate spending approximately 20% to $30 million on capital expenditures in 2021.
We're extremely bullish about the future performance of our portfolio, particularly given our recent capital investments as well as recent upgrading of the plant the <unk> and the notary.
As we mentioned above we are seeing extraordinary.
The ordinary performance and some of our assets and we anticipate this outperformance continuing as we start to see urban destinations recover, allowing us to fully realize the upside of the notary and the Clancy convergence.
I will now turn the call back over to Richard.
For final remarks thank.
Thank you Jeremy.
In summary.
We're still on the early stages of the recovery, but we can now see a clear paths and normalcy.
This sets us up nicely for continued steady recovery and our financial results we.
We have taken decisive actions to navigate the near term challenges of this crisis and we are well positioned moving forward the solid balance sheet and the unique diversified portfolio.
I am 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 2021.
This concludes our prepared remarks, and we will now open the call up for Q&A.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue you.
You may price start to if you'd like to remove your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith.
Our first question comes from the line of Carl and I guess with B Riley Securities. Please proceed with your question.
Okay.
Hi, This is Kyle on for Brian.
As you've mentioned.
And several of your key luxury resort hotels has actually been higher than pre pandemic levels.
Just curious if you think that's actually sustainable as we move throughout 2021 and things begin to open up and there.
The national travel restrictions are loosened loosen.
And as vacationers will essentially have more options on sports and Joe.
Yes, Thanks, Kyle and I think thats. The good observation, we've been astounded by the ADR performance of the portfolio and maybe you didn't even properly appreciate.
The benefit of international restrictions on travel.
And I think we have benefited from.
And I think there are a couple of properties that we will see some of that demand diffuse, but the the counterbalancing benefit would be international.
The international demand coming back to our market. So that's one trend I think another trend that we're keeping our eye on it.
Is.
The true.
Tradeoff between increased occupancy.
Via the return of the group segment.
And lower rated business. So I think the of our EBITDA trends will continue to improve but we do expect to continue to build on our group business and we are of very strong pace outlook for the third and fourth quarter.
But that will come at some cost of ADR and I think thats, just the kind of part of the business, but I think your instincts are right.
But overall, yes.
And I think the change and recovery that we're expecting is still going to be beneficial.
And just to add a little bit more specificity to the to the outlook as the ADR is actually forecasted to be up.
2019, and five of the nine months, so far Q2 through Q4.
And that that trend may continue.
Great that's helpful and.
And I was also curious I mean your portfolio is better positioned.
And then a lot of other hotel operators and your balance sheets and pretty good condition.
Do you think.
Theres opportunity out there and maybe acquire some assets from hotel operators that are less well positioned and you guys are.
And maybe an opportunity to expand the portfolio.
Yes, and Thats a good question.
We are absolutely on the lookout for acquisition opportunities.
I think there's a couple of challenges one is and we still are being very conscious of our liquidity and cash balances.
So that's something that we're being very protective of at the moment.
And then also we've seen some pretty heavy pricing out there, particularly in the luxury segment and.
And we have always maintain very strict financial discipline and on our acquisitions and have targeted specific on Levered IRR.
<unk>.
Our necessarily penciling and some of the pricing that we've seen out there. So we continue to look.
We're hopeful that we can do something.
We are certainly open to.
Emerging of hotel into the partnership of via the issuance of op units.
We can do that and an accretive manner.
And it will be further updating you all.
And as these opportunities arise.
Great. Thanks, that's all from me.
Thank you. Our next question comes from the line of Tyler <unk> with Janney Capital markets. Please proceed with your question.
Thank you.
Morning.
Questions from me and just to start I wanted to go back to the margin and the flow through performance and the quarter, which was really quite strong.
How much of items related to what's going on with ADR versus other factors and where are you in terms of.
Offering guests the many of these services.
In terms of operations and how is that impacting the cost structure.
Let me take the second question first and then maybe Jeremy will talk about flow through.
The amenities the reinstatement of amenities and services.
Is there is no general answer to that.
It's very very much on the case by case basis, which is driven by occupancy at the hotels and.
And so as occupancy increases and as profitability increases at each of the hotels of these things are being reinstated in order to attract further demand and differentiate relative to competing product.
I will say that there are some things that would cut back on that are that are here to stay and one of them is.
The optional stay over housekeeping and.
And the Turndown service for instance, these are things that whereas we.
Were perfunctory and the past.
Probably in many cases of the optional going forward and that will result in better margins for us and so that's certainly a change that we welcome.
But in terms of introducing other amenities and services. It really does depend on the general manager of assessing.
The situation on the ground.
And I'll answer the question on flow throughs.
Right I mean, ADR certainly contributing to it and also.
Our struggle with having access to to rehiring and standard staffing up our hotels. So because of labor shortages is contributed a little bit as well, but I do think regardless of those two factors, we would of had incredible flow throughs still with the.
Portfolio because of our prudent and thoughtful.
Disciplined and we have with the with the asset management team working with the properties I mean, we have been very very hands on.
With all of these assets and and I can't Thank my team enough because they've done so much more with the with with.
Less resources as we've had to deal with this challenging situation. We've had of course, the last year, but we have a great process that we've put in place with all of our teams.
On the asset management group as well as with all of our property management companies as well as the.
The the regionals and.
Area leaders of those of those companies to be very thoughtful on how we add back staffing.
And we have.
Internal expectations, where we are.
Gone through and we've dissected these hotels the very granular level.
And our expectation is coming out of the pandemic once we get to full.
Occupancy levels the <unk>.
And 19 reservoir levels that we will operate these hotels more lately and we did pre pandemic and we have individual staffing models for every one of our hotels to do that and there is no positions are added back without our approval. So we have been very.
Like I said hands on with the properties, but it's been a very constructive.
The process with our with our teams and are very optimistic.
Coming out of this pandemic and once we get the full stack full revpar levels that there will be of benefit and our margins because of.
Some of the things that we've uncovered through this process.
Okay very helpful and to follow up on the labor comment.
On the resorts and luxury assets obviously.
And just expectations in terms of Assortments right now youre running high occupancy and waiver of bigger issue at those properties than perhaps in the urban hotel or some other asset types and then some.
One of the resort markets, where and how do you source your labor or using international employees at all or is it the seasonal labor that's the only available at the at the peak time periods.
Yes.
Such a case by case basis, so it's hard to put a generalized statement over because even with the smaller portfolio like we have a framework of their they are very different assets and so if you start with the urban and urban would be I think a big challenge for sure except for the fact that those of the assets that are at the lowest occupancy. So so we're not.
Having as much of a challenge at the urban properties, just because we don't have as much neat, but when you look at the resort hotels Pier House been of Great example, it's been tough and what happened and key west is that a lot of the the residence and key.
With that we're at maybe a lower income levels have left because of the pandemic and went to different markets and they havent come back and so we've had and struggled with with the labor there and so on some cases, we'd use contract labor and other cases, we definitely there is.
A good labor force of international Labor and key west from from actually Eastern European.
On labor pools.
But then you can look at.
A hotel like.
Our Ritz Carlton St Thomas and work.
We're implying primarily local labor their residence of the U S. Virgin Islands, and we have an incentive to do that in terms of our <unk>.
Relationship with the government, where we get some incentives for.
For having a bias towards local labor.
But we're still having some struggles there even though that there is available labor day, just getting getting folks back to work and and sending them to get back to work.
And so I think that what happened in the first quarter for US is that we just got.
And we were optimistic and we've been optimistic in terms of portfolio of performing really well, but it definitely exceeded our expectations and I don't think we would would've thought at the beginning of the first quarter that we would have the numbers we had.
As we sit today and and as aggressive as our team was to try to try to ramp back up the properties, particularly the St. Thomas and I think it would be of Great example.
We struggle we struggled to have the.
The service levels that we would want to have and that.
It's just something that we're continuing to address and we're we will address but that has been a challenge for sure.
Okay and.
And last question from me in terms of the preferred for common exchange can you talk more about that why you think it makes sense and is that something that you'd like the continue doing and the future.
Hey, Tyler Eric I'll chime in on that I think we view that as just the opportunistic and we saw it as an opportunity to as long as theres been attractive ratio for our common shareholders to take out the preferred at a discount to par and I believe that's accretive to our common shareholders. It's a way that.
It saves on the on the cash dividend on the preferred as well and so I think looking forward, we'll just be opportunistic about it and we think it makes sense for our common shareholders and it's something that we'll entertain.
Alright, great Thats all from me appreciate the detail.
Thank you, ladies and gentlemen, and as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Alex.
And with Baird. Please proceed with your question.
Good morning, moving back to the balance sheet lots of moving pieces of this quarter. Just curious how you see the company's leverage profile and just the capital stack generally progressing over the norm beer the near to north of the more long term and then kind of back to the preferred what's the kind of having the private exchanges on one hand, but the series E and M. On the other how do you see that part of the.
The stack is changing and the future.
Yes. Thanks.
This is Richard I'll take that question on the.
On leverage profile and yet look I think on.
And all lodging Reits have increased our leverage I'm generalizing a bit.
Over the last year and our.
Our sense is that investors, who would prefer the sector to be running on a bit lower leverage.
So that's the the guidance that will follow and.
In the coming years, and it's measured his years at I think one thing that we've been pretty adamant about is not to try to do anything drastic in terms of the balance sheet, but move towards a less leveraged structure than we have now.
And that can come through a variety of of means.
Whether it's retaining cash or.
The Opportunistically doing these preferred exchanges, which we view as accretive to the share price.
Or raising of bit of equity capital, along the way and very very small bits. So.
And that's where we're headed we've historically had a target of 45% net debt to gross assets.
We're above that now because we've used cash during the past year and took on some more debt.
But we will we will seek to get through that and even below that going forward and thats measured in years.
In terms of the.
Series E and M. That's that's still a strategy that we're pursuing.
That is also a strategy that is very incremental and kind of build slowly over time.
So we may see ex some activity on that front in the second half of the year, but.
And we'll assess that as we learn more about that market and really understand the appetite for from the securities wherever the offer.
That's helpful. And then just one more from me most people in my seat are comparing on the cadence of the recovery to 2019, Revpar and EBITDA, but for you guys and the portfolio probably isn't fair with the hurricane disruption and 2019, and so just kind of curious how you guys are thinking about the magnitude and timing of getting back to a more comparable.
Prior peak.
Yes, it's a good question and this is Eric I'll take it and I'll, let the other guys chime in but you're right. The good point, we do not of lot of people talk about 2019 performance of getting back the 2019, but when you look at the Braemar portfolio of there were a lot of things going on in 2019 that doesn't really make great idea of good benchmark year for us the.
The notary and Philadelphia, which had not ramped up the plant the and San Francisco wasn't even open are totally converted yet and then as you mentioned and St. Thomas that hotel was closed and we were basically getting business interruption income. There. There was also a few other smaller things going on at a few other assets of the presidential Villa Artesano and.
Beach.
Remediation and the rebuilding of the Sarasota so.
I don't think were prepared to provide guidance in terms of when we get back to 2019, but I think we can say that if our portfolio is clicking on all cylinders.
We'd expect it to exceed what our actual results were in 2019 because of those factors and the new one.
Sean what I would add if you go and turn the clock two to January and February of 2020.
When we were relatively late in the cycle, regardless of the pandemic and nobody really knew of the pandemic would be so impactful than it was to our industry.
And we stood in and in early 2020.
But if you look at January 20, <unk> of January and February we were well outperforming the industry I mean, well outperforming them.
And I believe that.
And.
My recollection was I think in February we might've been up 20% year over year and revenues at the Braemar portfolio, which was phenomenal when you think of being that late in the cycle. It was absolutely phenomenal. So we were we were very optimistic of what 2020 could have been a.
Obviously, it didn't play out the way we wanted to play out but I do think you can look at those numbers and say, okay, well, that's probably more reflective of what braemar should've been and in 2019, just because we were.
Really repositioning that portfolio for long term success, and and we haven't gotten the benefit from that yet and we will and and I do believe that the relative to a lot of other Reits that are out there I would hope that we would be a heavy outperformer going forward and continuing.
For the near future.
Thanks, that's helpful color.
Thank you, ladies and gentlemen that concludes our question and answer session and I will turn the floor back to management for any final comments.
Well. Thank you all for joining us on our first quarter earnings call and we look forward to speaking with you again on our next call of a good day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.