Q2 2021 Braemar Hotels & Resorts Inc Earnings Call
Greetings and welcome to the Braemar hotels and Resorts, Inc. Second quarter 2021results conference 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.
And your telephone keypad.
Please note. This conference is being recorded and I'll now turn the conference average here House, Jordan Jennings Investor Relations for Braemar.
You may begin.
Good morning, and welcome to today's call to review results for Braemar hotels, and resorts second quarter 2021 and to update you on recent developments on the.
Our call today will be Richard Stockton, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Jeremy Welter, Chief operating officer, the results as well as notice of the accessibility of this conference call on a listen only basis over the Internet were distributed yesterday and a press release.
At this time, let me 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 provision of the federal securities for emulation and such.
Such 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 and more fully discussed and the company's 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 the company is not obligated to publicly update or revise them.
Statements made during this call do not constitute an offer to sell or solicitation of an offer to buy any securities.
Securities will be offered only by means of a registration statement and prospectus, which can be found at www dot SEC dot Gov.
In addition, certain terms user and call our non-GAAP financial measures reconciliations of which are provided in the coming company's earnings release and accompanying tables or schedules.
Which have been filed on form 8-K.
And with the SEC on July 29, 2021, and May also be access for the company's website at www Dot <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.
I will now turn the call over to Richard Stockton. Please go ahead and Richard.
Good morning.
Welcome to our second quarter earnings Conference call.
I'll begin by providing an overview of our business and an update on our portfolio. After that Derek will provide a review of our financial results and and Jeremy will provide an update on our asset management activity.
Afterward, we will open the call for Q&A.
We have 5.
And for today's call and they are first.
Our luxury resort portfolio continues to outperform resulting in $24.7 million of hotel EBITDA for our company and and average daily rate of over $380 for the quarter.
Second for the second quarter and a row, we were cash flow positive.
And at the corporate level.
Third our portfolio is well positioned to continue to outperform and very strong forward bookings for the third quarter.
For our balance sheet is in good shape with no near term debt maturities.
And fifth we announced the planned acquisition of the Mr. C. Beverly Hills Hotel in Los Angeles, California.
The luxury hotel ideally located in close proximity to high and shopping on rodeo drive and business demand from century City and Culver City.
I am pleased to report comparable hotel EBITDA of $24.7 million during the quarter, which was driven by strong occupancy levels at our resort properties and a 35.1.
And increase in ADR over the prior year quarter.
Additionally, revpar for all hotels and the portfolio increased approximately 875% for the second quarter of 2021 compared to the second quarter of 2020.
Our portfolio Revpar decreased approximately 20% when compared to second.
<unk> percent and 2019 Revpar.
EBITDA margins continue to be healthy and over 25% across the entire portfolio.
This result is accentuated by particularly strong results at the BARDA Sano Pier House and hotel Yountville.
Each of which had margins in excess of 40%.
While leisure demand continues to be strong, particularly on weekends and any significant uptick and revpar performance is likely to rely on recovery of corporate transient demand and ultimately group demand.
Overall, our resorts continue to perform well and forward bookings continue to look strong with occupancy for July for our portfolio looking like.
<unk> quarter and over 70% at a rate of over $350.
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 8 of our 13 hotels are considered resort destinations.
These hotels include the Ritz Carlton.
Carlton Sarasota, Arizona.
Hotel Yountville Ritz Carlton Lake Tahoe Pier House resort archived and Beaver Creek Hilton La Jolla, Torrey Pines, and the Ritz Carlton St. Thomas.
We are pleased to report that this segment delivered a combined hotel EBITDA of $26.3 million for the quarter.
I'm also encouraged by the advancing recovery of our urban properties.
These properties include the capital Hilton the merits Seattle waterfront, the notary hotel, the Clancy and Sofitel Chicago.
For the second quarter 2 of these 5 properties posted positive hotel EBITDA, while 1 of the negative quarter result.
And properties was only down approximately $150000.
This is a significant turnaround and demonstrates that demand is quickly returning to our cities.
Both amongst the leisure and to a lesser extent the corporate transient segment.
We expect this trend to accelerate as office reopening has continued during the second half of 2020.
Additionally, we were cash flow positive again at the corporate level for the second consecutive quarter.
While our balance sheet was in good shape as we enter 2021, and this puts us and a much stronger position financially.
We're also very happy to resume our growth strategy with the planned acquisition of the 138 room Mr.
Received Beverly Hills Hotel in Los Angeles, California for $77.9 million.
And irreplaceable luxury property and a premier location in Los Angeles. This acquisition fits perfectly with our strategy of owning high revpar luxury hotels and resorts and further diversifies our portfolio.
And it is also.
Also and attractive price per key of $474000 for fee simple ownership of a luxury hotel.
It's an impressive property and the middle of over 45 million square feet of office space supporting substantial corporate demand and a wide array of world renowned leisure demand generators, including unrivaled shopping.
And I and retailers vibrant restaurants, and various art and cultural attractions.
As part of the transaction, we will also acquire 5 luxury condominium residences adjacent to the hotel, which will be offered for extended stay rentals prior to being ultimately monetized.
Additionally, Remington will take over management of the hotels.
<unk> post acquisition, which we believe will help drive superior operating performance at the property going forward.
And Mr. <unk> represents our first acquisition during the current industry cycle and we believe this property will be a great addition to our portfolio.
On the capital markets front during the quarter, we completed a private placement of.
<unk> $86 million to $5 million aggregate principal amount of 4.5% convertible senior notes due 2026.
Importantly, we used a portion of the net proceeds of the offering to repay the amount outstanding under our secured term loan.
The prior corporate term loan had restricted covenants that not only.
Eliminate our capital expenditure program prohibited property.
Dispositions and disallowed common dividends, but also would not have allowed us to complete the Mr. C acquisition.
We were also recently added to the U S. Small cap Russell 2000 index and the U S broad market Russell 3000 index and the Russell Mike.
Microcap index as part of the Russell indexes annual reconstitution.
We believe our addition to the indexes will increase our visibility within the investment community as we execute on our strategic initiatives.
Looking ahead, our unique portfolio focused on the luxury segment with many properties and drive to.
And leisure markets positions us to perform well and both the near term and the long term as business and group travel resumes.
We continue to believe that Braemar represents a compelling opportunity and the lodging REIT space.
We are a differentiated story with the majority of our assets and very desirable resort locations the <unk>.
<unk> quality portfolio.
And the public markets a portfolio that is generating positive cash flow at the corporate level.
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 second quarter of 2021, we reported a net loss attributable to <unk>.
Common stockholders of $15.5 million or <unk> 32 per diluted share for.
And for the quarter, we reported <unk> per diluted share up 20 <unk>.
Compared to <unk> <unk>.
Negative <unk> 68 per diluted share and the prior year quarter.
Adjusted EBITDA for the quarter.
Quarter was $19.6 million and we were cash flow positive at the corporate level for the quarter.
At quarter, and we had total assets of $1.8 billion.
We had $1.2 billion of loans of which $49 million related to our joint venture partner share of the loan on the capital Hilton.
And then La Jolla, Torrey Pines and.
Our total combined loans had a blended average interest rate of 2.6%.
As of the end of the second quarter, we had approximately 49% net debt to gross assets and our next final debt maturities and April 2022.
We ended the quarter with cash and cash.
Cash equivalents of $157.7 million and restricted cash of $57.4 million.
And the vast majority of that restricted cash is comprised of lender and manager held reserve accounts.
The restricted cash at the end of the quarter also included approximately $19 million of cash.
That was moved from restricted cash to cash and cash equivalents subsequent to the end of the quarter as a result of the Ritz Carlton St Thomas and Pier House resort coming out of their respective cash traps.
At the end of the quarter, we also had $21.5 million and due from third party hotel managers.
This primarily.
Really represents cash held by 1 of our brand managers, which is also available to fund hotel operating costs.
As Richard mentioned, our hotel EBITDA during the quarter was $24.7 million. Our current monthly run rate for debt service is approximately $2.6 million, our current monthly run rate.
Corporate G&A and advisory fees is approximately $1.5 million.
As Richard mentioned during the quarter, we completed a private placement of convertible senior notes due in 2026 for $86.5 million and growth proceeds.
The notes pay interest semi annually at a rate of 4.5 per cent per.
Per year and will mature on June 1.2026, and less earlier converted redeemed or repurchase in accordance with their terms.
The notes are senior unsecured obligations of Braemar, and our convertible for cash and shares of the company's common stock or a combination of cash and shares of the company's common stock.
At <unk> option at maturity under certain conditions.
The initial conversion rate for the notes is 150.77909 shares of the company's common stock per $1000 principal amount of the notes and the initial conversion price is approximately $6.
<unk> 34 per share of the company's common stock.
A portion of the net proceeds from the offering was used to repay the amounts outstanding under our secured term loan and the excess proceeds will be used to fund the cash component of the Mr. C acquisition.
During the quarter and subsequent to the end of the quarter, we utilized several of our.
Our capital management strategy is to continue to improve our liquidity position.
We issued approximately 7.8 million common shares under our ATM, raising approximately $47.8 million and gross proceeds and.
Also during the quarter, we entered into a $35 million equity line and issued approximately 766.
And common shares raising approximately $4.2 million and gross proceeds.
We also issued 500000 common shares under our Cedar during the quarter, raising approximately $3 million and proceeds.
Each of these instruments have certain benefits and allows us to maximize our flexibility and efficiently access.
Equity capital markets. These capital raises have improved our balance sheet and liquidity by extending and debt maturity lowering our leverage and increasing our cash on hand.
Since the beginning of the year. We've also completed several privately negotiated exchanges of our series B convertible preferred stock and the shares of our common stock.
These.
And the <unk> have all been completed at a discount to the par value of the preferred stock and in total we've exchanged approximately 2 million shares of our series B preferred stock equating to 39% of the original share count and to approximately 7.3 million shares of our common stock.
And these exchanges not only remove the cash.
Change and dividend associated with the preferred shares, but also serve to lower our leverage and increase our flow.
We will continue to take and opportunistic approach to these exchanges and we'll pursue them. If we believe it is accretive to our common shareholders.
I'm also pleased to report that we have raised approximately $2.1 million of gross proceeds from our series E.
Cash and series M non traded perpetual preferred stock.
Ashford Securities a division of Ashford, Inc has been established and licensed by FINRA as a broker dealer and order to act as dealer manager on behalf of the company with respect to these preferred series.
We expect to use any proceeds from the sales of our series E or series.
<unk> and <unk>.
Non traded perpetual preferred stock for general corporate purposes and to facilitate the company's continued growth.
This capital raising effort is just getting started and we look forward to reporting our progress and future quarters.
We are also excited about our planned acquisition of the Mr. C Hotel and Beverly Hills, which will be a great addition to our portfolio.
Folio total consideration will be $77.9 million and will consist of $65.4 million for the hotel, which equates to $474000 per key and and allocated price of $12.5 million for the $5 adjacent condominium units the.
And the acquisition will be funded with approximately 30 million.
And cash $2.5 million op units.
500000 warrants at a stock strike price of $6 and $30 million mortgage loan.
We expect to close and this acquisition soon.
As of June 32021, our portfolio consisted of 13 hotels with 3000 for.
487 net rooms.
Our share count currently stands at $64.9 million fully diluted shares outstanding which is comprised of $59.3 million shares of common stock and $5.6 million op 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.
And approximately $6.6 million shares and our fully diluted share count associated with our convertible senior notes.
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 Derek comparable Revpar.
And our portfolio increased an impressive 875% during the second quarter.
And we were able to generate hotel EBITDA flow through for 48%.
For the second quarter, Braemar recorded and incredible 80% of its comparable period 2019 revpar.
Far from compared to 66% and 54% for the U S luxury and upper upscale change respectively.
Our continued market outperformance over the last quarter is another testament of the overall quality of our assets and the strength of our asset management team.
Within our portfolio.
More than half of our assets achieved a second quarter revpar higher than the comparable 2019 period.
And some of these hotels set all time property performance records.
On an aggregate basis. These assets had a revpar increase of.
For percent of.
For the comparable second quarter 2019 period.
Our asset management team's commitment to drive outperformance is unmatched.
And we could not be prouder of these results.
I will now provide some of the hotel performance highlights from the second quarter.
<unk> 71 for.
Novartis and our hotel and Spa generated more revenue and the month of June than any month and the resorts history.
The performance during the quarter was aided by a contribution of nearly $600000 and revenue.
From the newly developed luxury Villa, which we built.
And we will continue to provide upside momentum for the property.
Next our T Mountain resorts, the Ritz Carlton Lake Tahoe and Park Hyatt Beaver Creek.
Also had spectacular results during the second quarter.
With their aggregate revpar, increasing 28%.
Believe payable 2019 period.
The Ritz Carlton Lake Tahoe saw its ADR increase 26% over.
Over the comparable 2019 period.
Our team capitalized on the increase and leisure demand by creating packages that targeted the staycation trend.
Which more than doubled the resorts package revenue relative to 2019.
Historically this property has closed for a period of time and April due to the low demand following the end of the ski season.
However, due to our team's effort to uncover additional demand drivers we.
We made a strategic decision to stay open.
And for the first time and the property reported positive GOP for the month of April.
Archived Beaver Creek is also performing well with June to ADR being the highest and its history for that month.
Our team has pushed.
The property to be more aggressive on their upselling efforts.
And which has resulted in a 350% increase and upsell revenue.
During the month of June versus the comparable 2019 period.
Lastly, our beach resorts, the Ritz Carlton St Thomas Ritz Carlton Sarasota.
And the Pier House resort and Spa.
Have all been standout performers.
<unk> second quarter Revpar at these properties increased 101% over the comparable 2019 period.
The Ritz Carlton St. Thomas produced 8.1.
$1 million and hotel EBITDA.
And quarter.
That number is particularly impressive when compared to the $8.8 million and hotel EBITDA. The property produced in the full year of 2016.
And which was the last year without renovation for hurricane displacement.
For clarity and this property nearly.
<unk> generated as much hotel EBITDA and the second quarter as it generated and the full year of 2016.
This accomplishment can be attributed to the recent property wide renovation.
And our team's ability to successfully capitalize on the significant leisure demand that we're experiencing.
<unk>.
The Ritz Carlton Sarasota has also exhibited significant outperformance with trailing 12 month revenue of $66.7 million.
Which is higher than any full year revenue result, since we've owned the property.
Part of that success has been our.
Emphasis on securing long term recurring revenue through a membership program.
Which is now sold out.
The membership program, which includes access to the Beach club and Golf Club has produced nearly $3 million of revenue year to date.
Finally, the Pier House resort and Spa had a solid second quarter with occupancy.
Occupancy and ADR, both exceeding 2019 levels for the comparable period.
During the second quarter, the property achieved and occupancy of 95% or more for 37 days.
Moving on and capital investment, we've invested heavily in our portfolio over the last several years.
Since our competitive advantage.
These investments you'd like to meet uniquely position our portfolio to benefit from the pent up demand that we're currently seeing and our markets.
For the remainder of 2021, we're looking for to restarting several value add projects across the portfolio.
These include adding 10 keys and a new cafe at the Beach club.
At the Ritz Carlton Sarasota.
The construction of luxury retail space at the Ritz Carlton Lake Tahoe.
And new grab and go go go market at the Hilton La Jolla, Torrey Pines and.
Guestroom renovation at the Marriott Seattle.
And total we anticipate capital expenditures of $20 million to $30 million in 2020.1.
I'd like to finish by stating that we are extremely bullish about the future performance of our portfolio.
Including our urban assets, we are beginning to see significant green shoots.
Clearly the Marriott Seattle waterfront and the Clancy are on pace to achieve occupancy and the mid nineties and mid eighties, respectively for the month of July.
We're pleased to see such strong demand and these 2 urban and west coast hotels and.
And with demand returning we should further realized near term.
Across the segment.
I will now turn the call back over to Richard for final remarks.
And Jeremy and.
In summary, we continue to be pleased with the recovery trends, we're seeing and our hotels driven by strong leisure demand at our luxury resort properties.
While we are still and the early stages of the recovery.
<unk> see a clear path for continued steady recovery and our financial results.
We have taken decisive actions to navigate the near term challenges of this crisis and we are well positioned moving forward with a solid balance sheet and a unique diversified portfolio.
And I'm proud of our efforts to protect our assets and maintain financial flexibility to position us.
And for future success.
And look forward to updating you on our progress as we move through the second half of 2021.
This concludes our prepared remarks, and we'll now open the call up for Q&A.
At this time, we will be conducting a question and answer session and I'd like to ask a question. Please press star 1.
And on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star 2 if he would like to remove your question from the queue for participants using speaker equipment and it may be necessary to pick up your handset before pressing the star keys.
1 moment, please while we poll for questions.
Our first question is from Tyler Vittorio.
Janney capital markets. Please state your question.
Hi, Good morning. This is Jonathan on for Tyler Thanks for taking our questions.
First 1 from me rates across the portfolio continue to be pretty tremendous and I was wondering if you could talk about your revenue management strategy.
Who is coming into the properties is it an.
Hello, guys and what is that.
Net spend like compared to normal pre Covid times, I guess I should say.
Yes. This is Jeremy I can take that question.
We.
Our resort properties and really benefited from that from the demand and our.
Sure.
As a management team has been.
And incremental active.
Working with the property teams to be very aggressively pushing rate.
Thought it sometimes and maybe we're taking a little bit of risk.
Net.
We proved out to be right in terms of being able to.
The benefit from that day.
And that we're seeing and the resort properties. It's just it's been phenomenal it's certainly.
Very proud anything that if you rewind the clock a year ago that we would have ever thought that we would see.
In terms of where these guests are coming from.
And a lot of cases.
It's first time guests.
So St. Thomas I think would be a great example, that you've got a lot of gas debt.
With otherwise be maybe.
And maybe potentially drive and other parts of the Caribbean.
Maybe even to Europe, but but those markets are more or less closed or are perceived to be closed.
Not attractive for for <unk>.
Debt task overseas and so.
And we benefited from from that demand, which gives.
And as a great opportunity given that we have.
And that resort.
And so on and see it.
Just a phenomenal.
Redevelopment redesign we have to add a lot of additions and we've talked about previous quarters. So it gave us a really good opportunity and showcase that hotel I do believe that.
Debt a lot of that is.
Term spike and.
Probably a little bit nonrecurring and make some tough comps on a go forward basis, but I do think it also shows the quality of our portfolio and given the.
The other alternatives that don't exist. That's why we've just been so aggressive.
Pushing rate and that proved out to be the right strategy.
Sure.
All of those hotels, we've gained a tremendous and we are.
Disclosed and probably should tremendous amount of market share.
And the Braemar portfolio.
It's actually very phenomenal.
Growth with that.
And I think I'd add to that thanks, Jeremy the other thing I would add to that is if.
If you look at the segment.
Strategy mix.
And we're doing out of necessity and allow us group business and we have historically so our.
Group segment for the second quarter was about 11%.
With the vast majority of the balance being transient demand.
And that compares to our group.
<unk> segment mix of kind of mid Twenty's call, it 25% or so generally and so because that transient which is.
Primarily leisure transient because.
Because thats much high rated higher rated business.
And we're running properties, our resort properties that sort of 90% occupancy.
And that's going to results and an overall uptick and ADR.
Now as we look forward.
How do you turn that into and ongoing strategy and I think Thats a challenge for many of our general managers, who are deciding to either be very aggressive on group rate business.
<unk> for the climate in favor of the shorter booking window transient business and so that's on a property by property basis Thats, 1 thing thats happening to would be very kind of cautious about overly discounting future business given this trend.
And I think he also asked about the spend I think we've.
We've done a really good job and our and our resort properties of capturing ancillary.
And ancillary spend and so that's helped quite a bit in terms of just.
<unk> been able to.
Push and be aggressive on the on the resort fees and getting.
More and more.
<unk> 2 to stay.
So our properties and and eat and drink and our resort properties I think you'd see that we'd have a much higher mix of non rooms revenue for the quarter, if our urban properties and all their venues open as well so given given that we had a lot of closures are.
Lower hours and our urban location.
And I'm really pleased with the overall non drove revenue revenue we've had across the entire portfolio.
Okay, Great I appreciate all that detail and that's a nice segue into my next question on the urban markets.
And the performance of the notary and Seattle waterfront came in fairly strong compared to our expectation.
<unk> per se.
Positive for hotel EBITDA and Jeremy in your prepared remarks, you gave some color on Seattle and San Francisco in July and I was wondering if you could provide some additional color there in terms of what's driving that drove the strength and Dvds and properties.
Yes, I think it's still.
It's.
Its mostly going to be your transient leisure gas fit or had been pent up and locked up over the course of last year and these are great markets and and you look at our locations within a market. So that's been 1 of the things we've always talked about this portfolio you can look at it like she.
Seattle waterfront, which is as a marriott proper.
And would otherwise be a property, probably 1.1 and the portfolio because not luxury but its location is premium being right on the water. It's just a beautiful hotel and it's.
It's a natural for anyone that wants to get out and travel and and then Seattle market I think that we have as good of a hotels as anyone and so.
Operating we're experiencing that and Thats what were seeing in July, we're seeing that and that and San Francisco I will say that.
As a reported that were kind of we expect to end up mid mid eighties and.
And demand and at the at the Clancy and San Francisco.
<unk> I don't think we would have ever thought.
And we're 6 weeks ago 8 weeks ago that we had seen that much demand and so that just kind of.
Explain for short term nature of the pickup that we're seeing and our portfolio.
And so as we look forward.
And if some of that continues we're very optimistic over the next couple of quarters for sure.
Yes, I think the other.
Just to note as and both of those markets.
Restrictions were fully lifted.
During the second quarter.
And that I believe.
Allows some pent up leisure demand to kind of release into July and August were also experiencing.
And very strong outlook for August and September.
So that's part of it to having this full restrictions lifted is is giving people the.
The confidence and ability to take these leisure getaways.
Okay, Great and then last 1 from me.
Can you just provide some additional color on the Mr. Xu transaction why that structure.
On the acquisition made sense over possible alternative ways of funding it and.
Are you anticipating any possible synergies from the property and nearby and it has also managed by Remington.
Yes.
Take the first part of that question I'll take the second part.
Yes, so the transaction structure.
Was a little complicated given the kind of op units warrants et cetera.
It's a consideration package that evolved over time, we've been in discussions on this property for.
Really over a year.
And and.
And the early part of those.
Discussions, we just simply didn't have the cash available or liquidity or we're prepared to utilize it.
To do a cash transaction.
In addition to that there are many benefits to doing an op unit transaction for the sellers in this case.
Number 1.
They get to ride the <unk>.
<unk>.
And <unk> share price and they are very excited to become major shareholders with Braemar and Theyre very.
Confident that there is shareholder value that we will create and that the share price will better reflect the portfolio value overtime.
Upsizing, they're very interested in seeing happen.
In addition to the tax deferral on any potential capital gain.
Through this type of transaction and the ability for them to receive allocated losses that they can set against other passive income.
So it's a transaction structure.
And so thats sort of a sense for really both of us.
<unk> debt.
It was negotiated you've seen our liquidity position improve considerably since then.
I think we have.
And we would certainly have much more flexibility to do and all cash deal today.
But.
The benefits for both parties Thats, how we ultimately.
We came to agreement.
Yes, Jeremy I'll give you.
And I want to give rich some credit for staying after this opportunity for quite some time as you mentioned, we've been talking to the sellers.
For a long time and and 1 other thing and I like about it is that.
If we really issue all cash and they would have expected a lot.
Higher per.
Price and so they certainly believe and the story and Braemar they want to be partners with US I think it's a good good relationship and.
And is about our confidence and the quality of the portfolio and the management team that we have here.
Moving onto the opportunities from an operation side.
I.
I'm extremely excited about this property, there's just so many demand generators and this market.
Currently exist.
Tons that are coming in just the dynamics of where we think this market is going.
<unk> is very favorable in terms of the outlook.
Also there is virtually no supply and there is just huge.
Barriers to entry to to build where we are so we're excited about that but even more so.
And at accounts, just the operational opportunity.
This is right up our wheelhouse and this is this is the exact type of acquisition that we want to make which is fine and asset.
From.
Our management company not necessarily selling group for the management company that debt.
And is not really a hotel operator, there and F&B operator, they've got a great history, and F&B, they're not operating restaurants, but as.
As we've uncovered through our diligence process.
Have a comprehensive.
Asset for plan I think Theres 50, plus initiatives that 1.
And pull through we think could generate as much as $1 million for incremental EBITDA and Thats just just uncovering the way that we think hotels should should've been operated.
And there's just a tremendous amount of synergies that we see also with.
Takeover Ashford Trust hotels, which is a Marriott and Beverly Hills and this is a market, we've known and we know incredibly well we've operated into it since the days of the RTC, which I think it goes back to maybe the early Ninety's. When we originally acquired the Beverly Hills asset.
Which is now and Marriott.
In terms of.
And the opportunities.
There's been very little group sales Theres a beautiful.
Top floor that offers premium views across the city and and.
Beautiful meeting space and there really hasnt been.
<unk> selling effort to optimize that.
No audio visual revenue.
And they just outsource it to a third party that collected all the revenue.
Theres just among many other synergies, we're very very excited and and I think we've got a great track record and you can look back at.
And this goes back all the way I think and 2013, but pier House was an acquisition, where we took over from <unk> and.
And operator that didn't really operating.
Great hotels, traditionally I think and the first year, we increased EBITDA by 40% for that hotels. So we're excited and but we'll see where we get.
Okay, great. Thank you for all the color and I'll call. It for me.
Our next question is from Chris.
Participants please state your question.
Hey, guys good morning.
Can we can we maybe good morning.
Can we maybe get any update you have on the sales situation I know that's been a.
The fog and Thats kind of been interrupted with Covid, but is there anything you can share with us.
Good day thoughts or plans for longer term.
Yes.
And ongoing complaint it's still <unk>.
And within the courts.
So all I can say is discussions continue.
As soon as we have something that we can announce concretely of course as well.
But.
Discussions continue there.
Okay, I guess and the context of that going on and do you think operationally there is just.
And just trying to get a sense as to.
Is there adequate focus on it or do you think that there is so much attention.
Will the background on this thing, but it's not necessarily being.
No.
Maximize potential right now.
I would say that Chris I think they were all very professional.
For the team here at Ashford and Braemar as well as the core team.
And they've been incredibly professional we've got a great working relationship with them. So.
So I couldn't be more thankful of.
Adjusted.
And the ability to work together to see what we can do to optimize performance and naturally we are disappointed with the performance, but but we continue to work with the teams.
Okay Fair enough and then turning to the Mr. <unk> acquisition I know, there's the intercom and I believe and century city, which is about a mile away I think thats permanently close rate and then at some point. The century Plaza is going to come back online how do you kind of view I guess.
And the changing neighborhood.
<unk> context.
Maybe taking that hotel for.
Further upstream and I guess the question is is there any I know youre, considering potential brand options and other things but.
How far below.
And all potential rate do you think that property is right now versus what it could get to.
A couple of years from now.
Yes, I think.
Interesting about that property, and here's where we see opportunity as well as.
And what Jeremy talked about Jeremy talked about all the operational improvements that we can bring to bear with new manager.
The other side of the coin is just the physical.
And in May.
Bruce product and the property actually peaked in 2016, which was.
Let's see that was 6 years into it.
Its renovation and then started a little bit.
A a decline through 2019 and really due to an aging.
Product and so our plan is to invest $10 million into the product in order to really bring it up to a higher standard.
And bring it up to the luxury standard that originally had.
<unk> standard if not even better and we believe that that will result in.
And our ability to generate a higher rate.
Exactly how much higher remains to be seen.
I can tell you that the rate 2016 was about 10% higher than what it is now.
So we could certainly.
<unk> and you'll get there and then some.
But I think youre right theres, a little bit of additional supply coming into the market, but there's also more demand coming into the market. So if you look at the Westside Pavilion, where.
And it used to be a mall, that's now being taken over by Google.
600000 square feet, Google is going to put thousands of employees.
And of that property right down the street and so.
So we're confident that we'll be able to.
Not only get our fair share of that future demand, but also increase our market share through the.
Improvements that we're planning to put into the property.
We will be operating and as Mr. C for the time being.
While we assess other options from a branding perspective or soft branding perspective to maximize revenue.
And we may give it as independently.
And we haven't made that decision yet, but what I'd say Chris is debt.
If you like and where they where peak Revpar index.
And from there from their high.
And to where they are today, it's about a 17% discount. So there's we think there's tremendous opportunity to gain more market share for this hotel.
Okay I appreciate.
And all that color and then last question is Richard I think you mentioned a minute ago, you, obviously had a creative financing solution for Mr. C. But you said that you know.
And if that if that was happening today.
Could've.
And and positioned to do and all cash transaction.
So.
And get some of those those pins on the map that you've talked about in the past, Hawaii, and Arizona and Las Vegas, and others and are there are there things you you look at today that.
Since yarn, and and Ah and an improved liquidity position that that might be possible to to add another acquisition.
Yes, I can tell you starting around you and first there was a dramatic expansion of the pipeline of available opportunities that we're seeing.
And the first 5 months of the year, there was virtually nothing of interest to me.
Other than the deal that we had already been working out for some time of course.
And now there are multiple opportunities in the markets that you mentioned.
But also other markets, where we'd love to plant a flag. So we are looking at a number of things.
You Derek with through our liquidity position. So we do have cash to do deals and.
And stay tuned we're going to and we're certainly going to be looking at to do some more.
Okay very good thanks, guys.
Our next question is from Bryan B Riley Securities. Please state your question.
Yeah, Good morning, guys.
And maybe a point of clarification.
And you said that the share count.
And that you currently is the key for now just to be clear that day not at the end of the second quarter correct. Yeah. That's right. That's the most recent number right.
Okay, and then kind of following up on that with a number of calls and emails.
Investors, who are curious as to why would things going so well you guys continue to issue equity and maybe its to the point Richard just made that you're seeing opportunity and that you won't have the liquidity to do so but can you just clarify that debt that is the case.
Yes, that's right for I think it's a combination of things.
Yeah.
It's for it's firstly.
The abundance of conservatism.
Right I think it looks like we're out of the woods.
There is some still negative headlines out there, but it looks like we're out of the woods.
It's.
The.
Our strategy of deleveraging over time.
Which we certainly talked about Derek and told you that were at 49% net debt to gross assets.
Look across our peers, there at sort of 35%.
It's a place that we'd like to be and the.
Coming years and.
But we want and be very.
Thoughtful about how we get there.
And then.
The last thing, which is being able to avail ourselves of the of these acquisition opportunities and.
And what we are seeing in the second half of this year is we have a number of sellers.
That maybe they're not.
Long term.
Natural owners of hotels, maybe they only own 1 or 2 maybe the past year and a half has been is about as much fun as they want to have and the hotel business.
And are seeking to exit so and we have some sellers as was the case with Mr. C that had.
And a debt maturity.
Debt.
It wasn't something that they felt that they could refinance efficiently and therefore chose to.
And to monetize or at least merge and our portfolio.
Seeing opportunities that are being driven by that dynamic as well.
But were being as disciplined as ever in <unk>.
Terms of our financial metrics and.
And some cases seeking even higher returns and we would have pre COVID-19.
And therefore, we have to look at a lot before we can kind of narrow it down to the things that makes sense for us, but so that's really the combination of all those things we are absolutely focused on.
Creating shareholder value and all.
All of this and that continues to guide us So that's what we're.
Doing with these recent equity raises.
Yes, I think we've all had about as much fun as we can handle over the past year.
You may and debt some negative headlines still out there.
To that point.
Impact on your next month few book gains relative to the Delta variant news, we continue to see every day.
We've seen absolutely no impact of it I think it's it's.
And the Media's wave Fearmongering frankly.
Yes cases are up slightly.
<unk> and the U S whereas.
20 cases per 100000 people per day, now and the U S. But if you look at India and you look at the U K.
Just plummeting.
And really just plummeting and so there are there there are and the other side.
And my suspicion is it.
Is there is going to be a turnaround and the U S as well fairly soon but in the Meanwhile, I think the media and haven't followed it.
Okay, just 2 more from me on the renovations for Mr. C. I think you said $10 million.
Is that mainly going to go and rooms or lobby how is that money going to be deployed.
It's a little bit of everything.
And I think and the.
The rooms are up and design and a very.
Very unique and impressive way and kind of has a nautical theme including teak.
Teakwood floors as if they were both debt and heavy metal fixtures and portals and this sort of thing.
We'll see where ultimately come.
And out on design, but there are a lot of features that we'd like to retain.
Some of the hard goods have gotten a little mixed up over and over the years.
Certainly soft goods will be replaced.
And then a refreshed pool deck outside refreshed restaurant and lobby so it's really a.
A little bit of everything.
But no but no major structural work.
At least for our scope.
And just last from me on the urban hotels, I think Jeremy mentioned and he said the clamp, yes and no.
We're mid Ninety's occupancy for July and I get that right.
Now, we're running where we're on pace.
Cash for Seattle waterfront.
And <unk> and then.
[noise] Clancy is mid eighties.
Yeah, and those 2 west coast properties.
And can you listen idea how that net.
And I.
Yes, it's on pace for about 50% of occupancy in July.
And just 1 last thing and he looked at capital Hilton I mean, the occupancy there is just sad for for lack of a better word what's going on there and when might that turnaround.
We know that property is a big property.
It's our largest 550 rooms, it's also.
Very heavy.
Heavily dependent on citywide meetings and and groups are with its various ballrooms and meeting space. So.
We're waiting for that business to return in addition to <unk>.
Corporate transient business in D C.
At the moment that looks to be more of a fourth quarter phenomenon.
And on than anything so I think that property will continue to kind of bring up the rare in terms of its results.
Until we get there and then.
A question and what is our group pace. So for our fourth quarter group pace is down only about 27% relative to 2019.
But then if you look at 2021, its actually ahead by 5% and the first quarter.
So.
That indicates to us debt, we're going to get there, but for that property and we still have to wait for 2 more months for it to really kick and yes.
And what I would say and just keep in mind that all the restriction for just lifted in June and.
Seventh and D. C. And then there are still capacity restrictions and museums debt that were lifted and July so.
And it's <unk>.
Slowly opening up versus maybe some of the other markets as well.
Alright, thanks, and congrats on a good quarter and it was really good all things considered.
On genome price Brian.
Our next question is from Michael Bellisario of Robert W. Baird. Please state your question.
Thanks, Good morning, everyone.
Sure.
First quick clarification, the 5% ahead and a 27% down figures you just gave was that.
Specific to D C or was that for the entire portfolio.
That is the entire portfolio.
I'll give you just a little bit more clarity Michael looking into 2022 as compared to 2019. The overall group pace is basically flat, it's actually slightly up $72000.
But the mic.
That is I think very interesting.
We're up 11% and ADR.
And down 10% in room nights. So that's like the perfect scenario for us. So we're very very excited about where we stand from a group position standpoint and.
And that speaks to the discipline and the teams that are just now and we've got a.
Portfolio and pushing rate and so we've been doing.
That's helpful. Thank you and then can we just go back to the Mr. C transaction, maybe kind of piece everything together that you've said so far just from a high level to get to that 8% yield that you guys are targeting and a few years.
High quality and maybe how much is operational and how much is the market simply recovering and then how much do you think is going to come from the renovation upside to $10 million, you're going to put in.
I think it's a combination of all.
And so and hopefully hopefully we exceed that.
And we didn't when.
The pro forma that richest quoting and it doesn't take into account all the operational opportunities, we've identified and are continuing and identify.
But certainly we anticipate the recovery and the market, we anticipate that we're going to gain market share. We anticipate that we're going to have some synergies and.
And then we still.
And we look at not fully decided what we want to do from our branding our independent perspective.
We're going through that process, we plan to be diligent about it but I think we've got a great track record of repositioning assets within this portfolio. So we are excited to do that with this asset as well.
Still haven't got it and then just on the topic of acquisitions, maybe big picture.
8% Unlevered yield, 10% IRR or I think the last couple of deals pre pandemic, the same kind of 10% Unlevered IRR maybe.
Why is that the right number and at target and and how have you seen maybe that number change based on what.
And yet and how things were price pre pandemic versus what youre looking at today, and how things might be price today.
Yes.
10% Unlevered IRR is how I assess the riskiness of large and cash flows.
I just believe that that's the right ritu.
A return for that.
Type of risk.
I think that does.
Match up nicely also without cost of capital.
And I'm sure you've calculated our weighted average cost of capital certainly others have and we have 2.6% weighted average interest rate on debt, which is about 50% of our capital and then you can calculate your.
We haven't.
Changed that bogey, if you will pre the pre pandemic post pandemic.
Because I don't believe that day.
And the riskiness and lodging cash flows has materially.
Changed.
Feel like we have more visibility on lodging cash flows the lodging industry casuals and we've ever had just because we're just returning back to where we work.
And you can be.
And a little bit wrong on the timing of how to get back there, but there is there is really no doubt in my mind that we're going to get back there and.
So it's fairly easy to to now forecast at least from my perspective versus what we had to do and the past.
And so that's that's how.
About it and I think I think that's a good approach and I think that's going to deliver value.
Understood. Thank you.
Alright, well I think that's all the time, we have so I want to thank everybody for joining us.
And our second quarter earnings call. We do look forward to speaking with you again on our next call and then in addition, we're planning to have.
Our Investor Day in New York on October 12, and will provide additional details on that later, but thanks for all for China.
Okay.
Thank you. This concludes today's conference.
You may disconnect your lines at this time.
Thank you for your participation and have a great day.