Q2 2022 Braemar Hotels & Resorts Inc Earnings Call
Readings and welcome to the bramore hotels and Resorts and corporated second quarter 2022 results conference call. At this time, all participants are in listen-only mode. A question-and-answer peak session will follow the formal presentation and I want to require operator assistant during the conference. Please press stars zero on your telephone keypad as a reminder of this conference is being recorded. I would now like to turn the call over to Jordan jenics, manager of Investor Relations. Thank you, you may begin.
Good morning and welcome to today's called review results for Braemar hotels and Resorts for the second quarter of 2022 and upateyou on recent development. On the call today will be Richard stockton, President and Chief Executive Officer, Derek you MA, Chief Financial Officer, and Chris nixon, Senior Vice President and Head of asset management. The results, as well as notice of the accessibility of this conference call on a liston-only basis over the Internet, Richard ributed yesterday in a press release.
At this time. Let me remind you that certain statements, assumptions and this conference call contained or are based upon forward-looking information and are being made pursuant to the safe harbor provision of the federal securities regulation.
Such forward-looking statements and subjects to numerous assumptions, uncertainties and? N are unknown risks which could cause actual results to differ materially from those anticipated. These factors more fully discussed and accompanying 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 in the company's now obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or particicipation of an offer to byy any securities. Securities will be offered onlyed by means of reisstration statement and prospectes which can be found at SEC. In addition, certain terms use in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and theaccompany tables or schedule, which have been filed on Form 8-K with SEC on officers 2022 and may also be accessed to the company's website at W BHR com.
Each listener. Thank you, encouraged to review those reconciliations provided in the earnings Re nings release, together with all information provided in the release. I will now turn the call over to Richard stockton. Please go ahead, Richard.
Good morning and welcome to our second quarter earnings conference call.
I will begin by providing an review of our business and an update on our portfolio. After that, Derek will provide an overview of our financial results and then Chris will provide an update on our asset management activity, after where we will open the call for QA.
We have four key themes for today's call. First, our livery resort portfolio continues to outperform and help drive comparable hotel EBITDA of fifty-seven point four million dollars for the quarter and increase of 43% versus the comparable quarter in two thousand and nineteen and.
Second we continue to generate strong cash flow, with approximately $27 million of cash flow generated in the second quarter, after CapEx and preferred dividends.
Third our portfolio is well positioned to contain outperform a very strong forward bookings as we are now seeing corporate transient group business accelerating in their recovery on top of the already strong leisure segment.
And fourth.
Our balance sheet is in good shape. We have no remaining final debt maturities in 2020 -two and.
We're extremely pleased with our strong second quarter and continue to see outperformance compared to two thousand and nineteen and.
Our comparable at Tel EBITDA, $57.4 million during the quarter was driven by strong occupancy levels at our resort properties.
Additionally, RevPAR for all hotels in the portfolio increased approximately 43% for the second quarter of 2022 compared to the second quarter 2021, and our comparable portfolio RevPAR, increased approximately 28% when compared to the second quarter of two thousand and nineteen and.
Most encouraging. Our urban hotels generated $20.3 million of comparable hotel EBITDA in the second quarter, compared to negative zero $1 thousand in the first quarter.
We've been saying that the recovery in our urban hotels will be the next phase of growth for our portfolio and we started seeing that in a big way in the second quarter.
We remain excited about our opportunities to deliver continued growth and for calendar year 2022, we expect a material exceed both 2019, RevPAR in 2019 hotel and deda.
On both a comparable and an actual basis.
Several of our hotels achieved very strong hotel EBITDA margins during the quarter, with perhouse resort at 55%, hotel yon Bill at 44%, Re at Seattle at 42% and the silaphotel Chicago at 56%.
The Sol Chicago result reflected a significant property tax expense reduction that we recognized in the second quarter.
Our overall portfolio, comparable EBITDA margin was 33%, despite including two hotels with negative hotel EBITDA.
While leisure demand continues to be strong, particularly on weekends. In the second quarter we finally saw a strong recovery in corporate transient and corporate group demand.
Overall we have seen these trends continue into a strong start to the third quarter. For the month of July , our preliminary figures suggest that we finished with 72% occupancy in an ADR of $439, which equated to a RevPAR of $318 for the month, exceeding 2019 by 28%.
Many of our hotels are in drive to leisure markets and have been posed to benit from the resgence ofp-up leure demand in recent months. In total, nine of our 15 hotels are considered resort destinations.
We are pleased to report that this segment delivered a combined hotel EBITDA of $37.1 million for the quarter.
I would also like to mention that the rit call to brand, which includes four hotels in our portfolio representing over $93 million, or approximately 50% of our TM hotel EBITDA, was recently named the number one rate and luxury hotel brand for the second consecutive year by JV power.
I also continue to be encouraged by the advancing recovery of our urban properties, which have been ramping up quickly.
For the second quarter: all six properties posted positive. Hotel EBITDA.
This is a significant turnaround, as demand is quickly returning to our cities.
This includes leisure as well as corporate transient and corporate group demand.
Additionally, we were cash flow positive again at the corporate level for the sixth consecutive quarter, while our mararenage balall sheet was already in good shape. As we enter 2022, this puts us in a much stronger position financially.
As some of you may have seen, CBR recently published an industry report that highlighted the benefit of hotels as a hedge against inflation.
Based on their analysis, they concluded that hotels have historically been able to grow their profitability at a higher rate than inflation, even during times of high inflation.
We have seen the dynamic playout during this period of high inflation and believe that breammar remains well positioned in varying economic scenarios, having a diversified and very high-quality hotel portfolio.
Looking ahead, we continue to see a robust pipeline of acquisition opportunities in the market. We will continue to be extremely disciplined in our investment approach and only focus on transactions that we believe will be accretive to total shareholder return.
On the financing front, we continue to raise capital via our nontraded preferred stock offering. Our balance sheet is in good shape and we have an attractive maturity schedule over our next hard maturity, not till April 2000 and twenty-threeand.
We have also been active on the Investor Relations front. In the months ahead we'll continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in brandmark.
Looking ahead, our unique portfolio, which is focused on the luxury segment and with properties in both resort and urban markets, positions us to perform well in both the near-term and long term, as leisure demand continues and business and group travel resumes.
We have the highest quality hotel portfolio in the public markets that is generating positive cash flow at the corporate level, and what we believe is the solid liquidity position and balance sheet with attractive debtfinancing in place. I will now turn the call over to Derek.
Thanks Richard for the second quarter of 2022 we reported net income attributable to common stockholders of $10.3 million or 12 cents per diluted share for the quarter. We reported affo per duted share of 37 cents compared to affo of 20 cents per diluted share in the prior year quarter reflecting a growth rate of 85% and.
Adjusted EBITDA ree for the quarter was $50.1 million, which was 53% higher than what we reported in the second quarter of two thousand and nineteen.
At quarter-end we had total assets of $2.1 billion. We had $1.2 billion of loans, of which $49 million related to our joint venture partnerers. Share of the loan of the Capitol: Hilton and hil in the oatory Pines.
Our total combined loans at blended average interest rate of 4%. As of the end of the second quarter, we had approximately 43% net debt to gross assets and continue to make progress in our deleveraging efforts.
We ended the quarter with cash and cash equivalents of $251 million and restricted cash of $48.1 million. The vast majority of adverrestricted cash is comprised of lender and manager held reserve accounts.
At the end of the quarter. We also had $19.1 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 hotel operating costs.
As Richard mentioned, our comparable hotel EBITDA uring the quarter with $57.4 million. After taking into account debt service, GNA costs, advisory fees and other corporate costs, preferred dividends and capital expenditures pre the quarter, we generated approximately $27 million of positive cash flow.
On the capital markets front while we did not complete any financing during the quarter we have an attractive maturity schedule with our next final maturity. Not until April 2020 -three and.
I'm also pleased to report that during the second quarter, we issued approximately one point six million shares of our Series E and seri them nontraded preferred stock, raising approximately $37.6 million in net proceeds.
This strong fundraising momentum has continued into the third quarter, and during the month of July we issued approximately two point two million shares of our Series E and Series am nontraded preferred stock, raising approximately $50.6 million in net proceeds.
We expect the proceeds from the sale of the seri Z and seriesm nontraded preferred stock, as well as our internally generated cash flow, to be our primary source of capital to facilitate our growth and deleveraging goals.
As of June 30 2022, our portfolio consisted of 15 hotels with 3736 net rooms. Our share count currently standned the 79.7 million fully diluted shares outstanding, which is comprised of 71.3 million shares of common stock and eight point four million op units.
And our financial results. We include approximately four point one million shares and our fully diluted share count associated with our Series B convertible preferred stock and approximately 13.6 million shares in our fully diluted share count associated with our convertible senior notes.
This concludes our financial review. I'd now like to turn over to Chris to discuss our asset management activities for the quarter.
Thank you, Derek. Comparable RevPAR for our portfolio increased 43% during the second quarter relative to the same time period in 2021.
When compared to 2019, our portfolio recorded two y-eight percent RevPAR growth during the second quarter. The outperformance of this portfolio is evident when you contrast our portfolio to the market as a whole, with the? U's luxury chain scale market having only increased 13% over 2019 RevPAR and the upper upscale chain scale having only recovered 99% of 2019 vpar levels.
Our resort assets are thriving, with hotel EBITDA having grown by over 105% during the second quarter relative to comparable two thousand and nineteen.
A number of these resorts had even set recent performance records.
We are also pleased with the recovery of our urban assets, with their second quarter hotel EBITDA, having recovered 92% relative to comparable two thousand and nineteen.
I would like to spend some time highlighting some of the successes we are seeing in our portfolio.
The richz Carlton cerasota completed its best second quarter on record, with $9 million in hotel EBITDA.
That is a 16% improvement over the second quarter of 2021, which was a previous record. The asset management team completed an extensive asset deep dive during the acquisition process and identified a number of opportunities.
We are now seeing the long-term benefits of that work, the first being the resort membership program, which is now sold out and generates approximately $6 million a year in long-term revenue.
Another project which was completed in December was the addition of 10 keys and underutilized hotel space.
These additional keys are allowing us to capitalize on strong demand in the market.
With these and other long-term initiatives in place, we anticipate that this hotel will continue to outperform.
In our first full quarter of ownership, the Ritz carlthton reserve to roadto Beach has already realized benefits from a number of initiatives that we identified during the acquisitions process, resulting in the hotel' total revenue increasing 5% relative to the second quarter of 2021.
Our team focused on items that would move the needle immediately. We raised resort fees, implemented parking fees, added to Banner rentals rental fees and improved the merchandising of various room types. In addition, our team reviewed every food offering within the hotel, as as well as competitor hotels and restaurants, to identify pricing opportunities.
The initiative played a large role in the hotel's ability to drive additional B revenue, which resulted in the highest SM revenue during the quarter and the hotel's history.
We are still rolling out the remaining items on our takeover plan and are excited about unlocking the full potential of this asset.
Moving to an urban asset that we acquired in August of 2021 the MR C Beverly Hills has also outperformed with second quarter RevPAR exceeding comparable 2019 by 4% and.
While we have only owned a hotel for a year, it has already significantly outperformed our year two investment underwrite.
Prior to taken over the hotel, our asset management teams developed a 70 -point plan that we believe will increase stabilized hotel EBITDA by more than $1 million.
We continue to see positive results from that plan, which included implementing reimmington as a hotel manager, rebalancing the top line revenue strategy to be more dynamic with peak demand, NS and premium rooms, and using our expertise on expense management to improve profit margin.
These initiatives have already resulted in the success with the second quarter ADR and occupancy exceeding 2019 levels and departmentalof profit margin improving by more than 1000 basis points relative to the second quarter. In 2019 the.
Moving on to capital investment, we have invested heavily in our portfolio over the last several years to enhance our competitive advantagethese investments uniquely position our portfolio to benefit from the pent-up demand that we are currently seeing in our markets.
In 2022. We are currently renovation the Marriott Seattle guest rooms, recently completed a restaurant patio edition at the parkhive deiever Creek and plan to move forward with a guest renovation at the Capitol hiltton, a renovation of the spot at the richz L in arasota and adding a retail shop and the lobby at the richz Carl in Lake topl. Overall, we anticipate spending approximately 50 to $6 million on Capitol expenditures this year.
Our property level forecast are showing strong signs of continued success for the third quarter, relative to two thousand and nineteen.
We will continue to benefit from the return of group demand, which has been recovering steadily. This is illustrated in the gross bookings for the month of June , which exceed 2019 levels by 76%, and.
We are particularly enthusiastic about those bookings being led by our Washington D C, San Diego and Caribbean markets.
As the urban properties continue along their trajectory and the resort assets maintain their dominant pace, our portfolio is well positioned for future success.
I will now turn the call back over to Richard for final remarks.
Thank you, Chris. In summary, we continue to be pleased with the trends we are seeing at our hotels, driven by strong leisure demand in our lxury resort properties, and recovery of our urban propertiests see a clear path for continued strength in our future financial results. We're well positioned, moving forward with a solid balance sheet in a unique diversified portfoliowe look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks and we will now open up the call for QA.
Thank you. We will now be conducting a question-and-answer session. You would like to ask a question? Please press star one on your telephone and key pad.
Confirmation tone will indicate your line as in the question que you may press start to. If you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your ansset before pressing the start tothese.ase one moment Please, while we pull for your questions.
Our first question is come from the line of Tyler loratory with apppenhaer. Please proceed with your questions.
goodthank you. First question for me on the operations side of things. Nice to see the improvement in the urban assets. Can you talk a little bit more about your expectations for those hotels the rest of this year and in particular interested in your view and your perspective on San Francisco as well?
Yes I can take that. Thanks, Tyler. We've been really happy with just the continued rebound of our urban hotels. I mean they continue their their trajectory really well. To kind of put it in context, they've outperformed each month through this year and January it were at about 44% of 2019 levels. You fast forward. June we were at 91% of 19 levels for urban hotels. There's no signs of that slowing down. Corporate travel remains strong. It's very short term in terms of a book windows standpoint. Our group pace we remains strong. 80 R is very favorable as we look ahead and so we expect that trajectory to continue and ultimately to kind of exceed historic levels. In terms of San Francisco, we're seeing some favorable thing out of that market. You know June , with the first month that the hotel exceed 2019 room revenue at the clancy it was driven by 80 R, which is great to see. We had a R', S a cityw in June - it's usually in February but it shifpped to do to. COVID-19 produced nearly 800 room nights for the hotel. We're starting to see healthy signs out of San Francisco. In terms of corporate travel coming back, delloy and sales force, which are big accounts for hotel, are starting to travel again. Labor has been a challenge in that market. Staffing has been a challenge long term. Citywide pace weremains a challenge, but we're seeing favorable trendsout of our short term group business in that market.
Okay great streitching gears a little bit in terms of the non traded preferred. Is there a reason why you were able to raise so much in July compared with Q2, and is there a way to think about a monthly run rate? Perhaps that might make sense in terms of how much you might raise going forward.
Tell this is dek, I'll take that, we do. We do closes every two weeks, So it's, and the offering will be open really through February of next year. And the process for that is you build a syndicate of brok dealers and those syndicates that have brokers that are out selling that security to their investors, the keepy capital with them, and over time you add more and more dealers to that Syndicate, and so that's why you've seen that the dollar out grow over time, and that's what we expected to happen as we've proceed with the offering in that space. If you may or may not be aware that there was another reef that issues on trade to prefer was called preferred apartments that end up going private and those investors got their capital back and we are there with an open offering as an alternative to redeploy that capital and I suspect we saw some of that capital come back again in July . That may continue to be the case for a while. It's hard to know, but it's really difficult for us to give any guidance in terms of what path or amount of future capital rate it could be, but we will just, you know, announce that it as it comes in.
Okay great, and that's last question for me- in terms of acquisitions, what does the pipeline look like right now? What sort of opportunities are out there and what are you seeing in terms of pricing and expectations for pricing as well?
Lot of questions in their Tyler.
I I didn't take that.
Well I'll going to comments about the acquisitions. The market first is.
We've probably only seen about 15 or 20% of the opportunity that we've reviewed actually trade. What's been happening is you've got sellers that comes to market this year and with the pricing in the debt markets and the availability of financing, a lot of, a lot of the buyers has pulled back and so on the one hand, that's discouraging. On the other hand, that create an opportunity for us because we're not necessarily going to rely on property level mortgage financing for our next acquisition. one of the benefits of this non traded for fer program is we have ample liquidity than to pursue acquisitions on an uncovered basis and still achieve a spread in our returns relative to that cost of capital, even without- even without- debt. So we are looking at those opportunities. There are a number of things at any one time where evaluating tandor. So different acquisitions. It's a combination of urban and resort. There's not necessarily one theme, of course. Everything that we look at is luxury.
But we're trying to focus on acquiring income in place and we continue to have the discipline of targeting unlevered IRR of at least 10% pricing in the market.
I think it's moving a little bit in our favor, just kind of, given the lack of leverageed buyers that are out there.
So I feel like we have a little bit more influence in the negotiation than we had say given three months ago. But in terms of very specific pricing it's case by case and.
Property property we'd have to discuss, but I'm just tell you where we're over targeting our returns.
ok that's very helpful. Let's all for me. Thank you.
Thank you as a reminder. If you would like to ask the questionions, please press star one on your telephone. Keep that.
Our next question is come from the line of Michael Bellis ario with Bart. Please proceed with your questions.
Thank you, good morning everyone. And interest capital allocation first. I know it's a Board decision, but maybe can you provide some context on how you're thinking about the trajectory of the comic dividend in light of how strong fundamentals within your portfolio are todayyes sure, I'll take that. Well first, you know, we've always said- always really So into the last 18 months we said we kind of assess dividends on the basis of our own financial standing But then also what our peers are doing or able to do. We're using the opportunity that we have right now generating a lot of internally generate cash flow to to deleverage. We've said that we want to target 35%, that that's gross assets. We're sitting a little bit about 42% today. So I'd say that the priority for the company right now I think once we achieve that, you know the boardal will reexamine the dividend policy, but I think you're getting to that leverage that we stated we're targeting is is the preferred roout right now.
Got it understood and then just back to transaction. But guess, kind of a tougher question to answer because you are raing the non traded preferred. But maybe if you weren't raising as much and you didn't have as much capital coming in the door, do you think you would be as aggressive on the acquisition front? I sense- maybe I'm wronger, correct if I am- that you seem a little bit more optimic upbeat, that maybe you put some capital, or today versus call it 90 days ago. But it kind of in the context of if you weren't raising as much non traded prefer, do you think it'd be as as aggressive on the acquisition front today?
I think we would we're always I Don T T say equally aggressive on the acquisitionions front when markets are up. Markets are down sentiments in favor out of favor. It's always worth looking at as many opportunities as you can to see if you can get the returns to work and.
We Don" T turn off or turn on our acquisitions team or our effort, because I think if you do so, you need to be missing out on some opportunities.
We have a small enough.
Portfolio and each acquisition is important enough to it that we will get it on a case case by case beo basis. We're not just buying the market orre not buy the market in certain periods of time. So that's how we think about it so we're looking at as much as we ever have right now and we've got a full acquisition team crackking away. I think even if we were raising not try to prefer we doing the same thing and then looking to partner with other capital sources to make those deals happen but.
We don't want to miss any good deals and.
It goes where we are in the market.
Yes and then just one followall-up there on. I know you mentioned your focused on acquisition front on current yield. Do you maybeto provide some round figures or ranges on kind of what that would be in your 1? I know you mentioned 10 plus percent on levered IRS, but how should we be thinking about your one year two cash flows relative to the dividend that needs to be funded on the non trade prefer that's closer to eight yes yes, historically we've always started a minimum initially yield unlevered of 6%.
I think what we're finding now is you've got ly urban properties that are still rebounding and so been a little bit willing to accept a slightly lower initial yield for a property where we've got visibility that that income will be forthcoming in another year or two So I were to kind of take that down to 5%. I think that's reasonable where we are in this market and then on conversely, some of the resort opportunities we're seeing in the shield, S even higher because the performance has been so high relative to historic that you can lock in a higher initial yield today, which still looks very attractive to the seller on the basis, So say, two thousand and nineteen numbers.
So hopefully we'll continue to be able to average that 6%, depending on the opportunities. But it really depends which acquisition opportunities hit.
Understood Thank you.
Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.
Well'. Thank you all for joining us on our second quarter earnings call and we look forward to speaking with you again on the next call.
And thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.