Q1 2023 Braemar Hotels & Resorts Inc. Earnings Call
Speaker 1: That St.
Speaker 2: Greetings. Welcome to the Braemar Hotels and Resorts, Inc. first quarter 2023 results 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 on your telephone keypad. Please note this conference is being recorded.
Speaker 2: I will now turn the conference over to your host, Jordan Jennings, Manager of Investment Relations. My name is Jordan programming institute and I'm the focus of this conference.
Speaker 3: Good morning and welcome to today's call to review results for Braemar Hotels and Resorts for the first quarter of 2023 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Chris Nixon, Executive Vice President and Head of Asset Management.
Speaker 3: The results as well as notice of accessibility of this conference call on a listen-only basis over the internet were distributed yesterday and press release.
Speaker 3: At this time, let me remind you that certain statements and assumptions in this 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.
Speaker 3: 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 are more fully discussed in the company's filings with the Securities and Exchange Commission. If forward-looking statements included in this conference call are only made as of the date of this call, the company is not obligated to it.
Speaker 3: All the groups who publicly update or revise them. Statements made during this call do not concentrate and offer to sell or solicitation of an offer to buy any securities. Securities will be offered by means of a registration statement and perspective which can be found at www.sec.gov. In addition we will
Speaker 3: Certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided, and accompanying sermons released, and accompanying tables or schedules, which have been filed on Form 8K with the SEC on May 2, 2023 and may also be accessed through the company's website at www.vhrre
Speaker 3: March 31, 2023, with the first quarter ended, March 31, 2022. I will now turn the call over to Richard Stockton. Please go ahead, Richard.
Speaker 4: Good morning and welcome to our 2023 first quarter earnings conference call. I will begin by providing an overview of our business and an update on our portfolio. Then Derek will provide a review of our financial results and Chris will provide an update on our asset management activity.
Speaker 4: Afterwards, we will open the call for Q&A.
Speaker 4: We have a few key themes for today's call. First, we're pleased with the continual momentum of our urban hotels, which achieved strong growth again this quarter, with comparable hotel-e-bedou growth of $9.2 million in the first quarter over the prior year quarter.
Speaker 5: Second
Speaker 4: We continue to diligently execute and work through our refinancing program for 2023.
Speaker 4: And finally, we've said this before and it's worth repeating, BrainMart's management team has been through many economic cycles. We're delivering against our long-term strategy and remain well positioned to capitalize on appropriate growth opportunities.
Speaker 4: We've said this before and it's worth repeating. Brain Mart's management team has been through many economic cycles. We're delivering against our long-term strategy and remain well positioned to capitalize on appropriate growth opportunities. Turning to our quarterly results.
Speaker 4: I'm pleased to report that Braemar delivered solid first quarter results despite a volatile macroeconomic environment. Our first quarter 2023 comparable Hotel Ibadah of $72.8 million was driven by the continued strong performance at our resort properties and as we've outlined on prior calls, the continued momentum and strong growth from our urban hotels.
Speaker 4: Also, looking at Redpar for all hotels in the portfolio, Redpar increased approximately 8% for the first quarter of 2023 compared to the first quarter of 2022.
Speaker 4: Taking a closer look at our best in class luxury portfolio, many of our hotels are well situated in attractive high barrier to entry leisure markets.
Speaker 4: 10 of our 16 hotels are considered resort destinations and they remain extremely well positioned to benefit from persistent leisure demand.
Speaker 4: For the quarter, we are very pleased to report that our Luxury Resort portfolio continues to outperform and delivered a combined Hotel Ybideh of $64 million to start 2023.
Speaker 4: With respect to our urban assets, our first quarter performance was solid and exhibited strong growth for the eighth consecutive quarter.
Speaker 4: In fact, we generated $9 million dollars comparable to Hotel Ibadah, and all six urban properties posted positive Hotel Ibadah.
Speaker 4: We are very encouraged by the continued momentum and ramp up of our urban hotels as demand quickly returns to our cities.
Speaker 4: This return continues to be driven by corporate transients with recent strength in corporate group demand.
Speaker 4: Overall, our urban portfolio is in solid shape and as demonstrated by our first quarter performance, we continue to believe our urban hotels will help drive the next phase of growth for our portfolio.
Speaker 4: Next, we remain very excited about our recent acquisition of the Four Seasons Resort Scottsdale at Tern North, which has exceeded our expectations and delivered REFR growth of 25% over the prior year period.
Speaker 4: As you may recall, the 210 room luxury resort was acquired in early December 2022 with cash on hand and no common equity was issued upon the acquisition.
Speaker 4: The Four Seasons Scottsdale delivered revpar of $749 based on 53% occupancy and an ADR of $1,403. Our other acquisition from last year, the Ritz-Carlton Reserve Dorado Beach also continues to perform very well. For the quarter, the Ritz-Carlton Reserve Dorado Beach delivered revpar of $1,753 based on 56% occupancy and an outstanding ADR of $3,115. For more information, visit www.fema.gov
Speaker 4: Over the trailing 12 months, the Ritz-Carlton Reserve Dorado Beach has achieved an 8.6% yield on cost, while the Four Seasons Scott Bill achieved a 7.4% yield on cost. I'm pleased to note that these luxury assets have significantly outpaced our underwriting. Looking ahead to the balance of the year, we remain very excited about the prospects of these properties.
Speaker 4: Looking at our capital position, Brainwater's balance sheet remains in good shape and we continue to emphasize balance sheet flexibility. Toward this end, during the first quarter, we work through our 2023 refinancing program to further enhance our attractive maturity schedule. In April we finalized extensions of the mortgage loans for the Ritz-Carlton Sarasota and Hotel Previous
Speaker 4: Both loans were extended beyond their original maturity for an additional six months, with one additional six month extension also available.
Speaker 4: We're also working with our lender on refinancing of the mortgage loan secured by the Barcelona Hotel and Spa, which has a final maturity in August 2023. This is a very low leverage loan and we don't anticipate any challenges with extending or refinancing it.
Speaker 4: Next, on the investor relations front, we continue to be active and meeting with investors to communicate our strategy and highlight the attractiveness of an investment in BrainMart.
Speaker 4: We plan to continue to get out on the road attending investor conferences and one-on-one meetings. We also hope to see some of you at NAREDAN June .
Speaker 4: Looking ahead, 2023 is off to a solid start. We're encouraged that our group pace is up 28% year over year.
Speaker 4: Our unique portfolio, which is focused on a luxury segment and with properties in both resort and urban markets, puts us on solid footing to perform well in both the near term and the long term.
Speaker 4: as leisure demand remains strong and business and group travel continue to accelerate. We have the highest quality hotel portfolio in the public markets and we remain well positioned with what we believe is a solid liquidity position and balance sheet with attractive debt financing in place.
Speaker 4: I will now turn the call over to Derek to take you through our financials in more detail.
Speaker 4: Thanks Richard. For the quarter we reported net income attributable to common stockholders of $3.2 million or 5 cents per diluted share and AFFO per diluted share of 44 cents.
Speaker 4: Adjusted EBITDA RE for the quarter was $66.1 million, which reflected a growth rate of 34% over the prior year quarter. At quarter end, we had total assets of $2.4 billion. We had $1.3 billion of loans, of which $49 million related to our...
Speaker 4: and our corresponding interest rate caps, approximately 74% of the company's debt is effectively fixed and approximately 26% is effectively floating. As of the end of the first quarter, we had approximately 37.1% net debt to gross assets.
Speaker 4: We ended the quarter with cash and cash equivalents of $281.5 million and restricted cash of $63.1 million.
Speaker 4: The vast majority of that restricted cash is comprised of lender and manager held reserve accounts.
Speaker 4: At the end of the quarter we also had $19.1 million in 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. With regard to dividends, in December we announced a significant increase in the company's quarterly common stock dividend.
Speaker 4: to five cents per share or 20 cents per diluted share on an annualized basis.
Speaker 6: This equates to an annual yield of approximately 5.3% based on yesterday's stock price.
Speaker 6: The Board also approved the company's dividend policy for 2023. The company expects to pay a quarterly cash dividend of 5 cents per share for 2023 or 20 cents per share on an annualized basis.
Speaker 6: Reflecting a strong conviction and bringing our strategy and our commitment to create long-term shareholder value, in December we also announced a stock repurchase program above $25 million.
Speaker 6: During the first quarter, we completed this $25 million buyback program and acquired 5.4 million shares at an average price of $4.60 per share.
Speaker 6: On the Capital Markets front subsequent to quarter end, we finalized an extension of our $98 million mortgage loan for the 276 room Ritz-Carlton Sarasota.
Speaker 6: The loan was extended beyond its original maturity in April 2023 for an additional six months with one additional six month extension available. As extended, the Rich Carleton Sarasota loan has a rate of SOFR plus 2.65% that will reset to SOFR plus 3.5% on June 1, 2023.
Speaker 6: along with extended beyond its original maturity in May 2023 for an additional six months with one additional six month extension available. playing.
Speaker 6: As extended, the Hotel Yountville loan has a rate of SOFR plus 2.55% that will reset to SOFR plus 3.5% on July 1, 2023.
Speaker 6: In conjunction with this extension, we purchased a SOFR interest rate cap at a strike of 5.25% with an expiration date of November 10, 2023.
Speaker 6: As of March 31, 2023, our portfolio consisted of 16 hotels with 3,957 net rooms.
Speaker 6: Our share count currently stands at 72.8 million. Fully diluted shares outstanding.
Speaker 6: which is comprised of 66 million shares of common stock and 6.9 million OP units.
Speaker 6: This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter.
Speaker 6: Thank you, Derek. For the quarter, comparable REVPAR for our portfolio increased 8% over the prior year quarter to $369. This REVPAR result is approximately 27% higher than the national average for the luxury chain scale and reflects the high quality nature of our portfolio.
Speaker 6: I would like to spend some time highlighting how our team has capitalized on the urban recovery, built a foundation around group demand, and implemented successful initiatives at our newly acquired hotels. Our urban assets continue to benefit from the acceleration of demand into their markets.
For urban assets, comparable hotel total revenue in the first quarter surpassed the prior year's first quarter by 62%. This increase was led by our largest hotel, Capra Hilton, which reported comparable red part growth of 126% over the prior year quarter.
This achievement is noteworthy for a couple of reasons. One, the hotel is under a transformative guest room renovation throughout most of the first quarter. And two, the hotel exceeded the market rip-hard growth of 73%. We attribute this success to our partnership with Premier who is handling the renovation.
and the successful implementation of their stealth renovation program, which minimizes displacement, and our overall revit optimization strategy, which identified softness in the market and proactively focused on building a foundation of group business.
That emphasis to develop a foundation of group business at our hotels, as well as the return of major events and conferences, propelled our group room revenue for the first quarter ahead of the prior year's first quarter by 57%.
Comparable group room rate is up 8% relative to the prior year's first quarter.
We also saw excellent signs from our group booking volume in the first quarter where revenue placed on the books for all future dates was up approximately 16% relative to the prior year's first quarter. Our group pick-up, which is defined as group room revenue booked during the quarter for stays within the same quarter, was strong.
At the beginning of the quarter, we had approximately $18.5 million in group room revenue on the books and ended with approximately $26 million.
That is a 41% increase in total group room revenue for the quarter based on stays booked within the same quarter. In comparison, the pickup last year was only 6%.
While we are excited about the progress we are seeing in long-term group bookings, we plan to utilize our leverage throughout the current short-term booking environment to maximize our pricing strategy. All of these efforts and more have contributed to the overall success of the portfolio during the first quarter in 2023.
It is worth noting just how successful the first quarter was in terms of hotel performance, with four of our hotels setting all-time first quarter records in Hotel Iveta, including our two most recent acquisitions, the Ritz-Carlton Reserve Dorado Beach and the Four Seasons Scottsdale.
During the acquisition process, our team created detailed takeover plans for each hotel, including strategic opportunities to improve both top and bottom line.
For the Ritz-Carlton Reserve Dorado Beach, our team focused on items that would move the needle immediately, including increasing pricing in our F&B outlets, optimizing the Cabana rental program, enhancing our digital marketing efforts, and implementing an ancillary sales and upsell program. Our four seasons in Scottsdale experienced similar successful initiatives.
as well as benefited from a demand surge through Super Bowl weekend, which resulted in more than $3.2 million of room revenue over a four-day period.
That is a 427% increase year over year in room revenue for that period.
Moving on to capital investment, we have invested heavily in our portfolio over the last several years to enhance our competitive advantage.
These investments uniquely position our portfolio to benefit from the pent-up demand that we are currently seeing in our markets.
As previously mentioned, we are currently renovating the guest rooms at the Capitol Hilton. Later this year, we plan to start guest room renovations at Bartisano Hotel and Spa, Hotel Yountville and the Rich Carlton Lake Tahoe.
We also plan to begin renovating the meeting space at Park Hyatt Beaver Creek, the spa areas at the Ridge Carlton Sarasota and the Ridge Carlton Lake Tahoe as well as adding a lobby retail outlet at Ridge Carlton Lake Tahoe.
For 2023, we anticipate spending between $70 and $80 million on capital expenditures.
I would like to finish by emphasizing how optimistic we are about the future of this portfolio.
As I mentioned earlier, our urban assets are experiencing strong demand. Group business continues to show immense growth and a number of our assets continue to break comparable hotel EBITDA records.
We are already launching new initiatives to further enhance our portfolio.
Some of these include transformative full property renovations, developing underutilized lands and key additions, such as the recent acquisition of three keys at the Park Hyatt Beaver Creek in January of 2023.
With these new initiatives underway, we are confident that the portfolio will continue to outperform. Thank you, Chris. In summary, we continue to be pleased with the trends we are seeing at our hotels driven by strong leisure demand at our luxury resort properties and the continued recovery of our urban properties. We see a clear path for continued strength in our future financial results.
We are very well positioned moving forward with a solid balance sheet and the highest quality portfolio in the publicly traded Hotel Reap market. We look forward to updating you on our progress in the quarters ahead.
This concludes our prepared remarks, and we will now open the call for Q&A. Thank you, and at this time we will be conducting a question and answer session.
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And one moment please while we poll for questions.
Our first question comes from the line of Michael Bellisario with Baird.
Our first question comes from the line of Michael Belisario with Baird. Please proceed with your questions.
Thanks. Good morning, everyone. Good morning. Just first topic for Derek. Can you maybe talk about the conversations that you had with your lenders for those recent extensions? What are they asking for generally? What are you looking for? And then maybe…
Secondarily, where were you in the process before all the banking turmoil occurred? And I assume that's what derailed the more fulsome refinancing or extension package for the two loans so far, plus the third one coming up. Yeah. Thanks, Mike. Actually, the banking issues are...
30s this year are all property level mortgages with the same lender. And so what we did there is we did some short-term extensions, which gives us a lot of flexibility, but we're also in the process of hopefully working on a more fulsome corporate level financing where we could use those assets as a borrowing base, get an undrawn credit facility and have more flexibility from that perspective.
I think that market, while none of the hotel debt markets are attractive at the moment, that is one area that is currently a little more attractive than the straight up hotel mortgage today. Ideally, that is where we would like to end up at some point.
It remains to be seen where, when, where that would happen, but those extensions give us that flexibility and the time that we need to work on that, what I'll call more fulsome corporate type financing. We're pleased to get the extensions completed. Those assets and those loans are at spread that couldn't really be replicated in today's mortgage market. So we were happy to get it done the way that we got it done.
I just add a point is that
Historically, we've only really dealt with large money center banks, the systematically important banks. Most of our loans are with BAML, which is the second largest bank in the country. We've been completely insulated from this volatility and pullback from lending in the small and medium sized regional banks.
So we feel really really confident about our balance sheet.
what we have to do going forward shouldn't be a big lift. Got it, and then my follow up on the transaction front, it sort of related to my first question, but maybe you sort of partially answered it already, Richard, just are you seeing any opportunities emerge there, and then is maybe there any reason to...
be a little bit more cautious or pause until maybe you have more clarity on what you're going to do on the balance sheet side of things with the upcoming refinancings? Or do you view those as two separate avenues that are independent of one another?
No, I think you hit the nail on the head. We do want to, as Derek said, restructure our liabilities to minimize the cost of debt. Without knowing precisely where that settles, we're unlikely to be going hard on any acquisitions until that's done.
That said, the acquisitions game is a long game, right? Even now, still having active dialogue around opportunities because many times it just takes several months, if not years, to play out.
So, you know, particularly in the assets that we're looking at, right, which are the much more unique luxury assets.
These aren't commodities, right? You don't just decide this month we're going to buy X number of hotels. So we're still out there looking. I will make another comment on the acquisitions market to say that.
You were finding that sellers frankly are still a little bit unrealistic as to pricing. I've got four and five caps coming across my desk and I just giggle because this is not realistic.
So, you know, we're out there, we're looking at, we also have to maybe wait for this kind of new weighted average cost of capital to settle in and for some sellers to get more realistic about what their assets are worth.
Thank you very much. Our next question comes from the line of Chris Waronka with Deutsche Bank. Please proceed with your question.
Hey, good morning guys. Thanks for taking the question. So I guess first, Richard, regardless of the.
how the debt situation might play out in these hotels. I mean, do you view Chicago and the two autographs as kind of still core to the long-term portfolio? Yeah, that's a good question. Good morning, Chris.
No, I think absolutely. I think there's more room to run on each of those assets. In the case of Sofitel, we had a little bit of a dispute with the manager there that lasted a couple of years. I settled it in a place that felt much more favorable to us.
and have seen improvement in the performance of that asset and of that management team. We're still giving that time to play out and really get that asset up to its long-term potential. In the case of the two autographs...
You know, maybe it's just a little bit personal for me, but I got very excited about those renovations. I believe the quality of those properties has been enhanced very, very significantly since they were both courtyards some four years ago. And I do think we still have.
time to realize the potential in those assets. Yeah, I would just add to that, you know, the time that we converted those hotels and we renovated those hotels at the end of 2019 and into 2020, we have not yet realized the upside from the up branding. And so we're very excited about that. I think as we look at our notary hotel in Philadelphia.
The hotel is significantly outperforming the market and we attribute that largely to the brand as well as some of the strategies that we've implemented there. I think when you look at the Clancy in San Francisco, we've kind of lived through the worst of that market and now it's on a significant upswing.r r r data
with very high trajectory, very strong year-over-year growth. We're starting to see encouraging signs from city-wides coming back into the market. They had two very successful city-wides, American Social Oncology and Game Developer City-wide. And then, you know, JP Morgan was canceled last year and has come back. And so, when we look at that hotel...
We found some value-add opportunities. We've added some meeting space to the hotel that we haven't realized the upside on. It's got a brand new fitness center. So we're excited and we feel that both of the properties have significant runway ahead of them that we haven't realized yet.
Okay, great. Appreciate all the detail. And then, I don't know, Richard or Chris, can you give us a quick, you know, I know.
You guys have a lot of, I guess, excess real estate opportunities. You've talked about development potential or I guess could always look to sell them and think we're talking about Scottsdale.
Beverly Hills and maybe even still something in Sarasota. Can you give us a quick rundown of where you are on some of those things and what you might like to do or look to do next?
year or so. Yeah, yeah, sure. So we have a couple of different things in what you've asked. One is we do have three development parcels in the portfolio, and then we have some condominiums that are available for kind of midterm rental at Beverly Hills. So let's start with the condominiums first.
We have five condominiums that were restricted at a minimum 30-day stay. So we are evaluating whether or not it would be a good time to sell one or more of those to an owner-occupier. Unfortunately, we are still in a period of very high mortgage rates.
which we are all looking forward to in the next however many months. since then we have been working most closely with our federal organizations add Healthcare Act Naturally.
But ultimately they will be monetized. In terms of the development parcels, there's three. We have three and a half acres at the Ritz-Carlton Lake Tahoe. We are well advanced with Placer County on getting entitlements to build 18 townhomes a grade 6,000.
And we're hoping to have a sales center up and running by the end of the year to be able to pre-sell those into the ski season.
That project is moving along very favorably. The idea would be to then break ground next May when the window, there's a construction window in that region, when the window opens for construction and for grading. So excited about that one.
In terms of, that's the first development parcel. Second development parcel is Ritz-Carlton, Sarasota, where we're working through a plan to develop 50 branded residences, single-family homes.
And we are pretty advanced in the concept planning for that. And we'll be finalizing the budgets for that probably in the second half of this year.
But that's something that you'll see us break ground on probably in end of 2024 or 2025. Things just take a lot of time in terms of getting the requisite approvals. And then lastly, we're at the early stages of assessing the almost six-acre parcel at the Four Seasons Scottsdale.
And there, we do have commercial zoning available to us that would allow us to build additional hotel keys. We believe that the hotel is under-suited, and so that could be an option to build some additional suites there. And then there's also a pretty strong market for additional spa and wellness.
activities and facilities. And so that's something else that we're working on. We did inherit a plan from the seller around that. That Four Seasons has been very heavily involved in as well. And so we've got a little momentum behind that initiative as well. But I'd say that the timing on that is a little less certain at this point. Given we don't have a final conceptual plan yet.
That's kind of where we are. Okay. Yeah. Very good. Very helpful. Thanks. Thanks, Richard. Sure. Our next question comes from the line of Brian Mayer with B-Rider Securities. Could you proceed with your question? Yeah. Good morning. Kind of circling back to the refinancing.
that you did and the comment on moving towards more of a fulsome solution. Is there a strategy shift here at Braemar to move from kind of non-recourse mortgage debt, similar to what Ashford Trust has done forever, to more of a holistic approach?
And when you think about how in the past you've favored floating rate debt versus fixed rate debt, you know, we keep hearing everybody's got to keep buying these caps on extensions and what have you. How do you think about the cost of those caps when making that decision on the floating rate debt versus the fixed rate debt? Yeah, thanks, Brian . It's Eric. So on your first question in terms of strategy shift, I mean,
still utilize a mix of property level mortgage debt as well as corporate level debt at Braemar. You know, Braemar is a little bit lower leverage strategy than Ashford Trust, which you referenced. So we think it makes sense to utilize a little bit more of a mix in terms of the financing that we utilize at Braemar.
So, in terms of the caps and the cost of the caps and how do we take that into account when we're looking at fixed rate financing versus floating rate financing, you're right, we do have a preference for floating rate financing. There's multiple reasons why we do that. Obviously, right now or this period of time where we're looking at the cost of the caps and the cost of the caps,
If you've been a floating rate borrower, you've seen rates go up quite a bit. We've had caps in place and those caps have kicked in. But rates go up, rates go down. We view it as a natural hedge to our business that the profitability of hotels tends to go up and down with the economy. We also like the flexibility.
that floating rate debt provides versus fixed rate debt. So there's a lot of reasons why we tended to focus on floating rate financing. I think you'll continue to see us have a mix. We've got a mix right now. I think we'll continue to have a mix going forward. So I don't think we'll be 100% one way or the other. And you have to look at the forward curve of interest rates and shows rates dropping pretty significantly over the next couple of years. So now really wouldn't be an ideal time to lock in fixed rate debt. Although I...
Having said that, I think you'll also see us kind of do a little bit of both. I wouldn't say we wouldn't go do a fixed rate loan at the moment with some of the maturities that we have coming up just because the floating rate market is really not attractive. There's just a lot of factors that go into play when we're making those decisions. Obviously, the cost of caps is something that is very volatile. It changes. They can go from...
and we would agree. But to the extent that the prognosticators are correct and we see, I don't want to say a tsunami, but a large amount of kind of larger gateway type properties that just can't get financing or have difficulty getting financing later this year, is there the ability to like...
reopen or start a new non-traded preferred issuance, you know, to tap into that, you know, kind of eight-ish, eight and a half percent money, should you be able to find something, you know, that is, you know, from a value standpoint, you know, to be good to turn down.
Yeah, thanks for that question. There is always the ability to file for a new non-traded preferred equity offering. It would be, kind of given that we've already done it before, it would probably be able to happen relatively quickly within a matter of a few months.
At the cost that you referenced, I think if we were to do it, we would want to do it at a cost that is below where our inaugural issue came out. What we understand from our friends in the broker dealer community is that this retail market is a little bit less sensitive to...
rates than maybe the institutional markets, so we may be able to do that. That said, the other thing we're keeping a very close eye on is our capital structure.
something like 25% of our capital structure in preferred equity right now, is that enough? For personally, I believe it is, at least for now. So, I hear you that there may be some good opportunities that we want to avail ourselves of in the future.
We'll definitely keep an eye on that and rest assured we can quickly pivot to access that market if the opportunities are there. Thank you. And as a reminder, if you have any questions, you may press star 1 on your telephone keypad to join the question and answer queue.
Our next question comes from the line of Tyler Battery with Oppenheimer. Please proceed with your question.
Hey, good morning. Thanks for taking my questions. A couple on just trends in the portfolio and what you're seeing out there. Can you talk about how April is shaping up perhaps compared to March? I know there's concern out there in the market about demand slowing, especially the high end user customer or perhaps software pricing power as well.
and continuing. Our urban hotels are continue to perform very well. They're pacing very well relative to last year. Our resorts continue to stabilize. And we see a lot of those trends kind of pulling forward as I think Richard cited in his comments. Group pace is very strong for the entire year. And so we're encouraged by that we're seeing great strength out of our short term group.
March and April of 2022 just coming out of Omicron. There was a lot of pent up demand and the incredible hotels in this portfolio is where folks wanted to travel to first and we saw a huge surge in bookings last year for March and April . There's also gonna be some kind of tax anomalies. Now there's a massive new Sphinx within those observed houses and now there's just an increase in wages. The point is, once you give up your tax anthropology,
We realized a significant tax assessment last year in April that will play into the comparables.
So we've got some tough comparables as we kind of look ahead into Q2. But with that said, in terms of the business and the trends we're seeing, they're still very, very favorable. From a margin standpoint, we're happy with margin performance in our portfolio. ADR's up in our luxury resorts 50% to pre-COVID.
And with that comes very, very high expectations from the consumer. So we're very pleased that we continue as a portfolio as a whole to run more efficient operations. For the first quarter, our departmental expenses were down 5% on a POR basis the prior year. And there's a lot of efficiencies there that we believe we're gonna be able to pull forward. Rocks and cases remain
On the whole, again, just continuation of what we've seen. Urban will continue to be strong. Resource will continue to stabilize. The segments, group and business transient, continue to improve.
Yeah, I would just add to that, Chris. You know, one of the things that's unique about our portfolio due to its composition is we recovered much more quickly than our peers. I feel like we're at least a year ahead in terms of the recovery, meaning that we had an outstanding year last year.
And, yeah, it does make, as Chris said, it makes for tough comps, you know, but it's difficult to then, you know, feel that, you know, we should be penalizing ourselves for that, right, because we had such a fantastic year. So that's why I look at things like yield on cost, right, how are our assets yielding, what is the cash flow generation looking like.
and it's very, very strong. And we started publishing that information in our company presentation and it continues to be strong. So we have a very strong base of what I would call kind of plateauing resort demand, resort properties and a growing urban segment. And that puts us in a great position to generate lots of excess cash flow.
Okay, follow up on some of the commentary there. I'm interested specifically on the EBITDA margin side of things. How did margins come in in Q1 versus your budgets versus your expectations? And when we look at the performance in 2022, do you think it's reasonable that you could be ballpark around?
down 11 basis points to last year and some of the dynamics that are at play there. ADR was down 8% to prior year and then when you look at our composition of revenues we had F&B revenues that grew at 16% to prior year and RUMES revenue grew at 8% to prior year and so F&B revenues typically run
a significantly lower margin than rooms. And so there were a couple dynamics there that were impacting that. And then we had a big win from a property tax standpoint. So at our Sophie Tell Chicago, they realized a 2022 tax reduction in February of 23, that was over $2 million. And so that certainly played in and helped our margins. Awesome. Thank you. adjustment
There's going to be some noise, as I mentioned, as it relates to EBITDA margin as we realize a significant tax reduction in Q2 of 22. But on the whole, as we look at it, we're running more efficient operations. We're seeing improved productivity across our hotels. And we look at EBITDA margins to prior year.
I think what's happening on the aggregate of the portfolio will be at play. A lot of our urban hotels that carry a lower red par are growing significantly, and our highest red par hotels are stabilizing. And so the weighted impact of that could be a decline in red par for the portfolio as a whole, could be a decline in ADR as kind of those weightings are shifting based on the...
quarter. But on the whole, we're very happy with kind of our labor models, the efficiencies of our hotels, and how we're staffing and running the hotels. Yeah, and Tyler, I would add to that, you know, we hear people comment on the impact of COVID and on your labor model, labor structure and all of that. And, you know, I do.
subscribe to the belief that we have found 100 to 200 basis points of permanent margin improvement.
And that's how we think about the business moving forward. We're running at a little over 10% lower number of FTEs than we did pre-pandemic. And I'd say that we are basically fully staffed up. I mean there might be some pockets where we can add some people.
longer term it's going to benefit shareholders.
Okay, a few other follow up questions. The urban improvement, urban strength, it's nice to see that. Is that being driven by leisure? Is that corporate travel? Is it kind of midweek? And then I'm interested in your perspective on San Francisco specifically. There seem to be a wide variety of different headlines.
out there in terms of the outlook for real estate in San Francisco broadly, tech layoffs, regional banking issues, et cetera. Just kind of curious what your perspective is on San Francisco and the outlook this year and the next couple of years there.
Yeah, Tyler, I can shed some color on that. So I mean, broadly across our urban hotels, we're seeing, I mean, the improvements are significant. You know, we were up 60% year on year, and that's really coming from all segments. But the biggest recovery segments are group and corporate transient. And with our portfolio, you know, and the size of the portfolio, we're seeing a lot of improvements.
and March was actually the second highest revenue month in the history of the hotel. And that was due to strong, strong group production. Our team went out and proactively sourced self-contained and in-house groups and really built a strong group base to kind of overcome some of that market softness.
And so it really is kind of market specific. We're doing a lot of remixing in Chicago in our Sofitel hotel. We've gone away from some wholesale business because we've seen strong group demand. I think group at that hotel was up 1500 room nights year on year. We're seeing strong corporate and consortia and it's allowing us to mix away from some of the lower business. So it really is all segments. Specifically in San Francisco.
You know, our Clancy Hotel, while we were down 22% to 19%, they were up over 70% to last year. And so the market continues to lag, but again, we're seeing very strong signs of recovery year on year. I mentioned, you know, kind of the citywide production that was fairly strong in Q1. We're also seeing some great signs out of corporate production, specifically consulting firms and financial services.
repurchase and you walk back to the stock in Q1 here you use up that authorization. Any thoughts on kind of you know extending that or increasing that in the future? How do repurchases fit into how you're thinking about capital? Yeah that's a good question.
right now. It is a very attractive investment. We see that. As we said in the past, it's kind of this fighting conflicting priorities, right, because if we do buybacks, we're increasing leverage and reducing our market cap.
But look, it's a fair question and we'll continue to evaluate whether or not we want you to share buyback.
That's all for me. Thank you very much for the detail.
And we have reached the end of the question and answer session. I'll now turn the call back over to management for closing remarks.
Thanks everyone for joining us on our first quarter earnings call. We look forward to speaking with you on our next call and hope to see many of you at the NAREE Conference in New York in June . Have a good day.
This concludes today's conference and you may disconnect your line at this time. Thank you for your participation.
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