Q3 2023 Braemar Hotels & Resorts Inc Earnings Call
Good day, everyone and welcome to the Braemar hotels, <unk> resorts third quarter 'twenty two 'twenty three results conference call. Today's call is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time you can press star one on your telephone keypad.
If you would like to withdraw your question that is star one again I would now like to turn the call over to Jordan Jennings director of invent Bester Relations. Please go ahead.
Good morning, and welcome to today's call to review results for Braemar hotels, <unk> resorts for the third quarter of 2023.
See you on recent developments on the call today will be Richard Stockton, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Chris <unk> Executive Vice President and head of asset management. The result, as well as notice the sensibility of this conference call on a listen only basis over the Internet were distributed yesterday in a press release.
Yeah.
At this time I'd 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 regulation.
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.
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 yourself or solicitation of an offer to buy any securities.
The case will be offered only by means of a registration statement and prospectus, which can be found at www dot efficacy dot Gov.
In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided in the company's earnings release and accompanying tables or schedules, which have been filed on form 8-K with the SEC on November eight 2023 and May also be accessed to the company's website at www Dot HR REIT dot com.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release also.
Unless otherwise stated all reported results discussed in this call compare the third quarter ended September 32023, but the third quarter ended September 32022.
I will now turn the call over to Richard Stockton. Please go ahead Richard.
Good morning, welcome to our 2023 third quarter earnings Conference call.
I will begin today's call by providing an overview of our business and an update on our portfolio then Derek will provide a review of our financial results.
Chris will provide an update on our asset management activity after.
Afterwards, we will open the call for Q&A.
A few key themes for today's call.
First we're pleased with the continued momentum of our urban hotels, which reported comparable hotel EBITDA of $16 million in the third quarter.
Second we remain pleased with our two most recent acquisitions the Ritz Carlton Reserve Dorado Beach, and the four seasons resort Scottsdale at true North they are each performing well and continue to exceed our original underwriting.
And third we continue to work diligently through a refinancing program and we are making solid progress addressing loan maturities as demonstrated by our recent announcement regarding the closing of our $200 million corporate financings as well as the upsizing and extension of our four season resort Scottsdale and the extension of our Ritz Carlton Lake Tahoe.
Uh huh.
Turning to our results third quarter is weakest from a seasonality perspective.
Despite a volatile macroeconomic environment, our portfolio delivered solid results with third quarter comparable hotel count.
EBITDA of $34 $9 million.
Our resort properties continue to outpace 2019 results and our urban properties continue to recover.
Turning to Revpar for all hotels in the portfolio, our third quarter Revpar result of $263 reflected a decrease of seven 1% over the prior year quarter.
It is important to note that while the performance at our luxury resorts is down year over year. We're pleased with their overall performance, especially when you consider that a both demand and rates remained solid versus historical comparisons.
Their performance is still far outperforming 2019 results in fact year to date.
Our portfolio has seen the highest revpar growth versus 2019 compared to any other lodging REIT.
Taking a closer look at our best in class luxury portfolio. Many of our hotels are well located in attractive high barrier to entry leisure markets 10 of our 16 hotels are considered resort destinations and this luxury resort portfolio continued to deliver strong performance with combined hotel EBITDA of $19 million during the quarter.
Regarding our urban assets.
Our third quarter performance remains solid and we remain very encouraged by the continued momentum for this segment, which generated $16 million of comparable hotel EBITDA as we've emphasized before demand continues to return to our cities and Braemar urban hotels continue to ramp up. This return continues to be driven by corporate transient as well as recent strength in corporate.
Group demand that is expected to accelerate during 2024, which Chris will discuss in greater detail shortly.
Overall as demonstrated by our results our urban portfolio is in solid shape.
Going forward, we continue to believe our urban hotels will be the primary driver of growth for our portfolio in the coming quarters.
During the quarter.
We announced the rebranding of our Mr. C. Beverly Hills hotel to cameo Beverly Hills and have entered into an agreement to join the Hilton Central Reservation system and Hilton honors guest loyalty program.
This property is an iconic asset with a great location and will undergo a $25 million renovation as part of this conversion the.
The renovation will include updates to the Guestrooms guest bathrooms corridors lobby restaurant facade and meeting space will be creating a distinctive theme and style for the property that is commensurate with hilton's <unk> brand, which will join upon renovation completion before the end of 2025.
Next our recent acquisition of the four seasons resort Scottsdale at true North continues to exceed our expectations.
As demonstrated by its third quarter and year to date performance.
Been a great addition to our portfolio as it fits perfectly with our strategy of owning high revpar luxury hotels and resorts.
We also continue to analyze the optimal solution for the nearly six acre development parcel we acquired as part of this acquisition.
Braemar as other 2022 acquisitions, the Ritz Carlton reserved rather beach also continues to perform very well.
For the third quarter Revpar.
It was $906 based on 58% occupancy and an ADR of $1570.
For the trailing 12 months, the Ritz Carlton reserved rather beach has achieved a nine 3% yield on cost while the four seasons Scottsdale achieved a seven 4% yield on cost.
These luxury assets have outpaced our underwriting and looking ahead to the next several quarters. We remain very encouraged about the prospects for these well positioned portfolios.
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Looking at <unk> capital position, we continue to emphasize balance sheet flexibility and our balance sheet remains in solid shape. During the third quarter. We were pleased to announce the closing of our $200 million corporate financing. We also recently completed the upsizing and extension of our four seasons Scottsdale alone and extended our Ritz Carlton Lake Tahoe long, Eric will discuss those in more.
Detail in a minute.
In summary, we have a unique well positioned portfolio and I'm optimistic about our future results supported by our group pace being up 15% for 2023, and 17% for 2024, which is benefiting from both corporate and social groups.
Moving through the remainder of 2023 and into 2024 as business group and group travel continue to accelerate.
<unk> is on solid footing to perform well in both the near term and the long term.
Further we have the highest quality hotel portfolio in the public markets and remain well positioned with 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 to take you through our financials in more detail.
Thanks, Richard for the quarter, we reported net loss attributable to common stockholders of $33 $1 million or <unk> 50 per diluted share.
And <unk> <unk> per diluted share of negative <unk> <unk>.
Adjusted EBITDA for the quarter was $27 million at quarter end, we had total assets of $2 3 billion.
We had $1 2 billion of loans of which $49 million related to our joint venture partner's share of the loan on the capital Hilton and Hilton La Jolla Torrey Pines.
Our total combined loans had a blended average interest rate of seven 1% taking into account in the money interest rate caps.
Based on the current level of sulfur and our corresponding interest rate caps approximately 69% of our debt is currently effectively fixed at approximately 31% is effectively floating.
As of the end of the third quarter, we had approximately 38, 6% net debt to gross assets.
We ended the quarter with cash and cash equivalents of $149 5 million and restricted cash of $57 $3 million.
Majority of that restricted cash is comprised of lender and manager held reserve accounts.
At the end of the quarter, we also had $14 $2 million 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 of 2022, we announced a significant increase in the company's quarterly common stock dividend to <unk> <unk> per share or <unk> 20 per diluted share on an annualized basis.
This equates to an annual yield of approximately seven 5% based on yesterday's stock price.
Our board of Directors will review the company's dividend policy on a quarter to quarter basis with a view to increasing it as financial performance continues to improve.
As Richard mentioned during the quarter, we announced a new $200 million corporate financing that consists of a $150 million term loan and a $50 million revolving credit facility.
The financing is secured by a borrowing base of three hotels, the Ritz Carlton Sarasota, Marsano Hotel and Spa and hotel Yountville and we used the proceeds from the financing to pay off the existing mortgage loans on those properties.
This new financing has a three year term with one one year extension options subject to the satisfaction of certain conditions and the interest rate is based upon a pricing grid related to our net debt to EBITDA that provides for a range of silver plus 235% to three 1%.
The current rate is sofa plus 285%.
During the quarter. We also closed on the upsizing and extension of our mortgage loan secured by the 210 room four seasons resort Scottsdale at true North in Scottsdale, Arizona.
The non recourse loan now totals $140 million and has an initial maturity in December of 2026 with two one year extension options subject to the satisfaction of certain conditions.
The loan is interest only and continues to have a floating interest rate of software plus 375%.
Additionally, subsequent to quarter end, we closed on the extension of the mortgage loan secured by the 170 room Ritz Carlton Lake Tahoe in Truckee, California.
The non recourse loan now totals $53 $4 million has a one year initial term with one one year extension option subject to the satisfaction of certain conditions.
The loan is interest only and has a floating interest rate of silver plus three 6%.
Our next final debt maturity is alone on our Hilton La Jolla, Torrey Pines, and capital Hilton hotels, which matures in February 2024.
As of September 32023, our portfolio consisted of 16 hotels with 3957 net rooms, and our share count currently stands at $73 2 million fully diluted shares outstanding which is comprised of 66 million shares of common stock at $7 2 million op units.
This concludes our financial review I would now like to turn it over to Chris to discuss our asset management activities for the quarter.
Thank you Derrick for the quarter comparable hotel Revpar for our portfolio decreased 7% over the prior year quarter to $263.
This represents a 10% increase over the third quarter in 2019.
Our urban assets continued to benefit from demand growth with comparable total hotel EBITDA exceeding the prior year quarter by 3%.
We are seeing a normalization within our resort assets with resort hotel Revpar declining by 13%, while our urban hotel Revpar increased by 2% over the prior year quarter.
Total portfolio Revpar for our luxury hotels was 21% higher than the national average for the luxury chain scale, which reflects the high quality nature of our portfolio.
I would like to spend some time highlighting some of the initiatives from our team, including optimizing performance through increased group demand identifying and implementing value add opportunities across the portfolio and how we are increasing performance at our newly acquired hotels.
We continue to experience a resurgence in the group segment portfolio of group revenue pace for full year 2023 is ahead of prior year by 15%.
The shrink tripling the group segment is continuing through 2024 with full year group revenue pacing ahead of the prior year by 17%.
Within our urban hotels group room revenue for the quarter exceeded the prior year quarter by 8%.
We were also encouraged by third quarter booking activity during the quarter, our urban portfolio secured $1 8 million and group revenue for future periods, which is an 87% increase over the prior year quarter.
Our largest hotel capital Hilton finished the quarter with approximately $3 $1 million in group revenue, a 16% increase over the prior year quarter.
This achievement is noteworthy considering the hotel was under a transformational guestroom renovation throughout the entire quarter.
Despite the reduced inventory our team has found ways to improve property performance. While also positioning the hotel for success as we come out of the renovation.
As part of broader initiatives, we recently added 15 keys across the portfolio.
Additionally, we are seeing increased pigments across our portfolio.
During the quarter peak nights were up 27% over the prior year quarter, we define peak nights as any individual night with occupancy greater than 95%.
Having this additional inventory allows us to capitalize on these high demand periods, where our portfolio generates premium rates.
All of these efforts and more have contributed to the overall success of the portfolio during the third quarter of 2023.
We are particularly pleased with the performance at our two most recent acquisitions the Ritz Carlton Reserve Dorado Beach, and the four seasons Scottsdale.
Upon acquisition our team created a detailed takeover plan for each of the assets targeting strategic opportunities for creating value.
We have been diligently executing on the initiatives, which have produced strong results.
The rich Carlton Reserve Dorado Beach, we have optimized our cabana rental program increased luxury villa sales and enhanced our digital marketing strategy.
We've introduced enhanced reporting which has allowed us to more appropriately flex labor, resulting in the third quarter reduction in rooms expense cost per occupied room of 7% to the prior year quarter.
The four seasons Scottsdale has benefited from similar actions during the third quarter the hotel improve productivity measured by labor hours per occupied room by 31% compared to the prior year third quarter.
Our team recommended and implemented a new labor management system.
We also partnered with four seasons to optimize our task force utilization, where we have the ability to ascend available staff from our hotel to other four seasons branded hotels around the U S. It needs support.
These initiatives have been successful propelling the hotels year to date comparable hotel GOP, 14% higher compared to the same time last year.
In addition to our most recent acquisitions are Marriott Seattle waterfront had a successful quarter.
The hotel improved its GOP margin by 327 basis points over the prior year quarter.
Our team implemented aggressive property improvement plans, which focused heavily on labor efficiencies.
This resulted in a 11% increase in total hotel productivity for the quarter.
<unk> recently completed a guest room renovation and the enhanced room product and eight new keys added contributed to a 25% increase in total hotel revenue during the quarter over the prior year quarter.
Thank you.
Moving on to capital expenditures, we've invested heavily in our portfolio over the last several years the Ritz Carlton Lake Tahoe is undergoing a transformational renovation spanning all areas of the hotel.
We're currently renovating the guest rooms and suites at a highly visible luxury retail outlet upgrading the spas wet areas renovating the iconic club lounge, and adding premium event space as well as exclusive patio fire pits that will be sold by competitors.
In addition, as previously mentioned, we are renovating the guest rooms and suites at the capital Hilton and adding nine new keys.
Lastly, we have started renovating the fitness center and meeting space at the Park Hyatt Beaver Creek, and the Spa at the Ritz Carlton Sarasota.
Later this year, we plan to start a guest room renovation at BARDA Soma Hotel and Spa.
For 2023, we anticipate spending between $70 million and $90 million on capital expenditures.
Lastly, while our portfolio is experiencing a stabilization in demand we are confident that it will continue to outperform the market in the long term.
This is an extremely high quality portfolio. Our team has an extensive track record of adding value and we are optimistic as we look ahead to future group pace.
Thank you Chris.
In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels emphasized by the continued recovery of our urban properties. We also remain very well positioned operationally with solid balance sheet and the highest quality portfolio in the publicly traded hotel REIT market.
We 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 Q&A.
Thank you and I'll remind everyone that is star one to ask a question, we'll take our first question from Tyler <unk> with Oppenheimer.
Thank you and good morning, everyone.
First question is.
Throughout the normalization of demand and kind of what you're seeing.
At the resort assets in particular, how are you thinking about revenue management.
Those properties.
You may want to use some more otas to try to drive some demand there I mean, how do you think about trying to hold on to rate a little bit more and maybe.
Maybe sacrifice some occupancy or maybe you want them.
Low rate, even more to build back some some occupancy just trying to think through some of the moving pieces there.
Yes, it's a great question Tyler.
So we are seeing a stabilization of demand at our resort properties, our resorts were down in.
In Q3 of about 13% year on year with that said there is still up significantly to 2019 up 26%.
ADR is up 46% to 2019.
No.
Where I think we have the advantages we've got.
A really really strong revenue optimization team in house, that's able to get in the details with the hotel teams because even though we're seeing broad softening theres still very specific market nuances that we're having to work through and so our teams are looking at marketing Activations, how we can leverage the loyalty programs and really <unk>.
Late some additional demand.
The challenge there is to do so without sacrificing rate and so we do want to make sure that we are optimizing all channels that we're going after all customer segments, but that we're not doing so at a significant ADR decline and I think the fact that were up nearly 50% to 19 show that we have been successful there.
In terms of.
Broad strategies, obviously group is key to that we're looking at taking more group business, where we need it we're looking at our aspirational groups in off season to come and experience the resort for the first time.
What we're seeing within the group segment is encouraging we have been able to improve our group pace for 2024. So we are going into the year with a stronger group pace at our resorts that we think will help us offset any continued stabilization with that said within that group segment.
Booking window, while slowly elongated ing is still much shorter than it's historically been.
We're seeing groups that are much smaller on peak night, and they are coming in and Theyre stand for longer length of stays what all that means is that we think we're going to have more pricing power kind of in the year for the year and the groups that we pursue.
We can go after groups with greater catering contribution and overall groups that are of higher value to the hotel and so that's kind of how we're planning on kind of navigating some of the stabilization in demand.
Okay. Okay I appreciate that.
In terms of margin was there anything one time.
And the Q3 numbers that were pressuring margin when we look at the decline in margin year over year would you expect that level of pressure to continue into Q4 or perhaps.
Thanks, you get a little bit a little bit better.
Yes.
I think when we look at margins, there's been a couple of things that kind of play heavily into that.
The first thing is.
What is revpar due and we saw ADR declines broadly for the portfolio in the quarter and that puts a lot of downward pressure on margins I think when you look at our resort in urban mix and kind of the dynamics of what's happening there in terms of our revenue weighting.
Post Covid, our resort hotels have rolling a 700 basis point margin premium over urban hotels.
So as our urban hotels grow in revenue and they continue to accelerate and they're carrying a larger percent of the revenue weighting that's going to have an impact on margin.
We had a significant increase in property insurance as many others are experiencing as well.
The property insurance markets have been very tough, especially for our portfolio, where we've got some florida exposure and some hurricane exposure in Q3 that was about 100 bps of our EBITDA margin erosion is kind of what we contribute to the property insurance.
What are the other big factors in the margins is labor in that scenario I feel our team has done exceptional in.
For the first time.
We saw a.
A significant pullback in contract labor for the quarter, we had about a 30% reduction in contract labor usage across the portfolio. Our productivity was much improved we've reduced total labor hours across our portfolio by 4%, while occupancy only decreased by 1%.
And so we've been aggressive in terms of flexing labor based on kind of the demand changes that we've seen I'm confident that we'll continue.
I'm confident we'll be able to hold the line on ADR and maintain ADR.
But.
Those dynamics I talked about with <unk>.
Our resort in urban within our portfolio will still be at play.
Okay great.
But last question for me Richard.
The capital allocation front, and then handling the depth of services.
And their priority.
Additional conversations around <unk>.
<unk> share buybacks and we've got something interesting about it was that something that could make sense.
Yes.
Based on our share price movement today that certainly gotten a lot more interesting.
I believe that these shares are.
Grossly undervalued.
You saw that when I personally went into the market about a month ago and made an investment.
Yes.
I think the board is going to discuss.
It is a fine balance of ensuring that <unk> got ample liquidity to address future unknowns.
What I would really like to see as the fed embark on its rate cutting.
Phase in this kind of inflation management strategy, they have going right now.
Because we just don't know how long that will take.
As long as rates are as high as they are.
We do need to be careful our liquidity, because we want to be able to address maturities, we want to be able to.
To fund our interest expense as well as our various capex programs.
It's it's certainly very topical I think.
I guess Zane what's happened in the market.
Today is is making it even more kind of top of mind.
Okay I appreciate it that's all for me. Thank you.
As a reminder, everyone that is star one to ask a question on the phone lines. We will take our next question from Michael Bellisario with Baird.
Thank you Michael.
Good morning, how are you.
Okay.
Richard just first question back to the resorts.
What's your big picture thinking per win growth might flip positive again, they're both topline and bottomline, presumably we'll see tough comps again in <unk>, but how are you thinking about 2024 and sort of the cadence of recovery throughout the year.
Yes, thanks for that so first if you will get the industry forecast for Revpar next year, they are up over 4% generally over 5% for the luxury segment.
Yes, I think our our portfolio will benefit from those trends.
One of the.
Things that I've been noticing and telling people is that we've had so many of our typical U S guests travel overseas this past year.
That it's unlikely that they do the same amount of international travel next year and instead, you find much more domestic demand for luxury resorts.
So when does that exactly turn.
I'm hopeful in the first quarter, but it could be second third quarter I think certainly by next summer.
You'll see those trends coming home.
This is also.
Helped in a way I hate to say it by all of the geopolitical conflict we're seeing.
Close to Europe, and so I think that will also keep a lot of our U S travelers.
At home.
And so CSR in tests, we anticipate benefiting from that exactly which quarter I don't know Kristina.
Yes, I think it's hard to peg a specific quarter, Michael I think overall, we're optimistic about 2024 I will say there are some positive indicators I mentioned group pace at our resorts is up for 2024 Thats encouraging.
Some of the leisure trends in leisure softness that we're seeing.
While still down as we look ahead, it's down to a lesser degree in lesser magnitude and so we hope that that.
We hope and we believe that that softening is kind of settling in and we're kind of settling in to what's going to be kind of a new norm.
Got it that's helpful and then just.
Another one on the Scottsdale loan upsizing understand it was.
Low leveraged loan to begin with but what was the driver there and then what's the plan with those proceeds looking ahead.
Yes.
Hey, Michael it's fair, but the <unk>.
Plan. There is like you mentioned there was it was low leverage going in the property, obviously ramped up very well.
We just felt like it was the opportune time to.
The increase that the loan sizing on that property.
From a use of proceeds standpoint.
Sickly just replenishing some cash we had made a big debt Paydown a couple of months earlier.
Back in June we extended that <unk> loan.
And just felt like it was a prudent thing to do to replenish our cash to make sure we've got maximum liquidity.
Yes, I'll add I'll add to that a little bit to what Derrick said and as you look forward to 2024 and.
When you look at the some of the the interesting ROI capex projects that we have.
One of those is that you've heard about in the past as the Ritz Carlton Lake Tahoe Townhome development.
That development is progressing very nicely, we're working through the entitlement process with Placer County, and we anticipate spending some significant.
Capital too to get that out of the ground next year and so.
As Doug said, we had the opportunity to.
Sure up some cash and that's one of the <unk>.
Uses of it as we move into 2024, and we've also got a decent amount of debt maturities coming up in 2024, and we're well in front of those those should all for the most part b very easily re financeable loans.
We've.
<unk> been a little bit slow to pursue refinancings of those.
Normally we'd be a little bit more in front of those upcoming maturities, but because the market is just so on attractive at the moment, we wanted to keep the debt that we have in place as long as we possibly can.
And I've mentioned, there's only really one of those upcoming maturities in 2024 that might be challenging, but it is a very small loans of $30 million loan on our cameo in Beverly Hills and just from a if you look at it from an EBITDA debt yield perspective that one would probably be a little bit more challenging of a refinancing so having that additional cash on our balance sheet from the sky.
Sale upsides might come in handy for that as well.
Understood. That's helpful. And then actually just one follow up for Chris said, Immunogen peak nights up 27% year over year.
Can you quantify how many nice is that across the portfolio and whats the revpar growth that you achieved on those high occupancy guidance. Thank you.
Yes, thanks for the question Michael.
Hi.
I would estimate that that the 27% increase.
<unk> is probably a dozen nights.
Or slightly fewer I will say that those are the nights, where we realized the majority of our revenue within the portfolio.
And so we are able to push rates, we get very aggressive.
We're seeing most of those peak night increases across our urban hotels.
And it wouldn't be uncommon for us to realize revpar for those peak nights that are double kind of what the monthly averages and so that's a very critical thing for us, it's kind of where we make the majority of our money we're laser focused on how we.
Kind of revenue manage those nights.
Something that we work with the properties to identify in advance we factor in our group our ancillary strategies, all the way down to our.
Loyalty program strategies to ensure we're getting the most out of their respective brand loyalty programs on those nights. So it is significant.
And there are no further questions I would like to turn the call back over to management for closing remarks.
Alright. Thank you all for joining us on our third quarter earnings call and we look forward to speaking with you again on our year end call.
Thank you that does conclude todays presentation. Thank you for your participation today and you may now disconnect.
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Okay.
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