Q2 2024 Braemar Hotels & Resorts Inc Earnings Call

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Braymore Hotels and Resorts Inc. 2nd Quarter 2024 Results Conference Call.

Operator: and Resorts, Inc., 2nd Quarter 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Deric Eubanks, Chief Financial Officer. Please go ahead.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Deric Eubanks, Chief Financial Officer. Please go ahead.

Deric Eubanks: Good morning and welcome to today's call to review results for Braemar Hotels and Resorts for the second quarter of 2024 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer, as well as Chris Nixon, Executive Vice President and Head of Asset Management.

Speaker Change: Good morning and welcome to today's call to review results for Braemar Hotels and Resorts for the second quarter of 2024 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer, as well as Chris Nixon, Executive Vice President and Head of Asset Management.

Deric Eubanks: The results, as well as notice of the accessibility of this conference call on a listen-only basis over the Internet, were distributed yesterday in a press release. 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 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.

The results, as well as notice of the accessibility of this conference call on a listen-only basis over the internet, were distributed yesterday in a press release.

Deric Eubanks: These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this conference call are only made as of the date of this call, and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any security. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov.

Speaker Change: 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.

Deric Eubanks: 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.

Speaker Change: The forward-looking statements included in this conference call are only made as of the date of this call and the company is not obligated to publicly update or revise them. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities.

Speaker Change: Securities will be offered only by means of a registration statement and prospectus which can be found at www.sec.gov

Deric Eubanks: 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 were filed in Form 8K with the SEC on July 31, 2024, and may also be accessed through the company's website at www.vhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in Also, unless otherwise stated, all reported results in this call compare the second quarter ended June 30, 2024, with the second quarter ended June 30, 2023. I will now turn the call over to Richard Stockton. Please go ahead.

Speaker Change: In addition, certain terms used in this call are non-GAAP financial measures.

Speaker Change: Reconciliations of which are provided in the Company's Earnings Release and Accompanying Tables or Schedules, which have been filed in Form 8K with the SEC on July 31, 2024, and may also be accessed through the Company's website at www.bhreit.com.

Speaker Change: Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

Speaker Change: Also, unless otherwise stated, all reported results in this call compare the second quarter ended June 30, 2024 with the second quarter ended June 30, 2023.

Richard Stockton: Good morning, and welcome to our 2024 second quarter earnings conference call. I'll begin today's call by providing an overview of our business, an update on our portfolio, and our recently announced plans to create additional shareholder value. Then, Deric will provide a review of our financial results, and Chris will provide an update on our asset management activity. Afterwards, we will open the call for Q&A.

Speaker Change: I will now turn the call over to Richard Stockton. Please go ahead.

Richard Stockton: Good morning and welcome to our 2024 Second Quarter Earnings Conference Call. I'll begin today's call by providing an overview of our business, an update on our portfolio, and our recently announced plans to create additional shareholder value.

Speaker Change: Then, Deric will provide a review of our financial results, and Chris will provide an update on our asset management activity. Afterwards, we will open the call for Q&A.

Richard Stockton: We have several key themes for today's call. First, our urban hotels delivered strong performance in the quarter with comparable red part growth of 6% over the prior year quarter. Second, our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North, continues to perform well and achieved red part growth of 10% in the quarter. Third, as we continue to diligently work through our refinancing program, we have refinance extended or paid down all of our 2024 debt maturity.

Speaker Change: We have several key themes for today's call. First, our urban hotels delivered strong performance in the quarter with comparable REVPAR growth of 6% over the prior year quarter.

Speaker Change: Second, our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North, continues to perform well and achieved REV PAR growth of 10% in the quarter.

Speaker Change: Third, as we continue to diligently work through our refinancing program, we have refinance extended or paid down all of our 2024 debt maturities.

Richard Stockton: And fourth, we're pleased with the progress we have made in our recently announced shareholder value creation plan with the closing of the sale of the Hilton La Jolla Torrey Pines at an attractive value. Now, let me first turn to our results.

Speaker Change: And fourth, we're pleased with the progress we have made in our recently announced shareholder value creation plan with the closing of the sale of the Hilton La Jolla Torrey Pines at an attractive value.

Richard Stockton: We reported comparable REPFAR of $305, which reflected a 1.5 percent decrease over the prior year quarter, and comparable hotel EBITDA of $51.1 million. We continue to be very encouraged by the strong performance of our urban hotels, which achieved red-bar growth of 6% in the quarter. Regarding our urban assets, REVPAR for the quarter was $228, and Comparable Hotelli Vida was $22.1 million. Looking ahead, we remain very encouraged by the continued momentum for this segment of our portfolio. However, this impressive performance was offset by softness in our resort average daily rates, which are still coming off historic highs that followed the pandemic.

Let me first turn to our results. We reported comparable REPFAR of $305, which reflected a 1.5% decrease over the prior year quarter, and comparable hotel EBITDA of $51.1 million.

Speaker Change: We continue to be very encouraged by the strong performance of our urban hotels, which achieved red-bar growth of 6% in the quarter.

Speaker Change: Regarding our urban assets, REVPAR for the quarter was $228, and Comparable Hotelli Vida was $22.1 million.

Speaker Change: Looking ahead, we remain very encouraged by the continued momentum for this segment of our portfolio.

Speaker Change: However, this impressive performance was offset by softness in our resort average daily rates, which are still coming off historic highs that follow the pandemic. Nevertheless, our luxury resort portfolio delivered admirable performance with Hotel Ibida of $29 million during the second quarter.

Richard Stockton: Nevertheless, our luxury resort portfolio delivered admirable performance, with hotel EBITDA of $29 million during the second quarter. The brightest spot within our resort portfolio was our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North, which continues to exceed our expectations. The property was acquired in December 2022 and fits perfectly with our strategy of owning high-ref-par luxury hotels and resorts. It delivered a strong second quarter performance, with Hotel Evita up 21.6%.

Speaker Change: The brightest spot within our resort portfolio was our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North, which continues to exceed our expectations. The property was acquired in December 2022 and fits perfectly with our strategy of owning high-rev-par luxury hotels and resorts.

Speaker Change: It delivered a strong second quarter performance with Hotel Ibida up 21.6%.

Richard Stockton: We continue to be very excited about the prospects for this hotel. While the Ritz-Carlton Reserve Dorado Beach had a challenging quarter, both of our recent acquisitions continue to perform well compared to their acquisition costs and our initial underwriting. Over the trailing 12 months, the Ritz-Carlton Reserve Dorado Beach achieved a 9.2% yield on cost, while the Four Seasons Cop Scale achieved an 8% yield on cost. These luxury assets have both outpaced our underwriting, and looking ahead to the next several quarters, we remain very encouraged about the prospects for these well-positioned properties. Looking at Braemar's capital position, we continue to emphasize balance sheet flexibility.

Speaker Change: While the Ritz-Carlton Reserve Dorado Beach had a challenging quarter, both of our recent acquisitions continue to perform well compared to our acquisition costs and our initial underwriting.

Speaker Change: Looking at Framework's capital position, we continue to emphasize balance sheet flexibility. With the recent closing of the sale of the Hilton La Jolla Torrey Pines, we have now addressed all of our 2024 debt maturities.

Richard Stockton: With the recent closing of the sale of the Hilton La Jolla Torrey Pines, we've now addressed all of our 2024 debt maturity. During the quarter, we announced a shareholder value creation plan that has four components. They are, number one, executing select non-core asset sales, including the recent sale of the Hilton La Jolla Torrey Pine. Number two, the repayment of our remaining 2024 debt maturities. Number three, a $50 million preferred share redemption program, and number four, a $50 million common share buyback authorization.

Richard Stockton: Subsequent to Quarter End, we sold the Hilton La Jolla Torrey Pines for $165 million, or $419,000 per key, including anticipated capital expenditures of $40 million. The sale price represents a 7.2% capitalization rate on net operating income for the trailing 12 months ended March 31st, 2024. Looking ahead, we are also evaluating the sale of two more hotels. To date, we have redeemed approximately $40.1 million of our non-traded preferred stock.

Speaker Change: Subsequent to Quarter End, we sold the Hilton La Jolla Torrey Pines for $165 million or $419,000 per key.

Speaker Change: including anticipated capital expenditures of $40 million. The sale price represents a 7.2% capitalization rate on net operating income for the trailing 12 months ended March 31st, 2024. Looking ahead, we're also evaluating the sale of two more hotels.

Speaker Change: To date, we have redeemed approximately $40.1 million of our non-traded preferred stock. We believe these announcements reflect our commitment to maximize value for our shareholders and look forward to providing more updates in the coming weeks and months as we work through our plan.

Deric Eubanks: We believe these announcements reflect our commitment to maximize value for our shareholders and look forward to providing more updates in the coming weeks and months as we work through our plan. In summary, Braemar has a unique, well-positioned portfolio and a solid liquidity position. As we look ahead to the remainder of 2024, we believe Braemar is on firm footing to perform well in both the near and long term. I will now turn the call over to Deric to take you through our financials in more detail.

Deric Eubanks: Thanks Richard. For the quarter, we reported a net loss attributable to common stockholders of $21.9 million, or $0.33 per diluted share, and AFFO per diluted share of $0.10. Adjusted EBITDA RRE for the quarter was $42.7 million. At quarter end, we had total assets of $2.2 billion. We had $1.2 billion of loans, of which $44.3 million related to our joint venture partner's share of the loans on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 8.1%, taking into account the money interest rate cap.

Speaker Change: Thanks, Richard. For the quarter, we reported a net loss attributable to common stockholders of $21.9 million, or $0.33 per diluted share, and to AFFO per diluted share of $0.10.

Deric Eubanks: Based on the current level of SOFR and our corresponding interest rate caps, approximately 77% of our debt is effectively fixed, and approximately 23% is effectively floating. As of the end of the second quarter, we had approximately 40.4% net debt to gross assets. We ended the quarter with cash and cash equivalents of $120.3 million and restricted cash of $60.7 million. The vast majority of that restricted cash is comprised of lender and manager held reserve accounts.

Deric Eubanks: At the end of the quarter, we also had $17.1 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, we again announce the quarterly common stock dividend of $0.05 per share or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately 5.6% based on yesterday's stock price.

Speaker Change: This equates to an annual yield of approximately 5.6% based on yesterday's stock price.

Deric Eubanks: Our board of directors will review the company's dividend policy on a quarterly basis with a view to increasing it as financial performance improves. During the quarter, we paid off the $30 million loan secured by the Cameo Beverly Hills in Beverly Hills, California. This property is now unencumbered.

Speaker Change: During the quarter, we paid off the $30 million loan secured by the Cameo Beverly Hills in Beverly Hills, California. This property is now unencumbered.

Chris Nixon: As of June 30, 2024, our portfolio consisted of 16 hotels with 3,963 net rooms, but with the recent sale of the Hilton La Jolla Torrey Pines, the portfolio currently consists of 15 hotels with 3,667 net rooms. Our share count currently stands at 73.9 million fully diluted shares outstanding, which is comprised of 66.5 million shares of common stock and 7.4 million OP units. This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter. Thank you, Deric.

Chris Nixon: For the quarter, a comparable hotel rep for our portfolio was down 1.5% compared with the prior year quarter, at $305. This represents a 22% increase compared to the second quarter of 2019. Group revenue pace for the portfolio continues to drive results for the second half of the year showing strength. Our urban assets have benefited from strong citywide calendars, resulting in 7% growth in total revenue over the prior year quarter. Lastly, our team's involvement at the Four Seasons Scottsdale helped drive 22% growth in Hotel Ibiza over the prior year quarter. I will now go into more detail on some of the achievements completed throughout the course.

Speaker Change: This represents a 22% increase compared to the second quarter in 2019.

Chris Nixon: GroupPay continues to accelerate across portfolios. Group rooms revenue for the full year is pacing ahead of last year by 3%, with the third quarter through the balance of the year pacing ahead by 5%. This represents a 71% increase in group rooms revenue compared to full year 2019. Group rates alone have increased by 26% compared to full year 2019. Our 2025 group rooms revenue pace is currently ahead by 20% compared to the prior year. While year-over-year group lead volume has started to normalize, conversion rates remain strong, and the average group booking size continues to increase.

Chris Nixon: While year-over-year group lead volume has started to normalize, conversion rates remain strong and the average group booking size continues to increase.

Chris Nixon: This has resulted in increased sales efficiencies across many of our hotels. We are seeing continued growth from the incentive market, which represents part of the way corporations are awarding their highest-performing employees. The Ritz-Carlton St. Thomas has performed particularly well in the incentive market during the second quarter with group revenue exceeding the prior year quarter by 31%. In addition, the hotel has partnered with Inspire Event Solutions, which provides audiovisual services to in-house groups. During the second quarter, audiovisual revenue increased approximately 200% per occupied group room compared to the prior year. Inspire Event Solutions understands clients' needs to deliver unique experiences and exceptional services, providing a win-win for the client and our hotel.

Speaker Change: We are seeing continued growth from the incentive market, which represents corporations rewarding their highest performing employees and partners.

Speaker Change: The Ritz-Carlton St. Thomas has performed particularly well in the incentive market during the second quarter, with group revenue exceeding the prior year quarter by 31%.

Speaker Change: In addition, the hotel has partnered with Inspire Event Solutions, which provides audiovisual services to in-house groups.

Chris Nixon: During the second quarter, audiovisual revenue increased approximately 200% per occupied group room compared to the prior year.

Chris Nixon: We are seeing continued success across our urban hotels during the second quarter, with Hotel Ibida increasing 8% over the prior year quarter. Additionally, the hotel EBITDA margin increased by 40 basis points. Our largest hotel, Capitol Hilton, just finished a transformative guest room renovation which lasted from the first quarter of 2023 to the first quarter of 2024. While under renovation, the hotel grew full year 2023 total revenue by 28% compared to the prior year.

Speaker Change: We are seeing continued success across our urban hotels during the second quarter, with Hotel Ibida increasing 8% over the prior year quarter.

Chris Nixon: Additionally, Hotel Iba, the margin increased by 40 basis points.

Speaker Change: Our largest hotel, Capitol Hilton, just finished a transformative guest room renovation, which lasted from the first quarter of 2023 to the first quarter of 2024.

Chris Nixon: While under renovation, the hotel grew full-year 2023 total revenue by 28% compared to the prior year.

Chris Nixon: Now that the renovation is fully complete, the hotel is positioned for even further growth, as evidenced by the second quarter performance. During the second quarter, the hotel increased total revenue by 14% over the prior year quarter. Additionally, Hotel Ibida increased by 24% and expanded its hotel margin by approximately 330 basis points over the prior year quarter.

Chris Nixon: Additionally, hotel EBITDA increased by 24% and expanded hotel EBITDA margin by approximately 330 basis points over the prior year quarter.

Chris Nixon: We have also been particularly pleased with the performance of our most recent acquisition, the Four Seasons Scottsdale. We created and executed a detailed takeover plan in which our team identified value-add opportunities for creating and optimizing the asset's value. During the second quarter, total revenue increased 13% over the prior year quarter. More impressively, Hotel Ibada increased 22% over the prior year quarter. We expanded our sales solicitation efforts targeting markets and segments that had underperformed. The team secured a large buyout program as well as other entertainment groups by expanding solicitation efforts to target under-deployed markets and segments. Group revenue for the quarter was up 74% over the prior year quarter.

Speaker Change: We have also been particularly pleased with the performance of our most recent acquisition, the Four Seasons Scottsdale.

Speaker Change: We created and executed a detailed takeover plan in which our team identified value-add opportunities for creating and optimizing the asset's value.

Chris Nixon: During the second quarter, total revenue increased 13% over the prior year quarter. More impressively, hotel EBITDA increased 22% over the prior year quarter.

Chris Nixon: We expanded our sales solicitation efforts targeting markets and segments that had underperformed. The team secured a large buyout program as well as other entertainment groups by expanding solicitation efforts to target underdeployed markets and segments.

Chris Nixon: In addition, our team implemented several initiatives focused on driving margin, including a deep dive into food and beverage, implementing dynamic pricing on spa treatments, minimizing the cost per spa treatment, and only backfilling critical positions. These efforts and more led to the hotel improving its hotel EBITDA margin by approximately 210 basis points compared to the prior year quarter. Moving on to capital expenditures, in the second quarter of 2024, we made significant progress on multiple major renovations.

Chris Nixon: These efforts and more led to the hotel improving hotel EBITDA margin by approximately 210 basis points compared to the prior year quarter.

Chris Nixon: Moving on to capital expenditures, in the second quarter of 2024 we made significant progress on multiple major renovations.

Chris Nixon: At the Ritz-Carlton Sarasota, we started the transformation of an unused outdoor bar into a new courtyard bar. We also started construction on an Epicurean retail market at the Four Seasons Scottsdale by converting underutilized back of house space into a retail house.

Chris Nixon: We also started construction on an Epicurean retail market at the Four Seasons Scottsdale by converting underutilized back of house space into a retail outlet.

Richard Stockton: Lastly, we initiated several transformational renovations to Ritz-Carlton Lake Tahoe, including the relocation and expansion of the living room bar, the fitness center, meeting space, and the outdoor pool area. In the third quarter of 2024, we will embark on several major renovations across our portfolio. These include comprehensive updates to the restaurants at the Ritz-Carlton Sarasota, the Ritz-Carlton St. Thomas, the Ritz-Carlton Lake Tahoe, and the Ritz-Carlton Reserve Dorado Beach. Additionally, we will begin renovating underutilized beach space at the Ritz-Carlton St. Thomas by adding five luxury beachside cabins.

Richard Stockton: Lastly, we initiated several transformational renovations to Ritz-Carlton Lake Tahoe, including the relocation and expansion of the living room bar, the fitness center, meeting space, and outdoor pool area.

Richard Stockton: In the third quarter of 2024, we will embark on several major renovations across our portfolio. These include comprehensive updates to the restaurants at the Ritz-Carlton Sarasota, the Ritz-Carlton St. Thomas, the Ritz-Carlton Lake Tahoe, and the Ritz-Carlton Reserve Dorado Beach.

Richard Stockton: In the fourth quarter, we plan to begin a guest room renovation at Hotel Yonkers. For 2024, we anticipate spending between $80 and $100 million on capital expenditures. We are already executing new initiatives to further enhance our portfolio, which include the transformative full property brand conversion and the potential development of underutilized land. With these new initiatives underway, we are optimistic about the future for this portfolio. I will now turn the call back to Richard.

Richard Stockton: In the fourth quarter, we plan to begin a guest room renovation at Hotel Yonko.

Richard Stockton: For 2024, we anticipate spending between $80 and $100 million on capital expenditures.

Richard Stockton: We are already executing new initiatives to further enhance our portfolio, which includes a transformative full property brand conversion and the potential development of underutilized land. With these new initiatives underway, we are optimistic about the future for this portfolio. I will now turn the call back to Richard.

Richard Stockton: In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels. We also remain very well positioned, with a solid balance sheet and promising outlets.

Richard Stockton: Thank you, Chris. In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels. We also remain very well positioned with a solid balance sheet and promising outlook.

Richard Stockton: We look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks, and we'll now open the call for Q&A. Please note that our comments regarding the recent settlement with Blackwells will be limited to what has been publicly filed, so we'll not be able to respond to questions on that specific matter. Please limit your questions to those concerning the company's assets, operations, management's industry outlook and capital allocation priorities, as well as our recently announced shareholder value creation plan. Thank you.

Richard Stockton: We look forward to updating you on our progress in the quarters ahead.

Richard Stockton: This concludes our prepared remarks and we will now open the call for Q&A.

Richard Stockton: Please note that our comments regarding the recent settlement with Blackwell's will be limited to what has been publicly filed So we'll not be able to respond to questions on that specific matter

Richard Stockton: Please limit your questions to those concerning the company's assets, operations, management's industry outlook, and capital allocation priorities, as well as our recently announced shareholder value creation plan. Thank you.

Operator: At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Tyler Batory with Oppenheimer. Please go ahead.

Operator: At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Tyler Vittori with Oppenheimer. Please go ahead.

Tyler Batory: Hey, good morning. Thanks for taking my questions. So in terms of the softness and resort ADR that you're seeing, can you just address that a little bit more in depth? I'm not sure how much of that is kind of asset-specific versus macro versus a demand pullback. Just really trying to get a good sense of what's driving some of that.

Tyler Batory: Hey, good morning. Thanks for taking my questions.

Tyler Batory: So in terms of the softness and resort ADR that you're seeing, can you just address that a little bit more in depth? I'm not sure how much of that is kind of asset specific versus macro versus a demand pullback. Just really trying to get a good sense of what's driving that.

Chris Nixon: Yeah, hey Tyler, it's Chris. I can take that. So our resorts are down year over year when we look at revenue performance. However, they're still up significantly versus 2019. Our resorts are up over 45% versus 2019. And so there is some softening in demand. We think there's a few things at play there.

Chris Nixon: Yeah, hey Tyler, it's Chris. I can take that so

Chris Nixon: Our resorts are down year over year when we look at the kind of revenue performance. However, they're still up significantly versus 2019. Our resorts are up over 45% versus 2019.

Chris Nixon: I think the resort and leisure kind of segments are normalizing a bit. There was also some impact in Q2 with the Easter and spring break shift. We saw kind of that last week in March. There were significantly more spring breaks, and schools on spring break this year than there were last year. That first week in April was roughly the same, but that second week in April, there were significantly fewer spring breaks this year than there were last year.

Chris Nixon: And so there is some softening in demand.

Chris Nixon: There was also some impact in Q2 with the Easter and spring break shift. We saw that last week in March. There were significantly more

Chris Nixon: spring breaks, schools on spring break, this year than there were last year. That first week in April was roughly the same, but that second week in April, there was significantly fewer spring breaks this year than there were last year. And so there was a shift in demand kind of out of April and into March, which also affected the resorts.

Chris Nixon: And so there was a shift in demand kind of out of April and into March, which also affected the resorts. When you look at our resorts, our two ski resorts, Ritz-Carlton Lake Tahoe and Park High Beaver Creek, both experienced significantly softer snowfall than we've seen the prior year. This resulted in the mountains closing earlier in April this year than they did last year and had a pretty significant impact on resort revenue across portfolios. So it was a combination of all those things.

Chris Nixon: When you look at our resorts, our two ski resorts, Ritz-Carlton Lake Tahoe and Park High Beaver Creek.

Chris Nixon: both experienced significantly softer snowfall than we've seen the prior year.

Chris Nixon: That resulted in the mountains closing earlier in April this year than they did last year and had a pretty significant impact to resort revenue across portfolios. So it was a combination of all those things.

Chris Nixon: Yeah, Kyle, I'd add to that if you look at the portfolio-wide hotelier-to-diet performance, which is down about 5%, all of that and more can be accounted for by the performance of Dorado Beach and the EBITDA drop year over year at that property. And as Chris said, a lot of factors were at play there, most notably the Easter timing shift into the first quarter from the second quarter, so it's a draw to be certainly missed out in the second quarter as a result of that, but it's really just a shift in timing that accounted for that.

Chris Nixon: Yeah, Kyle, I'd add to that that if you look at the portfolio-wide Potelli-Dodd performance, which is down about 5%,

Chris Nixon: All of that and more can be accounted for by the performance of Dorado Beach.

Chris Nixon: and the EBITDA drop year-over-year at that property. And as Chris said, a lot of factors at play there, most notably the Easter timing shift.

Chris Nixon: into the first quarter from the second quarter, so the draw would be certainly missed out in the second quarter as a result of that, but it's really just a shift in timing that accounted for that.

Tyler Batory: Okay, okay, makes sense. And a quick follow-up on portfolio trends. There's been some discussion about D.C.'s impact from the upcoming election. Is that something that you're seeing in your forward bookings, especially on the group side of things in November?

Tyler Batory: Okay, okay, makes sense. And a quick follow-up on portfolio trends. There's been some discussion about DC impact from the upcoming election. Is that something that you're seeing in your forward bookings, especially on the group side of things in November?

Chris Nixon: Yeah, at Cap Elfin, I mean, group pace on the whole is very strong there. DC's got a strong citywide calendar this year. But we are seeing some softness, specifically as it relates to government groups and government business.

Chris Nixon: Yeah, it kept open. I mean, group pace on the whole is very strong there. DC's got a strong citywide calendar this year. We are seeing some softness, specifically as it relates to government groups and government business. Luckily for that hotel, we've been able to effectively offset it with other segments and other group segments.

Chris Nixon: Luckily for that hotel, we've been able to effectively offset it with other segments and other group segments. And so for that hotel, I think the renovation timing was spot on. As you heard, you know, with my prepared remarks through the renovation, we drove revenue. We had a very strong year. And now that the renovation is behind us, the market is really, the customers are really responding well to the new product. And so we're very excited about the outlook. But yes, we're certainly seeing some softness as it relates specifically to those government segments through the kind of inauguration period.

Chris Nixon: And so that hotel, I think the renovation timing was spot on, as you heard with my prepared remarks through the renovation, we drove revenue, we had a very strong year, and now that the renovation is behind us, the market is really, the customers are really responding well to the new product.

Chris Nixon: And so we're very excited about the outlook. But yes, we're certainly seeing some softness as it relates specifically to those government segments through kind of the inauguration period.

Tyler Batory: Okay, and then last, for me, in terms of the shareholder value creation plan, you checked off a number of boxes there. Talk more about the two hotels you could sell, like, what went into that decision, and what you're seeing out there in the market. And then, you know, you bought back, I think, $40 million of the preferred, but you still got the share buyback that's out there as well. So talk about how you're thinking about potentially executing on that, too.

Tyler Batory: Okay, and then last for me in terms of the shareholder value creation plan, you checked off a number of boxes.

Tyler Batory: there, talk more about.

Speaker Change: the two

Tyler Batory: hotels you could sell might go into that decision, which you're seeing out there in the markets. And then you bought back, I think, 40 million of the preferred, but you still got the share buyback that's out there as well. So talk about how you're thinking about potentially executing on that too.

Richard Stockton: Sure, sure. Yeah, on the two potential asset sales, we're still going through the internal process of evaluating the right candidate for that, leaning towards what I would say are more non-core, so therefore non-luxury hotels, as those candidates. We don't have anything actively in marketing right now, but in the coming months, we'll finalize our work on that and get moving. So that's still very much in play. In terms of the share buyback and progress on that,

Richard Stockton: There are a couple of things there that are considerations for the appropriate timing. We have the authorization in place. The first kind of hurdle for us was ensuring that we have adequate liquidity to move forward because we did announce this Preferred Redemption Program at the same time. With the sale of Torrey Pines, we've shored up our liquidity pretty significantly. But then the other...

Richard Stockton: I don't know if it's necessarily called a hurdle, but the other factor here is when do we as management have the ability to go into the market to buy shares by not having non-public information? The timing has coincided in terms of the sale of Torrey Pines with our earnings and some other announcements that we've made, et cetera, that have prevented us from proceeding. But we hope to be back in action on that front shortly as well.

Tyler Batory: Okay, I appreciate all that detail. That's all for me. Thank you.

Operator: Our next question comes from the line of Bryan Maher with B Reilly. Please go ahead.

Bryan Maher: Thank you and good morning. Just a couple from me; Tyler got most of mine. It seems like only a few quarters ago, maybe it was a year, year and a half ago, that I felt like we were talking about being in the market and buying one or two hotels a year. And now we just sold an asset, and possibly two more are for sale. What's been the key change that has, you know, kind of changed the course for the company there? Is it really the cost of capital, higher interest rates? I mean, maybe you can give a little color on that, Richard or Deric.

Bryan Maher: Thank you and good morning. Just a couple from me. Tyler got most of mine.

Bryan Maher: It seems like only a few quarters ago, maybe it was a year, year and a half, that I felt like we were talking about being in the market and buying.

Bryan Maher: one or two hotels a year.

Speaker Change: possibly two more for sale.

Bryan Maher: kind of changed course for the company there? Is it really kind of cost of capital, higher interest rates? I mean, maybe you can give it a little color on that, Richard or Deric.

Richard Stockton: Yeah, sure, sure, Bryan. Yeah, when we said that that was our plan, it was 100% our objective. I think we've all been surprised by the hire-for-longer environment that we've been in. The cost of capital is significantly higher, but our availability of excess cash flow has also been constrained. And so as a result, that puts us on the sidelines. I would say that there are probably some interesting acquisition opportunities still available out there, and we've seen some of our peers pursuing those, but for us, we're really much more focused on our balance sheet and doing the various CapEx projects that we have on TAP as well, and so that's been the highest and best use of our liquidity.

Richard Stockton: Yes, sure, sure, Brian. Yeah, when we said that that was our plan, it was 100% our objective, I think we've all been surprised by the hire-for-longer environment that we've been in.

Richard Stockton: And so, as a result, that puts us on the sidelines.

Richard Stockton: Yeah, I would say that there are probably some interesting acquisition opportunities still available out there.

Bryan Maher: And that's maybe a good segue to my second question, which is about the Cameo. What's going on there? I mean, REF property's pretty weak.

Bryan Maher: I think it was down 18% for the quarter. Is the renovation there underway? When is it planning on starting? How deep is it? Can you tell us what the plans are for that property?

Bryan Maher: And that's maybe a good segue to my second question, which is the Cameo. What's going on there? I mean, REVPAR was pretty weak. I think was down 18% for the quarter. Is the renovation there underway? When is it planning on starting? How deep is it? Can you tell us what the plans are for that property?

Richard Stockton: Yeah, we're very excited about the outlook of that hotel once we get it rebranded, fully renovated, and converted to the LXR brand. Right now, we're working through the model room with Hilton. We want to make sure that we get that right, so the full-on guest room renovation hasn't started yet. We're going through design. We're going through the model room, figuring out the public spaces, the pools, but what we've got so far, we're very, very excited about. Until then, we're in this period where we're white-labeled.

Richard Stockton: Yeah, we're very excited about the outlook of that hotel once we get it rebranded, fully renovated, converted to the LXR brand.

Richard Stockton: We're on Hilton's website, but we act more as an independent hotel. The biggest impact there has been the loss of American Express Fine Hotels and Resorts. That's a segment of business that generates millions of dollars for the hotel each year. Without the strong brand on the hotel, we're no longer in that program. Part of the big influence on why we selected LXR is that every LXR-branded hotel is in that program. We're very optimistic that once the renovation is complete, we'll be back in that program, but outrunning that revenue stream has been the biggest impact.

Richard Stockton: That's a segment of business that generated millions of dollars for the hotel each year. Without the strong brand on the hotel, we're no longer in that program.

Richard Stockton: part of the big influence in why we selected LXR is every LXR branded hotel is in that program and so we're very optimistic that once the renovation is complete we'll be back in that program but out running that revenue stream has been the biggest impact.

Bryan Maher: Maybe sticking with the Cameo for one more second, I think that there were, you correct me if I'm wrong, I think there were like five different types of residences slash condos. I remember touring them a few years ago. And I thought that there was a plan to sell those. What's the current thought process on that asset of the component of that property? Yeah, Bryan, your memory...

Bryan Maher: kind of residences slash condos. I remember touring them a few years ago, and I thought that there was a plan to sell those. What's the current thought process on that asset of the component of that property?

Richard Stockton: Yeah, Bryan, your memory serves you correctly. That is still the plan. We've been working through a city regulation recently in order to get the permission to sell those residences. That approval process has taken a little bit longer than we would have liked. Nevertheless, we have hired an agent to sell those residences and expect that process to start moving forward more rapidly, very soon.

Richard Stockton: That is still the plan. We've been working through a city regulation recently in order to get the permission to sell those. That approval process has taken a little bit longer than we would have liked.

Operator: Again, for any questions, press star 1, and our next question will come from the line of Michael Bellisario with Baird. Please go ahead.

Michael Bellisario: Okay, thank you.

Michael Bellisario: Thank you. Good morning, everyone. Good morning, Michael. Good morning.

Operator: A couple of questions for you. First, for Deric, just maybe on the incentive fee, can you remind us of the calculation? Is there a cap on the payment, and sort of what are the inputs there to come up with that calc on the incentive fee side? Yeah, the incentive fee of

Deric Eubanks: Yeah, the incentive fee under the advisory agreement is purely based on total shareholder return outperformance versus peers. So we look at the peer average. It's done on an annualized basis, so it won't be firm and final until the end of the year. But during the year, we do accrue for that if it would be owed, and that happened in the quarter.

Deric Eubanks: It's done on an annualized basis, so it won't be firm and final until the end of the year. But during the year, we do accrue for that if it would be owed, and that's what happened in the quarter. It's purely as a result of the stock performance of Braymar here today.

Deric Eubanks: It's purely as a result of the stock performance of Braemar year to date. And there is a cap on it. And the cap is based on the outperformance, which is capped at 25%. And it's 5% of the outperformance. So it's 1.25% of the equity market cap is the

Michael Bellisario: And is that the equity market? Is that the equity market cap, is that shares outstanding, or is that preferred as converted shares outstanding?

Michael Bellisario: And is that equity market?

Michael Bellisario: Is that equity market cap, is that shares outstanding or is that preferred as converted shares outstanding?

Deric Eubanks: It's just the current equity market cap; the common equity market cap does not include the preferreds. Got it. Helpful.

Michael Bellisario: I got it. Helpful.

Michael Bellisario: And then just switching gears a little on capital allocation, elevated CapEx this year. I know some of that's on some one-time projects, but maybe help us understand sort of the underlying run rate for spend within the portfolio and then how you're balancing some of the cash inflows and outflows over the next 12, 24 months, especially given that that CapEx number is greater than your cash flow from operations.

Chris Nixon: Yeah.

Michael Bellisario: Michael, thanks for the question. So with a portfolio of this size, you're going to see kind of, you know, more volatility in terms of average run rate based on the projects that we're doing. We've got a number of projects that we're very excited about that are underway this year. We just finished the guest rooms at Bartosono, and the renovation we mentioned at Capitol Hilton. We've got a number of projects that are ongoing at Ritz-Carlton Lake Tahoe that we're very excited about. That hotel is going to be completely transformed.

Michael Bellisario: Michael, thanks for the question. So with a portfolio of this size, you're going to see more volatility in terms of average run rate based on the projects that we're doing.

Michael Bellisario: We've got a number of projects that we're very excited about that are underway this year. We just finished the guest rooms at Barta Sono.

Michael Bellisario: the renovation we mentioned at Capitol Hilton.

Chris Nixon: We finished up the guest rooms and have, you know, are doing all the public and meeting space and the outdoor space now. Some smaller value-add projects you heard me cite in my opening remarks. And so, you know, there is a spike this year. I think the percentage of revenue is slightly higher than we've had in the past. From a stabilized base as we go forward, we're looking to get back under historic levels.

Chris Nixon: are doing all the public and meeting space and the outdoor space now. Some smaller value-add projects you heard me cite in my opening remarks.

Chris Nixon: You know, there is a spike this year. I think the percentage of revenue is slightly higher than we've had in the past. From a stabilized base as we go forward, we're looking to get back under historic levels, and I think that's what you'll see from us in terms of percentage of revenue and what we spend going forward, but there is some volatility here just in terms of where projects fall having a portfolio this size.

Chris Nixon: And I think that's what you'll see from us in terms of the percentage of revenue and what we spend going forward. But there is some volatility here just in terms of where projects fall when you have a portfolio this size.

Chris Nixon: Yeah, I'd add to that also that, you know, Michael, this is something we're looking at very closely in terms of kind of sequencing our projects. We've had a specific goal this year to reduce our amount of owner-funded CapEx, which we've been able to reduce by close to 30 percent. So that's definitely an objective as well to conserve cash flow.

Chris Nixon: Yeah, I'd add to that also that, you know, Michael, this is something we're looking at very closely in terms of kind of sequencing our projects. We've had a specific goal this year to reduce our amount of owner-funded CapEx.

Michael Bellisario: And just remind me, what's the 30% figure?

Michael Bellisario: which we've been able to reduce by close to 30%. So that's definitely an objective as well to conserve the cash flow.

Chris Nixon: The amount of owner-funded CapEx this year versus last year.

Chris Nixon: And just remind me, what's the 30% figure?

Chris Nixon: the amount of owner funded CapEx this year versus last year.

Michael Bellisario: And then, just lastly, sort of along the same lines, [inaudible] And that's all for me. Yeah, yeah, I'll add that.

Michael Bellisario: And then just lastly, sort of along the same lines,

Speaker Change: balance sheet leverages, you have 40%. In prior quarters, you've talked about a 35% target. You haven't talked about that in a while. I guess, one, is that still a target? Where's leverage pro forma for La Jolla? And then kind of what's the timeline or the plan to get that back down to 35?

Michael Bellisario: Yeah, I'll let Deric chime in as well. That's definitely our plan with the La Jolla sale. I don't know that that moves the needle too much. Deric will let us know in a second. But I think once we have the two other hotels that we've talked about, we'll be honing in on that 35% or lower, which I would anticipate we'll achieve by this time next year.

Michael Bellisario: And that's all for me. Thank you.

Michael Bellisario: Yeah, I'll let Deric chime in as well. That's definitely our plan.

Michael Bellisario: With the La Jolla sale, I don't know that that moves the needle too much. Deric is going to let us know in a second.

Michael Bellisario: But I think once we have the two other asset sales that we've talked about, we'll be honing in on that 35% or lower, which I would anticipate we'll achieve by this time next year.

Operator: And with that, I'll turn the call back to management for any closing remarks.

Operator: And with that, I'll turn the call back to management for any closing remarks.

Richard Stockton: All right, thank you for joining us on our second quarter earnings call, and we look forward to speaking with you all again next quarter. Thank you.

Richard Stockton: All right, thank you for joining us on our second quarter. We look forward to speaking with you all again next quarter. Thank you.

Operator: This does conclude today's earnings call. Thank you all for joining us. You may now disconnect.

Operator: This does conclude today's earnings call. Thank you all for joining. You may now disconnect.