Q3 2024 Braemar Hotels & Resorts Inc Earnings Call
Thank you.
Regina: 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 Braemar Hotels and Resorts, Inc. third quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise.
Speaker Change: 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. 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 third quarter of 2024 and to update you on recent developments.
Regina: On the call today will also be Richard Stockton, President and Chief Executive Officer, and Chris Nixon, Executive Vice President and Head of Asset Management. 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.
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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities.
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 November 6, 2024, and may also be accessed through the Company's website at www.bhrreit.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 discussed in this call compare the third quarter ended September 30, 2024 with the third quarter ended September 30, 2023.
Speaker Change: I will now turn the call over to Richard Stockton. Please go ahead, Richard.
Richard Stockton: Good morning, and welcome to our third quarter earnings conference call. I will begin today's call by providing an overview of our business, an update on our portfolio, and an update on our recently announced shareholder value creation plan.
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'll open the call for Q&A.
Thank you. Thank you.
Speaker Change: We have several key themes for today's call. First, our Urban Hotel delivered strong performance again this quarter with impressive comparable rep bar growth of 6% over the prior year quarter.
Speaker Change: Second, we have no remaining final debt maturities in 2024 and are currently working on a refinancing of our sole 2025 maturity.
Speaker Change: And third, we're pleased with the progress we've made on our recently announced shareholder value creation plan with the closing of the sale of Hilton La Jolla Tory Pines and Attractive Value and the redemption of approximately $50 million of our non-traded preferred.
Speaker Change: As it relates to our financial results for the quarter, we reported a comparable REVPAR of $261 and a comparable hotel EBITDA of $24.7 million.
Speaker Change: It's useful to note that from a seasonality perspective, the third quarter is the weakest quarter in the year for our portfolio.
Speaker Change: Importantly, we continue to be encouraged by the strong performance of our urban hotels which, as I said, achieved REVFAR growth of 6% in the quarter.
Speaker Change: Regarding our urban assets, Red Park for the quarter was $213, and Comparable Hotel Ibida was $16.4 million.
Speaker Change: We are seeing strength across all demand segments at our urban properties. Looking ahead, we remain very encouraged by the continued momentum for this segment of our portfolio, and we continue to believe our urban hotels will be the primary driver of growth for our portfolio in the coming quarters.
Speaker Change: Looking at Bramar's capital position, we continue to emphasize balance sheet flexibility.
Speaker Change: With the recent closing of the sale of the Hilton, La Jolla Atorrey Pines, we have now addressed all of our 2024 debt maturities and are currently talking to lenders about our sole 2025 maturity.
Speaker Change: Earlier this year, we announced the shareholder value creation plan, which has four components.
Speaker Change: They are, one, execute select non-core asset sales, including the recent sale of the Hilton La Jolla Tory Pines. Two, the repayment of our remaining 2024 debt maturities. Three, a $50 million preferred share redemption program. And four, a $50 million common share buyback authorization.
Speaker Change: including anticipated capital expenditures of $40 million. The sale price represented a 7.2% capitalization rate on net operating income for the trailing 12 months ended March 31st, 2024.
Speaker Change: We also continue to evaluate the sale of additional hotel properties.
Speaker Change: In early August, we closed on a refinancing involving five hotels at an attractive rate through our CMBS financing.
Speaker Change: The new loan of $407 million has a two-year initial term and three one-year extension options, subject to the satisfaction of certain conditions, taking the final maturity to 2029.
Speaker Change: The loan is interest only and provides for a floating rate interest of SILFER Plus 3.24%.
Speaker Change: Notably, this financing resulted in us paying off our corporate term loan and credit facility and resulted in a lower cost of capital for the debt on these assets, as well as improving our maturity schedule and extending our weighted average maturity.
Speaker Change: Regarding redemptions of our non-traded preferred stock, to date we have now redeemed approximately 50 million dollars of our non-traded preferred stock. As we continue to monitor both our leverage and our liquidity needs, as of the end of the quarter, we have not bought back any common shares.
Speaker Change: In terms of our most recent results, we're pleased to report that comparable REF PAR for our portfolio increased 7.5% in October, with comparable total revenue growth of almost 11%, which sets us up well for fourth quarter performance.
Speaker Change: Furthermore, our group pays for the first quarter of 2025 is currently up nearly 40%.
Deric Eubanks: We are very encouraged with these data points and believe Braemar is in a good position 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 1.4 million dollars or two cents per diluted share and AFFO per diluted share of negative 24 cents.
adjusted even to R.E. for the quarter with $18.5 million.
Speaker Change: At quarter end, we had total assets of $2.2 billion. We had $1.2 billion of loans, of which $27.7 million related to our joint venture partner's share of the loan on the capital Hilton.
Speaker Change: Our total combined loans at a blended average interest rate of 7.6% taking into account in the money interest rate caps.
Speaker Change: Based on the current level of SOFR and our corresponding interest rate caps, approximately 23% of our debt is effectively fixed and approximately 77% is effectively floating.
Speaker Change: As of the end of the third quarter, we had approximately 41% net debt to gross assets.
Speaker Change: We ended the quarter with cash-in-cash equivalents of $168.7 million and restricted cash of $48.5 million. The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts. At the end of the quarter, we also had $19.9 million in due from third-party hotel managers.
Speaker Change: This primarily represents cash held by one of our brand managers, which is also available to fund hotel operating costs.
Speaker Change: With regard to dividends, we again announced a quarterly common stock dividend of 5 cents per share or 20 cents per diluted share on an annualized basis. This equates to an annual yield of approximately 6.8% based on yesterday's stock price.
Speaker Change: Our Board of Directors will continue to review the company's dividend policy on a quarter-to-quarter basis.
Speaker Change: As Richard mentioned, during the quarter we closed on a refinancing involving five hotels.
Speaker Change: The new loan of $407 million has a two-year initial term with three one-year extension options, subject to the satisfaction of certain conditions, taking the final maturity to 2029.
Speaker Change: The loan is interest only and provides for a floating interest rate of SILFR plus 3.24%.
Speaker Change: As part of this financing, we acquired a tranche of CMBS with a par value of $42.2 million and a rate of SOFR plus 5.2%, which lowered our net spread on the $364.8 million remaining loan amount to SOFR plus 3.01%.
Speaker Change: The loan is secured by five hotels, Pure House Resort and Spa, Bartosono Hotel and Spa, Hotel Yonville, The Ritz-Carlton Sarasota, and The Ritz-Carlton St. Thomas.
Speaker Change: The new loan refinanced the $80 million loan secured by the Pure House Resort and Spa which had an interest rate of SOFR plus 3.6% and had a final maturity date in September 2026.
Speaker Change: The $42.5 million loan secured by the Ritz-Carlton St. Thomas, which had an interest rate of SOFR plus 4.35% and had a final maturity date in August 2026.
Speaker Change: and the $200 million corporate term loan and credit facility secured by the Ritz-Carlton Sarasota, Hotel Yonville, and Bartosano Hotel and Spa, which had an interest rate of SOFR plus 3.1% and had a final maturity date in July 2027.
Speaker Change: Looking ahead, our only 2025 maturity is the loan that includes the Sofitel Chicago, the Clancy, the Notary, and the Marriott Seattle, which matures in June. We are in discussions with lenders about the refinancing of this loan and currently expect to have that completed early next year.
Speaker Change: As of September 30, 2024, our portfolio consisted of 15 hotels with 3,667 net rooms.
Speaker Change: 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.
Speaker Change: This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter.
Chris Nixon: Thank you, Deric. Comparable hotel REVPAR for our portfolio was $261 for the third quarter, a 1.6% decrease over the prior year quarter.
Speaker Change: The year-over-year decline in REVPAR was primarily driven by two key factors.
Speaker Change: First is the extensive renovation work ongoing at the Ritz-Carlton Lake Tahoe. The renovation, which we are in the final stages of completing, will transform nearly every area of the hotel and be completed this quarter, which will position the hotel well for the upcoming festive season.
Speaker Change: The second is a continued normalization of our resort hotels. Despite third quarter resort REVPAR being up 16.2% the comparable period in 2019, we are still seeing a slight decline in leisure demand year-over-year.
Speaker Change: Portfolio-wide group revenue increased 14% this year through the third quarter compared to the prior year period.
Speaker Change: Our urban assets continue to perform well, with demand steadily returning to our downtown locations. In the third quarter, our urban portfolio achieved growth in total hotel revenue of 8% and growth in occupancy of 4% compared to the prior year period.
Speaker Change: Our asset management team continues to work with our property managers to drive ancillary revenue, which increased 8.3% on a per-occupied room basis compared to the prior year quarter.
Speaker Change: Additionally, our hotels have implemented various initiatives aimed at boosting productivity and efficiency across our portfolio. As a result, overall productivity, measured as labor hours per occupied room, improved by 40 basis points compared to the prior year quarter.
Speaker Change: I would now like to spend some time highlighting some of our successes in the quarter.
Speaker Change: As previously mentioned, group pace continues to accelerate across the portfolio. Group room's revenue for the third quarter finished ahead of the prior year quarter by 14%.
Speaker Change: With the first quarter pacing ahead by 40%, we are well-positioned for the full year of 2025, with group earnings revenue pacing ahead by 13% compared to the prior year.
Speaker Change: This success is partially attributed to an emphasis on lead generation, which resulted in a 14% increase in leads compared to the prior year quarter, despite softening trends industry-wide.
Speaker Change: Our revenue optimization team works diligently with hotel sales teams to optimize group targets and monitor actionable takeaways from lead generation platforms.
Speaker Change: Notably, two of our most recently renovated hotels have seen robust sales performance.
Speaker Change: Our largest hotel, Capital Hilton, finished the third quarter with group rooms revenue 31% above the prior year quarter.
Speaker Change: Additionally, the Ritz-Carlton Lake Tahoe, which is currently completing a full transformative renovation, has restructured their sales team.
Speaker Change: The hotel's new sales leader conducted a detailed analysis of the sales and marketing expenses, identifying opportunities to intensify marketing efforts on group and event booking platforms.
Speaker Change: This initiative led to a 67% increase in lead volume during the third quarter compared to the prior year quarter.
Thank you. Thank you.
Speaker Change: As we cited earlier, our urban hotels continue to experience strength, as hotel rep for the third quarter grew by 600 basis points compared to the prior year period for these hotels.
Speaker Change: Our Marriott Seattle Waterfront Hotel had a successful quarter with a 13% increase in total revenue and an 8% increase in hotel EBITDA compared to the prior year quarter.
Speaker Change: The hotel implemented a comprehensive strategy to increase its group base, capture market share, and drive food and beverage revenue.
Speaker Change: As a result, during the quarter, the hotel successfully hosted two additional large groups in July, while simultaneously pushing rates and allocating premium rooms to leisure customers during the market's peak season.
Speaker Change: In addition to the hotel's marketing efforts, the team has collaborated closely with local tourism authorities, including Visit Seattle, to launch Destination Waterfront, a business development strategy aimed at enhancing the visibility of our waterfront location in Seattle.
Speaker Change: This strategy involved developing visual aids and presentations that showcase the transformations occurring in the market and at the hotel.
Speaker Change: These materials were presented to local government officials and internal sales teams, enabling us to successfully secure a significant international conference hosted by a U.S. government agency in September, which generated $376,000 in total revenue for the property.
Speaker Change: Similar to the rest of the industry, this portfolio typically sees a negative impact during the third quarter of an election year, as government business stalls. However, the notary in Philadelphia has seen a benefit from this being an election year, based on its location in a key battleground state.
Speaker Change: The hotel successfully capitalized on favorable group and transient demand. At the same time, the notaries achieved significant operational efficiencies by optimizing staffing levels, managing PTO, and eliminating task force labor.
Speaker Change: The increased demand, combined with efforts to control costs, drove strong third-quarter results at this hotel, with Comparable Total Revenue increasing by 17% and Hotel Ibada increasing by 38% over the prior year quarter.
Speaker Change: In late September and early October, some of our hotels were impacted by Hurricane Helene in the southeastern United States and Hurricane Milton, which hit right at the beginning of the fourth quarter.
Speaker Change: Our risk management team proactively handles hurricane procedures by identifying and notifying potentially impacted hotels, allowing them ample time to prepare. We then preemptively align with the hotels on preparation procedures, such as identifying low spots, adding sandbags, removing debris, and strapping down equipment.
Speaker Change: All of our hotels have access to generators in case of a power outage.
Speaker Change: These procedures have helped us to force strong relationships with disaster relief companies who provide quick aid to our hotels with cleanup.
Speaker Change: While we did sustain damage to the beach club at our Ritz Carlton in Sarasota, due to the storm surge that pushed sand up to our pool deck level and some roof damage caused by high winds, we experienced minimal operational impact to the hotel during the third quarter.
Speaker Change: Moving on to capital expenditures, during the third quarter of 2024, we completed several transformative renovations at the Ritz-Carlton Lake Tile. These upgrades included the relocation and expansion of the living room bar, which now serves as a centerpiece of the space.
Speaker Change: We also completed significant upgrades to the fitness center, meeting spaces, and outdoor pool area, including the addition of three luxury cabanas, which are expected to enhance the guest experience and generate strong ROI through increased poolside revenue.
Speaker Change: Additionally, we completed the restaurant refresh at the iconic Jack Dusty in the Ritz-Carlton,
Speaker Change: Progress continues at the Four Seasons Resort Scottsdale, where we are converting underutilized back-of-house space into an epicurean retail market, offering guests continuous access to curated food and beverage selections to drive incremental revenue for the property.
Speaker Change: In the third quarter, we also initiated comprehensive updates to the Beachfront Restaurant at the Ritz-Carlton St. Thomas, but expect the completion by year-end.
Speaker Change: Looking ahead to the fourth quarter, we plan to begin renovations at our fine dining restaurants at the Ritz-Carlton Lake Tahoe and Ritz-Carlton Reserve Toronto Beach.
Speaker Change: Additionally, we will start construction on five luxury beachside cabanas at the Ritz-Carlton St. Thomas, which are expected to enhance the guest experience and generate strong incremental revenue.
Speaker Change: For 2024, we expect capital expenditures to range between $70 million and $90 million, as we continue to invest in key renovations and strategic upgrades across our portfolio.
Speaker Change: Thank you, Chris. In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels, in particular the continuing strong performance of our urban properties.
Speaker Change: We also remain well positioned with a solid balance sheet and promising outlook.
Speaker Change: 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.
Speaker Change: At this time I'd like to remind everyone in order to ask a question press star followed by the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question will come from the line of Jonathan Jenkins with Oppenheimer. Please go ahead.
Speaker Change: and many more. And finally, I'd like to thank you for watching. I hope you enjoyed this video. If you did, please click the Like button. And if you want to watch more videos like this, please subscribe to my channel. And I'll see you in the next video.
Good morning. Thank you for taking my questions.
Speaker Change: When you look at the quarter, can you maybe talk about the underlying impact of mixed shifts to more BT demand?
Speaker Change: and how that strong group outlook could impact that mix going forward. And maybe if you could just remind us, you know, what your normal mix, historical mix, has been in the past.
Speaker Change: Yeah, thanks Jonathan. Our historical mix we've done typically anywhere from 25 to 30 percent group business.
Speaker Change: I think as we look at how our group pace is layered in the year for next year, 2025, we're very happy.
Speaker Change: So Q1 is typically our strongest quarter from a REVPAR standpoint because we have a festive season that impacts a lot of our resorts and we run very high ADRs in that quarter. However, from an occupancy standpoint, Q1 is actually where we run a lower occupancy than other quarters.
Speaker Change: and so we prefer a group base in that quarter. As we kind of dive deeper into the quarter...
Speaker Change: March is historically the softest month within Q1 and that's where we have our largest group pace increases year-over-year. Group pace currently for the month of March is up over 70% the prior year.
Speaker Change: And so we're very happy with kind of our group pace. Not only that it's just up, you know, double digits for the full year, but also when you kind of zoom in where it's layered, you know, throughout the year and throughout the first quarter.
Speaker Change: From a mixed standpoint, we are seeing softer leisure trends, softer leisure demand on the weekends, especially impacting our resorts.
Speaker Change: continues to increase. Our corporate revenue was up 12% year-on-year, and we're seeing that in nearly all markets. The only exception, I'd say, is San Francisco, which continues to be very, very challenged.
Speaker Change: They had soft city-wide production this quarter. They've seen office vacancy rates increase to an all-time high. And we're certainly seeing that in our PT pace there. But if you exclude that hotel, on the whole, corporate demand is very strong for us.
Speaker Change: Okay, great. I appreciate the color there. Maybe on that line, I'm thinking, you know, I'm curious if you think that strength is kind of a shift or inflection higher in demand post-Labor Day for corporate demand, or is it a continuation of the steady improvement you've seen kind of throughout the year?
Speaker Change: Yeah there was a slight acceleration kind of post-labor-day but we've seen we've seen strength and growth year-on-year. It hasn't quite been as strong as we saw in Q3 and we did see some some acceleration kind of post labor-day to the segment.
Michael Bellisario, Deric Eubanks,
Speaker Change: Okay, thank you for that. And maybe to follow on the commentary on the election, and you noted the strength at the notary, but can you maybe talk about for the overall portfolio kind of how the election has impacted kind of demand here in November?
Yeah, in D.C. we've got, you know,
Speaker Change: and others, and we saw some softening to government segments and some other segments in November. We saw some softening broadly in advance of the election. There was a lot of uncertainty around how the election would turn out, and government and government-related travel did decline. We're hopeful that post-election, as behind us, there's a big acceleration. I will say that
Speaker Change: Capital Hilton in particular. We've mitigated some of that with our group pace. They're looking very well from a group standpoint.
Speaker Change: We've also seen very strong demand, very strong ability to capture high EDRs kind of coming out of our renovation where they continue to just set records at the hotel. I got a stat from our team that five of the hotel's best months
Speaker Change: ever in the history of the hotel happened within the last year. And so the hotel is performing well, but to government specifically, your question around election impact, we did see a softening there in D.C.
Speaker Change: Okay, that's excellent color. Then maybe last one for me, if I could. Can you talk about the transaction market broadly, you know, in terms of volume and pricing? Has there been any closing in the gap between buyer and seller expectations or any other moves as of late, given the interest rate movement here in September or since September? And maybe adding to that, has there been any change in the refi conversations that you've been having?
and many more. Thank you. Thank you.
Speaker Change: Yeah, Jonathan, I'll handle that on the transaction market and I'll let Deric talk about the financing market.
Look I think
Speaker Change: Everything that we've seen over the last two months has been very positive for the transaction market. No more are buyers modeling in recession risk for next year. Now that the Fed has started cutting rates, people are modeling in that forward curve.
Speaker Change: So all these things are helpful. That said, there just aren't a lot of data points just yet.
Speaker Change: That said, we typically, or I shouldn't say typically, but from time to time, we'll ask brokers their opinion and value on our assets. And I can tell you, we have been extraordinarily surprised on the upside, those numbers have come back.
Speaker Change: which suggests that there is definitely some firming of cap rates, certainly at least in the eyes of the brokers. So, as I mentioned, our intention is to sell another two hotels.
Speaker Change: That will take place next year. It's a long process to sell a hotel, averaging six or nine months. But hopefully we'll be able to capitalize on what I would consider to be a very constructive transaction market right now.
Speaker Change: Yeah, and then on the financing side, I would say we've seen spreads continue to come down some.
there's plenty of
debt capital out there available.
Speaker Change: We've seen a lot of hotels get financed in the CNBS market and so that's been an attractive source of capital. Banks for the most part, the large banks, continue to be on the sidelines. We're not seeing them very active.
Speaker Change: It's kind of frustrating because they're the cheapest source of capital and you'd like to see them being more active.
in allocating capital out.
Speaker Change: I suspect that's probably a function of issues with other types of commercial real estate on their balance sheet.
Speaker Change: You know, the market's attractive and we've held off on doing some financings until the market was more attractive and I feel like we're well positioned and it's an opportune time.
Speaker Change: to be in the market to address the maturity that we have. And we feel very good about our maturity schedule. Thankfully, we've got very few maturities that we're looking at. And the one that we are working on, we're getting plenty of interest in.
Speaker Change: Okay, that's very helpful, Collar. Thank you for all the insights, everyone. That's all for me.
Thanks, Sheldon.
Speaker Change: And as a reminder to ask a question press star 1 on your telephone keypad and we'll take our next question from the line of Daniel Hogan with Baird. Please go ahead.
Daniel Hogan: Hey everyone, thanks for taking my question. I know you mentioned briefly that there wasn't too much damage from the hurricane impact, but is there a 4Q impact that you're expecting, just in terms of demand impact?
Thank you very much.
Speaker Change: Yeah, thanks, Daniel. The majority of the impact that was sustained was to the beach club. There was some damage there, as I mentioned, with kind of the storm surge and the water levels and the sand that had moved upwards into the pool areas. We did have some group cancellations in October. We're estimating an impact of...
Speaker Change: I'd say anywhere from $500,000 to $700,000 at that hotel. It was impactful in terms of October business. Luckily for us, you heard Richard cite our October results, and the rest of the portfolio performed so well that it outran that and more than offset it.
Speaker Change: So, a lot of the impact is isolated at that hotel to October, but we're very happy with how the portfolio performed as a whole for that month.
Thank you.
Speaker Change: Alright, that's it for me. All the other questions are asked. Thanks for your time.
Speaker Change: And that will conclude today's question and answer session. I'll hand the call back to management for any closing remarks.
Speaker Change: Well thank you all for joining us on our third quarter earnings call and we look forward to speaking with you again next quarter.
Speaker Change: That will conclude today's call. Thank you all for joining. You may now disconnect.