Braemar Hotels & Resorts Inc.

Please stand by. We are about to begin. Good day, ladies and gentlemen, and welcome to Braemar Hotels and Resorts, Inc. Fourth Quarter 2018 Year-End Results Conference Call. Today's call is being recorded, and at this time I would like to turn things over to Jordan Jennings, Investor Relations for Braemar. Please go ahead.

Good afternoon, and welcome to today's call to review results for Braemar Hotels and Resorts for the fourth quarter and full year of 2018, and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Jeremy Walter, Chief Operating Officer. The results as well as notice of the accessibility of this conference call on a listen-only basis over the internet were distributed this morning in a press release that has been covered by the financial media. 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. Such forward-looking statements are subject to numerous assumptions, uncertainties, and known or unknown risk, 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. 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. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings relief and accompanying tables or schedules, which have been filed on Form 8K with the SEC on February 27, 2019 and may also be accessed through the company's website at www.bhreit.com. Each listener is encouraged to review those reconciliations provided in their earnings release together with all other information provided in the release. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Thank you. Good afternoon and thank you for joining us this afternoon to discuss our fourth quarter and full year results. Overall, we are very pleased with the operating and financial results Braemar generated in We're excited about the progress we are making on the continued growth and success of our platform. In January of 2017, we announced a revised strategy with a focus of investing in the luxury hotel segment. And since that time, we've taken concrete steps to realign our portfolio to the strategy, including selling two non-core properties, announcing an agreement to up-brand two properties and align them more closely with our luxury focus, and acquiring four high-quality luxury properties. We believe the continued execution on this strategy will lead to solid growth and strong financial performance for our company going forward. Our strategy to focus on the luxury segment of the hospitality market is supported by the current and historical performance of this segment. Empirical evidence has shown that over the long term, the luxury segment has had greater Red Park growth than the overall industry. Currently bolstered by strong consumer confidence trends and a healthy macroeconomic outlook, the luxury segment has outperformed the overall lodging industry over the last several quarters. According to Smith Travel Research, in the fourth quarter, luxury segment rev par growth was 3% compared to rev par growth of 2.4% for the entire industry. For full year 2018, luxury rev par increased 4.4% compared to rev par growth of 2.9% for the entire industry. Looking ahead, the economic outlook continues to be favorable and consistent with our long-term growth thesis for the luxury segment, STR and other industry forecasters are predicting modest overall REVPAR gains in 2019 for the industry, but the luxury segment expects to continue to outperform. By clearly aligning our platform with this segment, we believe Braemar is well positioned to capitalize on these trends and continue to outperform our REIT peers. Before turning to our operational results, I would like to take a moment to discuss the Enhanced Return Funding Program, or ERFP, agreement with Ashford Inc. that we announced in January. The ERFP is a $50 million funding commitment from Ashford, Inc. that is provided to Braemar to facilitate accretive growth. Simply put, Ashford, Inc. contributes 10% of the purchase price of qualifying acquisitions up to the agreed maximum funding commitment with no additional fees or future return on investment provisions. The program has a two-year term with one-year renewals and the ability to be upsized to $100 million based upon mutual agreement. This programmatic funding arrangement provides us with a competitive advantage and the potential to meaningfully drive our performance is significant. With the ability to add an estimated 100 to 200 basis points to unlevered returns on our future hotel acquisitions, we believe the ERFP will be a key differentiator behind our ability to increase shareholder value. To put the ERFP program to work immediately, in January 2019, we acquired the Ritz-Carlton Lake Tahoe located on the North Shore. We're very excited about the acquisition of this high quality resort and believe it's a great addition to our portfolio. Raymar will receive approximately $10 million of ERFP funding as part of the $103 million purchase price. We anticipate that this will increase our returns on this acquisition from a projected 10% to 12% unlevered IRR. This landmark luxury hotel, built in 2009, consists of 170 rooms with over 37,000 square feet of indoor and outdoor meeting space, and sits mid-mountain on the ski slopes of the North Star Ski Resort. With record snowfall propelling the 2018-19 ski season out of the gates, we are very excited about this property joining our portfolio. Let me now turn to our fourth quarter results. For the fourth quarter, actual ref bar growth was 9% for all hotels and was 7.2% for the full year. These significant increases are a direct result of our portfolio repositioning efforts to acquire higher RevPar hotels and dispose of our lowest RevPar assets. Comparable RevPar for hotels not under renovation grew by 7% during the quarter, while comparable RevPar for all hotels increased 3.2%. We reported adjusted EBITDA RE of $20.3 million and AFFO per share of 15 cents for the quarter. while full-year adjusted EBITDA RE was $119.3 million, reflecting 7.3% growth over the prior year, and AFFO per share was $1.55. Our overall portfolio TTM comparable REV PAR of $226 continues to be the highest in the lodging REIT sector. During the quarter, we continued to actively manage our insurance recoveries at the Ritz-Carlton St. Thomas related to Hurricane Irma. We're working closely with our insurers to both seek recoveries for physical damage to the hotel, as well as to minimize the impact to the property's P&L through BI insurance recoveries, which total $13.5 million for the full year 2018. As previously discussed, we didn't book any business interruption income in Q4 2018. However, we do expect recoveries to resume in the first quarter of 2019 and to continue at least through our planned reopening in October 2019. We also continue to be on track with the rebuilding and renovation program at the property, and Jeremy will provide more detail on our progress in a few minutes. We're also pleased with the progress we are making on the conversions of our Courtyard Philadelphia and Courtyard San Francisco properties to autograph collection hotels. Both projects remain on track to be completed this year, and their opening as autographs will mark the completion of our initiatives under our non-core hotel strategy and portfolio repositioning. Thus far, we have spent approximately $20 million on these conversions. and anticipates spending an additional $30 million in 2019. We're excited about the post-conversion upside of these two properties, given their strong performance during 2018, with 6.7% rev par growth at the Courtyard Philadelphia and 14.6% rev par growth at the Courtyard San Francisco, even while these properties were under renovation. Additionally, San Francisco's Moscone Convention Center expansion was completed in late 2018 which, when combined with only modest supply growth, continues to fuel our excitement for 2019 with the upcoming opening of our San Francisco Autograph Collection Hotel. Two of this quarter's best-performing assets were our Napa Valley properties, with comparable REVPAR up by 35.4% at Bartisano and 41.1% at Hotel Yonville during the fourth quarter, driven by strong gains in both rate and occupancy. We noted last quarter on our call that the fourth quarter was shaping up to be strong for our Napa Valley hotels as operations of the properties fully recovered from the fires in the fourth quarter of 2017. For these properties, comparable revpar growth was 37.9% during the fourth quarter, driven by occupancy growth of 24.1% and rate growth of 11.1%. While the strong revpar growth was driven by depressed occupancy levels in 2017, This robust Red Park growth resulted in Hotel Yontal increasing its share relative to both the California North Market and Napa Valley, California, sub-market by 28.8 and 14.2 percentage points, respectively. Bartosono similarly outperformed the market and sub-market. For the two properties combined, Hotel Yontal margin increased by 112%, resulting in a $1.9 million or 196% increase in Hotel Yontal. These results translated into 81% hotel EBITDA flow-through for the fourth quarter, which is a continuation of the strong 89% hotel EBITDA flow-through achieved during 2018. At Fartisano, construction continued on the three-unit presidential villa with structural framing currently underway. 2018 was our first full year of ownership of Hotel Yonville. While the year had its share of hurdles to overcome, mainly the recovery from the fires in the fall of 2017, during the year a comparable rev part grew by 4.9%. Hotel Ibida grew $1.3 million, or 24.5%, while Hotel Ibida flow-through was 74%. With the impact of the fires mitigated, we anticipate Hotel Yonfield to continue to perform well and be a valuable addition to our portfolio. In addition to the strong performance of our Napa Valley assets, the Hilton La Jolla Torrey Pines was also a strong performer for the quarter, with comparable REFAR of 12.5% driven by 11.5% rate growth. This REVPAR growth represents 7.4 and 0.7 percentage point increases in REVPAR relative to the San Diego-La Jolla-California submarket and the San Diego upper upscale class market respectively. The hotel has been focusing on group patterns and placement by deliberately moving groups to shoulder dates in order to capitalize on high occupancy dates with transient business. In addition to the strategic booking of group business, the hotel was able to drive transient rate during the San Diego CityWides. Total hotel revenue at Hilton Torrey Pines increased 14.4% during the fourth quarter, leading to hotel EBITDA growth of $735,000, or 27.2% over the prior year period. At our Capital Hilton in Washington, D.C., comparable rev parts decreased 6.6% during the fourth quarter, as October was impacted by the last two weeks not having any congressional activity leading up to the midterm elections. Additionally, October and November combined saw a 48,000 room night decrease in the market due to fewer city-wides. Increased supply in the market also impacted the average rate that the Capitol Hill was able to realize on weekends from leisure travel. As the partial government shutdown occurred at the very end of the fourth quarter, It had minimal impact on the quarter's results. However, we expect it will have a greater impact on the results for the first quarter of 2019. On another note, the hotel opened a new fitness center, continued to progress on the last phase of the meeting space renovation, and is preparing for the opening of its new retail tenant, CVS. One of our recent acquisitions, the Ritz-Carlton Sarasota, posted a 2% comparable red-par decrease during the fourth quarter. Red tide began impacting the Gulf Coast at the beginning of August 2018, and the Sarasota market has been one of the worst-hit regions. Despite the poor market conditions relative to the Sarasota Beaches Florida sub-market and Sarasota Bradenton Florida market, comparable red part of the property outperformed by 9 and 7.6 percentage points, respectively. During the fourth quarter, hoteling bid up low through was a robust 95%. And for the entire year, this figure was an exceptional 305%. Despite the headwinds mentioned earlier, the hotel exceeded 2018 operating income by 3.5%, or $568,000, through effective expense control. And we did not have to draw on the GOP guarantee negotiated with prior ownership as part of our acquisition. Additionally, the City Council approved beach restoration project that began in November reached the hotel's beach club this quarter, which should have a positive impact on performance. We believe we have made great progress in advancing our strategy in the quarter and expect these trends to continue through the first quarter of 2019. I'll now turn the call over to Derek.