Braemar Hotels & Resorts Inc.

Good day, ladies and gentlemen, and welcome to the Braemar Hotels and Resorts Incorporated First Quarter 2019 Results Conference Call. Please note today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jordan Jennings. Please go ahead, ma'am.

Good morning, and welcome to today's call to review results for Braemar Hotels and Resorts for the first quarter of 2019 and to update you on recent developments. On the call today will be Richard Stutton, President and Chief Executive Officer, Derek Eubanks, Chief Financial Officer, and Jeremy Walter, Chief Operating Officer. The results, as well as the notice of the accessibility of this conference call on a listen-only basis over the Internet, were distributed yesterday 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 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. 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 release and accompanying tables or schedules, which have been filed on Form 8K with the SEC on May 1, 2019, and may be also accessed through the company's website at www.bhrreat.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. And I'll turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning. Thank you for joining us to discuss our first quarter results. In January of 2017, we announced a revised strategy with a focus of investing in the luxury hotel segment. Since that time, we have 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 acquiring four high-quality luxury properties. We are excited about the meaningful progress we are making and believe the continued execution of this strategy will will lead to solid growth and strong financial performance for the company going forward. Our strategy to focus on the luxury segment of the hospitality market continues to be supported by the current performance of this segment. Empirical evidence has shown that over the long term, the luxury segment has had greater rent part growth than the other lodging segments. Looking ahead, the economic outlook continues to be favorable and consistent with our long term growth thesis for luxury, STR and other forecasters are predicting the luxury sector to outperform the modest rev part gains expected in 2019 for the industry. 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'd like to take a moment to discuss the key highlights of our Enhanced Return Funding Program, or ERFP, with our advisor, Ashford Inc., that we announced in January of this year. The ERFP is a $50 million funding commitment 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. 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 significant potential to meaningfully drive performance. 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. We put the ERFP program to work immediately with our January 2019 acquisition of the Ritz-Carlton Lake Tahoe. 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. Raymar will receive approximately $10 million of ERFP funding as part of this acquisition. We anticipate that the ERFP funding will increase our returns on this acquisition from a projected 10% to 12% unlevered IRR. While we were already excited about this acquisition, The hotel's performance in the first quarter fueled our further optimism and significantly exceeded our expectations. Early season winter snowfall created very strong demand that drove high rates on the tail end of the holiday season and over MLK weekend. This led to significant rev par growth of 32.8% over the prior year quarter. Let me now turn to our first quarter results. For the first quarter, actual rev par growth was 14.3% for all hotels. This significant increase is a direct result of our portfolio repositioning efforts to acquire higher REVPAR hotels and dispose of our lowest REVPAR assets. Comparable REVPAR for all hotels grew by 3% during the quarter, while comparable REVPAR for hotels not under renovation increased 2.6%. We reported adjusted EBITDA RE of $34.8 million and AFFO per share of 44 cents for the quarter. Our overall portfolio folio trailing 12-month comparable rev far of $233, continues to be the highest in the Lodging Reeds sector. During the quarter, we continue 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 totaled $6 million in the quarter. We expect recoveries 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 are 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 with a planned early summer opening of the converted Courtyard Philadelphia aptly named the Notary Hotel, since the building itself used to house the city's official notarial offices in the 1900s. Listed on the National Register of Historic Places, the property is undergoing a $20 million plus renovation, fusing Philadelphia's unique soul with its historic legacy. Originally designed by prolific architect Philip Johnson in the classical revival style, the Notary Hotel is a landmark in the heart of Center City, Philadelphia, boasting sophisticated 1920s-inspired decor and furnishings. The 15-story building dates back to 1926 and is ideally located across from City Hall as well as one block from the Pennsylvania Convention Center. The redesign uses a combination of original finishes and stylish upgrades including marble floors, chandeliers, coffered plaster ceilings, and decorative bronze molding. Throughout the property, elements of Philadelphia history and culture as well as unique items from local artisans will be prominently featured to create a distinctive feel. The rebranding of the Courtyard San Francisco as an autograph collection property is expected to be completed by the end of the year. During the first quarter, we reported 29.6% rev par growth at the hotel, even while the property was 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 and the upcoming repositioning. Thus far, we have spent approximately $25 million on these conversions and anticipate spending an additional $32 million during the remainder of 2019. On the capital markets front, during the quarter, we completed the refinancing of our Capital Hilton and Hilton Torrey Pines, as well as the financing of our acquisition of the Ritz-Carlton Lake Tahoe. With all of our recent financing activity over the last year, We now have a very attractive maturity schedule, and our next hard maturity is not until March 2020 and is an amount representing less than 10% of our assets. We've also been active on the investor relations front. In April, we hosted a first-of-its-kind Key West market tour that not only included our pier house resort property, but also included several of our re-pierce properties and management teams. The event was very well attended by investors and analysts. We hope to do similar events in other markets in the future. During the remainder of 2019, we will continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in our platform. We believe we have made great progress in advancing our strategy this past quarter and expect for these trends to continue through 2019. We are optimistic about the upcoming performance of the portfolio as we believe there are several unique circumstances that could result in Red Park performance in excess of the broader market. I will now turn the call over to Derek.

Thanks, Richard. As Richard mentioned, during the first quarter, we recognized $6 million of business interruption income for the Ritz-Carlton St. Thomas, which is reflected in the other hotel revenue line of our income statement. These insurance recoveries related to the month of December 2018 through February 2019, and we expect business interruption income to continue until at least the reopening of the hotel as a Ritz-Carlton. which is anticipated to occur in October of this year. As a reminder, in the prior year quarter, we recorded business interruption income of $4.5 million at the Rich Carlton St. Thomas, $360,000 at the Pier House Resort, $958,000 at Bartosono, and $800,000 at Hotel Yonville for a total of $6.6 million. For the first quarter of 2019, we reported a net loss attributable to common stockholders of $3.5 million, or 11 cents per diluted share. And we reported AFFO per diluted share of 44 cents. Adjusted EBITDA RE for the quarter was $34.8 million, which reflected 15.3% growth over the prior year quarter. At quarter's end, we had total assets of $1.8 billion. We had $1.1 billion of mortgage loans. of which $49 million related to our joint venture partner's share of the loan on the capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 4.8%. Our loans are entirely floating rate, and the vast majority have interest rate caps in place. As of the end of the first quarter, we had approximately 46% net debt to gross assets, and our trailing 12-month fixed charge coverage ratio was approximately 1.8 times. Our next loan maturity is not until March of 2020. Our cash and cash equivalents at the end of the quarter was $74 million with an additional $86 million of restricted cash. The vast majority of that restricted cash is earmarked for CapEx projects, including our autograph conversions. So we have already set aside a significant amount of the CapEx we plan to spend in 2019. We also ended the quarter with networking capital of $105 million. As of March 31, 2019, our portfolio consisted of 13 hotels with 3,484 net rooms. Our share count currently stands at 37.7 million fully diluted shares outstanding, which is comprised of 32.8 million shares of common stock and 4.9 million OP units. In our financial results, we include approximately 6.6 million shares in our fully diluted share count associated with our Series B convertible preferred stock. With regards to dividends, the Board of Directors declared a first quarter 2019 cash dividend of $0.16 per share or $0.64 per diluted share on an annualized basis. This equates to an annual yield of approximately 4.8% based on yesterday's stock price. On the capital markets front, during the quarter, we refinanced a mortgage loan with an existing outstanding balance totaling approximately $187 million with a new loan totaling $195 million and which has a five-year term. The loan is interest-only and provides for a floating interest rate of LIBOR plus 1.7%. The loan remains secured by the same two hotels, the Capital Hilton in Washington, D.C., and the Hilton La Jolla Torrey Pines in La Jolla, California. Also during the quarter, we closed on a $54 million non-recourse mortgage loan secured by the Ritz-Carlton Lake Tahoe. The loan is interest-only, bears interest at LIBOR plus 2.1%, and has a five-year term. This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Derek. Comparable REBPAR for our portfolio grew 3% during the first quarter. Our portfolio's comparable REBPAR growth led to share gains of 3.7 percentage points and 1.5 percentage points relative to both the luxury chain scale nationally and the total United States, respectively. In addition, first quarter comparable hotel EBITDA was relatively flat, decreasing 0.6%. The government shutdown at the beginning of the quarter impacted January and February, leading to about $170,000 less in revenue. Easter occurring later in April benefited March this year relative to 2018. During the quarter, hotel operating income flow through was robust. However, incentive management fee increases primarily at the Courtyard San Francisco and property tax increases at Ritz-Carlton Lake Tahoe, Sofitel Chicago, Ritz-Carlton Sarasota, and Courtyard Philadelphia impacted hotel EBITDA flow-through. Excluding the aforementioned increases in non-operating hotel expenses, hotel EBITDA flow-through would have been close to 40% for the quarter. As mentioned on our call last quarter, signs were pointing to early results from our most recent acquisition, the Ritz-Carlton Lake Tahoe, exceeding our initial expectations. Not only was January a strong month, but the hotel was our portfolio's best performing asset during the first quarter. Snow accumulation began early in November and favorable conditions persisted throughout the first quarter, generating incremental business during ski season. The hotel's comparable rev par grew 32.8% during the first quarter, driven by rate growth of 21.8% and occupancy growth of 9.1%. This robust rev par growth resulted in the Ritz-Carlton Lake Tahoe increasing its share relative to both its competitors and the California North luxury class market by 30.7 and 28.3 percentage points, respectively. Significant changes to product merchandising, suite premiums, and effective pattern management all contributed to the growth. In addition, a successful mix shift from group to transient helped drive rate growth. Property effectively managed Bonvoy Rewards redemptions and regularly reached occupancy thresholds, which generated an additional $1.6 million. Hotel EBITDA grew $1.6 million, or 42%, resulting in a 15.2% increase in hotel EBITDA margin. These results translated into 53% hotel EBITDA flow-through for the first quarter. In addition to the outstanding performance of the Ritz-Carlton Lake Tahoe, I want to briefly mention that another top-performing asset, the Pier House Resort, had comparable REBFAR growth of 10.2% during the first quarter on the back of 7.8% rate growth and 2.3% iConvency growth. This REVPAR growth represents 7.4 and 2.9 percentage point increases in REVPAR relative to the Florida Keys market and the Key West independent sub-market, respectively. Total hotel revenue grew $532,000, which led to hotel EBITDA growth of $272,000, or 7.1%. After record-setting first quarter profitability in 2018, Hotel EBITDA increased further to $4.1 million in 2019, aided by $350,000 in additional revenue from resort fees that were introduced in April 2018. In addition to the strong first quarter results, Pure House is experiencing strong pace for the second quarter as well. During the quarter, we did, however, have a few properties that did disappoint us. These included our two properties in Yachtville. a sub-market that is absorbing some new supply from two recently renovated and reopened hotels in the immediate vicinity. Nevertheless, we remain confident in the long-term performance of these properties in this market, which continues to be a significant demand generator, drawing largely from the San Francisco MSA. Additionally, we experienced some weakness at our Sofitel Chicago, with REVPAR down 2.8% for the quarter, primarily due to general market softness since we improved our market share by almost 2% during the quarter. For the month of April, our relative outperformance continues with the Sofitel tracking to pick up almost 15% of market share. Lastly, and despite strong snowfall in Colorado, our park high at Beaver Creek saw a decline in rev par of 2% for the quarter. To address this, we have installed a very experienced new general manager and will be undertaking a significant front desk and lobby renovation this summer including building a new central bar. We believe these remedies will significantly enhance the guest experience and drive improved returns at the hotel. Looking ahead, we continue to be excited about the Courtyard San Francisco downtown and its upcoming conversion to the autograph collection. The hotel's performance continues to improve at a tremendous clip as Comparable Red Park grew 29.6% during the first quarter. This Red Park growth results represents growth of 17.5 and 13.7 percentage points relative to the San Francisco Market Street upscale chain and above sub-market and the San Francisco San Mateo, California market, respectively. During the first quarter, citywide pace was up 196,000 room nights, or 131%, leading to group compression. The hotel not only experienced occupancy growth of 9.1%, but rate also grew 18.8% or $52 during the first quarter. Group catering grew $244,000 and hotel EBITDA grew $891,000 or 29%. The hotel remains on track to complete its conversion towards the end of the year with minimal displacement over the remainder of the renovation. The hotel will feature a new restaurant and coffee concept, which will improve the guest experience beyond what was previously available. Construction at the Ritz-Carlton St. Thomas also remains on track for an expected opening by the end of the year. The resort stopped hosting guests completely on March 1st, with all guest room buildings now out of service for renovation. Guest room buildings currently range between 15% and 60% complete, and the painting of their exteriors is about 50% complete. The lobby building exterior and all roofs are complete, with gutter work underway. The specialty restaurant re-concept and the expansion of the ballroom pre-function space are on track to be completed by the end of August. Besides the work being done to the guest rooms, these two changes are the most transformative part of the resort renovation. Finally, construction has begun on the new kids pool, which will feature a water slide. Despite the ongoing rebuild, prior to its closure in March, we were able to operate a portion of the hotel under a white label and realized comparable Red Park growth of 28.8% during the first quarter, until even the flow through was robust at 121%. Currently, less than 50% of hotel rooms have reopened on the island of St. Thomas following the 2017 hurricanes. Looking ahead, we see strong group pace for 2020 when we plan to capitalize on our new product and the lack of competitive supply. In addition to the major renovations continuing at Courtyard San Francisco downtown and the Ritz-Carlton St. Thomas, The courtyard Philadelphia downtown renovation remains on schedule with conversion to the autograph collection expected to be completed early summer. We anticipate the guest room renovation to be completed in early June with an average of 117 guest rooms out of order until that time. The lobby and restaurant are on schedule to be completed by the end of June. The ongoing renovation resulted in comparable rev par growth of negative 31.1% during the first quarter on the back of 27.2% decrease in occupancy. The renovation impact was approximately 1.1 million. As Richard announced, we eagerly anticipate the hotel's conversion to the autograph collection as a notary hotel in a few months. I will now turn to capital investment. During 2019, we will continue to invest in our portfolio investments in order to maintain competitiveness. In total, we estimate spending net of insurance to be approximately $70 to $90 million in capital expenditures during the year. We continue to make capital expenditures comprised predominantly of the strategic acceleration of capital projects in order to mitigate renovation impact, specifically pulling forward additional amenity enhancements at the Ritz-Carlton St. Thomas while the resort is under renovation, and work related to the Courtyard San Francisco downtown and Courtyard Philadelphia downtown conversions to Marriott's autograph collection, both of which will be completed this year. Finally, we have identified highly accretive opportunities to add additional keys within our portfolio. Specifically, we will be adding 10 keys at the Ritz-Carlton Sarasota, two keys at Hilton La Jolla Torrey Pines, and completing work on the three-key presidential villa at Bartosano. Across the portfolio, we are currently experiencing some favorable supply dynamics, which we expect to improve during the next couple of years. Over the past two years, our portfolio's markets have experienced in excess of 3% annual supply growth. We estimate this number to shrink under 2% annually over the next two years. Lastly, I want to note that our portfolio has a lot of unique stories that will result in REVPAR performance not necessarily tracking the broader market as we move forward. I highlighted a number of those stories earlier from the two autograph collection conversions to the reopening of the Ritz-Carlton St. Thomas. While at times over the past few quarters these asset stories may have depressed Red Park growth, we're excited for how we are positioning the portfolio for long-term growth going forward. I will now hand it back over to Richard.

Thank you, Jeremy. We are pleased with our first quarter performance and continue to believe Braemar is well positioned for strong growth in 2019. While industry forecasts remain muted, demand continues to be strong in our markets with limited news supply, and our specific portfolio of investments should allow us to continue to drive material REVPAR growth and increase profitability. This concludes our prepared remarks, and we will now open the call up for Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Our first question today will come from Tyler Vittori with Jamie Capital Markets.

Hey, thank you. Good morning, everyone. So I wanted to, so first question probably for Jamie or Richard, and you guys kind of addressed this in the prepared remarks, but I think there's some concern out there from some folks about some of the softness in the luxury chain scale during the first quarter. And obviously you guys have a number of moving pieces in your portfolio and you're outperforming the industry, but can you talk a little bit more about demand generally in your portfolio? Have you seen any change or any trends that are worth calling out either from a positive or a negative perspective with respect to demand?

Sure, Tyler. Thanks for that question. Look, I think we see the same industry numbers coming through very recently that you have. I would say that it feels a little flattish for the market generally. And you hit on the right point, though. We've got so many things going on in our portfolio, that's not necessarily something for us to be very concerned about, just given our conversions coming online this year, reopening of Ritz-Carlton, St. Thomas, etc. So I think we've got the potential to zig while others are zagging, just based on the composition of our portfolio.

I'd add this, Tyler. We gained market share in the first quarter despite a lot of the noise that we had, especially with Philadelphia having a tremendous amount of displacement during the renovation. So we were pleased with our results.

Okay, great. That's very helpful. And then I wanted to ask a little bit on capital allocation, too. I mean, you're near the net debt. The gross asset target you guys have put out, and I understand the focus this year on asset management and whatnot, but Any update to how you're thinking about capital allocation just given the strong performance of your stock so far this year?

Yeah, I think you're correct in saying that we're essentially at our leverage target, right? So if we were to make an acquisition, it would have to be extraordinarily compelling just using cash on the balance sheet. And that's really not our intention based on what we're seeing out there. The acquisition market continues to be very competitive. We don't see a lot of opportunities where outsized returns are available. So as we look at our capital allocation, we will say the debt markets continue to be very strong, very inexpensive. For us, given the share price performance here to date, as I'm sure you are well aware, our equity cost of capital has come down considerably. But we would need to weigh that against the available returns for the opportunities that we're seeing. And so we would only ever consider raising any more equity if it were to be deployed into accretive opportunities. So I think that's how we've always thought about it, how we continue to think about it, and how we're looking at 2019.

Okay, great. That's all from me. Thank you.

Thank you. Next, we'll hear from Jim Likens with DA Davidson.

Hey, good morning, guys. First of all, you had some pretty healthy rough par numbers at the Ritz-Tahoe. Just thinking about that going forward, any commentary on how we should think about rough par lacking the snow benefit that you mentioned?

Yeah, this is Jeremy. comment on that. We don't really give guidance. We don't give guidance on individual asset performance, but one of the things that we uncovered during underwriting for this asset was that Marriott and the Ritz team did not really sell a lot of group for April and May of this year because the previous owner had had discussions, although I don't think it was really agreed upon, of potentially renovating the hotel. We think the rooms are in great shape. And so we're working with the Rich Carlton team to kind of do the best we can to kind of get short-term group into the hotel. But I would expect it to underperform, at least in the next few months, just because of that nuance. And that was something we knew going into it, and it's just something we have to deal with.

Okay.

I was going to say, Jim, and you set up – The question on snowfall, Tahoe had 600 inches of snowfall this year versus an average of closer to 300. While it's been great for us in the first quarter, it sets up a very difficult comparable for 2020. We're definitely aware of that, but we're going to try to manage our bookings accordingly.

Okay. That's helpful. Also, I believe there was some supply coming into Seattle. Any Comments on supply, just in the aggregate, and if there are any other markets in your footprint you're concerned with right now.

This is Jeremy. If you take a global look at supply and where our portfolio is and our markets, our tracks, the hotels we compete against, we see it coming down. Construction costs, you're aware, are rising. They continue to rise. And hotel performance isn't as robust maybe as it's been the last several years. It does make it very difficult for folks to underwrite and develop new hotels. But we've absorbed a decent amount of supply over the last few years within the Braymore portfolio. And even specifically just over the last six months, we've had 4.5% growth in new supply. But when you look forward over the next 24 months, we think it's going to be under 2%. And then your question on Seattle, that was – a market certainly that did impact us this quarter. The supply that has occurred was the Hyatt, which is relatively close to our hotel. And that has been a little bit of a challenge. But on a go-forward basis, we're seeing that come down in that market as well. So I think overall, from a supply look specific to our portfolio, we feel pretty good about it.

Okay. And one last one for me. Beyond the Two conversions in the Ritz State Thomas. Are there any other significant renovations you guys see out there on the horizon?

Not anything to comment on right now. There are some things that we are contemplating potentially for next year, but we don't know if we're going to do it next year or extend it another year. So there's some space holders more or less. And I think in the upcoming quarters we can give you more information. But I think that we're absorbing a very unusual, heavy construction year for us. And like I said, I was pleased in the first quarter that we were able to still gain market share while including the impact of courtyard Philadelphia.

Jim, one thing you'll have seen in our earnings release is that we'll have the Park High Fever Creek under construction in the second and third quarter. But that's more common areas. That's for an improved front desk experience, lobby, central bars. Jeremy mentioned So we're not anticipating that to drive any dislocation, but really just further upside from that asset.

Okay, great. Thanks, guys.

And just a reminder, ladies and gentlemen, it is star one to ask a question at this time. Our next question will come from Chris Wawonka with Deutsche Bank.

Hey, good morning, guys. Can you remind us how the, I guess, handoff or transition is going to work once St. Thomas reopens in terms of how you might continue to collect BI proceeds until it gets fully back to stabilize?

Yeah, well, the current policy provides for that opportunity to collect BI post-opening to the extent there is still some market disruption. And it's contingent on whether or not you have already hit a cap under the policy. subject to the performance of that asset. I think as we look at it, we're pretty optimistic that demand is going to come back to St. Thomas very quickly. In fact, they're already operating at 80% airlift back to St. Thomas. It's expected to be 100% by this winter, this next coming winter. All the other main infrastructure elements, whether it's power, seaports, etc., are essentially all backed up to 100%. Really, the only thing missing in St. Thomas is the availability of hotel rooms. We're hoping to open up into a strong book of business. If not, the BI policy that we have is there, but we'll see if we need to use it.

We do have a great sales team at that hotel. He was there prior to the storm, and he's done a good job building a good book of business, so we're pretty excited as the hotel reopens.

Okay, great. And then I want to ask about the courtyard in San Francisco that's going to autograph. Obviously, really, really great numbers this quarter. Good market. Does that... You know, is how strong it was just still as a courtyard, is that... Do you have to underwrite it differently? I mean, I have to assume there's some impact on next year, even though you're going to get a lift from converting to autograph, right? The comp is going to be so tough, or are you kind of underwriting on top of what you're seeing this year?

I think there's going to be a lot of wind to our backs with San Francisco. The convention calendar still remains strong. There's just a lot of demand generators around that hotel. and we're very, very excited about the rebranding, so I think that we would expect to continue to see a positive lift. We are benefiting because we've got a great room product right now, and so folks are experiencing that, but without the lobby and the public space being under heavy construction, we're not getting the full benefit plus the branding of the autograph, which we're very, very excited about.

Okay, and then just any update on some of the the real estate initiatives you were looking at in Sarasota. I know there's a lot of moving parts there, but, you know, is there anything, is timing on that getting any closer into view?

Yeah, work continues on our two residential development projects. They're very small projects, Ritz-Carlton Lake Tahoe and Ritz-Carlton Sarasota. Yeah, we're making progress on the site plan. We're making progress with architects. We're making progress with the Ritz Carlton. Uh, it's, uh, it is a long process, uh, in, you know, there are, there is a permitting that's required. And so, you know, we're not expecting really to be moving any dirt on those projects, uh, at least until next year. And, you know, as we get through this year and we get our, uh, permits in place, uh, we'll be able to give you more of an update. But there's going to be really negligible financial impact this year. And then as that becomes more of a reality next year, we'll have probably a more specific update that we can give you.

Okay. Very good. Thanks, guys.

Thank you. Our next question will come from Michael Balsario with Baird.

Good morning, everyone.

Good morning.

Can you maybe give us a sense of kind of what you saw start to finish throughout the quarter in terms of group booking activity for the quarter and into future periods, too, maybe how that tracked as the quarter progressed, really just kind of thinking about it from the broader market back at the end of the year and how that impacted customers' booking behavior?

Yeah, I think what I'd say specifically is that February was our strongest month of the quarter, and March was relatively flat. It was just slightly negative, but during March is where we had the vast majority of the impact of our courtyard Philadelphia renovation because it's such a seasonal hotel. We had a tremendous amount of rooms out of inventory, so when you adjust for that, we we probably would have had a March very commensurate with what January's red part growth was. So as far as bookings, I haven't seen anything that's really a big change from month to month. I think the only thing is that during the quarter, the biggest impact was March from a renovation. I don't think there's anything gleaned into it in terms of forward-looking growth, though.

Okay. And then just on the operational side, can you give us an idea of what you're hearing from your operators, kind of the on-the-ground view of things in terms of their level of confidence, how they think about their ability to push right today? and then all the brand changes that have been implemented, you know, with the revenue. But I think, I guess, have you seen those changes start to lead to better results and what are your operators saying on that front?

Yeah, let's take that in two segments. I'm going to let Richard talk about the, maybe from a Red Park perspective, but I'll talk about on the cost side is that we continue to have cost pressures. I mean, we're seeing probably... four to maybe slightly north of 4% growth in wages and benefits. And we're doing a lot of things to kind of mitigate some of those cost increases. But there are a lot of operating... If you look at the first quarter, while our EBITDA flow through wasn't great because of the increase in property taxes and the increases in incentive fees, the P&Ls of the hotels performed really, really well. and that's a reflection of a lot of the initiatives that we're doing. So I think we're doing a good job to drive margin within our hotels, and we're having some challenges and headwinds of some things that we really can't control, which is jurisdictions on property taxes and some contracts obligations we have with Marriott as it relates to incentive fees. But as it relates to REVPAR growth, we can talk maybe a little bit in the second quarter. I'll let Richard handle that.

Yeah, I mean, just to make a comment on margins, if you haven't already, you'll see our margin performance. And, yes, it's a little bit off, but really a negligible decrease in margin. So I think we have, as Jeremy said, we have managed those increased costs, which we wouldn't expect to be recurring. Things like property taxes can't go up the amount they've gone up every year. In terms of top line, look, I think as we're looking at this quarter, it's shaping up very flattish year over year. So that's somewhat to do with our property in Philadelphia having so many rooms out of service. And then hopefully as that fixes itself and we get those rooms back online in the third quarter, we'll be performing more strongly. So I think that's the very near-term outlook. But as I said... We've got so many internal projects that are going to drive our performance for the full year and into 2020. We feel pretty good that we'll be able to outperform the market generally.

That's helpful, but maybe ask a different way. Just the focus on the top line from your operators, the people who are setting rates, do you sense they have increased confidence to be able to push rate any differently today than they did a couple quarters ago, for example?

I haven't seen anything that's really changed confidence levels materially. We've continued to push rate. We had a decent increase in rate in the quarter, but I don't think that there's necessarily been a change in sentiment one way or another. Does that answer your question?

Yeah, thank you.

Thank you. Next we'll hear from Brian Mayer with the Riley FBR.

Good afternoon. Just one housekeeping item first. Did I hear correctly that San Francisco you've spent about $25 million so far and there's $32 million to go? Is that correct? That was for both projects.

That was for both Philadelphia and San Francisco.

Okay. And then maybe this is a question for Derek. So there was about $6 million in BI for St. Thomas this past quarter, but $4.5 million in the prior year quarter. How does that work? How should we think about BI and the ability to kind of consider what that might be, or do we just have to guess?

Yeah, I think for the second quarter of this year, I think BI for St. Thomas will probably be pretty consistent with what it was last year in the second quarter. I mean, it's a function of, you know, what's going on at the property. Like, as Jeremy mentioned, the property was closed for part of the quarter in the first quarter. So, yet there were some operating costs going on there that made the BI for Q1 be a little bit more than it was last year. But I would point out that also in the second quarter of 18, we had about $3.5 million of BI at other properties that we will not have in 19 in the second quarter. So that's, in terms of modeling, that's something else to keep in mind.

Okay. And then you mentioned a couple of analysts ago that there was a cap for the BI insurance. Can you share with us what that cap is and how close to that you are?

I don't think we're going to share the cap on our program. We have a combined program between trust in Braemar, but what I can tell you is that we feel very good as it stands today that we'll be able to complete the renovation within that cap. The question is if there is some extended loss beyond the cap, would we be able to recognize all of that or what part of that would we recognize? But if you look at the quality of the renovation and what we've been able to achieve with the carriers, I think we're in a really, really good spot given all the adversity we've had with this asset.

Yeah, I think just to echo what Rich said earlier, in terms of expectations for BI going forward, I think if you look at 2018 by quarter, that's probably a good reference point. But then once the property reopens post-renovation, we expect it to ramp up pretty quickly.

Okay, and then lastly for me, and I know you guys don't guide, but I think that you've given this type of information before. When we look at the Ritz-Carlton Lake Tahoe, and granted there was a snowfall aberration this year, how should we think about the seasonality of that asset? You know, obviously the winter is stronger than the summer, but can you share with us how we should think about, you know, maybe the EBITDA seasonality of that property?

You know, it's not something we have handy, Brian. I think, you know, as it relates to if you're going to look at like the Park High at Beaver Creek, I'd say that Tahoe has a little bit stronger summer than Beaver Creek does. Obviously, the shoulder second quarter is going to be a little bit more challenging. As Jeremy mentioned, for the second quarter at Tahoe, we kind of know we're stepping into a weekbook of business there, and we're doing our best to ramp that up. But not really prepared around the call to give you quarterly seasonality for that individual property.

Okay, thanks. That's all for me.

Thank you. And at this time, we have no further questions in our queue. I would like to turn the conference back over to our management for any additional or closing remarks.

Okay. Thank you, everybody, for joining us on the call today, and we look forward to speaking with you again very soon.

Thank you. And, again, that does conclude our conference for today. We thank you for your participation.