Braemar Hotels & Resorts Inc.

Greetings and welcome to the Braemar Hotels and Resorts Inc. Third Quarter 2022 Resorts Conference Call. At this time, all participants are in a listen-only mode. Our question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jordan Jennings, Manager, Investor Relations. Please go ahead.

Good morning and welcome to today's call to review results for Braemar Hotels and Resorts for the third quarter of 2022 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 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. 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. Before 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 solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and perspective, which can be found at www.sec.gov. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in the company's earnings release and accompanying tables, or schedules, which have been filed in Form 8K with the SEC on November 2, 2022, and may also be 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. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning, and welcome to our third quarter earnings conference call. I will begin by providing an overview of our business and an update on our portfolio. After that, Derek will provide a review of our financial results, and then Chris will provide an update on our asset management activity. Afterward, we will open the call for Q&A. We have four key themes for today's call. First, our luxury resort portfolio continues to outperform and help drive comparable hotel EBITDA of $40.7 million for the quarter, an increase of 23.5% versus the comparable quarter in 2019. Second, We continue to see strong momentum in our capital raising for our non-traded preferred stock, which is allowing us to go on offense and grow our portfolio during an unattractive time in the cycle. And we're excited about our recent announcement regarding our agreement to acquire the Four Seasons Resort Scottsdale at True North. Third, our portfolio is well positioned to continue to outperform with very strong forward bookings, as we are now seeing corporate transient and group business accelerating in their recovery on top of the already strong leisure segment. And fourth, our balance sheet is in good shape and we have no remaining final debt maturities in 2022. Before diving into our hotel performance for the quarter, I'd like to spend some time addressing two items that impacted our AFFO in the quarter, interest expense and non-traded preferred equity dividends. Our AFFO per share for the third quarter was 16 cents compared to 17 cents for the prior year quarter. First, our interest expense in the recent quarter was higher. Our weighted average interest rate at the end of the quarter was 5.5% versus 2.6% in the prior year quarter. This is a result of our strategy of utilizing capped floating rate debt. As we have stated before, we primarily utilize floating rate debt as we believe it provides a natural hedge to our cash flows. As the Fed has raised short-term interest rates, that has obviously impacted our interest expense on our floating rate loans. For the quarter, our interest expense increased $5.9 million compared to the prior year quarter. Our adjusted EBITDA RE increased $12.2 million over the prior year quarter, which is more than two times the increase in interest expense. Also, with LIBOR currently at 3.8%, effectively 41% of our consolidated debt is fixed as our interest rate caps have kicked in. If LIBOR increases above 4%, which it appears is highly likely, effectively 77% of our debt would be fixed. Those interest rate caps burn off over time, and if you assume LIBOR stays above 4% The amount of our debt that would effectively be fixed would be 77% in Q4 and 72% in Q1 2023. The second item I want to address is that we've ramped up our non-preferred capital raising. We've seen an increase in our preferred dividends. For the third quarter, preferred dividends were $4.1 million higher than the same quarter last year. We continue to believe this non-traded preferred is an attractive source of growth capital for us. As we deploy the capital into hotel investments, we'd expect the returns on those investments to more than offset the cost over time. Speaking of which, we're excited about our recent announcement regarding our agreement to acquire the Four Seasons Resort Scottsdale at Troon North for $267.8 million. This 210-room luxury resort sits on 37 acres and is ideally located in Picturettes, North Scottsdale. We expect to close the transaction in the fourth quarter with cash on hand and no common equity will be issued to fund the acquisition. This property fits perfectly with our strategy of owning luxury hotels and resorts and further diversifies our portfolio. Moving on to our quarterly results, we're extremely pleased with our record third quarter results and continue to see our performance compared to 2019. Our comparable hotel even at $40.7 million during the quarter was driven by strong occupancy levels at our resort properties. Additionally, REVPAR for all hotels in the portfolio increased approximately 19% for the third quarter of 2022 compared to the third quarter of 2021, which also represents an increase of approximately 19% when compared to the third quarter of 2019. Many of our hotels are in drive-to leisure markets and have been well positioned to benefit from persistent leisure demand. In total, nine of our 15 hotels are considered resort destinations. We are pleased to report that this segment delivered a combined hotel EBITDA of $25 million for the quarter. We continue to be encouraged with the ramp up of our urban hotels, which generated $15.7 million of comparable hotel EBITDA in the third quarter. For the third quarter, all six properties posted positive hotel EBITDA. This is a significant turnaround as demand is quickly returning to our cities. This includes leisure as well as corporate transient and corporate group demand. We've been saying that the recovery in our urban hotels will be the next phase of growth for our portfolio. And in the third quarter, these assets continue to exhibit solid growth. While leisure demand continues to be strong, particularly on weekends, we've been encouraged by the continued rebound in corporate transient and corporate group demand. Overall, we have seen these trends continue into a strong start to the fourth quarter. For the month of October, our preliminary figures suggest that we finished with 73% occupancy, and an ADR of $382, which equated to a rent bar of $280 for the month, exceeding 2019 by 14%. Looking ahead, we continue to see an attractive pipeline of acquisition opportunities in the market. We will continue to be extremely disciplined in our investment approach and only focus on transactions that we believe will be accretive to total shareholder return. Our balance sheet is in good shape, and we have an attractive maturity schedule with our next hard maturity not until April 2023. We've also been active on the investor relations front. In the months ahead, we will continue to go out on the road to meet investors to communicate our strategy and the attractiveness of an investment in Braymont. Looking ahead, our unique portfolio, which is focused on the luxury segment and with properties in both resort and urban markets, positions us to perform well in both the near term and the long term as leisure demand continues and business and group travel resumes. We have the highest quality hotel portfolio in the public markets that is generating positive cash flow at the corporate level and what we believe is a solid liquidity position and balance sheet with attractive debt financing in place. I will now turn the call over to Derek.