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spk01: I would now like to turn the conference over to Derek Umank's Chief Financial Officer. Please go ahead.
spk04: 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. 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. 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. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at .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 6, 2024 and may also be accessed through the company's website at .bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release. 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. I will now turn the call over to Richard Stockton. Please go ahead, Richard.
spk03: 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. Vendorik 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. We have several key themes for today's call. First, our urban hotels delivered strong performance again this quarter with impressive comparable red bar growth of 6% over the prior year quarter. Second, we have no remaining final debt maturities in 2024 and are currently working on a refinancing of our sole 2025 maturity. And third, we're pleased with the progress we have made on our recently announced shareholder value creation plan with the closing of the sale of Hilton La Jolla Torrey Pines at an attractive value and the redemption of approximately $50 million of our non-trading preferred. As it relates to our financial results for the quarter, we reported comparable red bar of $261 and comparable hotel EBITDA of $24.7 million. It's useful to note that from a seasonality perspective, the third quarter is the weakest quarter in the year for our portfolio. Importantly, we continue to be encouraged by the strong performance of our urban hotels which, as I said, achieved red bar growth of 6% in the quarter. Regarding our urban assets, red bar for the quarter was $213 and comparable hotel EBITDA was $16.4 million. We're 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. Looking at Brainwash's capital position, we continue to emphasize balance sheet flexibility. With the recent closing of the sale of the Hilton La Jolla Torrey Pines, we have now addressed all of our 2024 debt maturities and are currently talking to lenders about our sole 2025 maturity. Earlier this year, we announced the shareholder value creation plan which has four components. They are, one, execute select non-corrupted sales including the recent sale of the Hilton La Jolla Torrey 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. During the quarter, we sold the Hilton La Jolla Torrey Pines for $165 million or $419,000 per key including anticipated capital expenditures of $40 million. The sale price represented a .2% capitalization rate on net operating income for the trail of 12 months ended March 31, 2024. We also continue to evaluate the sale of additional hotel properties. In early August, we closed on a refinancing involving five hotels and an attractive rate through a CNBS financing. 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. The loan is interest only and provides for a floating rate interest of SOFR plus 3.24%. 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. Regarding redemptions of our non-traded preferred stock, to date we have now redeemed approximately $50 million 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. In terms of our most recent results, we're pleased to report that comparable rep par for our portfolio increased .5% in October, with comparable total revenue growth of almost 11%, which sets us up well for fourth quarter performance. Furthermore, our group pace for the first quarter of 2025 is currently up nearly 40%. 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 Derek to take you through our financials in more detail.
spk04: Thanks, Richard. For the quarter, we reported a net loss attributable to common stockholders of $1.4 million or $0.02 per diluted share and AFFO per diluted share of negative $0.24. Adjusted even to RE for the quarter was $18.5 million. 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. Our total combined loans at a blended average interest rate of .6% taking into account in the money interest rate caps. 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. As of the end of the third quarter, we had approximately 41% net debt to gross assets. We ended the quarter with cash and 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. This primarily represents cash held by one of our brand managers, which is also available to fund hotel operating costs. With regard to dividends, we again announced the quarterly common stock dividend of $0.05 per share or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately .8% based on yesterday's stock price. Our board of directors will continue to review the company's dividend policy on a quarter to quarter basis. As Richard mentioned, during the quarter, we closed on a refinancing involving five hotels. 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 $3.29. The loan is interest only and provides for a floating interest rate of SOFR plus 3.24%. As part of this financing, we acquired a trotch of CNBS 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%. 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. The new loan refinanced the $80 million loan secured by the Pure House Resort and Spa, which had an interest rate of SOFR plus .6% and had a final maturity date in September 2026. The $42.5 million loan secured by the Ritz-Carlton St. Thomas, which had an interest rate of SOFR plus .35% and had a final maturity date in August 2026. And the $200 million corporate term loan and credit facility secured by the Ritz-Carlton Sarasota, Hotel Yonville, and Bartosono Hotel and Spa, which had an interest rate of SOFR plus .1% and had a final maturity date in July 2027. Looking ahead, our only 2025 maturity is the loan that includes the SOFR Hotel Chicago, the Clancy, the Notary, and the Marriott of 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. As of September 30, 2024, our portfolio consisted of 15 hotels with 3,667 net rooms. Our share count currently stands at 73.9 million, fully diluted shares outstanding. Which is comprised of 66.5 million shares of common stock and 7.4 million OP units. This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter.
spk05: Thank you, Derek. Comparable Hotel RevPAR for a portfolio was $261 for the third quarter, a .6% decrease over the prior year quarter. The -over-year decline in RevPAR was primarily driven by two key factors. 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. The second is the continued normalization of our resort hotels. Despite the third quarter Resort RevPAR being up .2% to the comparable period in 2019, we are still seeing a slight decline in leisure demand -over-year. Portfolio-wide group revenue increased 14% this year through the third quarter compared to the prior year period. Our urban assets continue to perform well, with demand steadily returning to our downtown locations. In the third quarter, our urban portfolio achieves growth in total hotel revenue of 8% and growth in occupancy of 4% compared to the prior year period. Our asset management team continues to work with our managers to drive ancillary revenue, which increased .3% on a per-occupied room basis compared to the prior year quarter. 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. I would now like to spend some time highlighting some of our successes in the portfolio. Group rooms revenue for the third quarter finished ahead of the prior year quarter by 14%. With the first quarter pacing ahead by 40%, we are well positioned for the full year of 2025, with group rooms revenue pacing ahead by 13% compared to the prior year. 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. Our revenue optimization team works diligently with hotel sales teams to optimize group targets and monitor actionable takeaways from lead generation platforms. Notably, two of our most recently renovated hotels have seen robust sales performance. Our largest hotel, Capitol Hilton, finished the third quarter with group rooms revenue 31% above the prior year quarter. Additionally, the Ritz-Carlton Lake Tahoe, which is currently completing a full transformative renovation, has restructured their sales team. 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. This initiative led to a 67% increase in lead volume during the third quarter compared to the prior year quarter. As we cited earlier, our urban hotels continue to experience strength, as hotel rep power for the third quarter grew by 600 basis points compared to the prior year period for these hotels. Our Marriott Seattle Waterfront Hotel had a successful quarter with a 13% increase in total revenue and an 8% increase in Hotel Ibiza compared to the prior year quarter. The hotel implemented a comprehensive strategy to increase its group base, capture market share, and drive food and beverage revenue. As a result, during the quarter, the hotel successfully hosted two additional large groups in July, while simultaneously pushing rates allocating premium rooms to leisure customers during the market's peak season. 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. This strategy involved developing visual aids and presentations that showcased the transformations occurring in the market and at the hotel. These materials were presented to local government officials and internal sales teams, enabling us to successfully secure a significant international conference hosted by a US government agency in September, which generated $376,000 in total revenue for the property. 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. 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. 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 Ibiza increasing by 38% over the prior year quarter. 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. 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. All of our hotels have access to general care operators in case of a power outage. These procedures have helped us to forge strong relationships with disaster release companies who provide quick aid to our hotels with cleanup. While we did sustain damage to the beach club at our Ritz Carlton 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. 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. 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. Additionally, we completed the restaurant refresh at the iconic Jack Dusty and the Ritz Carlton Sarasota. Progress continues at the Four Seasons Resort Scottsdale, where we are converting underutilized -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. In the third quarter, we also initiated comprehensive updates to the beachfront restaurant at the Ritz Carlton St. Thomas, but expected completion by year end. 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 Dorado Beach. 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. 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.
spk03: 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 continued strong performance of our urban properties. We also remain well positioned with a solid balance sheet and promising outlook. We look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks, and we'll now open the call for Q&A. Thank you.
spk01: At this time, I'd like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Jonathan Jenkins with Oppenheimer. Please go ahead.
spk06: Good morning. Thank you for taking my questions. First one for me, when you look at the quarter, can you maybe talk about the underlying impact of mix shift to more BT demand and how that strong group outlook could impact that mix going forward? And maybe if you could just remind us what your normal mix, historical mix has been in the past.
spk05: Yeah, thanks, Jonathan. Our historical mix, we've done typically anywhere from 25 to 30% group business. I think as we look at how our group pace is layered in the year for next year, 2025, we're very happy. So Q1 is typically our strongest quarter from a REVPAR standpoint, because we have a we have festive season that impacts a lot of our resource, 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. And so we prefer a group base in that quarter. As we kind of dive deeper into the quarter, 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% a prior year. 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. From a mixed standpoint, we are seeing softer leisure trends, softer leisure demand on the weekends, especially impacting our resorts. Corporate 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. They had soft citywide this quarter. They've seen office vacancy rates increase to an all-time high. And we're certainly seeing that in our BP pace there. But if you exclude that hotel on the whole, corporate demand is very strong for us.
spk06: Okay, Gary, I appreciate the color there. And maybe on that line of thinking, you know, I'm curious if you think that 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?
spk05: Yeah, there was a slight acceleration kind of post-Labor Day, but 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 acceleration kind of post-Labor Day to the segment.
spk06: Okay, thank you for that. Maybe to follow on the commentary on the election, you noted that 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?
spk05: Yeah, in BC, we've got, you know, Capitol Hilton 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, you know, around how the election would turn out and government and government-related travel, you know, did decline. We're hopeful that kind of post-election that's behind us, there's a big acceleration. I will say that Capitol Hilton in particular, we've mitigated some of that with our group pace. They're looking very well from a group standpoint. 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 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 DC.
spk06: 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?
spk03: Yeah, Jonathan, I'll handle that on the transaction market and I'll let Derek talk about financing market. Look, I think everything that we've seen over the last two months has been very positive for the transaction market. You know, there's no more our buyers modeling in recession risk for next year. It's, you know, now that the Fed has started cutting rates, you know, people modeling in that forward curve. So all these things are helpful. You know, that said, there's just not a lot of data points just yet. You know, that said, you know, 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. These numbers have come back, which suggests that there is definitely some firming of cap rates, certainly at least in the eyes of the brokers. So, you know, as I mentioned, our intention is to sell another two hotels that will take place next year. It's a long process to sell a hotel, you know, averaging, you know, six or nine months. But, you know, hopefully we'll be able to capitalize on what I would consider to be a very constructive transaction market right now.
spk04: 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. We've seen a lot of hotels get financed in the CNBS market. And so that's been an attractive source of capital. You know, banks for the most part, the large banks continue to be on the sidelines. We're not seeing them very active, which, you know, 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. But I suspect that's probably a function of issues with other types of commercial real estate on their balance sheet. But, you know, the market's attractive and we've held off on doing some financing until the market was more attractive and feel like we're well positioned. And it's an opportune time to be in the market to address, you know, 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.
spk06: Okay, that's very helpful. Thank you for all the insights, everyone. That's all for me.
spk01: And as a reminder to ask a question, press star one on your telephone keypad and we'll take our next question from the line of Daniel Hogan with Baird. Please go ahead.
spk02: Hi, 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 four-q impact that you're expecting just in terms of demand impact? Yeah, thanks, Daniel.
spk05: 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 it moved upwards into the pool areas. We did have some group cancellations in October. We're estimating an impact of, you know, I'd say anywhere from 500 to 700k at that hotel. So it was impactful in terms of October business. Luckily for us, you heard Richard cite kind of our October results and the rest of the portfolio performed so well that it outran that and more offset it. So a lot of the impact was isolated at that hotel to October, but we're very happy with how the portfolio performed as a whole for that month.
spk02: All right, that's it for me. All the other questions are asked. Thanks for time.
spk01: That will conclude today's question and answer session. I'll hand the call back to management for any closing remarks.
spk03: Well, thank you all for joining us on our third quarter earnings call and look forward to speaking with you again next quarter.
spk01: That will conclude today's call. Thank you all for joining. You may now disconnect.
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