Good day, and welcome to the Braemar Hotels & Resorts, Inc. Second Quarter 2019 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jordan Jennings. Please go ahead.

Good morning, and welcome to todays call to review results for Braemar Hotels & Resorts for the second quarter of 2019 and to update you on recent developments.On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; Jeremy Welter, Chief Operating Officer. The results as well as a 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, I want to 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 8-K with the SEC on July 31, 2019, and may also be accessed through the company's website at www.bhrreit.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. Thank you for joining us to discuss our second quarter results. In the second quarter, we continued to make progress on our portfolio realignment strategy, including completing the conversion of The Notary Hotel and revealing the name of The Clancy, our San Francisco Autograph property. We're excited about the meaningful progress we are making and believe the continued execution of the strategy will lead to solid growth and strong financial performance for the company going forward.Our acquisition of the Ritz-Carlton Lake Tahoe in January of this year was our first purchase to utilize the ERFP program with Ashford Inc. We received $10.3 million from Ashford Inc. related to that acquisition. We anticipate that the ERFP funding will increase our returns on this acquisition for a projected 10% to 12% unlevered IRR. We continue to be excited about the prospects of this acquisition as the hotel's performance during the first six months of this year have significantly exceeded our expectations with RevPAR growth of 23.3% over the prior year period.Let me now turn to our second quarter results. For the second quarter, comparable RevPAR for all hotels declined by 2.3%, while comparable RevPAR for hotels not under renovation decreased 1.9%. Our portfolio is negatively impacted by the weak Seattle market and the renovation disruption at The Notary. If you exclude those two properties, comparable RevPAR growth for the portfolio was positive at 0.8%. We reported adjusted EBITDAre of $32.8 million and AFFO per share of $0.42 for the quarter. Our overall portfolio trailing 12-month comparable RevPAR of $231 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 are working closely with our insurers, both to seek recoveries for…

Thanks, Richard. As Richard mentioned, during the second quarter, we recognized $6.6 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 months of March 2019 through May 2019, and we expect business interruption income to continue until at least the reopening of the hotel at the Ritz-Carlton, which is anticipated to occur in the fourth quarter of this year. As a reminder, in the prior year quarter, we recorded business interruption income of $5.2 million at the Ritz-Carlton, St. Thomas; a $172,000 at Bardessono; $19,000 at Hotel Yountville; and $3.3 million for the Tampa Renaissance for lost profits related to BP Deepwater Horizon oil spill in the Gulf of Mexico in 2010 for a total of $8.7 million.For the second quarter of 2019, we reported a net loss attributable to common stockholders of $7 million or $0.22 per diluted share, and we reported AFFO per diluted share of $0.42. Adjusted EBITDAre for the quarter was $32.8 million. 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 partners' 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 4.7%.Our loans are entirely floating rate and the vast majority of interest rate caps in place. As of the end of the second quarter, we had approximately 49% net debt to gross assets and our trailing 12-month fixed-charge coverage ratio was approximately 1.6x. Our next loan maturity is not until March 2020. Our cash and cash equivalents at the end of the quarter was $80 million with an additional $70 million…

Thank you, Deric. Comparable RevPAR for our portfolio decreased 2.3% during the second quarter. Comparable RevPAR for hotels not under renovation decreased 1.9%. This RevPAR decrease led to a gap of 0.7 percentage points relative to our hotels' submarket chain scales. Despite revenue contracting, second quarter hotel EBITDA flow-through for the entire portfolio was 60%. Year-to-date, comparable RevPAR has grown 0.3%. Easter occurring later in April 2019 hurt April this year relative to 2018.The Pier House Resort did not show any signs of suffering from the Easter shift and was our portfolio's best-performing asset during the second quarter. On our call last quarter, we mentioned Pier House's strong group pace, which led to comparable RevPAR growth of 6.5% during the second quarter. This robust RevPAR growth resulted in Pier House increasing its share relative to both the Key West, Florida submarket and the Florida Keys market by 2.9 and 1.9 percentage points, respectively. As the Key West market continues to recover from Hurricane Irma, we strategically increased length of stay restrictions for our OTA business, especially on weekends in order to drive higher-rated retail in AAA business. The strategy worked as evidenced by the hotel's 4.6% rate growth during the second quarter. Year-to-date, comparable RevPAR has grown a robust 8.5%.During the second quarter, hotel EBITDA grew 18.2% or $485,000, resulting in a 9.2% increase in hotel EBITDA margin and 100% hotel EBITDA flow-through. Not far behind the Pier House Resort, the iconic Hilton La Jolla Torrey Pines also performed well during the second quarter. Comparable RevPAR grew 4.4%, driven by strong rate growth of 5.7%. As RevPAR growth represents 5.3 and 4.6 percentage point growth relative to the upper upscale San Diego, California market class and the upscale and above chains in San Diego La Jolla, California submarket, respectively.Last year,…

Thank you, Jeremy. We are pleased with our second quarter performance and continue to believe Braemar is well positioned for strong growth in the second half of 2019. While industry forecast remained muted, demand continues to be strong in our markets with limited new supply. Our specific portfolio of investments has a number of unique stories that should allow us to continue to drive material RevPAR growth and increased profitability.This concludes our prepared remarks, and we'll now open up the call for Q&A.

[Operator Instructions] We'll take our first question from Tyler Batory from the Janney Capital Markets.

So just a couple of questions for me. And I want to start on in Philadelphia with that conversion all concluded in that. Could you just remind us...

Tyler, are you still there?

We'll take our next question from Bryan Maher from the B. Riley FBR.

No. Actually skipping Philadelphia for a moment; can you talk a little bit more kind of holistically here with your cash position that you have? How you are now thinking about acquisitions utilizing the ERFP versus buybacks with the stock here in the mid-8s at the moment?

Yes. Thanks, Bryan. Yes, I think at the moment, acquisitions are not top priority. I think we've got excess cash, as you know, that is earmarked for the completion of our capital expenditure projects. And you know we do have an authorization for a share buyback program in place. So we will continue to assess the share price and figure out if that's an option for us. The benefits of the share buyback, of course, are always weighted against the resulting increase in leverage and a reduction in flow. And so it has to be very attractive price to tip the scales for us. That's all what I have to say on the cash point.

Yes. And then as we look at Beaver Creek, we are a bit little surprised by the performance there. And I understand that there was the lobby issue, and I guess you have a turnover in the GM. Is the new GM in place yet?

Yes. The new GM is in place. And then we had a bad situation with our sales team. And so we did turnover in that as well. And we have a new Director of Sales at the property. But that person has not started just yet because his wife just recently had a baby.

Okay. And then kind of lastly on St. Thomas; I know because I was just at the property about a month ago that it's pretty far along at this point. When will the new family pool actually be completed? And also, when you look at new supply in that market, specifically Frenchman's Reef, which I know is pretty far away from being updated, probably at least a year or 1.5 years, is there any other news about coming online in the next, let's say, 12 to 24 months?

Yes. This is Jeremy. As far as the supply coming on, it kind of remained to be proven out because -- I just don't see a near-term resolution, given this is on a government ground lease. And so I think you can expect that to be offline for quite some time. And then there's Sugar Bay, which is another pretty nice size hotel but not really compared to the Ritz-Carlton, but that's been actively shopped in the market. And I don't know what they're going to do with the property. It needs a tremendous amount of capital. So it really has a -- they haven't moved forward with any type of redevelopment, renovation plans. So I will expect that to be well beyond DiamondRock's, Frenchman's Reef. So I would expect that it's going to be relatively slow for a lot of that supply to come back. In terms of the kids' pool, our expectation is to have that open when we open the resort. I was there recently in July, and it was moving along really, really well but didn't hit -- just basically a stall just in terms of getting access to concrete to pour the other half of the pool.And so we're competing with other demands on the island for supplies and subcontractors. Once we get that done, the pool should move pretty quickly. I mean it's all formed. It looks great but there is quite a bit of more work to be done on the pool itself. Our deadline for that is in October, but that may slip but I would expect that to be done certainly before we open the resort.

And then just lastly, and maybe this was Tyler's question. On The Notary, which is now, I guess, fully opened as The Notary, and my suspicion is all construction is done. Can you give us a little idea about how trends have been in the past few weeks?

Yes. I think it's -- it takes a little bit of time to ramp up, and it's actually -- I would say that it's been a little bit more difficult transition initially in the short term just because we're moving from Marriott's select service management team to their full-service management team. And there was a period of time both in terms of Expedia and Booking.com that we were dark in the property. And so it's just -- it's going to take a little bit of time, and I don't think you're going to see a huge increase necessarily in the third quarter, but by the fourth quarter is when you're going to really see the ramp begin, and we do have a little bit of headwind -- or a tailwind because you have a year-over-year comparison where it was under renovation the year before. But I do expect Q4, the property to really start to ramp up pretty aggressively.

We'll take our next question from Mr. Chris Woronka from Deutsche Bank.

Want to start off with the question about the Ritz Sarasota. I noticed in the quarter you had roughly flat RevPAR growth, but rate was up, I think, 10%. Occ was down but you lost a fair amount of EBITDA or margin anyway and a little bit of EBITDA. Can you explain what kind of what -- was that a mix shift or something else there?

You just picked up on it, mix shift. The rooms' profit was up because it had changed from occupancy to ADR, but because we had a much bigger increase in transient versus group, our banquet and catering revenue was down pretty significantly, and the profit in banquet and catering was down $700,000 to $800,000 roughly, which is, I think, the property itself was down $400,000 to EBITDA. And so that really comprises all -- more than the decrease itself. But then in addition to that, we did have an increase in property taxes of $170,000, and that was associated with the reset of the valuation upon acquisition of the property.

Chris, just to make another point on Sarasota that's worth noting; remember the last summer we had an infestation of red tide at the property. There's no evidence of an algae bloom this season. And so I think that's something to kind of keep your eye on, which should be very helpful to the performance of the property and the market as a whole.

Okay, great. Appreciate that. And then on the -- just going back to the Philadelphia opening of The Notary, do you -- you mentioned the transition from Marriott's select serve to full serve, can you remind us if there is a -- do you have any kind of performance guarantees or anything that would protect you in the ramp-up?

Not really. And it's going to be immaterial wash when it's all said and done because you're talking about a relatively short time period. And so -- when we're talking in terms of the ramp itself, it's really just a year-over-year comparison. We're not -- we haven't really seen it in the first few weeks. And it's not going to be that material over the long term of the transition.

And then just a final question, maybe for Richard. Richard, I guess since coming up onto three years, you've done a lot of -- I think a lot or maybe everything that you kind of set out to do at the beginning with the portfolio. And the stock, obviously, it's been kind of a rough ride, especially recently. What do you think the disconnect is? I mean, obviously, you have a lot of projects. You've a lot of moving parts. You've a lot of things coming online later this year and we can model it the best we can. But I mean, what do you think The Street's miss -- why -- it just seems like there's some kind of disconnect, and I'm curious as to your thoughts and what you think possibly kind of remedies that?

Yes. I think as we look at how we're setting up ourselves for 2020, I think that's the year that's going to really matter. We've got major capital expenditure projects that are completing this year, right? It's The Notary, it's The Clancy. We've got the presidential villa at the Bardessono, 3-key presidential villas that's completing this year. And we've Ritz-Carlton, St. Thomas reopening and coming back online. All those projects will bear fruit in 2020, and that's kind of how I'm thinking about it. And I think the market will start to see that in our results, and we hope to get rewarded for it. So there is, you're right, some bumpy road between where we are now and getting there. But we're going to keep kind of marching forward and keep our eye on the ball, and I think that's the strategy that ultimately will pay off.

Okay, got it. And just kind of given all those things, I mean is there some kind of internal measuring stick that you're trying to hit or maybe a different way to ask it differently is, I know historically you haven't given guidance, but I mean to the extent that you have the market's continuing to kind of -- there's this disconnect, do you think at some point as you head in next year, it makes sense to consider at least kind of framing some of the numbers and providing people framework to -- even if it's not a formal number, just to see the trajectory. Is that something you guys would consider?

Yes. It's something we wrestle with all the time. And with such a small portfolio, it's a real challenge to be able to do that accurately. So we continue to assess it but we hate to provide any sort of guidance that's inaccurate, and with such a small portfolio, there's a high possibility of that, right? So we're going to continue to look at it and test our own kind of forecasting capabilities internally. And yes, if there is a reason to do it, we will, but we haven't determined that yet.

[Operator Instructions] We'll take our next question from Amanda [ph] from Baird.

Can you just talk about how the board is thinking about the dividend today? Just kind of balancing some of the slower industry fundamentals we've seen with the better outlook for your portfolio, particularly given now you don't necessarily need to maintain your current payout based on your taxable income.

Yes. So we increased the dividend by 33% at the beginning of 2017. And while we've had these major capital expenditure projects ongoing, we've held it constant, right, for '17, '18 and now '19. I think as I kind of referenced before, if we get into 2020, we'll be able to take a look at the contributions to EBITDA from these various CapEx projects, and at that point, I think the Board will reassess and say, "Do we have right payout ratio? Is it too low?" That sort of thing, but that's -- I think that's a little bit far off because we need to really see the results of these capital expenditure projects.

This concludes today's question-and-answer session. I will now turn the call back to management for any closing remarks.

Thank you. We would like to thank you all for joining us on our second quarter earnings call today. And we hope to see you at our Investor Day in New York on October 3, and look forward to speaking with you again on our next call. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.