Greetings, and welcome to the Braemar Hotels & Resorts Incorporated Fourth Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Jennings, Investor Relations for Braemar. Thank you, Ms. Jennings. You may begin.

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the fourth quarter and full year 2020 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; and Jeremy Welter, Chief Operating Officer.

Good morning. And welcome to our fourth quarter 2020 earnings conference call. I'll begin by providing an overview of our business and an update on our portfolio, which includes our hotels again achieving positive hotel EBITDA for the quarter. After that, Deric will provide a review of our financial results, and Jeremy will provide an update on our asset management activity. Afterwards, we'll open the call for Q&A. The fourth key themes for today's call are: luxury resort outperformance resulting in positive portfolio-wide hotel EBITDA, very strong forward bookings, significantly reduced monthly cash utilization and no near-term debt maturities. 2020 was an extraordinary year. And while the COVID-19 pandemic has created both social and economic disruption on an unprecedented level, and has created a volatile landscape throughout the hospitality industry, the rollout of vaccines gives us hope that the hospitality industry can return to a more normal environment in the near future.

Thanks, Richard. For the fourth quarter of 2020, we reported a net loss attributable to common stockholders of $28.3 million or $0.77 per diluted share. For the quarter, we reported AFFO per diluted share of negative $0.17. Adjusted EBITDAre for the quarter was negative $1.4 million. At quarter end, we had total assets of $1.7 billion. We had $1.1 billion of mortgage loans, of which $49 million related to our joint venture partner share of the loan on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans at a blended average interest rate of 2.5%. Our loans are entirely floating rate. As of the end of the fourth quarter, we had approximately 54% net debt to gross assets. And our next final debt maturity is in April 2022. We ended the quarter with cash and cash equivalents of $78.6 million and restricted cash of $34.5 million. The vast majority of our restricted cash is comprised of lender and manager-held reserve accounts. At the end of the quarter, we also had $12.3 million in due from third-party hotel managers. This primarily represents cash held by one of our property managers, which is also available to fund hotel operating costs. All of our loans are current and out of default. As we highlighted with our positive hotel EBITDA for the quarter, our monthly cash burn in our hotels has been reduced to close to zero. Richard mentioned that our hotel EBITDA in December was positive $3.3 million. There are some additional items that are below the line at the properties, so hotel operating cash flow was approximately $3 million.

Thank you, Deric. Comparable RevPAR for our portfolio decreased 59.8% during the fourth quarter, and we were able to generate hotel EBITDA flow-through of 59%. As Richard mentioned, our hotel EBITDA in December was solid, driven by our resorts, which saw strong demand over the holiday season. Despite all the closures and travel restrictions, our resort hotels actually did quite well in 2020 relative to our urban assets. Fourth quarter comparable hotel EBITDA for resorts was $7.1 million compared to negative $5.5 million of comparable hotel EBITDA for our urban hotels. When you look at full year 2020 results, the story is the same: $31 million of comparable hotel EBITDA for resorts, and negative $17.5 million of comparable hotel EBITDA for our urban hotels. We expect our resorts to continue to outperform our urban hotels for some time. But we are optimistic the demand at our urban properties will continue to accelerate as we progress through 2021.

Thanks, Jeremy. In summary, we are in the early stages of the recovery, but we can now see a clear path to normalcy. This sets us up nicely for a slow but steady recovery in our financial results. We have taken decisive actions to navigate the near-term challenges of this crisis, and we are well positioned moving forward with a solid balance sheet and unique, diversified portfolio. We are encouraged as we look ahead that we have in place the appropriate runway to get back to positive cash flow this year. I'm proud of our efforts to protect our assets and maintain financial flexibility to position us for future success. We look forward to updating you on our progress as we move through 2021. This concludes our prepared remarks, and we will now open the call for Q&A.

Our first question comes from Alex Kubicek with Baird.

Richard, I want to start with just a high-level question for you. How do you position yourself today to be in a better place to be a potential acquirer down the road, whether it's 12, 24 months? Obviously, fundamentals improving is a big help. But just curious what defense do you think you still have to play before you can turn to offense?

Yes. Thanks for that question, Alex. Look, I think in order to -- beyond the front foot in terms of acquisitions -- and I look at acquisitions either as for cash or by a OP unit acquisition, which is something that we've kind of thought about in the past, but still a possibility. But if it's a cash-type acquisition, I think we need to get to a place with our balance sheet that we feel is very comfortable and very comfortable for investors. Right now we have certainly ample liquidity, but we're still using cash on a monthly basis. I think we have to get to cash flow positive. And then I think we have to stick by our leverage policy and what that's been historically. And historically, we've sought to maintain 10% of our gross debt balance as cash on the balance sheet. We've also sought to have our leverage be 45% net debt to gross assets. So we're going to have to let those assets return to cash flow positive. And if you will, fill the coffers before, I think we're getting very aggressive on the acquisitions front. So we're having the financial discipline. Luckily -- and I'm sure I'll get many questions about this, we're not seeing a ton of opportunities in the luxury hotel space. And frankly, I'm not sure we will see a lot of opportunities at very attractive prices. There's just been so much capital raised out there to target on hotel acquisitions that the weight of capital will likely keep prices elevated rather than allowing there to be some sort of a feeding frenzy. So I'm not really anticipating that. So we're kind of sticking to our knitting. We're repairing the company, and we're clearly on the back end of the crisis, if you will. And then that will set us up ultimately to pursue new acquisitions.

And then as a follow up, just you spoke to cash to OP units, to equity. Just wondering if you have an updated view on preferred today, given that the Bs are trading a lot closer to par. Just where does that rank on the capital hierarchy you guys have today?

In terms of issuing preferred?

Correct.

Yes. So our preferred pricing is thereabouts a little bit wider than where it was when we issued the -- preferred of these, perpetual preferred. Some of our peers have issued convertible instruments, that's something that I wouldn't rule out going forward. I think there’s certainly benefits to long-term balance sheet stability to the extent that, that is convertible. That said, anything that we're looking to -- and we'd obviously have to announce, but I can tell you that the pricing is getting increasingly attractive, and you've picked up on that trend. Our preferreds at the height of the pandemic, which we were trading at over a 20% yield. They kind of hung around 10% there for a while. Now we're sub-9%. So clearly heading in the right direction.

One thing I'd add to that is if you look back to pre-pandemic, we'd had a filing of a non-traded preferred offering at Braemar that we were planning to do through Ashford securities. We obviously put that during the pandemic, but one of the things that we do plan to do is utilize our broker-dealer network through Ashford securities. And we do believe we have a very attractive source of capital that could be beneficial to Braemar, which is a -- traditionally a retail investor and tends to be resilient in terms of being available during all stages of all cycles. Even during the pandemic, this market, this alternative investment space, was resilient in raising capital. So that's something that is out there. And hopefully, we'd be able to share more with you in the future on it.

Yes. And then just one quick housekeeping question. It looks like there's a small reversal in the incentive fee this quarter. Can you remind us of the moving parts there? And should we expect any more reversals in 2021?

Yes. This is Deric. So the reversal of that is, as you recall, there's an incentive fee that can be paid over a 3-year period under the advisory agreement. But those -- each of those 3 payments is subject to an FCCR calculation. And just given the drop in our earnings that the last tranche of that payment was not triggered. So that's why you saw the reversal of that. It had previously been recorded in our earnings a few years ago. So we reversed that out.

So there shouldn't be any in 2021, given that there wasn't any in 2019, Deric?

Well, today, it's -- each year, there's a task for the incentive fee. And so that relates to an incentive for a few years ago. So there could be if there's outperformance that's based on a total shareholder return outperformance calculation. So it's -- we'll just have to see how the year plays out.

Our next question comes from Tyler Batory with Janney Capital Markets.

First question I have is on ADR. And this is the second quarter in a row that it's been up and quite strong. And the commentary for January and February was also positive as well. So can you touch a little bit more on revenue management and sales strategies in place in terms of driving that strength?

Sure. Sure. Well, I think ADR, you have to dissect it, right? And look at it by demand segment. And there's kind of 2 things I'd note there. One is, if you look at our segmentation, group business is way down, right? And group business generally comes at a discount to retail and transient business. Now that's really helped us in terms of ADR. So ADR, just by virtue of segmentation would be naturally up, okay? So that's kind of the first trend. Actually, there's 3. The second one is that if you look at retail demand and other transient demand, that's way up. And so just to kind of give you a sense, if we look at our pace for February, retail demand -- the ADR is up 50%. So this is driven by pent-up demand amongst leisure travelers that have been locked up in their homes for a year. And can't wait to get out to spend some time with the luxury resort. So that's helping. And then the third thing I'd say, if you look across portfolio wide, it's down to what is the composition of the hotels driving your ADR. And whereas historically, it was more balanced between our luxury resorts and urban, we've got our luxury resorts firing on all cylinders, and that's 8 properties. And our urban down, but comparably not down enough to be offset by the composition of our luxury resort, ADR contribution. So those 3 trends are really serving to provide a lot of fuel to our ADR growth, and it has really in its soaring. And we're looking at $400 or more ADR across the portfolio for February. March is currently booked at over $500. So really an ADR that we've never seen before. In the first quarter, we'll have the highest ADR in the history of the company.

And one of the things you got to look at, Tyler, is from a revenue management perspective is that most of our resorts that are open are uniquely positioned. You look at Ritz St. Thomas. A lot of individuals don't want to go to travel outside the U.S., but they want to go the Caribbean. And so we're getting a lot of first-time guests. And so being one of the only resorts, it essentially is open for U.S. travel. Same thing with some of our Florida markets. We know the high-end traveler is going to be there. And they're willing to travel, and they want to spend money. And so we've been pushing rate because we just don't have as much competition than what we've had maybe when all the resorts are open. And so I think we're uniquely positioned to do that. And as Richard mentioned, it is definitely a change in segments with root going out. But we've also done a good job marketing our suite inventory, and there's been an increased demand for suites with COVID. And travelers want to have more space and bring their families. So we've been able to do that. And I think we'll continue to do that, and I think that you'll see continued desire for resort travel.

Great. And the specific question on St. Thomas fourth quarter -- first quarter. To be honest, I was hoping to take a vacation down there, but I noticed the rates are well over $1,000. Most of the nights are sold out, which great for you, less so for my vacation plans. But interested if you could just talk more about the demand in St. Thomas, what you're seeing. I think you mentioned that there are new guests that are coming as well. So just wondering how the mix of business is looking new versus repeat guest that maybe you had in the past? And then any comments just in terms of the guest feedback? And then also how beneficial it is right now, just in terms of what's going on with limits on international travel.

Yes. I'm happy to take that question. It is -- we're very fortuitous because the resort you've been there and you saw the capital improvements we made, which I think are phenomenal. I think it's exceeded our expectations in terms of the outcome with the settlement with the insurance companies and the quality and the design and the level of improvements we're able to make. And all of that was done pre pandemic. And we had just completed, as you know, pretty much, I think, November of 2019. And so if you look at where we were pre pandemic, we were having significant year-over-year growth in January, February in the portfolio of Braemar, and a lot of that was through St. Thomas, as you're aware. But this was a great opportunity with us. Having made those improvements, and then also improvements that we did outside of the insurance proceeds, which is we added that kids pool in the slide. And so this was a good opportunity as there are an incredible amount of first-time guests. And that's definitely been the case. There's a lot of individuals that have come certainly from the Northeast that typically would go to maybe Cayman or other islands within the Caribbean that they chose to travel to the U.S. and stay within the U.S., and they've been incredibly pleased with the resort. When we bought this resort, it was 1 of the lowest Ritz-Carltons in terms of guest satisfaction on a percentile ranking within the Ritz brand. And we had a plan to continue to upgrade that. And I guess comments I guess feedback has been great. And that's why you're seeing a lot -- we're actually not only seeing the first-time guests that stand arteries work, but they're coming back months later and returning back to the resort. So I think that this was a unique opportunity for us to showcase this resort. And we're doing a good job. I think the team has done a great job. We've got a great team with Marriott. We worked with Marriott to develop, I think, a great team within that property. And everybody was just anxious, all the associates because they've been through so much going through Irma, then this pandemic and I think that, that property is as energized as it's ever been, and we're very excited on the future of that property.

Okay. Very helpful. And the last question for me. There's a story out there about an asset in one of your markets that's rumored to be for sale for $2 million per key, which I think is a comp that really supports the value of your real estate. It appears thus far that there's been a lot less distress out there in terms of assets than perhaps everybody expected. So if you could just talk a little bit more about that fact. What's contributing to that and potentially, if you think there might be a wave, whether it's from CMBS or other things happening in the future. Interested if you think there could be more opportunities on the luxury side of things just in terms of assets on the markets at favorable valuations.

Yes. Thanks, Tyler. Well, I think there's really 2 things driving the pricing support in the market. One is, as you know, the period between kind of March and November. Generally, forbearance from lenders was widely available. This doesn't apply to the Four Seasons in Calistoga, you're talking about, which I'm happy to mention. But generally, there's been forbearance. So banks have been in special services to some degree, have been somewhat accommodating. I think that is going to change in the forbearance 2.0 world, where the problem has become sized in such a way that banks can be a little bit more aggressive and entertain the idea of ownership foreclosure and/or sale. So whereas we haven't had much distress yet, you could see more distressed sales start to come this year, really kind of starting a couple of months, maybe in the second half of this year. The second factor that's supporting prices is the weight of capital. There's been hundreds of billions of dollars raised in private equity formats to acquire real estate and then even more specifically, hotel real estate over the last 12 months. And that competition for deals is something that we haven't seen for years. And that capital needs to be deployed. And so that's also providing a lot of pricing support in these situations. So I don't necessary -- I think the way that, that capital is going to be so much that I don't think we're going to see deeply discounted hotel sales, where you really see that is when you don't have adequate supply of capital. The other thing that, obviously, from a macroeconomic perspective that's driving all this is we're in an era of increased money supply. So there is a lot of asset -- high asset valuations out there. And that's providing liquidity to the entire system. So we're going to continue to assess acquisition opportunities. But I really don't think we're planning on deeply discounted acquisitions. I think 1 of the things that we do believe is you may get an opportunity to acquire things that wouldn't otherwise come to the market, just kind of based on the dynamics of the pandemic and how things shake out, but not necessarily at a generational type attractive pricing.

. Our next question comes from Bryan Maher with B. Riley.

We all know that the resort business has been doing pretty well, and you guys commented that bookings remained strong. But can you give us a little bit of color on the 5 urban assets? I mean are those just kind of dead in the water for a while? Are you seeing a pickup there at all? Is there any inbound group calls for the second half of this year. Just can you give us a little more color there?

Sure. Bryan, it's -- it continues to be a very short booking window without a lot of visibility. I don't think there's anything we can say that we've seen any trends that are meaningful at this point. We continue to outpace our internal forecast, which tend to be pretty pessimistic because we want to manage towards very low-cost structures and assume basically the worst and try to drive better performance from liquidity and a performance perspective. But it just tends to be still very, very short term in nature. But we are seeing the -- we go through and look at a forecast, let's just say in January or February, we are seeing pace of bookings increase where we stand like in the month for the month, and that's not just for the resort location. So there is an acceleration of demand. I wish I could say that it's a significant snapback, but I can't say that as we stand here today. But there -- as you see, the caseloads are coming down pretty significantly. You can see that the vaccinations are getting out and they seem to be working incredibly well and seem to be very, very safe. And so as that continues to be disseminated across population, we know that people are going to travel again. And it's just a matter of time, not if. And so we're seeing some increased demand, but it's not a snapback, yet. And it still tends to be very, very short-term.

I'll put some more numbers around that for you, Bryan. So our urban portfolio was running in kind of the mid to high teens occupancy in the fourth quarter, whereas as of last week we're at 30% occupancy. So that's a good trend, right? So we're definitely, in fact, a little over 30% occupancy. So it's a slow grind back. And I think we're going to get there in the second half of the year and have those properties breaking even is the plan and that way we'll get to a corporate cash flow positive. But look, with cases dropping the way they are, I think people are gearing up to start taking some business trips, and that's what we're going to need. And that's going to be how we get those properties to break even. And I think thereafter, it's the return of citywides and big conferences that will really start to propel the results.

Yes. One other thing. Just keep in mind, as you look at our seasonality of our business, the urban hotels are counter-seasonal to our resort properties. So the resort properties tend to be better at this time of year, urbans tend to underperform. And so hopefully, as there is an increased appetite to travel for business, we'll start to see that more in the second -- as early as the second quarter and certainly the third quarter of next year -- this year.

Great. And the one kind of resort hotel that you had that did not perform well. La Jolla, I think RevPAR was down 73%. We were a bit surprised with that property, given its kind of drive-to ability from San Diego and L.A. Was there something specific going on there that would have caused that?

Yes. That's a tricky one to pigeonhole, if you were to classify. We called it a resort property. Historically, it's performed somewhere in between. There's a lot of biotech business that comprises its demand mix. So it's really -- what you want to call it, and it kind of sits on the fence. We've thrown it into the resort category due to its proximity to the famous Torrey Pines golf course. But yes, no, it definitely is performing a little bit differently than the rest of the resort portfolio. That's -- the recovery and return performance of that property will be based on the same trends that we see in the urban portfolio. I think if we were to extricate that from resorts, and call it, urban, our resort portfolio would be zooming even higher. But that's still the case.

And one thing about Torrey Pines is that traditionally is one of our key properties where group ADR actually outperforms transient ADR. So it does really well with group business historically. And that group, obviously, has just been not existent. And if you look through the government restrictions in November of -- November 14 of 2020, San Diego moved into more restrictive, what they call the Purple Tier. And then early December, they actually did a state home order and that increased restrictions, travel restrictions. And then I had another state homeowner on the fifth of December. So those restrictions weren't released until after the fourth quarter. So I think a lot of it has to do with not only that there is good about of corporate business and group business, but then also just the heavy restrictions that California has put in place relative to other states across the U.S.

Great. And just 2 quick ones for me. Why did you guys do the standby equity distribution agreement, the 7.8 million shares instead of a regular ATM?

Bryan, it's Deric. Well, we do have our ATM in place, and that's something that we've got capacity on. The standby equity distribution, it's something that we did years ago at AHT. And there were certain periods of time when you've got to have your ATM turned off. And we just thought it was smart capital management to have another option that's available to us if and when we need it. And so we thought it just made sense to have that put in place. It's kind of like an ATM, to some extent. But it adds a little more flexibility. So we just thought it was smart capital management to put that in place.

Okay. And then just quickly, the Waldorf Astoria in Chicago just traded for $54 million, which just screams of a buy. Is that something that you guys bid on or you passed because it's Chicago, and Chicago is tough. And are you seeing anything else out there like that where you can get a huge discount and you're willing to wait 12 to 24 months, you're going to have love doing that deal later?

Yes, Bryan. Something we did look at it. We saw that the hotel is not profitable enough for us. So that's a very, very competitive luxury market, right, within that kind of 2-mile radius, where you've got not only so much help, but you've got the Peninsula, you've got the Four Seasons, you got the Park Hyatt. And then -- and that property struggles to get adequate share to be profitable. And so while the headline on dollars per key does look attractive, right? And we see that. For a company that, like ours, is interested in generating cash flow for the benefit of our shareholders, it wasn't the right fit for us.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Sure. Well, thank you all for joining us on our fourth quarter earnings call, and we look forward to speaking with you again on the next call. Thank you.

Ladies and gentlemen, this concludes today's webcast. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.