Good day, everyone, and welcome to the Braemar Hotels & Resorts Third Quarter 2023 Results Conference Call. Today's call is being recorded. [Operator Instructions]. I would now like to turn the call over to Jordan Jennings, Director of Investor Relations.

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the third quarter of 2023 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 Chris Nixon, Executive Vice President and Head of Asset Management. The results as well as notice of the possibility 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 registration statement and prospectus 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 on Form 8-K with the SEC on November 8, 2023, 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. Also, Unless otherwise stated, all reported results discussed in this call compared to third quarter ended September 30, 2023, with the third quarter ended September 30, 2022. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning. Welcome to our 2023 3rd quarter earnings conference call. I will begin today's call by providing an overview of our business and an update on our portfolio. Then Deric will provide a review of our financial results and Chris will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. We have a few key themes for today's call. First, we're pleased with the continued momentum of our urban hotels, which reported comparable hotel EBITDA of $16 million in the third quarter. Second, we remain pleased with our 2 most recent acquisitions with Ritz-Carlton Reserve Dorado Beach and the Four Seasons Resort Scottsdale at True North. They are each performing well and continue to exceed our original underwriting. And third, we continue to work diligently through our refinancing program, and we are making solid progress addressing loan maturities, as demonstrated by our recent announcement regarding the closing of our $200 million corporate financing as well as the upsizing and extension of our Four Seasons Resort Scottsdale loan and the extension of our Ritz-Carlton Lake Tahoe loan. Turning to our results. Third quarter is weakest from a seasonality perspective. Despite a volatile macroeconomic environment, our portfolio delivered solid results with third quarter comparable hotel EBITDA of $34.9 million. Our resort properties continue to outpace 2019 results and our urban properties continue to recover. Turning to RevPAR for all hotels in the portfolio. Our third quarter RevPAR result of $263 reflected a decrease of 7.1% over the prior year quarter. It's important to note that while the performance at our luxury resorts is down year-over-year, we're pleased with their overall performance, especially when you consider that; a, both demand and rates remain solid versus historical comparisons and b, their performance is still far outperforming…

Thanks, Richard. For the quarter, we reported net loss attributable to common stockholders of $33.1 million or $0.50 per diluted share and AFFO per diluted share of negative $0.08. Adjusted EBITDAre for the quarter was $27 million. At quarter end, we had total assets of $2.3 billion. We had $1.2 billion of 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 had a blended average interest rate of 7.1%, taking into account in the money interest rate caps. Based on the current level of SOFR and our corresponding interest rate caps, approximately 69% of our debt is currently effectively fixed at approximately 31% is effectively floating. As of the end of the third quarter, we had approximately 38.6% net debt to gross assets. We ended the quarter with cash and cash equivalents of $149.5 million and restricted cash of $57.3 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 $14.2 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, in December of 2022, we announced a significant increase in the company's quarterly common stock dividend to $0.05 per share or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately 7.5% based on yesterday's stock price. Our Board of Directors will review the company's dividend policy on a quarter-to-quarter basis with a view to increasing it as financial performance continues to improve. As Richard mentioned, during the quarter, we announced a new $200 million corporate…

Thank you, Deric. For the quarter, comparable hotel RevPAR for our portfolio decreased 7% over the prior year quarter to $263. This represents a 10% increase over the third quarter in 2019. Our urban assets continue to benefit from demand growth with comparable total hotel EBITDA exceeding the prior year quarter by 3%. We are seeing a normalization within our resort assets with resort hotel RevPAR declining by 13%, while our urban hotel RevPAR increased by 2% over the prior year quarter. Total portfolio RevPAR for our luxury hotels was 21% higher than the national average for the luxury chain scale, which reflects the high-quality nature of our portfolio. I would like to spend some time highlighting some of the initiatives from our team, including optimizing performance through increased group demand, identifying and implementing value-add opportunities across the portfolio and how we are increasing performance at our newly acquired hotels. We continue to experience a resurgence in the group segment. Portfolio group revenue pace for full year 2023 is ahead of prior year by 15%. The strength within the group segment is continuing through 2024 with full year group revenue pacing ahead of the prior year by 17%. Within our urban hotels, group room revenue for the quarter exceeded the prior year quarter by 8%. We were also encouraged by third quarter booking activity. During the quarter, our urban portfolio secured $1.8 million in group revenue for future periods, which is an 87% increase over the prior year quarter. Our largest hotel Capital Hilton finished the quarter with approximately $3.1 million in group revenue, a 16% increase over the prior year quarter. This achievement is noteworthy, considering the hotel was under a transformational guest room renovation throughout the entire quarter. Despite the reduced inventory, our team has found ways to…

Thank you, Chris. In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels, emphasized by the continued recovery of our urban properties. We also remain very well positioned operationally with a solid balance sheet and the highest quality portfolio in the publicly traded hotel REIT market. We look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks, and we will now open up the call for Q&A.

[Operator Instructions]. We'll take our first question from Tyler Batory with Oppenheimer.

So my first question is about the normalization of demand and kind of what you're seeing at the resort assets in particular. How are you thinking about revenue management at those properties? Would you may want to use some more OTAs to try to drive some demand there. I mean how do you think about trying to hold on to rate a little bit more and maybe sacrifice some occupancy or maybe you want to lower rate even more to build back some occupancy? Just trying to think through some of the moving pieces there.

Yes, it's a great question, Tyler. So we are seeing a stabilization of demand in our resort properties. Our resorts were down in Q3 about 13% year-on-year. With that said, they're still up significantly to 2019, up 26%. ADR is up 46% to 2019. So where I think we have the advantage is we've got a really, really strong revenue optimization team in-house that's able to get in the details with the hotel teams because even though we're seeing broad softening, there's still very specific market nuances that we're having to work through. And so our teams are looking at marketing activations, how we can leverage the loyalty programs and really stimulate some additional demand. The challenge there is to do so without sacrificing rate. And so we do want to make sure that we are optimizing all channels that we're going after all customer segments. But that we're not doing so at a significant ADR decline. And I think the fact that we're up nearly 50% in '19 show that we've been successful there. In terms of broad strategies, obviously, a group is key to that. We're looking at taking more group business where we need it. We're looking at aspirational groups in off-season to come and experience the resort for the first time. What we're seeing within the group segment is encouraging we've been able to improve our group pace for 2024. So we are going into the year with a stronger group pace at our resorts that we think will help us offset any continued stabilization. With that said, within that group segment, the booking window, while slowly elongating is still much shorter than it's historically been. We're seeing groups that are much smaller on peak night, and they're coming in and they're staying for longer length of stays. What all that means is that we think we're going to have more pricing power kind of in the year for the year and the groups that we pursue. We can go after groups with greater catering contribution in overall groups that are a higher value to the hotel. And so that's kind of how we're planning on kind of navigating some of the stabilization in demand.

Okay. Okay. Appreciate that. In terms of margin, -- was there any onetime in the Q3 numbers that were pressuring margin. And when we look at the decline in margin year-over-year, would you expect that level of pressure to continue into Q4? Or perhaps things could get a little bit better.

Yes. I think when we look at margins, there's a couple of things that kind of play heavily into that. The first thing is what does RevPAR do? And we saw ADR declines broadly for the portfolio in the quarter, and that puts a lot of downward pressure on margins. I think when you look at our resort and urban mix, and kind of the dynamics of what's happening there in terms of our revenue weighting post-COVID, our resort hotels have run a 700 basis point margin premium over our urban hotels. . And so as our urban hotels grow in revenue and they continue to accelerate and they're carrying a larger percent of the revenue weighting, that's going to have an impact on margin. We had a significant increase in property insurance as many others are experiencing as well. The property insurance markets have been very tough especially for our portfolio, where we've got some forward exposure and some hurricane exposure in Q3. That was about 100 bps of our EBITDA margin erosion is kind of what we contribute to the property insurance. One of the other big factors in the margins is labor. And that's an area I feel our team has done exceptional in. For the first time, we saw a significant pullback in contract labor for the quarter, we had about a 30% reduction in contract labor usage across the portfolio. Our productivity was much improved. We reduced total labor hours across our portfolio by 4%, while occupancy only decreased by 1%. And so we've been aggressive in terms of flexing labor based on kind of the demand changes that we've seen. I'm confident that will continue, I'm confident we'll be able to hold the line on ADR and maintain ADR. But kind of those dynamics I talked about with resort and urban within our portfolio will still be at play.

Okay. Great. Maybe last question for me, Richard, just capital allocation front. I mean I know handling the debt maturities has been certainly a priority. Any additional conversations around implementing share buybacks? I mean is that something you just think about? Is that something that could make sense?

Yes. Well, based on our share price movement today, that's certainly gotten a lot more interesting. I believe that these shares are grossly undervalued. You saw that when I personally went into the market about a month ago, I made an investment. Yes. No, it's something that I think the Board is going to discuss. It is a fine balance of ensuring that you've got ample liquidity to address future unknowns. What I would really like to see is the Fed embark on its rate cutting phase in this kind of inflation management strategy they have going right now because we just don't know how long that will take. And as long as rates are as high as they are, we do need to be careful with our liquidity because we want to be able to address maturities. We want to be able to fund our interest expense as well as our various CapEx programs. So it's certainly very topical. I think seeing what's happening in the market today is making it even more kind of top of mind.

[Operator Instructions]. We'll take our next question from Michael Bellisario with Baird.

Richard, just first question back to the resorts. What's your big picture thinking for when growth might flip positive again there, both kind of top line and bottom line? Presumably, we'll see tough comps I get in 4Q, but how are you thinking about 2024 and sort of the cadence of recovery throughout the year?

Yes. Thanks for that. So I mean, first, if you look at the industry forecast for RevPAR next year, they're up over 4% generally and over 5% for the luxury segment. I think our portfolio will benefit from those trends. One of the things that I've been noticing and telling people is that we've had so many of our typical U.S. guests travel overseas this past year that it's unlikely that they do the same amount of international travel next year and instead you find much more domestic demand for luxury resorts. So when does that exactly turn? I'm hopeful in the first quarter, but it could be second, third quarter, I think, certainly by next summer, you'll see those trends coming home. This has also helped in the way, I had to say it by all of the geopolitical conflict we're seeing over close to Europe. And so I think that will also keep a lot of our U.S. travelers at home. And so yes, we're anticipating benefiting from that. Exactly which quarter? I don't know, Chris, you better view?

Yes. I think it's hard to peg a specific quarter, Michael. I think overall, we're optimistic about 2024. I will say there are some positive indicators. I mentioned group pace at our resorts is up for 2024. That's encouraging. Some of the leisure trends and leisure softness that we're seeing, while still down as we look ahead it's down to a lesser degree in lesser magnitude. And so we hope that, that -- we hope and we believe that, that softening is kind of settling and we're kind of settling into what's going to be kind of the new norm.

Got it. That's helpful. And then just another one on the Scottsdale loan upsizing. I understand it was a low leverage loan to begin with. But what was the driver there? And then what's the plan with those proceeds looking ahead?

Yes. Michael, it's Deric. Look, the plan there is, like you mentioned, it was low leverage going in. The property has obviously ramped up very well. And we just felt like it was an opportune time to increase that -- the loan sizing on that property. From a use of proceeds standpoint, basically just replenishing some cash. We had made a big debt paydown a couple of months earlier. Back in June, we extended that 4-pack loan. And I just felt like it was the prudent thing to do to replenish our cash to make sure we've got maximum liquidity.

Yes. I'll add to that a little bit to what Deric said. As you look forward to 2024 and you look at some of the interesting ROI CapEx projects that we have. One of those that you've heard about in the past is the Ritz-Carlton Lake Tahoe townhome development. That development is progressing very nicely. We're working through the entitlement process with Plaster County. And we anticipate spending some significant capital to get that out of the ground next year. And so as Deric said, we had the opportunity to shore up some cash, and that's one of the uses of it as we move into 2024.

We've also got a decent amount of debt maturities coming up in 2024, and we're well in front of those. Those should all, for the most part, be very easily refinanceable loans. We've been a little bit slow to pursue refinancing of those. Normally, we'd be a little bit more in front of those upcoming maturities. But because the market is just so unattractive at the moment, we wanted to keep the debt that we have in place as long as we possibly can. And I mentioned there's only really one of those upcoming maturities in 2024 that might be challenging, but it's a very small loan. It's a $30 million loan on our Canyon Beverly Hills. And just from a -- if you look at it from an EBITDA debt yield perspective, that one would probably be a little bit more challenging of a refinancing. So having that additional cash on our balance sheet from the Scottsdale upside might come in handy for that as well.

Understood. That's helpful. Actually just one follow-up for Chris. Just I think you mentioned peak nights up 27% year-over-year. Can you quantify how many nights is that across the portfolio? And what's the RevPAR growth that you achieve on those high occupancy nights?

Yes. Thanks for the question, Michael. I would estimated that the 27% increase is probably a dozen nights or slightly fewer. I will say that those are the nights where we realize the majority of our revenue within the portfolio. And so we are able to push rates. We get very aggressive. We're seeing most of those peak night increases across our urban hotels. And it wouldn't be uncommon for us to realize RevPAR for those peak nights that are double kind of what the monthly average is. And so that's a very critical thing for us. It's kind of where we make a majority of our money. We're laser-focused on how we kind of revenue manage those nights. It's something that we work with the properties to identify and advance. We factor in our group, our ancillary strategies all the way down to our loyalty program strategies to ensure we're getting the most out of the respective brand loyalty programs on those nights. So indeed, it is significant.

And there are no further questions. I'd like to turn the call back over to management for closing remarks.

All right. Thank you all for joining us on our third quarter earnings call, and we look forward to speaking with you again on our year-end call.

Thank you. That does conclude today's presentation. Thank you for your participation today, and you may now disconnect.