Good day, ladies and gentlemen, and welcome to the Braemar Hotels & Resorts, Inc. Fourth Quarter 2018 Year-End Results Conference call. Today's call is being recorded. And at this time, I would like to turn things over to Jordan Jennings, Investor Relations for Braemar. Please go ahead.

Good afternoon, and welcome to today's call to review results for Braemar Hotels & Resorts for the fourth quarter and full-year of 2018 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. The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed this morning in a press release that has been covered by the financial media. 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. 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 February 27, 2019, and may also be accessed at the company's Web site 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.

Thank you. Good afternoon and thank you for joining us this afternoon to discuss our fourth quarter and full-year results. Overall, we are very pleased with the operating and financial results Braemar generated in 2018, and we are excited about the progress we are making on the continued growth and success of our platform. In January of 2017, we announced a revised strategy with a focus of investing in the luxury hotel segment and since that time we have taken concrete steps to realign our portfolio to the strategy including selling two noncore properties, announcing an agreement to up brand two properties and align them more closely with our luxury focus and acquiring four high-quality luxury properties. We believe the continued execution on this strategy will lead to solid growth and strong financial performance for our company going forward. Our strategy to focus on the luxury segment of the hospitality market is supported by the current and historical performance of this segment. Empirical evidence has shown that over the long-term the luxury segment has had greater RevPAR growth than the overall industry, currently bolstered by strong consumer confidence trends and a healthy macroeconomic outlook the luxury segment has outperformed the overall lodging industry over the last several quarters. According to Smith Travel Research in the fourth quarter luxury segment RevPAR growth was 3% compared to RevPAR growth of 2.4% for the entire industry. For full-year 2018, luxury RevPAR increased 4.4% compared to RevPAR growth of 2.9% for the entire industry. Looking ahead, the economic outlook continues to be favorable and consistent with our long-term growth thesis for the luxury segment. STR and other industry forecasters are predicting modest overall RevPAR gains in 2019 for the industry. But the luxury segment expects to continue to outperform. By clearly aligning our platform…

Thanks, Richard. As Richard mentioned, during the fourth quarter, we did not recognize any business interruption income for the Ritz-Carlton St. Thomas. However for the year we recognized $13.5 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 month of December 2017 through November 2018, and we expect business interruption income to resume in the first quarter of 2019 and continue until at least the reopening of the hotel at the Ritz-Carlton which is anticipated to occur in October of this year. For the first quarter we expect our BI income to be similar to what we booked in the first quarter of 2018 for the Ritz-Carlton St. Thomas. For the fourth quarter 2018, we reported a net loss attributable to common stockholders of $14.4 million or $0.44 per diluted share. For the full year of 2018, we reported a net loss attributable to common stockholders of $5.9 million or $0.19 per diluted share. For the quarter we reported AFFO per diluted share of $0.15 and for the full year of 2018 we reported AFFO per diluted share of $1.55. Adjusted EBIT ROE for the quarter was $20.3 million while adjusted EBIT ROE for the full year was $119.3 million which reflected a 7.3% growth rate over 2017. At quarter's end we had total assets of $1.6 billion. We had $993 million of mortgage loans of which $47 million related to our joint venture partner share of the loan on the capital Hilton and Hilton Wilhoit Torrey Pines. Our total combined loans at a blended average interest rate of 5% at year-end but after taking into account our recent refinancing along with the financing on of Ritz-Carlton Lake Tahoe, our…

Thank you, Deric. Comparable RevPAR for our portfolio grew 3.2% during the fourth quarter. However, for all hotels not under renovation during the fourth quarter comparable RevPAR grew by 7%. Our portfolio's comparable RevPAR growth led to a share gain of 2.1 percentage points relative to our hotels submarket chain scale. Holiday shifts did not significantly impact results during the fourth quarter and the government shutdown led to minimal impact in December. For the year, comparable RevPAR for the entire portfolio decreased by 1.6%. However this decrease represents 1.7 percentage point gains relative to our hotel submarket chain scale. In addition for the year hotel EBITDA flow through was robust at 137% leading to hotel EBITDA growth of $4.1 million. Park Hyatt Beaver Creek Resort & Spa completed its first full-year under our ownership. During the year comparable RevPAR decreased 2.3% primarily due to poor ski season weather and snowfall to the start of the year. However comparable RevPAR actually surpassed that of the Colorado Ski Area submarket upscale and above change by 5.2 percentage points. Numerous expansion projects at the property have also been approved including a ski valet locker room where each guest will have a private heated locker to store and drive their boots and other ski items. The major renovation of the lobby in Antler's Lounge will get underway this spring with the focal point being a completely redesigned Antler's Lounge with a newly built bar in the center of the room. A second fireplace will also be added to maximize warmth and ambience of the lobby especially during the winter season. Additionally, the front desk will be relocated to the center of the lobby and consists of three podiums where guests will register while seated comfortably. We anticipate these expansion projects will help drive future…

Thanks, Jeremy. While we were pleased with our fourth quarter and full-year performance, we're even more energized about our prospects of potential growth in 2019. While industry forecasts remain muted, our specific portfolio of investment should allow us to continue to drive material RevPAR growth and added profitability. This concludes our prepared remarks and we will now open the call up for Q&A.

Thank you. [Operator Instructions] And we'll go first to Chris Woronka of Deutsche Bank.

Hey, good afternoon, guys. Congratulations on a really active year. I wanted to ask about -- on the Ritz-Carlton, what kind of ramp-up you expect once that reopens later this year and can you still collect the BI insurance until it gets to your projected stabilized level?

Yes, this is Jeremy. I think what you would assume as it relates to the ramp-up insurance, I would assume that you don't put that in your numbers. We can continue to -- as it gets closer to the fourth quarter when the Ritz-Carlton St. Thomas opens maybe would give you a little bit more insight on that. But I'd expect it to be a pretty quick ramp. Personally, I mean, there's just been a lot of pent-up demand in the Virgin Islands. We're aware of, as you may know, through Ashford Inc., we have an investment called Red which does some boating activities and water sports activities at the [indiscernible], and my understanding is that they had a great first month of being open and servicing that hotel. So there's been strong demand there. We've seen strong demand in the adjacent residences. And so, with the new product and focus we're just kind of eager to get back to the Virgin Islands, I'd anticipate it's ramped pretty quickly. So I would say, you know, hopefully, we'd have a very strong first quarter of 2020 and you'd see some ramp in the fourth quarter. Hopefully, that answers your question.

Yes, yes, that's great color, Jeremy, thanks. And then just kind of similarly on the autograph conversions, are you able to kind of pre-sell those yet as autograph collections or do you have to wait? Just trying to get a general sense for the cadence of how those are going to ramp once…

Yes, that's a great question. And the answer is really yes and no. Yes, it relates to grow. We're definitely getting the sales team to quote higher rates for Group pricing, but as it relates to Transient, no we cannot market it as an autograph and we haven't even announced publicly what the branding of each of those hotels -- there's individual branding for each hotel -- at this point, but the Mayor will not allow us to market that as an autograph to Transient consumers until that completion is done. What I can say is we've done this before in Trans portfolio with the conversion of the Crown Plaza to Marriott Beverly Hills and the ramp was very strong and relatively quick. So we hope that we'd see something very similar in these two conversions as well. Keep in mind that our average booking window for our guests is really three weeks out. So I would just assume it would take at least a couple of months initially to at least start getting some better demand for the autograph, but you would anticipate probably a full six months to a year to get the full ramp.

Okay. Very helpful -- and just more of a strategic question now, I guess, you guys have continued to be pretty active on the asset front. What's the capacity or maybe the appetite to do more to the extent you find these hotels or resorts that are fitting your criteria?

Yes, thanks, Chris, it's Richard Stockton. Yes, I think we have been pretty active on the acquisition front as you said. And I think as we look to 2019, we're more likely to kind of digest those acquisitions and focus on our asset management initiatives. And we're definitely keeping ourselves apprised of the market, but we like where we are in terms of our leverage at the moment. And so we'll be focused on -- as Jeremy mentioned, the autograph conversions, bringing the Ritz-Carlton St. Thomas back online. As you know, we've got two potential residential development in Sarasota, and also at Lake Tahoe. And so we focused on that. So I think that'll be really the majority of our focus for 2019 at least and then come 2020 we'll say where things are at that point.

Okay, very good, thanks guys.

We will go next to Jim Lykins of D.A. Davidson.

Hello, everyone. First thing I want to ask you is -- and Richard just kind of hit on this at the very end, but at Tahoe what the thinking is right now for the number of townhomes you might be developing with the timeline might look like, and then also same question but for the potential villas at Sarasota?

Sure. So on Tahoe, we're currently about to kickoff our kind of concept design work. We've definitely done a lot of work on market feasibility. The plot of land that we have now was at one point entitled for up to 60 units, but that was more of a kind of a high-rise construct, and then there was another [indiscernible] done for 14. We think the right answer is somewhere in between. What we want to build there is very high-end luxury town homes at probably the highest price point that that market has seen to really appeal to the wealth coming out of the San Francisco kind of Bay area. Now, in order to build in Tahoe, you do have somewhat of a limited construction season given the weather. So I don't expect to be coming out of the ground before next winter. So we'll spend this year getting our architectural plans in place, et cetera to be in a position to build not this coming summer, but the following.

Okay.

So we're still a couple of years away from seeing the fruits of that labor, but rest assured, we're working furiously behind the scenes to prepare for that. In terms of the Ritz-Carlton Sarasota, obviously you can build any time you like, all year round. And we've made significant progress on our architectural planning and site planning there. And the hope there is to build approximately 60 villas, which we'll be able to start marketing hopefully at the end of this year. So there'll be some activity on site starting this summer on that project, but again, that's a project that you won't see come to fruition for probably two, three years once we look at absorption rates and construction types and timetables and the like, but we'll continue to keep you updated on that.

So it's probably way too early then for you to offer any kind of estimates on how we might want to think about returns for those projects?

Yes, that's right. To be safe, you can assume returns in line with what we've been targeting for our hotel investments. Hopefully, we want to exceed that. But that would be -- you know, just given our cost to capital that would be a safe assumption.

Okay. And then also Jeremy's last comment about significant CapEx reductions, any comment or any color on how we might want to think about what significant might be in 2020 and beyond?

I don't think we're prepared to give guidance on that right now as we sit in the first quarter of 2019. That's typically something we'd do basically fourth quarter or first quarter of next year. Probably fourth quarter of this year, but we're still kind of working through our capital plans, but I can tell you that we're just not going to have as much renovation activity than one you're going to see this year, especially from a CapEx perspective.

Okay. All right. Thanks, guys.

We will now take our next question from Michael Bellisario of Baird.

Good afternoon, everyone. Just on that last comment on Sarasota, did I hear that correctly that you'd consider that on balance sheet project and correct me if I'm wrong but I thought your original view there was to have a third-party take that risk?

Yes, as we looked at it, we realized that the capital outlay given that we can have construction financing in place that projects is quite minimal. And the time cost and disruption of bringing in some sort of a joint venture partner wouldn't necessarily make a lot of sense given the size of the project. Yes, that said the way these things are generally structured is you're essentially selling the land through a homebuilder who's your merchant builder and then they're going vertical with financing. So you're still working out all the details on that but we're not at this point looking to bring any sort of joint venture partner.

I guess maybe the high level just from a risk profile structuring it this way. Obviously higher risk, I would think but in terms of the amount of capital you'd have to keep on your balance sheet or deploy, it seems minimal given that it would be flip to the homebuilders that is the right way to think about it?

That's right. Yes, I think the amount of capital that we have to put into the project is going to be not much more than our original land purchase price.

Got it. That makes sense and then just high level on your underwriting. Maybe looking back on the last few deals you've done because you focused on some seasonal resorts that are pretty weather dependent. I guess how do you account for that risk and then the inherent cash flow volatility in your underwriting and how do you think about the risk premium that you associate to that cash flow profile for your particular assets the resort, the higher end properties that are pretty weathered?

Yes, so in terms of forecasting weather, we don't try to do that. So when we do our underwriting, we look at primarily a five-year forecast which is essentially other than really the very near term kind of the average performance over that five years. So we don't have to necessarily figure out when we're going to have how much snowfall just not for instance we just have to know that we're going to have snow over the next five years. In terms of pricing the risk, you mentioned you've got some weather dependent whether it's Sarasota or Mountain Resorts. You've seen well how we've priced it. We've priced to a 10% on levered return on these acquisitions with the benefit the RFP program, we're at 12% on Tahoe, we think we think that's a significant enough premium to our weighted average cost of capital to accommodate that risk. So that's how we've done it.

Okay, that's helpful and then maybe one for Jeremy maybe as best you can on a normalized basis because I know there are a lot of moving pieces last year and in 2019 what are you guys expecting for 2019 cost increases at the property level and then are you guys seeing any differences on the labor side or the cost pressure side between your resource and then your urban hotels?

Yes, that's a great question. It's markets that depend on a market-by-market. Certainly, we just went through you're probably familiar with the strike that happened in San Francisco, how it has impacted us in the fourth quarter at our Courtyard in San Francisco which started in October 4 and lasted through December 6. And we reached agreement on that CBA and I would say that the cost of benefits and wages over a five-year time period for that hotel is about 4% to 5%. The Seattle had a lot of cost pressures as well, so it will be another market that would be kind of closer to that range, when it comes to the resort markets, it's maybe a little bit less about cost pressure and it's just more about just getting labor and good labor at similar locations. So Tahoe is something that that they use a lot of contract labor and it's fairly expensive but I'll see a lot of cost pressures necessarily on a long-term basis there relative to maybe your Western markets that we have in the Braemar portfolio. Certainly there's a lot of living wage initiatives here to mirror about that the industry is dealing with across the country, but primarily in urban markets and in West Coast dominated markets.

Great, that's helpful. Thank you.

[Operator Instructions] We will now go to Bryan Maher of B. Riley.

Good afternoon. When it comes to the Courtyard Conversions to Autograph, in 2019 maybe this is a question for Jeremy. What are you thinking about in the way of disruption? Is it in level of magnitude similar to what we saw in 2018 so far, is it going to be more or less what are your thoughts there?

Yes, I can give you. Let me break it down a little bit for you, we're going to have two floors out at started the quarter right now, two floors out for most of first quarter and all of the first quarter and then most of the second quarter. So we're projecting to have the rooms done in early to mid June if everything goes well and turns our loss about call it 40, 40 or so days per room. We'll be done with guest rooms and then it will be completely follow up with the Lobby and the restaurant. And right now we're looking at June, July for the public space. And turning to San Francisco, we have go back in the guest rooms but we're keeping those very quick turns and we're doing it very selectively where we have availability. So our expectation is to have minimal room displacement throughout the year at Courtyard San Francisco. But there's going to be heavy disruption when it comes to the facade and the public space. But I think we do quite frankly a really good job in our stealth renovation program to mash that off from the guests as best as possible. It certainly is going to limit the experience at the hotel when you don't have as much public space available. But given the demand that we're seeing in San Francisco and particularly that heart of San Francisco, I'm hopeful that we really are not going to have a lot of disruption associated with the renovation in the Courtyard San Francisco.

Okay. And then moving on to villa development projects, I just want to be clear these are going to be what town homes that you're going to sell, they're not going to be villas added to hotel inventory, is that correct?

Correct, yes, I think we're hoping to entice the buyers into participation in rental program if possible and has a little bit subject to negotiation agreement with Ritz-Carlton but the idea is to sell them.

Okay. And then just lastly for me, you were starting to hear some of the companies we cover who had hits from the hurricanes over the past couple of years seeing their insurance costs go up. Are you seeing something similar at Braemar?

We had decent increases at the last renewal which is already kind of reflected in the fourth quarter, where our renewal is June 1. And so given that the recent hit that we had in terms of a spike in insurance, we're hopeful that we were going to end out of this on this renewal with modest increases, but it's difficult to say, we're just right at that time or we're finalizing our strategy, we've got all of our packets together or about ready to go to market. And so I think that certainly by the time we do our second quarter call which should be early May, we're going to have much more clarity on what we think that's going to be.

Okay. Thank you.

Yes, sorry. First quarter call of May is what I mean but in the second quarter of this year.

Okay, thanks Jeremy.

And we will now take a question from Tyler Batory of Janney Capital Markets.

Hi, good afternoon everyone. So just a couple of follow-up questions from me, first wanted to ask supply, I think in the past you guys talked about 2% supply growth going forward, so is there any change to that and you also talked about some of your markets that have a little bit of outsized supply in 2019?

Yes this is Jeremy, I can take that we were right almost in line with if you look at the Smith Travel projections it's just under 2% after the next two years and that's revenue weighted for all our hotels tells into and so we projected out for the next two years. And then in terms of markets it really for the first time, we're not seen a big outline it's pretty consistent ranging from low 1% to maybe as high as a just 4%. The market with the most applying and this was something that we affect into our underwriting is Sarasota and so we anticipated that in effect is starting a lot of it's already been is absorbed. And so over the next two years we're projecting 3% to 4% in Sarasota and that's the highest market.

Okay, got it. That's helpful and then I wanted to ask with other revenue on the income statement obviously the line item flat year-over-year which shouldn't have any BI running through that in the fourth quarter this year. So is there anything unusual that was driving that line item?

Let's see you're looking at other hotel revenues?

Yes.

That it was relatively flat.

I don't know how much BI we actually put in the fourth quarter of 2017.

You're asking why it was down so much or whether we had BI in Q4 of last year but not this year and why was relatively flat?

Yes, yes, I assumed that one have been down a little bit more just give it had I think you have a decent amount last year in the fourth quarter. That's correct.

It's a combination of the addition of the Sarasota Ritz-Carlton which we did not have in the fourth quarter of last year. And just lower what the last I guess higher revenue from the assets that were impacted that did not require BI.

Okay. That's not fair it was the Sarasota impacted but just want to double check on that. Let me through the last question for me -- for Jamie to just if you look at Key West obviously very strong RevPAR growth the second half of '18 has some favorable concert just given the -- I mean I really pretty much back to normal there in the market you know as far as trends that you're seeing and here maybe in the end of this year.

Yes, I think so. I mean if you go back to 2015 for when QS more less peaked, if you recall in '16 we had a little bit of impacts from -- and then obviously '17 was hurricane Irma and so there's heavy impact actually over the last two years and so we're starting to see that surge in demand come back to the market and some market that we tend to be long term bullish on given the fact that you not going to see any supply that comes into it. So I think it's safe to say that it's more a normalize state going forward.

And with that, thus concludes today's question-and-answer session. I would like to turn the conference back over to management for closing remarks.

We'd like to thank you all for joining us on our fourth quarter earnings call this afternoon. And we look forward to speak with you again next time. Thank you.

And with that ladies and gentlemen that does conclude today's call. We thank you again for your participation. You may now disconnect.