Good day ladies and gentlemen and welcome to the Braemar Hotels & Resorts Incorporated First Quarter 2019 Results Conference Call. Please note today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jordan Jennings. Please go ahead ma'am.

Good morning and welcome to today's call to review results for Braemar Hotels & Resorts for the first 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 was the 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, 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 Regulation. 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 May 1st, 2019, and maybe also 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 first quarter results. In January of 2017, we announced a revised strategy with a focus of investing in the luxury hotel segment. Since that time, we have taken concrete steps to realign our portfolio to the strategy including selling two non-core properties, announcing an agreement to up brand two properties and acquiring four high quality luxury properties. We're excited about the meaningful progress we are making and believe the continued execution of this strategy will lead to solid growth and strong financial performance for the Company going forward. Our strategy to focus on the luxury segment of the hospitality market continues to be supported by the current performance of this segment. Periodical evidence has shown that over the long term the luxury segment has had greater RevPAR growth than the other lodging segments. Looking ahead, the economic outlook continues to be favorable and consistent with our long term growth thesis for luxury, STR and other forecasters are predicting the luxury sector to outperform the modest RevPAR gains expected in 2019 for the industry. By clearly aligning our platform with this segment, we believe Braemar is well positioned to capitalize on these trends and continue to outperform our REIT peers. Before turning to our operational results, I'd like to take a moment to discuss the key highlights of our Enhanced Return Funding Program or ERFP with our advisor Ashford Inc. that we announced in January of this year. The ERFP is a $50 million funding commitment that's provided to Braemar to facilitate accretive growth. Simply put, Ashford Inc., contributes 10% of the purchase price of qualifying acquisitions up to the agreed maximum funding commitment. The program has a two year term with one year renewals and the ability to be up…

Thanks Richard. As Richard mentioned, during the first quarter, we recognized $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 month of December 2018 through February 2019 and we expect business interruption income to continue until at least the reopening of the hotel as a Ritz Carlton which is anticipated to occur in October of this year. As a reminder, in the prior year quarter, we recorded business interruption income of $4.5 million at the Ritz-Carlton St. Thomas, $360,000 at the Pier House resort, $958,000 at Bardessono and $800,000 at Hotel Yountville for a total of $6.6 million. For the first quarter of 2019, we reported a net loss attributable to common stockholders of $3.5 million or $0.11 per diluted share. And we reported AFFO per diluted share of $0.44. Adjusted EBITDAre for the quarter was $34.8 million which reflected 15.3% growth over the prior year quarter. 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 4.8%. Our loans are entirely floating rate and the vast majority of interest rate caps in place. As of the end of the first quarter, we had approximately 46% net debt to gross assets and our trailing 12-month fixed charge coverage ratio was approximately 1.8 times. Our next loan maturity is not until March of 2020. Our cash and cash equivalents at the end of the quarter was $74 million with an additional $86 million of restricted cash. The…

Thank you, Deric. Comparable RevPAR for our portfolio grew 3% during the first quarter. Our portfolio's comparable RevPAR growth led to share gains of 3.7 percentage points and 1.5 percentage points relative to both the luxury chain scale nationally and the total United States respectively. In addition, first quarter comparable hotel EBITDA was relatively flat decreasing 0.6%. The government shut down at the beginning of the quarter impacted January and February leading to about $170,000 less in revenue. Easter occurring later in April benefited March this year relative to 2018. During the quarter, hotel operating income flow through was robust. However incentive management fee increases primarily at the Courtyard San Francisco and property tax increases at Ritz-Carlton Lake Tahoe, Sofitel Chicago, Ritz-Carlton Sarasota and Courtyard Philadelphia impacted hotel EBITDA flow through. Excluding the aforementioned increases in non-operating hotel expenses, hotel EBITDA flow through would have been close to 40% for the quarter. As mentioned on our call last quarter, signs were pointing to early results from our most recent acquisition, the Ritz-Carlton Lake Tahoe exceeding our initial expectations. Not only was January a strong month but the hotel was our portfolio's best performing asset during the first quarter. Snow accumulation began early in November and favorable conditions persisted throughout the first quarter generating incremental business during ski season. The hotel's comparable RevPAR grew 32.8% during the first quarter driven by rate growth of 21.8% and occupancy growth of 9.1%. This robust RevPAR growth resulted in the Ritz-Carlton Lake Tahoe increasing its share relative to both its competitors and the California North luxury class market by 30.7 percentage points and 28.3 percentage points respectively. Significant changes to product merchandising, suite premiums and effective pattern management, all contributed to the growth. In addition, a successful mix shift from group to transient helped…

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

[Operator Instructions] Our first question today will come from Tyler Batory with Janney Capital Markets. Thank you again.

Hi, thank you guys. Good morning, everyone. So wanted to - so the first question probably for Jeremy or Richard and you guys kind of addressed this in the prepared remarks, but I think there's some concern out there from some folks about some of the softness in the luxury chain scale during the first quarter. And you know, obviously you guys have a number of moving pieces in your portfolio and you're outperforming the industry, but can you talk a little bit more about demand generally in your portfolio? Are you seeing any change or any trends that are worth calling out either from a positive or negative perspective with respect to demand?

Sure, Tyler. Thanks for that question. Look, I think we see the same industry numbers coming through very recently that you have. You know, I would say that it feels a little flattish for the market generally and you hit on the right point there. You know, we've got so many things going on in our portfolio, that's not necessarily something for us to be very concerned about. Just given our conversions coming online this year, reopening of Ritz-Carlton St. Thomas etcetera. So, I think we've got the potential to zig while others are zagging, just based on the composition of our portfolio.

I'd add this, Tyler, we gained market share in the first quarter despite a lot of the noise that we had, especially with Philadelphia having a tremendous amount of displacement during the renovation. So we were pleased with our results.

Okay great. That's very helpful and then, you know, I wanted to ask a little bit on the capital allocation too. I mean you're near the net debt to gross asset target you guys have put out, and I understand the focus this year on asset management and whatnot. But, any update to how you're thinking about capital allocation, just given the strong performance of your stock so far this year?

Yeah, I think you're correct in saying that we're essentially at our leverage target, right. So, if we were to make an acquisition, it would have to be extraordinarily compelling just using your cash on the balance sheet. And that's not - that's really not our intention based on what we're seeing out there. The acquisition market continues to be very competitive. We don't see a lot of opportunities where outsized returns are available. So, as we look at our capital allocation, we will say the debt markets continue to be very strong, very inexpensive. For us, given the share price performance year to date, as I'm sure you are well aware, our equity cost of capital has come down considerably. But we would need to weigh that against the available returns for the opportunities, that we're seeing. And so, we would only ever consider raising any more equity if it were to be deployed to accretive opportunities. So, I think that's now how we've always thought about it, how we continue to think about it, and how we're looking at 2019.

Okay great. That's all from me. Thank you.

Thank you. Next, we'll hear from Jim Lykins with D.A. Davidson.

Hey, good morning, guys. First of all, you hit some pretty healthy RevPAR numbers at the Ritz Tahoe. Just thinking about that going forward, any commentary on how we should think about RevPAR lagging the snow benefit that you mentioned?

Yeah, this is Jeremy. I'll comment on that. We don't really give guidance. We don't give guidance on the individual asset performance, but one of the things that we encumbered during the underwriting for this asset was that, that Marriott and the Ritz team did not really sell a lot of group for April and May of this year because the previous owner had, had discussions although I don't think it was really agreed upon of potentially renovating the hotel. We think rooms are in great shape. And so, we're working with the Ritz-Carlton team to kind of do the best we can to kind of get short term group into the hotel. But I would expect it to underperform at least in the next few months, just because of that nuance. That was something we knew going into it and it's - so it's just something we have to deal with.

Okay.

Just to add Jim, and you set up the question on snowfall. Colorado had 600 inches of snowfall this year versus an average of closer to 300. And so while it's been great for us in the first quarter, it sets up a very difficult comparable for 2020. And so we're definitely aware of that, but we're going to try to manage our bookings accordingly.

Okay, that's helpful. And also I believe there was supply coming into Seattle. Any comments on supply just in the aggregate and if there are any other markets in your footprint you're concerned with right now?

Yeah. This is Jeremy. I gave you - if you take a global look at supply and where our portfolio is and our markets or track the hotels we compete against, we see it coming down, concerns are rising and continue to rise and hotel performance isn't as robust maybe as it's been in the last several years. So it's being very difficult for our folks to underwrite and develop new hotels. But we've absorbed a decent amount of supply over the last few years within the Braemar portfolio and even specifically just over the last six months, we've had 4.5% growth in new supply. But when you look forward over the next 24 months, we think it's going to be under 2%. So, and then your question on Seattle, that was a market certainly that did impact the first quarter. The supply that has occurred with Hyatt which is relatively close to our hotel and that has been a little bit of a challenge. But on a go forward basis, we're seeing that come down in that market as well. So I think overall, from a supply look, specific to our portfolio, we feel pretty good about it.

Okay. And one last one from me. Beyond the two conversions in the Ritz St. Thomas, are there any other significant renovations you guys see out there on the horizon?

Not anything to comment on right now, there are some things that we were contemplating potentially for next year, but we don't know if we're going to do it next year and/or extend it to another year. So there's some space holders more or less. And I think in the upcoming quarters we can give you more information. But I think that we're absorbing a very unusual heavy construction year for us. And like I said I was pleased in the first quarter that we were able to still gain market share while including the impact of Courtyard Philadelphia.

And Jim one thing you'll have seen in our earnings release is that we'll have the Park Hyatt Beaver Creek under construction in the second and third quarter. But that's more common areas. That's for an improved front desk experience, lobby, central bars, you know as Jeremy mentioned. So we're not anticipating that to drive any dislocation, but really just further upside from that asset.

Okay. Great. Thanks guys.

[Operator Instructions] Our next question will come from Chris Woronka with Deutsche Bank.

Hey, good morning guys. Can you remind us how the I guess hand-off or transition is going to work once St. Thomas reopens in terms of how the - you might continue to collect BI proceeds until it gets fully back to stabilize?

Yeah, well, the current policy provides for that opportunity to collect BI post opening to the extent there is still some market disruption and it's contingent on whether or not, you have already hit a cap under the policy and subject to the performance of that asset. So, you know, I think, as we look at it we're pretty optimistic that demand is going to come back to St. Thomas very quickly and in fact they're already operating at 80% back to St. Thomas is expected to be 100% by this winter - this next coming winter. So all the other main infrastructure elements whether it's power, seaports, etc. are essentially all back up to a 100%. So really the only thing missing in St. Thomas is the availability of hotel rooms. So, we're hoping to open up a new, a strong book of business and if not, the BI policy that we have is there. But we'll see if we need to use it.

We do have a great sales team at that hotel. The team was there prior to the storm and he's done a good job building a good book of business. So we're pretty excited as the hotel reopens.

Okay great. And then I want to ask about the Courtyard San Francisco, it's going to Autograph. Obviously, really, really great numbers this quarter, good market. Does that, you know, is how strong it was just still the Courtyard is that, do you have to underwrite it differently, I mean - I have to assume there's some impact on next year even though you're going to get a lift from converting to Autograph, right? The comp is going to be so tough or are you kind of underwriting on top of what you're seeing this year?

I think there's going to be a lot of wind to our backs with San Francisco, the convention calendar still remains strong. There's just a lot of demand generators around that hotel and we're very, very excited about the rebranding. So, I think that we would expect to continue to see a positive lift. We are benefiting, because we've got a great room product right now. And so, folks are experiencing that, but without the lobby and public space, it's been under heavy construction, we're not getting the full benefit plus the branding of the Autograph, which we're very, very excited about.

Okay. And then just any update on the - some of the real estate initiatives you were looking at in Sarasota? I know there's a lot of moving parts there, but is there anything - is timing on that getting any closer into view?

Yes. Work continues on our two residential development projects, are very small projects, Ritz Carlton, Lake Tahoe and Ritz Carlton Sarasota. Yeah, we're making progress on the site plan. We're making progress with architects, we're making progress with the Ritz Carlton. It is a long process and there is permitting that's required. And so, we're not expecting really to be moving any dirt on those projects at least until next year. And as we get through this year and we get our permits in place, we'll be able to give you more of an update. But there's going to be really negligible financial impact this year and then as that becomes more of a reality, next year, we'll have a probably more specific update that we can give you.

Okay. Very good. Thanks guys.

Thank you. Our next question will come from Michael Bellisario with Baird.

Good morning, everyone.

Good morning.

Can you maybe give us a sense of what you saw start to finish throughout the quarter in terms of group booking activity for the quarter and into the future periods to maybe how that tracked as the quarter progressed really just thinking about it from the broader market [indiscernible] back at the end of the year and how that impact customers booking behavior?

Yeah, I think that, I think what I would say specifically is that, February was the strongest month of the quarter and March was relatively flat. It was just slightly negative. But during March is where we had the vast majority of the impact of our Courtyard Philadelphia renovation because it's such a seasonal hotel we had a tremendous amount of rooms out of inventory. So when you adjust for that, we probably would have March very commensurate with what January's RevPAR growth was. So as far as bookings, I haven't seen anything that's really a big change from month to month. I think the only thing is - is that during the quarter the biggest impact was March from a renovation. I don't think there's anything gleaning into it in terms of forward looking growth though.

Okay. And then just on the operational side. Can you give us an idea of what you're hearing from your operators kind of on the ground view of things in terms of their level of confidence. How they think about their ability to push rate today and then all the brand changes that have been implemented, you know, with the revenue side of things? I guess, have you seen those changes start to lead to better results and what your operators are saying on that front?

Yeah. Let's take that in two segments. I'm going to let Richard talk about maybe from RevPAR perspective, but I'll talk about on the cost side is that, we could eat out cost pressures. I mean we're seeing probably 4% to maybe slightly north of 4% growth in wages and benefits and we're doing a lot of things to kind of mitigate some of those cost increases. But there are a lot of operating [indiscernible] if you look at the first quarter, even the follow through wasn't great because of the increase in property taxes and the increases in incentive fees, the P&Ls of the hotels performed really, really well. And that's a reflection of a lot of the initiatives we're doing. So I think we're doing a good job to drive margin within our hotels and we're having some challenges and headwinds of some things that we really can't control which is you know, jurisdictions on property taxes and some contracts obligations we have with Marriott as it relates to incentive fees. But as it relates to RevPAR growth, we can talk maybe a little bit in the second quarter. I'll let Richard handle that.

Yeah, I mean just to make a comment on March, if you haven't already you'll see our margin performance and yes, it's a little bit off, but really negligible decrease in margin. So I think we have as - as Jeremy said, we have managed those increased costs which we wouldn't expect to be recurring things like property taxes can't go up, the amount they've gone up every year. In terms of top-line, look, I think as we're looking at this quarter it's shaping up very flattish year-over-year. So, that's somewhat to do with our property and Philadelphia having so many rooms out of service and then hopefully as that fixes itself and we get those rooms back online in the third quarter, we'll be performing more strongly. So, I think that's the very near term outlook. But as I said, we've got so many internal projects that are going to drive our performance for the full year and into 2020. We feel pretty good that we'll be able to outperform the market generally.

Got it. That's helpful. Then maybe to ask it a different way. Just the focus on the top-line from your operators, the people who are setting rates. I mean, do you sense they have increased confidence, to be able to push rate any differently today, than they did a couple quarters ago, for example?

I haven't seen anything that's really changed confidence levels materially. We've continued to push rate. We had a decent increase in rate in the quarter, but I don't think that there's necessarily been a change in sentiment, one way or another. Did that answer your question?

Yeah. Thank you.

Thank you. Next we'll hear from Bryan Maher with B. Riley FBR.

Good afternoon. Just one housekeeping item first. Did I hear correctly that San Francisco, you've spent about $25 million so far and there's $32 million to go is that correct?

Well, it's for both projects, as for both Philadelphia and San Francisco.

Thanks. And then maybe this is a question for Deric. So, there was about $6 million in BI for St. Thomas this past quarter, but $4.5 million in the prior year quarter. How does that work? How should we think about BI and the ability to kind of consider what that might be, or do we just have to guess?

Yeah, I think for the second quarter of this year, I think BI for St. Thomas will probably be pretty consistent with what it was last year in the second quarter. I mean, it's a function of what's going on at the property like as Jeremy mentioned, the property was closed for part of the quarter and the first quarter. So BI there were some operating costs going on there that made the BI for Q1 be a little bit more than it was last year. But I would point out that also in the second quarter of '18, we had about $3.5 million of BI at other properties that we will not have in '19, in the second quarter. So, that's in terms of the modeling, that's something else to keep in mind.

Okay. And then you mentioned a couple of analysts ago, that there was a cap for the BI insurance and so - can you share with us what that cap is and how close to that you are?

I don't think we're going to share the cap on our program, we have a combined program between Trust and Braemar, but what I can tell you is that, we feel very good as it stands today that we'll be able to complete the renovation within that cap. The question is, if there is some extended loss beyond the cap, will we be able to recognize all of that or what part of that would we recognize? But, if you look at the quality of the renovation and what we've been able to achieve with the carriers, I think we're in a really, really good spot, given all the adversity we've had with this asset.

I think just to echo what Rich said earlier in terms of the expectations for BI going forward, I think if you look at 2018 by quarter, that's probably a good reference point. But, then once the property reopens post renovation, we expect it to ramp up pretty quickly.

Okay. And then lastly from me, and I know you guys don't die, but I think that you've given this type of information before. When we look at the Ritz-Carlton Lake Tahoe and granted there was a snowfall aberration this year, how should we think about the seasonality of that asset? Obviously the winter is stronger than the summer, but can you share with us how we should think about maybe the EBITDA seasonality of that property?

You know, it's not something we have handy, Bryan. I think you know, as it relates to if you're going to look at like the Park Hyatt Beaver Creek, I'd say that Tahoe has a little bit stronger summer than Beaver Creek does. Obviously, the shoulder of - second quarter is going to be a little bit more challenging, as Jeremy mentioned, the second quarter at Tahoe, we kind of know we're stepping into it what we book of business there and we're doing our best to ramp that up. But not really prepared around on the call to give you quarterly seasonality for that individual property.

Okay. Thanks, that's all from me.

Thank you. And at this time we have no further questions in our queue. I would like to turn the conference back over to management for any additional or closing remarks.

Okay. Thank you everybody for joining us on the call today and we look forward to speaking with you again very soon.

Thank you. And again that does conclude our conference for today. We thank you for your participation.