Greetings, and welcome to the Braemar Hotels & Resorts, Inc. Second Quarter 2022 Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Jordan Jennings, Manager of Investor Relations. Thank you. You may begin.

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the second quarter of 2022 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, Senior Vice President and Head of Asset Management. The results as well as notice of accessibility 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 a 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 August 3, 2022, 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 information provided in the release. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning, and welcome to our second quarter earnings conference call. I will begin by providing an overview of our business and an update on our portfolio. After that, Deric will provide an overview of our financial results, and then Chris will provide an update on our asset management activity. Afterward, we will open the call for Q&A. We have 4 key themes for today's call. First, our luxury resort portfolio continues to outperform and help drive comparable hotel EBITDA of $57.4 million for the quarter, an increase of 42.7% versus the comparable quarter in 2019. Second, we continue to generate strong cash flow with approximately $27 million of cash flow generated in the second quarter after CapEx and preferred dividends. Third, our portfolio is well positioned to continue to outperform with very strong forward bookings as we are now seeing corporate transient and group business accelerating in their recovery on top of the already strong leisure segment. And fourth, our balance sheet is in good shape. We have no remaining final debt maturities in 2022. We're extremely pleased with our strong second quarter and continue to see outperformance compared to 2019. Our comparable hotel EBITDA of $57.4 million during the quarter was driven by strong occupancy levels at our resort properties. Additionally, RevPAR for all hotels in the portfolio increased approximately 43% for the second quarter of 2022 compared to the second quarter of 2021. And our comparable portfolio RevPAR increased approximately 28% when compared to the second quarter of 2019. Most encouraging, our urban hotels generated $20.3 million of comparable hotel EBITDA in the second quarter compared to negative $0.1 million in the first quarter. We've been saying that the recovery in our urban hotels will be the next phase of growth for our portfolio, and we started…

Thanks, Richard. For the second quarter of 2022, we reported net income attributable to common stockholders of $10.3 million or $0.12 per diluted share. For the quarter, we reported AFFO per diluted share of $0.37 compared to AFFO of $0.20 per diluted share in the prior year quarter, reflecting a growth rate of 85%. Adjusted EBITDAre for the quarter was $50.1 million, which was 53% higher than what we reported in the second quarter of 2019. At quarter end, we had total assets of $2.1 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 at a blended average interest rate of 4.3%. As of the end of the second quarter, we had approximately 42.7% net debt to gross assets and continue to make progress in our deleveraging efforts. We ended the quarter with cash and cash equivalents of $251 million and restricted cash of $48.1 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 $19.1 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. As Richard mentioned, our comparable hotel EBITDA during the quarter was $57.4 million, after taking into account debt service, G&A costs, advisory fees and other corporate costs, preferred dividends and capital expenditures. For the quarter, we generated approximately $27 million of positive cash flow. On the capital markets front, while we did not complete any financings during the quarter, we have an attractive maturity schedule with our next final maturity not until April 2023. I'm also…

Thank you, Deric. Comparable RevPAR for our portfolio increased 43% during the second quarter relative to the same time period in 2021. When compared to 2019, our portfolio recorded 28% RevPAR growth during the second quarter. The outperformance of this portfolio is evident when you contrast our portfolio to the market as a whole with the U.S. luxury chain scale market having only increased 13% over 2019 RevPAR and the upper upscale chain scale having only recovered 99% of 2019 RevPAR levels. Our resort assets are thriving with hotel EBITDA having grown by over 105% during the second quarter relative to comparable 2019. A number of these resorts have even set recent performance records. We are also pleased with the recovery of our urban assets, with their second quarter hotel EBITDA having recovered 92% relative to comparable 2019. I would like to spend some time highlighting some of the successes we are seeing in our portfolio. The Ritz-Carlton Sarasota completed the best second quarter on record with $9 million in hotel EBITDA. That is a 16% improvement over the second quarter of 2021, which was a previous record. The asset management team completed an extensive asset deep dive during the acquisition process and identified a number of opportunities. We are now seeing the long-term benefits of that work. The first being the resort membership program, which has now sold out and generates approximately $6 million a year in long-term revenue. Another project, which was completed in December was the addition of 10 keys and underutilized hotel space. These additional keys are allowing us to capitalize on strong demand in the market. With these and other long-term initiatives in place, we anticipate that this hotel will continue to outperform. In our first full quarter of ownership, the Ritz-Carlton Reserve Dorado Beach…

Thank you, Chris. In summary, we continue to be pleased with the trends we are seeing at our hotels driven by strong leisure demand in our luxury resort properties and recovery of our urban properties. We see a clear path for continued strength in our future financial results. We're well positioned moving forward with a solid balance sheet and a unique diversified portfolio. 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.

Our first questions come from the line of Tyler Batory with Oppenheimer.

First question for me on the operations side of things. Nice to see the improvement in the urban assets. Can you talk a little bit more about your expectations for those hotels the rest of this year? And in particular, I'm interested in your view and your perspective on San Francisco as well?

Yes, I can take that. Thanks, Tyler. We've been really happy with just the continued rebound of our urban hotels. I mean, they continue their trajectory really well. Just to kind of put it in context, they've outperformed each month through this year. In January, they were at about 44% at 2019 levels. You fast forward to June, we were at 91% of '19 levels for our urban hotels. There's no signs of that slowing down. Corporate travel remains strong. It's very short term in terms of a booking window standpoint. Our group pace remains strong. ADR is very favorable as we look ahead. And so we expect that trajectory to continue and ultimately to kind of exceed historic levels. In terms of San Francisco, we're seeing some favorable things out of that market. June was the first month that the hotel exceeded 2019 room revenue at The Clancy. It was driven by ADR, which is great to see. We had an RSA citywide in June. It's usually in February, but it shifted due to COVID, produced nearly 800 room nights for the hotel. We're starting to see healthy signs out of San Francisco in terms of corporate travel coming back. Deloitte and Salesforce, which are big accounts for that hotel, are starting to travel again. Labor has been a challenge in that market. Staffing has been a challenge. Long-term citywide pace remains a challenge, but we're seeing favorable trends out of our short-term group business in that market.

Okay. Great. Switching gears a little bit. In terms of the non-traded preferred, is there a reason why you were able to raise so much in July compared with Q2? And is there a way to think about a monthly run rate perhaps that might make sense in terms of how much you might raise going forward?

Tyler, this is Deric. I'll take that. We do close this every 2 weeks. So it's -- and the offering will be open really through February of next year. And the process for that is you build a syndicate of broker-dealers, and those syndicates then have brokers that are out selling that security to their investors that keep capital with them. And over time, you add more and more dealers to that syndicate. And so that's why you've seen the dollar amount grow over time, and that's what we expected to happen as we proceeded with the offering. In that space, you may or may not be aware that there was another REIT that issues non-traded preferred. It was called Preferred Apartment that ended up going private. And those investors got their capital back, and we are there with an open offering as an alternative to redeploy that capital. And I suspect we saw some of that capital come back in, in July. And that may continue to be the case for a while. It's hard to know, but it's really difficult for us to give any guidance in terms of what the path or amount of future capital raising could be, but we will just announce that as it comes in.

Okay. Great. And then just last question for me. In terms of acquisitions, what does the pipeline look like right now? What sort of opportunities are out there? And what are you seeing in terms of pricing and expectations for pricing as well?

A lot of questions in there, Tyler, but happy to take that. Well, I'll make a couple of comments about the acquisitions in the market. First is we've probably only seen about 15% or 20% of the opportunities that we reviewed actually trade. What's been happening is you've got sellers that have come to market this year, and with the pricing in the debt markets and the availability of financing, a lot of the buyers have pulled back. And so on the 1 hand, that's discouraging. On the other hand, that creates an opportunity for us because we're not necessarily going to rely on property-level mortgage financing for our next acquisition. And one of the benefits of this non-traded preferred program is we have ample liquidity then to pursue acquisitions on an unencumbered basis and still achieve a spread in our returns relative to that cost of capital even without debt. So we are looking at those opportunities. There are a number of things. At any one time, we're evaluating 10 or so different acquisitions. It's a combination of urban and resort. There's not necessarily 1 theme. Of course, everything that we look at is luxury, but we're trying to focus on acquiring income in place, and we continue to have the discipline of targeting unlevered IRR of at least 10%. The pricing in the market, I think, it's moving a little bit in our favor, just kind of given the lack of leverage buyers that are out there. So I feel like we have a little bit more influence in the negotiation than we had, say, even 3 months ago. But in terms of very specific pricing, it's case by case and property by property we'd have to discuss. But I can just tell you what we're targeting our returns.

Our next question comes from the line of Michael Bellisario with Baird.

And just on capital allocation first, I know it's a Board decision, but maybe can you provide some context on how you're thinking about the trajectory of the common dividend in light of how strong fundamentals within your portfolio are today?

Yes, sure. I'll take that. Well, first, we've always said -- or not always, but at least in the last 18 months. We said we kind of assess dividends on the basis of our own financial standing, but then also what our peers are doing or able to do. We're using the opportunity that we have right now, generating a lot internally, generating cash flow to deleverage. We've said that we want to target 35% net debt to gross assets. We're sitting a little bit above 42% today. So I'd say that's the priority for the company right now. I think once we achieve that, the Board will reexamine the dividend policy. But I think getting to that leverage that we stated we were targeting is the preferred route right now.

Got it. Understood. And then just back to transactions. I guess, kind of a tougher question to answer because you are raising the non-traded preferred. But maybe if you weren't raising as much and you didn't have as much capital coming in the door, do you think you would be as aggressive on the acquisition front? I sense -- and maybe I'm wrong here, correct me if I am, that you seem a little bit more optimistic and upbeat that maybe you can put some capital work today versus, call it, 90 days ago? But kind of in the context of if you weren't raising as much non-traded preferred, do you think it'd be as aggressive on the acquisition front today?

I think we would. We're always, I don't want to say equally aggressive on the acquisitions front. When markets are up, markets are down, sentiments in favor or out of favor, it's always worth looking at as many opportunities as you can and see if you can get the returns to work. And we don't turn off or turn on our acquisitions team or our effort because I think if you do so, you could be missing out on some opportunities. We have a small enough portfolio, and each acquisition is important enough to it that we look at it on a case-by-case basis. We're not just buying the market or not buying the market in certain periods of time. So that's how we think about it. So we're looking at as much as we ever have right now, and we've got a full acquisition team cranking away. I think even if we weren't raising that trade preferred, we'd be doing the same thing. And then looking to partner with other capital sources to make those deals happen. But we don't want to miss any good deals in -- regardless of where we are in the market.

Got it. And then just one follow-up there. I know you mentioned your focus on the acquisition front on current yield. Can you maybe provide some round figures or ranges on kind of what that would be in year 1? I know you mentioned 10-plus percent unlevered IRRs. But how should we be thinking about, call it, year 1, year 2 cash flows relative to the dividend that needs to be funded on the non-traded preferred that's closer to 8?

Yes. Historically, we've always started a minimum initial yield unlevered of 6%. I think what we're finding now is you've got particularly urban properties that are still rebounding. And so I've been a little bit willing to accept a slightly lower initial yield for a property where we've got visibility that, that income will be forthcoming in another year or 2. So if I were to kind of take that down to 5%, I think that's reasonable where we are in this market. And then conversely, some of the resort opportunities we're seeing industry yield is even higher because their performance has been so high relative to historic that you can lock in a higher initial yield today, which still looks very attractive to the seller on the basis of, say, 2019 numbers. So hopefully, we'll continue to be able to average that 6%, depending on the opportunities, but it really depends which acquisition opportunity is hit.

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

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

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.