Greetings and welcome to the Braemar Hotels and Resorts, Inc. Third Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jordan Jennings, Manager, Investor Relations. Please go ahead.

Good morning and welcome to today’s call to review results for Braemar Hotels & Resorts for the third 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, Executive Vice President and Head of Asset Management. The results as well as notice of the 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 solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which could 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 2, 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 other 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 third 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 a review 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 four key themes for today’s call. First, our luxury resort portfolio continues to outperform and help drive comparable hotel EBITDA of $40.7 million for the quarter, an increase of 23.5% versus the comparable quarter in 2019. Second, we continue to see strong momentum in our capital raising for our non-traded preferred stock which is allowing us to go on offense and grow our portfolio during an during an attractive time in the cycle. And we are excited about our recent announcement regarding our agreement to acquire the Four Seasons Resort Scottsdale at True North. 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, and we have no remaining final debt maturities in 2022. Before diving into our hotel performance for the quarter, I’d like to spend some time addressing two items that impacted our AFFO in the quarter. Interest expense and non-traded preferred equity dividends, our AFFO per share for the third quarter was $0.16 compared to $0.17 for the prior year quarter. First, our interest expense in the recent quarter was higher. Our weighted average interest rate at the end of the quarter was 5.5% versus 2.6% in the prior year quarter. This is a result of our strategy of utilizing capped…

Thanks, Richard. For the third quarter of 2022, we reported net loss attributable to common stockholders of $14.1 million or $0.20 per diluted share. For the quarter, we reported AFFO per diluted share of $0.16. In previous quarters, we had included the as-converted shares associated with our Series B convert preferred stock and our convertible notes and our fully diluted share count for purposes of calculating AFFO. Beginning this quarter, we are no longer including those shares and will only include those shares upon conversion. We believe this practice is more consistent with how our peers report and we believe it will make it easier for analysts and investors to model the company’s performance. Adjusted EBITDAre for the quarter was $34 million, which was 19% higher than what we reported in the third quarter of 2019. During the quarter, the company booked an accrual of $5.2 million in G&A expense. This accrual is in anticipation of the true-up for the Ashford Securities contribution plan that the company expects to happen sometime in 2023. The true-up is based on actual capital raised through Ashford Securities and will be split between Braemar, Ashford Trust and Ashford Inc. Excluding that accrual, our corporate G&A was consistent with recent previous quarters. At quarter end, we had total assets of $2.2 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 5.5%. We have interest rate caps in place on 75% of our floating rate debt. Taking into account the current level of LIBOR and the corresponding interest rate caps, approximately 41% of the company’s debt is effectively fixed and approximately 59% is…

Thank you, Deric. Comparable RevPAR for our portfolio increased 19% during the third quarter relative to both the same time period in 2019 and 2021. The outperformance of this portfolio during the third quarter is evident when you contrast our portfolio to the market as a whole with the U.S. luxury chain scale having only increased 9%, in the upper upscale chain scale having only increased 1% over comparable 2019 RevPAR levels. Our resort assets are thriving with our resort hotel EBITDA having grown by over 74% during the third quarter relative to comparable 2019. We are also pleased with the third quarter performance of the portfolio’s group pace, recent acquisitions and a number of record-setting results. Group room revenue for the full year is pacing ahead of 2019 by 2%, with the third quarter actualizing ahead of 2019 by 12%, the collective lead volume for the portfolio has improved every quarter this year compared to 2019, and we are seeing a much shorter booking window relative to 2019, which bears with it the ability for more nimble pricing strategies. Group rate actualized for the third quarter, 20% above comparable 2019. We are also seeing an acceleration in our group booking volume with group room revenue booked during September, exceeding 2019 by approximately 86%. In fact, we already have more group room revenue booked for the fourth quarter than we did during this time comparable 2019. Our urban hotels have been some of the larger beneficiaries of our accelerated group success. We entered 2022 with all urban hotels below comparable 2019 RevPAR levels. As we stand now, in September, two-thirds of the urban assets are ahead of comparable 2019 RevPAR. One of those hotels is a recent acquisition the Mr. C. Beverly Hills. During the diligence process, our team created…

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 are 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 the call up for Q&A.

[Operator Instructions] We have our first question from the line of Tyler Batory with Oppenheimer. Please go ahead.

Good morning. This is Jonathan on for Tyler. Thank you for taking our questions. First one for me is a multipart question on margin and labor costs. And can you provide some color on FTEs versus pre-COVID and how the margin compared to this quarter?

Excuse me, Tyler, this is the operator, I am sorry to interrupt. You may want to use the handset or come a little closer to the mic. We can’t hear you very well. Thank you.

I think we did hear enough of it. I think the question is on labor costs. And I think I will have Chris respond to that.

Yes. Thanks for the question, Jonathan. So, there is certainly a lot of pressure as it relates to margin and labor costs. There is a lot of challenges there, right. So, wages are increasing. We are seeing wages up over 30% to 2019 levels. The labor market is very challenged. We are having to use more contract labor than we have in the past. The inflationary pressures are driving up the cost of nearly everything we bought. We are seeing increases to utilities. There is a lot of headwinds there. With that said, we are very pleased to see that our EBITDA margin is up to 2019. And so despite those headwinds, we have been able to navigate them. And our focus in doing so has really been on driving ADR. ADR flows at a very high rate, and our portfolio is up 35% in ADR to 2019. Another area of focus for us has been ancillary revenues. We hear from our customers that when they travel to these incredible resorts, they want a great experience. They want great offerings and they are willing to pay for it. And so we have kind of mirrored those two and had a heavy focus on our ancillary revenues and offerings, and we are up 17% per occupied room to 2019. Those things have helped us preserve margin. But the other thing is our labor and staffing models. And labor is one of the highest costs our hotels incur. We have been very diligent in working with our management partners in terms of ensuring we have got the right staffing model, and a lot of those COVID identified efficiencies pulled through. So, it sits today, we are at 78% of FTE count to kind of pre-COVID. Occupancy for the portfolio is at 87%. And so we are trailing kind of that occupancy rate. And we have got a number of open positions. So, we are staffing up selectively for the demand that we are seeing and the demand we expect. But even if we were to snap our fingers and all of those open positions we have could be hired tomorrow, we would still be at 86% of pre-COVID levels. And so we are very encouraged by the job that our managers are doing and managing our staffing models. I think the other benefit you are going to see as we move forward is that a lot of our hotels and markets are heavily reliant right now on contract labor. The labor market is so tight and so tough, and we have had to pay and bring on a lot more contract labor than we have used in the past. That comes at a much higher cost. And so we are encouraged that as we move forward and the labor market somewhat stabilizes, we will be able to move away from contract labor and move more towards in-house labor that will come at a significant cost savings.

Okay. Thank you for all that color and hopefully, you can hear me a little better now. And then switching gears, you guys are obviously making excellent progress on the preferred – the new preferreds, I should say. Can you just talk about how that’s gone versus your original expectations and how you are thinking about that part of the capital stack longer term? I mean is there a target or potential internal or external cap rate there and how much you would do there?

Hey Jonathan, it’s Deric. I will take that. So, look, we have been pleased with the capital raise. The capital raise will expire in February of next year. So, it’s only got a few months left on it. It was filed for $500 million total raise. As we have said, we have raised just under that to-date under $300 million to-date. So, we have been very pleased with that. I think once we finalize this capital raise in February, we will revisit, reevaluate where we are in terms of the preferred as a percent of our capital structure, I mean what we want that to look like going forward. But having said that, we believe it’s a very attractive source of capital for us. And as Richard said, it’s allowed us to go on offense and buy some great assets at a great time in the cycle. And we are very pleased with the way we have been able to put that capital to work and believe it will ultimately be an accretive source of capital for our shareholders.

Okay. Great. Thanks for that. And then last one, if I could, on the acquisition. Can you just talk about the performance of the asset in 2022 and how that compares to 2019? And the timeline to get to some of the underwriting assumptions and the outlook for that hotel, I mean are there any low-hanging fruits or anything there in terms of quick operational adjustments you can make?

Yes, sure. Happy to talk about that. This is Rich and I will let Chris also make some comments. So, the asset Four Seasons Scottsdale is running at least 15% higher in RevPAR versus 2019. The thing that’s great about one of the thing that we really like about this hotel is its ability to generate strong margins, particularly for such a sprawling resort at such a very high service level. So, historically, margins have been running over 25% at the NOI level, and that’s the sort of production we expect going forward. So, I think there is – but even with that said, there are a number of levers that we can pull. We have done already an extraordinary amount of due diligence on the operations of the property and have some ideas as to further enhanced performance. I mean Chris, anything else you would like to add to that?

Yes. Our team is really excited about this acquisition. And there is a lot of, I would call them larger initiatives that will reposition and transform the asset kind of long-term. But then there is also a number of, as you call it, low-hanging fruit and short-term initiatives that we plan on pulling through. The deal hasn’t closed yet, and we certainly have been in discussions with the team, but I don’t want to share any of those publicly until we kind of align. But we are excited for both the short-term and the long-term potential of this asset. In terms of timing on close, I mean we have said…

Yes, our plan is to close by the end of the year.

Okay, great. Thank you for all the detail, guys. That’s all for me.

[Operator Instructions] The next question is from the line of Bryan Maher with B. Riley Securities. Please go ahead.

Yes. Good morning everyone. Just a couple of quick questions. Maybe the first one is not so quick. We are seeing obviously some softness in the resort part of the portfolio, clearly offset by the urban part of the portfolio. Has the addition of the more recent resorts Puerto Rico, Beverly Hills, soon to be Scottsdale. Is that changing the kind of seasonality of the RevPAR and/or EBITDA?

Bryan, thanks. This is Richard talking. Yes. I think historically, we have had a type of seasonality that would go from strongest quarter to weakest quarter as you progress through the calendar year. As we are emerging from COVID, with the recovery trend as a countervailing trend, it’s a little bit more difficult to parse out that seasonality. That said, we are starting to see a stronger fourth quarter than we have historically, which could be as a result of that festive season at our resort properties, which tends to be very strongly profitable couple of weeks for us. So, I do think you will see that where our fourth quarter will be far stronger than it has been historically.

Okay. And maybe one for Deric on the debt side, I appreciate the comments on the fixed versus the floating. But is there anything out in the marketplace that you are seeing similar to kind of what we are all seeing with interest rates spiking materially that would compel you to fix more of the debt? And if you opted to do that, maybe what level of magnitude and how painful might the cost be?

Yes. So Bryan, I think the way I would answer that question is I would say, look, nothing has really made us want to change our focus in terms of our focus historically has been to be a predominantly floating-rate borrower. We still believe that as a hotel owner, but that’s the right way to structure our balance sheet and that, look, there are times when it’s going to be a little painful as we are seeing now. But we have also benefited significantly from that over the past few years. So, I wouldn’t say there is any sort of change in strategy on the horizon from that perspective. I would say that one thing we will look to go do or we would like to go do is take some of our property level financing and maybe convert some of that more corporate level financing. We used to have a corporate level term of a credit facility that we ultimately drew down and converted to a term loan. I think ideally, we would like to have a credit facility and maybe a term loan that may be a little bit more efficient from a pricing standpoint, give us a little more flexibility. So, I think that’s something that we will look to do in the future.

Okay. And just lastly, and maybe I am a little bit slow and you could explain this in more layman’s terms. But can you walk through, once again, I know you did it once, but just maybe a little bit more basic, that Ashford Inc. true-up expense? And is this just a one-time thing, or might we have to deal with this again in a year or whatever, if you do more financings through Ashford Inc.? Thank you.

Yes. So, the true-up that we booked in the quarter relates to the contribution agreement that really goes back a few years when Ashford Inc. started Ashford Securities which is really the captive fundraising platform. And that plan and the contribution plan stipulate that the operating cost, the lag, if you will, of Ashford Securities will be split across the businesses, across the three Ashford related companies based on the percent of capital raised. To-date, Braemar has been the only company that has raised any capital through Ashford Securities. And so that true-up that we anticipate will happen in 2023, GAAP requires us to go ahead and anticipate what that might look like. And today, based on how we think that’s going to look like, we had to go ahead and book that accrual. I suspect over time that, that will balance itself out. We do have some other securities in the market with Ashford Securities that are not Braemar related. And if we are successful in raising capital for those securities, then those other platforms would have to step up and fund their share of the operating costs associated with that. So, hopefully, it’s not something that we have to talk about every quarter, and it was a bit of a one-time thing that sort of rebalanced the share of operating costs and over time, it will balance out across the three companies.

Okay. That’s helpful. Thank you very much.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back over to the management for closing remarks. Over to you. End of Q&A:

Sure. Thanks, everybody, for joining us on the third quarter earnings call. And we look forward to speaking with you again on the next call. Have a good day.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for joining with us. You may now disconnect your lines at this time.