Greetings, and welcome to the Braemar Hotels & Resorts, Inc. First Quarter 2021 Results Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Jordan Jennings, Manager of Investor Relations for Braemar Hotels & Resorts. Thank you. You may begin.

Good morning and welcome to today's call to review results for Braemar Hotels & Resorts for the first quarter of 2021 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. Your 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.

Good morning. Welcome to our first quarter earnings conference call. I will begin by providing an overview of our business and an update on our portfolio, which includes our hotels again achieving positive hotel EBITDA for the third quarter in a row. After that, Deric will provide a review of our financial results, and Jeremy will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. Four key themes for today's call are: the outperformance of our luxury resort portfolio resulting in $20 million of hotel EBITDA for our entire portfolio, and an average daily rate of $433 for the quarter, which is the highest quarterly ADR in our history. Our portfolio is well positioned to outperform with very strong forward bookings as we look at the second quarter. We were cash flow positive at the corporate level for the quarter. And our balance sheet is in good shape with no near-term debt maturities. I'm pleased to report that during the first quarter, we continued to achieve positive hotel EBITDA across our portfolio. We reported hotel EBITDA of $20.5 million during the quarter driven by strong occupancy levels at our resort properties and a 25.3% increase in ADR over the prior year quarter, which resulted in the highest quarterly ADR in our history. While leisure demand is ramping up quickly, particularly on weekends, anything that we can uptake in a RevPAR performance is likely to rely on the recovery of corporate transient demand and ultimately group demand.

Thanks, Richard. For the first quarter of 2021, we reported a net loss attributable to common stockholders of $11.2 million or $0.28 per diluted share. For the quarter, we reported AFFO per diluted share of $0.20, which represents growth of 67% over the prior year quarter. Adjusted EBITDA RE for the quarter was $16.6 million. At quarter end, we had total assets of $1.7 billion. We had $1.1 billion of loans, of which $49 million related to our joint venture partners' share alone on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 2.5%. Our loans are entirely floating rate. As of the end of the first quarter, we had approximately 52% net debt to gross assets, and our next final debt maturity is in April 2022.

Thank you, Deric. Comparable RevPAR for our portfolio decreased 23% during the first quarter. And we were able to generate hotel EBITDA flow-through of 80%. For the first quarter, Braemar recorded an impressive 66% of its 2019 RevPAR compared to 58% to the U.S. market as a whole. We believe our market outperformance over the first quarter is a testament to the quality of this portfolio and the tireless efforts of our asset management team. Our asset management team has worked relentlessly to drive performance at each of our hotels. This is not only evident in our portfolio ADR, which was 35% higher than 2019 levels for the first quarter, but also in the overall strength of our hotel EBITDA recovery. For example, our resort hotels delivered a noteworthy 81% of first quarter hotel EBITDA relative to the comparable 2019 period. The Ritz-Carlton St. Thomas just finished an incredibly strong March achieving $8.7 million in revenue, which is the highest total monthly revenue in the resort's history. In addition, we saw strong occupancy numbers of 79% in the first quarter. More impressively, the hotel averaged over $1,000 in ADR for the quarter, and in fact, one night in March, the hotel achieved an ADR in excess of $1,600. This outperformance is largely being driven by the spectacular renovation that was recently completed. Looking ahead, we anticipate a continuation of strong leisure transient demand. Currently, transient pace is up more than 100% compared to the second quarter of 2017, the last comparable period prior to Hurricane Irma. The Ritz-Carlton Sarasota has been a standout performer. In March, the resort finished the month with an impressive $3.9 million in hotel EBITDA, which is the single highest month in the resort's history. The team did an excellent job at navigating the spring break demand and ensuring that strategies were optimized to drive ADR. In fact, ADR was 32% higher during the first quarter than the comparable 2019 period. Additionally, I want to mention how successful our membership program has been at the property. We achieved $1.4 million in membership revenue in the first quarter, which is up 17% over the same period in 2020. The Ritz-Carlton Lake Tahoe also had a strong quarter with hotel EBITDA coming in at 98% compared to the prior year period. This was the result of a remarkable 96% hotel EBITDA flow-through. These results are especially meaningful when you consider that California was under a mandatory stay-at-home order from December 10 until January 25, which resulted in over $2.8 million in cancellations for the hotel during the first quarter.

Thank you, Jeremy. In summary, we're still in the early stages of the recovery, but we can now see a clear path to normalcy. This sets us up nicely for continued steady recovery in our financial results. We have taken decisive actions to navigate the near-term challenges of this crisis, and we're well-positioned moving forward with a solid balance sheet and a unique diversified portfolio. I am proud of our efforts to protect our assets and maintain financial flexibility to position us for future success. We look forward to updating you on our progress as we move through 2021.

Thank you. Our first question comes from the line of Kyle Menges with B. Riley Securities. Please proceed with your question.

This is Kyle on for Bryan. As you've mentioned, ADR at several of your key luxury resort hotels have actually been higher than pre-pandemic levels. Just curious if you think that's sustainable as we move throughout 2021 and things begin to open up and the international travel restrictions are loosened as vacationers will essentially have more options of where to go?

Yes. Thanks, Kyle. Look, I think that's a good observation. We've been astounded by the ADR performance of the portfolio and maybe didn't even properly appreciate the benefit of international restrictions on travel that I think we have benefited from. I think there are a couple of properties that we'll see some of that demand diffuse. But the counterbalancing benefit would be international demand coming back to our market. So that's one trend. I think another trend that we're keeping our eye on is the trade-off between increased occupancy via the return of the group segment and a lower rate of business. So I think our EBITDA trends will continue to improve, but we do expect to continue to build on our group business, and we have a very strong pace outlook for the third and fourth quarter but that will come at some cost to ADR. And I think that's just part of the business. But I think your instincts are right. Overall, I think the change in recovery that we're expecting is still going to be beneficial.

Yes. Just to add a little bit more specificity to the outlook is that ADR is actually forecasted to be up to 2019 in 5 of the 9 months so far Q2 through Q4, and that trend may continue.

Great. That's helpful. And then I was also curious, I mean your portfolio is better positioned than a lot of other hotel operators and your balance sheet is in pretty good condition. Do you think there's opportunity out there to maybe acquire some assets from hotel operators that are less well positioned than you guys are and maybe an opportunity to expand the portfolio?

Yes. That's a good question. We are absolutely on the lookout for acquisition opportunities. I think there are a couple of challenges, one is, we still are being very conscious of our liquidity and cash balances. So that's something that we're being very protective of at the moment. And then also, we've seen some pretty heavy pricing out there, particularly in the luxury segment. And we have always maintained very strict financial discipline on our acquisitions and have targeted specific unlevered IRRs, which aren't necessarily penciling with some of the pricing that we've seen out there. So we continue to look. We're hopeful that we can do something. We are certainly open to merging a hotel into the partnership by the issuance of OP units if we can do that in an accretive manner. We'll be further updating you all as these opportunities arise.

Great, thanks. That’s all for me.

Thank you. Our next question comes from the line of Tyler Batory with Janney Capital Markets. Please proceed with your question.

Thank you. Good morning. A few questions for me. And just to start, I wanted to go back to the margin and the flow-through performance in the quarter, which was really quite strong. How much of that is related to what's going on with ADR versus other factors? And where are you in terms of offering guest amenities, services in terms of operations? And how is that impacting the cost structure?

Let me take the second question first and then maybe Jeremy will talk about flow-through. The amenities, the reinstatement of amenities and services is – there's no general answer to that. It's very much on a case-by-case basis, which is driven by occupancy at the hotels. And so as occupancy increases and as profitability increases at each of the hotels, these things are being reinstated in order to attract further demand and differentiate relative to competing products. I will say that there are some things that we've cut back on that are here to stay. And one of them is optional stay-over housekeeping and turndown service, for instance. These are things that whereas were perfunctory in the past, will probably, in many cases, be optional going forward, and that will result in better margins for us. That's certainly a change that we welcome. But in terms of introducing other amenities and services, it really does depend on the general manager assessing the situation on the ground.

And I'll answer the question on flow-throughs. You're right. I mean, ADR is certainly contributing to it. Also, our struggle with having access to rehiring and staffing up our hotel. So labor shortages have contributed a little bit as well. But I do think regardless of those two factors, we would have had incredible flow-throughs still with this portfolio because of our prudent and thoughtful discipline that we have with the asset management team, working with the properties. We have been very, very hands-on with all of these assets. I can't thank my team enough because they've done so much more with fewer resources as we've had to deal with this challenging situation over the course of the last year. But we have a great process that we’ve put in place with all of our teams, the asset management group as well as with all of our property management companies as well as the regional and area leaders of those companies to be very thoughtful on how we add back staffing. We have internal expectations where we've dissected these hotels to a very granular level. Our expectation is coming out of the pandemic, once we get to full occupancy levels, the 2019 RevPAR levels that we will operate these hotels more leanly than we did pre-pandemic. We have individual staffing models for every one of our hotels to do that. No positions are added back without our approval. We have been very hands-on with the properties, but it's been a very constructive process with our teams, and I'm very optimistic that coming out of this pandemic, and once we reach full RevPAR levels, there will be a benefit in our margins because of some of the things we've uncovered through this process.

Okay. Very helpful. And to follow up on the labor comments. The resorts and luxury assets, obviously, have high guest expectations in terms of service. Right now, you're running high occupancy. Is labor a bigger issue at those properties than perhaps the urban hotel or some other asset types? And then in some of the resort markets, where and how do you source your labor? Are you using international employees at all? Or is it seasonal labor that's only available at the peak time periods?

Yes. It's such a case-by-case basis. So it's hard to put a generalized statement over – because even with a smaller portfolio like what we have at Braemar, they're very different assets. And so if you start with the urban properties, I think that's a big challenge for sure, except for the fact that those are the assets that are at the lowest occupancy. So we're not having as much of a challenge at the urban properties just because we don't have as much need. But looking at the resort hotels, Pier House being a great example, it's been tough. What happened in Key West is that a lot of the residents in Key West that were at maybe lower income levels have left because of the pandemic and went to different markets and they haven't come back. We've had a struggle with labor there. In some cases, we’ve used contract labor. In other cases, there is a good labor force of international labor in Key West from Eastern European labor pools. But then you can look at a hotel like the Ritz Carlton St. Thomas, and we’re employing primarily local labor there, residents of the U.S. Virgin Islands, and we have an incentive to do that in terms of our relationship with the government where we get some incentives for having a bias towards local labor. But we're still having some struggles there, even though there is available labor. It's just getting folks back to work and then sending them to get back to work. I think that what happened in the first quarter for us is that we just got – we were optimistic and we've been optimistic in terms of this portfolio performing really well. But it definitely exceeded our expectations. I don't think we would have thought at the beginning of the first quarter that we would have the numbers we had as we sit today. As aggressive as our team was to try to ramp back up the properties, particularly at St. Thomas, would be a great example, we struggle to have the service levels that we would want to have. That's just something that we're continuing to address and we will address, but it's been a challenge for sure.

Okay. And the last question for me. In terms of the preferred for common exchange, can you talk more about that and why you think it makes sense? Is that something that you'd like to continue doing in the future?

Tyler, it's Deric. I'll chime in on that. I think we view that as just opportunistic, and we saw it as an opportunity to – as long as it's been an attractive ratio for our common shareholders to take out the preferred at a discount to par and believe that's accretive to our common shareholders. It's a way that it saves on the cash dividend on that preferred as well. Looking forward, we'll just be opportunistic about it. If we think it makes sense for our common shareholders, it's something that we'll entertain.

Okay. Great. That’s all for me. Appreciate the detail.

Thank you. Our next question comes from the line of Alex Kubicek with Baird. Please proceed with your question.

Good morning. Moving back to the balance sheet, lots of moving pieces this quarter. Just curious how you see the company's leverage profile and just the capital stack generally progressing over the norm near to more long term. And then back to the preferred with kind of having the private exchanges on one hand, but the Series E&M on the other, how do you see that part of the stack changing in the future?

Yes. Thanks, Alex. This is Richard. I'll take that question. On leverage profile, look, I think all lodging rates have increased their leverage, I'm generalizing a bit, over the last year. Our sense is that investors, would prefer the sector to be running on a bit lower leverage. That's the guidance that we'll follow in the coming years, measured over years. One thing that we've been pretty adamant about is not to try to do anything drastic in terms of the balance sheet but move towards a less leveraged structure than we have now. That will come through a variety of means, whether it's retaining cash or opportunistically doing these preferred exchanges, which we view as accretive to the share price or raising a bit of equity capital along the way in very, very small bits. So that's where we're headed. We've historically had a target of 45% net debt to gross assets. We're above that now because we've used cash during the past year and took on some more debt, but we'll seek to get through that and even below that going forward, measured over years. In terms of the series E&M, that's still a strategy that we're pursuing. That is also a strategy that is very incremental and builds slowly over time. We may see some activity on that front in the second half of the year, but we'll assess that as we learn more about that market and really understand the appetite for the securities we're able to offer.

That's helpful. And then just one more for me. Most people in my seat are comparing the cadence of the recovery to 2019 RevPAR and EBITDA but for your guys' portfolio, probably isn't fair with the hurricane disruption in 2019. So just kind of curious how you guys are thinking about the magnitude and timing of getting back to a more comparable prior peak?

Yes. That's a good question. And this is Deric. I'll take it and I'll let these other guys chime in, but you raised a good point. We do hear a lot of people talk about 2019 performance and getting back to 2019. But when you look at the Braemar portfolio, there were a lot of things going on in 2019 that don't really make 2019 a good benchmark year for us. The Notary in Philadelphia had not ramped up. The Clancy in San Francisco wasn't even open or totally converted yet. And then as you mentioned, at St. Thomas, that hotel was closed, and we were basically getting business interruption income there. There were also a few other smaller things going on and a few other assets that the presidential villa, Barcelona, and beach remediation and the rebuilding in Sarasota. So I don't think we're prepared to provide guidance in terms of when we get back to 2019, but I think we can say that if our portfolio was operating on all cylinders, we'd expect it to exceed what our actual results were in 2019 because of those factors. Anyone else can chime in.

Yes. I think what I would add is, if you turn back the clock to January and February of 2020, we were relatively late in the cycle regardless of the pandemic, and nobody really knew the pandemic would be so impactful that it was on our industry as we stood in early 2020. If you look at January and February, we were well outperforming the industry. I believe that my recollection was in February, we might have been up 20% year-over-year in revenues at the Braemar portfolio, which was phenomenal. When you think of being that late in the cycle, it was absolutely phenomenal. We were very optimistic about what 2020 could have been. Obviously, it didn't play out the way we wanted it to play out, but I do think you can look at those numbers and say, okay, well, that's probably more reflective of what Braemar should have been in 2019, just because we were really repositioning that portfolio for long-term success. We haven't gotten the benefit from that yet, and we will. I do believe that relative to a lot of other REITs that are out there, I hope that we would be a heavy outperformer going forward and continue for the near future.

Thanks. That’s helpful color.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

Well, thank you all for joining us on our first quarter earnings call, and we look forward to speaking with you again on our next call. Have a good day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.