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 four 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 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 seeing that in a big way in the second quarter. We remain excited about our opportunities to deliver continued growth. And for calendar year 2022, we expect to materially exceed both 2019 RevPAR and 2019 hotel EBITDA on both a comparable and an actual basis. Several of our hotels achieved very strong hotel EBITDA margins during the quarter with Pier House Resort at 55%, Hotel Yountville at 44%, Marriott Seattle at 42% and the Sofitel Chicago at 56%. The Sofitel Chicago result reflected a significant property tax expense reduction that we recognized in the second quarter. Our overall portfolio comparable EBITDA margin was 33%, despite including two hotels with negative hotel EBITDA. While leisure demand continues to be strong particularly on weekends, in the second quarter, we finally saw a strong recovery in corporate transient and corporate group demand. Overall, we have seen these trends continue into a strong start to the third quarter. For the month of July, our preliminary figures suggest that we finished with 72% occupancy and an ADR of $439, which equated to a RevPAR of $318 for the month, exceeding 2019 by 28%. Many of our hotels are in drive-to leisure markets and have been well positioned to benefit from the resurgence of pent-up leisure demand in recent months. In total, nine of our 15 hotels are considered resort destinations. We're pleased to report that this segment delivered a combined hotel EBITDA of $37.1 million for the quarter. I would also like to mention that the Ritz-Carlton brand, which includes four hotels in our portfolio representing over $93 million or approximately 50% of our TTM hotel EBITDA, was recently named the number one rated luxury hotel brand for the second consecutive year by J.D. Power. I also continue to be encouraged by the advancing recovery of our urban properties, which have been ramping up quickly. For the second quarter, all six properties posted positive hotel EBITDA. This is a significant turnaround as demand is quickly returning to our cities. This includes leisure as well as corporate transient and corporate group demand. Additionally, we were cash flow positive again at the corporate level for the sixth consecutive quarter. While our balance sheet was already in good shape as we entered 2022, this puts us in a much stronger position financially. As some of you may have seen, CBRE recently published an industry report that highlighted the benefit of hotels as a hedge against inflation. Based on their analysis, they concluded that hotels have historically been able to grow their profitability at a higher rate than inflation even during times of high inflation. We have seen this dynamic play out during this period of high inflation and believe that Braemar remains well positioned in varying economic scenarios, having a diversified and very high-quality hotel portfolio. Looking ahead, we continue to see a robust pipeline of acquisition opportunities in the market. We will continue to be extremely disciplined in our investment approach and only focus on transactions that we believe will be accretive to total shareholder return. On the financing front, we continue to raise capital via our non-traded preferred stock offering. Our balance sheet is in good shape, and we have an attractive maturity schedule with our next hard maturity not until April 2023. We have also been active on the Investor Relations front. In the months ahead, we will continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Braemar. Looking ahead, our unique portfolio, which is focused on the luxury segment and with properties in both resort and urban markets, positions us to perform well in both the near term and long term as leisure demand continues and business and group travel resumes. We have the highest quality hotel portfolio in the public markets that is generating positive cash flow at the corporate level and what we believe is a solid liquidity position and balance sheet with attractive debt financing in place. I will now turn the call over to Deric.

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 maturity not until April 2023. I'm also pleased to report that during the second quarter, we issued approximately 1.6 million shares of our Series E and Series M non-traded preferred stock, raising approximately $37.6 million in net proceeds. This strong fundraising momentum has continued into the third quarter. During the month of July, we issued approximately 2.2 million shares of our Series E and Series M non-traded preferred stock, raising approximately $50.6 million in net proceeds. We expect the proceeds from the sale of the Series E and Series M non-traded preferred stock as well as our internally generated cash flow to be our primary source of capital to facilitate our growth and deleveraging goals. As of June 30, 2022, our portfolio consisted of 15 hotels with 3,736 net rooms. Our share count currently stands at 79.7 million fully diluted shares outstanding, which is comprised of 71.3 million shares of common stock and 8.4 million OP units. In our financial results, we include approximately 4.1 million shares in our fully diluted share count associated with our Series B convertible preferred stock and approximately 13.6 million shares in our fully diluted share count associated with our convertible senior notes. This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio rose by 43% in the second quarter compared to the same period in 2021. When looking at 2019, our portfolio achieved a 28% increase in RevPAR during the second quarter. This portfolio's strong performance stands out when you consider the broader market, where the U.S. luxury chain scale market only grew by 13% over 2019 RevPAR, and the upper upscale chain scale has only recaptured 99% of 2019 RevPAR. Our resort properties are doing exceptionally well, with hotel EBITDA increasing over 105% in the second quarter compared to 2019. Several of these resorts have even set new performance records. Our urban assets are also recovering well, with their hotel EBITDA in the second quarter reaching 92% of the comparable 2019 levels. I want to highlight some successes within our portfolio. The Ritz-Carlton Sarasota had its best second quarter ever, achieving $9 million in hotel EBITDA, a 16% increase over the previous record set in the second quarter of 2021. The asset management team conducted a detailed evaluation during the acquisition and identified various opportunities, and we are now witnessing the long-term advantages of that effort. One example is the resort membership program, which has sold out and generates about $6 million annually in long-term revenue. Another project completed in December added 10 keys to previously underutilized hotel space, allowing us to take advantage of strong market demand. With these and other ongoing initiatives, we expect this hotel to keep performing well. In our first full quarter of ownership, the Ritz-Carlton Reserve Dorado Beach has already benefited from several initiatives identified during the acquisition process, leading to a 5% increase in total revenue compared to the second quarter of 2021. Our team concentrated on immediately impactful items, such as raising resort fees, implementing parking fees, and enhancing room type merchandising. Additionally, we reviewed all food offerings in the hotel and nearby competitor restaurants to identify pricing opportunities, which significantly boosted food and beverage revenue, resulting in the highest revenue in this area in the hotel's history. We are still executing our takeover plan and are eager to unlock the full potential of this asset. Moving on to our urban asset acquired in August 2021, Mr. C Beverly Hills has also exceeded expectations, with second quarter RevPAR surpassing comparable 2019 by 4%. Although we've owned the hotel for just a year, it has already greatly outperformed our year two investment expectations. Before our management took over, our asset management team devised a 70-point plan aimed at increasing stabilized hotel EBITDA by over $1 million. We are seeing positive effects from that plan, which involved bringing in Remington as a hotel manager, adjusting the top line revenue strategy to be more dynamic regarding demand nights and premium rooms, and utilizing our expertise in expense management to enhance profit margins. These strategies have yielded success, with second quarter ADR and occupancy surpassing 2019 levels and departmental profit margins improving by more than 1,000 basis points compared to the second quarter of 2019. Regarding capital investment, we have made significant investments in our portfolio in recent years to strengthen our competitive position. These upgrades strategically position our portfolio to benefit from the current pent-up demand in the market. In 2022, we are renovating the Marriott Seattle guestrooms, recently completed a restaurant patio addition at Park Hyatt Beaver Creek, and plan to proceed with guest room renovations at Capital Hilton, spa renovations at Ritz-Carlton Sarasota, and adding a retail shop in the lobby at Ritz-Carlton Lake Tahoe. Overall, we expect to spend around $50 million to $60 million on capital expenditures this year. Property-level forecasts indicate strong continued success for the third quarter compared to 2019. We anticipate benefiting from the steady recovery of group demand, as shown by gross bookings in June, which exceeded 2019 levels by 76%. We are particularly excited about bookings led by our Washington, D.C., San Diego, and Caribbean markets. As our urban properties continue on their upward trend and our resort assets maintain their strong momentum, our portfolio is well positioned for future success. I will now hand the call back to Richard for closing remarks.

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 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 close this every two weeks, and the offering will be open through February of next year. The process involves building a syndicate of broker-dealers, who then have brokers selling that security to their investors. Over time, we add more dealers to the syndicate, which is why you've seen the dollar amount grow over time, and we expected that to happen as we proceeded with the offering. There was another REIT called Preferred Apartment that issued non-traded preferred and ended up going private. Those investors received their capital back, and we are offering an alternative for them to redeploy that capital. I believe we saw some of that capital come back in July, and it may continue for a while. It's hard to predict, and it's difficult for us to provide guidance on future capital raising amounts, but we will 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 one 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 about ten different acquisitions. It's a combination of urban and resort. There's not necessarily one 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 is 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 three 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, I'll address that. First, we've indicated in the past 18 months that we evaluate dividends based on our financial position and what our peers are doing. Currently, we are taking advantage of our strong cash flow to reduce our debt. We aim for a net debt to gross assets ratio of 35%, while we are currently just above 42%. This is our top priority at the moment. Once we reach that target, the Board will review the dividend policy. However, our focus right now is on achieving the desired leverage.

Got it. Understood. Regarding transactions, this might be a tougher question to answer since you are raising non-traded preferred. If you weren't raising as much and didn't have as much capital coming in, would you still be as aggressive on acquisitions? I sense you might be feeling a bit more optimistic and upbeat about deploying capital now compared to 90 days ago. But if you weren't raising as much non-traded preferred, would your approach to acquisitions be as aggressive today?

I believe we would still be aggressive in terms of acquisitions. Regardless of market fluctuations or changing sentiments, it is always important to explore as many opportunities as possible to ensure returns are favorable. We maintain a consistent approach with our acquisitions team; we do not simply turn our efforts on or off. This allows us to avoid missing potential opportunities. With our relatively small portfolio, each acquisition carries significant weight, so we evaluate them individually rather than making blanket decisions based on market conditions. Currently, we are examining opportunities as actively as ever, and our acquisition team is fully engaged. Even without raising non-traded preferred capital, we would continue this approach and look to collaborate with other capital sources to facilitate these deals. We do not want to overlook any valuable opportunities, no matter the state of 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 one? I know you mentioned 10-plus percent unlevered IRRs. But how should we be thinking about, call it, year one, year two 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 at a minimum initial yield unleveraged 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 two. 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 on 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.