Earnings Call Transcript - BHR Q1 2020

Operator, Operator

Greetings, and welcome to Braemar Hotels & Resorts Inc. First Quarter 2020 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 Investor Relations for Braemar Hotels & Resorts. Please go ahead.

Jordan Jennings, Manager Investor Relations

Good morning. And welcome to today's call to review results for Braemar Hotels & Resorts for the first quarter of 2020, 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. 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 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 May 21, 2020, 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 Stockton, President and CEO

Good morning. Welcome to our first quarter 2020 earnings conference call. I will begin by providing an update on our activities in response to the COVID-19 pandemic. After that, Deric will provide a detailed review of our financial results. And then Jeremy will provide an update on our asset management activity. Afterwards, we'll open up the call for Q&A. First, this has been an extraordinary period for all of us as this global pandemic has created both social and economic disruption on an unprecedented level. Our thoughts go out to those affected by COVID-19 and to those on the frontlines working to keep us safe. The pandemic has created a volatile landscape throughout the hospitality industry, and our entire leadership team has been steadfast in its commitment to protect all of our stakeholders during this unprecedented time. A few objectives have guided us. First, the health and safety of our employees, guests, and the communities in which we operate is our highest priority. As stay-at-home orders were implemented, we quickly adapted to the restrictions and challenges affecting our guests and hotels. Initially, we took swift and decisive steps to significantly reduce staffing levels and non-essential expenses across all of our hotels. Later, in many cases as a response to a government order, we took steps to temporarily suspend operations at 11 of our properties. For those properties that remain open, we have instituted stringent safety measures consistent with evolving best practice recommendations regarding COVID-19 and are operating those hotels with minimal staffing. The following are a few of the many steps we have taken to reduce expenses at our closed properties. We have set all thermostats in rooms and public spaces to temperatures that conserve the most energy. We have turned off in-room refrigerators and unplugged kitchen, back-of-house, and office equipment. We have renegotiated pricing on our canceled service contracts. We're working diligently to collect cancellation fees or partner with group customers to rebook their programs for a later date. For those two hotels that we do have opened, we have reduced staffing to skeleton crews through furloughs and layoffs. We are scheduling partial shifts when full shifts are not necessary. In some cases, we have blocked off and shut down floors and wings of the hotel. Additionally, we have specific plans to contain expenses and generate revenue as the portfolio reopens. We may eliminate housekeeping service from some properties for stay-overs. We will also eliminate van transportation, airport shuttle service, valet parking services, turndown service, and all amenities that exceed brand standards. We may suspend some services at concierge lounges, and clubs, and all spas and kids clubs. Our asset management efforts have been relentless and have positioned us well for the impending ramp-up in operations that we now anticipate. Although the vast majority of our hotels are currently closed, we believe that hotel occupancy bottomed in the middle of April. Since then, occupancy continues to increase on a weekly basis. Net new bookings are positive. We're seeing a pickup of room nights on a short-term basis and the pace of that pickup is increasing almost daily. We expect drive-to-leisure hotels to be among the first to bounce back, and we're already seeing this at our Ritz-Carlton Sarasota, which ran 42% occupancy this past Saturday at an average rate of $392. Seven out of our 13 hotels are well positioned to benefit from drive-to-leisure demand. In addition to the Ritz-Carlton Sarasota, these include the Bardessono, Hotel in Yountville, Ritz-Carlton Lake Tahoe, Pier House Resort, Park Hyatt Beaver Creek, and Hilton La Jolla Torrey Pines. It will similarly benefit from their ability to attract drive-to-leisure demands once they resume services. We currently expect to resume services at each of these hotels sometime in June. Looking ahead a few months, we continue to be excited about the Courtyard San Francisco Downtown and its upcoming conversion to the Autograph Collection under the name The Clancy. The renovation continued during the first quarter with a portion of the lobby opening along with parquet, an outdoor seating and reception area. Operations at the hotel were temporarily suspended on April 11th with the local shelter-in-place order extended until May 31st. However, certain construction projects have been allowed to resume. We have recently restarted construction following a hiatus due to the initial shelter-in-place order. Our current estimate for the hotel’s completion is expected in the mid-third quarter of this year. Comparable RevPAR decreased 30% during the first quarter. We've also taken proactive and aggressive actions to protect and enhance our corporate liquidity. This included drawing down over $75 million credit facility in early March, cutting expenses at the corporate level, and significantly reducing our planned CapEx spend for the year. All-in, we estimate that we have reduced our run rate corporate G&A and reimbursable expenses under our advisory agreement by approximately 25%. Additionally, we have been focused on working with our lenders to arrange mutually agreeable forbearance agreements that will provide us with some necessary financial relief during this crisis. I'd like to close by saying that Braemar has a long tenured experienced management team that's successfully managed through prior challenging economic periods. We believe the company has the right management team in place to protect long-term values and our entire team remains undaunted in managing these near-term challenges while positioning ourselves for continued long-term success. I'll now turn the call over to Deric.

Deric Eubanks, CFO

Thanks, Richard. During the first quarter, we recognized $3.6 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 2019 through February 2020. As I mentioned last quarter, we expect these insurance recoveries will taper off going forward. For the first quarter of 2020, we reported a net loss attributable to common stockholders of $15.5 million or $0.48 per diluted share. For the quarter, we reported AFFO per diluted share of $0.12. Adjusted EBITDAre for the quarter was $18.5 million. 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 partner share of the loan on the Capitol Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 3.3%. Our loans are entirely floating rate and the vast majority of interest rate caps are in place. As of the end of the first quarter, we had approximately 50% net debt to gross assets. We ended the quarter with cash and cash equivalents of $142 million and restricted cash of $45 million. The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts. We have been and continue to work with our property managers and lenders in order to utilize these lender and manager-held reserves to fund operating shortfalls at our hotels. At the end of the quarter, we also had $17 million due from third-party hotel managers. This represents cash held by one of our property managers, which is also available to fund hotel operating costs. As Richard mentioned, in response to this pandemic, we have taken decisive measures to reduce our cash utilization. We have reduced corporate G&A and reimbursable expenses under our advisory agreement by approximately 25% on an annual basis. To further preserve our liquidity, our Board of Directors decided to suspend our common stock dividend, which will save approximately $6 million on a quarterly basis. We estimate that our current monthly cash utilization at our hotels, given their current state of either having suspended operations or operating in a limited capacity, is approximately $10 million per month. As I mentioned, all of our debt is property level non-recourse debt except for our corporate credit facility, and the monthly interest is currently approximately $3 million per month. Our run rate for corporate G&A and advisory fees is approximately $1.3 million per month. Based on the anticipated reopening dates and realistic yet conservative assumptions for future hotel operations, we believe that we have sufficient liquidity to return to positive cash flow. As of March 31, 2020, our portfolio consisted of 13 hotels with 3,487 net rooms. Our share count currently stands at 38 million fully diluted shares outstanding, which is comprised of 33.5 million shares of common stock and 4.4 million OP units. In our financial results, we include approximately 6.7 million shares in our fully diluted share count associated with our Series D convertible preferred stock. This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Jeremy Welter, COO

Thank you, Deric. Comparable RevPAR for our portfolio decreased 14.8% during the first quarter. This decrease represents an outperformance of 8.5 percentage points and 7.9 percentage points relative to our hotels’ competitive chain scales and the nationwide luxury class respectively. Our portfolio also outperformed our hotels’ competitive set in the total United States market. By all of our commonly used benchmarking metrics, comparable RevPAR performed well relatively speaking, despite the ongoing COVID-19 pandemic that has disproportionately impacted the travel and tourism industry. Prior to the COVID-19 pandemic, our hotels were performing well to start 2020. Year-to-date through February, comparable RevPAR for our portfolio has grown 13.1% with double-digit growth at over half the hotels in our portfolio. Comparable RevPAR at the recently converted Notary Hotel grew 47.7% with 16% rate growth. The Ritz-Carlton Sarasota had a very strong start to the year with comparable RevPAR growing 25.9%. Additionally, with the City of Chicago hosting a large Amazon citywide in January and the NBA All-Star game in February, comparable RevPAR for the Sofitel Chicago Magnificent Mile grew 11.2%. Overall, across the portfolio, we began to reap the outsized returns we had been anticipating in 2020 and beyond. In fact, in February, total hotel revenue grew 21.6% across our portfolio. When it became apparent that the COVID-19 pandemic was going to severely impact our hotel performance, we took swift action to put ourselves in a position to weather this crisis. In March, we significantly reduced operating expenses by 29.8% or $8.1 million relative to March 2019. These reductions will be even more pronounced in the second quarter numbers. We've also temporarily suspended services at 11 hotels. These are unprecedented and difficult times. Asset management, property management, and brands are all working together. We want to bring back as many associates as we can as soon as we can when demand justifies bringing them back. Our associates have been pushed hard, working through a challenging situation. Folks have risen to the occasion. It makes us proud to see how everyone has pitched in to help or being asked to do more for less pay. I also want to highlight the extraordinary job Remington is doing in response to the pandemic by minimizing the financial impact to us while keeping associates and guests safe. During the first quarter, our Remington-managed independent hotels were able to more nimbly respond to the crisis. Comparable RevPAR at our three Remington-managed hotels decreased 14.1% and hotel occupancy in the first year was 36%, both numbers outperforming our portfolio totals. March comparable RevPAR decreased 51.6%, 12.6 percentage points or 0.3 percentage points less than the luxury chain scale nationally in the total United States market respectively, quite a remarkable feat given that nationally luxury hotels experienced decreases twice as severe as the economy chain scale. Operating expenses for Remington-managed hotels decreased 39.8% in March, again, outpacing our portfolio totals. Remington was also aggressive in cutting the costs of shared services. While it's unknown how fast recovery will be, we believe the worst is behind us. It appears the trough occurred in the middle of April. Incredibly, we have two hotels, The Ritz-Carlton Sarasota and the Notary Hotel, open and operating with 15.3 and 10.6 full-time equivalents, respectively. As we look at our portfolio, it seems that the fastest segments to rebound will be leisure and other transient business, with groups being the segment lagging in recovery. We also believe larger box hotels will struggle more than smaller hotels, because it will be difficult to get occupancy for these hotels via large blocks of rooms. In addition to smaller hotels having an advantage, we believe hotels in drive-to markets will experience a quicker recovery as well. In 2019, our portfolio's group rate and occupancy as a percentage of total occupancy was $252.13 and 27%, respectively. The transient segment accounted for over 2.5 times as many room nights as the group segment at $312.75 rate, a 24% premium. Our average hotel has 286 rooms and many of our hotels are smaller. Almost half the hotels in our portfolio have fewer than 200 rooms, and many of our hotels are in drive-to leisure markets. We anticipate that our portfolio will benefit from having so many higher transient rates, the highest RevPAR of any hospitality REIT and being well-diversified. The Capital Hilton will also benefit from the inauguration next year. Prior to the pandemic, supply growth in our domestic markets was slowing, and we expect that tailwind to continue. We expect luxury travels to resume more quickly as well, given pent-up demand in the segment. Finally, as previously mentioned, our hotels were only beginning to reap the rewards from the various renovations and repositionings we had recently completed, including The Ritz-Carlton St. Thomas, which is now positioned as one of the finest resorts in the Caribbean. I'll now turn to capital investments. Last year, we invested heavily in our portfolio to enhance our competitive positioning. These investments include the conversion of the Courtyard Philadelphia Downtown to the Notary and Marriott's Autograph Collection, the completion of the three suite Presidential Villa at the Bardessono Hotel, and value-add projects during the rebuild of The Ritz-Carlton St. Thomas. These initiatives have allowed us to be more judicious with our spending on capital expenditures during the COVID-19 pandemic. During the year, we anticipate the completion of the Courtyard San Francisco Downtown's conversion to the Clancy and Marriott's Autograph Collection, and the guestroom renovation at the Pier House Resort in Key West. In total, we expect to spend approximately $15 million to $25 million on capital expenditures in 2020. Before we go to Q&A, I would like to turn the call back over to Richard for his final remarks.

Richard Stockton, President and CEO

Thank you, Jeremy. We’ve taken decisive actions to navigate the near-term challenges of this crisis. I'm proud of our efforts to protect our assets and maintain financial flexibility to position ourselves for future success post-pandemic. This concludes our prepared remarks, and we will now open up the call for Q&A.

Operator, Operator

Thank you. Our first question comes from the line of Bryan Maher with B. Riley FBR. Please proceed with your question.

Bryan Maher, Analyst

Good morning, Richard, Deric, and Jeremy. A couple of questions, specifically let’s start with the reopening of some of the 11 hotels to try and take advantage of the summer drive to travel as people try and get out of their houses. Specifically, Key West, La Jolla, Bardessono, Yountville. What are the lead times needed to get those open? And are any of those still state mandated closed?

Richard Stockton, President and CEO

Those hotels that you just named are all of the hotels we expect to open first. So at the moment they expect to be open by early June, and we are able to already take reservations for the hotels. Now, there are in place government restrictions on hospitality operations for four of our properties, which include the two Napa hotels, the Pier House, and the Ritz-Carlton St. Thomas. So we expect those to be lifted, as I said, all within the next month, and we'll resume operations thereafter. But you're right that it is dependent on that happening in order for us to resume operations, particularly in the Napa hotels and the Pier House.

Jeremy Welter, COO

In terms of lead times, it's days, not weeks. Every one of our hotels has a current date that we expect to reopen or resume services. And so we could switch that earlier or later based on demand or other government issues.

Bryan Maher, Analyst

And then I understand that once you open and start generating revenue, it will slow your cash burn. But at what level of occupancy do you need to kind of get to breakeven on these assets? And I understand a lot of that is going to have to do with what rate you’re going to be able to charge. But do you have thoughts on a range of occupancy, not at the corporate level but on the asset level?

Richard Stockton, President and CEO

Yes, you're right. It does vary pretty dramatically by hotel and it really depends on the cost of operating in various markets, in particular, whether or not we have unionization in the hotel. But our estimate across the entire portfolio is going to be 35% to 40% occupancy at a rate that is 25% to 30% down in order to achieve breakeven.

Bryan Maher, Analyst

And then Richard, how do you weigh eliminating services, housekeeping, et cetera? You ran through a list of items that you are considering eliminating versus the premium pricing you get on a daily rate for many of these assets?

Richard Stockton, President and CEO

Yes, it’s a good point. And I think it's pretty clear that the luxury traveler is going to demand more of the services than perhaps some of our upper upscale hotels. So it is a conversation with our brand managers. I would expect that we would have more of those services, perhaps not even turned down at the luxury hotels, but more frequent stay-over cleanings than we would say the upper upscale hotels. So, you're right, that's something that's being discussed and planned out with the managers. I think one of the things that you kind of hear in the market is that the management starts to charge for cleaning services for stay-overs. That's not something that we're seeing happening. It's more that stay-over cleaning services are optional to the guests. And I think many guests would prefer not to have housekeepers in the room, and obviously, we're willing to abide by that concern. But on the other hand, it is available to those that request it.

Bryan Maher, Analyst

And then last from me, and then I'll go back into the queue, and maybe it’s best for Deric, I suppose. We weren't surprised really to see Ashford Trust hold payments on the non-recourse property level debt. But we were a little surprised that Braemar did so since it has less leverage and kind of more of a cash burn run rate than Ashford Trust. What are the thoughts there? And do you run the risk of loan payment acceleration requests from those lenders? And how do you weigh that risk, especially when there's so much equity in many of these properties?

Deric Eubanks, CFO

I would say this. I would say when our business really started to slow down, it happened very quickly. And there was a lot of uncertainty in terms of what the future was going to look like. So we went into cash conservation mode and we drew down on our line. We quickly tried to get our hands on really as much cash as we could from the properties in terms of excess working capital that our managers had. In some cases, for example, Marriott wasn't distributing cash to us. So we had situations where the property manager was holding excess working capital as well that wasn't being distributed or available for debt service. So we had a lot of decisions to make in terms of making debt service payments or not. We opted to basically not pay interest on the vast majority of our property level loans. These are non-recourse property level loans. And there was not, if there was sufficient cash from the properties to pay it, then it was paid. If not, we approached the lenders about forbearance agreements, and we've had a lot of success in those discussions so far, and hope to have some more information soon in terms of the progress there. But that's a little more color in terms of that process.

Richard Stockton, President and CEO

And Bryan, I would like to commend our lenders, frankly, for having such patience with us. The conversations that we've been having with them have been extraordinarily constructive. And I do expect, we weren't able to announce that we have forbearance agreements in place by the time of this call. I do expect to announce that in the near future as we have those conversations well-advanced. But as Deric said, and we like to say, we panicked early. So with an abundance of caution, we went into cash conservation mode. And I think given the lack of clarity on the duration of this crisis, that was absolutely the right thing to do. There's still more wood to chop. There’s still negative cash flow in the immediate future that we're managing. But I think our lenders understand that and they've been able to work with us very constructively.

Bryan Maher, Analyst

And will you announce those before the next quarterly earnings call, if and when they come in?

Richard Stockton, President and CEO

That's our intention.

Operator, Operator

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

Tyler Batory, Analyst

First question, obviously just on asset sales, that's something you're considering right now. Is that something that might make sense? And what are you hearing out there in the market in terms of bid-ask spreads, specifically on luxury and the trophy type assets that you own?

Richard Stockton, President and CEO

So, when we first caught sight that this tidal wave was heading towards us, we immediately went into the market to kind of test the appetite. We've seen the public equity markets had collapsed very precipitously and we were wondering if the same had been happening within the asset markets. So it turns out that it had and demand for hotel assets collapsed very quickly. That said, there are some very well-capitalized private equity funds out there still, family offices also that are looking to deploy capital into the hospitality space. But their pricing adjusted to, I'd say, a range of anywhere from a little under 30% to 40% down from pre-COVID-19 values or our estimates of values. For us, given our strong liquidity position, we felt that it wasn't necessary to sell assets at that price. Whether there's a bid-ask spread, I don't know exactly where we come out on that. But I do know that for that level of pricing, we felt that there are other options available to us to generate liquidity that were more favorable. So that's been our experience in the asset sale market.

Tyler Batory, Analyst

And just as a follow-up. I understand the world is much different today than it was a few months ago, but it sounds like January and February for the portfolio on a revenue basis were quite strong. So can you talk a little bit more about first the flow-through that you saw in those two months pre-COVID, and then some of the projects and whatnot, the renovations in Philadelphia, St. Thomas? I mean, how are things progressing versus your underwriting?

Jeremy Welter, COO

I don't have the flow-through numbers for January and February available, but I can say that due to the ramp-up in St. Thomas and the presence of a lot of aggressive, low-margin revenue, I expect that the flow-through wasn't as strong as it could have been given that level of growth. However, we did see good growth in overall EBITDA. Looking ahead, we have an impressive portfolio and there's significant pent-up demand in various markets. I believe we are very well positioned for the future.

Operator, Operator

Thank you. Our next question comes from line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka, Analyst

I wanted to ask, you are beginning to reopen more properties, given that a lot of your hotels do have a pretty big ancillary revenue load. How much of that is realistically kind of possible to do in the current environment? And how much does some of the ancillary stuff can be managed to be at least kind of break-even if you don't have the revenue coming in?

Richard Stockton, President and CEO

I'd say, Chris, to answer that question, our single largest contributor of ancillary revenue in the portfolio is the Ritz-Carlton Sarasota membership fees. We haven't seen significant drop-off in that. I think people that are our members enjoy utilizing those services, particularly now if they have more time, which include, as you know, the golf club, beach club, and the spa. And that property remains open. And so that's about $4 million a year in revenue. Now, there are other ancillary revenue sources throughout the portfolio that will be a little bit slower to come back, but they don't nearly represent the size and proportion that we have as the membership program in Sarasota.

Jeremy Welter, COO

Yes, I think when you look at some of our other assets like St. Thomas, we're not going to open, so we're going to reopen those services on a limited basis when you look in terms of the restaurants. We're going to have to have dining available but we're going to basically shift it to one venue and breakfast, lunch, and dinner going to be served at that venue. We do not plan to reopen our lounges, even the club lounges until we get sufficient demand at the properties. And so, Sarasota's club lounge will be closed indefinitely. It may open on an opportunity basis based on the demand on weekends, and the same is going to be for some of the other hotels as well. We're just going to have to evaluate it and see how things ramp up. But what I would tell you is that the number one driver in terms of margin in our portfolio is ADR and room traffic. And so, we're not really worried about the ancillary revenue, because this is a short-term situation. I think long-term we’ll have all our venues open and people will be traveling and they'll be utilizing our restaurants and our spas and some of the other ancillary services that we provide.

Chris Woronka, Analyst

And just kind of a follow-up on that. I think you guys gave out the data point of the premium ADR that the transients are getting over group for your portfolio. I'm guessing that's kind of a 2019 number trailing 12 number. How do you guys see rate kind of playing out if demand is going to be dominated by leisure for a while?

Jeremy Welter, COO

I mean, one of the things that we're going to miss in the short term is getting some of that base group business, either in our hotels or other hotels in the market, which obviously compresses demand and helps to drive up the transient rate. Right now, the only data point we really have that is meaningful for transient is in Sarasota, and the rate there is holding up fairly well as demand resumes. And so, I think the property team’s done a very, very good job from a revenue management standpoint and having the discipline to hold the rate at that hotel. I think in other markets there will be, it's going to be compressed and it's going to be challenged. And that's why I think when we quoted breakeven, we've assumed a 25% reduction in ADRs. It's difficult to say where we're going to see that and experience that across the portfolio, but it's going to be in markets that have either group demand or in markets or hotels that are in markets where group is contributing to demand within that market. So Key West I think probably still going to have really strong ADRs. I think that we'll see that over time with the Yountville assets as well, just because there's still going to be drive to leisure demand in those markets.

Richard Stockton, President and CEO

And Chris, just give you some other data points. So our business for the first quarter is about 27% group with the balance being transient for the most part, very small proponent or proportion of contracts, and that's consistent across the portfolio. Over time it kind of hovers in that kind of mid-20s percent group rate or group segment exposure. And our transient business is sold at around a 25% premium to the group rate. So we like, as Jeremy said, like that proportion. We like building a basic business of group. On the other hand, operationally I think we do quite well even without that much group demand as is expected in the next 12 months.

Jeremy Welter, COO

Yes, and one other thing, as you look at group, it's also need-based time periods. And so, typically, a lot of times when we're layering in with these wins, we have a low transient demand period, because our portfolio is worth resort focus, leisure focus. And so in a lot of cases, the lack of group base will not impact certain hotels just because we're layering in group in markets like Tahoe or Park Hyatt Beaver Creek. We don't hardly have any group in the December, January time frame just because there's so much training with demand regardless.

Chris Woronka, Analyst

Maybe just one last one for Richard, and I know you guys mentioned you've been able to get the advisory fee down a little bit. Is this kind of situation that you want to potentially re-explore any contract terms on the advisory agreement?

Richard Stockton, President and CEO

The advisory fee has decreased slightly in the first quarter. In the second quarter, you can expect it to decrease further, potentially by up to 10% due to a lower market cap. I don’t believe we will reach the minimum threshold for the advisory fee. Overall, the advisory fee structure is functioning well. Additionally, having access to a broad and deep team of experts at Braemar is something we wouldn't be able to achieve without this advisory relationship. This support has been beneficial, especially in navigating the current crisis, and I expect that to continue.

Operator, Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll now turn the floor back to management for any final comments.

Richard Stockton, President and CEO

Great. Well, thanks to everybody for joining the call. I look forward to speaking to you all again next quarter. Thank you.

Operator, Operator

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