Earnings Call Transcript - BHR Q1 2023

Operator, Operator

Greetings. Welcome to the Braemar Hotels & Resorts, Inc. First Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Jordan Jennings, Manager of Investor Relations. You may begin.

Jordan Jennings, Manager of Investor Relations

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the first quarter of 2023 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 possibility of this conference call on a listen-only basis over the Internet, were distributed yesterday in the press release. At this time, I'll 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 contemplate an offer to sell or solicitation or an offer to buy any securities. Securities will be offered by means of our 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 7, 2023, and may also be accessed on 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. Also, unless otherwise stated, all reported results discussed in this call compare the first quarter ended March 31, 2023, with the first quarter ended March 31, 2022. I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Richard Stockton, President and CEO

Good morning, and welcome to our 2023 first quarter earnings conference call. I will begin by providing an overview of our business and an update on our portfolio. Then Deric will provide a review of our financial results, and Chris will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. We have a few key themes for today's call. First, we're pleased with the continued momentum of our urban hotels, which achieved strong growth again this quarter, with comparable hotel EBITDA growth of $9.2 million in the first quarter over the prior year quarter. Second, during the first quarter, we concluded the capital raising for our non-traded preferred stock offering. As we said, the offering has enhanced our capital position and allowed us to go on offense during an attractive time in the cycle. Third, we're pleased to note that the three hotels we have acquired this cycle are performing very well and have exceeded our original underwriting. Fourth, we continue to diligently execute and work through our refinancing program for 2023. And finally, we've said this before, it's worth repeating, Braemar's management team has been through many economic cycles. We are delivering against our long-term strategy and remain well positioned to capitalize on appropriate growth opportunities. Turning to our quarterly results, I'm pleased to report that Braemar delivered solid first quarter results despite a volatile macroeconomic environment. Our first quarter 2023 comparable hotel EBITDA of $72.8 million was driven by the continued strong performance at our resort properties and, as we've outlined on prior calls, the continued momentum and strong growth from our urban hotels. Also, looking at RevPAR for all hotels in the portfolio, RevPAR increased approximately 8% for the first quarter of 2023 compared to the first quarter of 2022. Taking a closer look at our best-in-class luxury portfolio, many of our hotels are well situated in attractive high barrier to entry leisure markets. Ten of our 16 hotels are considered resort destinations, and they remain extremely well positioned to benefit from persistent leisure demand. For the quarter, we are very pleased to report that our luxury resort portfolio continues to outperform and delivered a combined hotel EBITDA of $64 million to start 2023. With respect to our urban assets, our first quarter performance was solid and exhibited strong growth for the eighth consecutive quarter. In fact, we generated $9 million of comparable hotel EBITDA, and all six urban properties posted positive hotel EBITDA. We are very encouraged by the continued momentum and ramp-up of our urban hotels as demand quickly returns to our cities. This return continues to be driven by corporate transient with recent strength in corporate group demand. Overall, our urban portfolio is in solid shape, and as demonstrated by our first quarter performance, we continue to believe our urban hotels will help drive the next phase of growth for our portfolio. Next, we remain very excited about our recent acquisition of the Four Seasons Resort Scottsdale at True North, which has exceeded our expectations and delivered RevPAR growth of 25% over the prior year period. As you may recall, the 210-room luxury resort was acquired in early December 2022 with cash on hand and no common equity was issued to fund the acquisition. Strategically, as demonstrated by its first quarter performance, it's a great addition to our portfolio and fits perfectly with our strategy of owning high RevPAR luxury hotels and resorts. The Four Seasons Scottsdale delivered RevPAR of $749 based on 53% occupancy and an ADR of $1,403. Our other acquisition from last year, the Ritz-Carlton Reserve Dorado Beach, also continues to perform very well. For the quarter, the Ritz-Carlton Reserve Dorado Beach delivered RevPAR of $1,753 based on 56% occupancy and an outstanding ADR of $3,115. Over the trailing 12 months, the Ritz-Carlton Reserve Dorado Beach has achieved an 8.6% yield on cost, while the Four Seasons Scottsdale achieved a 7.4% yield on cost. I'm pleased to note that these luxury assets have significantly outpaced our underwriting, and looking ahead to the balance of the year, we remain very excited about the prospects for these properties. Looking at our capital position, Braemar's balance sheet remains in good shape, and we continue to emphasize balance sheet flexibility. Towards this end, during the first quarter, we worked through our 2023 refinancing program to further enhance our attractive maturity schedule. In April, we finalized extensions of the mortgage loans for the Ritz-Carlton Sarasota and Hotel Yountville. Both loans were extended beyond their original maturity for an additional six months, with one additional six-month extension also available. We're also working with our lender on a refinancing of the mortgage loan secured by the Barestone Hotel and Spa, which has a final maturity in August 2023. This is a very low-leveraged loan, and we don't anticipate any challenges with extending or refinancing it. Next, on the Investor Relations front, we continue to be active in meeting with investors to communicate our strategy and highlight the attractiveness of an investment in Braemar. We plan to continue to get out on the road, attending investor conferences and one-on-one meetings. And we also hope to see some of you at NAREIT in June. Looking ahead, 2023 is off to a solid start, and we are encouraged that our group pace is up 28% year-over-year. Our unique portfolio, which is focused on the luxury segment and with properties in both resort and urban markets, puts us on solid footing to perform well in both the near term and the long term as leisure demand remains strong, and business and group travel continue to accelerate. We have the highest quality hotel portfolio in the public markets, and we remain well positioned with 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 to take you through our financials in more detail.

Deric Eubanks, Chief Financial Officer

Thanks, Richard. For the quarter, we reported net income attributable to common stockholders of $3.2 million, or $0.05 per diluted share, and AFFO per diluted share of $0.44. Adjusted EBITDAre for the quarter was $66.1 million, which reflected a growth rate of 34% over the prior year quarter. At quarter end, we had total assets of $2.4 billion. We had $1.3 billion of loans, of which $49 million related to our joint venture partner's share of the loan on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 6.3%, taking into account the in-the-money interest rate caps. Based on the current levels of LIBOR and SOFR and our corresponding interest rate caps, approximately 74% of the company's debt is effectively fixed, and approximately 26% is effectively floating. As of the end of the first quarter, we had approximately 37.1% net debt to gross assets. We ended the quarter with cash and cash equivalents of $281.5 million and restricted cash of $63.1 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. With regard to dividends, in December we announced a significant increase in the company's quarterly common stock dividend to $0.05 per share, or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately 5.3% based on yesterday's stock price. The Board also approved the company's dividend policy for 2023. The company expects to pay a quarterly cash dividend of $0.05 per share for 2023 or $0.20 per share on an annualized basis. Reflecting a strong conviction in our strategy and our commitment to creating long-term shareholder value, in December, we also announced a stock repurchase program of up to $25 million. During the first quarter, we completed the $25 million buyback program and acquired 5.4 million shares at an average price of $4.60 per share. On the capital markets front, subsequent to quarter end, we finalized an extension of our $98 million mortgage loan for the 276-room Ritz-Carlton Sarasota. The loan was extended beyond its original maturity in April 2023 for an additional six months, with one additional six-month extension available. As extended, the Ritz-Carlton Sarasota loan has a rate of SOFR plus 2.65%, then will reset to SOFR plus 3.5% on June 1, 2023. In connection with that extension, the company purchased a SOFR interest rate cap at a strike of 5.25% with an expiration date of October 4, 2023. We also finalized an extension of our $51 million mortgage loan for the 80-room Hotel Yountville. The loan was extended beyond its original maturity in May 2023 for an additional six months, with one additional six-month extension available. As extended, the Hotel Yountville loan has a rate of SOFR plus 2.55% that will reset to SOFR plus 3.5% on July 1, 2023. As of March 31, 2023, our portfolio consisted of 16 hotels with 3,957 net rooms. Our share count currently stands at 72.8 million fully diluted shares outstanding, which is comprised of 66 million shares of common stock and 6.9 million OP units. This concludes our financial review. I'd now like to turn it over to Chris to discuss our asset management activities for the quarter.

Christopher Nixon, Executive Vice President and Head of Asset Management

Thank you, Deric. For the quarter, comparable RevPAR for our portfolio increased 8% over the prior year quarter to $369. This RevPAR result is approximately 27% higher than the national average for the luxury chain scale and reflects the high-quality nature of our portfolio. I would like to spend some time highlighting how our team has capitalized on the urban recovery, built a foundation around group demand, and implemented successful initiatives at our newly acquired hotels. Our urban assets continue to benefit from the acceleration of demand into their markets. For our urban assets, comparable hotel total revenue in the first quarter surpassed the prior year's first quarter by 62%. This increase was led by our largest hotel, Capital Hilton, which reported comparable RevPAR growth of 126% over the prior year quarter. This achievement is noteworthy for a couple of reasons: one, the hotel is under a transformative guest room renovation throughout most of the first quarter; and two, the hotel exceeded the market RevPAR growth of 73%. We attribute the success to our partnership with Premier, who is handling the renovation and the successful implementation of their stealth renovation program, which minimizes displacement, and our overall revenue optimization strategy, which identified softness in the market and proactively focused on building a foundation of group business. That emphasis on developing the foundation of group business at our hotels, as well as the return of major events and conferences, propelled our group room revenue for the first quarter ahead of the prior year's first quarter by 57%. Comparable group room rates are up 8% relative to the prior year's first quarter. We also saw excellent signs from our group booking volume in the first quarter, where revenue placed on the books for all future dates was up 16% relative to the prior year's first quarter. Our group pickup, which is defined as group room revenue booked during the quarter for stays within the same quarter, was strong. At the beginning of the quarter, we had approximately $18.5 million in group room revenue on the books and ended with approximately $26 million. That is a 41% increase in total group room revenue for the quarter based on stays booked within the same quarter. In comparison, the pickup last year was only 6%. While we are excited about the progress we are seeing in long-term group bookings, we plan to utilize our leverage throughout the current short-term booking environment to maximize our pricing strategy. All of these efforts and more have contributed to the overall success of the portfolio during the first quarter of 2023. It is worth noting just how successful the first quarter was in terms of hotel performance, with four of our hotels setting all-time first quarter records in hotel EBITDA, including our two most recent acquisitions, the Ritz-Carlton Reserve Dorado Beach and the Four Seasons Scottsdale. During the acquisition process, our team created detailed takeover plans for each hotel, including strategic opportunities to improve both top and bottom line. For the Ritz-Carlton Reserve Dorado Beach, our team focused on items that would move the needle immediately, including increasing pricing in our F&B outlets, optimizing the cabana rental program, enhancing our digital marketing efforts, and implementing an ancillary sales and upsell program. Our Four Seasons in Scottsdale experienced similar successful initiatives as well as benefited from demand sources through Super Bowl weekend, which resulted in more than $3.2 million of room revenue over a four-day period. That is a 427% increase year-over-year in room revenue for that period. Moving on to capital investment, we have invested heavily in our portfolio over the last several years to enhance our competitive advantage. These investments uniquely position our portfolio to benefit from pent-up demand that we are currently seeing in our markets. As previously mentioned, we are currently renovating the guest rooms at the Capital Hilton. Later this year, we plan to start guest room renovations at Bardessono Hotel & Spa, Hotel Yountville, and the Ritz-Carlton Lake Tahoe. We also plan to begin renovating the meeting space at Park Hyatt Beaver Creek, the spa areas at the Ritz-Carlton Sarasota, and the Ritz-Carlton Lake Tahoe, as well as adding a lobby retail outlet at the Ritz-Carlton Lake Tahoe. For 2023, we anticipate spending between $70 million and $80 million on capital expenditures. I would like to finish by emphasizing how optimistic we are about the future of this portfolio. As I mentioned earlier, our urban assets are experiencing strong demand. Group business continues to show immense growth, and a number of our assets continue to break comparable hotel EBITDA records. We are already launching new initiatives to further enhance our portfolio. Some of these include transformative full property renovations, developing underutilized land, and key additions, such as the recent acquisition of three keys at Park Hyatt Beaver Creek in January of 2023. With these new initiatives underway, we are confident that the portfolio will continue to operate successfully.

Richard Stockton, President and CEO

Thank you, Chris. In summary, we continue to be pleased with the trends we are seeing in our hotels driven by strong leisure demand at our luxury resort properties and the continued recovery of our urban properties. We see a clear path for continued strength in our future financial results. We are very well positioned moving forward with a solid balance sheet and the highest quality portfolio in the publicly traded hotel REIT market. We look forward to updating you on our progress in the quarters ahead. This concludes our prepared remarks and we'll now open the call for Q&A.

Operator, Operator

Thank you. And at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Michael Bellisario with Baird. Please proceed with your question.

Michael Bellisario, Analyst

Thanks. Good morning, everyone.

Richard Stockton, President and CEO

Good morning.

Michael Bellisario, Analyst

Just first topic for Deric. Can you maybe talk about the conversations that you had with your lenders for those recent extensions? What are they asking for generally? What are you looking for? And then maybe secondarily, where were you in the process before all the banking turmoil occurred, and I assume that's what derailed the more fulsome refinancing or extension package for the two loans so far and plus the third one coming up?

Deric Eubanks, Chief Financial Officer

Thank you, Mike. Regarding the banking issues making headlines, we haven't seen any impact on our operations. The situation with our refinancing efforts remains unaffected. We are currently in a unique position as our three impending maturities this year are all tied to property-level mortgages from the same lender. We opted for short-term extensions, providing us with flexibility. We are also working towards a comprehensive corporate-level financing, utilizing those assets as a borrowing base to secure an undrawn credit facility, which will enhance our options. Although none of the hotel debt markets are particularly appealing right now, this area is somewhat more attractive compared to standard hotel mortgages. Ideally, we will reach a favorable outcome in due time. The extensions grant us the flexibility and timeframe needed to pursue a more extensive corporate financing solution. We are satisfied with completing the extensions, and the terms we secured are competitive with today's mortgage market.

Richard Stockton, President and CEO

Yes. And I'd just add as a point that, historically, we've only really dealt with large money center banks, right, the systematically important banks. Most of our loans are with BAML, which is the second largest bank in the country. So we've been completely insulated from this volatility and pull back from lending in the small and medium-sized regional banks. So we feel really confident about our balance sheet and what we have to do going forward shouldn't be a big lift.

Michael Bellisario, Analyst

Got it. And then my follow-up on the transaction front, it's sort of related to my first question, but maybe you sort of partially answered it already, Richard. Just are you seeing any opportunities emerge there? And then maybe is there any reason to be a little bit more cautious or pause until maybe you have more clarity on what you're going to do on the balance sheet side of things with the upcoming refinancings? Or do you view those as two separate avenues that are independent of one another?

Richard Stockton, President and CEO

No, I think you are correct. We aim to restructure our liabilities to reduce our debt costs. Until we have a clearer idea of where that ends up, we are unlikely to pursue acquisitions aggressively. However, acquisitions tend to be a long-term process. Even now, we are actively discussing potential opportunities since many of these deals can take months or even years to finalize. The assets we are targeting are unique luxury properties, which aren’t just commodities; you can’t simply decide to buy a certain number of hotels each month. We are still actively looking, but I won’t comment on the acquisition market. Many sellers seem a bit unrealistic about pricing. I receive offers with four and five caps, which I find amusing because they aren’t realistic. We are on the lookout, but we may need to wait for the new average cost of capital to stabilize and for sellers to adjust their expectations regarding the value of their assets.

Michael Bellisario, Analyst

Helpful. Thank you very much.

Operator, Operator

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

Chris Woronka, Analyst

Hey, good morning, guys. Thanks for taking the question. So I guess, first, Richard, regardless of how the debt situation might play out in these hotels. I mean, do you view Chicago and the two autographs as kind of still core to the long-term portfolio?

Richard Stockton, President and CEO

Yes, that's a good question. Good morning, Chris. No, I think absolutely. I think there's more room to run on each of those assets. In the case of Sofitel, we had a little bit of a dispute with the manager there that lasted a couple of years. We settled it in a place that felt was much more favorable to us and have seen improvement in the performance of that asset and of that management team. So we're still giving that time to play out and really get that asset up to its long-term potential. In the case of the two autographs, maybe it's just a little bit personal for me, but I got very excited about those renovations. I believe the quality of those properties has been enhanced very significantly since they were courtyards some four years ago. And I do think we still have time to realize the potential in those assets.

Christopher Nixon, Executive Vice President and Head of Asset Management

Yes. I would just add that we converted and renovated those hotels at the end of 2019 and into 2020, and we have not yet seen the benefits from that transition. We are very excited about the potential. For example, our Notary Hotel in Philadelphia is significantly outperforming the market, mainly due to the brand and the strategies we have implemented. Regarding the Clancy in San Francisco, we've gone through the toughest part of that market, and it is now experiencing substantial growth. We are seeing positive signs with citywide events returning, including successful ones like American Social Oncology, and the JPMorgan event that was canceled last year is back. We have identified opportunities to add value to that hotel, including new meeting space and a brand new fitness center. Therefore, we are optimistic and believe both properties have considerable potential that we have yet to unlock.

Chris Woronka, Analyst

Thank you for all the details. Richard or Chris, could you provide a brief update on the excess real estate opportunities? You've mentioned development potential and the possibility of selling properties. I'm referring to locations like Scottsdale, Beverly Hills, and possibly Sarasota. Can you share where you currently stand on these projects and what your plans might be for the next year?

Richard Stockton, President and CEO

We have several aspects to address regarding your question. First, we currently hold three development parcels in our portfolio, along with condominiums available for midterm rental in Beverly Hills. Starting with the condominiums, we have five units that require a minimum 30-day stay. We are considering whether it would be advantageous to sell one or more of these to an owner-occupier. However, the high mortgage rates are dampening the residential market, so it might be wise to wait for a shift in that trend as we anticipate a Federal Reserve pivot in the coming months. Ultimately, these units will be monetized. Regarding the development parcels, the first is at the Ritz-Carlton Lake Tahoe, where we have 3.5 acres and are progressing well with Placer County to secure entitlements for 18 townhomes. We aim to have a sales center ready by year-end to begin presales before the ski season, with plans to break ground next May when conditions permit. The second parcel is located at Ritz-Carlton Sarasota, where we are developing a plan for 50 branded residences, single-family homes. We are making good progress on the concept planning and expect to finalize budgets in the latter half of this year, with a likely groundbreaking in late 2024 or 2025, as the approval process can be lengthy. Lastly, we are in the early stages of evaluating a nearly six-acre parcel at the Four Seasons Scottsdale. This site has commercial zoning that could allow for the addition of hotel keys, as we believe the current hotel is under-suited. There is also a robust market for more spa and wellness facilities. Although we inherited a plan from the seller, and the Four Seasons has been actively involved, the timing for this initiative is still uncertain since we do not yet have a final conceptual plan. This summarizes our current situation.

Chris Woronka, Analyst

Yes. Very good, very helpful. Thanks, Richard.

Operator, Operator

Our next question comes from the line of Bryan Maher with B. Riley Securities. Please proceed with your question.

Bryan Maher, Analyst

Yes. Good morning. I want to revisit the refinancing and the idea of moving toward a more comprehensive solution. Is there a strategy change at Braemar shifting from nonrecourse mortgage debt, like what Ashford Trust has typically done, to a more integrated approach? Additionally, considering that you have previously preferred floating rate debt over fixed rate debt, with the ongoing need to purchase caps on extensions, how do you evaluate the costs of those caps when deciding between floating and fixed rate debt?

Deric Eubanks, Chief Financial Officer

Yes. Thanks, Bryan. It's Deric. So on your first question in terms of strategy shift. I mean, I wouldn't say it's a significant strategy shift, but we had a corporate credit facility at Braemar prior to the pandemic, and we drew down, and we even converted it into a term loan and then we ultimately paid it off with the senior notes that we issued. So it's kind of going back to kind of where we were pre-COVID. So there's not a significant strategy shift. I think we'll still utilize the mix of property-level mortgage debt as well as corporate-level debt at Braemar. As you know, Braemar has a little bit lower leverage strategy than Ashford Trust, which you referenced. So we think it makes sense to utilize a little bit more of a mix in terms of the financing that we utilize at Braemar. So in terms of the caps and the cost of the caps and how do we take that into account when we're looking at fixed-rate financing versus floating-rate financing. You're right, we do have a preference for floating rate financing. There's multiple reasons why we do that. Obviously, right now, we're in this period of time where if you've been a floating-rate borrower, you've seen rates go up quite a bit, and we've had caps in place, and those caps have kicked in. But rates go up, rates go down. And we view it as a natural hedge to our business that the profitability of hotels tends to go up and down with the economy. And we also like the flexibility that floating rate debt provides versus fixed rate debt. So there's a lot of reasons why we tended to focus on floating-rate financing. I think you'll continue to see us have a mix. We've got a mix right now. I think we'll continue to have a mix going forward. So I don't think we'll be entirely one way or the other. And if you look at the forward curve of interest rates, it shows rates dropping pretty significantly over the next couple of years. So now really wouldn't be an ideal time to lock in fixed-rate debt. Although, having said that, I think you'll also see us kind of do a little bit of both. And I wouldn't say we wouldn't go do a fixed-rate loan at the moment with some of the maturities that we have coming up just because the floating-rate market is really not attractive. And so there's just a lot of factors that go into play when we're making those decisions. Obviously, the cost of caps is something that is very volatile. It changes. They can go from being very, very cheap to being very, very expensive. And that's kind of where we are right now with the caps that tended to be a little bit more expensive. So that's kind of my comment there.

Bryan Maher, Analyst

Okay. Shifting to the acquisition front, Richard, I heard your thoughts about the low four and five caps, and I agree. If the forecasts are accurate and we see a significant number of larger gateway properties struggling to secure financing later this year, would there be an opportunity to reopen or initiate a new non-traded preferred issuance to access that 8% to 8.5% funding, should we identify a value proposition worth pursuing?

Richard Stockton, President and CEO

Yes, Bryan, thanks for that question. There is always the ability to file for a new non-traded preferred equity offering. Given that we've already done it before, it would probably be able to happen relatively quickly within a matter of a few months. At the cost that you referenced, I think if we were to do it, we would want to do it at a cost that is below where our inaugural issue came out. What we understand from our friends in the broker-dealer community is that this retail market is a little bit less sensitive to rates than maybe the institutional markets, so we may be able to do that. That said, the other thing we're keeping a very close eye on is our capital structure. With something like 25% of our capital structure in preferred equity right now, is that enough? Personally, I believe it is, at least for now. So I hear you that there may be some good opportunities that we want to avail ourselves of in the future. We'll definitely keep an eye on that. And rest assured, we can quickly pivot to access that market if the opportunities are there.

Bryan Maher, Analyst

Okay. Thank you.

Operator, Operator

Our next question comes from Tyler Batory with Oppenheimer. Please proceed with your question.

Tyler Batory, Analyst

Hi. Good morning. Thanks for taking my questions. A couple on just trends in the portfolio and what you're seeing out there. Can you talk about how April is shaping up, perhaps compared to margin? There's concern out there in the market about demand slowing, especially the high-end leisure customer or perhaps softer pricing power as well. So just kind of interested what you're seeing real time? And also just what you're seeing in terms of bookings for the rest of Q2?

Christopher Nixon, Executive Vice President and Head of Asset Management

Yes. Thanks for your question, Tyler. This is Chris. I'll take this. We're largely seeing the trends that we experienced in Q1 kind of pulling forward and continuing. Our urban hotels continue to perform very well. They're pacing very well relative to last year. Our resorts continue to stabilize, and we see a lot of those trends kind of pulling forward. I think Richard cited in his comments, group pace is very strong for the entire year. And so, we're encouraged by that. We're seeing great strength out of our short-term group bookings. So the fact that that pace for the full year is well ahead of the prior year, and we're seeing continued short-term strength is a great sign. Business travel is improving. That's showing no signs of slowing down. I think as we look to Q2, some of the comparables will be at play. This portfolio had a very strong March and April of 2022. Just coming out of Omicron, there was a lot of pent-up demand. The incredible hotels in this portfolio are where folks wanted to travel to first. We saw a huge surge in bookings last year for March and April. There's also going to be some kind of tax anomalies. We realized a significant tax assessment last year in April that will play into the comparables. So we've got some tough comparables as we kind of look ahead into Q2. But with that said, in terms of the business and the trends we're seeing, they're still very, very favorable. From a margin standpoint, we're happy with margin performance in our portfolio. ADR is up in our luxury resorts 50% to pre-COVID. And with that comes very, very high expectations from the consumer. So we're very pleased that we continue as a portfolio as a whole to run more efficient operations. For the first quarter, our departmental expenses were down 5% on a PLR basis to prior year. And there are a lot of efficiencies there that we believe we're going to be able to pull forward. So on the whole, again, just a continuation of kind of what we've seen. Urban will continue to be strong, resorts will continue to stabilize, and the segments group and business transient continue to improve.

Richard Stockton, President and CEO

I would like to add to that, Chris. One of the unique aspects of our portfolio is that we recovered much more quickly than our peers. I believe we are at least a year ahead in terms of recovery, evidenced by our outstanding performance last year. While this creates tough comparisons, it’s hard to feel that we should penalize ourselves for having such a fantastic year. That's why I focus on metrics like yield on cost and cash flow generation, which are very strong. We started sharing this information in our company presentation, and it remains robust. We have a solid foundation of what I would describe as stable resort demand and a growing urban segment, which positions us well to generate significant excess cash flow.

Tyler Batory, Analyst

Okay. A follow-up on some of the commentary there. I'm interested specifically on the EBITDA margin side of things. I mean, how did margins come in, in Q1 versus your budgets versus your expectations? And when we look at the performance in 2022, do you think it's reasonable that you could be ballpark around the same level in 2023? Or do you kind of look at 2022 overall, perhaps a little bit of an extra benefit there just given the rates were so strong, perhaps earlier in the year, and did have a full labor base at some of your properties?

Christopher Nixon, Executive Vice President and Head of Asset Management

Yes. That's a great question, Tyler. So our EBITDA margins were down 11 basis points to last year and some of the dynamics that are at play there. ADR was down 8% to prior year. And then when you look at our composition of revenues, we had F&B revenues that grew at 16% the prior year and rooms revenue that grew at 8% the prior year. And so F&B revenues typically run at significantly lower margins than rooms. There were a couple of dynamics there that were impacting that. Then we had a big win from a property tax standpoint. So at our Sofitel Chicago, they realized a 2022 tax reduction in February of 2023, that was over $2 million. And so that certainly played in and helped our margins. There's going to be some noise, as I mentioned, as it relates to EBITDA margin as we realized a significant tax reduction in Q2 of 2022. But on the whole, as we look at it, we're running more efficient operations. We're seeing improved productivity across our hotels. When we look at EBITDA margins to prior year, I think what's happening in the aggregate of the portfolio will be at play. A lot of our urban hotels that carry a lower RevPAR are growing significantly, and our highest RevPAR hotels are stabilizing. So the weighted impact of that could be a decline in RevPAR for the portfolio as a whole, could be a decline in ADR as kind of those weightings shift based on the composition changes within the portfolio. That's some of the challenges with this particular portfolio looking year-over-year. But as we compare to pre-COVID levels and EBITDA margin and rooms margin in 2019, we're significantly ahead. I do think there's going to be some noise as we kind of go quarter-to-quarter. But on the whole, we're very happy with kind of our labor models, the efficiencies of our hotels, and how we're staffing and running the hotels.

Richard Stockton, President and CEO

Yes. And Tyler, I would add to that. We hear people comment on the impact of COVID on your labor model, labor structure, and all of that. I do subscribe to the belief that we have found 100 to 200 basis points of permanent margin improvement. That's how we think about the business moving forward. We're running at a little over 10% lower number of FTEs than we did pre-pandemic. And I'd say that we are basically fully staffed up. There might be some pockets where we can add some people, but that's really going to be more converting contract labor to full-time, which would result in additional cost savings. So, I think in terms of lessons from COVID, we've come out of it in a better place. Long term, it's going to benefit shareholders.

Tyler Batory, Analyst

Okay. A few other follow-up questions. The urban improvement, urban recovery is nice to see that. I mean, is that being driven by leisure? Is that corporate travel? Is it kind of mid-week? And then you're interested in your perspective on San Francisco specifically. There seems to be a wide variety of different headlines out there in terms of the outlook for real estate in San Francisco, broadly, tech layoffs, regional banking issues, etc. Just kind of curious what your perspective is on San Francisco and the outlook this year and the next couple of years there?

Christopher Nixon, Executive Vice President and Head of Asset Management

Yes, I can provide some insight on that. Overall, our urban hotels are experiencing significant improvements, with a 60% increase year-on-year driven by all segments. The largest recovery is coming from group and corporate transient segments, and results vary by market. In Philadelphia, our Notary Hotel exceeded the broader market's performance by securing a major account with Comcast, which generated substantial corporate revenue. Despite Cap Hilton undergoing renovations, March became the second-highest revenue month in the hotel's history due to excellent group production. Our team actively sought self-contained in-house groups to build a robust group base and address market softness, thus making it market-specific. In Chicago at our Sofitel Hotel, we've shifted away from some wholesale business because of the strong group demand, with group bookings up 15,000 room nights year-on-year. We’re also seeing robust corporate consortium activity that allows us to step back from lower-revenue business. In San Francisco, our Clancy Hotel faced a 22% decline compared to 2019, yet experienced over a 70% increase from last year, reflecting strong signs of recovery year-on-year. I previously mentioned the solid citywide production in Q1, and we're also observing encouraging trends from corporate clients, particularly consulting and financial services firms. The tech sector is lagging, primarily due to layoffs impacting travel from large accounts. Nevertheless, we remain optimistic about our single hotel performance in San Francisco.

Tyler Batory, Analyst

Okay. And then I think the last topic, the share repurchase, you bought back some stock in Q1 here; you used that authorization. I mean, any thoughts on kind of extending that or increasing that in the future? I mean, how do repurchases fit in, so how you're thinking about capital?

Richard Stockton, President and CEO

Yes, Tyler, good question. We're always assessing it. We're always evaluating. It's clearly a Board decision. That's about all I can tell you is we'll continue to look at it. I think suffice it to say that we're very disappointed with the multiple we're getting on our stock right now. It is a very attractive investment. We see that. As we said in the past, it's kind of this fighting conflicting priorities, right, because if we do buybacks, we're increasing leverage and reducing our market cap. But look, it's a fair question, and we'll continue to evaluate whether or not we launch a new share buyback.

Tyler Batory, Analyst

Okay. That’s all from me. Thank you very much for the detail.

Operator, Operator

And we have reached the end of the question-and-answer session. I'll now turn the call back over to management for closing remarks.

Richard Stockton, President and CEO

Thanks, everyone, for joining us on our first quarter earnings call. We look forward to speaking with you on our next call and hope to see many of you at the NAREIT Conference in New York in June. Have a good day.

Operator, Operator

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