Greetings. Welcome to the Braemar Hotels & Resorts, Inc. Second Quarter 2021 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, Investor Relations for Braemar. Thank you. You may begin..

Good morning and welcome to today’s call to review results for Braemar Hotels & Resorts for the second quarter 2021 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer.

Your results as well as notice of accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday in a press release..

first, our luxury resort portfolio continues to outperform, resulting in $24.7 million of hotel EBITDA for our company and an average daily rate of over $380 for the quarter. Second, for the second quarter in a row, we were cash flow positive at the corporate level.

Third, our portfolio is well positioned to continue to outperform with very strong forward bookings for the third quarter. Fourth, our balance sheet is in good shape with no near-term debt maturities. And fifth, we announced the planned acquisition of the Mr.

C Beverly Hills Hotel in Los Angeles, California, a luxury hotel, ideally located in close proximity to high-end shopping on Rodeo Drive and business demand from Century City and Culver City..

Thanks, Richard. For the second quarter of 2021, we reported a net loss attributable to common stockholders of $15.5 million or $0.32 per diluted share. For the quarter, we reported AFFO per diluted share of $0.20 compared to AFFO of negative $0.68 per diluted share in the prior year quarter.

Adjusted EBITDAre for the quarter was $19.6 million, and we were cash flow positive at the corporate level for the quarter. At quarter end, we had total assets of $1.8 billion. We had $1.2 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 2.6%. As of the end of the second quarter, we had approximately 49% net debt to gross assets and our next final debt maturity is in April 2022. We ended the quarter with cash and cash equivalents of $157.7 million and restricted cash of $57.4 million.

The vast majority of that restricted cash is comprised of lender and manager-held reserve accounts. The restricted cash at the end of the quarter also included approximately $19 million of cash that was moved from restricted cash to cash and cash equivalents subsequent to the end of the quarter as a result of the Ritz-Carlton St.

Thomas and Pier House Resort coming out of their respective cash traps. At the end of the quarter, we also had $21.5 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 Hotel EBITDA during the quarter was $24.7 million. Our current monthly run-rate for debt service is approximately $2.6 million. Our current monthly run-rate for corporate G&A and advisory fees is approximately $1.5 million.

As Richard mentioned, during the quarter, we completed a private placement of Convertible Senior Notes due in 2026 for $86.25 million of gross proceeds. The Notes pay interest semi-annually at a rate of 4.5% per year and will mature on June 1, 2026, unless earlier converted, redeemed or repurchased in accordance with their terms.

The Notes are senior unsecured obligations of Braemar, and are convertible for cash, shares of the company’s common stock, or a combination of cash and shares of the company’s common stock, at Braemar’s option at maturity under certain conditions.

The initial conversion rate for the Notes is 157.7909 shares of the Company’s common stock per $1,000 principal amount of the Notes, and the initial conversion price is approximately $6.34 per share of the Company’s common stock.

A portion of the net proceeds from the offering was used to repay the amount outstanding under our secured term loan, and the excess proceeds will be used to fund the cash component of the Mr. C acquisition..

Thank you, Deric. Comparable RevPAR for our portfolio increased an impressive 875% during the second quarter, and we were able to generate Hotel EBITDA flow-through of 48%. For the second quarter, Braemar recorded an incredible 80% of its comparable period 2019 RevPAR compared to 66% and 54% for the U.S.

Luxury and Upper Upscale chain scales, respectively. Our continued market outperformance over the last quarter is another testament of the overall quality of our assets and the strength of our asset management team.

Within our portfolio, more than half of our assets achieved a second quarter RevPAR higher than the comparable 2019 period, and some of these hotels set all-time property performance records. On an aggregate basis, these assets had a RevPAR increase of 74% over the comparable second quarter 2019 period.

Our Asset Management team’s commitment to drive outperformance is unmatched, and we could not be prouder of these results. I will now provide some of the hotel performance highlights from the second quarter. First, the Bardessono Hotel and Spa generated more revenue in the month of June than any month in the resort’s history.

The performance during the quarter was aided by a contribution of nearly $600,000 in revenue from the newly-developed luxury villa, which we believe will continue to provide upside momentum for the property. Next, our two mountain resorts, the Ritz-Carlton Lake Tahoe and Park Hyatt Beaver Creek also had spectacular results during the second quarter.

With their aggregated RevPAR increasing 28% over the comparable 2019 period. The Ritz-Carlton Lake Tahoe saw its ADR increase 26% over the comparable 2019 period. Our team capitalized on the increase in leisure demand by creating packages that targeted the staycation trend, which more than doubled the resort’s package revenue relative to 2019.

Historically this property has closed for a period of time in April due to the low demand, following the end of the ski season. However, due to our team’s effort to uncover additional demand drivers, we made a strategic decision to stay open. And for the first time, the property reported positive GOP for the month of April.

Park Hyatt Beaver Creek is also performing well, where June’s ADR being the highest in its history for that month. Our team has pushed the property to be more aggressive on their upselling efforts, which has resulted in a 350% increase in upsell revenue during the month of June versus the comparable 2019 period. Lastly, our beach resorts.

The Ritz-Carlton St. Thomas, the Ritz-Carlton, Sarasota and the Pier House Resort & Spa, have all been stand out performers. Collectively second quarter RevPAR at these properties increased 101% over the comparable 2019 period. The Ritz-Carlton St.

Thomas produced $8.1 million in hotel EBITDA during the second quarter, that number is particularly impressive when compared to the $8.8 million in hotel EBITDA, the property produced in the full year of 2016, which was the last year without renovation or hurricane displacement.

For clarity, this property merely generated as much hotel EBITDA in the second quarter, as it generated in the full year of 2016. This accomplishment can be attributed to the recent property-wide renovation and our team’s ability to successfully capitalize on the significant leisure demand that we are experiencing.

Ritz-Carlton, Sarasota has also exhibited significant outperformance with trailing 12 month revenue of $66.7 million, which is higher than any full year revenue results, since we’ve owned the property. Part of that success has been our emphasis on securing long-term recurring revenue through our membership program, which has now sold out.

The membership program, which includes access to the beach club and golf club has produced nearly $3 million of revenue year-to-date. Finally, the Pier House Resort & Spa had a solid second quarter with occupancy and ADR both exceeding 2019 levels for the comparable period.

During the same quarter, the property achieved an occupancy of 95% or more for 37 days. Moving on to capital investment. We’ve invested heavily in our portfolio over the last several years to enhance our competitive advantage.

These investments uniquely position our portfolio to benefit from the pent up demand that we are currently seeing in our markets. Through the remainder of 2021, we’re looking forward to restarting several value-add projects across the portfolio.

These include adding 10 keys at a new cafe at the beach club at the Ritz-Carlton Sarasota, the construction of luxury retail space at the Ritz-Carlton Lake Tahoe and new grab-and-go market at the Hilton La Jolla Torrey Pines, and a guest room renovation at the Marriott, Seattle.

In total, we anticipate capital expenditures of $20 million to $30 million in 2021. I’d like to finish by stating that we were extremely bullish about the future performance of our portfolio, including our urban assets, we are beginning to see significant green shoots.

Not only the Marriott Seattle Waterfront and the Clancy are on pace to achieve occupancy in the mid-90s and mid-80s respectively for the month of July. We’re pleased to see such strong demand in these two urban West Coast hotels. And with demand returning, we should further realize near-term improvements across the segment.

I will now turn the call back over to Richard for final remarks..

Thank you, Jeremy. In summary, we continue to be pleased with the recovery trends we’re seeing in our hotels driven by strong leisure demand at our luxury resort properties. While we are still in the early stages of the recovery, we see a clear path for a continued steady recovery in our financial results.

We have taken decisive actions to navigate the near-term challenges of this crisis and we are well positioned moving forward with solid balance sheet and a unique diversified portfolio. I’m proud of our efforts to protect our assets and maintain financial flexibilities to position us for future success.

We look forward to updating you on our progress as we move through the second half of 2021. This concludes our prepared remarks, and we will now open the call up for Q&A..

At this time, we will be conducting a question-and-answer session. Our first question is from Tyler Batory of Janney Capital Markets. Please state your question..

Hi, good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one from me Rich, across the portfolio continue to be pretty tremendous.

And I was wondering if you could talk about your revenue management strategy broadly, who’s coming into the properties, is it an incremental guest? And what is that spend like compared to normal or pre-COVID times, I guess I should say?.

Yes, this is this Jeremy, I can take that question.

We’ve just – our resort properties has really benefited from the demand and our – as management team has been very proactive of working with the property teams to be very aggressive at pushing, right, we thought at sometimes maybe we were taking a little bit of risk, but we proved out to be right in terms of being able to – the benefit from the demand that we’re seeing in the resort properties, it’s just – it’s been phenomenal, it’s certainly not anything that if you wind the clock a year ago, that we would have ever thought that we would see, in terms of where these guests are coming from.

In a lot of cases, it’s first time guests, so St. Thomas, I think would be a great example that you’ve got a lot of guests that would otherwise be – maybe potentially traveling other parts of the Caribbean maybe even to Europe, but those markets are more or less closed or perceived to be closed or not attractive for guests to have to go overseas.

And so, we benefited from that demand which gives us a great opportunity given that we have reposition that resort, if you’ve gone to see it, it’s just a phenomenal redevelopment redesign, we’ve added a lot of additions we’ve talked about in previous quarters. So it gave us a really good opportunity to showcase that hotel.

I do believe that a lot of that is short-term spike and probably a little bit non-recurring to make some tough comps on a go-forward basis, but I do think it also shows the quality of our portfolio and given the other alternatives that don’t exist, that’s why we’ve just been so aggressive on pushing rate, and that proved out to be the right strategy through all those hotels.

We’ve gained a tremendous – we haven’t disclosed, and probably should tremendous amount of market share in the Braemar portfolio. It’s actually very phenomenal the growth we’ve had..

And I think I’d add to that. Thanks, Jeremy. The other thing I’d add to that is, if you look at the segment mix we’re doing out of necessity a lot of those group business than we have historically.

So our group segment for the second quarter was about 11% with the vast majority of the balance being transient demand and that compares to a group segment mix of kind of mid-20s called 25% or so generally.

And so, because that transient which is primarily leisure transient, because that’s much higher rate of business, when we’re running properties, our resort properties at sort of 90% occupancy, that’s going to result in an overall uptick in ADR.

Now, as we look forward, how do you turn that into an ongoing strategy? And I think that’s the challenge for many of our General Managers, who are deciding to either be very aggressive on group rate business or decline it in favor of the shorter booking window transient business.

And so that’s – on a property-by-property basis, that’s the one thing that’s happening, two, it’d be very kind of cautious about overly discounting future business given this trend..

And I think you also asked about the spend, I think we’ve done a really good job in our resort properties of capturing ancillary spend.

And so that’s helped quite a bit in terms of just being able to – price shouldn’t be aggressive on the resort fees and getting more and more guests to stay at our resort properties and eat and drink at our resort properties.

I think you’d see that we’d have a much higher mix of non rooms revenue for the quarter, if our urban properties and all their venues open as well. So given that we had a lot of closures or lower hours in our urban locations, I’m really pleased with the overall non-driver revenue we’ve had across the entire portfolio..

Okay, great. I appreciate all that detail. That’s a nice segue into my next question on the urban markets. The performance of the Notary and Seattle Waterfront came in fairly strong compared to our expectation posting positive total EBITDA. And Jeremy, in your prepared remarks you gave some color on Seattle and San Francisco in July.

But I was wondering if you could provide some additional color there in terms of what’s driving or drove the strength at these urban properties?.

Yes, I think it’s still – it’s mostly going to be your transient leisure guest that are – have been pent up and locked up over the course of last year. And these are great markets and you look at our locations within the market.

So that’s the one of the things we’ve always talked about this portfolio, you can look at it like Seattle Waterfront, which is a Marriott property and would otherwise be a property probably we wouldn’t want in the portfolio, because not luxury.

But it’s location is premium, being right on the water, it’s just a beautiful hotel and it’s a natural for anyone that wants to get out and travel into in the Seattle market, I think that we have as good as a hotel as anyone.

And so, we’re experiencing that and that’s what we’re seeing in July, we’re seeing that in San Francisco, I will say that as a reported – that we’re kind of, we would expect to end up mid-80s in demand at the Clancy in San Francisco, we’re surprised.

I mean, I don’t think we would’ve ever thought six weeks ago, eight weeks ago that we would’ve seen that much demand. And so that just kind of explains the short-term nature of the pickup that we’re seeing in our portfolio. And so, as we look forward, if some of that continues, we’re very optimistic over the next couple of quarters for sure..

Yes. I think the other thing to note is in both of those markets restrictions were fully lifted during the second quarter. And that yes, I believe allows some pent up leisure demand to kind of release into July and August. We’re also experiencing a very strong outlook for August and even September.

So that’s part of it too, having this full restrictions lifted is giving people the confidence and ability to take these leisure getaways..

Okay, great. And then last one for me. Can you just provide some additional color on the Mr.

C transaction, why that structure on the acquisition made sense over possible alternative ways of funding it? And are you anticipating any possible synergies from the property nearby that is also managed by Remington?.

Yes. Let Rich take the first part of that question, I’ll take the second part..

Yes. So the transaction structure, it was a little complicated given the kind of OP units warrants, et cetera. It’s a consideration package that evolved over time. We’ve been in discussions on this property for a really over a year.

And in the early part of those discussions we just simply didn’t have the cash available or liquidity or weren’t prepared to utilize it to do a cash transaction. In addition to that, there are many benefits to doing an OP unit transaction for the sellers in this case.

Number one, they get to ride the upside in BHR share price and they are very excited to become major shareholders of Braemar. They are very confident that there is shareholder value that we will create and that the share price will better reflect the portfolio value over time. So that’s something they’re very interested in seeing happen.

In addition to the tax deferral on any potential capital gain through this type of transaction and the ability for them to receive allocated losses that they can set against other passive income. So it’s a transaction structure that made a lot of sense for really both of us at the time that it was negotiated.

You’ve seen our liquidity position improved considerably, since then, I think we have – we would certainly have much more flexibility to do an all cash deal today. But given the benefits to all parties, that’s how we ultimately came to agreement..

Yes. I’ll give you – I want to give Rich some credit for staying after this opportunity for quite some time, as you mentioned, we’ve been talking to the sellers for a long time. And one of the things I like about it is that if we were to issue all cash, they would have expected a lot higher purchase price.

And so they certainly believe in the story of Braemar. They want to be partners with us. I think it’s a good relationship. And also build confidence in the quality of the portfolio of the management team that we have here. Moving on to the opportunities from the operation side, I am extremely excited about this property.

There’s just so many demand generators in this market that currently exist. There’s a ton that are coming in just the dynamics of where we think this market’s going is very favorable in terms of the outlet. Also there’s just virtually no supply and there’s just huge barriers to entry to build where we are.

So we’re excited about that, but even more so, taking that account just the operational opportunity this is right up our wheelhouse. This is the exact type of acquisition that we want to make, which is buying an asset from a management company not necessarily selling group, but a management company that is not really a hotel operator.

They’re an F&B operator. They’ve got a great history in F&B. They not operate restaurants but as we’ve uncovered through our diligence process, we have a comprehensive takeover plan. I think there’s 50 plus initiatives that when pulled through, we think could generate as much as $1 million incremental EBITDA.

And that’s just uncovering the way that we think the hotels should have been operated. There’s just a tremendous amount of synergies that we see also with Ashford Trust hotel, which is a Marriott in Beverly Hills.

And this is a market we’ve known – we know incredibly well, we’ve operated into it since the day the RTC, which I think goes back to maybe the early 90s when we originally acquired the Beverly Hills asset, which is now Marriott. In terms of semi opportunities, there’s been very little group sales.

There’s a beautiful top floor that offers premium views across the city. And that’s a beautiful meeting space. And there really hasn’t been a strong selling effort to optimize that. No audio, visual revenue participation, they just outsource it to a third-party that collected all the revenue.

There’s just among many other synergies, we’re very, very excited and I think we’ve got a great track record. You can look back at – and this just goes back all the way, I think in 2013, but Pier House was an acquisition where we took over from an operator that didn’t really operate hotels.

Traditionally, I think in the first year we increased EBITDA by 40% of that hotel. So we’re excited and but we’ll see where we get..

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

Our next question is from Chris Woronka of Deutsche Bank. Please state your question..

Hey guys, good morning.

Can we maybe get any update you have on the Sofitel situation? I know that’s been a saga that’s kind of been interrupted with COVID, but is there anything you can share with us today, thoughts or plans for longer term?.

An ongoing complaint, it’s still active within the courts. So all I can say is discussions continue as soon as we have something that we can announce concretely, of course, as well. But the discussions continue there..

Okay.

I guess in the context of that going on, do you think operationally there is – just trying to get a sense as to, is there adequate focus on it or do you think that there’s so much attention in the background on this thing that it’s not necessarily being maximized to its potential right now?.

I would say that Chris, I think that we’re all very professional, the team here at Ashford and Braemar, as well as the court team, they’ve been incredibly professional. We’ve got a great working relationship with them. So I couldn’t be more thankful of just the ability to work together to see what we can do to optimize performance.

Naturally, we are disappointed with the performance, but we continue to work with the teams..

Okay. Fair enough. And then turning to the Mr. C acquisition, I know there’s the InterCon I believe in Century City, which is about a mile away, I think that’s permanently closed, right. And then at some point, the Century Plaza is going to come back online.

How do you kind of view, I guess, the changing neighborhood in the context of you taking that, maybe taking that hotel further upstream? And I guess the question is, is there any – I know you’re considering potential brand options and other things, but how far below a potential rate do you think that property is right now versus what it could get to a couple of years from now?.

Yes, I think what’s interesting about that property and here’s where we see opportunity, as well as what Jeremy talked about. Or Jeremy talked about all the operational improvements that we can bring to bear with new manager. The other side of the coin is just the physical state of the Bruce product.

And the property actually peaked in 2016, which was – let’s see, that was six years into its renovation and then started a little bit of a decline through 2019 and really due to an aging product.

And so our plan is to invest $10 million into the product in order to really bring it up to a higher standard, and bring it up to the luxury standard that it was originally had attained, if not even better. And we believe that that will result in our ability to generate a higher rate exactly how much higher remains to be seen.

I can tell you that the race 2016 was about 10% higher than what it is now. So, we can certainly get there and then some. But I think it’s, you’re right there’s a little bit of additional supply coming into the market, but there’s also more demand coming into the market.

So, if you look at the Westside Pavilion where it used to be a mall, that’s now being taken over by Google. 600,000 square feet, Google’s going to put thousands of employees into that property right down the street.

And so we’re confident that we’ll be able to not only get our fair share of that future demand, but also increase our market share through the improvements that we’re planning to put into the property. We will be operating it as a Mr.

C for the time being, while we assess other options from a branding perspective or soft branding perspective to maximize revenue..

And we make it as independent. We haven’t made that decision yet, but what I’d say, Chris, is that if you look at where they were peak RevPAR index from their high to where they are today, it’s about a 17% discount. So there’s – we think there’s tremendous opportunity to gain more market share for this hotel..

Okay. Appreciate all that color. And then last question is, Richard, I think you mentioned a minute ago, you obviously had a creative financing solution for Mr. C, but you said that, if that was happening today, you probably could have been in position to do an all cash transaction.

So, if you look at some of those pins on the map that you’ve talked about in the past Hawaii and Arizona and Las Vegas and others, are there things you look at today that since you are in an improved liquidity position that might be possible to add another acquisition?.

Yes. I can tell you starting around June 1, there was a dramatic expansion of the pipeline of available opportunities that we’re seeing. In the first five months of the year, there was virtually nothing of interest to me other than this year that we had already been working on for some time, of course.

And now there are multiple opportunities in the markets that you’ve mentioned, but also other markets where we’d love to flying a flag. So, we are looking at a number of things. You – Deric went through our liquidity position, so we do have cash to do deals and stay tuned. We’re going to – we’re certainly going to be looking to do some more..

Okay. Very good. Thanks guys..

Our next question is from Bryan Maher of and B. Riley Securities. Please state your question..

Yes, good morning guys. Maybe a point of clarification, Deric, if you said that the share count fully diluted currently is 64.9.

Just to be clear that as of today, not at the end of the second quarter, correct?.

Yes, that’s right. That’s the most recent number. That’s right..

Okay. And then kind of following up on that was kind of number of calls and emails from investors who are curious as to why was things going so well, you guys continue to issue equity and maybe it’s to the point, Richard just made that you’re seeing opportunities and that you want to have the liquidity to do so.

But can you just clarify that is the case?.

Yes. That’s right, Bryan. I think it’s a combination of things. It’s for – it’s firstly, the abundance of conservatism, right. I think it looks like we’re out of the woods. There’s some still negative headlines out there, but it looks like we’re out of the woods. It’s the – the strategy of de-leveraging over time, which we’ve certainly talked about.

Deric had told you that we’re at 49%, that that’s gross assets. If you look across our peers, they’re at sort of 35% that’s the place we’d like to be in the coming years. But we want to be very thoughtful about how we get there.

And then the last thing, which is being able to avail ourselves of these acquisition opportunities, and what we are seeing in the second half of this year is we have a number of sellers that maybe they’re not long-term natural owners of hotels. Maybe they only own one or two.

Maybe the past a year and a half has been as bad, as much fun as they want to have in the hotel business and are seeking exit. We have some sellers as was the case with Mr. C that had a debt maturity that wasn’t something that they felt that they could refinance efficiently and therefore chose to monetize or at least merge in our portfolio.

So, we’re seeing opportunities that are being driven by that dynamic as well. But we’re being as disciplined as ever in terms of our financial metrics. In some cases seeking even higher returns than we would have pre COVID, and therefore we have to look at a lot before we can kind of narrow it down to the things that make sense for us.

But so it’s really the combination of all those things. We are absolutely focused on creating shareholder value in all of this and that continues to guide us. So that’s what we’re doing with these recent equity raises..

Yes. I think we’ve all had about as much fun as we can handle over the past year. You met in that the negative headlines go out there to that point, are you seeing any impact on you next month few bookings relative to the delta variant news we continue to see every day..

We’ve seen absolutely no impact of it. I think it’s the medias way of fear-mongering frankly. Yes, cases are up slightly in the U.S. we’re at 20 cases per 100,000 people per day now in the U.S., but if you look at India and you look at the UK just plummeting, just really just plummeting. So they’re on the other side.

My suspicion is there’s going to be a turnaround in the U.S. as well fairly soon, but in the meanwhile I think the media is having fun with it..

Okay. Just two more for me. On the renovations for Mr. C, I think you said $10 million.

Is that mainly going to go to rooms or lobby? How is that money going to be deployed?.

It’s a little bit of everything. Yes. I think in the – the rooms are – have been designed in a very unique and impressive way. It kind of has a nautical theme including teakwood floors as if they were above deck and, heavy metal fixtures and portholes and this sort of thing.

We’ll see where we ultimately come out on design, but there are a lot of features that we’d like to retain, some of the hard goods have gotten a little nicked up over the years. Certainly soft goods will be replaced. And then refreshed pool deck outside, refreshed restaurant and lobby. So, it’s really a little bit of everything.

But no major structural work, at least not in our scope..

And just last from me on the urban hotels, I think Jeremy mentioned, he said the Clancy and Notary were mid 90s occupancy for July did I get that right?.

Now we’re running. We’re on pace for Seattle Waterfront, close to mid 90s. And then Clancy is mid 80s – and two echos properties..

And can you give some idea how the Notary is doing?.

Yes, it’s on page about 50% occupancy in July..

Okay. And just, one last thing.

And we looked at Capital Hilton, I mean, the occupancy, there is just sad for lack of a better word, what’s going on there? And when might that turn around?.

We know that property is a big property. So it’s our largest 550 rooms. It’s also very heavily dependent on citywide meetings and groups, with its various ballrooms and meeting space.

So we’re waiting for that business to return in addition to corporate trends in business in DC, at the moment that looks to be more of a fourth quarter phenomenon than anything. So I think that property will continue to kind of bring up the rear terms of its results, until we get there.

And then its question what is our group pace? So for our fourth quarter, group pace is down only about 27% relative in 2019. But then if you look at 2021 it’s actually ahead by 5%, of the first quarter. So that indicates to us, that we’re going to get there. But for that property, we still have to wait a few more months for it to really kick in..

Yes, Bryan, what I would say just keep in mind that all the restrictions were just lifted in June, on June 11, in DC, and then there were still capacity restrictions and museums, that were relisted in July. So it’s slowly opening up, versus maybe some of the other markets as well..

Right. Thanks. Congrats on a good quarter. It was really good. All things considered. Thanks..

Thanks, Bryan..

Thanks, Bryan..

Our next question is from Michael Bellisario of Robert W. Baird. Please state your question..

Thanks. Good morning, everyone..

Good morning..

First quick clarification to the 5% ahead and the 27% down figures you just gave was that specific to DC or was that for the entire portfolio?.

That was the entire portfolio; I’ll give you just a little bit more clarity, Michael, looking into 2022 as compared to 2019. The overall group pace is basically flat; it’s actually slightly up $70,000. But the mix of that is, I think, very interesting. We’re up 11% in ADR and down 10% room nights. So that’s like the perfect scenario for us.

So we’re very, very excited about where we stand from a group position standpoint. And that speaks to that, the discipline that teams had of just now that we got a high quality portfolio and pushing right, And that’s what we’ve been doing..

That’s helpful. Thank you. And then we just go back to the Mr. C transaction, maybe kind of piece everything thing together that you’ve said so far, just from a high level to get to that 8% yield that you guys are targeting in a few years.

Maybe how much is operational? How much is the market simply recovering? And then how much do you think is going to come from the renovation upside the $10 million you’re going to put in?.

I think it’s the combination of halt. Yes, so and hopefully we exceed that. Because we didn’t, when we look at the pro forma that Rich is quoting, it doesn’t take into account all the operational opportunities we’ve identified and we continue to identify.

But certainly we anticipate the recovery in the market, we anticipate that we’re going to gain market share, we’re going to anticipate that we’re going to have some synergies and then we still have not fully decided what we want to do from a branding or independent perspective.

We’re going through that process, we plan to be diligent about it, but I think we’ve got a great track record of reposition assets within this portfolio. So we are excited to do that with this asset as well..

Got it.

And then just on the topic of acquisitions, big picture, that 8% unlevered yield, 10% IRR, I think the last couple deals pre pandemic, the same kind of 10%, unlevered IRR, maybe walk why is that the right number to target and how, have you seen maybe that number change based on what you were looking at and how things were price pre pandemic versus what you’re looking at today and then how things might be priced today?.

Yes, that’s Mike 10% unlevered IRR is, how I assess the riskiness of lodging cash flows. I just believe that’s the right return for that type of risk. I think that does match up nicely also with our cost of capital. And I’m sure you’ve calculated our weighted average cost of capital, certainly others have.

And, we have that 2.6% weighted average interest rate on debt, which is about 50% of our capital. And then you can calculate your own equity cost of capital, but that represents a premium over a cost of capital, so there’s economic value-added there as well.

And we haven’t changed that bogey, if you will, pre to pandemic, post pandemic, because I don’t believe that the riskiness in lodging cash flows, has materially changed. I feel like we have more visibility on lodging, cash flows, the lodging industry capital than we’ve ever had, just because we’re just returning back to where we were.

And you can be a little bit wrong on the timing of how to get back there. But there’s really no doubt in my mind that we’re going to get back there. And so it’s fairly easy to now forecast, at least from my perspective, versus what we’ve had to do in the past. So that’s how we go about it. And I think that’s a good approach.

And I think that’s going to deliver value..

Understood. Thank you..

All right, well, I think that’s all the time we have. So I want to thank everybody for joining us on our second quarter earnings call. We do look forward to speaking with you again on the next call. And then in addition, we’re planning to have Investor Day in New York in October 12. And we’ll provide additional details on that later.

Thank you all for joining..

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day..