Braemar Hotels & Resorts Inc. (BHR) announced its financial results for the second quarter of 2024, revealing a net loss of $21.9 million despite strong performance in urban hotels and a recent acquisition. The company's comparable RevPAR increased by 6%, with the Four Seasons Resort Scottsdale at Troon North showing a notable 10% RevPAR growth.
Braemar has been active in managing its debt, refinancing and repaying its 2024 maturities, and has initiated a shareholder value creation plan including asset sales and a share buyback authorization. The sale of the Hilton La Jolla Torrey Pines for $165 million is part of this strategy. The company's portfolio now stands at 15 hotels and 3,667 net rooms, and it has announced a quarterly common stock dividend of $0.5 per share.
Key Takeaways
- Braemar Hotels & Resorts reported a net loss of $21.9 million for Q2 2024.
- The company's urban hotels saw a 6% increase in RevPAR, while the Four Seasons Resort Scottsdale achieved a 10% increase.
- Braemar completed refinancing and repaying all 2024 debt maturities.
- A shareholder value creation plan is underway, including asset sales and a common share buyback.
- The Hilton La Jolla Torrey Pines was sold for $165 million, with two more hotels under evaluation for sale.
- The company declared a quarterly dividend of $0.5 per share.
Company Outlook
- Braemar aims to focus on balance sheet management and capital expenditure projects.
- The company is working on rebranding and renovating a hotel to the LXR brand.
- Plans are in place to reduce owner-funded CapEx by nearly 30%.
- A leverage target of 35% or lower is expected to be achieved by next year.
Bearish Highlights
- The loss of American Express (NYSE:AXP) Fine Hotels and Resorts has negatively impacted revenue streams.
- Elevated CapEx due to ongoing projects has constrained cash flow.
Bullish Highlights
- Strong RevPAR growth in urban assets and the Four Seasons Scottsdale.
- Positive group revenue pace with a 3% increase in group rooms revenue compared to the prior year.
- Significant growth of 22% in hotel EBITDA for the Four Seasons Scottsdale.
Misses
- Despite the overall growth in certain areas, the company reported a sizeable net loss for the quarter.
Q&A Highlights
- The company discussed capital allocation and balance sheet leverage during the call.
- The equity market cap does not account for preferred shares.
- Management provided closing remarks focused on the company's strategic initiatives and financial health.
Braemar Hotels & Resorts Inc., with its focus on asset management and shareholder value creation, is actively working to enhance its financial position and streamline operations. The company's strategy includes asset sales and cost reduction measures, with the goal of achieving a lower leverage and enhancing profitability. Despite the challenges faced, such as the loss of a key revenue stream and the need to manage high capital expenditures, Braemar remains committed to its growth and value creation plans. The company's management concluded the earnings call with a forward-looking statement, emphasizing their commitment to achieving their financial targets and strengthening the company's market position.
InvestingPro Insights
Braemar Hotels & Resorts Inc. (BHR) has been navigating a complex financial landscape, as evidenced by their latest earnings report for Q2 2024. To provide a deeper understanding of the company's current market position, InvestingPro data and tips offer valuable insights:
InvestingPro Data:
- The company's market capitalization stands at $205.04 million, reflecting investor valuation of the firm.
- With a P/E ratio of -2.54 and an adjusted P/E ratio for the last twelve months as of Q2 2024 at -2.47, the market is pricing the company's earnings negatively, which aligns with the company's reported net loss.
- The dividend yield is notable at 6.47%, suggesting that the company is attempting to provide value to shareholders through dividends despite its current earnings challenges.
InvestingPro Tips:
- BHR is trading at a low EBITDA valuation multiple, indicating that the market may be undervaluing the company's earnings before interest, taxes, depreciation, and amortization relative to its peers.
- The stock has experienced strong returns over the last three months, with a 20.36% price total return, signaling a positive market reaction in the short term.
These InvestingPro Tips are part of a broader set of analytics available on InvestingPro, which includes additional tips for investors looking to make informed decisions about BHR. Currently, there are 11 tips listed on https://www.investing.com/pro/BHR, each providing a different angle on the company's financial health and market performance.
Braemar's strategy to manage debt and create shareholder value through asset sales and share buybacks is reflected in these metrics and tips. The company's low valuation multiples might attract investors searching for potential undervalued opportunities, while the recent uptick in stock price could signal growing investor confidence. The strong dividend yield also indicates a commitment to returning value to shareholders amidst the company's efforts to stabilize and grow its financial standing.
Full transcript - Ashford (NYSE:AINC) Hsy Prm (BHR) Q2 2024:
Operator: Hello. And thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Braemar Hotels & Resorts Inc. Second Quarter 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Deric Eubanks, Chief Financial Officer. Please go ahead.
Deric Eubanks: Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts, the second quarter 2024 and to update you on recent developments. On the call today will be Richard Stockton, President and Chief Executive Officer as well as Chris Nixon, Executive Vice President and Head of Asset Management. The results as well as notice of accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday in a press release. At this time, let me remind you that certain statements and assumptions in this conference call contain or are based upon forward-looking information and are being made pursuant to the safe harbor provisions of the federal securities regulations. Such forward-looking statements are subject to numerous assumptions, uncertainties and known or unknown risks, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filings with the Securities and Exchange Commission. The forward-looking statements included in this 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 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 the company's tables or schedules, which have been filed on Form 8-K with the SEC on July 31, 2024, 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. Also, unless otherwise stated, all reported results discussed in this call compared to the first quarter ended June 30, 2024, with the first quarter ended June 30, 2023. I'll now turn the call over to Richard Stockton. Please go ahead.
Richard Stockton: Good morning, and welcome to our 2024 second quarter earnings conference call. I'll begin today's call by providing an overview of our business and update on our portfolio and our recently announced plans to create additional shareholder value. 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 several key themes for today's call. First, our urban hotels delivered strong performance in the quarter with comparable RevPAR growth of 6% over the prior year quarter. Second, our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North continues to perform well and achieved RevPAR growth of 10% in the quarter. Third, as we continue to diligently work through our refinancing program, we have refinanced, extended or paid down all of our 2024 debt maturities and fourth, we're pleased with the progress we have made recently announced shareholder value creation plan with the closing of the sale of the Hilton La Jolla Torrey Pines at an attractive value. Let me first turn to our results. We reported comparable RevPAR of $305 which reflected a 1.5% decrease over the prior year quarter and comparable hotel EBITDA of $51.1 million. We continue to be very encouraged by the strong performance of our urban hotels, which achieved RevPAR growth of 6% in the quarter. Regarding our urban assets, RevPAR for the quarter was $228 and comparable hotel EBITDA was $22.1 million. Looking ahead, we remain very encouraged by the continued momentum for this segment of our portfolio. However, this impressive performance was offset by softness in our resort average daily rates, which are still coming off historic highs that follow the pandemic. Nevertheless, our luxury resort portfolio delivered admirable performance with hotel EBITDA of $29 million during the Q2. The brightest spot within our resort portfolio was our most recent acquisition, the Four Seasons Resort Scottsdale at Troon North, which continues to exceed our expectations. The property was acquired in December 2022 and fits perfectly with our strategy of owning high RevPAR luxury hotels and resorts. It delivered a strong second quarter performance with hotel EBITDA up 21.6%. We continue to be very excited about the prospects for this hotel. While the Ritz-Carlton Reserve Dorado Beach had a challenging quarter, both of our recent acquisitions continue to perform well compared to our acquisition costs and our initial underwriting. Over the trailing 12 months, the Ritz-Carlton Reserve Dorado Beach achieved a 9.2% yield on cost, while the Four Seasons Scottsdale achieved an 8% yield on cost. These luxury assets have both outpaced our underwriting, and looking ahead to the next several quarters, we remain very encouraged about the prospects for these well positioned properties. Looking at Braemar’s capital position, we continue to emphasize balance sheet flexibility. With the recent closing of the sale of the Hilton La Jolla Torrey Pines, we've now addressed all of our 2024 debt maturities. During the quarter, we announced a shareholder value creation plan, which has four components. They are: number one, execute select noncore asset sales, including the recent sale of the Hilton La Jolla Torrey Pines. Number two, the repayment of our remaining 2024 debt maturities. Number three, a $50 million preferred share redemption program and number four, a $50 million common share buyback authorization. Subsequent to quarter end, we sold the Hilton La Jolla Torrey Pines for $165 million or $419,000 per key. Including anticipated capital expenditures of $40 million the sales price represents a 7.2% capitalization rate on net operating income for the trailing 12 months ended March 31, 2024. Looking ahead, we are also evaluating the sale of two more hotels. To date, we have redeemed approximately $40.1 million of our non-traded preferred stock. We believe these announcements reflect our commitment to maximize value for our shareholders and look forward to providing more updates in the coming weeks months as we work through our plan. In summary, Braemar has a unique well positioned portfolio and a solid liquidity position. As we look ahead to the remainder of 2024, we believe Braemar is on firm footing to perform well in both the near and long term. I will now turn the call over to Deric to take you through our financials in more detail.
Deric Eubanks: Thanks, Richard. For the quarter, we reported a net loss attributable to common stockholders of $21.9 million or $0.33 per diluted share and AFFO per diluted share of $0.10 Adjusted EBITDAre for the quarter was $42.7 million. At quarter end, we had total assets of $2.2 billion. We had $1.2 billion of loans of which $44.3 million related to our joint venture partner share of the loans on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans at a blended average interest rate of 8.1% taking into account in the money interest rate caps. Based on the current level of SOFR and our corresponding interest rate caps, approximately 77% of our debt is effectively fixed and approximately 23% is effectively floating. As of the end of second quarter, we had approximately 40.4% net debt to gross assets. We ended the quarter with cash and cash equivalents of $120.3 million and restricted cash of $60.7 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 $17.1 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, we again announced the quarterly common stock dividend of $0.5 per share or $0.20 per diluted share on an annualized basis. This equates to an annual yield of approximately 5.6% based on yesterday's stock price. Our Board of Directors will review the company's dividend policy on a quarter-to-quarter basis with a view to increasing it as financial performance improves. During the quarter, we paid off the $30 million loan secured by the Cameo Beverly Hills in Beverly Hills, California. This property is now unencumbered. As of June 30, 2024, our portfolio consisted of 16 hotels with 3963 net rooms, but with the recent sale of the Hilton La Jolla Torrey Pines, the portfolio currently consists of 15 hotels with 3667 net rooms. Our share count currently stands at 73.9 million fully diluted shares outstanding, which is comprised of 66.5 million shares of common stock and 7.4 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.
Chris Nixon: Thank you, Deric. For the quarter comparable hotel RevPAR for our portfolio was down 1.5% compared with the prior year quarter at $305. This represents a 22% increase compared to the second quarter in 2019. Group revenue pace for the portfolio continues to drive results for the second half of the year showing strength. Our urban assets have benefited from strong citywide calendars resulting in 7% growth in total revenue over the prior year quarter. Lastly, our team's involvement at the Four Seasons Scottsdale helped drive 22% growth in hotel EBITDA over the prior year quarter. I will now go into more detail on some of the achievements completed throughout the quarter. Group pace continues to accelerate across portfolio. Group rooms revenue for the full year is pacing ahead of last year by 3% with the third quarter through the balance of year pacing ahead by 5%. This represents a 71% increase in group rooms revenue compared to full year 2019. Group rate alone has increased by 26% compared to full year 2019. Our 2025 group rooms revenue pace is currently ahead by 20% compared to the prior year. While year over-year-group lead volume has started to normalize, conversion rates remain strong and the average group booking size continues to increase. This has resulted in increased sales efficiencies across many of our hotels. We are seeing continued growth from the incentive market, which represents corporations rewarding their highest performing employees and partners. The Ritz-Carlton St. Thomas has performed particularly well in the incentive market during the second quarter with group revenue exceeding the prior year quarter by 31%. In addition, the hotel is partnered with Inspire Event Solutions, which provides audiovisual services to in house groups. During the second quarter, audiovisual revenue increased approximately 200% per occupied group room compared to the prior year. Inspire Event Solutions understands clients' needs to deliver unique experiences and exceptional services providing a win-win for the client and our hotel. We're seeing continued success across our urban hotels during the second quarter with hotel EBITDA increasing 8% over the prior year quarter. Additionally, hotel EBITDA margin increased by 40 basis points. Our largest hotel, Capitol Hilton just finished a transformative guest room renovation, which lasted from the first quarter of 2023 to the first quarter of 2024. While under renovation, the hotel grew full year 2023 total revenue by 28% compared to the prior year. Now that the renovation is fully complete, the hotel is positioned for even further growth as evidenced by the second quarter performance. During the second quarter, the hotel increased total revenue by 14% over the prior year quarter. Additionally, hotel EBITDA increased by 24% and expanded hotel EBITDA margin by approximately 330 basis points over the prior year quarter. We have also been particularly pleased with the performance of our most recent acquisition, the Four Seasons Scottsdale. We created and executed a detailed takeover plan in which our team identified value add opportunities for creating and optimizing the assets value. During the second quarter, total revenue increased 13% over the prior year quarter. More impressively, hotel EBITDA increased 22% over the prior year quarter. We expanded our sales solicitation efforts targeting markets and segments that had underperformed. The team secured a large buyout program as well as other entertainment groups by expanding solicitation efforts to target under deployed markets and segments. Group revenue for the quarter was up 74% over the prior year quarter. In addition, our team implemented several initiatives focused on driving margin including a deep dive into food and beverage, implementing dynamic pricing on spa treatments, minimizing the cost per spa treatment and only backfilling critical positions. These efforts and more led to the hotel improving hotel EBITDA margin by approximately 210 basis points compared to the prior year quarter. Moving on to capital expenditures in the second quarter of 2024, we made significant progress on multiple major renovations. At the Ritz-Carlton Sarasota, we started the transformation of an unused outdoor bar into a new courtyard bar. We also started construction on the Epicurean retail market at the Four Seasons Scottsdale by converting underutilized back of house space into a retail outlet. Lastly, we initiated several transformational renovations to Ritz-Carlton, Lake Tahoe including the relocation and expansion of the living room bar, the fitness center, meeting space and outdoor pool area. In the third quarter of 2024, we will embark on several major renovations across our portfolio. These include comprehensive updates to the restaurants at the Ritz-Carlton Sarasota, the Ritz-Carlton St. Thomas, the Ritz-Carlton, Lake Tahoe and the Ritz-Carlton Reserve Dorado Beach. Additionally, we will begin renovating underutilized beach space at the Ritz-Carlton St. Thomas by adding five luxury beachside cabanas. In the fourth quarter, we plan to begin a guest room renovation at Hotel Yountville. For 2024, we anticipate spending between $80 million and a $100 million, on capital expenditures. We are already executing new initiatives to further enhance our portfolio, which include a transformative full property brand conversion and the potential development of underutilized land. With these new initiatives underway, we are optimistic about the future for this portfolio. I will now turn the call back to Richard.
Richard Stockton: Thank you, Chris. In summary, I'd like to reiterate that we continue to be pleased with the performance of our hotels. We also remain very well positioned with a solid balance sheet and promising outlook. 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. Please note that our comments regarding the recent settlement with Blackwells will be limited to what has been publicly filed, so we'll not be able to respond to questions on that specific matter. Please limit your questions to those concerning the company's assets, operations, management's industry outlook and capital allocation priorities as well as our recently announced shareholder value creation plan. Thank you.
Operator: [Operator Instructions]. Our first question will come from the line of Tyler Batory with Oppenheimer. Please go ahead.
Tyler Batory: Hey. Good morning. Thanks for taking my questions. So in terms of the softness in resort ADR that you're seeing, can you just address that a little bit more in-depth? I'm not sure how much of that is kind of asset specific versus macro versus a demand pullback, just really trying to get a good sense of what's driving that?
Chris Nixon: Yes. Hey, Tyler, it's Chris. I can take that. So, our resorts are down year-over-year when we look at kind of revenue performance. However, they're still up significantly versus 2019. Our resorts were up over 45% versus 2019 and so there is some softening in demand. We think there's a few things at play there. I think the resort and leisure kind of segments are normalizing a bit. There was also some impact in Q2 with the Easter and spring break shift. We saw kind of that last week in March. There were significantly more spring breaks, schools on spring break this year than they were last year. The first week in April was roughly the same, but that second week in April, there was significantly fewer spring breaks this year than there were last year. So there was a shift in demand kind of out of April and end of March, which also affected the resorts. When you look at our resorts, our two ski resorts, Ritz-Carlton, Lake Tahoe and Park Hyatt, Beaver Creek both experienced significantly softer snowfall than we've seen the prior year. That resulted in the mountains closing earlier in April this year than they did last year and had a pretty significant impact to resort revenue across portfolio. So it was a combination of all those things.
Richard Stockton: Yes. I'd add to that that if you look at the portfolio wide hotel EBITDA performance, which is down about 5%, all of that and more can be accounted for by the performance of Dorado Beach and the EBITDA drop year-over-year to that property and as Chris said, a lot of factors at play there, most notably the Easter timing shift into the first quarter from the second quarter. So Dorado Beach certainly missed out in the second quarter as a result of that, but it's really just a shift in timing that accounted for that.
Tyler Batory: Okay. Makes sense. And then quick follow-up on portfolio trends. There's been some discussion about D.C. impact from the upcoming election. Is that something that you're seeing in your forward bookings now especially on the group side of things in November?
Chris Nixon: Yes, it's cap built in. I mean group pace on the whole is very strong there. D.C. has got a strong citywide calendar this year. We are seeing some softness specifically as it relates to government groups and government business. Luckily for that hotel, we've been able to effectively offset it with other segments and other group segments and so, that hotel, I think the renovation timing was spot on. As you heard with my prepared remarks, through the renovation, we drove revenue, we had a very strong year and now that the renovation is behind us, the market is really -- the customers are really responding well to the new product and so we're very excited about the outlook, but yes, we're certainly seeing some softness as it relates to specifically those government segments through kind of the inauguration period.
Tyler Batory: Okay. And then last for me in terms of the shareholder value creation plan, you've checked off a number of boxes there. Talk more about, the two hotels you could sell, what might go into that decision, which you're seeing out there in the market and then, you bought back, I think, 40 million of the of the preferred, but you still got the share buyback that's out there as well. So talk about how you're thinking about potentially executing on that too.
Richard Stockton: Sure. On the two potential assets sales, we're still going through the internal process of evaluating the right candidate for that, leaning towards what I would say are more noncore, so therefore non-luxury hotels as those candidates. We don't have anything actively in marketing right now, but in the coming months, we'll finalize our work on that and get moving. So that's still very much in play. In terms of the share buyback and progress on that, there's a couple of things there that are considerations for the appropriate timing. We have the authorization in place. The first kind of hurdle for us was ensuring that we have adequate liquidity to move forward because we did announce also this preferred redemption program at the same time. With the sale of Torrey Pines, we've shored up our liquidity pretty significantly, but then the other not necessarily called hurdle, but the other factor here is when do we as management have the ability to go into the market to buy shares by not having non-public information and the timing has coincided in terms of the sales of Torrey Pines with our earnings and some other announcements that we made, etc. that have prevented us from proceeding but we hope to be back in action on that front shortly as well.
Tyler Batory: Okay. I appreciate all that detail. That's all for me. Thank you.
Operator: Our next question comes from the line of Bryan Maher with B. Riley Securities. Please go ahead.
Bryan Maher: Thank you and good morning. Just a couple from me. Tyler got most of mine. It seems like only a few quarters ago, maybe it was a year, year and a half that I felt like we were talking about being in the market buying one or two hotels a year and now we just sold an asset, possibly two more for sale. What's been the key change that has kind of changed course for the company there? Is it really kind of cost of capital, higher interest rates? I mean, maybe you can give a little color on that, Richard or Deric.
Richard Stockton: Yes. Sure, Bryan. Yes, when we said that, that was our plan, it was 100% our objective. I think we've all been surprised by the higher for longer environment that we've been in. Cost of capital is significantly higher, but our availability of excess cash flow has also been constrained and so as a result that puts us on the sidelines. Yes, I would say that there are probably some interesting acquisition opportunities still available out there and we've seen some of our peers pursuing those, but for us, we're really much more focused on our balance sheet and doing the various CapEx projects that we have on cap as well and so that's been the highest and best use of our liquidity is to pursue those things rather than new acquisitions.
Bryan Maher: And that's maybe a good segue to my second question, which is the cameo. What what's going on there? I mean, RevPAR was pretty weak. I think it was down 18% for the quarter. Is the renovation there underway? When is it planning on starting? How deep is it? Can you tell us what the plans are for that property? Yeah.
Richard Stockton: We're very excited about the outlook of that hotel once we get it rebranded, fully renovated, converted to the LXR brand. Right now we're working through the model room with Hilton. We want to make sure that we get that right. So, the full on guest room renovation hasn't started. We're going through design, we're going through the model room, figuring out the public spaces, the pools, but what we've got so far we're very, very excited about. Until then we're in kind of this period where we're white labeled. We're on Hilton's website, but more as an independent hotel. The biggest impact there has been the loss of American Express Fine Hotels and Resorts. That's a segment of business that generated millions of dollars for the hotel each year. Without the strong brand on the hotel, we're no longer in that program. Part of the big influence and why we selected LXR is every LXR branded hotel is in that program and so, we're very optimistic that once the renovation is complete, we'll be back in that program, but outrunning that revenue stream has been the biggest impact.
Bryan Maher: Maybe sticking with the cameo for one more second. I think that there was, correct me if I'm wrong, I think there was like five kind of residences slash condos. I remember two of them a few years ago and I and I thought that there was a plan to sell those. What what's the current thought process on that that asset of the component of the portfolio of that property?
Richard Stockton: Yes. Bryan, your memory serves you correctly. That is still the plan. We've been working through a city regulation recently in order to get the permission to sell those. That approval process has taken a little bit longer than we would have liked. Nevertheless, we have hired an agent to sell those residences and expect that process to start moving forward more rapidly very, very soon.
Bryan Maher: Okay. Thank you.
Operator: Our next question will come from the line of Michael Bellisario with Baird. Please go ahead.
Michael Bellisario: Thank you. Good morning, everyone. A couple of questions for you. First for Deric, just maybe on the incentive fee. Can you remind us of the calculation? Is there a cap on the payment and sort of what are the inputs there to come up with that calculation on the incentive fee side?
Deric Eubanks: Yes, the incentive fee under the advisory agreement is purely based on total shareholder return outperformance versus peers. So, we look at the peer average, it's done on an annualized basis, so it won't be firm and final until the end of the year, but during the year, we do approve for that, if it would be owed and that's what happened in the quarter. It's purely as a result of the stock performance of Braemar year-to-date and there is a cap on it and the cap is based on the outperformance is capped at 25% and it's 5% of the outperformance. So it's 1.25% of the equity market cap is the cap on that fee.
Michael Bellisario: And is that equity market shares outstanding or is that preferred as converted shares outstanding?
Deric Eubanks: It's just the current equity market cap, common equity market cap does not include the preferred.
Michael Bellisario: Got it. Helpful. And then just switching gears a little on capital allocation, elevated CapEx this year. I know some of that's on some onetime projects. Maybe help us understand sort of the underlying run rate for spend within the portfolio and then how you're balancing some of the cash inflows and outflows, over the next 12 to 24 months, especially given that CapEx number is greater than your cash flow from operations?
Richard Stockton: Yes. Michael, thanks for the question. So with a portfolio of this size, you're going to see of more volatility in terms of average run rate based on the projects that we're doing. We've got a number of projects that we're very excited about that are underway this year. We just finished the guest rooms at Bardessono, the renovation we mentioned at Capital Hilton. We've got a number of projects that are ongoing at Ritz-Carlton, Lake Tahoe that we're very excited about. That hotel is going to be completely transformed. We finished up the guest rooms and have we're doing all the public and meeting space and the outdoor space now. Some smaller value add projects you heard me cite in my opening remarks and so there is a spike this year. I think the percentage of revenue is slightly higher than we've had in the past. From a stabilized basis, we go forward. We're looking to get back under historic levels and I think that's what you'll see from us in terms of percentage of revenue and what we spend going forward, but there is some volatility here just in terms of where projects fall having a portfolio of this size.
Deric Eubanks: Yes. And I'd add to that also that, Michael, it's just something we're looking at very closely in terms of kind of sequencing our projects. We've had a specific goal this year to reduce our amount of owner funded CapEx, which we've been able to reduce by close to 30%. So that's definitely an objective as well to conserve cash flow.
Michael Bellisario: And just remind me, what's the 30% figure?
Richard Stockton: The amount of owner funded CapEx, this year versus last year.
Michael Bellisario: Okay. And then just lastly, sort of along the same lines, balance sheet leverages 40%. In prior quarters, you've talked about a 35% target. You haven't talked about that in a while. I guess, one, is that still a target? Where is leverage pro forma for La Jolla? And then kind of what's the timeline or the plan to get that back down to 35%? And that's all for me. Thank you.
Richard Stockton: Yes. I'll let Deric chime in as well. That's definitely our plan. With La Jolla sale, I don't know that that moves the needle too much. Deric is going to let us know in a second, but I think once we have the 2 other asset sales that we've talked about, we'll be honing in on that 35% or lower, which I would anticipate will achieve by this time next year.
Operator: And with that, I'll turn the call back to management for any closing remarks.
Richard Stockton: All right. Thank you for joining us on our second quarter earnings call, and we look forward to speaking with you all again next quarter. Thank you.
Operator: [Operator Closing Remarks].
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