Braemar Hotels & Resorts Inc (BHR) 2017 Q4 法說會逐字稿

Good day, and welcome to the Ashford Hospitality Prime Fourth Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Joe Calabrese with the Financial Relations Board. Please go ahead, sir.

Thanks, Rachel. Good morning, everyone, and welcome to today's call to review results for Ashford Hospitality Prime for the fourth quarter of 2017 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, Executive Vice President of Asset Management.

The results as well as notice of the accessibility of this conference call on a listen-only basis over the Internet were distributed yesterday afternoon in a press release that has been covered by the financial media.

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 Private Securities Litigation Reform Act of 1995.

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 risk 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.

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 accompanying tables and schedules, which have been filed on Form 8-K with the SEC on February 28, 2018, and may also be accessed at the company's website at www.ahpreit.com.

Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

I will now turn the call over to Richard Stockton. Please go ahead, sir.

Good morning, and thank for joining us. Despite several challenges that we faced, 2017 was a successful year for Ashford Prime as we diligently executed on our strategies to both grow our portfolio within the luxury chain scale segment as well as find value-enhancing opportunities with our noncore portfolio. During the fourth quarter, the company's hotel operations and financial results continued to be adversely impacted by the challenges following Hurricane Irma, the wildfires in Northern California and a slow start to the ski season in Beaver Creek. In other words, we had weather where we didn't want it, and we didn't have enough weather where we needed it.

As we've discussed, we have comprehensive insurance in place with all of our hotels, and we continue to work closely with our insurers to both seek recoveries from physical damage to our hotels as well to minimize the impact to our properties' P&L from business interruption insurance recoveries, which totaled $4.1 million through November.

On our last call, we said that we expected these BI recovery proceeds to be recognized with a 1 quarter lag. So we are pleased to be able to report our first tranche of BI recovery proceeds in Q4 that covers lost profits from September through November, which equates to only a 1-month lag. Therefore, looking forward, we would expect to book BI recovery proceeds for the period of December through February in our Q1 2018 financials.

Let me take a moment to bring you up-to-date on where we stand on our 2 properties that were affected by the hurricane. Our Ritz-Carlton St. Thomas Hotel received substantial damage from the storm and our team continues to work diligently along with the Ritz-Carlton property management team to develop a compressive restoration plan and assist in the recovery effort. Three of the 6 guestroom buildings on the property sustained extensive damage.

We currently have 83 of the property's 180 guestrooms available and in service. These rooms continue to be mainly occupied by those assisting in the recovery effort. We expect that the full reopening at this property could take up to 2 years.

The Florida Keys were also significantly impacted by Hurricane Irma, and our Pier House Resort in Key West also sustained some damage. The damage at Pier House was less extensive than at the Ritz-Carlton St. Thomas, and currently all the property's guestrooms are available and in service. We expect Key West to recover much more quickly than St. Thomas.

Additionally, in October, we also experienced disruption at our 2 Napa Valley properties due to the northern California wildfires. Neither of our 2 Yountville properties suffered physical damage. However, tourism demand in that market was negatively impacted, and we did experience a 24-hour power outage, so we're the process of claiming business-interruption losses due to this event.

In Q1, we expect to book $2.3 million in BI proceeds to cover lost profits from Q4 at these properties. Keep in mind that we have a $500,000 deductible associated with this claim.

I'm extremely proud of our entire asset management team led by Jeremy, and our property management teams at the Ritz-Carlton St. Thomas, Pier House Resort, Bardessono and Hotel Yountville. They have shown tremendous energy, perseverance and of course, hospitality under very difficult circumstances.

Additionally, our risk management team continues to be a great job, diligently pursuing recoveries under our insurance policies for these events.

Now I'd like to discuss our operating results. As expected, the impact of the events of the fourth quarter have significantly impacted our comparable RevPAR figures, resulting in a decline of 9.2% inclusive of the [covered] properties.

However, due to the fact that we have been successful in finalizing our business interruption claims, proceeds of which have been booked as other revenue, our comparable hotel EBITDA has held firm, posting 0.5% growth in the quarter.

With regard to the company as a whole for the quarter, we reported adjusted EBITDA of $22 million versus $21.6 million in 2016, and AFFO per share of $0.31 versus $0.34 in 2016.

We ended the year with portfolio comparable RevPAR of $219, which is the highest in the lodging REIT sector.

Turning to our strategic plan, in January of last year, we announced our revised strategy with a focus of investing solely in luxury segment. Evidence has shown the luxury segment has had the greatest RevPAR growth over the long term, which can translate into superior shareholder returns. We believe that clearly aligning our platform in this segment will differentiate us relative to our REIT peers.

As part of our revised strategy, we identified 4 hotels: the Courtyard Philadelphia, Courtyard San Francisco, Renaissance Tampa and Marriott Plano, that were designated as noncore to the portfolio. We stated that our intent was to either reposition or opportunistically sell these hotels.

To that end on November 1, we announced plans to convert the Courtyard San Francisco Downtown hotel to an Autograph Collection hotel. The plan calls for the Courtyard San Francisco to be converted to an Autograph hotel by December 2019, pursuant to a conversion product improvement plan currently estimated to be approximately $30 million incremental to capital projects already underway, including updates to the guestrooms, guest bathrooms, corridors, lobby, restaurant, façade and meeting space, which will create a distinctive theme and style for the property as commensurate with the Autograph product. We believe that post conversion, the new Autograph property should realize a $50 RevPAR premium to the current Courtyard hotel. And that our estimated $30 million investment should yield an approximate 20% unlevered internal rate of return.

In November, we also announced that we completed the sale of our Marriott Plano Legacy hotel in Plano, Texas for $104 million, which represented an attractive all-in cap rate of 7.7%.

Additionally, we announced that we have begun marketing for sale our Renaissance Tampa hotel in Tampa, Florida and we are seeing strong interest in the property.

We have also made significant progress in our investment strategy, and in mid-February, we announced an agreement to acquire the 266-room Ritz-Carlton Sarasota for $171 million. This high-quality luxury resort property is located in a popular, growing market on the Florida Gulf Coast. With RevPAR of $284 in 2017 and strong cash flow, this acquisition will increase our overall portfolio RevPAR and we believe will be a very attractive acquisition for our shareholders. The initial EBITDA yield is 7.8%, and we expect it to stabilize at 9.5%.

Turning to capital expenditures, as expected, renovation activity picked up in the fourth quarter, with 5 of our hotels under renovation. In addition to work at our hotels affected by Hurricane Irma, we have ongoing room renovations at our Sofitel Chicago and Courtyard San Francisco as well as meeting space renovation underway at our Capital Hilton.

In conclusion, we believe we made significant progress in 2017 in advancing our revised strategy. Looking ahead, our team will continue to focus on enhancing shareholder value by delivering solid operational performance and continuing to execute on all aspects of our business plan.

We will also continue to work on increasing investor awareness of our story. Over the past several months, we believe we have already improved the company's exposure to investors by attending multiple REIT and small cap investor conferences as well as hosting our October Investor and Analyst Day in New York City.

I'll now return turn the call over to Deric.

Thanks, Richard. During the quarter, as Richard mentioned, we recognized $4.1 million of business interruption income, which is reflected in the other revenue line of our income statement. These insurance recoveries related to the months of September through November and included approximately $2.8 million for the Ritz-Carlton St. Thomas and $1.3 million for the Pier House resort. We expect the business interruption proceeds to continue for some time at the Ritz-Carlton St. Thomas, while we expect the Pier House Resort in Key West to get back to normal operations relatively quickly.

For the fourth quarter of 2017, we reported net income attributable to common stockholders of $23.2 million or $0.65 per diluted share. For the full year of 2017, we reported net income attributable to common stockholders of $16.2 million or $0.51 per diluted share.

For the quarter, we reported AFFO per diluted share of $0.31 compared with $0.34 for the same quarter last year. And for the full year of 2017, we reported AFFO per diluted share of $1.62 compared with $1.73 for the full year of 2016.

Adjusted EBITDA for the quarter was $22 million, which reflected a 2% growth rate over the prior year. Adjusted EBITDA for the full year of 2017 was $102.5 million, which reflected a 1% growth rate over 2016.

At quarter's end, we had total assets of $1.4 billion. We had $826 million of mortgage debt, of which $48 million related to our joint venture partner share of the debt on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined debt had a blended interest rate of 4.3% and was almost entirely floating rate. All of our floating rate debt has interest rate caps in place. As of the end of the fourth quarter, we had approximately 40% net debt to gross assets, and our trailing 12-month fixed charge coverage ratio was 2.1x. All of our debt is nonrecourse, property level debt, and our next hard debt maturity is not until 2019.

We ended the quarter with net working capital of $161 million.

As of December 31, 2017, our portfolio consisted of 12 hotels with 3,339 net rooms. Our share count currently stands at 36.9 million fully diluted shares outstanding, which is comprised of 32.1 million shares of common stock and 4.8 million OP units.

In our financial results, we include approximately 6.6 million shares in our fully diluted share count associated with our Series B convertible preferred stock.

With regard to dividends, the Board of Directors declared a fourth quarter 2017 cash dividend of $0.16 per share or $0.64 per diluted share on an annualized basis. This equates to an annual yield of approximately 7.4% based on yesterday's closing price, which is one of the highest in the lodging REIT space.

The board also approved the company's dividend policy for 2018. The company expects to pay a quarterly cash dividend of $0.16 per share for 2018 or $0.64 per share on an annualized basis. On a trailing 12-month basis, this represents an approximate 37% AFFO payout ratio.

On the capital markets front, while we did not complete any financings during the quarter, we continue to see very attractive debt financing markets for high-quality hotels such as ours. As is typical for periods of rising short-term interest rates, we have seen spreads for hotel mortgage loans continue to compress over the last 12 to 18 months. We will continue to assess our portfolio for additional refinancing opportunities to capitalize on these favorable trends.

This concludes our financial review. I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. During the fourth quarter, comparable RevPAR for our portfolio declined by 2.7% for all hotels not under renovation. For the full year 2017, comparable RevPAR for all hotels not under renovation grew 0.6%.

For the fourth quarter, comparable hotel EBITDA flow-through for the entire portfolio was strong at 101%.

This quarter's best-performing asset was Courtyard Philadelphia Downtown, which grew RevPAR by 16.1% driven by rate growth of 13.5%. This robust RevPAR growth compares to Philadelphia CBD RevPAR growth of 10.9% and Philadelphia market upscale RevPAR growth of only 5.2%.

Three factors drove the growth. Occupancy increased 7.5% during the slower month of December. There were 4 city-wides during the quarter compared with only one in 2016. And the Army-Navy Game in December 2017 did not take place in Philadelphia in 2016. Compression from city-wides and the Army-Navy Game provided the opportunity to drive rate. Not only did we increase the top line, but EBITDA flow-through was 64% during the fourth quarter, and margins increased by 9.2% resulting in a $724,000 or 25.9% increase in EBITDA.

Additionally, full year 2017 EBITDA flow-through was 57%. The fourth quarter results increased our excitement regarding the future conversion of this hotel to the Autograph Collection. We continue to make progress towards the hotel's rebranding, and the review for the new model rooms is scheduled for early March.

Since we're on the topic of rebranding, I would like to provide an update on the progress made toward the conversion of the Courtyard San Francisco downtown to an Autograph Collection hotel. We've invested a significant amount of time and resources in order to emerge as the most desirable hospitality experience in San Francisco's SoMa district. The process began in early 2017 with a custom-designed $23 million guestroom renovation, which incorporates smart technology with comfort and luxury.

In order to meet the strong market demand, we also added 5 keys by transforming former conference suites to guestrooms. The finishing touches to the guestrooms will be completed during the second quarter of 2018, after which we will begin the final stages necessary for the Autograph transformation, a completely reimagined façade, lobby and public spaces.

In addition to the outstanding performance of the Courtyard Philadelphia Downtown, I wanted to briefly mention that our next best performing asset, the Marriott Seattle Waterfront, grew RevPAR by 11.2% during the fourth quarter, with 5.8% rate growth and 5.1% occupancy growth. This RevPAR growth of 11.2% significantly outperformed the Seattle market RevPAR growth of 1.6% and our competitive [set] RevPAR growth of 2%.

Seattle Seahawks games generated a higher-than-usual leisure demand on Sundays this season and the game occurring on New Year's Eve provided high-rated demand over a historically slow holiday.

We also decided to allocate fewer rooms to city-wide blocks and capitalized by filling with higher rated transient demand.

Finally, strategic discounting over holidays [and knee] periods proved successful in generating sufficient retail demand. EBITDA growth of $283,000 or 9.3% has made this property one of the top performers in our portfolio, with a strong 62% EBITDA flow-through. The shift in mix of business from F&B revenues to rooms revenues played a larger role in increasing profitability of this hotel.

One item to note during the quarter was the performance of the 4 hotels affected by natural disasters at the end of the third quarter and beginning of the fourth quarter. The Ritz-Carlton St. Thomas and Key West Pier House Resort & Spa continued to experience the impact from Hurricanes Irma and Maria. The Hotel Yountville and the Bardessono continued to be impacted by fires in and around Napa throughout the fourth quarter.

Removing these 4 hotels from the fourth quarter results boost RevPAR growth by 810 basis points from negative 9.2% to negative 1.1%. The Ritz-Carlton St. Thomas continued to be impacted the most, posting a 38.1% RevPAR decline during the fourth quarter.

Despite the negative top line, EBITDA actually increased by $1.2 million as a result of the BI income.

We're still in the planning phase for the capital investment needed to rebuild the resort but the following is a brief update on progress we have made so far. As mentioned by Richard, 83 rooms in 3 buildings are back in service, while 97 rooms in the remaining 3 buildings have been gutted and will not be back in service until reconstruction.

Design of the new rooms has been selected and should be completed within 4 months following commencement. And finally, designers are actively working on plans for the lobby, guestrooms and restaurant re-concept.

While neither a natural disaster nor something for which we will receive business interruption insurance proceeds, the lack of snow in Beaver Creek Colorado significantly impacted results during the fourth quarter. RevPAR declined 9.4% during the fourth quarter of 2017, and while both October and November posted RevPAR growth, December, the most impactful month of the quarter, saw RevPAR decline 15%.

We believe the primary reasons for the RevPAR decline was the lack of snowfall, the worst since 2011, and a shift in winter break calendar resulting in 50% fewer school breaks during the week before Christmas.

However, to put this monthly decline in perspective, we still managed RevPAR growth of 450 and 210 basis points higher than the upscale Colorado ski area submarket chains and the luxury hotels in the broader Colorado area market, respectively.

For the entire fourth quarter, we surpassed the aforementioned submarket scale's RevPAR growth by 250 basis points.

We also continue to be excited about the value-add opportunities that we see at this great property.

I will now turn to capital investment. During 2018, we will continue to invest in our portfolio to maintain competitiveness and upgrade our portfolio. In total, we estimate spending approximately $80 million to $90 million, approximately $55 million with insurances excluded, in capital expenditures during the year, which will predominantly be compromised -- or comprised of the reconstruction of the Ritz-Carlton St. Thomas as well as the Courtyard San Francisco and Courtyard Philadelphia conversions to Marriott's Autograph Collection.

In terms of the market supply our portfolio is facing, we're expecting supply growth in our market tracks to be approximately 1.4% over the next 12 months and approximately 1.9% over the following 12 months. Currently, our group pace is up 4% for 2018, which is considerably weighted towards the second half, while our group pace for 2019 is up double digits.

I would now like to turn the call back over to Richard.

Thanks, Jeremy. Before we move to questions, we have 2 final items to discuss. First, we recently added an interactive analyst center tool to our investor relations website, which analysts and investors can use to build historical financial models on the company. It's a helpful and easy way to assist with analytical work on the company.

Additionally, we are happy to announce we're in the early stages of reviewing a potential rebranding of the company, including a possible name change that would give the company a distinct identity in the capital markets. We believe this change will further enhance the company's refined strategy announced in January 2017. We see this initiative as a next step to defining our brand within the lodging industry while still maintaining our beneficial relationship with the Ashford Group of Companies. A further announcement will be forthcoming in the coming months.

This concludes our prepared remarks, and we will now open the call up to your questions.

(Operator Instructions) And our first question, we'll hear from Tyler Batory with Janney Capital Markets.

So first question I have is on margins. Obviously, there's a number of moving pieces for you guys in the portfolio in the fourth quarter here. But what's the best way to think about margins at the hotels that did not have any disruptions? And then also wondering if you can comment on what you're seeing on the cost front generally across the portfolio.

Sure. This is Jeremy. I'll take that. There's so much noise in Q4 just because we had some business interruption proceeds that we were able to book that did help margins a little bit. We are getting some wage pressures across the portfolio. Mainly, it's occurring in the Western markets, probably a little bit more so than other markets. As you look across our portfolio, if you look at DC, Chicago, we already have pretty high wages in a lot of those markets as well as San Francisco. But I think that there's a lot of opportunity still to mitigate some of those pressures, and we're very active in a lot of different strategies. So I would anticipate that we would continue to uphold our margins going forward, and that's our expectation. And to the extent that we have positive increases in RevPAR, we expect that to continue to grow our margins as well.

All right, that's helpful. And then just on Key West. I mean, how long do you think there's going to be continued disruption in that market? I mean, what's your best case view on when things can get back to normal there?

We're starting to see it coming back to normal a little bit. It's still slightly down just a little bit. But as we look forward to March, I'd anticipate that that's going to turn the corner, and hopefully, we might be positive year-over-year. It's just -- it's very difficult. It's heavily transient so relatively short booking windows. But I do think it's starting to stabilize. So you've got a lot of pent-up demand from folks that really want to go back at such a high demand market, so I don't anticipate it to be soft for too long.

Okay. And then just last question. I wonder if you have any general thoughts on the disposition market? And then also if there's any additional comments that you can provide on how the sale of Tampa is going?

Yes, I can take that one. Yes, we've been pretty pleased with what we've been seeing in terms of the disposition market. There -- I think as you've heard from other lodging REITs, there isn't a lot of inventory out there on the acquisition side, right? So we're finding that there's a fair amount of interest in our property that's on the market currently. And we feel like once we ultimately announce that sale, it will reflect a fully marketed process that has achieved the best possible price. So it's a good time, frankly, to be a seller because of the relative lack of competition that's out there, I think, in terms of products.

And we'll next move to Bryan Maher with B. Riley FBR.

Just following up on Tyler's question on the Tampa property. What type of buyers are you seeing out there? With the Chinese kind of not in the market now, it seems, who are the type of buyers looking at that property?

Yes, Bryan, thanks for that question. It's a good point. The international bid for hotels seems not to be there. In our process, I think we have one Asian buyer, but really it was a bit unproven, I'd say. So what we're seeing is generally family offices, ultra-high net worth type organizations as well as private equity funds. And they've been the strongest bidders in what we've seen.

Okay. And then on the Ritz-Carlton and St. Thomas. In that renovation process, are you planning on dealing any -- taking advantage of the downtime to do any other upgrades to the property that would be in addition to kind of what was there before the storm hit?

Yes, it's a great question. We're definitely taking advantage of that. So we -- I mean, this hotel is going to be fantastic when we come out of renovation from the upgrade, from the insurance proceeds we receive. But specifically, what we're doing is we're putting a little bit of additional CapEx into our lobby, the sense of arrival. And we're also repositioning -- we hired a third-party consultant. We actually had this on the way before the storm hit. But we're definitely going to move forward on it on repositioning of our restaurant and main bar and the resort, which I think is going to be fantastic. The total rebranding of it and the idea -- the consultant has come up with some really good concepts we're very excited about. In addition to that, we do get a lot of negative guest comments because there's only one pool at the resort. And so what we are exploring, and I do believe that we're going to move forward with, is adding a separate kids' pool. And I think that that's going to be a good demand generator for the hotel. And so we have some additional land to be able to do that. And so we're going to do that as well as potentially replace the decking around the pool. So all those things are pretty invasive, and so it's very difficult to deal when you're operating a resort. So we think it makes sense to do it when we have this opportunity. So we're very, very excited about what we're doing from a capital perspective. And in a lot of ways, there's been a lot of supply in that market, some of our competition, unfortunately, but that will benefit -- that has been really adversely impacted, that it will take some time to rebuild if ever they rebuild.

Thanks for that. And then just lastly on the potential name change of the company or rebranding of the company. Is that something you guys came up with on your own or was that in response to buy-side feedback? And I'm assuming Ashford Inc. will continue to manage the portfolio or would it shift to being internal?

I'll take the second question first. No, it doesn't impact at all the advisory agreement in place with Ashford Inc. But this was our idea. This is not in response to any externalities. This is something that we think will just make it clear to the capital markets community kind of which company is which and will aid in our investor relations efforts.

And next we move on to Michael Bellisario with Baird.

I just want to come back to St. Thomas. Does your kind of rebuilding thought process and how much maybe excess capital you put into that hotel impacted at all by what DiamondRock may begin to do with its bigger property on the island?

Not really. We think we have a great location, a superior location, the best location in the Virgin Islands, and that includes the British Virgin Islands as well in terms of resorts. So I think we're very competitively positioned. And so it's really not a factor on what they're doing. If they're able to get some more demand to the island, I think that benefits everyone. So not really.

Got it. And then kind of just switching gears. Just specifically on Sarasota but also back to Beaver Creek and Yountville because I think you quoted the same 8% stabilized unlevered yield on those acquisitions. That's just from a high-level perspective to help us put in context. Why is that the right number for incremental capital investment for you guys?

Yes, I think the primary metric that we look at is unlevered IRR on acquisitions, and we did compare that to our cost of capital. And we seek to generate economic value added, so unlevered IRR above our cost of capital. And so we believe that we're able to do that with a 10% bogey. That translates into what it translates into from a current yield perspective. And so we're quoting that for the benefit of you all in the investor community, but it's not something that necessarily is driving our underwriting. And in those cases, that's how we price the riskiness of those cash flows, and that's how we were able to be successful and ultimately prevailing in those processes. So it is -- in some ways, coincidental, but it's in some ways, the way we're underwriting, and in some cases, we end up prevailing as the acquirer, [other cases] we don't. And we look at a lot of deals, and we bid on a lot of things. And it's the ones that makes sense for us that bubble to the top. And that's what you've seen.

And as you think about maybe the share repurchase trade-off, have you guys given any more consideration on that topic to maybe help close the valuation discount that's present today?

Yes, we're constantly evaluating that. And as you know, we had an announcement on our buyback authorization recently. I think where we're trading, when you look at our valuation metrics, and let's take AFFO per share, for instance, we're trading at such a low multiple. I'm not convinced if we reduced the denominator, in other words, remove shares from the market, we would necessarily see that reflected in a better stock price. I think that the detriments of reducing our float are greater than a potential benefit of canceling certain number of shares. So I think if we were trading in line with our competitors and we're being properly valued, there would be some benefit doing that, assuming at the right price. But it's not something that we're seeing would result in any change in how we're valued in the markets today.

(Operator Instructions) And next we move on to Chris Woronka with Deutsche Bank.

I wanted to -- I want to ask you about Tampa. It sounds like you're making pretty good progress there. And so when that eventually sells, how do you think about redeploying those proceeds, especially given your comments that it's somewhat tough to find a lot of attractive stuff on the acquisitions front?

Yes, thanks, Chris. We feel like we've done it, right? With the Ritz-Carlton Sarasota acquisition, the value of that transaction as compared to the proceeds we're receiving in the other 2, on a gross basis, is about equivalent. So we're -- we feel like we've done it. So there will be almost 0 downtime if you will, between the sale of Tampa and the redeployment of that capital into Ritz-Carlton Sarasota.

Okay, great. And then on the Ritz-Carlton Sarasota, what are you guys doing there to help drive the upside yield? Is that kind of just market same-store growth? Or are you guys doing some asset management initiatives?

Yes, this is Jeremy. We did underwrite a little bit of benefit from our asset management, but not a lot. We just didn't need to because it's such a great asset. It's far superior than the 2 properties that we are -- that we traded out to get to it. But there are a lot of different initiatives that we've identified that aren't necessarily in those numbers. And so we're sending a team in advance to closing -- it's going to be March -- a pretty big team that's going to go through and do our typical deep dive that we do looking at full review of all the expenses, and then also, a lot of top line initiatives. What I can tell you is with that, because we've delayed from what we originally told the Ritz-Carlton management team the opening of our St. Thomas asset, we've asked them to move any of those group rooms over to Sarasota. So that's one thing in the short-term that we're doing. But again, we don't own the asset yet, but I do think that there's a lot of opportunities that we will identify through our typical process. And one thing in particular is that we have ability to add 10 keys that we're likely to do, so we can add some rooms as well. So we're pretty excited about it. I can tell you that, as mentioned it's a great asset overall. And if you can get a chance to go see it, you'll be very impressed, especially with the beach amenities that the property has.

Okay, great. And then I just wanted to ask on the Napa Valley hotels, kind of the fourth quarter wildfire disruptions aside, but where are you in terms of when you bought both those hotels? And I know timing was a little bit different between the 2, but where are you in terms of where you originally underwrote? And how much more, I guess, operational upside are you seeing out of those?

I can take that. So yes, so when we originally wrote Bardessono, we were ahead of what our underwriting model was. We had that property in a really good shape from all -- from a lot of different metrics. We were able to push rate. Our opportunity on both Yountville assets has always been weekday business. So we were pretty excited about where we were. Still had some opportunity. And as we've identified in the past, there's ability to add 3 luxury suites as well to that property. But switching over to Yountville, we were little bit behind what we'd hoped because of the lack of the sales force. There was really no property management team. We had an extended close, if you recall, because we had a zoning issue that we had to get approved through the city. And so that extended the closing process with a lack of really good on-site property management. But we're in process now of addressing -- we've addressed all those issues and have really done a good job [selling] both resorts on a go-forward basis. So the group outlook is very healthy for both properties. And we've realized a lot of cost synergies between the 2 properties. So I'm very bullish on where we will be relative to underwriting on both. I think we'll exceed both pro formas. And probably, the second and third year for Yountville as well. And we're starting to some demand pretty much come back to where it stabilized. And so it's still difficult. Again, similar to what I said on Key West, heavily transient. It's a very short-term booking window. But people are realizing that Napa is in great shape. All the major wineries are all in great shape. So a lot of people are wanting to come back, and we're seeing a lot of good pickup. And one thing that we've highlighted in the script that I do want to say that is important for everyone to know is that our group pace is pretty healthy for the rest of the year. And when you look at the third and fourth quarter, it's fairly strong, and we do have some relatively easy comparables. So with the combination of the group outlook as well as the strong transient that we believe we will get as folks come back, we would expect those quarters to be pretty strong.

Next we'll take a follow-up from Bryan Maher with B. Riley FBR.

So following up on Mike Bellisario's question on the share buyback. I mean you guys are smart guys. And instead of going through the root canal of maybe rebranding this thing, why not just take it private? I mean, you own so much internally, between Monty and the team in there, and you know where this is trading on a valuation basis in the 8s. Don't you guys sit around and think, "Let's just take it private? We know what we can sell this assets for in the private market" and reap a huge profit on your own instead of continuing the public route?

Thanks for that question, Bryan. I mean, if you look at your estimates of NAV, I think you're right. I think you and the other equity research analysts know the fundamental value on an NAV per share is far in excess to where we're trading. I think this call is really focused on company results. I'm not sure that we're in a position to speculate on something like that. But I do acknowledge your comment and agree with your comment that where we're trading is inconsistent with the NAV estimates that are available.

And that concludes today's question-and-answer session. I would now like to turn the conference over to the management for any additional or closing remarks.

All right. Thank you all for joining us on our fourth quarter earnings call, and we look forward to speaking with you again on our next call.

And that will conclude today's call. We thank you for your participation.