Braemar Hotels & Resorts Inc (BHR) 2018 Q3 法說會逐字稿

Good day, and welcome to the Braemar Hotels & Resorts Third Quarter 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jordan Jennings. Please go ahead.

Good morning, and welcome to today's call to review the results for Braemar Hotels & Resorts for the third quarter of 2018 and to update you on recent developments.

On the call today will be Richard Stockton, President and Chief Executive Officer; Deric Eubanks, Chief Financial Officer; and Jeremy Welter, Chief Operating Officer. The results as well as the 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 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 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 call and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on October 31st, 2018 and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

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

Good morning. Thank you for joining us to discuss our third quarter results. As you know, in January of last year, we announced a revised strategy with a focus of investing in the luxury hotel segment. We took concrete steps to realign our portfolio to this strategy since that time, including selling 2 properties, announcing an agreement to up-brand 2 properties and acquiring 3 others.

Bolstered by strong consumer confidence trends and a healthy macroeconomic outlook, the luxury segment has outperformed the overall lodging industry over the last few quarters. According to Smith Travel Research, in the third quarter, luxury segment RevPAR growth was 3.3% compared to RevPAR growth of 1.7% for the entire industry. And year-to-date, luxury RevPAR is up 4.9% compared to RevPAR growth of 3.1% for the entire industry. STR and other industry forecasters expect this trend to continue through the remainder of 2018 and into 2019.

By clearly aligning our platform with this segment, we believe Braemar is well positioned to capitalize on these trends and continue to outperform our REIT peers. For the quarter, actual RevPAR growth was 9.9% and actual RevPAR growth for all hotels not under renovation was 15.1%. These significant increases are a direct result of our portfolio repositioning efforts to acquire higher RevPAR hotels and dispose of our lowest RevPAR assets.

Comparable RevPAR for hotels not under renovation grew by 3.3% during the quarter, while comparable RevPAR for all hotels increased 1.8%. Much of this difference for the portfolio overall is explained by the RevPAR performance of the Ritz-Carlton St. Thomas, which is under significant rehabilitation this year following Hurricane Irma.

We reported adjusted EBITDAre of $29.5 million, reflecting 4% growth over the prior year quarter and AFFO per share of $0.34. Our overall portfolio TTM RevPAR of $224 continues to be the highest in the lodging REIT sector.

During the quarter, we continued to actively manage our insurance recoveries at the Ritz-Carlton St. Thomas related to Hurricane Irma. We are working closely with our insurers to both seek recoveries for physical damage to the hotel as well as to minimize the impact to the property's P&L through BI insurance recoveries, which totaled $3.8 million during the quarter.

As we look into the fourth quarter, I think it's important to note that we currently do not expect to book any business interruption income in Q4, while we reported $4.1 million in business interruption income in the fourth quarter of 2017. However, we do expect recoveries to resume next year at the Ritz-Carlton St. Thomas at least through our planned reopening in October 2019.

We continue to be on track with the rebuilding and renovation program and Jeremy will provide more detail on our progress in a few minutes.

We are also pleased with the progress we're making on the conversions of our Courtyard Philadelphia and Courtyard San Francisco properties to Autograph Collection hotels. Both projects remain on track to be completed in June and December 2019 respectively.

We're excited about the postconversion upside at these 2 properties, given their strong performance this quarter, with 13% RevPAR growth at the Courtyard Philadelphia and 25% RevPAR growth at the Courtyard San Francisco, even while that property was under renovation. The Moscone Convention Center expansion will be completed by the end of 2018, which when combined with only modest supply growth, continues to fuel our excitement for 2019 and the upcoming opening of our Autograph Collection hotel.

One of this quarter's best performing assets was the Sofitel Chicago. The hotel completed its guest room renovation earlier this year in April. The combination of the new rooms product combined with key property management position changes has led to strong growth with comparable RevPAR up by 42.2% during the third quarter, driven by rate growth of 9.5%. 2018 group room night pace is the strongest it has been in 4 years and 2019 group is pacing ahead despite fewer Chicago citywides on the calendar.

In addition to the strong performance of the Sofitel Chicago, I wanted to briefly mention another top performing asset, the Pier House Resort grew comparable RevPAR 23.1% during the quarter on the back of 22.8% occupancy growth. While much of the topline growth quoted above is driven by the impact of the hurricane in September 2017, the property has maintained this profitability throughout the quarter and year-to-date.

Total hotel revenue year-to-date increased 4.6%, contributing to hotel EBITDA growth of 8.5%. Hotel EBITDA margin year-to-date stands at a healthy 46.6%. Both transient and group pace for the first quarter of 2019 for Pier House are now ahead of pre-hurricane pace numbers and the future of the hotel looks bright.

Hotel EBITDA for the Park Hyatt Beaver Creek increased by 10% during the quarter on roughly flat revenue growth, which is a testament to our asset management team and their ability to cut costs in a static revenue environment. With Beaver Creek already having an 18-inch mid-mountain base, we're optimistic this is a prelude to a strong ski season.

We believe we have made great progress in advancing our strategy in the first 9 months of this year and are pleased with our results for the quarter. As we look at the fourth quarter, we currently expect our actual RevPAR growth to be as strong as what we reported this quarter.

Over the past 2 years, our markets have experienced 3% annual supply growth. As we look forward over the next one and 2 years, supply growth in our markets is expected to be only approximately 2% per year. This creates an attractive backdrop to realize the operational enhancements we have underway at our various properties

I will now turn the call over to Deric.

Thanks, Richard. During the quarter, as Richard mentioned, we recognized $3.8 million of business interruption income for the Ritz-Carlton St. Thomas, which is reflected in the other hotel revenue line of our income statement. These insurance recoveries related to the months of June through August.

For the quarter, we reported net loss attributable to common stockholders of $3.6 million or $0.12 per diluted share and we reported AFFO per diluted share of $0.34. Adjusted EBITDAre for the quarter was $29.5 million, which reflected a 4% growth rate over the prior year. Beginning this quarter, we have made some changes to how we report our non-GAAP metrics to be consistent with how our peers report these items. You can see these details in the tables of our earnings release.

At quarter's end, we had total assets of $1.6 billion. We had $993 million of mortgage loans, of which $47 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 4.8% and these loans are entirely floating rate. All of our floating rate loans have interest rate caps in place. As of the end of the third quarter, we had approximately 45% net debt-to-gross assets and our trailing 12-month fixed charge coverage ratio was approximately 2.1 times. Our next loan maturity is not until March of 2020.

Our cash and cash equivalents at the end of the quarter was $164 million with an additional $75 million of restricted cash. The vast majority of that restricted cash is earmarked for CapEx projects, including our Autograph conversions. So we have already set aside a significant amount of the CapEx we plan to spend in 2019.

We also ended the quarter with net working capital of $192 million. As of September 30 2018, our portfolio consisted of 12 hotels with 3,314 net rooms. Our share count currently stands at 37.7 million fully diluted shares outstanding, which is comprised of 32.5 million shares of common stock and 5.1 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 third quarter 2018 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 6% based on yesterday's stock price.

On the capital markets front, we continue to see very attractive financing markets for high-quality hotels such as ours, and 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. Comparable RevPAR for our portfolio grew 1.8% during the third quarter. However, for all hotels not under renovation during the third quarter, comparable RevPAR grew by 3.3%. Our portfolio's comparable RevPAR growth led to share gains of 1 percentage point and 2.5 percentage points relative to both our hotel's competitive sets and sub-market chain scales respectively.

Hotel EBITDA flow-through was strong at 354%. Despite only a 0.8% increase in total hotel revenue, hotel EBITDA increased by $3.1 million or 10.3% with hotel EBITDA margin increasing by 263 basis points. Year-to-date, through September, comparable RevPAR for all hotels not under renovation grew by 2.2%, while comparable RevPAR for the entire portfolio decreased by 2.8%.

However, this decrease represents 0.5 percentage point and 1.6 percentage point gains relative to our hotel's competitive set and sub-market chain scales respectively. In addition, year-to-date hotel EBITDA flow-through was robust at 160%.

2 holiday shifts impacted the third quarter. Rosh Hashanah, starting on Sunday and running through Tuesday this year had a greater impact on business travel than the Wednesday through Friday pattern last year. Also 4th of July occurring on Wednesday in 2018 compared to Tuesday in 2017 had a big impact, especially to group business.

Richard discussed some of our top-performing assets during the quarter and I'd like to take this time to provide a little more detail on the performance of the portfolio. One item to note during the third quarter was the performance of the Ritz-Carlton Sarasota, which during its first full quarter in our portfolio, was significantly impacted by the phenomenon known as red tide, posting a 10.1% comparable RevPAR decrease.

Red tide began impacting the Gulf Coast in July and the Sarasota market was one of the worst hit regions. Despite the impact of transient business, we have been able to maintain a stable group base. Relative to the Sarasota beaches submarket and the Sarasota Bradenton market, comparable RevPAR outperformed by 8.7 percentage points and 7 percentage points respectively.

The red tide has now subsided. Finally, the City Council has approved a $4 million beach project expected to commence in November, which will increase the depth of usable beach by approximately 50 feet to 70 feet, increasing the amount of beach available between our beach club and the ocean.

Mother Nature has significantly impacted the Ritz-Carlton Sarasota since our acquisition. However, we remain excited about the future prospects of this iconic asset once the present issues are behind us.

Turning to another one of our iconic hotels, comparable RevPAR decreased 9.2% during the third quarter at the Capital Hilton, driven by softness in the Washington DC market and the ongoing strategically-timed meeting space renovations at the hotel. DC citywide Group volume decreased by an estimated 107,000 room nights, relative to the third quarter last year. Group business at our hotel decreased by $0.9 million and 3,882 room nights.

While softness in the DC citywide calendar was a primary driver of the decrease, as the DC market ebbs and flows with election years, the pattern shift to Rosh Hashanah was also impactful. In addition, Hurricane Florence had a $220,000 impact to revenue.

While our hotels in Yountville posted weak performance during the quarter, hotel EBITDA year-to-date is up 25% for Bardessono and 8% for Hotel Yountville. In addition to the positive EBITDA results, we are excited that the construction of a 3 key presidential villa at Bardessono is underway and we anticipate that to be completed in July 2019.

Looking forward to the fourth quarter we expect relatively easy comparables to last year's performance in the wake of the Northern California wildfires in October, 2017.

I would now like to provide an update on our rehabilitation progress at the Ritz-Carlton St. Thomas. Rebuilding work funded substantially by insurance proceeds continues. The lobby renovation started in September and should be completed by mid-January. New permanent roofs have been installed with all roofs having been completed with the exception of the main kitchen roof which will be completed shortly. Prep work is being done in 3 out of our 6 guest room buildings with walls, layout and framing commencing.

With all the work going on, we have also been able to operate a portion of the hotel under a white label and have realized hotel EBITDA flow-through of 169% during the third quarter and 113% year-to-date. During the third quarter, hotel EBITDA grew by $2.3 million or 315% while hotel EBITDA margin increased 553.9%. In summary, our team has done a tremendous job of keeping this complicated project on track and on-time while optimizing the performance of the asset.

I will now turn to capital investment. During 2018, we have continued to invest in our portfolio in order to maintain competitiveness. In total, we estimate spending approximately $55 million to $75 million in capital expenditures for the year, net of insurance. This will predominantly be comprised of the strategic acceleration of capital projects in order to mitigate the renovation impact, specifically at the Courtyard San Francisco, while the Moscone Center remains under renovation as well as pulling forward additional amenity enhancements at the Ritz-Carlton St. Thomas, while the resort is under renovation.

Additionally, this includes work related to Courtyard San Francisco Downtown and Courtyard Philadelphia Downtown conversions to Marriott's Autograph Collection.

This concludes our prepared remarks and we'll now open the call up for Q&A.

(Operator Instructions) We'll take our first question from Bryan Maher with B. Riley FBR.

A couple of questions. So first, can we go back, I think Richard, you might have mentioned no BI insurance in the fourth quarter, but that it resumes in 2019. Why would that be, as it relates to St. Thomas still being out? Is it just kind of a timing of getting the proceeds?

Hey, Brian, it's Deric. It relates specifically to the seasonality of the property and that the fourth quarter is historically a pretty weak quarter for that property, so there's not a whole lot of income there to begin with.

And then on Philadelphia and San Francisco, I think we were pretty surprised by how strong the RevPAR was there in light of the upgrading of those 2 properties, and I'm sure some of it has to do with ramping of convention business in San Francisco.

But can you give us a little bit more detail as to kind of what really is going on with construction at the properties from an upgrading standpoint and how that is or is not impacting business at Philadelphia and San Francisco.

Sure. This is Jeremy. I can give you an update. I mean we're just getting underway in the notary -- I'm sorry in Philadelphia. The guest rooms we started just in October and we're projected to complete in June. We'll have 2 floors out and that's going to run between 39 to 46 days per turn.

Also on the lobby, we will start construction in December, and that should be completed sometime in April or May and the restaurant is going to start in January and will be done in June of 2019 and that's when we will launch as an Autograph. Well, we will have rooms out of service, mainly in October through June of next year. So we don't have a lot of impact in this quarter, which is why you saw some strong growth in Philadelphia.

And then moving on to San Francisco, our guest rooms, we just started in the third quarter, but the turns are pretty quick. They range anywhere from 5 days to as much as 15 days. We just have limited work that we have to do within the guest rooms, so we're not going to have a tremendous amount of displacement.

And then if you recall, we were under renovation last year, and so from a comparability standpoint, it's still kind of favorable for us. But we will be done with the guest rooms hopefully December-January time frame. So we're moving pretty quickly in San Francisco and then the major work in the lobby and restaurant is going to commence in February, and that'll continue on through basically the balance of 2019, which will include the lobby, restaurant, and the exterior. We're doing a lot of enhancements to the exterior as well.

The good news about that is that we'll have full room inventory for most of the year in San Francisco, which is what we were really working towards as part of this repositioning, given the Moscone and the strong demand that we're going to see in San Francisco. So I think that's a good thing for the hotel.

And then just last from me on Napa, you know Bardessono and Hotel Yountville were a little weak, it's down 6.5% and 10%. What do you attribute that to? Is there any kind of lingering kind of hold-over impact from the wildfires of last year? What's going on in that market and how should we think about 2019?

Yes, it's going to get lost in this quarter. If you look in October and November, you're going to have strong growth in the Yountville market, Napa Valley market.

I think what we've experienced is, yes some continued headwinds from the fires, but then also there has been a decent amount of supply in the wider Napa Valley market, in excess of 6% that we've absorbed over the last 12 months. So the new supply combined with some wildfire headwinds, I think has been challenging for the market.

Now, if you look at our hotels in Yountville, they've done well, holding up relative to the market and have gained share in aggregate between the hotels. And so, we're pretty optimistic on a go-forward basis just because we've got some very favorable comparability benefits given that the fires were last year and impacted severely October, November, December of last year.

We'll take our next question from Michael Bellisario with Baird.

On Chicago, can you give us a sense on the performance there, just how much is maybe renovation related versus the personnel changes you made?

Yes, look I think this is a great turnaround story at this hotel. This hotel went from being one of the dogs of the portfolio to one of the darlings, in my view. And it's the direct result of a multi-pronged effort to fix what we saw as a problem in 2017.

So it included that rooms renovation, you're right. It also included putting in place the new General Manager, Director of Sales, getting more engagement from regional management of Accor and it's all worked. You know, how much is attributable to each component is very difficult to say.

You know that area in Chicago is a very competitive luxury market right, so we have some very stiff competitors in terms of quality of room product and I put a lot of it in improved room product, which is really fantastic and I encourage you to go see it. But on the other hand, the General Manager there is doing a fantastic job and we've been very happy with how he's reaccelerated pace and delivered room nights for us.

I think we've also benefited, if you recall Fairmont and -- Fairmont was acquired by Accor. And the Fairmont ops team, just regionals and the corporate oversight is much more engaged than what core North America was with this property. And so I think we've gotten some benefits just from having a Fairmount affiliation and their involvement.

And they've been heavily involved with this property and we've been very engaged with their teams and I can't thank them enough for stepping in and trying to help us improve the performance of the property.

And as we think about the ramp-up of this hotel, is this more of a one-year recovery or is this a 2 to 3 year kind of catchup in terms of performance for this property as we think about it?

Well, group pace next year is pretty favorable from an outlook for 2019. But our expectation is, is that we need to continue to gain market share for this hotel and so that's the expectation now for my team and that's the expectation I have for myself and with management company. So we would like to see continued improvement from a market share perspective and that's what we're working towards over the next 2 to 3 years.

And then just switching gears to Sarasota, have you guys gone into that GOP guarantee yet. And then if not, how close are we to hitting that and where would that hit the P&L?

In terms of where it would hit the P&L, I'm not sure, but right now, we don't expect to hit it. But we expect to be above the 2017 number. And so right now we don't expect to have to tap into that guarantee.

And then just last one from me, just kind of on strategy and portfolio composition. As you guys think about concentration risk and some of the weather impacts your assets over the last 12, 18 months, how are you thinking about, if at all, scale differently and geographic diversification.

I know that's kind of a roundabout way of me asking on acquisitions and getting bigger, but just in the context of concentration risk and being isolated in a few coastal markets that are a little higher beta and more susceptible to weather impacts.

Yes. In terms of diversification, our largest asset comprises under 12% EBITDA contribution. So there is some amount of diversification in the portfolio, but it can certainly be improved.

We are in the market in terms of looking at available properties to acquire. I will say that seller expectations continue to be quite high, and making the returns work for us is challenging. So we're looking at a lot of deals in order to find the one really that will be accretive for us.

So it's not easy out there, right, in terms of acquiring new properties. So we'll continue to look and we may find ways that we can acquire a property and then do something with it that other buyers can't, whether it'd be complexing management or have a certain angle that delivers more value to us than other bidders, but that's on our radar.

And I hear what you're saying about diversification and we'll strive to accomplish that over time. But on the other hand, our plate is very full with mining the existing portfolio for value and we have a lot of projects underway that will deliver that value in the near term. So I don't necessarily feel that urgency as well. I think it's something that can come over time, but meanwhile we'll be delivering results.

(Operator Instructions) We'll take our next question from Peter Toeman of Edison.

I just wanted to ask you about the interest expense, which obviously has gone up every successive quarter. I think previously when you commented about this, you've said that there's a sort of natural balance in the luxury hotel market, that room rates will rise to compensate. So I'm just wondering if that's sort of still your experience and your sort of expectations going into '19, how you feel about that?

Yes. Peter, it's Deric. Yes, I would say, our view on the financing strategy is that we prefer the floating rate debt. As you said, we view it as a natural hedge to our cash flows and that interest rates are going to move with the economy and our business is going to move with the economy. And that if rates are going up, our rates are going up and our profits are going up and so we just view that as a natural hedge.

I realize the forward curve, I think shows LIBOR going up maybe another 75 bps or 100 bps over the next 12 to 18 months, and so if that happens then you would see our interest expense continue to go up. But we believe our profits would go up with that.

So there's also a lot of other benefits that we see with the floating rate financing. There is fewer prepayment penalties, the ability to refinance assets opportunistically. We see a lot of value in our ability to do that. And we also believe that over time, we will pay less interest expense in general being at the short end of the curve versus fixing things out at the long end of the curve.

So we're very comfortable with the financing strategy that we have. At this point in the interest rate cycle, we are seeing our expense go up. But like I said, that's part of the strategy.

And also I'd point you to not the amount of interest expense because we have expanded the balance sheet, particularly year-over-year. If you make that comparison, we've got 20% more debt. I would look at the weighted average interest rate and our weighted average interest rate has held, if not slightly declined over the last year or 18 months.

Yes, that's a good point. One of things we've done is we've been trying to refinance loans and lower our spread. So while rates are going up, we've got a locked in spread to LIBOR. We can refinance and lower the spread and may be able to lower our cost through that. So that's something that we watch pretty closely as well.

We'll take our next question from Chris Woronka of Deutsche Bank.

Congratulations on the turnaround at Sofitel. Those are pretty impressive numbers we're seeing out there. But just had a question on the property tax situation there because we've heard from some of your peers that, you know there has been a bit of a reset in property taxes again in Chicago specifically. And can you comment on where that property is in the tax cycle?

Yes, I can comment on it. This is Jeremy. We took a pretty big hit that we recorded in the quarter of about $600,000. So in spite of that property tax hit, we still grew EBITDA pretty significantly, but that did have an impact on our EBITDA flow-through for the property for sure.

What we do is, once we get the assessment, we record it on the books and even though we anticipate that we're going to be successful in either appealing it or litigating it to get the number down. But it's certainly something that was a big disappointment, but still reflective in the numbers and we had strong performance in spite of that.

And then on Beaver Creek. So off to a great start, still early. Hopefully the snow comes through this year. But can you remind us, maybe, Jeremy, last year was such a rough year from a snow standpoint. Have you guys flexed the cost structure there much? Just trying to figure out directionally what the flow-through might look like if you have a more normal year this year?

Yes. I mean, we had strong flow-through just for the quarter, but that was on a minimal change in total revenue that you see just for this recent quarter. But we're still going through all of our optimization initiatives. So costs are certainly one of them. We mine the asset for value-add.

We found actually a fair amount of value-add opportunities. We're adding Keys, which we've mentioned on previous calls. So there is the opportunity at Keys and then also there are some other initiatives that we're doing that we believe will have some attractive ROI returns as we invest in the hotel. But that's going to be primarily within our escrow, so it's not a lot of owner-funded CapEx.

But overall, we're still kind of going through from the cost perspective. But I do think that you'll see -- if we have, which we hope, a stronger RevPAR quarter this quarter and next quarter given the weakness that we had last year, given the poor snow season that we should have a pretty good growth in EBITDA, just because we have right-sized the expense structure of the hotel.

And just on St. Thomas. I won't ask for a number, but when that thing kind of gets back fully operational, are you guys kind of internally underwriting it to perform much differently than it did before the storms?

I mean, is there a chance to drive rates there or anything else. I know there's going to be some competition there that probably doesn't reopen for a while. So just internally and directionally, are you underwriting it to dramatically differently than it was in, say '16.

Yes, I mean, I think that when we acquired that hotel, I was very pleased with the way that our team worked with the Ritz team. As soon as we basically closed on it or in process of closing, but under contract, the Zika virus hit, if you recall, and so we had a lot of headwinds that we had to deal with.

But we were able to get the right layers of group and mix of business and offset tremendously the downside that we had with Zika and we actually gained a decent amount of market share penetration.

And then given that we bought this basically from the Marriott Trust, it was a good opportunity for us and management team to really kind of go through on the expense side and we did a lot of initiatives that were driving some good incremental margin at the hotel.

Fast forwarding into 2019, when we open, I think there's tremendous opportunity here. I mean, our position is that we're going to review every position at the hotel, as we add back staffing and we'll assume a zero-staffing model like we do for our deep dives, justify every position.

And in terms of the demand, I think there is a tremendous amount of pent-up demand for the U.S. Virgin Islands. As you mentioned, there is less supply. Our number one competitor, they -- I don't know what the plan in the future brings for it, but it won't be around for quite some time.

So, we will open. We will have one of the best products in all the Caribbean with our hotel and we've seen some of the strong growth in other markets in the Caribbean that have really disproportionately benefited because of the areas like St. Thomas that are out of service, so to speak. So I think you'll see a lot of that demand switch back to the U.S. Virgin islands and they're adding flights.

So how quickly it ramps up in that first quarter because we're going to hit the season. We'll be open for the season in November and in the first quarter of 2020. I think it'll be fairly quickly, I'm fairly optimistic about it. In fact, the insurance carriers, as they look at like an extended period of business interruption, they're optimistic as well on it too.

But it's still early days. But I do think once you get to '20 -- within 2020 and the fourth quarter of 2020 and then first quarter of 2021, I think that you'll find that property operating at a very high level relative to what it was pre-Irma. I don't see how it can't with the product and the additions we're doing and the supply that's out of that market.

We'll take our next question from Bryan Maher with B. Riley FBR.

Just following up on some earlier questioning on potential acquisitions and the wide bid/ask spread and what sellers want. Is there any more thought at Braemar or can you give us an update on potentially doing something similar with Ashford's Trust ERFP program?

Yes. Thanks, Bryan. Yes, ERFP program, certainly an attractive proposition for Ashford Trust. It's something that Braemar would benefit from where we do reach agreement with Ashford Inc. on doing something like that. So, I can tell you it's a possibility, it's something that we're thinking about and hopefully be able to announce something in the future in regard to that.

And who drives the ship on that? Is it more Ashford Inc. or is it more Braemar who pushes that initiative?

Yes, through the nature of that arrangement, it is related-party transactions. So it needs to be led by the Independent Directors of the respective Boards of the 2 companies.

Thank you. This concludes our questions for the day. I'll turn it back to management for closing remarks.

Thank you for joining us on the third quarter earnings call and we look forward to speaking with you again on our next call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.