Ashford Hospitality Prime's (AHP) CEO Richard Stockton on Q4 2016 Results - Earnings Call Transcript

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Ashford Hospitality Prime, Inc. (AHP) Q4 2016 Earnings Conference Call February 23, 2017 11:00 AM ET

Executives

Joseph Calabrese - Financial Relations Board

Deric Eubanks - CFO

Richard Stockton - CEO

Jeremy Welter - EVP of Asset Management

Analysts

Tyler Batory - Janney Capital Markets

Bryan Maher - FBR and Company

Chris Woronka - Deutsche Bank

Ryan Meliker - Canaccord Genuity

Michael Bellisario - Robert W. Baird & Co.

Operator

Good day and welcome to the Ashford Hospitality Prime Fourth Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Joe Calabrese. Please go ahead.

Joseph Calabrese

Thanks, Reena. Good day, everyone and welcome to today's call to review results for Ashford Hospitality Prime for the fourth quarter of 2016 and to update you on recent developments. On the call today will be Richard Stockton, 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 are on 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 which are provided in the company's earnings release and the company payables and schedules, which has been filed on Form 8-K with the SEC on February 22, 2017. It may also be accessed through 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.

Richard Stockton

Thanks, Joe. Good morning, everybody and thank you for joining us. We're very pleased with our results for the fourth quarter with RevPAR growth of 3.6% for our hotels not under renovation, which significantly exceeded both the industry wide results for the luxury and upper-upscale segments of 1.9% and 0.6%, respectively. We reported growth in adjusted EBITDA of 31% and growth in adjusted FFO per share of 70%. We believe this solid performance reflects the strength and quality of our portfolio and highlights our asset management team's ability to drive results at our properties.

Our management team's all focus is to maximize value and deliver superior total shareholder returns for our investors with our industry-leading insider ownership, which currently stands at 17% versus the peer average of 2%, we are highly incentivized to outperform and highly aligned with our shareholders. To further show alignment with our shareholders, in August, we announced that we are moving forward on several corporate governance enhancements based upon feedback from our investors. To recap, the government's committee of the Board and the Board in consultation with outside advisors approved several additional shareholder-friendly policies. These enhancements include adopting a majority voting standard for the election of directors, providing proxy access to shareholders, prohibiting share recycling in the company's stock plan, adopting mandatory equity award retention periods for officers and directors, separating the role of chairman and CEO and adding one or more additional independent directors to the board.

As a result of one of these governance enhancements, I came on board in November to assume the role of Chief Executive Officer. As I begin my tenure here, I was excited to have the opportunity to build on the accomplishments of this talented management team, while also taking a fresh look at how to best maximize long-term shareholder value in this platform. To that end, I immediately undertook an in-depth strategic review, which included meeting with investors, site visits to the company's properties and dialog with both corporate and property-level management teams. The result of this review process was the refined strategy that we announced in January. The refined strategy has four main areas of focus.

First, the company will focus on investing in the luxury chain scale segment. Empirical evidence has shown the luxury segment has had greater RevPAR growth over the long-term, and more clearly, aligning our platform with the luxury chain scale segment will help differentiate us relative to our REIT peers and should provide superior long-term returns for our shareholders. In fact, in January, the luxury segment reported RevPAR growth of 7.1%, significantly outperforming the other chain scales. As a result of this refined focus, four hotels, the Courtyard Philadelphia, Courtyard San Francisco, Renaissance Tampa and Marriott Plano, have been designated as non-core to the portfolio. Our intent is to either reposition or opportunistically sell these hotels.

Initially, we are analyzing and exploring the feasibility of up-branding the Courtyard hotels. At the same time, we will also pursue new acquisitions in order to accretively grow the portfolio consistent with our stated strategy. While the transaction market was slow in 2016, as we've moved into 2017, we've seen an uptick in the number of opportunities that fit our investment strategy. As we look to grow our portfolio, we'll be disciplined in our capital allocation decisions with a keen focus on transactions that are accretive to our shareholder returns. So this is the first leg of our refined strategy, focus on luxury.

Second, we will continue to target a conservative leverage level of 45% net debt to gross assets. Third, we will also continue to focus just on having access to liquidity for both opportunistic investments and as a hedge against economic uncertainty by targeting the whole 10% to 15% of our gross debt balance in cash. Fourth, we amended the company's 2017 dividend policy, commencing with the first quarter, by increasing the quarterly cash dividend for our common stock by 33% from $0.12 per diluted share to $0.16 per diluted share. This equates to an annual rate of $0.64 per diluted share, representing a 4.8% yield based on the closing stock price on February 21, 2017.

Additionally, as we've discussed on prior conference calls, a special committee of our Board comprised of Independent Directors was engaged with a special committee comprised of Independent Directors of the Ashford Inc. Board to work on changes to our advisory agreement. After extensive negotiations in January, we're pleased to announce that we had entered into an amended and restated advisory agreement with Ashford Inc. The modifications to the agreement include a significantly lower termination fee, adjustments to the change in control provisions and public disclosure of the potential termination fee. The modified agreement is also subject to stockholder approval.

Also in January, we completed a large refinancing of three mortgage loans that addressed all of our 2017 debt maturities. Our next hard debt maturity isn't until 2019, so our balance sheet is in great shape. Eric will discuss the recent refi more in a minute. We believe that all these recent announcements should result in value creation for our shareholders.

Finally, last week, we announced we had entered into a settlement agreement with Sessa Capital. As part of the agreement, we'll add three new independent directors to our board, Sessa will not run a [indiscernible] for the company's board through 2018 and all litigation between the company and Sessa will be dismissed. We are pleased to have announced this settlement and look forward to putting the litigation behind us.

In summary, as we enter 2017 bolstered by improving business sentiment in United States, we're well positioned to execute on our refined strategy to align our portfolio with the luxury chain scale segment. We will continue to focus our energies on maximizing shareholder value and finding accretive opportunities to grow the company's platform.

I will now turn the call over to Deric to review our fourth quarter financial performance.

Deric Eubanks

Thanks, Richard. For the fourth quarter of 2016, we reported a net loss attributable to common stockholders of $0.6 million or $0.03 per diluted share. For the full year of 2016, we reported net income attributable to common stockholders of $15.5 million or $0.55 per diluted share. For the quarter, we reported AFFO per diluted share of $0.34 compared with $0.20 for the same quarter last year. This result reflected a 70% growth rate over the prior year. For the full year of 2016, we reported AFFO per diluted share of $1.73 compared with $1.50 for the full year of 2015. This result reflected a 15% growth rate over the prior year.

Adjusted EBITDA for the quarter was $21.6 million, which reflected a 31% growth rate over the prior year. Adjusted EBITDA for the full year of 2016 was $101.4 million, which reflected a 15% growth rate over 2015. At quarter's end, we had total assets of $1.3 billion, we had $767 million of mortgage debt, of which $48 million related to our joint venture partner's share of the debt on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined debt at year-end had a blended average interest rate of 4.8% and was 45% fixed rate and 55% floating rate, all of which had interest rate caps in place.

We ended the quarter with net working capital of $143 million. A few weeks after year-end, we announced that we had refinanced three mortgage loans with existing outstanding balances totaling approximately $334 million. The previous mortgage loans that were refinanced had final maturity dates in April 2017. The new loan totals $365 million and has a two-year initial term with five one-year extension options, subject to the satisfaction of certain conditions. The loan is interest only and provides for a floating interest rate of LIBOR plus 2.58%. The loan is secured by five hotels; the Plano Marriott Legacy Town Center, Seattle Marriott Waterfront, Tampa Renaissance, San Francisco Courtyard Downtown and Philadelphia Courtyard Downtown.

The new loan contains flexible release provisions should we decide to sell any of those hotels. We expect to realize approximately $12 million in annual savings and interest and principal payments based on the current forward LIBOR curve, and this financing addressed all of our 2017 maturities. So, we now have $798 million of mortgage debt, of which $48 million relates to our joint venture partner's share of the debt on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined debt now has a blended average interest rate of 3.7% and is currently 1% fixed rate and 99% floating rate, all of which have interest rate caps in place.

As of December 31, 2016, our portfolio consisted of 11 hotels with 3,467 net rooms. Our share count currently stands at 31 million fully diluted shares outstanding, which is comprised of 26 million shares of common stock and 5 million OP units. In our financial results, we include approximately 3.8 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 2016 cash dividend of $0.12 per share.

As Richard discussed, commencing with the first quarter of 2017, the expected quarterly cash dividend on our common stock will be increased by 33% from $0.12 per diluted share to $0.16 per diluted share or $0.64 per diluted share on an annualized basis. The adoption of a dividend policy does not commit the company to declare future dividends, and the board will continue to review its dividend policy on a quarter-to-quarter basis.

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

Jeremy Welter

Thank you, Deric. RevPAR for our portfolio grew by 3.6% for all hotels not under renovation in the fourth quarter, outperforming the overall industry by 40 basis points and the luxury chain scale by 170 basis points. For the full year, our RevPAR grew by 2.4% which outperformed the luxury segment by 40 basis points. Our EBITDA flow through for the full year was an impressive 58%, and versus this track scale, our portfolio grew its market share by 110 basis points.

Our best performing asset for the quarter was Capital Hilton, which grew RevPAR by 15.1%, driven by occupancy growth of 9.5% and rate growth of 5.1%. This strong RevPAR growth resulted in the property increasing market share relative to the track scale by 640 basis points. Not only did we increase the topline, but even the flow-through was a robust 55% for the fourth quarter, and margins increased by 408 basis point. In January, the property also had very strong results during the inauguration week with RevPAR growth of 187% compared to last year.

One item to note during the quarter was Courtyard San Francisco Downtown, which was impacted by the renovation of the Moscone Convention Center. During the quarter, RevPAR decreased by 1.3%, resulting in a revenue decrease of $358,000 or 3.7%. Additionally, hotel EBITDA declined 34.1%, primarily due to an increase in the property's assessed value and the resulting increase in property tax expense related to its transfer into Ashford Prime in November 2013.

I would now like to discuss the strong performance we have seen at one of our more recent acquisitions during its first full year under our ownership. The Bardessono Hotel in Yountville, California, which we acquired in the third quarter of 2015, exhibited stellar performance during the year as a result of several focused strategies to drive greater occupancy at the hotel.

RevPAR at the hotel at the property grew 9.7%, driven by 7.2% occupancy growth and 2.4% growth. In addition to strong RevPAR growth for the full year, we were able to realize significant cost reductions resulting in EBITDA flow-through of 242%, margin growth of 518 basis points and a $1.1 million or 27% increase in EBITDA. This luxury asset has received numerous accolades and awards, and is top positioning within the supply constraint town of Yountville bodes well for its performance in 2017. This is a great example of our ability to buy assets, replace the property manager, implement our proven and successful asset management strategies and create value for our shareholders.

During 2017, we will continue to invest in our portfolio to maintain competitiveness. In total, we estimate spending approximately $40 million to $50 million in capital expenditures during the year, which primarily will be comprised of guest room renovations at Courtyard San Francisco and Sofitel Chicago. We also plan to renovate the remaining space of Capital Hilton. Additionally, we have identified several highly accretive opportunities to add additional keys within our portfolio. Specifically, we will be adding three guest rooms in each of the Marriott Seattle Waterfront and the Bardessono and four guest rooms in Courtyard San Francisco.

On a final note, our asset management team has demonstrated strong track record of performance with both industry leading flow through and impressive market share gains. We're looking forward to 2017 to continue to drive strong performance in our portfolio as well as adding value to any future acquisitions. That concludes our prepared remarks, and we'll now open the call up to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll take our first question from Ryan Meliker with Canaccord Genuity.

Ryan Meliker

Good morning, guys. I had a quick question here on -- first of all, congratulations on getting a lot of the corporate governance changes done and the settlement with Sessa. I'm sure that all was a lot of work and now you guys can focus on actually operating the business. But with regards to one of the things that happened with Sessa or maybe not with Sessa, but just in terms of the termination payment, you guys disclosed in the proxy filed yesterday the calculations for the termination, and you had $17.8 million in amended advisory agreement total revenues.

And if you go back and you look at the trailing 12-month base fees in the release [indiscernible] million. What's that discrepancy? I'm assuming a portion of it is unpaid incentive fees, but there's got to be something else going on in there as well which doesn't add up?

Deric Eubanks

Hi, Ryan, this is Deric. It's important to keep in mind here that these are the revenues of Ashford Inc., and Ashford Inc. not only records revenues from the base fee, but also for reimbursable expenses and stock comp expense that Ashford Prime recognizes. So this is the GAAP revenues that Ashford Inc. would recognize under that advisory agreement, and it also includes the unpaid portion of the incentive fee that was earned in 2015 that has not been paid yet.

Ryan Meliker

Right. So I understand the stock comp and the incentive fees that hadn't been paid, but the reimbursable expenses, aren't those offset on the expense line to Ashford Inc.?

Deric Eubanks

Yes, they are. Ashford Inc. also recognizes expenses associated with that, and those are included in the total incremental expenses in that calculation.

Ryan Meliker

Got you. Beautiful. I just want to make sure that they were offsetting. Okay, fantastic. And then, I guess the second question, maybe this is more for you, Richard. As you look out to 2017 without giving guidance specifically for Ashford Prime, how are you guys feeling about RevPAR growth across the industry and particularly across your markets? We've heard from a lot of different companies this week and people of most management teams seem to be a little hesitant, especially with assets in the major markets like the ones that Ashford Prime's in. Any thoughts on how you guys are feeling, better or worse than a few months ago? Do you think things are going to be up or down versus 2016 with regards to the markets, not specifically your assets?

Richard Stockton

Yes. Thanks for the question, Ryan. And as you've noted, we don't provide guidance, either market guidance on RevPAR growth. I think what I would say relative to a couple of months ago what has changed is we have a new administration in White House, and there are a lot of potential things that, that new administration could do that, that could be favorable to the hotel industry, there's a lot of discussion of corporate and individual tax reform that could spur both corporate spending and individual spending, consumer spending and a lot of discussion about infrastructure spending, which could be beneficial to GDP growth. But we'll have to see what happens. I think it's -- everyone is, that I've been talking to, cautiously optimistic that these things will have some sort of positive impact, timing is unclear. But we're watching that space very closely.

Ryan Meliker

Okay. And then, it also seems like a lot of your markets are poised to pick-up supply in 2017. Do you guys think that it'll be absorbed relatively well or you'll face added challenges in 2017 versus 2016 from supply growth?

Deric Eubanks

Yes. Ryan, this is Deric, I can count on that. There is an uptick in supply in some of our markets, particularly in the Prime portfolio, but I don't think it's something we're concerned about. We think our assets are really well positioned, and we look at specifically the markets. I think San Diego is looking to be a strong market for us; Napa, as you know, high barrier to entry market; Key West, high barrier to entry market; and then Tampa has as a great city wide calendar. And then with the change in administration, I think that DC should outperform the industry, and we've got a great location and a great hotel in that market. So, I think there's a lot of good things going for us on the market side. Some of headwinds would be San Francisco, with Moscone being under renovation and us renovating the Courtyard during the year.

Ryan Meliker

Right, which makes sense. But Plano, it looks like it's got a lot of supply, and then, I'm just curious what your take is. If I recall correctly, there is another luxury asset going up in Napa, that's opening in a couple months, and they start with a luxury collection. Are you seeing any impact from that?

Deric Eubanks

Not any impact yet. So specifically with Plano, if you came to Dallas, and I drive by it all the time, I've never seen so many cranes in a market like that. There is just so much demand coming in, and a lot of that supply is being absorbed right now. So we saw an increase of 9.6% of supply not tracked during the quarter, but demand growth was 7%. So, while supply outstripped demand, a lot of that demand is still coming in and continues to come in. So I think it's probably one of the hottest demand market you’d see across the US, just because of all the activities going on.

Ryan Meliker

Got you.

Richard Stockton

Ryan, I'll comment on Napa Valley, and if you've visited our property, Bardessono in Yountville, it occupies a very unique location, which is, in my view, far superior to the luxury collection property you referenced, and I don't think there's really much that could hamper their results on the basis of really where they are. They're just a short walk from the French Laundry, right there in Yountville, and it's really a very special location.

Ryan Meliker

No, it is true. It is a special location. Great. That’s it from me. Thanks guys, I appreciate it.

Operator

We’ll take our next question from Chris Woronka with Deutsche Bank. Please go ahead.

Chris Woronka

Hi, good morning guys. With the new corporate strategy in place and with Richard in place, I'm wondering if you're actively searching for some of these luxury hotels yet? And I know we heard from a couple of your peers that they're also back in the market, but you guys obviously have the potential sourcing pipeline with Trust, and I know that the assets have to be for sale, but is there anything preventing you from -- can you make unsolicited offers to Trust, and just in general, are you actively looking at acquisitions right now?

Deric Eubanks

So part of that question, are we actively looking at acquisitions, the answer is yes. We do have a very deep pipeline of opportunities that we're investigating, we’re finding that. There are opportunities that meet our investment criteria. Being a part of the Ashford platform, Prime sees disproportionate amount of flow, I'd say, in terms of these opportunities. So we're able to really pick and choose the best ones that we like to pursue, and it really doesn't take much, right, with 11 hotels in the portfolio, we can only acquire one or two and really move the needle.

So that's something that we are actively doing. As far as the relationship with Trust, as you know at the time that Ashford Prime was spun off, we were awarded a right of first offer on assets that could meet the Prime's investment criteria as and when they were ever sold by Trust. That remains intact, but there is nothing currently under consideration with regard to that agreement and to the extent it was, that could be disclosed or will be disclosed to the market.

Chris Woronka

Okay, great. And sorry if I missed it earlier, but I think you mentioned you're renovating the Courtyard San Francisco, but that's also an asset that you are potentially selling or I guess maybe looking to a brand. Can you give us a little bit further color on what all the different options there are? Thanks.

Richard Stockton

Yes, sure. You're right, and we have identified that as the potential up-brand in Canada, and renovating our hotel is consistent with that strategy. Now, if we're not able to get there, as you know, that's a Marriott-managed property, we would consider a sale, and we believe the renovations that we're undertaking add value to the property. And therefore, in the context of a sale, we would hope to recapture or even capture more than the amount of money we're spending on it to improve it. So that's occupying a lot of our time, and we're very focused on creating a great hotel product, and to the extent we can up-brand it, we'll certainly do so if it creates value.

Chris Woronka

Okay, great. And then, I guess just maybe a question for Jeremy. Looking at the Sofitel over the last couple years, it's been a little bit up and down, it's been kind of tough, the markets been tough from time to time. I think EBITDA is holding better, but from an asset management standpoint, is there anything more you guys can do there if the market, or if it's a brand issue, don't really cooperate in terms of growing RevPAR?

Jeremy Welter

There is always more that we can do, and we tell that to our team all the time. And in the quarter, I think that we performed pretty well. We grew our market share with RevPAR growth of 6.5%, and what we've done is we've layered in some international [indiscernible] business that's good, a business that doesn't really displace, and so we're layering in some -- changing some of the mix of the business we have. For a long-term perspective, it is under a contract with core management, and we are working with them to make sure that we are driving the best performance that we can.

Chris Woronka

Okay. Very good. Thanks guys.

Operator

[Operator Instructions] We’ll take our next question from Tyler Batory with Janney Capital Markets. Please go ahead.

Tyler Batory

Thanks. Good morning, everyone. So, maybe looking a little bit closer at the fourth quarter, the Hilton DC was the best performing asset. Can you just talk a little bit about what's driving the strength there?

Jeremy Welter

Sure, this is Jeremy. In the fourth quarter for Capital Hilton, we had strong group demand, and that was demand in the market, demand in there as well, there were a couple medical conferences city-wide that drove a lot of growth. But on top of that -- and that was primarily in October, early November, but on top of that, we also did layer in some of our own group and did gain market share. So we're up 15%, and I think the market in the track scale we're up around 8%. So overall, a really strong quarter for Capital Hilton.

Tyler Batory

Okay, great. And then, how about on St. Thomas and Key West, things were a little bit soft in the quarter. Is that mostly the impact of Zika?

Deric Eubanks

Zika is having -- it has had an impact in those markets for sure. Key West was also impacted because of the hurricane and the airport was shut down for a period of time, if I recall.

Tyler Batory

Okay, great. And then, I think you're getting kind of close to your leverage target right now. So maybe, how are you thinking about balancing that with the potential to make some more acquisitions?

Deric Eubanks

Yes, that's a great question. As you know, we've identified some non-core assets where we can certainly recycle capital. As far as other liquidity, you're familiar with our balance sheets, we do have ample liquidity, and at the same time, we are focused on that leverage target. So I think we have a great balance sheet, it's in great shape. We do seek opportunities to grow and grow accretively, and that's what we'll be focused on.

Tyler Batory

Okay, great. And then, diving into acquisition a little bit more, any change in cap rates over the past couple months or so in the assets that you've been looking at?

Deric Eubanks

No, I don't think so. I think we're really not buyers of the market, right? Because of our size, we can find opportunities that are unique, possibly off-market situations, situations where the sellers recognize that we can move quickly, decisively and have the financial wherewithal to deliver. So really that's how we're seeing that we are differentiating ourselves in the acquisition space.

Tyler Batory

Okay, great. That's helpful. And then, maybe on the asset sales, is there potentially an opportunity to sell those hotels to Ashford Trust?

Richard Stockton

Well, I suppose it's not something that we would rule out. On the other hand, as you know, there would have to be independent committee set up in either case to consider such a thing. But for the moment, we're thinking about that as a marketed process.

Tyler Batory

Okay, great. And then, just the last question on capital allocation. You guys been buying back the stock previously. How does share repurchases fit into your strategy going forward?

Richard Stockton

Yes. We've executed 80% of our authorization on share buybacks, as you know. We did that at a time where we felt that the shares were undervalued. We're a little bit above where we were when the share buybacks were taking place. We're just about at that level. So I think we're going to continue to wait and see. We do have the authorization that we can use if we need to.

Tyler Batory

Okay, great. Thank you.

Operator

We’ll take our next question from Bryan Maher with FBR and Company. Please go ahead.

Bryan Maher

Good morning. A couple of quick questions. Has there been any further contact from or to the Wiseman Group over the past quarter or any of the others that signed NDAs?

Deric Eubanks

Well, as you know, that process of seeking a buyer for the company has concluded. The Wiseman Group is a valued shareholder, right? They're one of the largest shareholders of Prime. And in that context, I personally have a dialog with them, as I do with many of our large shareholders, and I would expect that to continue. But I think as you've heard on this call and in the call previous, our priority is to grow the business. And so that's really where we're focused on delivering value.

Bryan Maher

Okay. And then, on the four hotels that you either might sell or upgrade, what type of capital commitment would you guess would be needed, let's say, roughly for any or all of those properties to bring them up to the level where you would consider them luxury?

Richard Stockton

Too early to say right now. We're in negotiations with Marriott on some of the properties right now and evaluating all the alternatives. As you know, they've got 31 brands and there is plenty available up-branding opportunities for both hotels, but we've got to negotiate and do an analysis to determine what's the most prudent thing to do for our shareholders.

Bryan Maher

Okay. And then, just two other quick ones. I was just at the Plano property a couple of weeks ago, and I did notice all of that incredible amount of construction going on around that area, and that's a pretty good property to begin with that I would put kind of borderline luxury to begin with and given its prime location, would you put that among one of the last ones that you would part with or is there some other reason why you might want to get rid of that property?

Deric Eubanks

No, I think it is a great property, I agree with you. I've personally stayed there several times. And I think it's got even greater potential if some additional CapEx were put into it, which we're planning to do. So, yes, I think the reason that it's been identified as non-core is really just down to its chain scale segmentation and RevPAR. So that's how we've decided that -- the recycling of that capital into luxury asset would be something that would allow us to accrete the RevPAR for the portfolio as a whole, and we view the benefits of that to all shareholders to be greater than holding on to that asset at this time.

Bryan Maher

And then, lastly, I also went out to see the Bardessono property, and it is a pretty unique asset. And I guess my question is you're adding a few keys there, what's involved with time-wise and municipality-wise getting the permitting to add those keys? And if memory serves me, I think you guys paid over $1 million a key for that property. What is the construction cost for something like that per key to add?

Jeremy Welter

Yes, this is Jeremy. The keys that we're adding there are luxury villas. And so it's [indiscernible] by three or could be rented out as one overall unit, very, very high-end experience, and we just -- there is demand for the market for that type of product. We just don't have it within Bardessono. So we're very excited about it. And that's something that will be underway in the fourth quarter in terms of entitlements. We worked with the city last year, and we worked with Steve Bardessono to go through and get the approval process, and we are able to get that done for the addition of three keys. It was originally, I think, approved for two keys, but there were some use permit restrictions as well that we had to pursue, which was very challenging, but we were able to do it very quickly relative to the process you'd see in Napa as a whole in that region. And as part of that, we did get a lease extension -- ground lease extension with Steve Bardessono that I think was a good one for us as well.

Construction budget, we're still finalizing the scope, but -- and it should be somewhere close to what we've done on a per-key value, but you've got a lot nicer higher-end keys. We certainly think this is going to be highly accretive return on investment for us for sure. So I think that's something that we can share in the upcoming months as we continue to kind of refine the scope. And we're actually working through the city on some of the exterior elevations that can be costly. So that's what we're working through right now.

Bryan Maher

Okay, thanks. That’s all from me.

Operator

And we’ll take our next question from Michael Bellisario with Baird. Please go ahead.

Michael Bellisario

Good morning everyone. Just wanted to follow up on Key West and St. Thomas. Can you give us an overview of the different or new revenue management strategies that you're employing at the properties to offset some of the demand weakness you're experiencing there?

Jeremy Welter

Sure, this is Jeremy. Pier House wasn't really that weak in the fourth quarter, and it was primarily two events, one of which I mentioned was Hurricane Matthew, it did close the airport in October, and if you adjust for that, we would have had positive RevPAR for the quarter, so just that one event impacted it. And we do think that the -- election because the season starts November, December timeframe, the Election and Christmas falling on a Sunday did add some additional weakness in the quarter. So there were some calendar events that I think impacted it as well.

As it relates to St. Thomas, we've done quite a bit of creative things on the revenue optimization side in terms of shifting business. We have done a lot of increased marketing that we've done with TripAdvisor to see that, and we've also have some AAA wholesale partners. When you look – although we don't give guidance, I can say for this asset when you look at the year -- for the entire year, the pace transient and group on the books as of to-date for the full year is positive.

One other thing I want to say on St. Thomas, we did have to close the pool during the quarter. There is only one pool on that asset, and because there was only one pool, we did have to do some disclosures. So we've heavily negotiated with the Red's team, and we do believe that impacted some of the demand for the fourth quarter because the pool was under renovation and closed for a period of time.

Operator

Moving on we’ll take our follow-up question from Ryan Meliker with Canaccord Genuity.

Ryan Meliker

Hi, guys. Just one follow-up, and I'm not sure what you can comment or how much color you can give here, but over the past few years, the Ashford team has talked a lot about the benefit of multiple platforms because there is different assets that form the different buckets, and it makes sense when it comes to portfolio acquisitions to have the opportunity to place assets that are core to multiple platforms in those respective platforms.

Earlier this week, Ashford Trust came out with the, I guess, non-binding offer for FelCor Hospitality. It seems like there are few assets in the FelCor portfolio that would fit very well in the Ashford Prime portfolio. I'm wondering a, why Ashford Prime wasn't involved there; and then, b, if you think down the road if things do move forward between Ashford Trust and FelCor if there is an opportunity for Ashford Prime to acquire some of those assets from Ashford Trust?

Richard Stockton

Yes, thanks, Ryan. Yes, as you said, there are a few of those assets that may be fit Prime's investment criteria, and I think that's really the key to it. It's more of a tail wagging of the dog, right? This is, I think, a portfolio that's not 100% appropriate for Prime, maybe there's a couple of assets there. I think the way Ashford Inc. has looked at it is, let's keep this focused as an Ashford Trust transaction. Myself at Ashford Prime haven't been involved at all in those discussions and to the extent that there's something else that may arise in the future, I'm happy to consider it. So at the moment, it's a completely kind of separate occurrence.

Ryan Meliker

Okay. I guess that makes some sense. I just -- it kind of goes against some of those topics and discussion and commentary that we've heard from business as to the benefits of having multiple platforms under the Ashford income umbrella. It seems like Ashford Prime wouldn't be benefiting here unless something happens down the road, which sounds like could or could not happen, is that fair?

Richard Stockton

Yes. Of course, the trick is evaluating if there is any sort of transfer pricing, right, evaluating the independence, and therefore, it's not something that's been under consideration at this time.

Ryan Meliker

Okay. Fair enough. Thanks.

Operator

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

Joseph Calabrese

Thank you for joining us on our fourth quarter earnings call. We look forward to speaking to you on our next call the next quarter. Have a good day, everybody.

Operator

Once again, that concludes today's conference. Thank you for your participation. You may now disconnect.

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