Ashford Hospitality Prime, Inc. (AHP) Q4 2017 Earnings Conference Call March 1, 2018 11:00 AM ET
Joe Calabrese - Financial Relations
Richard Stockton - President and Chief Executive Officer
Deric Eubanks - Chief Financial Officer
Jeremy Welter - Executive Vice President, Asset Management
Tyler Batory - Janney Capital Markets
Bryan Maher - B. Riley FBR
Michael Bellisario - Baird
Chris Woronka - Deutsche Bank
Good day and welcome to the Ashford Hospitality Prime Fourth Quarter 2017 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, Michelle. 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 accompanying tables and schedules, which have been filed on Form 8-K with the SEC on February 28, 2018 and 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.
Good morning and thank you for joining us. Despite several challenges that we faced, 2017 was the successful year for Ashford Prime as we diligently executed on our strategies to grow our portfolio within the luxury chain scale segment as well as find value-enhancing opportunities within our non-core 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 to Beavercreek. 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 have 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 as to minimize the impact to our properties P&L through business interruption insurance recoveries, which totaled $4.1 million through November.
On our last call, we said that we expect that these BI recovery proceeds to be recognized with a one quarter left. 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 one 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 two 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 comprehensive restoration plan and assist in the recovery effort. Three of the six guestroom buildings on the property sustained extensive damage. We currently have 83 of the property’s 180 guest rooms 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 two years.
Florida Keys were also significantly impacted by Hurricane Irma and our Pier House Resort in Key West also sustained some damage. The damage of Pier House is less expensive than at the Ritz-Carlton St. Thomas and currently all the property’s guest rooms are available and in-service. We expect U.S. to recover much more quickly than St. Thomas. Additionally in October, we also experienced disruption on our two Napa Valley properties due to the Northern California wildfires. Neither of our two Yountville property suffered physical damage. However, tourism demand in that market was negatively impacted and we did experience a 24-hour power outage. So we are in 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 loss profits from Q4 at these properties. Keep in mind that there is a $500,000 deductible associated with this plan. I was really 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 do a great job diligently pursuing recoveries under our insurance policies for these events.
Now, I would 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 helped 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 last year we announced revised strategy with the focus of investing solely in the 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 four hotels the Courtyard Philadelphia, Courtyard San Francisco, Renaissance Tampa and Marriott Plano that were just designated as non-core 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 guest rooms, 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 then our estimated $30 million investment should yield an approximate 20% un-levered 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 of 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 rooms 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 & Analyst Day in New York City.
I will now turn the call over to Deric.
Thanks Richard. During the quarter as Richard mentioned, we have 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 sometime 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 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 average 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 2.1 times. All of our debt is non-recourse 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 would 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 are 4 citywides during the quarter compared with only 1 in 2016 and the Army Navy game in December 2017 did not take place in Philadelphia in 2016. Impression Depression from citywide and the Army-Navy game provide the opportunity to drive rate. Not only did we increase 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 hotels rebranding and the review for the new model rooms is scheduled for early March.
As we are on the topic of re-branding, 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 have 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 guest room renovation, which incorporates smart technology with comfort and luxury. In order to meet the strong market demand, we also added five keys by transforming former conference suites to guest rooms. The finishing touches to the guest rooms will be completed during the second quarter of 2018, after which we will begin the final stages necessary for the Autograph transformation, a completely re-imagined 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%. Settle [indiscernible] games generated higher than usual leisure demand on Sundays this season and again occurring on New Year’s Eve provided high-rated demand over a historically slow holiday. We also decided to allocate fewer rooms to citywide blocks and capitalize, but filling with higher rate transient demand.
Finally, strategic discounting over holidays and 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 SMB revenues to royalty revenues played a large role in increasing profitability at this hotel. One item to note during the quarter was the performance of the four 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 Bardessono continued to be impacted by fires in and around Napa throughout the fourth quarter. Removing these four 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 are still in the planning phase for the capital investment needed to rebuild the resort, but the following is brief update on progress we have made so far. As mentioned by Richard, 83 rooms and 3 buildings are back in service, while 97 rooms and 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, design is actively working on plans for the lobby, guest rooms and restaurant REIT concept. While neither a international disaster nor something for which we will receive business interruption insurance proceeds, the lack of snow in Beavercreek, 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 were the lack of snowfall, the worst since 2011 and a shift in winter break calendars 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 basis points and 210 basis point 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 scales 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 investment on our portfolio to maintain competitiveness and upgrade our portfolio. And so we estimate spending approximately $80 million to $90 million, approximately $55 million with insurances excluded. And capital expenditures during the year which will predominantly become compromised are 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 of our portfolio is facing, we are expecting supply growth in our market tracks 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 call – turn the call back over to Richard.
Thanks Jeremy. Before we move to questions, we have two 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 are in the early stages of reviewing a potential re-branding 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 the next step to defining our brand within the lodging industry while still maintaining our beneficial relationship with the Ashford group of companies. The 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.
Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions] And our first question we will hear from Tyler Batory with Janney Capital Markets.
Thanks. Good morning. So, first question I have is on margins, Jeremy, obviously there is 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 of the hotels, we did not have any disruptions. And them also I am wondering if you can comment on what you are seeing on the cost front generally across the portfolio?
Sure. This is Jeremy. I will take that. There is so much noise in Q4 just because of we had some business interruption proceeds that we are 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 to San Francisco, but I think that there is a lot of opportunities still to mitigate some of those pressures and we are 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 increase in RevPAR, we expect that to continue to grow our margins as well.
Okay, that’s helpful. And then just on Key West, I mean how long do you think there is 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 are 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 and anticipate that that’s going to turn the corner and hopefully we might be positive year-over-year, just it’s very difficult, I mean it’s heavily transient, so relatively short booking windows. But I do think it’s starting to stabilize. So you got a lot of pent up demand from folks that really want to go back that such a high demand market, so I don’t anticipate it to be softer for too long.
Okay. And then just last question, I am wondering if you got any general thoughts on the disposition market and then also if there are any additional comments that you can provide on how the sale of Tampa is going?
Yes. I can take that one. We have been pretty pleased with what we have been seeing in terms of disposition market. There – I think as you have heard from other lodging REITs there is a lot of inventory out there on the acquisition side, right. So we are finding that there is 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 if I could be a seller, because the relative lack of competition it’s out there I think in terms of products.
Okay, great, that’s all for me. Thanks.
And we will next move to Bryan Maher with B. Riley FBR.
Yes. Hi, good morning guys. 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 it seems not be there. In our process I think we had one Asian buyer, but really it was a bit unproven let’s say. So what we are seeing is generally family offices, ultra-high network side organizations as well as private equity funds and those – they have been the strongest bidders in what we see.
Okay. And then on the Ritz-Carlton in St. Thomas, in that renovation process, are you planning on doing any or taking advantage of the tie – down time 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 are definitely taking advantage of that. So we – I mean this hotel is going to be fantastic when we come out of the renovation from the upgrades from the insurance proceeds we received. But specifically what we are doing is, we are putting a little bit of additional CapEx into our lobby that the sense for arrival. We are also repositioning. We hired a third-party consultant. We actually had the center way before the storm hit. But we are definitely going to move forward on it on repositioning of our restaurant and main bar in the resort which I think is going to be fantastic total rebranding and the consultants gave us really good concepts, we are very excited about. In addition to that, we do get a lot of negative comments because there is only one throughout the resort. And so what we are exploring and I do believe that we are going to move forward with is adding a separate kids school. 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 are 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 do when you are operating the resort, so we think it makes sense to do it we will have this opportunity. So we are very, very excited about what we are doing from a capital perspective. And in a lot of ways there has been a lot of supply in that market some of our competition, unfortunately but they will benefit that has been really adversely impacted that 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 am assuming Ashford Inc. would continue to manage the portfolio or would it shift to being internal?
I will take the second question first. It doesn’t impact at all the advisory agreement [indiscernible]. 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 companies which will aid in our investor relations efforts.
Okay. Thank you.
And next we will move on to Michael Bellisario with Baird.
Good morning everyone. I just want to come back to St. Thomas, did your kind of rebuilding thought process and how much maybe excess capital you put into that hotel impacted at all by what DiamondRock is beginning do at it’s 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 then of course the British Virgin Islands as well in terms of resort. So I think we are very competitively positioned. And so it’s really not a factor on what they are doing. It’s if we are able to get to more demand in the island that – I think that benefits everyone, so not really.
Yes. And then kind of switching gears just specifically on Sarasota, but also back to Beaver Creek and Yountville because I think you quoted the same 8% stabilized un-levered yield on those acquisitions, I guess 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?
I think the primary metric that we look at is un-levered IRR on acquisitions. And we do compare that to our cost of capital. And we seek to generate economic value added, so unlevered IRR both of our cost of capital. And so we believe that we are able to do that with a 10% bogie. That translates into what it translates into from a current yield perspective. And so we are coding 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 in ultimately prevailing in those processes. So it is in some ways coincidental but in some ways the way we are underwriting and in some cases we end up prevailing as the [indiscernible] we don’t. And we look at a lot of deals and we did on a lot of things. And it’s the ones that make sense for us that brought us to the top. And that’s what you are seeing.
And as you think about maybe the share repurchase trade-offs, have you guys given any more consideration on that topic to maybe help close the valuation discount that’s present today?
Yes. We are constantly evaluating that. And as you know we had an announcement on our buyback authorization recently. I think where we are trading when you look at our valuation metrics and looks at AFFO per share for instance, we are trading at such a low multiple. I am not convinced if we reduced the denominator, in other words removed shares from the market, we would necessarily see them reflected in a better stock price. I think that the detriments of reducing our flow are greater than a potential benefit of canceling certain number of the shares. So I think if we were trading in line with our competitors when we are being properly valued, there would be some benefit doing that, something at the right price, but it’s not something that we are seeing would result in any change in how we are valuing the markets today.
That’s helpful. Thank you.
[Operator Instructions] And next we will move on to Chris Woronka with Deutsche Bank.
Hey, good morning guys. I want to ask you about paying up, but it sounds like you are making pretty good progress there and so what that eventually sales, 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 have done it, right with the Ritz-Carlton Sarasota acquisition the value of that transaction as compared to the proceeds we are receiving in the other two on a gross basis is about equivalent. So we feel like we have done it. So there will be almost zero 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 Sarasota, what are you guys doing there to help drive that – the upside in 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 two properties that we are – that we traded out to get to it, but there are lot of different initiatives that we have identified that are necessarily in those numbers. And so we are still in the team in advance in closing, it’s going to be in March 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 that because we have delayed from what we originally told the Ritz-Carlton management team the opening of our St. Thomas asset and we have asked them to move any of those group rooms over to Sarasota. So, that’s one thing in the short-term that we are doing, but again, we don’t own the asset yet, but I do think that there is a lot of opportunities that we will identify through our typical process. And one thing in particular is that we have the ability to add 10-Qs that we are likely to do. So, we can ask rooms as well. So, we are pretty excited about it. I can tell you that mentioned it’s a great asset overall, a good chance to go see it, you will be very impressed, especially with beach amenities that the property has.
Okay, great. And then 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 two, 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, we were ahead of what our underwriting model was. We had that property in really good shape from a lot of different metrics. We were able to push rate – our opportunity on both – it’s always been weekday business. So, we were pretty excited about where we were still had some opportunity, but as we have identified in the past that there is ability to add three luxury suites as well at that property, but we will switch it over to Yountville, we were a little behind what we hope, because of the lack of the sales force. There was really no property management team. We have 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 the lack of really good onsite property management, but we are in process now of addressing – address all those issues and have really done a good job telling both resorts on a go forward basis. So, the group outlook is very healthy for both properties. We have realized a lot of cost synergies between the two properties. So, I am very bullish on where we will be relative to underwriting on both. I think we will see both pro formas and probably the second and third year for Yountville as well. And we are starting to see some demand pretty much come back to where it’s stabilized and so it’s still dislocated again similar to what I said on QS heavily transient, it’s a very short short-term booking window, but people are realizing that NAPA is in great shape, all the major wineries are all on great shape, so lot of people are wanting to come back and we are seeing a lot of good pickup.
Okay, very good. Thanks guys.
And one thing that we highlighted in the script that I do want to say that 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 comparable. 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.
And next, we will take a follow-up from Bryan Maher with B. Riley FBR.
Yes, good morning again. 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, maybe re-branding this thing why not just take it private. I mean, mean you owned so much internally between Monty and the team there and 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 we can sell these 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 what you are – I think you are in the other equity research analysts, the fundamental value on an NAV per share is far in excess of where we are trading. I think this call is really focused on company results. I am not sure that we are in a position to speculate on something like that, but I do acknowledge your comment and agree with your comment that where we are trading is inconsistent with the NAV estimates that are available.
Alright, thanks. I throw it out there.
And that concludes today’s question-and-answer session. I would now like to turn the conference over to management for any additional or closing remarks.
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.