Braemar Hotels & Resorts Inc. (NYSE:BHR) Q3 2018 Earnings Conference Call November 1, 2018 ET
Jordan Jennings - IR
Richard Stockton - President and CEO
Deric Eubanks - CFO
Jeremy Welter - COO
Bryan Maher - B. Riley FBR
Michael Bellisario - Baird
Peter Toeman - Edison Investment Research
Chris Woronka - Deutsche Bank
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 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 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 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 CALL and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on October 31, 2018, and may also be accessed at 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 the strategy since that time, including selling two properties, announcing an agreement to up brand two properties and acquiring three 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. In year-to-date, luxury RevPAR is up 4.9%, compared to RevPAR growth of 3.1% for the entire industry. SCR and other industry forecasters expect this trend to continue through the remainder 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 is 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 EBITDA ROE 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 continue 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 total $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 plan 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're 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 post conversion outside of these two 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 new rooms' product combined with key property management position changes had 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 stays is the strongest it has been in four years, and 2019 group is pacing ahead despite fewer Chicago citywide on the calendar. In addition to the strong performance of the Sofitel Chicago, I want to briefly mention that our 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 top line growth quoted above is driven by the impact of the hurricane in September 2017. The property has maintained its profitability throughout the quarter and year-to-date. Total hotel revenue year-to-date increased 4.6% contributing the 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 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 and roughly flat revenue growth, which is a testament to our asset management team and their ability to cut cost in a static revenue environment.
With Beaver Creek already having an 18 inch mid-mountain base we're optimistic this is the prelude to a strong ski season. We believe we had made great progress in advancing our strategy in the first nine 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 two years our markets have experienced 3% annual supply growth. As we look forward over the next one and two 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 other hotel revenue line of our income statement. These interest recoveries related to the months of June through August. For the quarter we reported net loss attributable to the common stockholders of $3.6 million or $0.12 per diluted share and we reported AFFO per diluted share of $0.34.
Adjusted EBITDA ROE 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 share of the loan on the Capital Hilton and Hilton Torrey Pines. Our total combined loans at 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 months 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 a $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've 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 shared 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 dividend, 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 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, Derek. 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 points and 2.5 percentage points relative to both our hotels' competitive sets and submarket 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 and 1.6 percentage point gains relative to our hotels competitive sets and submarket chain scales respectively.
In addition year-to-date, hotel EBITDA flow through was robust at 160%. Two 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 positing a 10.1% comparable RevPAR decrease. Red Tide began impacting the Gulf Coast in July and the Sarasota market was one of the worse hit regions.
Despite the impact to the 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 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 would increase the depth of usable beach by approximately 50 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 volumes 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 3882 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 partner shift of 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 three 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 to be completed by mid-January. New permit 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 three out of our six guest room buildings with wall layout and framing commencing.
With all the work going on, we have also been able to operate a portion of 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 of 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 on renovation.
Additionally in this work - 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 will now open the call up for Q&A.
Thank you. [Operator Instructions] We'll take our first question from Bryan Maher with B. Riley FBR.
Yes, good morning guys. 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 were that be, as it relates to St. Thomas still being out, is it just kind of a timing of getting the proceeds?
Hey, Bryan. 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 it's not a whole lot of income there to begin with.
And then on Philadelphia and San Francisco, I think we were pretty surprise by how strong the RevPAR was there in light of the upgrading of those two properties. And I am sure some of it has to do with ramping of commencing 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 in Philadelphia and San Francisco?
Sure, this is Jeremy, I can give you an update. I mean, we're just getting underway in Philadelphia, the guest rooms we started just in October, and we're projected to complete in June, we'll have two floors out and that's going to run between 39 to 46 days per ton. Also on the lobby, we'll 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.
So we'll have rooms out of service, maybe in October through June of next year. So we not 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 guests rooms we just started in the third quarter, but the turns are pretty quick, they range hitting work from five 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 timeframe. 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 will continue on through basically the balance of 2019, which 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 the most of the year in San Francisco, which is what we were really working towards as part of this repositioning given the Moscone and 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 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 are going to have strong growth in the Yountville market, Napa Valley market I think what we've experienced is yes and continue 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 of the wildfire headwinds I think it's 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 it has 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 of last year and impacted severely October and November, December of last year.
Thanks, that's helpful.
Thank you. We'll take our next question from Michael Bellisario with Baird.
Good morning, everyone.
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 of 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 a direct result of a multi-pronged effort to fix when we solved the 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. How much is attributable to each component is very difficult to say.
That area in Chicago is a very competitive luxury market. So we have some very stiff competitors in terms of quality room product, and I put a lot of it on an improved room product, which is really fantastic I encourage you to go see it. But on the other hands the general manager there is doing a fantastic job and we've been very happy with how he has reaccelerated pace and delivered room nights for us. I think
I think we also benefited if you recall Fairmont and Fairmont is acquired by Accor and the Fairmont ops team just the regionals and the corporate over site is much more engaged than what Accor North America was with this property. And so I think we've gotten some benefits just from having a Fairmont affiliation and their involvement they have been heavily involved with this property and we have been very engagement 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 two to three year on a catch up in terms of performance for this property as we think about it?
Group based next year is pretty favorable from an outlook for 2019, but our expectation is that we may be continue to gain market share for this hotel and so that's the expectation for my team, that's the expectation for myself and with the 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 two to three years.
Got it. 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're not - don't expect to have to tap into that guarantee.
Okay. 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 to your assets over the last 12 to 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?
In terms of diversification our largest asset comprises under 12% EBITDA contribution. So there's some amount of diversification in the portfolio. But yes, 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 have to - we're looking at a lot of deals in order to find one really, that will be, creative for us.
So it's not easy out there in terms of acquiring new properties. So we'll continue to look and we may find ways that we can acquire property and then do something with it that other buyers can't, whether it be accomplishing management or have a certain angle that delivers more value to us than other bidders. But that's on our radar.
And I hear, you're saying about diversification we'll strive to accomplish that overtime. 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 the urgency as well. I think it's something that can come overtime. But meanwhile will be delivering results.
Thank you. [Operator Instructions] We'll take our next question from Peter Toeman of Edison.
Hi. I just wanted to ask you about the interest expense, which obviously has gone up here every successive quarter. I think your previously when you commented about this, you says that there's sort of natural balance that in the luxury hotel market, the room nights will rise to compensate. So I'm just wondering, if that's sort of still your experience and your sort of expectations with going into 2019, 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've 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 knew that as a natural hedge.
I realized the forward curve, I think shows LIBOR going up maybe another 75 or 100 bps over the next 12 to 18 months. And so that - 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's much less, 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 overtime, we will pay less interest expense in general being at the short end of the curve versus fixing things as 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 just - that's part of the strategy.
And also as point to the not the interest 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 probably declined over the last year or 18 months.
Yes, that's a good point. I mean one of the things we've done is we've been trying to refinance loans and lower our spread. So while the rates are going up we've got a locked in spreads. So it's a LIBOR we can refinance and lower the spread. And maybe able to lower our cost through that. So that's something that we watch pretty closely as well.
Thank you. We'll take our next question from Chris Woronka of Deutsche Bank.
Hey, good morning guys. And congratulations on the turnaround at Sofitel those are pretty impressive number we're seeing out there. But just had a question on property tax situation there. Because we've heard from some of your peers that there has been a bit of a reset in property taxes again on - in Chicago specifically. 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 the our EBITDA flow through for the property for sure. What we did is once we get the assessment we recorded 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 despite of that.
Okay, great. And then on the 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 flex the cost structure there. Just trying to figure out if there is a - directly what the flow through might look like if you have a more normal year this year.
I mean we had strong flow through just for the quarter, but that was on a minimal change in total revenue achieved just for this recent quarter. But we're still going through all of our optimization initiatives. So costs are certainly one of them where we've mine the asset for the value average found actually a fair amount of value add opportunities. We're adding keys which you've mentioned on previous calls. So there is the opportunity to add keys.
And then also there is some other initiatives that we're doing that we believe will have some attractive ROI returns as we spend and invest in the hotel. But that's going to be primarily within our escrows [ph] so it's not a lot of owner funded CapEx. But overall we're still kind of going through from a 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 pretty good growth and EBITDA just because we have right size the expense structure of the hotel.
Okay, that's great. And just on St. Thomas. I won't ask for a number, but when I think 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 chance to drive rates there or anything else. And there is 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 2016?
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, we're in process of closing, but under contract. The Zica virus hit if you call and so we had a headwinds that we have to deal with. So we're able to get the right layers of group and mix the business and offset tremendously the downside that we had with Zica. And we actually gained a decent amount of market share penetration.
And then we also given that we bought this basically from the Marriot 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 is 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 deep dive, 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, Keno [ph] Bay I don't know what the plan in the future bring for it but there won't be around for quite some time. So we'll open we'll 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 they have really disproportionately benefited because of there is 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 Island and they are adding flex.
So, how quickly 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 am fairly optimistic about it, in fact the insurance carriers as we look at like an extended period of business interruption they are optimistic as well on it too.
So - but it's still early days and - but I do think once you get to 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 any (inaudible) with the product and the additions we're doing and the supply that's out of that market.
Got it, very good, thanks guys.
Thank you, we'll take our next question from Bryan Maher with B. Riley FBR.
Yes, just following up on some earlier questioning on potential acquisitions and the wide bid asked spread and what sellers want, is there any more thought at Braemar or can you give us an update on potentially doing something similar to what Ashford's Trust ERFP program?
Yes, ERFP program certainly an attractive preposition 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 of something that we're thinking about and hopefully be able to announce the thing in the future 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 transaction, so it needs to be led by the independent directors of the respective boards of the two 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.