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Edited Transcript of BHR earnings conference call or presentation 31-Oct-19 3:00pm GMT

Q3 2019 Braemar Hotels & Resorts Inc Earnings Call

Dallas Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Braemar Hotels & Resorts Inc earnings conference call or presentation Thursday, October 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deric S. Eubanks

Braemar Hotels & Resorts, Inc. - CFO & Treasurer

* Jeremy J. Welter

Braemar Hotels & Resorts, Inc. - COO

* Jordan Jennings

Braemar Hotels & Resorts, Inc. - Manager, Investor Relaions

* Richard J. Stockton

Braemar Hotels & Resorts, Inc. - President & CEO

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Conference Call Participants

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* Barry Paul Oxford

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* Tyler Anton Batory

Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure

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Presentation

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Operator [1]

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Greetings. Welcome to the Braemar Hotels & Resorts, Inc. Third Quarter 2019 Results Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to your host, Jordan Jennings. You may begin, ma'am.

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Jordan Jennings, Braemar Hotels & Resorts, Inc. - Manager, Investor Relaions [2]

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Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the third quarter of 2019 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 and 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. These 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 and the company's earnings release and accompanying tables or schedules, which have been filed on Form 8-K with the SEC on October 30, 2019, and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.

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

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [3]

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Good morning. Welcome to our third quarter 2019 earnings call. I will begin by giving a brief overview of our quarterly financial results. I will then provide an update on our major capital expenditure projects. Finally, I will conclude with an update on our investor outreach efforts. After that, Deric will provide a more detailed review of our financial results, and Jeremy will provide an update on our asset management activity. Afterwards, we will open the call for Q&A. For the third quarter, comparable RevPAR for all hotels declined by 2%, while comparable RevPAR for hotels not under renovation decreased 1.4%. We reported adjusted EBITDAre of $28.6 million and AFFO per share of $0.29 for the quarter.

Our overall portfolio trailing 12-month comparable RevPAR of $230, continues to be the highest in the lodging REIT sector. During the quarter, we continued to make good progress on reopening the Ritz-Carlton, St. Thomas, after the damage caused by Hurricane Irma, approximately 2 years ago. We are working closely with our insurers to both seek recoveries for physical damage to the hotel as well as to minimize the impact of the property's P&L through BI insurance recoveries, which totaled $4 million in the quarter. The hotel is planned to reopen to transient guests on November 22. The new property will be fantastic. We have completely renovated all 180 guestrooms and there are new F&B outlets, new pre-function space and a new family pool.

The St. Thomas Hotel market has lost approximately 35% of its inventory, which positions our property for a ramp up. Forward booking rates are already 10% higher than they were pre-hurricane. We are very excited about the prospects for the Ritz-Carlton, St. Thomas, and believe it is well positioned going into 2020. We're also pleased with the progress we have made on our strategy to up brand our Courtyard Philadelphia and Courtyard San Francisco properties to Autograph Collection hotels.

In July, we announced the completion of the conversion of the Philadelphia property to The Notary Hotel. Located in downtown Philadelphia, the property underwent a spectacular $20 million renovation. Additionally in July, we announced the rebranding of the Courtyard San Francisco to The Clancy. That conversion is expected to be completed in early 2020. The Clancy is ideally situated in San Francisco's vibrant South of Market district, which has established itself as a hub for international visitors, regional day-trippers and locals enjoying music, art, multimedia and a technology-driven culture.

Year-to-date, we reported 8.7% RevPAR growth at the hotel, even while the property was under renovation, which when combined with only modest supply growth and the recent reopening of the expanded Moscone Convention Center near the hotel, continues to fuel our excitement for the upcoming repositioning of this property. Thus far, we have spent approximately $44 million on these conversions and anticipate spending an additional $15 million during the remainder of 2019 and the first quarter of 2020.

Finally in October, we announced the opening of the Maple Grove Presidential Villa at the Bardessono Hotel & Spa in Yountville, California. The new 3,705 square foot Presidential Villa is available at a published rate of $9,000 per night and offers guests secluded space with elite experiences that enable us to provide guests with an unforgettable Napa Valley stay. The Presidential Villa is also available as 3 separate luxury suites, each has a distinctive great room, stately king bedroom, spa bathrooms and courtyard. We're excited about the prospects for the Presidential Villa at the Bardessono as we are seeing strong forward bookings and expected to generate significant incremental annual EBITDA in excess of $1 million per year.

On the capital markets front, during the quarter we amended and extended our mortgage loan secured by the Ritz-Carlton, St. Thomas, and more recently refinanced our mortgage loan for the Pier House Resort & Spa in Key West, Florida. Deric will discuss these in more detail, but we are happy with the execution of these transactions as they were excellent opportunities to address our upcoming debt maturities, while both lowering the spread and increasing our cash balance. All of our debt continues to be nonrecourse, and as a result of our financing activity over the last year, we have a very attractive maturity scheduled with no final debt maturities until 2022. We have also been active on the investor relations front. Over the past few months, we have attended several bank and industry conferences and participated in numerous investor meetings. Additionally, we recently held a well-attended Investor Day in New York. During the remainder of 2019, we will continue to get out on the road to meet with investors to communicate our strategy and the attractiveness of an investment in Braemar.

We believe we have made great progress executing on our strategy this past quarter. We are optimistic about the upcoming performance of the portfolio. We also continue to believe there are several unique stories in our portfolio that could result in RevPAR performance in excess of the broader market.

I will now turn the call over to Deric.

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Deric S. Eubanks, Braemar Hotels & Resorts, Inc. - CFO & Treasurer [4]

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Thanks, Richard. As Richard mentioned, during the third quarter we recognized $4 million of business interruption income for the Ritz-Carlton, St. Thomas, which is reflected in the other revenue -- other hotel revenue line of our income statement. These insurance recoveries related to the months of June 2019 through August 2019. We expect these insurance recoveries to taper off as the hotel reopens, which is scheduled for later this year. As a reminder, in the prior year quarter, we recorded business interruption income of $3.8 million at the Ritz-Carlton, St. Thomas. For the third quarter of 2019, we reported a net loss attributable to common stockholders of $11.9 million or $0.37 per diluted share, and we reported AFFO per diluted share of $0.29. Adjusted EBITDAre for the quarter was $28.6 million. At quarter's end, we had total assets of $1.8 billion. We had $1.1 billion of mortgage loans, of which $49 million related to our joint venture partner share of the loan on the Capital Hilton and Hilton La Jolla Torrey Pines.

Our total combined loans at a blended average interest rate of 4.3%. Our loans are entirely floating rate and the vast majority of interest rate cap is in place. As of the end of the third quarter, we had approximately 49% net debt to gross assets, and our trailing 12-month fixed charge coverage ratio was approximately 1.6x. Our next final loan maturity is not until April 2022.

Our cash and cash equivalents at the end of the quarter was $83 million with an additional $57 million of restricted cash. As of September 30, 2019, our portfolio consisted of 13 hotels with 3,484 net rooms. Our share count currently stands at 37.7 million fully diluted shares outstanding, which is comprised of 32.9 million shares of common stock and 4.8 million OP units. In our financial results, we included approximately 6.6 million shares in our fully diluted share count associated with our Series B Convertible Preferred Stock. On the capital markets front during the quarter, we amended and extended a mortgage loan secured by the Ritz-Carlton, St. Thomas. The amended $42.5 million loan has a 2-year initial term with 3, 1-year extension options, subject to the satisfaction of certain conditions.

The loan will continue to bear interest at a rate of LIBOR plus 4.95%. Upon the reopening of the hotel as a Ritz-Carlton, which is planned for later this year, there is the potential for the spread on the loan to be reduced. If the appraised value of the hotel results in a loan-to-value ratio between 65% and 70%, the spread will be reduced by 50 basis points. If the appraised value of the hotel results in a loan-to-value ratio less than 65%, the spread will be reduced by 100 basis points. Also during the quarter, we refinanced the mortgage loan for the 142 room Pier House Resort & Spa in Key West, Florida, which had an existing outstanding balance of $70 million, a floating interest rate of LIBOR plus 2.25% and a final maturity date in March 2020. The new nonrecourse loan totals $80 million and has a 5-year term. The loan is interest only and provides for a floating interest rate of LIBOR plus 1.85%.

Additionally in October, we announced a stock purchase agreement with Ashford Inc., under which Ashford Inc. purchased 19,897 shares of its common stock from us for $30 per share, resulting in total proceeds of approximately $600,000. The purchase price reflected a premium of approximately 20% based on the closing price of Ashford common stock on October 1, 2019. We also announced plans to distribute the remaining 174,983 shares of Ashford common stock on a pro rata basis to Braemar common shareholders and unitholders. The pro rata distribution of Ashford shares is expected to be completed on November 5, 2019, to shareholders of record as of October 29, 2019.

Earlier this week, we announced that we had entered into a new $75 million secured credit facility, which replaced our previous credit facility that was scheduled to mature in November. The new credit facility provides for a 3-year revolving line of credit and has 2, 1-year extension options.

With regard to dividends, the Board of Directors declared a third quarter 2019 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 6.8% based on yesterday's stock price. This concludes our financial review.

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

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [5]

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Thank you, Deric. As Richard mentioned, during the quarter comparable RevPAR for our portfolio decreased 2%, while comparable RevPAR growth for our hotels not under renovation, decreased 1.4%. Results were negatively impacted by weak quarterly performance from the Sofitel in Chicago, Marriott Seattle Waterfront, Pier House Resort and the La Jolla Hilton Torrey Pines. Third quarter hotel EBITDA flow-through for those hotels not under renovation was an impressive 71%. In July, we successfully completed the conversion of the Courtyard Philadelphia Downtown to The Notary Hotel, part of Marriott's Autograph Collection. We hosted a grand opening celebration on August 15. And as a direct result of the grand opening celebration, the hotel booked $176,000 of known new business. In addition, PR coverage of the opening has reached over 350,000 unique monthly visitors and social media campaigns from the event, have reached over 4,000 users with over 250 engagements. While comparable RevPAR during the third quarter decreased 6.5% due to the renovation impact, rate increased 4.7%. During the fourth quarter, the first full quarter following the conversion, the hotel will continue to ramp. Fourth quarter group and transient revenues are pacing ahead of the same period last year by 12% and 33%, respectively.

[Tenant] group pace in 2020 is 61% ahead of the same period last year. We expect to see attractive growth in rate in the fourth quarter and throughout the balance of 2020. Looking ahead, we continue to be excited about the Courtyard San Francisco Downtown and its upcoming conversion to the Autograph Collection under the name, The Clancy. The hotel remains on track to complete its conversion in the first quarter of 2020. There've been headwinds and challenges with the timing of the conversion because of access to labor. We're competing for labor in a very competitive Downtown San Francisco market, yet we remain pleased with the progress so far and are very happy with the fantastic work quality.

Construction continues on the front entrance, exterior, lobby and restaurant, while the coffee shop has been framed out, and the new front desk has been installed. Hotel's performance continues to be strong, comparable RevPAR has grown 8.7% year-to-date, driven by 5.5% rate growth. This RevPAR growth represents increases of 7.4 and 5.3 percentage points relative to upscale and above chains in the San Francisco market street, California submarket and the San Francisco, San Mateo, California market, respectively. Let me take this opportunity to highlight even further, the incredible job Premier Project Management has done during the renovation.

Using their stealth renovation program, which is designed to minimize the renovation work impact to guest, Premier has contributed to the hotel gaining significant market share despite being under a substantial ongoing renovation. In addition to the impressive market share growth, year-to-date occupancy has been 91.5%. Construction at the Ritz-Carlton, St. Thomas also remains on track with an expected opening before the end of the year.

During the third quarter, the hotel was unavailable and comparable RevPAR fell to zero. BI insurance continues to make this whole during this period of impacted performance. Work remains on the restaurant, meeting space and family pool and splash pad. Staff hiring is substantially complete, and training is underway. We're also finalizing lease terms with pre-hurricane [bus lease] that utilize retail space in the hotel and marketing an additional space for new leases. As of October 15, 102 rooms were ready for occupancy. Our first group date is November 20, and our first available day for transient business is November 22. We identified the closure of the hotel as the perfect time to accelerate value-added capital projects that will not only drive incremental revenue but also improve the guest experience. We are expanding the meeting space pre-function area, repositioning the hotel signature restaurant, Alloro, renovating the kids club, adding a centralized cafe and market, constructing a family pool with the splash pad and adding 11 luxury pool cabanas. We will now undoubtedly be positioned as one of the finest resorts in the Caribbean.

Our best-performing hotel during the third quarter was the Hotel Yountville. Comparable RevPAR grew 8%, driven by occupancy growth of 12.3%. This RevPAR growth represents an increase of 4.5 percentage points relative to the California North market. Transient room night growth of 17.5% occurred over both weekdays and weekends. Weekend occupancy for the quarter reached nearly 97%. Hotel EBITDA flow-through was 80%, leading to hotel EBITDA growth of 23.3% or $471,000. At our other Yountville property, the Bardessono Hotel & Spa, comparable RevPAR grew 2.1% during the third quarter. The biggest story of the quarter at this hotel was the opening of the Maple Grove Presidential Villa. This villa is rentable as 3 separate suites and published rates range from $2,500 to $3,500 per night. Each of the 3 units boast a great room, separate king bedroom and an outdoor spa. These can be sold separately or together as a 1, 3-bedroom retreat. The rooms are available on the website and are already generating forward bookings despite limited marketing.

I will now turn to capital investment. During 2019, we will continue to invest in our portfolio in order to maintain competitiveness. In total, we estimate spending approximately $85 million to $95 million in capital expenditures during the year, excluding proceeds from insurance. We completed the conversion of the Courtyard Philadelphia Downtown to The Notary Hotel. We've also completed the renovation of the lobby and bar at Park Hyatt, Beaver Creek, and the 3 key 4,000 square foot Presidential Villa at Bardessono Hotel & Spa. We continue to make capital expenditures comprised predominantly of the strategic acceleration of capital projects in order to mitigate renovation impacts. Specifically, pulling forward additional amenity enhancements at the Ritz-Carlton, St. Thomas, while the resort is under renovation and work related to the conversion of the Courtyard San Francisco Downtown to The Clancy. Finally, we have identified an accretive opportunity for our portfolio by adding 2 keys at the Hilton La Jolla Torrey Pines. Looking ahead to 2020, we anticipate spending approximately $40 million to $60 million in capital expenditures.

Lastly, I want to reiterate the strength of our portfolio's positioning entering 2020. We will have 2 newly renovated and converted Autograph Collection hotels, Park Hyatt, Beaver Creek lobby and the Bardessono Villa construction projects are substantially complete. The Ritz-Carlton Sarasota beach improvement is complete. There are no signs of an impending government shutdown that could impact the Capital Hilton.

And finally, the Ritz-Carlton, St. Thomas will be reopening post hurricane recovery. In addition to the property-specific factors I just mentioned, we're currently experiencing some favorable portfolio-wide dynamics. First, excluding the Ritz-Carlton, St. Thomas, group revenue pace is up 2% for 2020, driven by increased room nights sold. Second, we are seeing new supply in our market slowdown throughout our portfolio. Over the past 2 years, our portfolio of submarkets have experienced slightly greater than 2.5% annual supply growth. We estimate this number to reduce to roughly 2% annually over the next 2 years. This decrease in supply growth will be especially prominent for the Marriott Waterfront in Seattle. In addition, over the past year or so, we have focused a great deal of our attention on nonrooms' revenue. We're proud to say comparable total hotel revenue, excluding rooms revenue has increased 4.2% year-to-date or $5.6 million. This concludes our prepared remarks.

And we'll now open it up for Q&A.

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [6]

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Yes. Thank you, Jeremy. Let me just say one more thing. We're pleased with our third quarter performance and continue to believe Braemar is well positioned for strong growth in the remainder of 2019 and into 2020. While industry forecasts remain lackluster, our portfolio has a number of unique aspects that should allow us to drive material RevPAR growth and increase profitability in the short term.

Now we can open up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Tyler Batory, Janney Capital Markets.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [2]

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So the first question I had, I wanted to ask a little bit more about the flow-through at some of the hotels that was not under renovation that looked quite strong. Can you talk a little bit more about what's been driving that?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [3]

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Yes. I mean there's just been a lot of different -- it's a mixed bag across the portfolio. So I mean, I can answer any specific questions on specific assets. There's not really any prevailing theme. We've been very aggressive on focusing on nonrooms revenue, and that's where you've seen year-to-date, we've had incredible growth in our ancillary revenue. And that's been a great success for our team. Some of those revenue streams are very incrementally positive as it relates to flow- through because it's rate driven and it just flows right down to the bottom line. We've had some situations where we've been able to have some properties that have had declines in incentive fees. And then, actually what's interesting is like Hilton Torrey Pines, even though RevPAR was down 5.1% for the quarter, we had total revenue down 1.7%. But what that resulted in is a pretty big decline in our lease payment because we were able to grow nonrooms' revenue higher than rooms revenue, and our lease is based on the types of revenue that we generate. And so F&B revenue is going to be at a lower incremental lease payment. And so that actually resulted in an outsized decline in the lease payment for Torrey Pines. So there's just a lot of different things that had contributed to it. But I think what I can say is that I'm very proud of the team, in a very difficult environment, doing everything they can to optimize cost controls and flow-throughs and really focus on pushing ancillary revenue, which is much needed.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [4]

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Okay, perfect. That's helpful. And then I also wanted to ask about San Francisco and the conversion there. The RevPAR results year-to-date have been very strong. Has there been any disruption from the renovation year-to-date? I don't know if can -- if you're able to quantify that? I mean can you also just remind us what is left as far as that conversion to get it open? What else you need to complete before you open it in the first quarter of 2020?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [5]

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Yes. It's (inaudible). Yes. So it's all basically public space and exterior. So within the hotel, we had a drive through and a port to share. And we're actually closing that end and extending that to recapture more space into the lobby. So we're expanding the lobby, we're doing a major repositioning of the F&B concept of the hotel, the bar, the restaurant. So all of that is underway, and that will continue on through the first quarter. As far as displacement, we haven't had a ton of displacement that's really directly attributed to the renovation. As I mentioned, we've got a pretty good plan in place where we have the stealth renovation program, and we've got very strict rules on what can and cannot be displayed. So it doesn't impact the guest and how we do the flow of traffic for check-ins to minimize the impact to the guest experience. And I think that we've got that down incredibly well. The quarter was a little bit weaker, but that was mainly some anomalies to the mix of business, and we had a decline in rate. But year-to-date, it's been great, and we've been, yes, under substantial renovation. So I think overall, it's a great success story. And as it relates to that market, I'm just very, very optimistic that our hotel is really strategically and competitively positioned to capture a lot of incremental rate as we brand out and fully go to the Autograph distribution just because there's a lot of high-end business demand, strategically located around our property. And so I'm very optimistic with the market dynamics as well.

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Tyler Anton Batory, Janney Montgomery Scott LLC, Research Division - Director of Travel, Lodging and Leisure [6]

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Okay. And then just my last question for Richard on capital allocation. Any changes to your priorities and how you're thinking about things? You're a little bit above your net debt to gross assets target. So is there a priority to reduce leverage here? Or how are you thinking about balancing some of the options you have given the attractive outlook you have coming up in 2020 here?

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [7]

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Yes, Tyler, thanks. That's definitely an astute observation. We are slightly above our target leverage right now, which means that any capital allocation decision that we take, we want to ensure that it's not increasing leverage further. And so while we don't have a specific plan to reduce leverage, our target is a self-imposed target, and we're certainly well within any of our debt covenants. Anything that you see us doing going forward is unlikely to increase leverage any further. So we're pretty optimistic that the property performance coming through in 2020, ability to generate cash flow that way will help us fall in line with our targets over time.

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Operator [8]

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Next question is from Chris Woronka, Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [9]

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I want to ask you about the cost structure at the 3, so the Ritz-Carlton, St. Thomas and the 2 Autograph Collection conversions. Does the cost structure change dramatically there post renovation? Just trying to figure out, especially in the case of St. Thomas, is the profitability profile reasonably similar to what it was before all of the disruption?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [10]

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We'll take those in kind of separate buckets. So we'll start with St. Thomas. I think the cost structure actually -- we're actually taking advantage of just doing a revamp and relook at the entire organizational structure. So we're actually going to open up with the lower cost structure initially and with the flexibility and agreement with Ritz-Carlton that if we need to add back some supervisor/managerial positions, we can always do that. But we basically took advantage of 0 staffing assumption and built up what we think the resort should be staffed at as we open, and we've combined some positions. So I would say, at worst-case scenario, we're very similar from a cost structure, and best-cast scenario, we're able to add more increased margin. And there's a lot of other ancillary revenues that we play to capture, as I mentioned, we've got -- we're adding 11 high-end cabanas, we also have the kids pool, which we plan to charge a day pass -- utilize the charge day pass resort fees to the adjacent Ritz-Carlton residences. And so I think that's going to be very good, profitable, incremental revenue as well. As it relates it autographs, the cost structure's definitely going to be a little bit higher. But what we're banking on is that we're going to have increased ADR at both properties. So the margins might be just a little bit lower because we're going to have a lot more F&B revenue. But overall, EBITDA should be considerably higher, given the additional rate and additional profit that we anticipate on the incremental revenue streams as well.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [11]

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Okay, great. And then maybe talk a little bit about Sofitel Chicago. I know it's been a little bit up and down this year, but kind of tough again in the third quarter. Is there anything -- I noticed the margins were actually up and wondered if there's something exogenous there. Just kind of your outlook for whether that hotel kind of has -- is there a ramp coming? Or is it just kind of stable as it is?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [12]

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Yes. So we lost share in the quarter about 610 basis points. Very disappointing given our significant capital investment we made into the properties you're aware of just recently. We continue to experience very, very weak brand contribution for that hotel from a core. So I'd say that we're very frustrated with the performance of the property. Our team is pressuring the brand to improve performance. As it relates to the flow-throughs that you see, those are really one-time as it relates to some reductions in -- that we want in some property taxes, and that flows through their EBITDA. So not really operating performance.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [13]

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Okay. That's helpful. And then maybe a question for Richard. A lot of REITs are talking about disconnect between public and private valuations. And you guys don't have too much in the way of noncore assets, maybe 1 or 2 possibly that I could see. Is there any thought to just monetizing one of those 2 noncore assets, if you view them as noncore, just to kind of prove that value out to the market?

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [14]

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Yes. And thanks for that, Chris. If you look at our proportion of EBITDA contribution from luxury and upper upscale. You can see we're predominantly luxury, which is where we want to be. We do have upper upscale properties and they, in many cases, are contributing significant amounts of EBITDA to the company, which is helping support our dividend and obviously, all of our other fixed charges. So at the moment, we like that mix. We like having those kind of cash cows to generate income. It would have to be a circumstance if we were to try to monetize one of those assets where we can flip it very quickly into a luxury property to maintain cash flow and maintain our strategy. So at the moment, we're not in the process of marketing any assets for sale. But there are always those unique circumstances that could cause us -- or give us the opportunity to upgrade the portfolio. So that's how I think about it.

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Operator [15]

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We have a question from Barry Oxford, D.A. Davidson.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [16]

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Great. Just to build on that, you're not in the market to dispose of any assets. So is it fair to say that on the other side of the coin that you're not really looking at acquisitions? Or are you buying a couple of properties right now?

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [17]

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Thanks, Barry. You may remember from our Investor Day presentation, we talked about where we were in terms of capital, we talked about our leverage, even just on this call. So you're right, in the traditional sense, we're not in the market to acquire assets on balance sheet. That said, one of the things we are exploring is a GP/LP structure, we can partner with the capital source to make acquisitions that would contribute to our profitability. In some regard, at least in respect of the amount that we invest in the venture and any incentive fee that we would earn, but also to line up a future pipeline when our equity cost of capital is much more favorable than it is today. So for that reason, we continue to be active in the market in the sense that we are -- we do maintain a pipeline, we are looking at a number of deals, we're keeping our tools sharp, but you wouldn't see us acquiring anything on balance sheet in the short term.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [18]

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Great, great. And then last question. You indicated $40 million to $60 million spend in 2020. Are most of those dollars going to be headed towards a particular hotel or project? Or is that more just look, Barry, this is normal pace of business in order to keep our hotels where they need to be?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [19]

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Now there'll be some renovations of some hotels, but we're going to disclose that in the next quarter once we finalize our capital plans in December. And some of that spend actually will be carryover spend from the Autograph conversion in San Francisco that is ongoing, and we spent a decent amount of money at the very end because we hold back a lot of payments from our contractors. So it will be a combination of that, and then we will provide more details in the upcoming quarter of individual hotel renovation activity.

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [20]

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Yes. I'd add to that, I'd say, certainly the long-term average spend or an appropriate level of kind of CapEx without any special ROI projects is within that range, probably more towards the lower end of that range. So as Jeremy said, it's really based on what projects we can identify that we want to bring forward or that we think will significantly increase the attractiveness of a property in the short term. There'll be more details coming out on that in the next quarter.

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [21]

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Yes. What I would add though is that from a year-over-year comparability standpoint, just because we've been under some significant renovation at some very large strategic hotels that you will see that we'll be -- we will have less overall displacement next year than we did this year, especially with St. Thomas is back open.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [22]

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Right. And I think that we'll hopefully bear out in the power of your earnings in 2020.

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [23]

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That's our hope.

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Operator [24]

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(Operator Instructions) We have a question from Bryan Maher, B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [25]

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Most of my questions have already been asked and answered. But can you give us, Richard or Jeremy, what you're seeing as far as kind of early booking trends at the Park Hyatt in Beaver Creek, which we all know is very seasonal property for you? And then also what you're seeing for 2020 booking trends at the Ritz-Carlton, St. Thomas?

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [26]

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Well, we commented on the -- as the script, at least, as it relates to ADR at St. Thomas that those rates have been very attractive. We're still building up the group business at St. Thomas, but the transient bookings have been very favorable so far. And I think that there is a lot of pent-up demand for St. Thomas. Park Hyatt in Beaver Creek, I don't know if there is anything really to comment on specifically as it relates into the short term. A lot of that is just kind of how the snow season plays out. We do have a new team in place. And so we are repositioning that property from a segmentation and group perspective, and that always takes a little bit of time, but I am optimistic that we have the right players for that property.

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [27]

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Yes. I think with the new lobby renovation, which looks absolutely spectacular. I don't know if you've had a chance to see any of the images on that yet, Bryan. But I do think that takes a little bit of time to get the word out. But I think that'll start to happen over the next couple of months. And so hopefully, by the time we end the first quarter next year, you'll start to see that benefit in the numbers. But I'll just say the word is not out yet on that, and that will start to happen, I think, here in the short term.

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [28]

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Yes. I'd say that the property is up about 8% in group business in terms of year-over-year pace. And that's actually 70% of what they actualize in 2018. So the group outlook is building and should be fairly strong. And they've been focused on a lot of need periods as well.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [29]

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Great. And then just -- I know you touched upon the supply picture and how it's improving across the portfolio. But when you look at your various markets for the 13 hotels, which -- maybe you can rank the top 3 that you're most concerned about in 2020 and 2021, as it relates to new supply still coming into the market.

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Jeremy J. Welter, Braemar Hotels & Resorts, Inc. - COO [30]

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Yes. So I think that the Sarasota market continues to have a decent amount of supply that we expect to come in not only in the next 12 months, but over the next 24 months. And that was something that we underwrote, and I think that the property is actually done remarkably well and actually exceeded our underwriting as it relates to absorbing some of that supply. So hopefully that continues to be the case. But I would say that, that market clearly stands out as the one that would concern me the most. Aside from that, probably at least in the near term, San Diego, we're projecting at least the markets around our hotel to be about 3% growth next year. But everybody else is in the 2s or 1s or even, of course, Key West is 0 supply, new supply outlook. So I think we're very well positioned across the portfolio from a supply perspective.

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [31]

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Yes. The next 2 months, we estimate about 2% supply growth in our markets, we'll have market and tract, which is I think a great place to be.

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Operator [32]

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We've reached the end of the question-and-answer session. I would now like to turn the call over to management for closing remarks.

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Richard J. Stockton, Braemar Hotels & Resorts, Inc. - President & CEO [33]

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Thank you for joining us on the third quarter earnings call, and we look forward to speaking with you again on our next call and seeing many of you at Nareit, Los Angeles in a couple of weeks. Thank you.

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Operator [34]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a good day and a happy Halloween.