Braemar Hotels & Resorts Inc. (BHR) Q4 2019 Earnings Report, Transcript and Summary

Greetings. Welcome to Braemar Hotels & Resorts Fourth Quarter 2019 Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host, Ms. Jordan Jennings, with Braemar Hotels & Resorts. Thank you. You may begin.

Good morning, and welcome to today's call to review results for Braemar Hotels & Resorts for the fourth quarter and full year 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.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. Statements made during this call do not constitute an offer to sell or a solicitation of an offer to buy any securities. Securities will be offered only by means of a registration statement and prospectus, which can be found at www.sec.gov. 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 or schedules, which have been filed on Form 8-K with the SEC on February 26, 2020, and may also be accessed through the company's website at www.bhrreit.com. Each listener is encouraged to review those reconciliations provided in the earnings release together with all other information provided in the release.I will now turn the call over to Richard Stockton. Please go ahead, Richard.

Good morning. Welcome to our fourth quarter and year-end 2019 earnings conference call. I will begin by giving a brief overview of our financial results. I'll then provide an update on our major capital expenditure projects. Finally, I will conclude with an update on our investor outreach efforts. After that, Derek will provide a more detailed review of our financial results, and Jeremy will provide an update on our asset management activity. Afterwards, we'll open the call for Q&A.For the fourth quarter, comparable RevPAR for all hotels increased by 6.2%, while actual RevPAR for all hotels increased 9.9%. Comparable total RevPAR increased 10.2%. These significant increases are a direct result of the strategy we put in place in 2017, focused on repositioning our existing portfolio, as well as growing it with high-quality assets. I'd like to point out that Smith Travel Research recently reported that RevPAR for the luxury chain scale grew 6% in January compared to the same period last year, highlighting the benefit of having a portfolio like ours that is focused on the luxury segment. We reported adjusted EBITDAre of $25.5 million, which represents growth of 25% over the prior year quarter, and AFFO per share of $0.27, which represents 93% growth over the prior year quarter. Our overall portfolio trailing 12-month comparable RevPAR of $233 continues to be the highest in the lodging REIT sector.We are extremely pleased to reopen The Ritz-Carlton St. Thomas hotel two years after Hurricane Irma. The property, which had been operating with minimal operations, underwent approximately $100 million in renovations that were substantially funded by insurance proceeds. The renovation provided us with the opportunity to accelerate value added capital projects that will both drive incremental revenue and improve the guest experience. We have completely renovated all 180 guest rooms and our new F&B outlets, new pre-function space, and a new family pool. The result of all these efforts is a spectacular resort product that we believe to be on par with the finest resorts in the Caribbean.Additionally, the USVI hotel market has not reinstated all of its inventory, which positions our property well for a strong ramp up. Throughout this process, we worked closely with our insurers, both to seek property recoveries as well as to minimize the impact of the hotel's P&L through BI insurance recoveries, which totaled $2.8 million in the quarter. We are very excited about the prospects for The Ritz-Carlton St. Thomas in 2020, and believe it is well positioned to outperform.We're also pleased with the progress we have made on our strategy to up brand our Courtyard San Francisco property to an Autograph Collection hotel. We expect to complete the conversion to The Clancy in May. During the fourth quarter, we reported 12.4% comparable RevPAR growth at the hotel, even while the property was under renovation, which when combined with the only modest supply growth in the recent reopening of the expanded Moscone Convention Center near the hotel, continues to fuel our excitement for the upcoming repositioning of this property.As you may recall, in July, we announced the completion of the conversion of our Courtyard Philadelphia property to The Notary Hotel. In the fourth quarter, the property began its ramp-up, reporting an impressive 21.4% RevPAR growth. The renovation and up branding of this property has been an undisputed success, and is now ramping up even more quickly than we had anticipated. 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, or is also available as three separate luxury suites. Each has a distinctive great room, stately king bedroom, spa bathrooms, and a courtyard. The suites are now starting to ramp up, currently generating an additional approximately $50,000 per month, and we believe will begin to generate significantly more revenue in the coming months. On the capital markets front, during the year, we pushed out our maturities and lowered our cost of capital. Deric will discuss this in more detail, but all of our loans continue to be nonrecourse, and as a result of our financing activity over the last year, we have a very attractive maturity schedule with no final maturities until 2022.We have also been active on the investor relations front. Over the past few months, we've attended several bank and industry conferences and participated in numerous investor meetings. We held a well-attended Investor Day in New York in early October. Looking ahead to 2020, 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.One topic of interest with many investors is the impact of the coronavirus on the travel and lodging industry. As it relates to Braemar, we currently expect to see an immaterial impact on our hotel results in 2020 from cancellations by China-based hotel guests. To date, we have identified a total of approximately $80,000 in lost revenue, directly associated with coronavirus related cancellations across eight of our properties. Excluding The Ritz-Carlton St. Thomas, our 2020 definite group revenue pace stands at plus 9% for 2020.Another point of interest with investors is the recent impact of rising wages, property taxes, and insurance. As you'll see from our quarterly figures, despite a comparable hotel EBITDA margin decline of 197 basis points, we were able to generate comparable hotel EBITDA growth of 2.6%. And while it is possible that we will see some continuing EBITDA margin pressure this year, based on the investments we have made over the past two years, we believe our portfolio will continue to produce industry-leading revenue growth that were more than offset these modest increases in expenses. Jeremy will address these trends further in a few moments.Lastly, we recently updated our website with a new and improved Investor section. The new website is meant to highlight the quality of our portfolio and provide easy-to-find resources for investors. Please visit our website at www.bhrreit.com. We hope you found it to be a useful research tool.We believe we have made great progress executing on our strategy this past quarter, and we are optimistic about the upcoming performance of the portfolio. We 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.

Thanks, Richard. As Richard mentioned, during the fourth quarter, we recognized $2.8 million of BI income for the Ritz-Carlton St. Thomas, which is reflected in the other hotel revenue line of our income statement. These insurance recoveries related to the months of September 2019 through November 2019. We expect these insurance recoveries will taper off as the hotel has reopened. For the fourth quarter of 2019, we reported net income attributable to common stockholders of $12.7 million or $0.36 per diluted share. For the full year of 2019, we reported a net loss attributable to common stockholders of $9.8 million or $0.32 per diluted share. For the quarter, we reported AFFO per diluted share of $0.27, which reflected a 93% growth rate over the prior year quarter. For the full year of 2019, we reported AFFO per diluted share of $1.41.Adjusted EBITDAre for the quarter was $25.5 million, which reflected a 25% growth rate over the prior year quarter. Adjusted EBITDAre for the full year was $121.5 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’s share of the loan on the Capital Hilton and Hilton La Jolla Torrey Pines. Our total combined loans had a blended average interest rate of 4.0%. Our loans are entirely floating rate, and the vast majority have interest rate caps in place.As of the end of the fourth quarter, we had approximately 50% net debt to gross assets, and our trailing 12-month fixed charge coverage ratio was approximately 1.7x. Our next final loan maturity is not until April 2022. Our cash and cash equivalents at the end of the quarter was $65 million, with an additional $56 million of restricted cash. As of December 31, 2019, our portfolio consisted of 13 hotels with 3,487 net rooms. Our share count currently stands at 37.4 million fully diluted shares outstanding, which is comprised of $32.9 million shares of common stock and 4.5 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.On the capital markets front, during the quarter, we entered into a new $75 million secured credit facility, which replaced our previous credit facility that was scheduled to mature in November 2019. The new credit facility provides for a three-year revolving line of credit and bears interest at a range of LIBOR plus 2.25% to 3.5%, depending on the leverage level of the company. There are two one-year extension options, subject to the satisfaction of certain conditions. The new credit facility includes the opportunity to expand the borrowing capacity by up to $175 million to an aggregate size of $250 million.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, resulting in total proceeds of approximately $600,000. The purchase price reflected a premium of approximately 20%, based on the price of Ashford common stock on October 1, 2019. Also in November, we distributed the remaining 174,983 shares of our Ashford common stock on a pro rata basis to our common shareholders and unit holders. In December, we filed a prospectus supplement under which we may issue and sell from time to time up to an aggregate of $40 million of our Series B cumulative convertible preferred stock under an at-the-market equity offering program. Since the inception of the ATM program, we have sold $1.25 million of the Series B cumulative convertible preferred stock at an average price of $19.02, and expect to use the proceeds for general corporate purposes.Also during the quarter, we filed a registration statement for the issuance of up to $700 million of Series E or Series M non-traded perpetual preferred stock that we expect will permit us to issue securities through the financial advisor and registered investment advisor networks over the next three years, market conditions permitting. We are currently targeting to raise $350 million over that period, and have registered a larger amount to allow for a dividend reinvestment program, as well as the potential for a more favorable reception to the offering, concurrent with a more attractive hotel investment market. That registration statement is now effective. Ashford Securities, a division of Ashford Inc., has been established and licensed by FINRA as a broker-dealer in order to act as dealer-manager on behalf of the company, in respect of a Series E and Series M non-traded perpetual preferred stock.We expect to use any proceeds from the sales of the Series E or Series them non-traded perpetual preferred stock for general corporate purposes, and to enable the company to continue to grow at a time when the retail capital markets are strong and the traditional equity markets are less favorable. With regard to dividends, the board of directors declared a fourth 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 8.8%, based on yesterday's stock price.This concludes our financial review, and I'd now like to turn it over to Jeremy to discuss our asset management activities for the quarter.

Thank you, Deric. Comparable RevPAR for our portfolio grew 6.2% during the fourth quarter. This strong growth represents increases of 5.5 percentage points and 4.1 percentage points relative to the total United States in the luxury class nationally, respectively. Our portfolio outperformed both its competitive sets and submarkets. By all of our commonly used metrics, comparable RevPAR was strong, and this growth occurred despite PG&E power outages impacting our Northern California assets.Fourth quarter hotel EBITDA grew $768,000 or 2.6%. For full-year 2019, comparable RevPAR grew 1%. During the fourth quarter, while hotel operating income results were solid, hotel EBITDA faced a number of headwinds. First, property tax expense increased 33.6%, or $1.53 million. We are contesting property taxes in a number of our properties. For instance, property taxes at the Sofitel Chicago increased $372,000 or 80.1%. We successfully reduced the amount of taxes in 2018 by obtaining a real estate assessment reduction, and we expect similar success with our other years under appeal in Cook County. Second, general management fees increased $791,000 or 144.5%. For example, the incentive management fee at the Courtyard San Francisco Downtown increased $294,000 or 824.3%. For both this hotel and our recently converted Autograph Collection hotel, The Notary, we were able to negotiate substantial changes to both owners’ priority, in the case of the Courtyard San Francisco Downtown, the incentive management fee percentage. Going forward, these changes should lead to increased profitability at these hotels.As expected, the Ritz-Carlton St. Thomas reopened in November after two years of reconstruction due to Hurricane Irma. A $100 million plus renovation completely transformed the hotel, including new guest room finishes, the addition of a new specialty restaurant, Alloro, featuring Sicilian cuisine, renovated meeting space, a remodeled infinity pool, a new family-friendly pool with a slide, renovated club lounge, and the new grab-and-go market, Trade Winds. Guests can also enjoy our new luxury catamaran, The Lady Lynsey 2, for sunset cruises, snorkeling cruises, and private events. During the fourth quarter comparable RevPAR of the hotel grew 21.9%. Full year comparable 2019 RevPAR grew 33.7%. During the fourth quarter, hotel EBITDA increased $1.4 million, and for full-year 2019 hotel EBITDA increased 10.8%. We are now positioned as one of the finest resorts in the Caribbean, and expect to continue to see our growth outpacing that of the new region.Speaking of recent renovations, I am pleased to say The Notary Philadelphia is ramping up well. The successful conversion of the Courtyard Philadelphia Downtown to Marriott's Autograph Collection occurred on July 16, with the grand opening celebration on August 15. Comparable RevPAR during the fourth quarter grew 21.4%. This growth represents increases of 17.5 percentage points and 17 percentage points relative to the Philadelphia market and the hotel's competitors respectively. This top line growth also more than doubles the $540,000 in revenue impact from the renovation during the fourth quarter of 2018. Rate growth for the fourth quarter this year was 7.6% or $15. In the month of December, comparable RevPAR grew 42.8%, leading to increases of 41.1 percentage points and 37.1 percentage points relative to the hotel's competitors and the Philadelphia market, respectively. In addition, hotel EBITDA increased 7.2%. We expect to see this impressive growth continue throughout the balance of 2020.Looking ahead a few months, 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 is currently scheduled to convert in May. In November, a portion of the new lobby opened, including the new front desk, Selma Mercantile, and the Radiator coffee shop. The hotel's performance continues to be strong. Comparable RevPAR grew 12.4% during the fourth quarter. This RevPAR growth represents increases of 6.2 percentage points and 1.1 percentage points, relative to the upscale San Francisco, San Mateo market class, and the hotel's competitors, respectively.There were also strong citywide growth during the fourth quarter, leading to our group room nights and rate increasing nearly 30% and 9%, respectively. Transient growth was driven by special corporate room nights increasing 14% and rate increasing 4%.For full-year 2019, comparable RevPAR has grown 9.5%, representing increases of 5.3 percentage points and 5.4 percentage points relative to the San Francisco, San Mateo market and the upscale and above chains in the San Francisco Market Street submarket, respectively. Hotel EBITDA grew $414,000 for full-year 2019. This hotel has undergone a major repositioning, has been under renovation all year, making the RevPAR and EBITDA growth all the more remarkable.While our properties undergoing major renovations received most of the attention this past year, I would be remiss not to mention the outstanding performance of The Ritz-Carlton Sarasota. During the fourth quarter, comparable RevPAR grew 17.3%, representing increases of 9.8 percentage points and 16.8 percentage points relative to the hotel's competitors and the Sarasota Bradenton market, respectively. Strong performance during the Thanksgiving, Christmas, in New Year's Eve holidays drove these results. In addition, no red tide, coupled with the Longboat Key Club’s renovation aided our hotel.Fourth quarter hotel EBITDA increased 22.7% and hotel EBITDA margin increased 7%. 2019 was the hotel’s first full year in our portfolio, and for the year, comparable RevPAR grew 4.5% and hotel EBITDA increased $917,000. This RevPAR growth represents increases of 7.4 percentage points and 7.2 percentages points relative to the Sarasota Bradenton market, and the upscale and above chains, and the Sarasota beaches submarket, respectively.Another of our iconic hotels, the Hilton La Jolla Torrey Pines, experienced a tougher fourth quarter. Comparable RevPAR decreased 7.7%. This decrease actually represents gains of 1.2 percentage points and 1 percentage points relative to the upper upscale San Diego market class, and the upscale and above chains in the San Diego La Jolla submarket, respectively. The reduction in citywides affected performance, as the American Society of Hematology, San Diego's largest convention with 17,000 peak room nights, met in December 2018, but will not repeat until December 2020. Another large citywide, neuroscience, also did not repeat in 2019. Despite the headwinds, during the fourth quarter, hotel EBITDA for the full-year 2019 grew $227,000 or 1.5% with comparable RevPAR outperforming the market.I will now turn to capital investment. Looking ahead to 2020, we anticipate spending approximately $45 million to $65 million in capital expenditures, exclusive of capital expenditures funded with insurance proceeds. These expenditures will be comprised predominantly of the completion of the Courtyard San Francisco Downtown conversion to The Clancy, a guest room renovation at the Marriott Seattle Waterfront, and the spa renovation at The Ritz-Carlton Sarasota.As Richard mentioned, I do want to reiterate how well positioned we are to outperform going forward. We will have two newly renovated and converted Autograph Collection hotels. The Park Hyatt Beaver Creek lobby and the Bardessono construction projects were recently completed. The Ritz-Carlton Sarasota Beach improvement is complete. There is no government shut down that impact of the Capital Hilton last year in the fourth quarter. And finally, The Ritz-Carlton St. Thomas is open, post hurricane recovery.In addition to the property specific factors I just mentioned, we are currently experiencing some favorable portfolio-wide dynamics. First, group revenue pace is up 7% for 2020, driven by increased room nights sold. For 2021, this number is an even more impressive 31%. Second, we are seeing new supply in our markets decelerate throughout our portfolio. Over the past two years, our portfolio submarkets have experienced 2% to 3% annual supply growth. We estimate this number to reduce to less than 2% annually over the next two years. This decrease in supply growth will be especially prominent for the Marriott Seattle Waterfront. In addition, over the past year or so, we have focused a great deal our attention on non-rooms revenue. We're proud to say comparable total hotel revenue, excluding rooms revenue, increased $12.7 million or 7.4% in 2019.I will now hand it back to Richard.

Thank you, Jeremy. We're extremely pleased with our fourth quarter performance, and continue to believe Braemar’s well positioned for strong growth in 2020. While industry forecast has remained tepid, our portfolio has a number of drivers that should allow us to deliver material RevPAR growth in excess of anticipated expense growth in order to deliver increased profitability this year. This concludes our prepared remarks, and we'll now open up the call for Q&A.

[Operator Instructions] our first question comes from the line of Tyler Batory with Janney Montgomery.

Good morning. Thanks for taking my question. First one, probably for Jeremy. Can you talk little bit more about what you're seeing at The Ritz St. Thomas and talk about the guest feedback thus far, booking trends? And then additionally, can you discuss group bookings at that property specifically, and some of the changes you made to the meeting space?

Yes, sure. So far, we're still ramping at the hotel. We were there early January and they still had, I think, 40 open positions, and I think that we're in process of filling all the positions. And there is a substantial amount of onboarding and training. Fortunately, we're able to retain a lot of our former associates pre-Irma, so that's helped a lot. But there is definitely some opportunities across the board from a guest satisfaction and service level perspective that we're working with Ritz-Carlton on. Ritz has a great culture, great history of providing exceptional service. So, I think that going forward, we’ll be at that place. It’s just part of the process of basically just reopening a hotel. In terms of -- the condition of hotel is remarkable. I mean, it's just across the board massive upgrade to the property in terms of our total quality finish out design. As you know, we've described in previous calls -- we elected to do some other upgrades that were non-insurance funded, and looking back, I think that was definitely the right call. We have this new family pool, which is amazing. It’s got a water slide. The guests love it. It's been very, very, very positive feedback to that new pool new, splash bad. Really, really nice finish out in the re-position of the lobby.And as you mentioned, the meeting space, what we did is we actually took out -- we reconfigured our entire kitchen. The kitchen needed to be redone. We actually had a capital plan to do that pre-Irma, but that -- as part of that process, we made it a smaller footprint, but more efficiently laid out. And by doing that, we recaptured some pre-function space that we didn't have at the hotel. And so, that allows us to test redundancy if we want to have outdoor events, but then we have bad weather that we have to move inside. And it is remarkable. The finish out of the meeting space, I think, has been very well received by the customer site visits. Specifically going to your question on group room revenue, it's ramping up incredibly well.I would anticipate that 2021 will exceed pre-Irma profitability at the hotel. And as it relates to group revenue, what's interesting is we're up 25% to pre-Irma levels in terms of 2021 group room revenue. But what's more interesting is that it's mostly ADR related. ADR at that hotel for our group business in 2021 is up 40%. And I'd just tell you there’s a lot of pent-up demand for incentive groups, and weddings, and just social groups that want to get back to the islands. And a lot of pent-up demand, and so we're very, very excited about the re-positioning of that asset. And there is still a lot more work to do from a service perspective, but we'll get there with Ritz-Carlton.

Okay, great. I appreciate that detail. My follow-up question for Richard -- do acquisitions make sense here? And how are you thinking about balancing the capital that's presumably going to be coming in from Ashford Securities with where your share price is and your current leverage levels?

Thanks, Tyler. Yes, at the moment, we're not actively looking at acquisitions because we're at our target leverage, and therefore, we would need to raise additional capital to do so. Now, we have been very heavily in detail investigating this opportunity to raise non-traded preferred equity, and we think that that equity is available at a cost that doesn't necessarily mirror the public equity markets, and potentially at a much more efficient cost of capital. So, our plan there is to explore the market at a 6.5% cost of preferred equity. So, you can marry that up with our average cost of debt of about 4%, and say you have a weighted average cost of capital significantly below what we've been targeting on our historic acquisitions. And as you know, our last four acquisitions, we looked at anywhere from a 10% to 12% unlevered IRR. So in our view, accretive. So, that's really the art of it though, is raising the capital in tune with the available opportunities in the market. I will say that even prior to this industry scale we're seeing this week, we were seeing luxury hotel assets available in the market at that kind of 6% or plus initial cap rate, and these are deals that we think we can move up to a 10% unlevered IRR over time.So we continue to have an extraordinarily high level of discipline. And we think that if we're able to bring in this capital at this cost, there will be opportunities down the road. And we will stick to our same leverage target, a leverage target as defined by net debt to gross assets.

All right, great. That's all from me. Thank you.

Thanks, Tyler.

Our next question comes from the line of Bryan Maher with B. Riley FBR.

Yes, good morning. A couple of properties that performed pretty well that I don't think that you talked about on the call, Key West and Beaver Creek specifically. Can you give us a little bit of color on those? And then also, what's your current outlook for The Ritz-Carlton Lake Tahoe property, which I think maybe had mid-single-digit RevPAR?

Yes, sure. I'll take that. So, in -- let's start with Beaver Creek. Beaver Creek, since we've acquired that asset, we've had some turnover at the property that we have described in previous calls. We've worked with Hyatt corporate to put the right team in place, which we believe we have an incredible team now, from both the general manager, the director of sales, the revenue management. And so, we're very, very excited about that team. And it was -- heading into the season this year, we did a lot of a better job in terms of our retail pricing. We discounted too heavily last year, or the Hyatt team did, and especially with a relatively strong snow season. So, I think that a lot of that performance is more related to just better management team in place at the property. And I want to give them credit because they are a great team, and we're very optimistic about some of the things we have going on at Beaver Creek, kind of go-forward basis. As it relates to Key West, it's just -- there's been -- it took a little bit of time for that market to recover from Irma. Not a lot of time, but there is a lot of pent-up demand in that market, as well, as you know. It's just a remarkable market just because you just have no threats of new supply because you can't build new hotels in that market, and I think that's certainly a factor that’s gone on in Key West. And then Tahoe, Tahoe again has had another decent snow season, and we did recently put a new GM at that property, and so we're working with the Ritz team. I think we're excited about top line. The opportunity though with that property across the board is on the margin side, and that's where we're really, really focused on. And I said typically with us, it takes a couple of years to kind of get the margins right at a Ritz-Carlton hotels after we acquire them. I think this hotel is actually going to take maybe a little bit more than a couple of years just because of the labor dynamics of that market are very, very difficult. Most of our labor comes in from Nevada, long commutes. You've got dealing with the snow issues. And so, it's just more of a labor shortage and access to quality labor from all the hourly associates of the hotel. So, that's something that we're working pretty aggressively with Marriott to kind of get the right size on the margin at that hotel. But top line, I think it's still really well positioned. It's clearly the dominant hotel in that market. And you've got great demand generators that are driving distance for weekend ski business and whatnot.

Okay, great. And then we mentioned this in our note this morning on you guys regarding the coronavirus. Do you guys see the potential that you could have a stronger 2020 than you were expecting because of more well-heeled, wealthy individuals instead of going to Europe or Asia, they stay in the U.S. and maybe frequent some of your higher-end resorts, and it gives you the ability to drive earnings higher this year?

We certainly like that narrative. We hope that would be the case. There was some mention of that in the news last night about people deciding to stay in the U.S. for vacations. I think our portfolio being positioned both heavily towards the leisure segment, but also with about 50% resorts, puts us right in that sweet spot. So, we haven't taken any actions to really plan for that. But I think that that's certainly a potential scenario that could happen and we'd be happy to see happen.

And then lastly for me, and I really kind of hate to bring this up because I know you guys don't tend to talk about it very often, but the Ashford Group had a strong ability and did buy back a lot of stock in the last downturn. But the Ashfords and Braemar kind of sit on a decent amount of cash, and with the stock weak here, at what point does that become a real consideration, or is it not?

Well, look, I think undoubtedly at this level, this is an attractive stock to own. I mean, look at -- our dividend yield is 9% now. So, I think people will look back and wills say that was a great entry point to buy the stock. Now, when a company buys it sounds stocks, it’s different considerations, as you know, right, impact on liquidity and flow. So yes, I think we continue to analyze those trade-offs, and that's all I can really say about that. But clearly I do agree with your perspective that it's an attractive opportunity, both based on where it's trading from an income perspective, but also where it's trading to the streets estimates of NAV, and the growth opportunities that we have, which we’ve talked so much about. We spent a lot of time laying out these growth drivers in Investor Day last year, and you're seeing it start to come through. This is just the beginning in the fourth quarter. So, we're looking forward to a pretty fun year, based on what we've invested in the last couple of years.

[Operator Instructions] Our next question comes from the line of Michael Bellisario with Baird.

Good morning, everyone.

Morning.

Just one from me on the ATM program for the preferreds. And I know it's small, but why even do that when you have $70 million, plus or minus, $1 million of cash, on hand and then how should we read into the signaling there when you said you're not pursuing acquisition opportunities at this time?

Hey, Mike. It's, Deric. I'll address that. I wouldn't read into any signaling there. We thought it was prudent to have an ATM in place for that security. We saw the cost of that security as attractive in the low 7s. And you mentioned our cash balance. It is below our target cash. We do have a strategy to run the company with a decent amount of cash on hand. We are below that level. And so, we just thought it's prudent to have that ATM in place. Obviously, we haven't raised a ton of capital under that program. But we thought was prudent to have it in place and we think it's at a pretty attractive cost of where we issued that capital.

Got it. And then just following up on that, the non-traded preferred, but did the source of your equity for deals that get done come from this ATM preferred issuance down, or how should we think about your portion of that GP LP capital that's being discussed and thought about for the non-traded preferred issuance?

Yes, I don't think we're looking at it for -- that capital for the GP LP. I think when we referenced the Series E or the preferred B ATM, I think we'll reevaluate that as we get closer to raising capital under the Series E. But as Richard mentioned, the economics of that capital and our ability to deploy it at the returns that we think we can achieve in the market are obviously very compelling for our common shareholders.

It's really amount of quantum, Mike. I think if we're successful in raising this very cheap preferred equity. We can make a wholly owned acquisitions if the amount that we raise is maybe less than we planned. Then by necessity, we’ll have to bring in capital partners and do it that way. So, it really -- we’ll really have to see how things evolve over the next six months to eight months.

Our next question comes from the line of Bryan Maher with B. Riley FBR.

Hi, just kind of a follow-up on that line of discussion. Is the deal with Ashford Inc., the ERFP, still in place? And what's the availability on that?

Yes, it's still in place. We have it available for another year. And it's about $40 million still available under the program, and it pertains to wholly owned acquisitions within the U.S.

Okay. And given that Braemar is kind of a natural buyer of luxury resorts in North America, and given what's going on in the markets, and maybe this is a question for Richard, are you being approached more with potential acquisition opportunities, and if so, has there been any movement in the cap rates?

So, I wouldn't say we've been approached more. I think we source opportunities through both the broker networks and through off-market opportunities. I'd say the level of off-market discussions we're having is more or less the same as it's been over the last couple of years. I think we are continuing to compete with a recapitalization option for many owners of assets. In terms of the cap rates we're seeing, again, I don't see a lot of movement. I feel like maybe they got a little tighter and now they're even a little bit wider. We're talking 10 basis points or 20 basis points. I feel like there’s more opportunities that we're seeing where we can hit our 6% initial yield than we were seeing maybe six months ago. But then it's also a question of are the properties directly comparable. So, there is definitely things out there for us to do, if we had the capital. And so, we continue to sift through deals as they come. And if some deals come to the market, and then before you know it they're pulled off the market, and maybe they do a refinancing, and they're going to come back soon enough. So, we've got our eyes on a number of things that we'll be prepared to pursue once we have the capital on hand.

We have reached the end of our question-and-answer session. And I would like to turn the call back over to management for any closing remarks.

All right, thank you, everyone, for joining us on the fourth quarter earnings call, and we look forward to speaking with you again on our next call. Thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.