Diamondrock Hospitality Company

Ladies and gentlemen, thank you for standing by, and welcome to the Diamond Rock Hospitality First Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Ryan E. Quinn, Senior Vice President and Treasurer.

Please go ahead, ma'am. Thank you, and good morning, everyone. Welcome to Diamond Rock's first quarter 2020 earnings call. Before we begin, I'd like to remind everyone that many of the comments made today are considered forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those implied by our comments. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. With that, I'm pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.

Good morning, and thank you for your interest in Dimerock. I want to start by extending our thoughts and prayers to those who have been affected by the ongoing pandemic. At our core, we are about bringing people together and sharing experiences. It is personally painful to see people isolated and hotel associates out of work. Based on the current flattening trend lines, we are hopeful that the U.S. has seen the worst of the pandemic. Together, we will make it through this. and we eagerly look forward to welcoming back the thousands of valued hotel associates and the tens of thousands of hotels through the front doors of our hotels and resorts. Today, I'll focus my remarks on the steps we've taken here at Dimerock to respond to the COVID-19 crisis. After which, I'll turn the call over to our Chief Financial Officer, Jeff Donnelly, to review first quarter results and our liquidity. I'll then conclude with a few thoughts on the future. In understanding Dimerock's COVID-19 action plan, it is helpful to review where we were before the epidemic started impacting us. Probably most importantly, as of the end of 2019, Dimerock had low leverage with about 30% debt to asset value, net debt to EBITDA of only 3.7 times, no preferred equity, and fixed charge coverage on our debt was nearly 3.5 times. We also had $325 million untapped on the credit facility and only one small debt maturity in the next three years. Operationally, pre-crisis, our high-quality and diverse portfolio was outperforming. Our geography and ROI projects were paying off with portfolio rep par up 13.9% in January and 7.2% in January. This strong starting point did not slow us from rapidly responding to the impact of the healthcare crisis that gripped the U.S. with unprecedented force starting in March. Almost immediately, we enacted far-reaching action plan to fortify our balance sheet by building cash and dramatically curtailing costs at every level. Let me review for you the steps we have taken thus far. Action item one was to build cash. In March, we drew down our revolver. Our cash balance at the end of the first quarter was $388 million. Second, we preserved $100 million of cash over the next year by suspending our common dividends, including the first quarter dividend. Note that we have no preferred equity in our capital structure. Third, we reviewed every planned project line by line, item by item. In total, we have canceled or deferred 70% or $80 million of projects originally in our 2020 capital budget. The remaining expenditures are focused on four main categories. One, projects underway that are more cost effective to complete than delay. Two, critical expenditures to preserve and protect your investment. Three, projects that were highly disruptive, so now provides a unique opportunity to complete them. And four, a few select high impact ROI projects. The fourth action item was to review the ongoing rebuild of the Frenchman's Reef Resort. Prior to COVID-19, Frenchman's Reef was on pace to reopen in late 2020. However, with the priority on liquidity and the likely pushing out of demand in the USVI, we made the decision to suspend the rebuilding effort. The rebuild is halfway complete, and there is about $170 million remaining to complete the project. We are excited about the long-term prospects here, but it is prudent to push it out given the current environment. Okay, let's discuss our most difficult action step, to dramatically reduce the cost at the hotels, given the lack of travel demand. We temporarily suspended operations at 20 of our 31 hotels between March 17th and April 10th. Collectively, these represent 61% of our rooms. Five of the suspensions were the result of government mandates. These include Kavala Point, our two resorts in Key West, Burlington Hilton, and the Charleston Renaissance. The remainder were based on the simple fact that it was more cost effective to close them than to keep them operating. One of the most painful parts of the pandemic is that regardless of whether operations were temporarily suspended, or we kept a hotel open with minimal services, we had to significantly reduce hotel staffing levels of the portfolio. Budgeted monthly payroll across the portfolio was $25.5 million. Today, it is just under $6 million. This 80% reduction in our monthly payroll expense equates to over $230 million of savings on an annualized basis. We have placed full-time security and building engineers in every one of to preserve and protect asset value. We are also preserving a minimum level of sales associates to capture future business so that we can bounce back quicker. In fact, in April, we generated nearly 1,300 leads for 360,000 roommates spanning late 2020 and beyond. Our sales team and asset managers have been hard at work buying alternate demand generators with good success. We have provided housing for healthy personnel in our nation's military, first responders, medical staff, and even diplomatic groups. Thus far, these initiatives have generated several million dollars of incremental revenue, and we continue to seek ways to drive non-traditional business until more travel demand returns. The cost savings were not just at the hotel level. At Diamond Rock, our 2020 cash G&A cost will be reduced by approximately 20% through lower executive compensation, reduced employee headcount, and numerous other smaller but aggressive reductions, such as rebuilding contracts, renegotiating with vendors, and outright termination of third-party services. Another major action item we have taken as a company relates to our secured financings and ground leases. For example, we secured a 50% reduction in the payment for a ground lease at the courtyard in New York. On our seven CMBS loans, we are seeking accommodations such as permission to tap FF&E reserves for hotel working capital and debt service. Ironically, to date we have not received much relief as the CMBS lenders have said Dimerock is too well capitalized to receive relief. Nevertheless, we will continue to be proactive on this front. While we have diligently pursued all these major action items, it is by no means an exhaustive list. I'm very proud of the relentless effort taken by my team to leave no stone unturned due to cost savings. Let me now turn the call over to Jeff, who will talk more about our financial liquidity. Jeff?

Thank you, Mark. I will provide a brief overview of first quarter results and take you through the steps we have taken to maximize liquidity and lengthen our runway. Before I continue, let me comment that we spent considerable time to understand the myriad of public assistance programs provided as part of the CARES Act. We believe it is important that Diamond Rock and its affiliates did not submit any applications under the Payroll Protection Program. We felt that given our low leverage, large cash balance, and access to the capital markets, an application to the loan program clearly designed to support America's small businesses would draw scrutiny. We will, however, certainly pursue appropriate programs. For example, we are evaluating the employee retention credit program, including the ability to defer payroll withholding tax year. Let's briefly turn to our first quarter results. The first quarter was on pace to provide very strong performance before the impact of the response to COVID-19 took hold. Year-to-date through February, total RevPar increased 10.8% on a 10.4% increase in room RevPar and a 4.4% increase in average daily rate. The portfolio was firing on all cylinders. Group hotels, such as Beaumariat in Weston, Boston, saw 39% and 30% respective increases in REVPAR. Our focus on building out our drive-to resort portfolio the last several years delivered, with the Charleston Renaissance, Lobears de Sedona, and Havana Cabana in Key West growing total REVPAR in the range of 10% to 20%. First quarter adjusted FFO per share was $0.04. Total REVPAR declined 17% on a percent decrease in room REVPAR. GOP margins were a little better than 24%, and hotel-adjusted EBITDA margins were 10.5%. For me, the biggest takeaway in our first quarter was that our asset management team rapidly pivoted from generating robust 10% plus REVPAR growth to abruptly suspending operations and still the portfolio gained 700 basis points of REVPAR share in the quarter. We continue to look for ways to grow, and as of March 2nd, we now own a fee-simple interest in the Kimpton Shorebreak Resort. We eliminated the ground lease by acquiring the remaining tenant and common interest in the ground lease for $1.6 million, including transaction costs. This purchase price represented an 8.3% capitalization rate on forward 12-month ground rent. The additional fee-simple interest should be of value to those who maintain detailed NAV models. Now let's talk about our balance sheet and liquidity. Our only upcoming maturity in the next two and a half years is the $52 million non-recourse bank loan secured by the Salt Lake City Marriott that matures November 2020. The loan had no extension options. However, we have executed a term sheet to extend the maturity until early 2022 with a performance option to push maturity a year beyond that. I want to extend our gratitude to the PNC team for working with us expeditiously towards a solution. Let's look at the credit facility. First, let me just say that Diamond Rock has strong relationships with its lenders, many of which date back over a decade and several of which have been with the company since its IPO over 15 years ago. Our lenders appreciate that Diamond Rock has been a good partner and conservative borrower. Importantly, we were compliant with all our financial covenants at the end of Q1 2020. Under our covenants, leverage was 34%, and our fixed charge coverage ratio was 2.9 times. However, next quarter, we do not expect we will satisfy these covenants. As a result, we have negotiated a term sheet with Wells Fargo, our administrative agent, to amend our credit agreements to provide for a waiver of all financial covenants for four quarters. Our conservative financial leverage provides the negotiating leverage to reflect upon the amendments filed by those who have been compelled to go before us and then craft an amendment customized for our needs. Since we are in active discussions, I cannot detail at this time, but I expect to finalize our credit facility amendment in the coming weeks. As Mark mentioned, we drew down our revolver in March and held $388 million of cash as of the end of the first quarter. We believe we are in good liquidity position to ride out this storm. So let's look at the math. Even in a scenario where operations at 20 of our 31 hotels remain suspended, we estimate the monthly cash use or burn rate across the portfolio to conservatively be in the range of $18.5 million to $19.5 million, excluding capital investments. This is based upon hotel-level cash use of $11 to $12 million per month, corporate-level G&A of approximately $2 million per month, and monthly principal and interest costs on all outstanding debt of approximately $5.5 million. Based upon this cash burn rate and the assumption we finalized the Salt Lake City mortgage extension, we can estimate Diamond Rock has approximately 20 to 21 months of runway in a scenario where operations are essentially suspended. In summary, our historically conservative leverage posture has provided us with a strong liquidity position. With that, let me turn the floor back to Mark, who will talk about our outlook.

Thanks, Jeff. We remain confident that travel and travel demand for our kind of hotels will return. However, we are realistic that the shape of the recovery will by the virus, identifying a vaccine, and the quality of the economy thereafter. The only certainty is that forecast will be wrong, either too optimistic or too conservative. Accordingly, we are prudently preparing our balance sheet and the hotel operating models for the potential of a protracted and gradual recovery that may take several years to return to 2019 levels of demand. As for 2020 outlook, we expect the second quarter will be the worst period and we will see a recovery very slowly build in the second half of 2020. Leisure is likely to lead the way in returning demand. I guess we are fortunate that 14 of our 31 hotels are resorts. We expect drive-to markets such as Key West, Fort Lauderdale, Vail, Houma, Sedona, and Lake Tahoe to be among the first to see recovery in demand. After resorts, we expect business transient will be the next category to recover followed by small group. The last demand segment to return is likely to be large group for self-evident reasons. It is important to note that most service portfolios generate about one third of rooms revenue from group, but all group is not the same. Everything from weddings to large conventions fall into the group categorization. In 2019, Our room revenue segmentation for the entire portfolio was 37% business transient, 33% leisure, 27% group, and 4% or other. Of our 31 hotels, we have just four big box hotels in the portfolio. And 100% of the group room revenue at these four big box hotels contributed just 13%. of our overall revenue last year. The fact that the majority of our group room revenue is generated by smaller groups such as board meetings and weddings is a key point of initiation for Dimerock. Let's look at the other side of the supply-demand equation. On the supply side, we expect new construction, not already out of the ground, will essentially evaporate in the U.S. due to a dearth of financing and uncertain profit outlook. Similarly, we expect private accommodations platforms, such as Airbnb, will see a sharp decline in the number of hosts willing to invite strangers into their homes. Another phenomenon worth watching is the potential that hotels that cannot be profitably operated may simply not return. For example, there is discussion that over 2,000 rooms in Midtown East Manhattan, where roughly 10% of the supply may never reopen and instead convert to alternative uses. This could benefit the remaining hotel owners like Diamond Rock. We continue to monitor this situation very closely. Looking forward, we are carefully evaluating the hotel reopening process. We believe the process of reopening a hotel is a function of when and how. For the when, it will be based on when governors and mayors lift restrictions and when demand is sufficient to open such that it loses less money than staying closed. For the how, we are working on detailed staffing models at each property to address the levels of critical personnel we will require at various levels of occupancy. We are entering a new world in many ways. Many things are going to change. There will be new protocols. We expect consumers will demand a lower experience and standardized cleaning protocols when we reopen. It is our view that brand affiliation will offer a distinct advantage due to low-touch innovations such as Marriott's mobile key. Brands also give consumers confidence that they will adhere to robust new cleaning protocols. By comparison, Airbnb will find it difficult to enforce a common cleaning standard. Speaking about brands, they are aligned with ownership. and are using this opportunity to undertake a comprehensive review of brand programs to help balance customer needs with owner profitability in this more challenging environment. Everyone wants to get hotels open, and a better, more efficient model lets us accomplish that goal sooner. We are optimistic that we could emerge from this period with a better business model. On a related point, The US has just transitioned from the tightest to the loosest labor market we have seen since the Great Depression. For the last several years, we have had outsized wage increases. In light of the new environment and everyone's joint motivation to get hotels reopened, we expect less wage pressure and more FLEC rules. Overall, we believe the industry will reinvent the operating model to run hotels with greater efficiencies than ever before. Now, while we've taken aggressive defensive steps to weather this crisis, we are looking to the future and are focused on taking aggressive advantage of opportunities to add value for shareholders. Last quarter, we addressed five areas to drive shareholder value, and these remain just as true today. One, resort focus. There is a broader understanding today that drive-to destination resorts is an attractive niche, and our focus in this area is unique. We believe this concentration will accelerate Diamond Rock's recovery. Two, ROI projects. We may have curtailed our capital spending, but we are nevertheless carefully undertaking value-add projects while this is minimized. Three, relaunching Frenchman's. We have delayed the reconstruction of Frenchman's Reef, but we believe this is only a pause in our schedule, and we remain excited about the long-term prospect for this project when travel resumes. Essentially, Frenchman's is a nugget of future value for our shareholders. Four, opportunistic recycling. Near-term, we do not expect conditions to make sense. but we do believe we will be well-situated to take advantage of distressed hotel opportunities as we move through this recovery. And five, asset repositionings. Finally, we continue to pursue several initiatives to drive the strategic transformation of the portfolio. These opportunities include initiatives such as buying out the ground lease at the Shorebreak Kempton or going at our Key West Suites Hotel soon to be known as the Barbary Beach House. We are always looking at opportunities within the portfolio to mine value at our existing hotels. I'll conclude the prepared remarks by reiterating that these are the most difficult days for lodging in our lifetime. But through prudent balance sheet management, strong asset management, and solid execution, we remain confident in Dimerock. On that note, we'll now open up the call and take any of your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Austin Worshment with KeyBank. Your line is now open.

Good morning, everybody. Good morning, Austin. Hi, good morning. Good morning. Hope you're all well. First, as it relates to the eight or so resort assets that you highlighted as being the first to recover, can you give us a sense of what percent of demand previously was driven by drive-to guests as opposed to inbound flights?

Yeah, so I can give you some more color on the drive-to resorts and what we're seeing there. The resorts vary on, none of them are fly-to only destinations, and seasonality will make a difference. For instance, in Fort Lauderdale, Q1 is more fly-to, and the rest of the year is really drive-to. And we don't have any that have more than about 20%, 25% fly-to business on a full calendar year. Just to give you a couple highlights of what we're seeing with some of those resorts today, and as I mentioned, my leisure represents about 33% of our total revenues in a normal year. At LaBear's, which is in Sedona, it's really ramping up. In a little over a week since the Arizona governor allowed restaurants to reopen, we've seen demand return. May is forecasted to be, right now, rates about $525, and occupancy is about 20%. for May. But more encouraging, two weeks ago in that week we booked $225,000, all of which will be pretty much in the next 45 days. And rates we're getting were between 1,000 and 1,400 a night. That's up in rate about 10% higher than last year, although we still have quite a bit of availability. We're holding rate. And even better, just last week we booked another $226,000 in business in Sedona. And that's at a rate of about $85 higher. So we're holding rate. There will be, obviously, be at lower occupancy levels, but emerging trend lines. Shorebreak, Kempton, you know, on Huntington Beach, we had 40% occupancy last weekend. And looking out there, the U.S. Open for surfing was moved back to August, but we already have good bookings for that week with rate up $14 and I think 85 more rooms on the books for that week than we did for the event last year. Landing, transient bookings are up with small numbers, about 30%. About 20% of the rooms for Memorial Day weekend, but it's starting to build. Fort Lauderdale-Weston Beach Resort, we had about 100 rooms occupied last weekend, and the beach isn't even open there yet. And Charleston, we're going to reopen that probably this Friday. South Carolina is reopening. And Memorial Day, we have about 30% of the rooms sold for Memorial Day in Charleston. And then our Key West resorts, we're waiting for the government to reopen that market. But looking at advanced bookings there, about the same in July and August as they were this time last year. So that's very encouraging for Key West. So we're seeing a number of positives throughout the resorts. Not huge numbers, but certainly we think it will be the first segment and the first assets to recover.

No, that's really helpful. Could you kind of sum that all up a little bit and say what level of occupancy that would equate to on some of these forward bookings that you just provided in sort of in total?

Yeah, I mean, they're small numbers, Austin, so I don't have them totaled up, but I can get back to you with that number.

Okay. No, that's helpful. And then just last one for me. I mean, you guys have, you know, you published your net asset value estimate in early 2019. Earlier this year, you stated the stock at around $10.50 was trading at a 25% to 40% discount to your estimate of NAV. I'm curious where you'd take your best guess today as to where you think NAV moved and then how you might balance that with your view of where replacement cost is today versus maybe just a few months ago.

Yes, I think replacement cost is the same. So construction costs, frankly, haven't subsided at all. So land prices may have declined a little bit, but there's not enough transactions to know. So I would think on the replacement costs, we're still trading at kind of an absurd discount to replacement costs. I think it's tough to kind of figure out right now because there's so few trades in the market. And debt financing is generally unavailable on a single asset. So it's a little hard to know exactly where values are. They're clearly down, you know, 10 to 20%, but it'd be hard to give you a real accurate number given the lack of transparency with the transaction environment. Yeah, that's fair. Okay. Thank you.

Thank you. Our next question comes from Chris Rawanka with Deutsche Bank. Your line is now open.

Hey, good morning, guys. Mark wanted to ask you, you know, I know one of your peers yesterday or a couple days ago, had a pretty big write down of a New York hotel. And I know that was a very kind of unique circumstance. But what is your view on that market longer term? And, you know, is there is there a place at which you want to exit the market if prices come back a little bit? Or, you know, do you think the market's kind of permanently impaired and thus values are are likely to be down for a long time?

Great question. So I think there's no comparison with the individual asset sale. One of our peers had a lot of unique circumstances. So we don't have any impairments in any of our New York assets. I think New York's a, listen, it's the epicenter right now for the care crisis. So it's getting hit very, very bad. And we anticipate that certainly for the balance of this year, it's going to be one of the tougher markets in the United States. Hopefully in the fourth quarter, we'll start seeing some level of occupancy return. Now, the longer-term prognosis for New York City, I think one of the interesting things to think about is the supply picture. So in Midtown East, as I mentioned in the prepared remarks, there's potentially a 10% supply with hotels that just won't be economically viable and were barely economically viable pre-crisis that may get never reopened and may get converted to alternative uses. So that would dramatically impact the future on that market. Now, we anticipate coming back later, but that could be a bigger snapback. And then Airbnb, which had up to 30,000 room nights in New York City, I think the future of what hosts do and the comfort of people at Airbnbs in the city, that's a dramatically different picture than it was three months ago. And so you could see a decline in supply on those alternate platforms. So those things I think are, are positives, but we do anticipate New York will come back later. Um, I think the, you know, two, three years from now, we think New York will be decent. Hopefully this is what does it to stop the supply over the next five years in New York city. Um, still a very nice to construct hotels. So we're still, we're still relatively positive and long-term prospects, but we're pretty bearish certainly for the balance of 2020. Okay.

Appreciate that caller. And then, uh, on the four big boxes, group boxes you do have, is there a point, how do you decide when to reopen those? Do you need the big groups to come back or do you think you can backfill enough with smaller groups and transient business transient leisure than them this year or the summer?

Yeah. So I, I think they'll all be open this year and most of them probably this summer, but, um, So if you look at the four big boxes in our portfolio, last year on rooms revenue, it was about 48% group, which means it was 52% transient. So they're very good transient locations. Salt Lake Citizen sits on two blocks from the Temple in this kind of A-plus location. Worthington and Fort Worth sits on Sundance Square, which is the main location. you know, the main retail and food and beverage outlet kind of area. West of Boston, Seaport's a very good location, and Chicago Marriott is one of the best transient locations, I think, in the city. They are big hotels, but, you know, about half the business is group, half is non-not. We think that there'll be the ability to attract fans to transient. We're not going to be able to backfill all the loss group, But we will have some small group, and we will have the transient, so we'll be able to get them back open.

Okay, very good. Appreciate it. Thanks, Mark. Sure.

Thank you. Our next question comes from Danny Assad with Bank of America. Your line is now open.

Hey, good morning, guys, and thanks for taking my question. Mark, so you talked about taking a closer look at that balancing act between the customer experience and owner profitability. So I guess my question is, like, what do you think is on the table that the brands, you know, can help owners with here today?

Yeah, there's a lot. I mean, we're in conversations, and I think they're doing a very good job of really talking through all the different aspects of their business. So on the high level, I think they're looking at their allocated costs and trying to reduce what they have to allocate after they're telekining up some of the programs. and finding efficiencies there. So the less program services fees and the less things they have to reallocate, the lower they can make those costs, the better it is for our profitability. They're looking at the regional staffing models. I think we're all looking at the operating models of the individual hotels to figure out what the right optimal staffing models are. Do we need an assistant general manager? Do we need an assistant F&B person? Can we do sales in a cluster versus the individual hotel-level staffing model? There's a lot of things to look at there. We're trying to consolidate engineering for a whole city sub-market versus having individual hotels. And then I think the big push has been what can technology provide that can help reduce our cost structure? So what efficiencies can we put in place? So all that, I think, is on the table with them. And then we're going to have to look at the other cost items, what the brands, you know, they're trying on purchasing and contracting and just really every avenue of expense that we have at the properties.

That's great. And then I guess sticking to those brands. So, you know, obviously there's been that, you know, with the big push, you know, towards, you know, just helping with like the distribution channels and, you know, the direct bookings. Now that, you know, this could be a little bit different, you know, and so in terms of your distribution. Hotels we open and a little bit more leisure, you know, bend to the demand patterns today. So what are you going to be leaning on? You know, is there what is that going to look like? You know, we're seeing different from, you know, I guess, pre-COVID in terms of distribution there.

Why don't we move on to the next question? We'll come back if Danny calls back in.

Thank you. Our next question comes from Michael Bellisario with Baird. Your line is now open.

Good morning, everyone.

Good morning.

Mark, maybe a question for you or for Tom. Those 2019 figures you gave, the 37% business transient, 33% leisure, just to clarify, is that rooms revenue or is that total revenues that you quoted total revenues got it and then uh just the similar on the big box hotels 48 is rooms revenue how should we think about group contribution to the f and b and other revenue lines there is it higher than that 48 or how much more profitable are the groups on those two line items

Yeah, so the banquets are going to be driven by the group, so the banquet contribution, which comprises a meaningful part of the F&B, will be higher. I don't have the exact percentages in front of me, but I can get them for you.

Okay, yeah, that would be helpful. And then just a separate topic, the April leads that you mentioned, what type of customer is booking or rebooking today, and then how are you handicapping or what are you telling your operators about any of that business, at least in the near term, eventually materializing?

Tom? Hi, Mike. This is Tom. It's a mixed bag. We're seeing some shift with regards to the group. We've had some significant, about $94 million has canceled since the outbreak. But we have seen some shifts into the fourth quarter. Interesting enough, like our fourth quarter room night pace actually improved in the first quarter from about 105,000 rooms to 114. The big shift of that is the big four hotels, about 75,000 rooms. So that's where all the groups landing. And so when you look at that mix, some of the shifts, a lot of shifts happened in Boston, but we had some groups canceling in the second and third quarter, moving to fourth quarter. And then obviously other groups moving into the next year. It's hard to really know what the third and fourth quarter will do at this point, especially the fourth quarter that we're looking at. But I believe that the bigger events will probably peel back and you'll have less pickup or will cancel. And then we'll rely on the smaller stuff, wedding blocks and different smaller group meetings if and when they occur. But I think that's, yeah.

So I just add, Mike, so Q3 right now is just looking at our booking pace is down about 11%. Q4 is up to actually up about 14%, but you can't take too much heart in that given that most of the cancellations occur about 60 days out. So we expect that those numbers will materially deteriorate. Citywide, some people are leaving the business on there until we get closer. But, you know, it's hard to see a big citywide happening in money at this point.

And then just one more follow-up on that same topic. In terms of the type of groups and the type of businesses rebooking, have you seen any differentiation, healthy industries, healthy companies, troubled companies, troubled industries?

I don't know. I think it's a mixed bag. I think all the group right now is concerned. I don't know that it's healthy or not healthy. I think it's more about gathering there is the issue. So I don't know that we're seeing a shift or a change by any segment of group. I think it's just it's either red light, green light. That's helpful. Thanks for the call.

Thank you. Our next question comes from Steven Grambling with Goldman Sachs. Your line is now open.

Hey, thanks. Just a couple of quick follow-ups. First, how does the theoretical value brands or bringing to the table or bringing back to the table make you reconsider some of the independent properties in your portfolio? Yeah.

Two questions. So we're big believers that brands at certain hotels are at a lot of value. And I think particularly on the urban big box hotels are going to meaningfully accelerate the recovery. And we think that the redemption points, et cetera, will really prime the pump for a lot of return business. Smaller independents are still going to make sense. You know, if you're, take our Key West, Barbara Beach, you know, I still think that for kind of a small resort, people are going to look for that experience. We are going to have to assure them that in the cleanliness, and that'll be a little bit more of a battle than it will be with the brands. But I still think on select hotels, it makes sense. So we're trying to make sure we're being thoughtful and putting brands on the hotels that make the most sense, but still on the small hotels where they're kind of a unique lifestyle hotel, we still think it probably makes sense.

And then you mentioned that some of the assets in New York are potentially being converted to I guess, to other uses. What do you think some of those other uses are? And you mentioned New York specifically, but are there other markets where you're seeing that or hearing that?

Yeah, New York's a prime one. So, for instance, we know there's a 700-room hotel within two blocks of our property, our Lexington, that they're talking about knocking down, converting an office building and selling it on a FAR basis. Separately, the Hyatt at Grand Central Station has been talked about getting knocked down and converted to a mixed-use development, coming back with a much smaller hotel product. But office is going to be the primary converted use. Now, some of them may turn into, you know, condos or other things in the future, but those economics, you know, the less it's worth as a hotel, the more it's worth as alternative use on a relative basis.

Got it.

Thanks so much.

Thank you. Our next question comes from Rich Hightower with Evercore. Your line is now open.

Hey, good morning, guys. Hope you can hear me.

We can. Good morning, Rich.

Okay, good morning, Mark. Just a quick point of clarification earlier on the 20 to 21 months of liquidity runway. Jeff, I think you said with suspended operations, does that mean it's currently operating or is it all a shutdown, just to be clear on that?

Jeff?

Yeah, I can take that. Rich, the runway figures that I gave you was as the hotels are currently operating, although if we went the extra step of assuming every single hotel was closed, it would make a pretty minor change. The difference between having two-thirds of our hotels closed and one-third at single-digit occupancy or all of them great is pretty immaterial. I would say it's probably about a month, if you will, in our runway calculations.

Okay. Yeah, thanks for that. And then, you know, not a whole lot of other questions. We've covered a lot of ground, but, you know, some companies have given break-even occupancy for their portfolios, but I'm wondering for Diamond Rock, if we split that across sort of the big box segment, the smaller resort segment, and sort of, you know, are there materially different levels of occupancy that would get you to those break-even levels just so we kind of understand the, you know, sort of how the business works in that regard.

Jeff, you want to take that?

Yeah, Rich, I mean, I would say overall when we look at our break-even occupancy across the portfolio in its entirety, I would say that the figures on a GOP line, I'll give you a few numbers. On a GOP line to cover our variable costs, it falls probably between 30% occupancy and On the hotel EBITDA line, it's close to about 40% occupancy. And I think at the corporate EBITDA line, it's between 45% and 50% occupancy. Maybe I can tap Tom on this, but I would say off the cuff, I would imagine that some of our resort hotels, which generally tend to be a little bit smaller, might have more flexibility of breaking even at lower levels than some of the larger group ones. But I'll let Tom Healy expand on that.

Yeah. Yeah, I think the smaller hotels are efficient and have less operating moving parts. So if we get lower occupancies, we actually could break even probably somewhere around 5% to 10% and then ramp up from there on the GOP line. And then EBITDA, as Jeff just mentioned, I think EBITDA is probably somewhere around 30%. to 40% depending on the real estate tax, the insurance cost, the labor cost. So it varies by hotel. And we're measuring each hotel. We have metrics for each of the hotels, break even. We've created plans for 5%, 10%, 15%, 20% occupancy, how we bring back bodies. We're measuring the FTEs. We're measuring the labor. We're measuring all the different costs. When we bring back services, We've been breaking down restaurants, when do we open rear restaurants, at what point restaurants, and so each of them are being evaluated case by case, market by market, but I think that covers it, yeah.

Okay, great. Thanks for the call, guys.

Thank you. Our next question comes from Smities Rose with CD. Your line is now open.

Hi, thank you. I just wanted to go back to you, Mark. You talked about changing the operational model. I guess I wanted to ask just a little bit more about your thoughts around labor, specifically kind of the cost to clean a room. If you think it's going to go up or down, I guess, in sort of the post-COVID environment. And I'm thinking of the brand protocols that have been called out in terms of extra cleaning, but then there's talk about having less cleaning while a guest is in a room. So how do you think all that kind of balances out?

Good morning, Smeeds. Great question. So I think obviously the more labor to do the more extensive deep clean between guests. And so we're actually running, test running that right now to see how much more in minutes per room that means. But I also think that the offset, as you mentioned, is I don't know how you feel, but right now I don't really want people coming into my room when I'm staying at the hotel while I'm staying there, you know, traditionally. They would come in and move your toothbrush and your razor and put it to the sink very nice and neat. I think today's customer doesn't want anyone coming in touching their toothbrush while they're staying there. So we envision it's a much more low-touch environment. And during your stay, it's a lot less operationally intensive. For instance, I think towel swaps is probably the primary need that folks are going to have, maybe shampoo and conditioners. And how do we do that and how do we accommodate people's desire to make it as hygienic as possible? Right now, we're actually running some tests to understand the efficiencies on how many rooms per day housekeepers can clean with the deep clean on room turns versus the less intensive efforts while guests are staying at the rooms. I don't have an exact answer for you, but we're monitoring and working on it right now.

Okay. And then I just wanted to ask, I appreciate the RevCar breakout by property, but are you no longer going to provide hotel operating results in terms of your total revenues and EBITDA by asset, or is this just sort of a temporary suspension given what's going on?

Jeff, you want to talk about our reporting?

Yeah, no, I think SMEs for this particular quarter, it didn't seem like it was particularly useful, but I think in the future we'd like to, you know, bring that back. I think the disclosure is good practice for us.

Okay. Thank you, guys.

Thank you. Our next question comes from Anthony Powell with Barclays. Your line is now open.

Hi. Good morning. Can you hear me? We can. Great, great. Just... Question on CapEx. I understand the Frenchman's delay, but there are a couple of other projects that were scheduled for next year, the orchards and repositioning and the bale renovation. Are those still on schedule, or have those been delayed as well?

Yeah, so on X's dimension, the prepared marks, we kind of went project by project to figure out what was rational. This year, We'll have completed the Michael Mina restaurant in Sonoma and the Richard Sandoval restaurants at both the Worthington and the JW Marriott Cherry Creek Denver, as well as some other upgrades and some other ROI items. We do anticipate that Vail, with the repositioning, we'll complete that as planned next year. We will get the conversion to Barbary Beach that'll happen in June in Key West. But Orchards probably gets pushed off an additional year. That's probably a 2022 project at this point.

Got it. Thanks. And in terms of your overall property mix, I think you've targeted 50% resorts over time. Did that go up as a result of this kind of event, or are you still looking to have half your visits being more corporate transit and group driven?

Yeah, I wish we were 100% resorts today, but Now, you know, we're continuing to move through that direction. I think when we get to 50%, we can reevaluate where the world is. But we're going to continue, you know, our focus of dispositions and acquisitions over the next two years will continue to move us in that direction. So, yes, we'd like to be at least 50%, potentially more over time.

Okay. Great. Thank you.

Our next question comes from Dori Keston with Wells Fargo. Your line is now open. Thanks.

Mark, do you expect your independents to invest in technology to go lower touch with mobile check-in or food ordering, or should we expect their lower touch to be more about the fewer FTEs for the near term?

I think it's going to be a mix. So there are some third-party providers that do things like mobile key, so we're working on that. We haven't implemented that yet, but that's something we're trying to evaluate and make sure that from a security standpoint and kind of a technology access that we can utilize those. But they're not going to have the size platform. They're not going to have the tech budgets that the brands have, so we're going to have to address some of that just on customized services at the hotel. So certainly we can do a lot of the cleaning protocols. Similarly at the independents that we can at the brand, that there's going to be a different process around giving customer assurance. And I think the technology, there's going to be some trade-offs. Independents just aren't going to be able to deliver the same kind of efficiencies and same kind of technology. And we just have to acknowledge that and Hopefully, we're going to make up for it with customer service.

Okay. And is the receipt of both the key money and FEMA money for Frenchman's, is that tied to the opening date?