Diamondrock Hospitality Company

Good day, ladies and gentlemen, and welcome to Diamond Rock Hospitality's second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll have a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press star and zero on your touch-tone telephone to reach an operator. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Bryony Quinn, Senior Vice President and Treasurer. Bryony, you may begin.

Thank you. Good morning, everyone. Welcome to Diamond Rock Second 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 today. 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 Diamond Rock. We made excellent progress in the quarter, reducing our cash burn rate, improving our total liquidity, and reopening hotels for the eventual recovery. The second quarter, however, was unlike any in the history of the hotel industry. When we last spoke in May, we were in the midst of the largest contraction in GDP ever experienced in the U.S., as government restrictions were imposed to curtail the spread of COVID-19 in order to protect the general public. While some communities were able to reduce the spread of the virus, other locations experienced sudden increases in the transmission of this terrible virus. Contemporaneously, the concerns over systematic bias in our society led to demonstrations across the United States involving an estimated 15 to 25 million people. The overall environment experience in 2020 is the very definition of unprecedented. Before going any further, I want to recognize the hard work of our hotel operating teams and their dedication to the health and safety of our guests. I also want to recognize our corporate employees for their agility, creativity, and perseverance to ensure that Dimerock is secure and well positioned for a profitable future. Many of the observations we made on the first quarter conference call still resonate with us today. Let me recap those for you. One, the second quarter is expected to be the worst period in the year. Two, the demand, the demand recovery will come in stages with leisure demand from drive-to resorts coming back first, followed slowly by emerging business transient customers, and finally by the return of large group meetings likely in 2021. Three, supply. Supply is going to be constrained going forward as new construction starts evaporate and obsolete hotels shut their doors for good. According to FW Dodge, rolling three-month hotel construction starts were down 56% in June as compared to the prior year. Moreover, last quarter, we suggested as much as 10% of the existing supply in Midtown East New York may not reopen. There's reason to believe that our early estimate may be conservative. Fourth and finally, this is an opportunity to reinvent the operating model by identifying lasting opportunities to increase efficiencies through new best practices, promoting technology adoption like digital check-in, and supporting emerging customer priorities such as the Green Room Initiative. We are optimistic that this could lead to increased profit margins once we return to pre-COVID-19 levels of demand. All right, let's talk specifically about the second quarter. In response to travel demand declining by over 90%, we suspended operations at 20 of our 30 operating hotels, leaving just 10 hotels open at one point in April. The quick action taken by the team allowed us to realize a 72% reduction in hotel-level expenses, excluding wage and benefit accruals. Impressively, compared to the prior year, second-quarter man-hours decreased 83% at open hotels and 99% at hotels with suspended operations. The decision to reopen hotels has been and continues to be dynamic and data-driven. As we articulated in the past, our plan is to reopen hotels if we can lose less money doing so. Accordingly, starting in May, we prioritized our drive-to resorts based on returning demand visible through various channels. And ultimately, we reopened a total of 12 additional hotels in the second quarter. The 22 hotels we had open at the end of the quarter represent 58 percent of our hotel rooms. But since the openings were staggered, the math works such that just 43 percent of our rooms were available in the quarter. Demand got a little better as the quarter progressed. Weekly occupancy for our operating hotels, which had bottomed at 6.8 percent at the end of March, rose steadily to 27.8 percent by the last week in June. This trend has continued beyond Q2, with occupancy for operating hotels in July over 200 basis points higher than the full month of June. Over the course of the quarter, we saw a growing number of hotels achieve break-even profitability, and we expect that this trend continued in July. In April, five hotels achieved break-even profitability on a GOP basis, and this figure grew to seven hotels in May and 10 hotels in June. On a hotel EBITDA basis, two hotels generated profits in April, and the count increased to four hotels in May and six hotels in June. The consistent theme is that nearly every one of these hotels is among our collection of drive-to resorts. Leisure. Leisure was clearly the brightest segment during the quarter and certainly a source of strength in Dynarock's portfolio. As highlighted in our most recent investor presentation, weekly occupancy in our opened resorts increased from just 8% in early May to over 42% by the last week of June. And ADR was higher year over year throughout June and much of May. As you might have guessed, weekends were the strongest. From early May to the end of June, weekend occupancy at our resorts increased from 11% to nearly 56 percent, with healthy gains in ADR for the majority of the weeks. For the second quarter, leisure transient ADR was 1.6 percent higher than in the second quarter of 2019. The resilience of rate in the leisure category tells us that price is not a gaining issue for those customers. Trends at our resorts in July were encouraging. The shore break in Surf City Huntington Beach averaged nearly 50% occupancy in July. Our La Berge de Sedona, Orchards Inn, and Havana Cabana Key West each ran occupancy over 60%. La Berge actually had an average rate in July of $553, which was a 14% increase over the prior year. But our little star of the month was the landing in Lake Tahoe, which had 80 percent occupancy in July, with average rate up nearly $100 a night to over $519. As for business transient, we are not expecting a significant recovery after this summer. In fact, we do not expect a true recovery of business transient demand until folks return to the office, which appears drifting towards early 2021 for many major employers. Nevertheless, there are individuals traveling for business, and we did see a gradual improvement in our room and total revenue activity each month over the course of the quarter. In April, the weakest month of the quarter, we saw less than $400,000 of revenue from business transient channels. But this grew to $1 million in May and $2.5 million in June. These are meager beginnings. But longer term, we are optimistic that as a consequence of more office personnel working from home, there may be an increase in hotel meeting activity to plan strategy, conduct training, and foster corporate culture. The group segment has certainly experienced an enormous deferral of business. Globally, CBAN had 2 billion RFPs pass through their system in the second quarter of 2020, as compared to 6 billion in the second quarter of 2019. No question, group trends are challenging, and we expect this segment will be the final one to recover. While Domrock does not have the depth of exposure to group, particularly large group, as some of our peers, we thought that the limited data points we were seeing could be of value. Since the start of the COVID impact and through the second quarter, our portfolio experienced approximately $117 million of canceled group revenue. Over 80% of these cancellations occurred in March and April. The pace of cancellations was initially as high as $20 million per week in March, but has since slowed to just $2 to $3 million per week. We expect cancellations will persist as we move throughout the year. However, it was encouraging to see 250,000 to 350,000 room nights of group leads generated each month during the second quarter. Some of the early lead volume was rebooking activity. Short-term, group bookings are increasingly weighted towards SMRF, association, and wedding events. We're seeing larger pieces of group business, which are typically corporate, look at dates in 2021 and 2022. Overall, rate expectations are consistent with pre-COVID levels. While there have been short-term opportunistic groups booked in 2020, rate parameters for the 2021 and 2022 periods have been normal. Instead, the main request is around terms for cancellations and rebookings, highlighting that groups do want to meet but desire flexibility until there is greater visibility. I'll now turn the call over to our Chief Financial Officer, Jeff Donnelly, who will talk more about our balance sheet strength and liquidity. Jeff?