Diamondrock Hospitality Company

Good day and thank you for standing by. Welcome to Diamond Rock Hospitality first quarter 2021 earnings release. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, simply press star one on your telephone. Please see advice that today's conference is being recorded. If you require any further assistance, please press star zero. I will now hand the conference over to your speaker today. Brown and Queen. Please go ahead.

Good morning, everyone. Welcome to Diamond Rock's first quarter 2021 earnings call. Before we begin, please note that many of the comments made on today's call are considered to be 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 welcome to our earnings call. One year ago, almost to the day, we hosted our first earnings call near the inception of the pandemic. And here we are now rapidly returning to profitability. What a difference a year makes. With over 55% of adults in the U.S. having received at least one vaccine shot, we fully expect a strong return of travel demand throughout the balance of the year and setting up for a major increase in all segments of hotel demand in 2022. For Dimerock, let me highlight three areas where we have made significant progress since our last call. One, hotel profits are up. In fact, portfolio GOP was positive every month in the quarter. Hotel NOI and EBITDA were nearly break-even in February and clearly profitable in March. In April, RevPAR for our open hotels increased an amazing 1,113 percent. Two, reduced burn rate was impressive. Our low monthly AFFO burn rate was 44 percent lower than our closest peers at only $914 per key. And three, we executed on strategic dispositions. We transacted on Frenchman's Reef, and we signed a contract to sell to Lexington. Collectively, these dispositions will accelerate our transition towards a predominantly experiential drive-to resort and urban lifestyle hotel portfolio. In looking at the first quarter, Dimerock had total revenues of $72.9 million. Total portfolio occupancy for the quarter, including closed hotels, jumped five percentage points, compared to the prior quarter to 26.9%. Due to a favorable portfolio mix and strong asset management, hotel adjusted EBITDA loss was held to only $2.6 million, which was a 65.8% improvement over the prior quarter. Adjusted EBITDA for the company contracted only $9.6 million, a 35% improvement over the prior quarter. In March, we experienced Red Park growth of 11% and generated positive hotel adjusted EBITDA of $4 million. Digging deeper into first quarter results, you will see that collectively our open hotels were profitable over the entire quarter, generating $21.5 million of GOP and $6.7 million of hotel-adjusted EBITDA. Our resorts were on fire. They generated $18.1 million of hotel-adjusted EBITDA profit at a 35% margin, which was $938 billion basis points higher than in the first quarter of 2020, and remarkably, 84 basis points ahead of even 2019. Conversely, our urban hotels were responsible for a $20.6 million hotel EBITDA loss in the quarter, of which $9.3 million was attributable to our four closed hotels. It is important to note that we had 26 hotels comprising 75% of our rooms open throughout the first quarter. Subsequent to quarter end, we reopened our Chicago Marriott and Hilton Garden in Times Square. At this point, we have only two closed hotels, the Lexington and the Courtyard Fifth Avenue. Turning to demand segments. All segments improved sequentially in the first quarter. Leisure was the star, and Dimerock's unique focus on experiential drive-to resorts and urban lifestyle hotels has been a source of strength. In the first quarter, leisure revenue increased 31% from the fourth quarter of 2020, driven by a 16% increase in room rates. Looking ahead, we expect similar strong demand patterns to persist this summer. Turning to the group segment, we are seeing clear and proven activity and are optimistic that these trends will continue in the second half of 2021. While group room revenue is just 8 percent of our total room revenues in the quarter, we did see group revenue increase an impressive 65 percent from the fourth quarter. Group booking activity continues to accelerate. In the first quarter, we had 7,200 leads, representing 1.2 million room nights. This is a 65% increase in leads, with a corresponding 71% increase in room nights compared to the fourth quarter. As a point of comparison, lead volumes for Dimerock are at 61% of pre-pandemic levels and well ahead of the Cvent industry average of 55%. Overall, we are very encouraged that group demand is rebuilding and, as we will discuss later, we believe Dimerock is uniquely positioned to benefit in 2022. Business transient demand is still a small contributor, but like group, it is unquestionably moving in the right direction. In the first quarter, our business transient room volume was up 25 percent sequentially from the fourth quarter. We expect business transient demand will be much stronger by the fourth quarter, but until then, improvement will be gradual and likely follow return to office plans. There are numerous encouraging data points. Companies like Apple, Bank of America, and Amazon expect to bring employees back to the office over the coming months. Moreover, heavy travel buyers such as Deloitte have approved their 5,000 partners for travel, and Boston Consulting, Accenture, and PwC Company are either resuming travel or expected to revise travel policies in May. Now, I'd like to focus on the success Diamond Rock had in cost-containment and opportunistically maximizing profitability. This was a result of a lot of hard work on the part of our asset managers and operators. On the revenue side, the team did a great job finding new revenue streams. Standout areas included resort fees, parking income, rental income, and the gift shop or business center. Collectively, These four areas comprise over 80% of other income, and these revenues are down only 4% compared to the prior year at our open hotels. Cost controls were tight. Overall, rooms, cost-prooccupied room, or CPOR, improved to $59 from $69 in the prior year, a 14%. which helped drive our rooms department margin to 72.6%, a strong 450 basis point improvement. This excellent CPOR improvement was driven by greater efficiency with total man hours worked per occupied room improving 6.5% at our open hotels as compared to 2020. As a result, total labor costs at our open hotels improved 280 basis points from the comparable period. We had similar success in food and beverage. Total covers increased 19% over the fourth quarter. Even with this increased business, we were able to reduce associated labor, food, and beverage costs. The result is that in the first quarter, our restaurant, room service, and lounge outlets collectively generated $1.5 million more profit than the fourth quarter, with a flow-through of over 40%. As we emerge from the crisis, we are confident that we will be able to have stronger, stabilized profit margins for the entire portfolio. We believe we can do that without harming the guest experience. In fact, despite our tight cost controls, our TripAdvisor scores continued to edge higher for our hotels. And to illustrate the point about being able to deliver even better margins, our resorts generated Q1 EBITDA margins that were 84 basis points higher than 2019, and that's on lower revenue. Let me highlight a few outstanding performances in the quarter. The Vail Marriott really delivered. with margins improving 390 basis points to produce over $6 million of EBITDA. La Berge de Sedona saw a 25% increase in REBPAR, driven exclusively by big rate growth. Total REBPAR surpassed $800 per night, and EBITDA margins increased a whopping 1,250 basis points in the quarter. And our Key West Resorts, remain consistent great performers. Combined total rev par for Barbary Beach and Havana Cabana was up 5.1% over 2019, driving a better than 300 basis point increase in combined EBITDA margins. Now let's transition to talk about our capital investments into the hotels. Our focus remains prioritizing projects that can take advantage of the reduced disruption and produce high returns. We spent $12 million on capital expenditures in the first quarter, with the bulk of that on the repositionings of the lodge at Sonoma and our Vail Resort. We project our total capital spend in 2021 will be around $55 million. Before I turn the call over to Jeff, I want to talk about our focus on ESG. Of particular note, the steps Dime Rock has taken over the past few quarters to refresh the board. I want to extend my gratitude to our two retiring directors, Maureen McAvey and Gil Ray. We have benefited from their hard work and guidance for many, many years. I also want to take this opportunity to welcome to the board our newest director, Tabassum Zalatrawala. She comes with a wealth of construction and design experience. that I know will be additive to Diamond Rock. In late 2020, we also added Mike Hartmeyer to the board. Mike brings extensive M&A and investment banking experience to the boardroom. Strong governance is a cornerstone of our ESG initiatives, and the board refreshment ensures that we maintain a fresh and diverse perspective as we move the company forward. Jeff?