Diamondrock Hospitality Company

Good morning, everyone. Welcome to Diamond Rock's third quarter 2022 earnings call and webcast. Before we get started, let me remind everyone that many of our comments today are not historical facts and 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 expressed or 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. Mark?

Thank you for joining us today for Domrock's third quarter earnings call. Our entire executive team joins me today to answer your questions. The third quarter was a record quarter for Diamond Rock. Demand in leisure, business travel, and group business all exceeded our expectations. Consumers continue to spend on experiences like travel, and we see this continuing into 2023. We believe we are in a golden age of travel, distinguished by a societal shift in the necessity of travel that has been created by the rapid adoption of hybrid work environments, changes in mobility, preferences for experience over things, and the wanderlust of boomers and millennials alike. The future of travel is very bright. The Dimerock portfolio continues to separate itself from our peers with over 60% of our hotels falling into the luxury resort, lifestyle resort, or urban lifestyle categories. Of our last nine acquisitions, over two-thirds are waterfront resorts, all are lifestyle, and all are unencumbered by long-term management agreements. In fact, among the full-service lodging REITs, we have the lowest exposure to long-term brand management encumbrances and among the lowest exposure to ground leases. These qualities enhance operational control and increase exit value, a distinguishing factor that should drive a premium valuation. It is our strategy to curate a portfolio of experiential resorts and urban lifestyle hotels that deeply resonate with what today's travelers want. Damaroc's experiential hotel focus is paying off. Our performance through the pandemic has been strong, stronger than our peers. In fact, the portfolio took another 180 basis points of market share from the competitive set in the third quarter alone. This focus does not mean we sacrifice diversification. We remain well balanced with corporate demand contributing over one third of stabilized earnings and group demand exceeding 25%. Our focus puts us in the enviable position to capitalize on the strongest demand trends, and this translated into record performance for the third quarter for REVPAR, Total Revenues, and Hotel EBITDA. We soared past 2019 comparable revenues. Total revenues were up 11.7% versus 2019. Hotel adjusted EBITDA margins increased 125 basis points compared to 2019 on best-in-class asset management and tight cost controls. Average daily rates for the portfolio increased 17.5% over 2019 and 12.5% over 2021. Importantly, there is still room to run on occupancy. Despite a 9.8% percentage point improvement over last year, occupancy is still behind 2019 levels by 6.1 percentage points. The ability to close that occupancy gap is a real opportunity in 2023. Let's take a closer look at our resort and lifestyle performance. We continue to see incredible demand at our resort and lifestyle hotels. Even as we move to beyond summer, RevPAR and total revenue growth at our resorts was actually up more in September versus 2019 than in August. Looking ahead to the fourth quarter, a seasonally slower leisure quarter, we still expect our resort and lifestyle hotels to deliver over 20% revenue growth compared to 2019. Our urban gateway hotels also exceeded expectations for the third quarter. I'm proud to say that September marked the first month since the onset of the pandemic that revenues and profits for our Urban Gateway portfolio exceeded comparable 2019 results. There are some powerful trends in several of our urban markets that are worth highlighting. Our three New York City hotels sell robust demand and pricing power in the quarter, collectively increasing revenues by over 17% compared to 2019. The Worthington and Dallas-Fort Worth also beat 2019 revenues by nearly 17%, and profit margins expanded over 600 basis points. Our Westons in Boston Seaport and downtown San Diego both exceeded third quarter 2019 revenues and profits. Year-to-date through September, even at our largest hotel, the Chicago Marriott Magnificent Mile, is at 99% of year-to-date 2019 EBITDA, one of our most pleasant surprises of the year. Even our small representation in San Francisco, the emblem by Viceroy, was a star in the quarter with 172% market share. The emblem is ranked number three by travelers on TripAdvisor, the highest ranked hotel owned by any public company in San Francisco. In short, We believe our carefully assembled and focused urban gateway portfolio remains a competitive advantage as our outperformance continues. I did want to recognize the achievements of our stellar asset managers. Asset management has been delivering for us all year. Cost controls have been tight, but as exciting, we have been seeing big returns from the three game-changing repositionings that were completed last year. Year-to-date statistics tell a great story. The Lodge at Sonoma, converted to an autograph collection, is up 62.3% in total rev par as compared to 2021. The Vail Heights Resort, converted to a luxury collection, is up 78.9% in total rev par as compared to 2021. And the Margaritaville Key West is up 21.4% in total rev par as compared to 2021. up a breathtaking 95.6% as compared to 2019 when the resort was flagged as a Sheraton. These numbers showcase and are a testament to the value creation capabilities of our talented asset management team. On external growth, our recent acquisitions of Tranquility Bay, Henderson Park Inn, Henderson Beach Resort, Bourbon Orleans, and Shorebreak Fort Lauderdale Beach are collectively performing more than $3 million ahead of underwriting for 2022. Total rep part of this year for these hotels is projected to be up 39% over 2019, excluding non-com Shorebreak. These hotels all have the key traits that we are looking for. Be simple lifestyle hotels located in desirable high barrier entry markets with opportunities for our team to quickly grow NAV through asset management initiatives. Going forward, while it's hyper-competitive for broadly marketed leisure-oriented hotels out there, we have been able to find better opportunities by focusing on smaller owner-operated properties. It is here where we have developed an early mover advantage by forging years-long relationships with these potential sellers and becoming experts on highly desirable micro markets like Sausalito, Destin Beach, and Sedona. We continue to track approximately 50 of these unique micro markets. Before I turn the call over to Jeff to talk more about our results, I want to highlight the key attributes of Dimerock's Fortress Balance Sheet. Our recent $1.2 billion financing addressed all near-term debt maturities, eliminated half of our mortgages, and doubled our weighted average debt maturity. Today, we have over $600 million of total liquidity, a powerful figure for a company our size. Our liquidity and low financial leverage gave us the confidence and flexibility to commence a share purchase program subsequent to quarter end at an average purchase price in the high sevens. While we were mindful to maintain that Fortress balance sheet, Measured share repurchases of our stock at deeply discounted values remains another arrow in our quiver for opportunistic capital allocation. Let me now hand the call over to Jeff.

Jeff? Thanks, Mark. Let's look at the results and note that throughout our prepared remarks, when we give comparable stats to 2019, it excludes the Kempton Fort Lauderdale because that hotel is new and was not open in 2019. You'll find a detailed table of our quarterly comparable data on page 15 of this morning's press release. Okay. Total comparable revenues for the company were $267 million in the quarter, an increase of $28 million over the comparable period in 2019. Comparable REVPAR for the portfolio in the third quarter was $211, or 8.7% higher than 2019. This growth was driven by room rates nearly 18% above 2019. Occupancy is down over 600 basis points to 2019, and closing this gap remains one of our several sources of future growth. Other revenue, which speaks directly to our asset management team's creativity in identifying and expanding new income streams, was up over 27%, or 4.5 million, over 2019. F&B revenue, was over $8 million above 2019, double the $4 million positive variance in the second quarter. Similarly, total banquet and group contribution was up nearly $3 million, an increase of over 9% versus 2019, despite group room nights being down over 7% to 2019. With fewer groups in-house, we're generating more ancillary revenue by upselling the groups through creative sales strategies. Outlet performance was the strongest of any third quarter in the company history, as many of the celebrity chef venues we created and opened just prior to or during the pandemic drove dramatically more business to many of our hotels. And there is more to come. We will share with you soon several new or upgraded outlets we are working on for 2023 and beyond that will continue to drive profits to new levels. Hotel adjusted EBITDA was $84.2 million. which beat third quarter 2019 by nearly 12 million. Comparable hotel adjusted EBITDA margins were 31.6% exceeding 2019 by 125 basis points. Adjusted EBITDA was 76.3 million or 8.8 million over third quarter 19. And finally, FFO per share was 28 cents or nearly 4% above third quarter 2019. Let me talk a little about performance in our major segments and provide some insights to what we're seeing in the remainder of the year. Each of the three major segments performed well for us in the third quarter. Of course, resorts was our most robust portfolio segment with many resorts setting new highs. Rates for our luxury and lifestyle resorts were up 36% over 2019. Leaders in the quarter included Tranquility Bay and Margaritaville in the Florida Keys and The Landing in Lake Tahoe. Each of these hotels delivered rate growth up over 70% from 2019. Occupancy in the resort portfolio was five percentage points behind 2019 and remains a real opportunity for us going forward. Urban hotels extended the strength that emerged last quarter. Average rates were up 5.2% over 2019 in the quarter, a sequential improvement over the 0.2% growth seen in the second quarter. Occupancy increased 76.9%. This is 6.6 percentage points behind 2019, which was a sequential improvement as compared to a nine percentage point deficit in the second quarter. Midweek occupancy, a key indicator of the return of the business traveler, increased sequentially to 79.1% in the third quarter as compared to 77.4% in the second quarter. In fact, Midweek occupancy at our urban hotels ramped steadily from 77.7% in July to over 81% in September. The snapback in business travel this quarter exceeded our expectations. As a testament to the strength of our urban footprint, most of our urban hotels had total rev par that exceeded 2019 levels, including all three of our hotels in New York City, our two hotels in Denver, the West and Boston Seaport, the Westin San Diego, the Worthington, and our luxury collection hotel in Chicago. Two big hotels, the Chicago Marriott and Hilton Boston, were over 96% of 2019 total RevPar. Group demand has been robust. The booking window remains short, but we have seen significant pieces of business book on short notice. For example, group rooms revenue in the third quarter was 45.5 million, as compared to $40.7 million on the books at the end of the second quarter. The $5 million upside was double our expectation for in the quarter pickup. I also want to highlight the $45 million of group rooms revenue exceeded third quarter 2019 by 3.5% on nearly 12% higher rates. We expect group rooms revenue in the fourth quarter to also edge past 2019. On a full year basis, group rooms revenue should surpass 90% of the 2019 production. Looking ahead, group room revenue on the books for 2023 increased 34% from the second quarter to over $90 million at rates that are nearly 13% ahead of 2019. In our largest convention markets, Boston, Chicago, San Diego, Washington, DC, and Phoenix, There are 3.1 million room nights on the books for 2023 and 3.2 million room nights in 2024. The next two years surpass the 2.9 million room nights in 2019, and there is still time to extend the game. Concerning Hurricane Ian, we had no material damage to our buildings and only minor damage to landscaping. Business interruption was a little more than $500,000 in September. Turning to the balance sheet, as Mark mentioned, we recast and expanded our credit facility during the third quarter. The $1.2 billion facility includes $800 million of term loans and a $400 million revolver. As detailed in the press release announcing the transaction, proceeds from the facility were or will be utilized to pay off the $750 million facility, a $50 million term loan, four mortgages totaling approximately $180 million that were scheduled to mature in 2023, and are eligible for repayment without penalty in 2022, and pay off our revolving credit facility. As of this call, our $400 million revolver is fully available and undrawn, and we have unencumbered Sonoma, the Westin DC, and the Salt Lake City Marriott. The fourth and last mortgage on the Westin San Diego will be paid off before year end. We have $225 million of fixed rate swaps against the $800 million of term loans and including our remaining fixed rate mortgages, approximately 52% of our total debt is fixed rate. We have over 600 million of liquidity for continued opportunistic share repurchases or external investment. We will opportunistically allocate capital to take advantage of any market dislocation, but we are committed to maintaining a conservative balance sheet. Before turning the call back to Mark, I did want to address the common dividend. Recall, we reinstated a $0.03 per share quarterly dividend last quarter. Based upon our current internal forecast for taxable income, we expect our total common dividends paid in the fourth quarter will exceed $0.03. We are finalizing our taxable income forecast and will make a declaration prior to year end. Okay, now I'll turn it back to Mark to discuss our outlook.

Thanks, Jeff. Our outlook remains positive for travel. Obviously, it was a successful quarter and we expect the fourth quarter will be good as well. Our hotels have raised their full year forecast since our last call. Accordingly, our outlook for 2022 has increased based on continued robust travel demand. We expect full year total hotel revenues and hotel adjusted EBITDA will both exceed 2019. To help you model our expected results, let me provide a few more pieces of information. In the fourth quarter of 2019, our resort lifestyle hotel segment contributed 45% of comparable total hotel revenues, which is shown in the table on page 15 of our press release. We expect total hotel revenues in the fourth quarter of 2022 from this segment will increase better than 20% compared to 2019, with hotel adjusted EBITDA margins better than the 25% achieved in 2019. Our urban gateway hotels contributed the remaining 55% of the fourth quarter 2019 comparable total hotel revenues. We currently expect fourth quarter 2022 total hotel revenues from our urban gateway hotels to be about 85% of fourth quarter 2019. owing in part to the seasonal patterns and differences in the spread of citywide events over the two time periods. A few other data points. We now expect full-year G&A to be in the range of $30 to $31 million, below our original guidance of $31 to $33 million. Income tax expense is now forecast to be $1.5 million to $2 million, up modestly from a prior estimate of a half to $1.5 million, but for the best kind of reason, increased hotel earnings. Interest expense, including the benefit of the swaps, is expected to be approximately $52 to $53 million. As we look out to 2023, we are encouraged that the positive demand trends will continue and that we can push through a moderating economy. The first quarter will benefit from easy comparisons to the Omicron impacted first quarter 2022 and Throughout the year, we expect to see group and business travel continue to heal from its pandemic-suppressed levels. Remember, GDP is $4 trillion larger now than in pre-pandemic 2019, and RABPAR is still behind trend line as travel recovers from a healthcare crisis. Leisure looks solid, and we expect to start the new year strong with record rates the first week of 2023 at many of our resorts, like the Vail Height, currently up 18.6% over 2022, and the Margaritaville Key West, which is on pace to set a record for rate at $590 during that first week. In short, we continue to be constructive on Outlook for 2023. I'll just wrap up by saying that we are confident that Dimerock's unique portfolio and Fortress balance sheet will allow us to continue to distinguish Dimerock going forward. At this time, we would like to open up the call for your questions.

Thank you. If you have a question at this time, please press star 1-1 on your touchtone telephone. One moment for questions. And our first question comes from the line of Smides Rose with Citi. Your line is open. Please go ahead.

Hi, good morning. I wanted to ask you a little bit more. Good morning. You mentioned a few times on your opening remarks about closing the occupancy gap going forward. So as we think about 2023, would it be your expectation that occupancy would grow as a bigger piece of overall RESPAR growth and rate growth might moderate or How are you kind of thinking about, I guess, the cadence of our growth as we go through 23?

Yeah, we're still behind in occupancy really at all three segments on a full year basis. So I think we closed the gap on those. We'll probably see more midweek group in our resort properties in particular. And that's probably an opportunity to keep pushing the occupancy up at those properties. And then group's going to heal, right? As Q1 comps to Omicron impacted Q1 of 22, you should see more occupancy because we should do better, particularly in the group and the business transient in the first quarter. So that'll help close that gap as well. So it's a combination, but I think the Q1 comparison is going to help push occupancy, certainly in the business and group transient on a full year basis.

Okay. I mean, do you think there's a lot of just rate growth overall still available or do you feel like it's more sort of sustainable at this point?

No, it's both. I mean, October we saw huge rate growth. I mean, if you just looked at our resorts just in October, they were up 46% in rate and our urban gateway hotels were up, um, you know, mid single digits. Um, so rates still growing and I feel like we're entering the new year with pricing power, particularly on popular, popular dates, whether it's midweek in urban markets or, or, uh, the more desirable resort weeks, I think we're going to have the pricing power to continue to push that pretty hard.

Okay. And I just wanted to, you mentioned that, um, it remains hyper competitive for the kinds of leisure hotels that you want to buy. I guess it's a little surprising because we just seen an overall kind of fall off in transaction activity barring a couple of, you know, pretty high profile deals. But, um, Could you maybe just talk a little bit more about buyers and availability of financing and kind of just what you're seeing for the kinds of properties you're looking at?

Sure. So, I mean, just kind of setting the table in the overall market right now, it looks like urban markets, there's very few on the market. It's not a terrific time to sell those because leverage is so key to that. And I think people are having trouble handicapping where business transient ultimately settles out on kind of their underwriting and performance. People still like leisure. They still believe in resorts. There is a wall of capital still available for real estate acquisitions out there from a variety of sources. And so there are some of those properties on the market, and they are getting lots of bids when they do bring those to market. So it's still the place where the investment community has the most level of confidence and belief in the future. So it's still a pretty active market for those. And so for us, our experience over the last, I'll say, particularly three to five months as rates have gone up is that the broadly marketed deals, particularly the larger ones, seem to be getting a lot of attention and pricing at levels that aren't attractive for us. And so we continue to try to focus our efforts on these owner-operators' assets between really $50 and $150 million, where we think we have an advantage by dealing mostly off-market with these relationships and buying probably 100 to 200 basis points better yields than the broadly marketed luxury resorts.

Okay. Thank you. I appreciate it.

Thank you. And one moment for our next question. Our next question comes from the line of Austin Warschmidt with KeyBank. Your line is open. Please go ahead.

Yeah, just wanted to piggyback on the last question there. You know, you guys having focused on more off-market relationship deals that, you know, you've kind of followed over multi-year periods. Is there anything you can share in terms of sort of the locations and size of deals that you're evaluating? And, you know, Mark, is there anything that gives you pause today with moving forward with KeyBank? you know, a new acquisition and how you're thinking about sort of underwriting those?

Great question. So continue to look at leisure-oriented assets with super high barrier to entry markets. The size is generally between $50 and $150 million. That's kind of a sweet spot for us. And as far as pause, listen, I think the stocks are trading at deeply discounted value, so that always gives you – I think, a higher bar to pursue acquisitions. So I think the way we think about it is we wouldn't do a single or a double right now. It would need to be a triple or a home run. But it's going to be of similar characteristics. It's going to be in the markets like Sedona or Sausalito or Destin Beach. One of our peers just did a deal in Jackson Hole. We like that market a lot. That would fit our criteria. But the kind of asset, the long-term brand management and the size did not – doesn't fit what we're trying to do here.

That's helpful. And then I just wanted to hit on, you know, you kind of provided a comparison of the group room night versus 19. If I recall correctly, 19 was sort of an off year for your portfolio. And I'm curious if you could kind of give us a sense of what the 2018 group room nights look like, you know, versus what you're seeing for 23 and 24.

We can always circle back to you with specific numbers, Austin, you know, follow up after the call.

I don't have the 2018 numbers here unless... I don't think, this is Justin, I don't think 2019 was significantly off. I think 2020 was shaping up to be, you know, the best year the portfolio was ever going to have in terms of PACE going into 2020. And so a lot of the numbers that we, you know, we talk about PACE for next year, we're really comparing... you know, this year versus 2019 for 2020, which is not actually a year that actualized, but 2020 was expected to be. I think going into it, you know, we were up 15% versus 18 for 19. So something to take into account when we talk about numbers relative to 2019. Got it.

No, that's helpful. And then just this last one, just curious how the leads look for future, you know, additional bookings. And, you know, when do you think sort of, you know, you see that booking window extend versus, you know, what you saw this quarter within the quarter for the quarter?

Yeah, so a group, as Jeff mentioned, the prepared comments, the in the quarter for the quarter and in the quarter for next year were very strong at very healthy rates. Our, you know, we don't have as many large hotels as some of the other folks in the space. So our booking window is shorter just by the nature of our assets. But the velocity of those leads continues to be good. The rates we're achieving is good. And as we talked about for Q3, our ability to upsell folks, particularly at the kind of more experiential hotels that we have where we can offer other things, has been remarkable and exceeded our expectations. So we continue to focus on the center programs for our sales folks and providing other experiences to upsell groups when they do come. So we're optimistic that even on less group room nights, we'll be able to drive revenues because we think we have more ways to sell them stuff when they arrive. That's helpful. Thanks, Mark. Sure.

Thank you. And one moment for our next question. Our next question comes from the line of Michael Belsario with RW Barrett. Your line is open. Please go ahead.

Thanks. Good morning, everyone. Hi, Mike. I want to go back to the occupancy topic and just kind of follow up on that first question. Just across the portfolio occupancy has been down 500, 600 basis points the last handful of months. And I would think presumably Group and BT have been pretty normal or kind of getting back to normal levels in those recent months. So I guess two-part question. One, where is the occupancy still down in the portfolio, more so segment-wise? And then I guess two, is that intentional on your part or do you think maybe a bit structural with where elevated ADRs are today and maybe that impacting certain segments of demand fully recovering?

It's a great question. I mean, obviously we're trying to maximize profitability and rate is more profitable than occupancy. So if we have to make the trade, we're always going to lean towards the rate. Again, on a full-year basis, as we move into 23Q1, you should really see a lot of occupancy gain on a quarter-over-quarter basis because of the Omicron impact, so that will help. On resorts, our experience has been it's better to try to push the rate than to push the occupancy. I suspect as we move into next year, we'll do more midweek group bookings, which will help on some of the occupancies. We're sold out almost every weekend. So that's how we hope to close some of that gap. On BT, it's going to be the continued return of business trends, and it wasn't very strong in the first half of the year. Hopefully, we'll gain momentum as we go into 2023 on that segment. And then full-year group, we continue to hope those trends continue. Certainly, the velocity we saw in Q3 was encouraging.

So it doesn't sound structural. I mean, it's a bit intentional on your part with rates, but it sounds like you're optimistic that the occupancy gap will continue to close just as the broader recovery in some of the still impacted segments improves, right?

Yeah, I mean, I think if I had to go segment by segment, the groups, obviously, the easier one to see the visibility and to close the gap, particularly with the what's called the abnormal Q1 segment. On the leisure, we think the kind of midweek strategy is the way we help close that gap and where the opportunity is. And I think BT is a little bit of the wild card about where that stabilizes, right? Do we get back to 90%, 95%, 100%? You know, that's a very short-term booking, and that's the one that's probably hardest to underwrite at this moment.

Got it. That's helpful. And then sort of related on the group front, Jeff, I think you mentioned 3.1 million room nights next year on the books. And I think I heard you right, 3.2 million in 24. I guess, why do you have more rooms on the books further out? And why do you think that dynamic is playing out like that?

Yeah, to be clear, I mean, that's not for our portfolio. That's just what we get from this convention and visitor bureaus in each respective markets. So we were just trying to track and get directionally what we're seeing in the markets that we operate in, where we have sort of larger sort of convention-oriented hotels. So I think some of that actually has to do with a lot of the events that were originally planned back in 2020, 2021, pushing out a few years into those markets. And it's, frankly, a favorable footprint for us in terms of where convention activity has been going.

I guess maybe specific to your portfolio, how does 23 compare to 24 at this point?

It's hard because the 24 bookings are a small percentage, so it looks good, but it's a small percentage of misleading to kind of throw stats out there.

That's all for me. Thank you. Thanks, Mike.

Thank you, and we'll move on to our next question. And our next question comes from the line of Dwayne Finnenworth with Evercore ISI. Your line is open. Please go ahead.

Hey, good morning. Thank you for the time. I wondered if you could, you know, within the category of things you control, could you frame out for us, you know, the top two or three EBITDA improvement potential ROI projects, rebranding projects on the horizon into next year? And, you know, I don't know if you've put numbers to how meaningful those could be, but would appreciate any thoughts you have.

All right. Well, we'll continue to ramp up on ones that we've completed. So, last year we completed the three I spoke about, the Fairwood Commons, the Lodge at Sonoma, the Vail Luxury Collection, and the Margaritaville in Key West. We expect those to all to continue to ramp up. They're not done yet. Vale, which converted in November, which meant we had the bookings for prime season already booked as a Marriott, not as a luxury hotel. So we'll see continued rampage with the 23 from those projects. And then Q1 of this year, we did other conversions, including the Clio in Cherry Creek, Denver, which we converted to a luxury collection. So that will really see the benefits as we move into 23, more than 22. And then in The first half of next year, we hope to complete a couple other conversions, including converting the Hilton Burlington to a Curio and putting a celebrity chef restaurant in there. And then we're working on the repositioning of our Boston property as well, our Hilton Boston, to a more lifestyle hotel in the middle of next year. So that'll occur as well. So there's a lot of things going on within the portfolio, but I think to continue to ramp from the repositions we've done, and we've probably done more as a percentage of our portfolio than anyone else in the public markets, But those aren't one and done. Those are multi-year beneficial projects for us.

That's great. Thank you. And then I think you touched on it in your remarks as well, but out-of-the-room spend, food and beverage events, are you doing anything different on that front? Is this pent-up demand? Would you characterize this as sort of structural shift in spending? Any thoughts you have there would be great.

Yeah, I mean, what's happening if you kind of step back and say, why is that occurring? Partially we have the kind of hotels that people want to get as they're kind of getting their folks back together, right? They're hitting the go button and having to pull people together. They want to make it a worthwhile experience. Uh, and they want to, you know, it's a tight employment environment. They want to treat their employees, right? They want to do culture building activities. Um, you know, they want to make their, those employees feel good. and that means they want to do other things. They want to, you know, do the nicer dinner, the buffets, the happy hours, the rooftop receptions. Sometimes we do... ...off... say, experiential trips for them. That is the trend. If you kind of think about it, if you're going to kind of make people get together and you really want it to be a special occasion because they're not in the office much or they haven't been in the office for a year, you're going to spend more when they're together. And you want to treat them well because you want them to love your company or your association, as it may be. And that's what we're seeing. And we're trying very hard to, you know, to provide those kind of experiences for them. We're obviously... being compensated for that, but we're always trying to think of creative ideas of how we can make it more meaningful to go to Cavallo or to go to LaBerge, do your incentive travel or your get-together. And so that's what we're seeing, and it's been successful, as you can see from our outside-the-room revenue and even our banquet revenues, which were several million dollars ahead of where they were in 2019, even on lower room nights these people are spending.

thanks and maybe i'll sneak one last one in just on the citywide stats which were great are you observing any change in seasonality with respect to city-wide and on 2023 specifically when does that really start to re-accelerate and thank you for taking the questions and sorry for any background noise here at the airport no problem i'll let jeff jump in here but i would say on the city-wide

Yeah, it's more short-term. We've seen more big groups book in hotels and city-wide on shorter notice than we've ever seen before in our careers, really. You know, earlier this year, not very many months ago, kind of we got the all clear from a healthcare crisis perspective. And I think a lot of companies were desperate to looking for that signal to get their folks back together, which hadn't been together. So we see big group patterns happening in shorter time periods. And that's created different calendar events, if you will, because you had the pent-up demand. And so it is causing some anomalies on what we would think would be normal spreads. And, you know, Chicago and Boston both in Q3 benefited from some of those at our hotels. So that's a pattern we're certainly seeing. Jeff or Justa, if you have additional comments.

Yeah, the one thing I would add to that, Duane, is that it's a good question. I think you've seen it broaden out a little bit because in some of the cities, it's going to vary city by city, but, you know, the number of citywide events, you know, will be up in 2023 versus 2022 is the expectation. And, you know, when you think about the availability in the convention center, it's got to broaden out a little bit to accommodate some of that demand. But that's going to vary market by market, so it's a little choppy. I'll look across the markets that we have the data for and circle back to you with if I've seen any change in the quarterly seasonality of it. But I think it's generally pretty consistent. But as you've seen the activity pick up, it probably broadens out a little bit across, you know, outside of the typical summer months and maybe into more shoulder periods. Thank you very much for the thoughts.

Thank you. And one moment for our next question. Our next question comes from the line of Anthony Powell with Barclays. Your line is open. Please go ahead.

Hi, good morning. I guess a follow-up question on the out-of-room spending in the corporate group. What percent of your corporate group is, do you think, technology, and do you think a slowdown in spending in markets like hotels like Cavallo Point, Lake Tahoe, could be a headwind for those properties next year, given what's going on with some of the tech companies that we follow and hear about?

Yeah, I mean, we do have a little bit of technology. I don't have a particular breakout, but it's really about what's happening in those particular cities. So, San Francisco, obviously, has been the most impacted by technology. I suspect Seattle would be another one that's impacted. So, yes, those have some impacts, but it's more about what's occurring in those markets because we can always substitute out pharma, financials, or others. for the small technology, but you're not going to be able to outrun if it's impacting the overall market. So I think we think about technology demand more on a market basis than a particular segment of our booking and our portfolio. But, you know, we are concerned about markets like San Francisco and Seattle and about what it means on long-term demand trends as technology has shifted to a more remote environment and those firms are seem like salesforce.com more and more committed to not being in those kind of cities and then you know we think about what are the that's obviously the negative we also think about how do we play that in the positive so for instance you mentioned our hotel we have 42 acre resort in sausalito and as people don't want to get together and are fully remote like salesforce.com that used to be together, they need to get folks together. They've delegated down to the managers to figure out how to best do that for their departments. And so what we've seen there and at the Lodge at Sonoma is actually kind of the positive benefit of those trends where a lot of mid-week group is occurring. The alpha team at salesforce.com that's gonna launch a product or needs to do training will come in and take our slowest Tuesday, Wednesday, Thursday at that hotel.

and and we're seeing that actually strengthen and that's kind of the the other side of that that we're trying to lean into and leverage for better results all right thanks maybe one more i guess you know coming into here i was concerned that you would see a bit more demand uh shift from domestic to international travel as things opened up you know we did see some pretty big travel numbers to europe but hasn't really impacted the leisure hotel demand at your property. So I guess looking forward, do you see any incremental risks from more people traveling internationally, or maybe why hasn't there been more of an impact so far?

I was just looking at some STR data on that earlier this week. It seems like, yes, everyone you know went to Italy or France last summer. But it really hasn't impacted leisure demand. I mean, it's hard to believe more people would go to Europe next summer than went last summer. But really, we didn't see any impact, and frankly, the international has not returned to markets like the U.S., and obviously the dollar denomination doesn't help. But there's been no influx from Asia with their travel restrictions, and there was very little international inbound this year from Europe. So that's probably at some point will flip and be more of a positive than a negative. kind of ratio of international inbound versus outbound. So it's probably as bad as it could be last summer, and we still had great leisure demand. And so probably at some point over the next couple of years, that flips and that will turn into a positive. But really, it was not impactful at all last summer.

Thank you.

Thank you. And one moment for our last question. And our last question comes from the line of Bill Crow with Raymond James. Your line is open. Please go ahead.

Hey, good morning. A couple of questions for you. Mark, given what you see in the economy out there and what you read and everything else, do you think kind of a four-diamond resort stands up better than, say, a five-star Ritz-Carlton four-season sort of resort if we were to go into recession over the next six months?

I think it depends. I mean, some of the larger resorts that you look at are, they're big group houses too. It's important for them to do the group. So that, you know, depending how that segment, you're really leaning in that as much as you are the high-end customer. I really like the experiential four or five star that's unique because I think what we'll be able to do is even if things soften a little in those patterns is we'll be able to do this midweek group I think that that demand is probably going to be at historically high levels as we move forward with this more hybrid work environment. And so as we, you know, if things did soften a little bit, you have the ability at the smaller resorts to put in this mid-week group and incentive travel and training to offset that and change your revenue mix strategy to keep profitability and revenues up. So I think that's a safer place to be. versus just a kind of a sandwich between five-star and four-star. I think size of resort and your ability to do smaller midweek group is probably the defensive posturing as you move into a self-made economy, if you will. Thanks. That's helpful.

The question I had, really, I think you started early on in the discussion talking about January and maybe even the first week of January, if I recall correctly, and how strong it was in It caused me to reflect back on last December. And I think the last week of December, we had really, really strong results. And I'm wondering if that's going to be kind of a headwind that maybe we don't see coming as we think about the fourth quarter of this year.

Yeah, we're seeing Christmas week be strong. I actually think what's more likely to happen is we're going to see the peak demand periods in leisure continue to have a lot of pricing power. People that go to Vail are going to go to Vail or Aspen kind of regardless of whether it's 950 a night, 975, or 1050. They're going to come. I think where we'll start seeing more hesitancy and change of patterns would be kind of the Tuesday, Wednesday that we were getting over the last two years and having to supplement that. That's probably the one that we're more focused on and we think peak demand will continue to be able to really have the upper hand on pushing price in those periods.

Okay. I appreciate the comments. Thanks.

Thank you. And I'm showing no further questions at this time. And I'd like to turn the conference back over to Mark Berger for any further remarks.

That's for today's earnings call. We look forward to updating you on our next quarterly call. Have a great day and a great weekend.

This concludes today's program. Thank you for participating. You may now disconnect.