Diamondrock Hospitality Company

Good day and thank you for standing by. Welcome to Diamond Rock Hospitality Company's first quarter 2023 earnings conference call. 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 during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian E. Quinn, Senior Vice President and Treasurer of Diamond Rock Hospitality. Please go ahead.

Thank you. Good morning, everyone. Welcome to Diamond Rock's first quarter 2023 earnings column 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 in 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.

Thank you for joining us today. The first quarter results for the Dimerock portfolio set records for both revenues and total profits. In the quarter, comparable rev par increased 16.9%, and comparable revenues increased 18% over the prior year. Hotel adjusted EBITDA increased $8.5 million, or 15.9%. The results were also well ahead of 2019, with comparable RAPAR up 13.8% and hotel adjusted EBITDA up 19.5%. These record results speak to the quality of our real estate, our favorable geographic footprint, and our strategy to have a portfolio of differentiated hotels and resorts. It is the Dimerock portfolio that is our competitive advantage. The Dimerock portfolio distinguishes itself from its public peers by having only two of its 35 hotels subject to long-term management agreements. This increases both the liquidity and the NAV of these unencumbered properties. The portfolio today is comprised of 35 properties, 20 in urban gateway markets, and 15 in prime resort locations. It's a well-balanced portfolio. By full year revenue, it is about 60% urban and 40% resort. We believe that we have carefully curated a unique portfolio that can outperform the industry averages over the long term because of our focus on the right markets and the favorable experiential travel trend. Our urban properties are concentrated in some of the most desirable submarkets of the best gateway cities. These submarkets include New York's Times Square and Midtown East, Boston's Seaport and Financial Districts, Chicago's Magnificent Mile, Denver's Cherry Creek District, San Diego's Little Italy, and Salt Lake City's Temple Square. Just as importantly, we have largely avoided markets like San Francisco, Portland, and Los Angeles, where values have been crushed from post-pandemic structural changes in demand, new transfer taxes, and reduced operating efficiencies from recently adopted hotel ordinances. Our resorts, like our gateway hotels, are situated in prime locations. like the vortex among the Red Rocks of Sedona, the snow-capped mountains of Vail, the wine country in Sonoma, or the beaches of the Florida Keys. Collectively, these resort markets are positioned to outperform in the coming decade from the accelerated paradigm shift towards more leisure travel that powerfully is combined with little to no supply increases. Let's get into the trends that we are currently seeing within the portfolio. The group segment is showing considerable strength. Compared to the first quarter of last year, room revenue increased 59% and in the quarter for the quarter activity was up nearly 15%. The benefit of owning well maintained hotels in key sub markets is readily apparent in the performance of our group centric hotels. Repar at the San Diego Westin increased 71% over Q1 2022, and Repar at the Chicago Marriott increased 62%. Similarly, Repar at the Boston Westin Seaport increased 40% over the first quarter of 2022, which impressively was more than 10% over its prior first quarter peak. Business transient demand has also rapidly recovered. Midweek business transient occupancy at urban properties increased 50.8% in the first quarter from the comparable period. This strong business transient demand helped set records for our trio of select service hotels in Manhattan, which were stars in the first quarter, with Repart increasing an average of 45.6% over Q1 2022, and 8% higher than the comparable period in 2019. Business transient demand also propelled results at the Hotel Emblem, which cemented its status as the number one TripAdvisor-ranked hotel in San Francisco. This tiny boutique delivered nearly an 80% increase in rep art over last year, and double-digit rep art growth compared to 2019. Just as encouraging was the intra-quarter momentum for BT. In January, mid-week business transient occupancy at our urban hotels was 51.7% of comparable 2019 levels. And by March, it was 16 percentage points higher at 67.7%. of 2019 levels. However, it is really the resort segment that continues to be the big, long-term beneficiary of travel trends that began before the onset of the pandemic. There is a fundamentally favorable imbalance of robust leisure demand for the limited number of resorts in the US. This imbalance underpins our belief that resorts remain a great capital allocation choice for the coming years. In fact, it is now obvious that the more resorts you acquired prior to the pandemic, the better off you are now. As you know, Damarac nearly doubled its number of resorts prior to the pandemic through the acquisition of seven different resorts in the five years prior to 2020. It was this deliberate capital allocation that helped fuel our record-setting performance. For our entire resort portfolio, the results in the first quarter were very strong, with REVPAR that was 30.4% higher than 2019 and adjusted EBITDA that was 47% higher than 2019. This operating outperformance yielded enormous NAB increases for our resorts, where we estimate NADs increased by nearly $200 million, or about $1 per share, since 2019. For the industry, STR reported that the resort segment in the U.S. increased year-over-year REPAR by 12.9% in the first quarter. As the world settles down post-pandemic, each resort market is establishing a new normal baseline which began happening around September of last year. Encouragingly, in this first quarter, we saw record Red Park performance from our luxury collection resort in Vail up 18.8%, our Hilton in Vermont up 13.5%, the Lodge at Sonoma up 11.5%, and the Kempton Shore Break in Huntington Beach which is another number one ranked TripAdvisor hotel. After experiencing explosive growth during the last few years, we are seeing the resorts in Destin Beach and the Florida Keys stabilizing at their new normal. Completely behind last year, but still more than 38% above 2019. We expect this new normal adjustment will continue until we get to lap this trend in late 2023, when leisure is likely to resume its outperformance headed into 2024 and beyond. That's a good transition to give you an update on the acquisition market more generally. While Jeff will discuss our current capital allocation options, including share repurchases and these steep discounts, We remain active in trying to find more acquisitions of the kind that have worked so well for us. Unique, experiential hotels, generally owner-operated, and held by non-institutional folks. We've been focusing on these type of deals for almost a decade and have a first mover advantage. Domorock's well-honed skill set for identifying and unlocking value at these type of properties puts us in a great position to create value when we can pry them loose. Of course, any deal we would do this year will have to be something that we really love, but there are a few special opportunities out there where we are actively engaged in conversations. For broadly marketed deals, we expect the low transaction volumes to begin slowly picking up later in 2023 and into next year. Before turning the call over to Jeff to discuss our fortress balance sheet and earnings in greater detail, we did want to provide comments on our outlook. Regarding group, in full year 2022, we generated 83% of prior peak group room nights. Clearly, there is significant room for improvement, and we are making excellent progress. In the first quarter, group room nights were 88% of prior peak. And our current forecast is to finish 2023 at 94% of peak group room nights and 102% of peak group revenue. We are aggressively closing in on that target. Our group revenue booked in Q1 for the remainder of 2023 was up 28% over last year. with the strongest gains to be found in the next two quarters. Our full year forecast has group room rate up 14.5% in 2019, but it's still about 46,000 room nights behind prior peak. Including out-of-the-room spend, closing that gap and capturing those rooms could add $20 million of incremental revenue to our 2024 results. On leisure, it's been the top performance segment over the past few years. In 2023, we expect each market will reach a different level of new normal, after which leisure will likely return to its long-term secular growth trend line, but off of a much higher base with the new normal 2023 resort NOI about 50% higher than 2019. As one point of additional opportunity for our resorts, they are projected to end 2023 at four percentage points of occupancy below prior peak. And closing that gap next year could be worth another $24 million in revenue. Finally, business travelers are clearly getting back on the road. but we are seeing that positive BT trend lane moderate a little on the demand side while we continue to push rate to maximize profitability. I'll sum up by saying that while the economic outlook is still too volatile to provide investors with useful earnings guidance, we continue to expect Dimerock to achieve record revenues in 2023. With that, let me turn it over to Jeff.