Diamondrock Hospitality Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Diamond Rock Hospitality third 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 will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Bryony Quinn. Senior Vice President and Treasurer, you may begin.

Thank you. Good morning, everyone. Welcome to Diamond Rock's third quarter 2023 earnings call and webcast. Before we get started, let me remind everyone that many of our comments today are not historical fact and are considered to be forward-looking statements under federal securities laws. As described in our filings of 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. Mark?

Thank you for joining us. Global travel demand remains strong. Annual hotel stays in the United States are expected to surpass the pre-pandemic record of 1.3 billion room nights. 2023 is also setting a new normal in hotel patterns as the changes to the way global citizens travel settles in post-pandemic. During this recovery, Domerec has been a leader. and we believe we are well positioned to outperform going forward. Our confidence stems from our high-quality portfolio. We have spent more than a decade renovating, repositioning, and recycling our portfolio to curate a collection of hotels and resorts specifically designed to attract today's travelers. By full-year revenue, our portfolio remains approximately 60% urban and 40% resort. An important aspect of our strategy, which distinguishes Domrock from its peers, is that nearly 95% of our properties are unencumbered by long-term management contracts. This gives us greater control over operations at the properties and higher values upon sale. These portfolio advantages are a key element that enable Dimerock to deliver solid results. Total revenue for our portfolio in the third quarter is up 12% as compared to 2019 and just over flat to last year. We were pleased with these results, which were modestly ahead of our expectations. REVPAR in the third quarter contracted 1.1 percent as compared to the same period in 2022. Compared to 2019, REVPAR in the quarter was up 7.6 percent, which is more than 100 basis points ahead of the midpoint of our expectation. While urban total REVPAR was up 2.9 percent in the quarter over last year, It was the sequential improvement in resorts that exceeded our expectations. As measured by total REPR, we saw strength at the Landing Lake Tahoe Resort up 15.2% to last year, Tranquility Bay Resort in the Florida Keys up 10.4% to last year, and our luxury resort in Vail up 9.3% to last year. Of course, Some resorts continue to adjust and we're down to the prior year, but we are encouraged that the year over year decline in our resort revenue improved 340 basis points sequentially from last quarter and are still nearly 26% higher than 2019. Moreover, we expect additional sequential year-over-year improvement in resort revenues for the fourth quarter. Overall, total revenues for Dimerock's entire portfolio in the third quarter were $277.1 million. While up only modestly from 2022, it was still a new record for Dimerock as it marked the highest third quarter revenue in the history of the company. This led to hotel adjusted EBITDA in the third quarter of $81.1 million, which was 6.6 million or 8.9% ahead of 2019. It is worth noting that we achieved these third quarter 2023 revenue and adjusted EBITDA results despite about $2 million of disruption impact stemming from renovations at the Salt Lake City Marriott and Hilton Boston repositioning to the Dagny. Okay, in reviewing the quarter, let's look a little closer at the trends that we saw. At our urban hotels, year-over-year rev bar increased 2.2% and exceeded 2019 by 2.1%. the group segment at the urban hotels was up modestly across the portfolio. However, we did have several stars on the group side in the quarter. On a year-over-year basis, group business in the third quarter was terrific at the DC Westin, up 33%, the Westin Boston, up 10.4%, the Westin San Diego, up 15.6%, the Worthington-Fort Worth, Texas up 15% and the Phoenix-Palomar up high single digits. This strong group performance from our stars was somewhat offset by lower group business from the softer convention calendar in Chicago this quarter, as we discussed last earnings call, along with the anticipated renovation impact from the Salt Lake City Marriott. This is transient in the third quarter saw demand increase 5.6% as compared to Q3 22. Over the summer, the business demand landscape evolved quickly. We worked closely with our operators to aggressively adjust, and we were successful in executing on our revenue maximization strategies. This BT strategy involved channel shifts and carefully calculated occupancy for rate trade-offs. As we move beyond Labor Day and into the fall, we are seeing gradual gains in business transient demand, but at levels that remain well below prior peak. For our resort portfolio, third quarter resort REBPAR increased nearly 24% over 2019, despite contracting 8.2% compared to last year. Encouragingly, the year-over-year quarterly decline in resort REPR improved a full 500 basis points from the prior quarter. Importantly, we expect that year-over-year quarterly comparable REPR will improve yet again in the fourth quarter as we settle in to the new normal secular travel patterns for resorts. Clearly, resorts have been a big winner for Dimerock. In the third quarter alone, our resorts had adjusted EBITDA that was 23% higher than in 2019. Going forward, despite some near-term adjustments, it looks like resorts are likely to outperform the industry over the next decade from the acceleration and adoption of hybrid work in the U.S. Remember that there has been 2.7 billion more days of locational flexibility created post-pandemic from the average worker being in the office 3.35 days per week from the prior 4.4 days per week in 2019. To put this into context, the number of nights of locational flexibility is two times the annual demand for all hotel rooms of all types in the United States, and resort hotels specifically comprise just 10 percent of the existing supply. And resort supply in many of the resort markets is likely to remain near zero from legal restrictions, like in Key West, or the unavailability of developable land, like Huntington Beach and coastal California. As you can tell, we remain constructive on the long-term outlook for resorts. Okay, let's turn to internal growth. While DMRAC has always invested in its assets to keep them highly competitive, spending more than a half a billion dollars over the last five years, one of our biggest competitive advantages is derived from the large number of high-impact ROI opportunities within the portfolio. These ROI projects drive cash flow and lead to outsized NAV increases. In the last 24 months, we have delivered on a number of projects, including the conversion and up branding of the Heist Vale to a luxury collection, the Clio Denver to a luxury collection, the Key West House to a Margaritaville, and the Lodge at Sonoma to an autograph. Those four hotels alone generated a collective REPR increase of 27.4% over 2019 in the third quarter, with the hotel adjusted EBITDA up 42.8%. We will continue to benefit from the completion of these and a number of other recently completed ROI projects. In the last 36 months, We have executed a total of $58 million in ROI projects that touched more than a third of our hotels. The benefits of these projects often play out for several years, and we should continue to read market share gains and increase profits that will bolster overall portfolio results. And we're not done. Dimerick has a strong culture of excellence. that has driven our quest to identify and execute additional value-add ROI opportunities. For example, on August 1st, we announced the successful conversion of the Dagny Boston, which marks our 15th independent hotel. The Dagny is projected to increase its EBITDA by $4 million next year and ultimately stabilize in excess of $15 million of annual EBITDA. Additionally, we are actively underway with other ROI repositionings. The Hilton Burlington is in the process of being converted to a lifestyle hotel to be named Hotel Champlain, a member of the Curio Collection. It is on track to be completed during the summer of 2024. The Bourbon Orleans is also underway with its repositioning to be the premier urban resort in the French Quarter of New Orleans. This ROI project is expected to be completed late next year. And behind these, Dimerock has a large pipeline of future opportunities. I'll list just a few. At Orchards Inn Sedona, we are in the permitting process to move that hotel to a luxury level and make it part of the adjacent La Bears de Sedona Resort. The repositioning is projected to increase ADR there by $300. At the Landing Lake Tahoe, we have the opportunity to add almost 20% more keys. At the Chico Hot Springs Resort, we are evaluating adding more cabins on our 748-acre property. At Tranquility Bay, we are seeking permits to build Dimerock's first marina with about 30 slits. These are just some examples, and there are many more, so stay tuned. That's a good transition to give you an update on the acquisition market. While Jeff will discuss our capital allocation options in a few moments, we have been disciplined in working to find more of the transactions that have worked so well for us. owner operated, experiential hotels, often in unique destinations. We have a deep well of understanding about unlocking value at these types of properties, which puts us in a great position to create value when we can pry them loose. However, as we said last call, any deal we would do this year will have to be something we really love. Our one deal this year, the Chico Hot Springs Resort, in Paradise Valley, Montana, certainly fits that bill. This independent, owner-operated hotel has lots of upside opportunities. We bought it at an 8.1% NOI cap rate, and in the third quarter 2023, Comparable Road Park grew a robust 10.8% for our period of ownership. We project our investment in the Chico Resort will ultimately stabilize north of a 10% NOI yield just from the implementation of our best practices and a modern revenue management system. While the Chico Resort was a special opportunity, we continue to vigorously work our proprietary database of opportunities with similar characteristics. I should also mention that we are testing the market with a few potential dispositions, but we will remain disciplined with release prices. Now, let me turn it over to Jeff for more details on the quarter.