Diamondrock Hospitality Company

Today, and thank you for standing by, welcome to the Diamond Rock Hospitality fourth 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 a session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Brian E. Quinn, Chief Accounting Officer and Treasurer. Please go ahead.

Good morning, everyone. Welcome to Diamond Rock's fourth quarter 2023 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 in our comments today. In addition, on today's call, we'll 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 for our earnings call and our outlook for 2024. We are pleased that we will be reintroducing guidance on this call. Let's jump in. 2023 was another successful year for Dimerock across several fronts. The company generated total shareholder returns of just over 16% as our portfolio of high quality hotels and resorts achieved total revenue of $1.1 billion. a new record for Dimerock. As a testament to the success of our investment strategy, total comparable revenue was 11.3% higher than 2019, among the best of any full-service lodging REIT, and full-year hotel adjusted EBITDA was $19 million higher than 2019. Solid results from the Dimerock portfolio led to full-year 2023 comparable revenues increasing 4 percent, adjusted EBITDA of $271.7 million, and adjusted FFO per share of 93 cents. In the fourth quarter, adjusted EBITDA was $57.1 million, and adjusted FFO per share was 18 cents. All these results are in line or head of management expectations provided in our last earnings call in November where we said we were comfortable with consensus estimates. I'll briefly provide some highlights from the fourth quarter so we can save more time to discuss our outlook and allow time for your questions. In the fourth quarter, there were a few notable trends. First, resorts. which have been the biggest winners in travel since the pandemic, had some pullback earlier in 2023 as they settled into the new normal. Resorts found some firmer footing in the fourth quarter, and we believe resorts still have the best long-term setup. Let's look at some encouraging resort trends. Quarterly rep art at resorts dropped at 87% of 2022 peak rep art in the second quarter, improved to 92% in the third quarter, and improved even more to finish the fourth quarter at 96% of 2022 comparable peak. On a revenue basis, the sequential performance was even better. The resorts progressed from 92% of 2022 in the second quarter to finish the fourth quarter at 98%. or down just 2% to the 2022 peak revenue. The Florida Keys turned a corner with our three resorts collectively delivering positive REVPAR and revenue growth of 7% and 8%, respectively, in the fourth quarter. Elsewhere in South Florida, the Westin Fort Lauderdale generated 5.8% comparable REVPAR growth It is worth noting that our Vail Luxury Collection Resort experienced some headwinds from late snowfall in the fourth quarter, but RevPAR turned positive in January. Overall, we were relatively pleased with the resort portfolio in 2023, but we are most proud of the efforts of our asset managers working closely with our operators in maintaining tight cost controls to keep full-year total expense growth at our resorts to just 1.7%. That's a fantastic result. As we look to 2024, we expect our resort portfolio will improve as the year progresses with various resorts finding their footing in early 2024 so that the overall resort portfolio can achieve a more uniform return to growth. Resorts should benefit as competitive pressures from luxury revenge travel to Europe lessen this year. Moreover, South Florida and the Florida Keys look poised to deliver growth in 2024 after finding its new normal in 2023. While South Florida was an early and robust beneficiary of pandemic leisure travel trends and peaked in late 2022, other resort markets did not peak until mid-23. These other resort markets are now finding their new normal several months later than we saw in Florida. For example, the Wine Country and Charleston markets saw Red Park growth peak months after South Florida's peak. So it is understandable that comparisons will not likely turn positive until we lap those initial declines later this year. Specific to Diamond Rock, I did want to mention that there's a little oddity around the rooms number at the Henderson Resort. which took into its room inventory a number of adjacent condo units that were recently delivered by a master developer. This is good for our long-term profits, but the optics are a little noisy as we get those units into our room count during the seasonally slow period. So, overall for resorts, we are positive about the outlook as we expect near-term headwinds on comparisons. We'll reverse as the year progresses and consumers continue to prioritize leisure travel. Let's turn to our urban hotels. We are fortunate to have an urban footprint concentrated in better performing cities. We have largely avoided impaired markets like San Francisco, Portland, and downtown LA. Instead, we have focused our urban exposure more on markets like Boston, New York City, Chicago, Salt Lake City, Dallas-Fort Worth, and San Diego. In the fourth quarter, comparable total revenue at our urban hotels climbed nearly 2%, bringing the top line revenue to over 102% of 2019. That's a stat we think compares very favorably among our peers. Looking a little deeper, The DAGNY Boston, our biggest repositioning in 2023, was a key performer in the quarter, generating top-line revenue $870,000 above our operator budget with 233 basis points of stronger EBITDA margin growth. In December, the DAGNY's RepR index to the competitive set increased 15 points, to a 110% index premium, surpassing our penetration last year as a Hilton. The initial results from the DAGNY have exceeded our expectations, and we'll discuss this more when we move to our 2024 outlook. There were other stars in the fourth quarter, such as our Kempton Phoenix increasing total route par 34%, our Marriott Salt Lake City increasing total route par by 9.8%, and our Westin San Diego, increasing total rent bar by 7.2%. Of course, group success bolstered overall urban results. Damaroc's group room revenue for 2023 surpassed 2019 by more than 3%. We had positive contributions from a number of our hotels. The Westin Fort Lauderdale was up 23%, The West of Boston was up 2%. The West End City Center DC was up 18%. And Hilton Burlington was up a whopping 70% on a small base. Over the course of the year, we saw group momentum within the portfolio continue to build. In Q2, group room was flat to 2019. In Q3, it was up 3.8%. And in Q4, it was up nearly 7 percent. Compared to the prior year, 2023 group room revenues were better by 13 percent on nearly 4 percent higher rates. Growth in group room volumes and group room rates also improved sequentially throughout 2023. As we look out to 2024, Dimerock's group story is a major reason for our optimism and gives us the foundation to reintroduce guidance today. Our group revenue pace is up 21% versus this time last year. Our urban portfolio is particularly well set up for 2024 with a very favorable geographic footprint, leveraged some of the best group markets this year, a key advantage for Dimerock. Markets like Boston, Chicago, Washington, D.C., San Diego, New Orleans, Denver, and Fort Lauderdale are all expected to have stronger citywide calendars in 2024 than they did last year. And Phoenix and Fort Worth are also within striking distance to see gains. We expect our urban hotel portfolio will deliver slightly stronger rough hour growth in the second half of the year than in the first. Because of the citywide calendars, and on-the-books events. The main driver behind this timing is a significant shift in the convention calendar in Chicago and, to a lesser extent, Washington, D.C. In Chicago, the citywide demand was fairly bunched up in 2023 with peak activity in Q2. In 2024, the citywide room nights are steady after Q1 in Chicago. This means the Q2 citywide room nights in Chicago are lower than last year, but that the Q3 and Q4 activity is much stronger, almost two times stronger. In Washington, D.C., the group room nights are up each quarter across the year, but most significantly in the second half of the year, up over 100% in Q3 and up 36% in Q4. Before turning the caller to Jeff to get into more details on the financials and a balance sheet update, let me provide you with our outlook. We are pleased to reintroduce guidance. Based on current trends, we believe that the lodging industry is likely to experience red part growth in the range of 2% to 4%. With that backdrop, we expect Dime Rock to have similar red part growth but with the advantage of another 50 to 75 basis points of higher total revenue growth as our focus on outside-the-room spend initiatives bear fruit. Although January REPR was up 5.4% for our entire portfolio, we expect the first quarter to be lumpy and that the strength of the portfolio's results will be weighted towards the back half of the year because of the layout of the citywide convention calendars in our markets and the increasingly beneficial comparison for our resorts. On the expense side, we have been hard at work managing expenses at our properties. On the positive side, we believe some of the difficult culprits will be much easier in 2024 as hotels are fully staffed to their new but more efficient levels. Giant property insurance increases are largely behind us. Real estate tax increases will greatly moderate this year. and cost pressures will lessen from improved supply chains and lower inflationary pressures. However, wages and benefits, our largest cost categories, are likely to increase mid-single digits. And while other cost categories are moderating, some are still likely to increase above inflation. Accordingly, if Dimerock's portfolio generates rapid growth in the middle of the 2 to 4 percent range, we would expect the company to generate adjusted EBITDA of approximately $275 million and adjusted FFO per share of 95 cents. Turn it over to you, Jeff.