Q4 2019 Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by welcome to the fourth quarter Diamondrock Hospitality Company earnings Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you will need.
Press Star one on your telephone.
Please be advised that today's conference call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the cost over to your speaker today, Brian It right priority Quinn Senior Vice President. Please go ahead.
Thank you Catherine good morning, everyone welcome to Diamondrock fourth quarter 29, <unk> earnings call.
Before we begin I'd like to remind everyone that many of the comments made today are considered forward looking statements under federal Securities laws as described in our filings with the FCC. 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 take your Preregistered diver rock.
We're pleased to report so the operating and financial results for the fourth quarter.
Before I get into our 2019 review and 2020 outlook I'd like to first provide an overview of the current operating environment.
After which I'll turn the call or do our Chief Financial Officer, Jeff Donnelly, who will provide additional color, where our portfolio's performance as well with the balance sheet review.
Finally, I'll conclude their prepared remarks with commentary on several areas of focus that will drive value for diamondrock shareholders going forward.
Looking back at the fourth quarter the economy extended its record expansion, but there were signs that the ongoing trade war, China and commencement of a teacher proceedings were taking their told several key drivers of corporate demand, including business fixed investment in corporate profits.
The consumer however remains a source of strength.
Employment rates edge to a 50 your high fueling continued growth in disposable income personal consumption and the resurgence in residential investment.
It's short.
The leisure destination resort customer is doing better than the corporate traveler.
This supports Dom rock strategic pivot over the last few years to grow its portfolio up unique destination resort hotels.
Which continue to drive our portfolio performance until the corporate demand re accelerate.
Lodging industry fundamentals overall remain muted in the fourth quarter.
According to STR overall, U.S. revpar growth in the quarter was up seven tenths of 1%.
Once again outpaced the top 25 markets.
Demand continues to be healthy in the major markets, increasing 3.2% versus 1.4% growth and all other market.
Well demand with superior in the top 25 markets Revpar growth was not.
Revpar growth and tucked away Submarkets with just 0.3% in the fourth quarter as compared to 0.8% it all other markets.
The Colbert remain supply growth, which increased 2.6% in the major markets last quarter.
Which is 50 basis points greater than increase in the U.S. overall.
We expect that these supply pressures will persist into this year for many urban markets.
But many destination resort markets will have very low or no supply growth.
For Diamondrock.
Supply and our resort markets overall remains under 1% for 2020.
Turning to dimer Aucs fourth quarter results. We are well ahead of the top end of guidance. A result made possible by the persistent focus of our asset managers and operators to deliver good performance in the face of a challenging operating environment.
The relative performance of the I'm rocks portfolio was very strong in the quarter.
We gained revpar market share at two thirds of our hotels.
The portfolio had a 1.5% increase in comparable revpar.
Impressively this exceeded our aggregate competitive set by over 400 basis points.
For the full year 2019.
Comparable revpar for our portfolio increased around 1%.
Total revpar increased over 2.5%.
Both results surpassed the top end of our guidance range.
Food and beverage was a real bright spot for us.
I couldn't be revenues grew an impressive 6.2% for the year.
These great results were driven by solid banquet activity at our larger group boxes.
Combined with the payoff from our recent Repositionings, a bars and restaurants at hotels like the Glenn and the Westin Fort Lauderdale Beach resort.
Additionally, our team was relentless in finding other streams of revenue to drive total revenue despite anemic room rate growth.
Other revenue increased 9.1% for the year.
Profits profits also exceeded internal expectations.
Fourth quarter, adjusted FFO was $54.7 million, which is 9% ahead of the midpoint of our implied guidance.
Adjusted FFO per share was 27 cents, which is three cents ahead of the midpoint of implied guidance and two cents above the top end.
Fourth quarter, adjusted EBITDA was $62.7 million.
Surpassing the high end of our implied guidance.
This is even more impressive taking into consideration the $600000 that you put that disruption caused by the unscheduled PG any power outages in October.
For the full year.
Adjusted FFO was $217 billion, which is 2.1% ahead of the midpoint of guidance.
Adjusted FFO per share was a dollar or seven.
Which is three cents ahead of the midpoint of guidance.
And adjusted EBITDA was $260.4 million, which is $2.4 million ahead of the midpoint of guidance.
Comparable hotel adjusted EBITDA margins contracted just 59 basis points in 2019.
I want to personally recognize that focus and creativity of our asset management team in finding efficiencies and controlling cost in order to generate EBITDA growth.
In this low revpar growth environment.
Remarkably diamondrock. Unlike many peers actually grew same store profits.
Our comparable hotel adjusted EBITDA increased 5.7% in 2019 a.
Fantastic results or less a 1% revpar growth.
We want to provide an update or Frenchmans reef.
In December 2019, we agreed to set our hurricane or a mclean with our insurers for approximately $247 million.
We believe this was an excellent outcome for our shareholders.
We have now received all monies due under the settlement and in January we use part of the settlement to pay off 100% of outstanding under our credit facility.
The rebuild is now in full swing.
However, the rebuild is very complicated construction the Caribbean is never easy.
Our construction schedule has the resort reopening at the end of this year.
While the cost won't be final final until the project is complete as we still have to bid out the final elements of the job and potentially increase or beach restoration scope.
We still expect our total incremental investment will yield a return on investment in the mid to high teens.
Moreover, much of this incremental investment maybe recoverable under recently passed legislation in the Virgin Islands.
The entire team remains excited about how this resort will turn out and we continue to expect that the resort will ramp to $25 million of EBITDA around 2023, the third year after scheduled reopening.
Turning to our outlook.
Based on current trends, we expect the U.S. lodging industry will experience 2020, revpar change of negative 50 basis points to plus 1% growth.
Importantly, we have not adjusted our industry outlook or company guidance for the impact of Corona virus.
Against this backdrop, we think our strong group pace.
14.1%.
And favorable resort footprint will allow the portfolios total revpar to substantially ounces out exceed the industry average.
Accordingly.
Iraq's full year 2020 guidance is as follows.
Revpar growth in the range of view us average so from negative.
50 basis points to plus 1%.
However.
Total revpar is expected to outperform an increase from plus 50 basis points.
To a strong plus 3%.
Adjusted EBITDA is expected to be in the range of $245 million to $255 million.
And adjusted FFO per share in the range of one dollar to dollar up for.
We believe diamondrock is well positioned to deliver relatively strong performance in what is broadly expected to be a challenging year to maintain EBITDA.
In addition to our robust group pace and the benefit of our resort collection.
We expect our total revpar to benefit from our numerous recent hotel and restaurant ROI investments.
The higher end of our guidance assumes that we can repeat this successful short term group pickup for difficult periods that we enjoyed last year.
Thus boosting outside the room groups spent.
Conversely.
The lower end of guidance is based on Stauffer softer group pickup.
And the concomitant impact on non room revenue.
Another favorable attribute of our guidance is at the midpoint of our 2020 guidance assumes adjusted EBITDA and adjusted FFO per share that are essentially flat year over year.
Adjusting for non repeating business interruption insurance at French for Threeq.
Which contributed about $9 million to our 2019 EBITDA at about 4.5 cents per share to our 2019 adjusted FFO.
There was no incremental business interruption.
Allocated as part of the recent insurance settlement and thus we do not expect for instance to contribute materially to our 2020 financial performance.
So as I mentioned, our guidance makes no specific assumptions for the potential impact from grown a virus.
But we are closely monitoring that situation.
I'll now turn the call over to Jeff for additional detail on our financial results and market commentary Jeff.
Thanks, Mark before I walk through our fourth quarter results I wanted to remind everyone that comparable Revpar hotel adjusted EBITDA margins and other portfolio metrics. Our pro forma to include our 2018 acquisitions for all periods.
Due to the renovation activity comparable results exclude frenchmans reef for the entire year Havana Cabana for the first quarter and hotel emblem for the period of September Onest to December 30 Onest.
Fourth quarter financial results were ahead of 2018 on strong total revenue growth.
On a comparable basis revpar increased 1.5% in the fourth quarter, driven by a 1.1% increase in average daily rate and a 0.4% increase in occupancy the PG any power outages impacted caballo point and the Renaissance Sonoma for six days and reduce total revpar growth by approximately 35.
At this point.
Despite this headwind fourth quarter comparable 2019 room revenue was $167 million. This was 2.7 million ahead of 2018 on stronger than expected group pickup in the quarter.
Non room revenue was 1.3 million ahead of 2018 as a result of the additional activity and the implementation of new revenue streams at the hotel.
Our customer segments performs quite differently during the quarter, but leisure increasing healthy, 7.5% well business transient increased only 1.3%.
Several of our major markets had off citywide convention calendars in the quarter group pickup was stronger than in the previous years and helped to offset some of the forecasted weakness in group.
A standout in the portfolio in this regard with our Chicago Marriott Downtown Hotel as a result of the operating teams hard work and focus the Chicago Marriott ranked number six among all of Marriott's Convention Resort Hotel network for intends to recommend outpacing most of the major hotels in the Gaylord Mary.
And the Sheraton system.
For 2020 group is a great story for Diamondrock as of late January our 2020 group booking pace is up 14.1% from the prior year.
Collectively our hotels in Boston, and Chicago are up, 30% and 20%, respectively, and Worthingtons group pace has climbed to 15%.
We started 2020 with over 72% of our group business needed to hit budget already under contract.
The leisure segment and our resort portfolio excelled in the quarter.
According to STR. The resort segment was the strongest performance performing segment in the fourth quarter with Revpar up 4.4% crushing the 30 basis point decline Fcr urban hotels.
That are still our destination resorts outperformed this positive trend.
Collectively diamondrock destination resort portfolio generated 7.6% revpar growth and increased revpar penetration by 450 basis point the star performer in the quarter was the Renaissance Charleston, and I want to recognize their remarkable outperformance this year.
The Renaissance Charleston Historic District Hotel increased revpar, 3.9% for the year.
Compared to a 2.3% decline in the market.
This success was fueled in large part by and 12.7% Revpar increase in the fourth quarter as a result of the team's effort and securing strong group bookings in early December and strong leisure transient pickup during the holiday period.
The Revpar index for the hotel was 133, a full 18 point gain over the prior year.
We just announced that celebrity chef and PBS host Vivien Howard well opened two exciting new restaurant our hotel. This year that have captured the attention of local media as well as for 250000 followers on social media.
Overall, we have strong conviction that our resort portfolio is a competitive advantage and overtime, we will increase our portfolio allocation to destination resorts in order to capitalize upon what we see as a secular trend towards experience will travel.
We believe this niche well outperformed the national average for the lodging sector for many years to come.
Cost control remains a priority.
Total expenses grew 3.1% in the fourth quarter, the slowest pace of any quarter in 2019 as a result of proactive steps to respond to softer Q4 revenue growth and successful initiatives to increase efficiencies and labor and FNB outlet.
For the year total expenses were held two an increase of 3.4% on a 2.7% increase in total revenue.
Comparable hotel adjusted EBITDA was $68.8 million or 1.1 million below fourth quarter 2018, but ahead of internal expectations.
Stronger than expected group and leisure transient pickup generated $2 million of higher departmental profit in the quarter, which was offset by 1.2 million of higher property taxes insurance expense and 1.6 million of increased sales and marketing costs.
Comparable hotel adjusted EBITDA profit margin was 29.25%.
98 basis point contraction from 2018.
However, EBITDA profit margins declined only 48 basis points, excluding the 15 basis point impact from the PG any power outages in the 35 basis point drag from the shared in key west renovation.
Fourth quarter corporate adjusted EBITDA was $62.7 million and adjusted FFO was $54.7 million or 27 cents a share which was ahead of 2018 by one cents.
On a full year basis.
Corporate adjusted EBITDA was 260.4 million, surpassing 2018 by $6.3 million.
Full year adjusted FFO.
I think 2018 by 7 million and adjusted FFO was a $1.75 cents ahead of 2018 and above the top end of our guidance. We're very proud of these results.
Diamondrock balance sheet remains in great shape.
At December 30, Onest Diamondrock had $122.5 million of unrestricted cash on hand, with 1.1 billion of total debt outstanding at a weighted average interest rate of 3.8% and a weighted average maturity of 4.4 years.
Net debt to EBITDA concluded the year 3.7 times, which is below our previous forecast due to the resolution of the Frenchmans reef claim.
For 2020, we have only one maturity.
$53 million mortgage on the Salt Lake City Marriott that bears interest at 4.25%.
So we expect to refinanced by year end.
In summary, we have the balance sheet to be opportunistic on capital allocation as the environment evolves.
Finally, diamondrock announced the dividend of 12.5 cents per share that was paid on January 13th to shareholders of record as of January 2nd. This dividend was regular in the accounting sense, but it was special to us at Diamondrock because it marked our fiftyth regular common dividend.
Bottom line it was a great fourth quarter and we're very optimistic about our positioning in 2020 in that regard I'm happy to share. The Diamondrock had a strong January with total revpar, increasing nearly 14%.
First quarter is expected to be our strongest quarter and we expect total revpar will be in the mid single digits.
With that I will turn the floor back tomorrow. Thanks, Jeff.
Last quarter, we highlighted initiatives that we are undertaking to drive value for our shareholders.
I want to provide an update on these five focus areas.
One resort focus our performance continues to support our research that there are strong secular demand for experience will travel.
We believe that destination resorts, particularly in geographically constrained areas faced lower supply growth and lower expense pressures than the then in the top 25 urban markets and overall.
The industry.
Seven of our last eight acquisitions have been in this space and we are working on avenues to increase our portfolio concentration in the lifestyle and resorts segment in the years to come.
The repositioning of the key West resort announced today is a Prime example.
There are likely to be more announcements later this year for other hotels within our portfolio.
Two.
ROI projects.
We have identified in our pursuing $87 million of value add ROI projects that we believe will generate an incremental 16.
$18 million of EBITDA.
In total that's about 74 cents per share of incremental value over the next few years.
For instance in 2020, we will begin work on converting underutilized meeting space at the Hilton Boston to an additional 29 guestrooms.
Moreover, we are optimistic that our pipeline of ROI projects will continue to grow as we under new opportunities.
Three.
Relaunching Frenchmans.
We will reopen frenchmans reef as two distinct resorts.
For instance, reef Marriott resort and Spa.
And the Nnone Beach autograph collection lifestyle resort.
Reconstruction is well underway with reopening targeted at the end 2020.
Reopening the French as resort complex will be a strong and differentiating driver to earnings growth starting in 2021.
We believe this connected resorts will grow from almost nothing in 2020 to over $25 million, an EBITDA at stabilization in 2023.
Which will boost portfolio profit growth over multiple years for us.
For.
Opportunistic recycling.
We continue to evaluate the sale of a few select assets to lock in attractive private market pricing.
Proceeds would be recycled for debt reduction.
Share repurchases.
Or reinvestment, depending upon market conditions at the time.
It is our policy to not discuss sales until they are closed given the uncertainty nature inherent in these processes.
And finally five.
Asset repositioning.
[music] improved profits and increase and may be at our hotels.
We are pursuing several opportunities to change managers and continue our strategic transformation of the portfolio to be comprised of mainly short term operating agreements.
In January we made a major advances in this effort with the conversion of the west in Boston to.
To a franchise contract.
This change is expected to create $2 million of incremental EBITDA in 2020.
With over 65% of our hotels subject to short term or terminable agreements.
We believe this distinguishing feature translates into higher entities at higher valuation multiples for our hotels.
To wrap up the prepared remarks.
We had a good fourth quarter.
We are happy with our relative prospects and we're confident that our five focus areas, we'll continue to differentiate diamondrock and position us favorably compared to many of our peers.
Well now open up the call it take your questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone.
Withdraw your question plus a pound.
And our first question comes from Anthony Powell with Barclays. Your line is open.
Hello, Good morning, everyone.
Yes.
Good morning question on leisure trends there are some commentary from a cruise industry industry yesterday that domestic customers have you asked were avoiding traveling from turns situations or have you seen any of that impact youre.
Domestic resort bookings and in February and March at places like key west or avail or per Sedona.
No. So our destination resort customer we sell was very strong December appears to be very saw strong in January and if I look good.
Market like Vale continues to be strong. So we have we have not yet seen any weakness.
In that segment.
Got it. Thanks, So just wanted supply growth in reserves, obviously, there is structural issues and getting new resorts built in some of your markets, but given the strong kind of performance you and others have seen.
Are you worried that more supply maybe coming online and resorts over the next several years.
Yes, not not in the kind of markets that we are in generally sedona.
No.
Key west of these are markets that are virtually impossible to build in either some markets. There, it's actually a legal to add more rooms.
Key west.
Thats like Sedona largest geographically constrained so there may be more golf resorts or something like that felt the kind of resorts. So we have we're unlikely to see.
People increase in supply.
And have you seen cap rates decline and the small resort markets, where you've been pretty successful and buying at attractive cap rates.
I think less I think that were not alone and seeing the trend. So the desirability of resorts in these type of markets continues to increase so cap rates are probably holding steady.
There is probably more buyers today for these assets and there were two years ago.
So it lists we believe firmly based on the research and the trends that we're seeing that these these kind of properties will outperform the industry average over the next several years. So we would expect that there will be continue focus and the increasing buyer demand for these assets will to keep cap cap rates relatively competitive.
Great. Thank you.
Thank you. Our next question comes from Austin.
Were switched.
Our Smith with Keybanc capital Your line is open.
Hi, good morning, Thank you.
Certainly a group is off to a strong start this year.
Curious where are you, saying that ultimately settles out or what you've assumed in your guidance for group for the year and then what does that imply for leisure and transient segments with respect to the overall guidance.
Sure offices Park. So we're at about 14.1% group pace as we enter the year.
Always as you progress through the year the numbers kind of come in as you as you book.
As you booking realized some of that business in the tougher periods are hard to book. So we would that we would imagine ending the year in the mid to high single digits.
In total group pace.
We also expect that our destination resorts will be above the.
The National average and then I think it's it's you know every market every top 25 markets a little bit different.
But thats, where we see more of the risk.
Understood and then also touching on the resort segment I mean, you've definitely highlighted the benefits for sometime now.
Lower supply growth, you think lower expense growth in these smaller resort markets, but I guess, given where in the sick of the elevated supply in urban markets and wage growth.
Certainly still fairly big issue in these markets how do you accelerate the expansion into the resort segment. Given you are seeing more buyers today and expect that that could continue to increase.
Hi, Mike Mike I'll recognize Troy Furbay has done a terrific job of establishing a well say pipeline and being ahead of the curve and building a database of.
Literary Board 100, these type of resorts that we're monitoring and talking to owners and.
Trying to secure and grow that so as you see us think about dispositions are unlikely to be resorts since you think about acquisitions.
Yes, we have a team of very talented people that that's literally what theyre, they're spending 10 hours a day doing focused on these relationships and uncovering these opportunities.
Can you give us a sense of is the number of opportunities or the depth of.
Opportunities.
As it relates to resorts and is it just a reluctance of sellers to.
Let go of these assets that's.
Limiting the ability for you to continue to move in that direction.
I think theres a couple things going on here. If you look at just the volume of hotels for sale. The other fell about 2020, 1% last year.
The U.S., so there's less theres less hotels for sale the financing markets for existing owners has never been better so the.
The reason to sell versus refinances is less compelling in that kind of environment.
As listed these we have more unique type of owners in these resort markets with different kind of motivations for selling.
It sounds like we've gotten by 100. These the next 30 days frankly, I think the bigger limited literature on US right now is our cost of capital and our discount and Avi which makes it.
More difficult to do external growth unless you fund truly extraordinary opportunities, which we may.
But a single.
Isn't going to deal with its going to how to be a double or triple certainly to overcome the cost of capital hurdle.
And then as far as the depth of the pool that you're looking at today.
I mean theres dozens of these kind of.
Dozens and dozens of these kind of micro market resorts.
Theres not dozens and dozens on the market.
But we've been very successful over the last three or four years about income read off market opportunities.
When they do come available and that's what's so important about having a very high quality.
Investment platform and group within your company. That's monitoring these kind of opportunities because you need to be ahead of the curve and be their first and build these relationships. If you want to do these kind of deals.
That's helpful. Thanks, Mark.
Thank you.
Our next question comes from Smedes Rose with Citi. Your line is open.
Hi, I just wanted to ask you.
A little bit on the wage and benefits from sort of specifically what you see those increasing.
This year out and do you sort of agree with another company that said 2020 should be the peak in wages and benefits.
Yes, I'll give you some of our number so we're seeing wages.
They are very different at different hotels overall, we saw our portfolio wages in the budgets are up 5%.
But at hotels, they range from up 1% to up 6%, So theres a wide range and increases, but clearly it's a challenging environment and benefits are probably up 5% to 6% in 2020.
Whether thats piece or not.
As a percentage year over year, Tom do you have an opinion on that I.
I don't.
Mark I think that we got we have to look as well when you look at the wage growth.
We have to look at the mix of business, we project to do a significant increase in food and beverage.
50% of increases coming from outlets and our investment in outlets from loan out to Michael Marino to Costar suite in some of the outlets that we're doing so we're seeing.
Growth there and then the other 50% of roughly $9 million.
The increase is from banquet revenues and then on the banquet side. There is a a larger payout with regards to service charges and opportunities that get paid out to the staff, which inflates your wage growth. So I think we look at case by case property by property and.
And I think the big driver when you look at our percentages. This year, it's just that the amount of food and beverage growth.
So I guess answer your question the mix will they will play a large rolling it I'd to predict what future increases are going to be the worse. We're extremely profitable we're proud that we're able to grow.
Same store profits and that's really our focus and the day can you grow same store profits.
That will be our focus we did it last year, we hope to do it again this year.
Okay. Thanks.
That's it from me thank you.
Thank you. Our next question comes from Chris Woronka with Deutsche Bank. Your line is open.
Hey, good morning, guys.
Maybe talk a little bit about how 19 unfolded in terms of group performance versus your our versus contracts or your expectations. It seems like there was some pretty pretty big pickup.
Both in terms of kind of attendants also.
Out of room spend how much of that kind of flows through to your 2020 guidance.
So I'd say 2019, just a couple observation the outside the room spend was ahead of our expectations and very healthy we did go into 2019.
With a weaker footprint, which is now reversed and it's a stronger footprint going in 2020.
The in the quarter for the quarter group pick up in the fourth quarter was better than our expectation.
Now in fairness, we had a lot rooms to sell the as it was a strong city wide a couple of our markets.
But the quarter for the quarter was ahead of our expectations.
December overall.
Pretty much at all fronts was ahead of our expectations.
In January is off to a very strong start now theyre not always the the most indicative bonds.
But both of those months were very encouraging from that perspective.
Okay. That's helpful.
Then just on the on the share repurchase front you guys were.
Very opportunistic I think both in December 2018, and then.
Earlier in 19, I think you're you're buying that kind of Ninesixty five was the blended average how do you look at how do you look at things now the stock closer to 11 Bucks.
Is it just a number that's out there that you where you buy stock or is there something else that goes into it.
Yes, a couple comments on share repurchases were believers in share repurchases you had right. Since December of 18, we purchased 7.8 million shares an average price at $9 at 58 cents.
Do we look at we do our internal and Avi on a regular basis. We continue to believe that were trading at a 25% plus discount to anybody.
I think today that trading price implies something like an 80% to 83% and NOI cap rate, which is totally out of step with recent private market cap rates for quality hotels like ours.
We do about $170 million $175 billion left under our share repurchase plan approved by the board of directors.
We're going to be opportunistic I think thats the bottom line and there would be reasonable to assume that if we have any asset sales they're successful.
That would substantially increase our appetite for share repurchases going forward.
Okay very good thanks, Mark sure.
Thank you. Our next question comes from Michael both borrow with Baird. Your line is open.
Good morning, everyone.
And just on Frenchmans, what's the remaining out of pocket spend that you guys are going to incur in 2020.
Michael I think on our last disclosure that we had given we thought.
Our owners by deposit cost would be in the range of about $50 million.
And we think that those costs could increase slightly from here, but we don't have a specific estimates that we can give you today. That's why we were saying in our in our remarks that we thought our incremental return could still be in the mid to high teens. When we're all said and done on our owners investment.
Yes, Michael if you're trying to get the dollars out theres five at $150 million left on construction.
And then some of that's going to be offset we have key money coming in from the brand that will be do what we opened the resort and we still the pending application with FEMA.
For for somebody as well.
Got it yes, thats the number I was looking for that you fast forward to the ended the year, assuming you're at the midpoint of your guidance what does.
The 3.7 times not leverage at 12, 30, 119 look like versus 12 31 2020.
This is Jeff I think Tom if we continue to spend.
On Frenchmans at that point, I think we're going to finish the year closer to about four times that that EBITDA.
Okay kind of elevated.
Think about it because at that point, we'll spend all the money for Frenchmans, but we won't have any of the benefit of the EBITDA in the trailing 12.
Understood. Thank you.
Thank you and our next question comes from Rich Hightower with Evercore. Your line is open.
Hi, good morning, guys.
Good.
Hi, good quickly quickly on Frenchmans again, just you guys have maintained a $25 million stabilized EBITDA target I think for sometime now so just help us understand the margin of safety or the cushion that exists around that 25 million.
Listen the Caribbean comps that we're looking at and we reevaluate this on a regular basis continued to do well.
So nothing in the trend lines or the comps of the hotels that we that we think are the most competitive to this has changed we still think it'll be one of the top retention redemption hotels within the Marriott system.
So we still have confidence around all of those basic assumptions that are underwriting.
Okay. That's helpful.
And then mark maybe on a separate topic.
If you care to.
Terrific on the relationship nowadays between brands and owners and I'm sort of taking into context, the decision to turn the Boston Westin into a franchise.
And also thinking back to Alice and some of the conversations that we're had around.
Just the impact of supply on existing owners and maybe for the first time and all in a while I think some of those conversations the gloves came off so to speak.
In certain pockets and just tell us kind of where we are in that in that evolution from diamond rocks perspective.
As I think every.
First of at the close going off so I think there are clearly the brands our partners. We believe in the value of brands and the power that they deliver at certain properties absolutely.
Some properties in some markets, they probably don't deliver as much value as they do in other markets.
So I think we think about every hotel as its own individual business case, the Sheraton Qsb. An example that that market just run such high Revpar.
Delivers silage demand just popped in the market the cost of the brand versus independent probably.
It doesnt make as much sense of some other ones clearly convention center hotel the brands deliver a ton of value, but again, we look at each one individually the brands our partners. We do we do value that but there are times when there are points of conflicts just given the nature of our business model.
And we have to sit down and have conversations about the best way forward.
Their objectives at our objectives and come to some conclusions.
Okay great.
Thank you and our next question comes from Patrick Scholes with Suntrust. Your line is open.
Hi.
Excuse me good morning.
I wanted to follow up on a previous question I don't think the second part was answered.
Concerning.
The math.
Or what your expectations are for the transient customer when it kind of do the math when you talk about mid to high single digits for group, let's say that 7%.
Group, probably a third of your business that sort of implies that the rest of businesses do a negative three is at the right way to think about it.
Patrick This is Jeff.
Yes, I would say marks corrected number for group is mid to high single digits. There's a couple of other categories I would say the outlook for transient overall is slightly positive and we actually do have some growth in other areas too.
Contract for example, but.
I think I think you're correct the outlook for trains in our budgeted expectations is very low single digits, but.
But not negative I think it's just that.
Okay.
Thank you and then how do you.
Think about given sort of the trajectory trajectory of.
Revpar growth this year next about the sustainability of your dividend.
We feel great about our balance sheet Amedica we are.
We are committed to our dividend we believe our coverage is excellent and dividend.
[music].
So we don't see we don't CEO I think associated with the restore dividend.
And for.
Okay. Good to hear thank you very much.
Thank you. Our next question comes from sorry, Kevin with Wells Fargo. Your line is open.
Thanks, guys recognizing that total revpar growth is expected to be relatively strong share what what leads you to assume that revpar alone will be in line with the industry is that is that conservatism or is that concern for certain markets.
Hi, This is Jeff I think it's a combination of factors.
You're correct that we said that our to our room revpar would be increasing in line with the US overall, we expect the major market. The top 25 markets will actually lagged the U.S. overall, so on that basis, we do believe that our room revenue or are they are revpar growth is going to leave the top 25 markets.
But I would say that theres some conservatism in there.
Around our outlook for 2020, just as Mark mentioned in his remarks about assumptions around group pickup later in the year.
Okay. Thank you.
Thank you. Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is open.
Thanks, just one for me the performance gap between your two hotels and Sedona continues to widen can you comment on the underlying trends there.
Sure. So low barriers continues to to beat all of our expectation. The other hotel. We have is the orchards in which is on the main drag into donor they're doing a big.
Upgrade to the road and they are building a big circle right in front of our.
Right and from our hotel, which will be great. When it's done its is wrapping up down, but it was very disruptive, but FNB and to the.
Transient guests and so that impacted our rate in the last.
The last couple of quarters there.
Great. Thank you.
Thank you. Our next question comes from Bill Crow with Raymond James Your line is open.
Good morning. Thanks, just curious looking at the the total revpar growth, which looks good certainly Dutch for this year.
What percentage of your portfolios, receiving amenity or resort fees at this point.
Yes.
The third.
Okay, and how do you how do you think that trends.
Over the next year.
A little bit higher.
So we have.
Five hotels that we've identified that we would like to.
Pad that don't currently have we would like to add guest amenities to.
So we're in discussions.
With the brands.
Each of those five hotels now.
May or may not be able to roll out depending on negotiation.
Does that is built into your forecast that it's not built and that was the upside to our current forecast Gotcha and then what's sort of exposure do you have to the airline crude business, we've seen some real weakness there and certainly anything coming in from.
From Asia Pacific is.
It's going to hit pretty hard.
Bill. This is Tom we do a fair amount of CRE rooms in New York in a different major markets most of our.
Inbound or most of our crews are domestic side, we don't we don't anticipate any any significant impact of from that.
And then thanks, Tom One final question for me any impact either currently or whereas you look out.
Two.
For the coming in from Asia.
The disruption to the supply chain.
Thats a great question, we've asked it we've added.
Each of our projects. So we've advanced book that we have everything that we have is either here that we need to complete the projects in the next six to nine months or.
Or as on a vote on its way, including Frenchmans reef and some others. So we don't anticipate for us it's going to be a challenge.
Yes, it will there be some lighting fixtures or something that there will be they have to order from Vietnam versus.
China, Yes.
But we have double checked everything in our current pipeline and at the moment, we don't see any any hiccups.
Perfect. Thanks for the time.
Thank you. Our next question comes from Austin.
Participants with Keybanc capital your line is open.
Thanks, guys. Just one quick follow up here you mentioned the cost of capital is being a limiting factor as far as.
Celleration into the resorts segment have you explored using LP units, maybe for owners with tax basis issues that you could price at a more attractive.
Price than where your shares are trading today.
So we use them LP units, while we did Caballo point transaction.
We have had discussions that we are in discussions.
Over a year ago or about a year ago that owner of what that kind of these exact same thought.
And where our navy was and having them take the LP units.
Essentially at a higher bar that was commensurate with our anybody does early sense of negotiations.
Yes, but we've had some of those conversations but theyre they're complicated.
Okay. Thank you.
Thank you Im showing no further questions at this time I'd like to turn the call back to Mr., Mark Brugger for any closing remarks.
Thank you everyone to call. We appreciate your interest in Dime rock and we look forward to updating you on our next earnings call take care.
Okay.
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