Q1 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Diamondrock hospitality first quarter tiny tiny earnings conference call. At this time, all participants I know this and on the mouse.

So to speak a presentation there will be a question and answer session.

A question during the session you'll need to pet star one on your telephone.

Please be advised that today's conference is being recorded.

If you acquire any other systems. Please press star Zero I.

I would now they tend to compensate speaker today.

Riney Quinn senior Vice President and Treasurer. Please go ahead ma'am.

Thank you and good morning, everyone welcome to dynamics first quarter 2020 earnings call.

<unk> again, I'd like to remind everyone that many of the continent. Today are considered forward looking statements under federal Securities laws.

Described in our filings with the FCC. These statements are subject to numerous risks and uncertainties that could cause future result to differ materially from those implied back on it today.

In addition.

On today's call, we will discuss certain non-GAAP financial information.

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 Weber, President and Chief Executive Officer.

Good morning, and thank you for your interest in Diamondrock.

I want to start by extending our thoughts and prayers to those who have been affected by the ongoing pandemic.

At our core we are about bringing people together and sharing experiences.

As personally painful to see people isolated and hotel associates out of work.

Based on the current flattening trend lines, we are hopeful about the U.S. it seemed the worst of the pandemic.

Together, we will make it through this.

And we eagerly look forward to walk me back that thousands of valued hotel associates and the tens of thousands of hotel guest through the front doors of our hotels and resorts.

Today I'll focus my remarks on the steps we've taken here at time rock to respond to the cobot 19 crisis.

After which I'll turn the call over to our Chief Financial Officer, Jeff Donnelly to review first quarter results and our liquidity.

I'll, then conclude with a few thoughts on the future.

Yeah, I understand you Don Rux Cobot 19 action plan.

It is helpful to review, where we were before the epidemic started impacting us.

Probably most importantly.

As at the end to 2019, Dubroc had low leverage with about 30%.

Net asset value.

Net debt to EBITDA of only 3.7 times.

No preferred equity.

Fixed charge coverage on our debt with nearly 3.5 times.

We also had $325 million untapped on the credit facility.

And only one small debt maturity in the next three years.

Operationally.

Pre crisis or high quality and diverse portfolio was outperforming.

Our geography, and ROI projects, we're paying off with portfolio Revpar up 13.9% in January and 7.2% in February.

This strong starting point did not slowest from rapidly responding to the impacted the healthcare crisis that grip the U.S. with unprecedented force starting in March.

Almost immediately we enacted far reaching action plan it to fortify our balance sheet by building cash at dramatically curtailing cost at every level.

Let me review for you the steps we've taken thus far.

Actually it item one was to build cash.

In March we drew down our revolver.

Our cash balance at the ended the first quarter was $388 million.

Second we preserved $100 million of cash over the next year I suspending our common dividends, including the first quarter dividend.

Note that we have no preferred equity in our capital structure.

Third.

We reviewed every plan capital project.

Line by line item by item.

In total we have canceled or deferred 70%.

For $80 million of projects originally in our 2020 capital budget.

The remaining expenditures are focused on four main categories.

One projects underway that are more cost effective to complete the delay.

Two critical expenditures to preserve and protect your investment.

Three projects that we're going to be highly disruptive. So now provides unique opportunity to complete them.

And for a few select high impact ROI projects.

The fourth action item was to review the ongoing rebuild of the Frenchmans reef resort.

Prior to cope at 19.

Frenchmans reef was on pace to reopen in late 2020.

However, what their priority on liquidity and the likely pushing out of demand in the U.S. VI.

We made the decision to suspend the rebuilding effort.

The rebuild is halfway complete and there is about a $170 million remaining to complete the project.

We are excited about the long term prospects here.

But is prudent to push it out given the current environment.

Okay.

Let's discuss our most difficult actions step.

Which was to dramatically reduce the cost at the hotels, given the lack of travel demand.

We temporarily suspended operations at 20 of our 31 hotels between March 17th.

April 10th.

Collectively.

These represent 61% of our rooms.

Five of the suspensions, where the result of government mandates.

These include Caballo point.

Two resorts in key west that Burlington Hilton.

And the Charleston Renaissance.

The remainder were based on the simple fact that it was more cost effective to close them.

And to keep them operating.

What are the most painful parts of the pandemic is that regardless of whether operations were temporarily suspended or kept a hotel opened with minimal services.

We had to significantly reduce hotel staffing levels across the portfolio.

But you did monthly pay roll across the portfolio was.

$25.5 billion.

Today, It is just under $6 million.

This 80% reduction in our monthly payroll expense equates to over $230 million of savings on annualized basis.

We have placed fulltime security and building engineers in every one of your assets to preserve and protect asset value.

We're also preserving a minimum level of sales associates to capture future business. So that we can bounce back quicker.

In fact.

In April we generated nearly 1300 leads for 360000 room nights spanning late 2020 and beyond.

Our sales team and asset managers have been hard at work identifying alternate demand generators with good success.

We have provided housing for healthy personnel in our nation's military.

First responders.

Medical staff and even diplomatic groups.

Thus far these initiatives have generated several million dollars of incremental revenue.

We continue to seek ways to drive non traditional business.

Until more travel demand returns.

The cost savings were not just at the hotel level.

A dime Iraq, our 2020 cash DNA cost will be reduced by approximately 20%.

Through lower executive compensation.

Reduced employee head count.

And numerous other smaller but aggressive reductions such as rebuilding contracts.

Renegotiating with vendors and outright termination of third party services.

Another major action item, we have taken as a company relates to our secured financings and ground leases.

For example, we secured a 50% reduction in the payment for ground lease at the courtyard in New York.

On our seventh CMBS loans.

We are seeking accommodations such as permission to tap F any reserves for hotel working capital and debt service.

Somewhat ironically.

To date, we have not received much relief as the CMBS lenders have said dime rock is too well capitalized to receive relief.

Nevertheless, we will continue to be proactive on this front.

While we have diligently pursued all these major action items.

It is by no means an exhaustive list.

I'm very proud of the relentless effort taken by my team to leave no stone unturned in pursuit of cost savings.

Let me now turn the call over to Jeff, who will talk more about our financial liquidity Jeff.

Thank you Mark I will provide a brief overview of first quarter results and take you through the steps, we've taken to maximize liquidity and lengthen our runway.

Before I continue let me comment we spent considerable time to understand the myriad of public assistance programs provided as part of the cares Act.

We believe it is important in you know the diamond rock in its affiliates did not submit any applications under the payroll protection program.

We felt that given our low leverage large cash balance and access to the capital markets and application to the loan program clearly designed to support American small businesses withdraw scrutiny. We will however, certainly pursue appropriate programs. For example, we are evaluating the employee retention credit program, including the ability to.

For payroll.

Withholding taxes for one year.

Let's briefly turn to our first quarter results.

The first quarter was on pace to provide very strong performance before the impact of the response to covert 19 took hold.

Year to date through February total Revpar increased 10.8% on the 10.4% increase in room Revpar in a 4.4% increase in average daily rate.

The portfolio was firing on all cylinders group hotels, such as the Chicago Marriott in West in Boston, So, 39% in 30% prospective increases in Revpar.

Our focus on building out our drive to resort portfolio. The last several years delivered but the Charleston, Renaissance low barriers to Sedona and Havana, Kate Cabana in key west growing total revpar in the range of 10% to 20%.

First quarter adjusted FFO per share was four cents.

Total revpar declined 17% on a 19% decrease in room Revpar.

GLP margins were a little better than 24% and hotel adjusted EBITDA margins were 10 of the half percent.

For me the biggest takeaway in our first quarter was that our asset management team rapidly pivoted from generating robust, 10% plus revpar growth to abruptly suspending operations and still the portfolio gains 700 basis points of Revpar share in the quarter.

We continue to look for ways to grow in Avi as of March 2nd we now own a fee simple interest in the Kimpton Shorebreak resort.

We eliminated the ground lease by acquiring the remaining tenant in common interest in the ground lease for 1.6 million, including transaction costs. This purchase price represented an 8.3% capitalization rate on forward 12 month ground rent.

The additional fee simple interest should be a value to those who maintain detailed and maybe models.

Let's talk about our balance sheet and liquidity.

Our only upcoming maturity in the next two and a half years is the 52 million dollar nonrecourse bank loan secured by the Salt Lake City Marriott the matures November 2020.

The loan had no extension often options. However, we've executed a term sheet to extend the maturity until early 2022 with the performance option to push maturity a year beyond that.

Went to extend our gratitude to the PNC team for working with us expeditiously towards the solutions.

Let's talk about the credit facility first let me just say that Diamondrock has strong relationships with its lenders.

Many of which date back over a decade in several of which have been with the company since its IPO over 15 years ago.

Our lenders appreciate the Diamondrock has been a good partner and conservative borrower.

Importantly, we were compliant with all our financial covenants at the end of Q1 2020.

Under our covenants leverage was 34% and our fixed charge coverage ratio was 2.9 times. However, next quarter, we do not expect will satisfy these covenants.

As a result, we have negotiated a term sheet with wells Fargo, our administrative agent to amend our credit agreements.

To provide for waiver of all financial covenants for four quarters.

Our conservative financial leverage provides the negotiating leverage to reflect upon the amendments filed by those who've been compelled to go before US and then crafted amendment customized for our needs.

Since we're in active discussions I cannot go into more detail at this time, but I expect to finalize our credit facility amendment in the coming weeks.

As Mark mentioned, we drew down our revolver in March and held $388 million of cash as of the end of the first quarter.

We believe we are in good liquidity position to ride out the storm so let's look at the math.

Even in this scenario where operations at 20 or 31 hotels remain suspended we estimate the monthly cash use or burn rate across the portfolio to conservatively be in the range of 18, and a half million to 19, a half million excluding capital investments.

This is based upon hotel level cash use of $11 million to $12 million per month.

Corporate level Gionee of approximately 2 million per month.

And monthly principal and interest costs on all outstanding debt of approximately five and a half million.

Based upon this cash burn rate and the assumption, we finalize the Salt Lake City mortgage extension, we conservatively estimate Diamondrock has approximately 20 to 21 months of runway in a scenario where operations are essentially suspended.

In summary, our historically conservative leverage posture has provided us with a strong liquidity position.

With that let me turn the floor back to Mark who will talk about our outlook.

Thanks, Jeff.

We remain confident that travel and travel demand for our kind of hotels will return.

However, we are realistic that the shape of the recovery will be driven by the virus.

Identifying a vaccine.

And the quality of the economy thereafter.

The only certainty is that forecast will be wrong.

Hi, there too optimistic or too conservative.

Accordingly, we are prudently prepared our balance sheet and the hotel operating models for the potential of a protracted and gradual recovery that may take several years to return to 2019 levels of demand.

As for 2020 outlook.

We expect to second quarter will be the worst period, and we will see a recovery very slowly build in the second half of 2020.

Leisure is likely to lead the way in returning demand.

I guess, we are fortunate that 14 of our 31 hotels our resorts.

We expect drive to markets such as key west.

Fort Lauderdale.

Vale.

Sonoma.

Sedona.

And Lake Tahoe.

To be among the first to see recovery in demand.

After resorts.

We expect business trends, yet will be the next category to recover followed by small group.

The last demand segment to return is likely to be large group for self evident reasons.

It is important to note that most full service portfolios generated about one third of rooms revenue from group.

But all group it is not the same.

Everything from weddings to large conventions fall into the group categorization.

In 2019.

Our room revenue segmentation for the entire portfolio.

37% business transient.

33% leisure.

27% group.

And 4% contract or other.

Of our 31 of hotels, we have just for big box hotels in the portfolio.

And 100% of the group room revenue at these four big box hotels.

Contributed just 13%.

Of our overall revenue last year.

The fact that the majority of our group room revenue is generated by smaller groups such as board meetings and weddings is a key point of differentiation.

For Diamondrock.

Let's look at the other side that the supply demand equation.

Well the supply side, we expect new construction not already out of the ground well essentially evaporate in the U.S. due to a dearth of financing and uncertain profit outlook.

Similarly, we expect private accommodations platforms, such as Arab DMV, we'll see a sharp decline in the number of host willing to invite strangers into their homes.

Another phenomenal worth watching is the potential that hotels that cannot be profitably operated may simply not return.

For example, Theres discussion that over 2000 rooms in Midtown East Manhattan, roughly 10% of the supply.

They never reopened and instead convert to alternative uses.

This could benefit the remaining hotel owners like Diamondrock.

We continue to monitor this situation very closely.

Looking forward.

We're carefully evaluating the hotel reopening process.

We believe the process of reopening hotel.

As a function of when and how.

For the when.

It would be based on when governors and mayors lift to restrictions and when demand is sufficient to open a hotel such that it loses less money than staying closed.

For the health.

We are working on detailed staffing levels at each property to address the levels of critical personnel, we will require at various levels of occupancy.

We are entering a new world in many ways.

Many things are going to change.

There will be new protocols.

We expect consumers will demand a lower touch experience.

And standardize cleaning protocols, we reopened.

It is our view that brand affiliation will offer a distinct distinct advantage.

Due to low touch innovations such as Marriott's mobile key.

Brands also give consumers confidence that they will adhere to robust new cleaning protocols.

By comparison.

Arab Dnbi will find it difficult to enforce a common cleaning standard.

Speaking about brands they are aligned with ownership and are using this opportunity to undertake a comprehensive review a brand programs to help balance customer needs with owner profitability in this more challenging environment.

Everyone wants to get hotels open and a better and more efficient model lets us accomplish that goal sooner.

We are optimistic that we could emerge from this period with a better business model.

On a related point.

The U.S., it's just transition from the tightest to the looses labor market, we've seen since the great depression.

For the last several years, we have had outsized wage increases.

In light of the new environment, and everyone's joint motivation to get hotels reopened.

We expect less wage pressure and more flexible work rules.

Overall, we believe the industry will reinvent the operating model to run hotels with greater efficiencies than ever before.

Now, while we taken aggressive defensive steps to whether this crisis.

We are looking to the future and are focused on taking aggressive advantage of opportunities to add value for shareholders.

Last quarter, we addressed five areas to drive shareholder value.

And these remain justice true today.

One resort focus.

There's a broader understanding today that drive to destination resorts is at attractive niche and our focus in this area is unique.

We believe this concentration will accelerate directs recovery.

Two ROI projects.

We may have curtailed our capital spending.

But we are nevertheless, carefully undertaking value add projects, while disruption is minimized.

Three relaunching frenchmans.

We have delayed the reconstruction or Frenchmans reef.

But we believe this is only a pause in our schedule and we remain excited about the long term prospects for this project when travel resumes.

Essentially for instruments is a nugget of future value for our shareholders.

For.

Opportunistic recycling.

Near term, we do not expect dispositions to make sense, but.

But we do believe we will be well situated to take advantage of distressed hotel opportunities as we move through this recovery.

And five asset Repositionings.

Finally, we continue to pursue several initiatives to drive the strategic transformation of the portfolio.

These opportunities include initiatives, such as buying out the ground lease at the Shorebreak Kimpton.

Or going independent at our key West suites Hotel.

Soon to be known as the Barbary Beach else.

We're always looking at opportunities within the portfolio to mine value at our existing hotels.

I'll conclude their prepared remarks by reiterating that these are the most difficulties for lodging in our lifetime.

But through prudent balance sheet management.

Strong asset management and solid strategic execution, we remain confident in diamondrock.

On that note, we'll now open up the call and take any of your questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

You withdraw your question pest pound key.

Please standby, while we compile the can and day roster.

Our first question comes from Austin, Wurschmidt with Keybanc.

Your line is valid morning, everybody.

Very often hi, good morning, good morning, Hope, you're all well first as it relates to the eight or so resort assets that you highlighted as being the first to recover can you give us a sense of what percent of.

Demand previously was driven by Dr. to guests as opposed to you know inbound flights.

Yeah. So I'd give you some more color on the draft to resorts and what we're seeing there the resorts really very on none of them are fly to only destinations and seasonality will make a difference for instance in Fort Lauderdale, Q1 is more fly to and the rest the years really drive too.

And we don't have any any that have more than about 20, 25% fly to.

Business on a full full calendar year.

Just give you a couple highlight two overseen with some of those resorts today and as I mentioned in my prepared remarks, Liza represents about 33% of our total revenues in a in a normal year as the barriers, which is in sedona, it's really ramping up in a little over weeks since the Arizona Governor allowed restaurants to reopen we've seen.

Demand return may is forecasted to be.

Right now rates about $525.

Oxys about 20% for may but more encouraging.

Two weeks ago, and that we booked $225000 of business all of which will be pretty much index 45 days and rates were getting were between 2000 1400 a night.

That's up and read about 10% higher than last year, although we still have quite a bit availability, we're holding rate.

Even better just last week, we booked another 226000 in business and Sedona.

And that that's at a rate about $85 higher so were hold rate there will be obviously is the lower occupancy levels, but it's encouraging trend lines.

Shorebreak Kimpton Neal the on Huntington Beach, we had 40% occupancy last weekend.

And looking out there the U.S. open for surface moved back to August but.

We are a good bookings for that week with rate up.

$14 and I think 85 more rooms on the books for that week than we did for the that last year landing transit books bookings are up what small numbers about 30%.

We saw about 20% of the rooms for moral day weekend, but it's starting to build.

Fort Lauderdale, Westin Beach resort, we had about 100 rooms occupied last weekend. The beach is it even opened there yet.

Our often we're going to reopen that probably this friday.

South Carolina's reopening.

The moral days, we about 30% of the rooms sold for Memorial day in Charleston.

And then our key west resorts were waiting for the government to reopen that market, but looking to advance bookings. There. There are about the same in July and August as they were this time last year. So that's very encouraging for key west.

So we're seeing a number of positive throughout the throughout the resorts.

Not huge numbers, but but certainly we think it'll be the first segment in the first assets to recover.

No. That's really helpful could you kind of some that all up a little bit and say what level of occupancy that would equate to on some of these forward bookings that you just provided from in sort of in total.

Yeah, I mean, they're small numbers often so I don't have them totaled up but I can get back to what that number.

That's helpful.

And just last one for me I mean, you guys have you know you published your your net asset value estimate in early 19.

Earlier. This year you stated it was stock at around 10, 50 was trading at a 25% to 40% discount.

To your estimate of that a knee and I'm curious where you take your your best guess today is to.

Where you think any these have moved.

Then how you might balance that with your view of of where replacement cost is today versus maybe.

Just a few months ago.

Yes, so I think replacement costs is the same so construction cost are frankly Havent Haven.

Subsided at all so land prices may have declined a little bit, but theres not enough transactions to know so I would think on the replacement costs were still trading at a kind of a absurd discount to replacement cost values tough tough to.

Kind of figure out right now because there's so few trades in the market.

And debt financing is generally unavailable in a single assets today. So it's a little hard to know exactly where values are.

There are clearly down.

10% to 20%, but it'd be hard to give you a real accurate number given the lack of transparency with the.

With the transaction environment.

Yeah, that's fair Okay. Thank you.

Thank you.

Next question comes from Chris well welcome with Deutsche Bank. Your line is now open.

Hey, good morning, guys.

Mark wanted to ask you know one of your peers yesterday or a couple days ago.

Had a pretty big write down of a New York Hotel and I know that was a very kind of unique circumstance, but what is your view on that market longer term and.

Is that or is there a place of which you want to exit the market if prices come back a little bit or do you think the markets kind of permanently impaired and those values are are likely be down for for a long time.

Great question, So I think Theres no comparison with the individual asset sale one of our peers at a lot of unique circumstances. So we don't have any impairments in any of our New York assets I think new York's a.

Listen it's epicenter right now for this healthcare crisis. So it's getting hit very very bad we anticipate that.

Certainly for the balance of this year, it's going to be one of the tougher markets in the United States.

Hopefully in the fourth quarter, we'll start seeing some level occupancy return.

Now the longer term prognosis for New York City, I think one of the interesting things to think about is the supply picture. So.

In Midtown East as I mentioned prepared remarks.

There's potentially a 10% decline in supply with hotels, it just won't be economically viable and we're barely economically viable pre crisis that make it.

Never reopen make it covered to alternate uses.

That would dramatically impact the future on that on that market no. We anticipate coming back leader, but that could be a bigger snap back and then era bnb, which had up to 30000 room nights in New York City.

I think the future of what hosts do and the comfort of people staying at Ed.

Erbium piece in the city.

To dramatically different picture than it was three months ago, and so you could see a decline in supply on those alternative platforms. So those things I think are positives, but we do anticipate New York will come back later I.

I think the.

Two three years from now.

Bill will be decent hopefully this is what does it to stuff the supply over the next five years in New York City.

Still very expensive place to construct hotels. So we're still we're still relatively positive long term prospects, but we're pretty bearish certainly for the balance of 2020.

Okay appreciate that color and then.

On the four.

Big boxes group boxes, you do have.

Is there a point, where how do you decide when to reopen those do you need big groups to come back or do you think you can backfill enough with smaller groups and transient business transient leisure.

Open them this year or summer.

Yes, so I think to all the opened this year and most of it probably this summer but.

So if you look at the the four big boxes in our.

In our portfolio last year on rooms revenue it was about 40% group, which means it was 52% transient so they're very good transient.

Locations.

Salt Lake City for instance, it on.

Two blocks from the temple and is kind of a plus location Worthington Fort worth sits on Sundance Square, which is the main.

The main at retail.

Food and beverage outlet kind of area west of Boston seaports. It very good location and Chicago Marriott is one of the best Translocations I think in the city. So there.

They are big hotels.

But about half the businesses group half as non non groups that we think that there will be the ability to attract the transient we're not going to go to backfill all the loss group.

But we will have some small group and we will have to transients. So we'll be able to get it back open.

Okay very good appreciate it thanks Mark sure.

Thank you next question comes from Daniel start with Bank of America. Your line is now open.

Hey, good morning, guys.

Thanks for taking my question Mark So you talked about brands, taking a closer look at bed that balancing act between the customer experience in on the profitability. So I guess my question is like what do you think is on the table that the brands can help owners with here today.

Yes, there's a lot I mean, we're in conversations I think theyre doing a very good job of really talking through all the different aspects of their business. So on the high level I think there they're looking at their allocated costs and trying to reduce what they have to allocate out to the hotels by skinny and up some of the programs.

Finding efficiencies there so the less program services fees and lessing save to reallocate the lower they can make those costs the better it is for our profitability, they're looking at the regional staffing models.

I think we're all looking at operating models of the individual hotels to figure out what the right optimal staffing models are do we need assistant general manager duty assistant FNB person.

Can we do sales in the cluster versus the individual hotel level staffing model.

Theres a lot of things to look at their we're trying to consolidate engineering for a whole city.

Sub market versus having to individual hotels.

And then I think the big push is been what Ken technology provide that can help reduce our cost structure, so what efficiencies.

Can we put in place. So all that I think is on the table with them and that would have to look at the other other cost item.

What the brands yeah, they're trying to help on on purchasing and contracting and.

It's really every avenue of expense that we have at the properties.

Great and then I guess sticking to those brands. So obviously that there's been about now with the big push towards just helping with like distribution channels and we know the direct bookings.

Now that this could be a little bit different and so in terms of your distribution.

Hotels, we open and our did announce got out there to little bit more leisure bend to that demand patterns. Today. So what are you going to be leaning on.

There what is that going to look like what we're seeing different from.

I guess pre.

I hope it.

From a distribution.

Well, we move onto the next question would come back to any cause Bakken.

Thank you.

Our next question comes from Michael better Saria with Baird.

Your line is now open.

Good morning, everyone.

Good morning.

Mark maybe a question for you or or for Tom, but those 2019 figures you gave the 37% business transient 33% leisure just to clarify that rooms revenue or is that total revenues that you quoted.

Total revenues.

Got it and then just the similar topic on the big box hotels, 48%.

There is room revenue how should we think about.

Group contribution to the SMB and other revenue lines, there is it higher than that 48% or how much more profitable.

Our the groups on those two line items.

Yes, so the bank, what's you're going to be driven by the groups at the bank contribution which comprises a meaningful part of the S&P will be higher.

I don't have the exact percentages in front me back and get them for you.

Okay, Yeah, that'd be helpful. And then just separate topic. Those the April leads that you mentioned what type of customer bids booking or rebooking today, and then how were you handicapping or what are you telling her operators about any of that business at least in the near term eventually materializing.

Hey, Mike This is Tom.

It's a mixed bag a lot we were seeing some shift.

With regard to the group we've had.

Some significant cancels about $94 million as cancel since since the the outbreak, but we have seen some shifts into the fourth quarter interesting enough like our fourth quarter room night pace actually improved in the first quarter from about 105000 rooms to onefourteen.

The big shifted that is the big four hotels about 75000 rooms, so thats, where all the group's lending and.

So when you when you look at that mix some of the shifts a lot of ships happened in Boston, but if we had.

We had some groups cats thing in the second and third quarter moving to fourth quarter and then obviously other groups moving into the next year. It's.

It's hard to really know with a third and fourth quarter will do at this point, especially the fourth quarter that we're looking at but.

I believe that the bigger bigger events will probably.

Back in that you'll have less pickup or will cancel and then we'll rely on the smaller stuff wedding blocks and different smaller group meetings, if if and when they occur but.

I think that.

I think thats that yes, so I'd just add Mike. So Q3, right now should we interpret can pace is down about 11% Q4 is up to actually up about 14%, but you can't take too much.

Pardon that given that most of the cancellations occur about 60 days out. So we expect that those numbers materially deteriorate citywides. Some people are leaving the business on there until we get closer.

But it's hard it's hard to see a big city wide happening in 2020 this point.

And then just one more follow up on that same topic in terms of the type of groups and the type of businesses Rebooking have you seen any differentiation healthy industry is healthy companies.

Troubled companies troubled industries, which I don't I don't I think it's up it's a mixed bag I think that I think all the group right now is.

It is concerned I don't know that is healthier or or or not healthy I think it's more about.

Getting gathering people together is the issue. So I don't I don't know that we're seeing a shift or a change by any segment of group I think it's just it's either red light Green light.

Got it that's helpful. Thanks for the color.

Thank you.

Our next question comes from Stephen Grambling with Goldman Sachs. Your line is now open.

Hey, Thanks, just a couple of quick follow ups first how does the the theoretical value brands are bringing to the table or bringing back to the table make you.

Reconsider some of the independent properties in your portfolio.

Two questions. So we're big believers that brands at certain hotels or add a lot of value I think particularly on the urban Big box hotel, there Craig meaningfully accelerate the recovery.

And we think that the redemption points et cetera will really prime the pump for a lot of return business smaller independents are still going to make sense.

If you're.

Take our key west.

However to be each.

I still think that for the kind of a small resort.

People are look for the experience we are going to have to assure them, though in the cleanliness and that will be a little more that opened it will be with the brands.

But I still think on select hotels that makes sense. So we're trying to make sure we're being thoughtful and putting brands on the hotels that make the most sense.

But still in the small hotels, where they're kind of a unique lifestyle hotel, we still think independent probably makes sense.

And then you mentioned that some of the assets in New York.

Potentially being converted.

I guess to other uses what do you think some of those other uses our.

And you mentioned in New York, specifically, but are there other markets, where you're seeing that are hearing that.

New York Subprime one.

So.

For instance, we know Theres, a 700 room hotel within two blocks of our property or Lexington that theyre talking about knocking down converting to an office building and selling it on the fcr basis.

Separately the hide a grand Central station has been talked about getting knocked down compared to the mix use development coming back with a much smaller hotel product.

But office is going to be the primary converted use now some of them may turn into.

Condos or other things in the future, but those economics the less it's worth as I would tell the more it's worth as alternative use on a relative basis.

Got it thanks, so much.

Thank you.

Our next question comes from Rich Hightower with Evercore. Your line is now open.

Hi, Good morning, guys Hope you can hear me.

We got good morning, rich, Okay. Good morning, Mark.

Just a quick point of clarification earlier on the 20 to 21 months of of liquidity runway, Jeff I think you said with suspended operations does that mean as currently operating or if every hotel a shutdown just just to be clear on that.

Yes.

Jeff.

I can take that.

Rich the runway figures that I gave you was as the hotels are currently operating although.

If we went the extra step of assuming every single hotel was closed it would make a pretty minor change the difference between being.

Having two thirds of our hotels close to one third at single digit occupancy or all of them close out right is pretty immaterial I would say, it's probably about a month if you will in our runway calculation.

Okay. Thanks for that.

And then you know not not a whole lot of other questions. We've covered a lot of ground but.

So at some companies have given breakeven occupancy for their portfolios, but I'm wondering for Diamondrock.

If we if we split that across sort of the big box segment. The the smaller resort segment and sort of thing in between are there other materially different levels of occupancy that would.

Gets you to those breakeven even levels just so we kind of understand the.

You know sort of how the business works in that regard.

Jeff you want to take that.

Yes, rich I would say overall, when we look at our our.

Breakeven occupancy across the portfolio in its entirety I would say that the figures on a GLP line I'll give you a few numbers on a GLP line to cover our variable costs. It falls, probably between 20 and 30% occupancy.

On the hotel EBITDA line, it's it's closer to about 40% occupancy and I think at the corporate EBITDA line, it's between 45 and 50% occupancy.

Maybe I can.

Tom on this but I would say off the cuff I would imagine that some of our resort hotels, which generally tend to be a little bit smaller might have more flexibility and breaking even at lower levels than some of the larger groupons, but I'll, let Tom.

Tom healing expand on that.

Oh, yes.

Yes, I think this the smaller hotels are efficient and and have less operating.

Moving parts. So if we if we get lower occupancy, we actually could break even probably somewhere around 5% to 10% and then and then wrap up from there on the GLP line and then EBITDA is as Jeff just mentioned I think even is probably somewhere around 30% to 40%.

Depending on the the the market.

And the real estate tax the insurance cost the labor costs. So it varies by hotel and we are.

We have we're measuring each hotel, we have metrics for each of the hotels breakeven. When we created plans for 510 15, 20% occupancy went how we bring back bodies were measuring VF to ease we're measuring the labor we're measuring all the different costs when we bring back services.

We've been breaking down restaurants, when do we opened reimaged restaurants at what point do we opened restaurants, and so that each of them are being evaluated case by case market by market, but.

I think that covers it yes.

Okay, great. Thanks for the color guys.

Thank you.

Next question comes from Smedes Rose Sidoti Your line is now open.

Hi, Thank you.

I just wanted to go back to you Mark.

It's about changing the operational model at the hotel I guess I wanted to ask just a little bit more about your thoughts around labor, specifically kind of the cost to clean room, if you think.

It's going to go up or down I guess in the sort of the coast cobot environment and I'm thinking of the brand protocols at that have been called out in terms of extra cleaning, but then there's talk about.

Having less cleaning while aghast is in a room. So how do you think all that kind of balances out.

Well it speeds great question. So I think obviously the more labor to do the more extensive deep clean between guest and so we're actually running tests running that right now to see how much more in minutes per room that means.

But as to think that the offset as you mentioned is I don't know how you feel but right now I don't really want people coming into my room. When I've stated the hotel, while staying there traditionally they would come in and move your toothbrush in your your razor and put it on a talent next to the sync very nice and need I think today's customer doesn't want anyone coming in.

Touching their toothbrush.

Why they're staying there so we envision it's a much more low touch environment and during your stay it's a lot less operationally intensive.

For instance, I think Cal swaps is probably the primary need that folks are going to have maybe shampoo.

Conditioners, and how do we do that and how to accommodate people's desire to.

Make is high channel as possible. So right now we're actually running some test.

To understand efficiencies and how many rooms per per day housekeepers can clean with the deep clean on room turns.

Versus the the less.

The less intensive efforts while guest are staying at the rooms I don't have an exact answer for you, but we're monitoring and working on it right now.

Okay, and then I just wanted to ask.

I appreciate the Revpar breakout by property, but are you guys it no longer going to provide.

Hotel operating results in terms of.

Total revenues and EBITDA by asset or is this just sort of a temporary suspension given what's going on.

Jeff you had talked about our reporting.

Yes, no I think.

Smedes for this particular quarter it didnt seem like it was particularly useful but I think about future, we'd like to bring that back I think the disclosures good practice for us.

Okay. Thank you guys.

Thank you and next question comes from Anthony Powell with Barclays. Your line is now open.

Hi, good morning can again.

We can.

Great Great just a question on Capex I understand these frenchmans delay, but there are a couple of other projects that were scheduled for next year the.

The orchards in repositioning and the Vale renovation are those still on schedule.

Has been delayed as well.

Yes, so on that on a capex is the mentioned in the prepared remarks kind of what project by project to figure out what was rational if this year.

Well if completed the Michael Mena restaurant in Sonoma and that Richardson involve restaurants at both the Worthington and the JW.

Marriott Cherry Creek Denver.

As well as some other some other upgrades and some other ROI items, we do anticipate that Vale with the repositioning will will complete that as planned next year.

We will get the conversion to Barbary Beach done and that'll happen in June in key west.

The but orchards probably gets pushed off additional year, that's probably a 20.

22 project at this point.

Got it thanks and in terms of your overall property mix you Havent you targeted 50% resorts overtime that go up as you roll to that's kind of event or.

Are you still looking to have.

Happy to begin to be more corporate transient.

Drilling.

Yes.

Frankly, which were 100% resorts today, but no we're continuing to move to that direction I think when we get to 50%, we can reevaluate where the world is.

But we're going to continue our focus of dispositions and acquisitions over the next two years, we'll continue to move us in that.

In that direction, so, yes, we'd like to be at least 50%.

Potentially more overtime.

Okay, great. Thank you.

Thank you. Our next question comes from Deutsche question with Wells Fargo. Your line is now open.

Thanks.

Mark you expect your independents to invest in technology to go lower attached with nine level check in our food ordering or should we expect their lower attached to be more about the dealer piece for the near term.

I think it's going to be dory. Good morning, I think it's going to be a mix. So there are some third party providers that do things like mobile key so we're working on that we havent implemented that yet, but that's something we're trying to evaluate and make sure that from a security standpoint in the.

Kind of a technology access that we can we can utilize those but they're not going to half the size platform theyre not going to have the tech budgets at the brands have so we're going to have to address.

Some of that just customized services at the hotel. So certainly we can do allow the cleaning protocols.

Similarly at the independence that we can at the brands, but I think that theres going to be a different process.

Around giving given customer assurance and I think the technology theres going to be some trade offs independent just aren't going to be able to deliver the same kind of efficiencies and same kind of technology and we just have to acknowledge that and hopefully.

The makeup for customer service.

Okay.

It is the receipt of both the key money and theme of money for Frenchmans that tied to the App the opening date.

The key money is do when we opened the property. So yes, it's tied to the opening date.

The FEMA application. If it's approved is tied to the completion of the construction of that one wing of the hotel that could serve as a future hurricane shelter.

For the island.

Okay and there is no plans to move that forward for this hurricane season.

No it would take over a year to complete so it couldn't be done for this hurricane season.

Okay.

Okay. Thank you.

Thank you.

Next question comes from Thomas Allen with Morgan Stanley. Your line is now open.

Hey, good morning, Thats, a follow up on.

The question about breakeven earlier, what HDR declines are you assuming in the breakeven.

Jeff you and take that.

Yes.

I can I can circle back when you get more detailed on it but I think the numbers that we're assuming that are behind that or are.

At a double digit declines as sort of in the teens on on rate the competition, but I can circle back with a view up with you Tom if you like because the reality that's going to vary by hotel and overtime on the we're forecasting and effectively when we hit those breakeven points.

Okay.

And then the tough question to answer, but 2020 was supposed to be great citywide year for your portfolio.

You can tell but thinking about like when the next time you could have a really good citywide line up I guess.

Two part question in terms of like can you just can you just can't Ken cities.

Backfill or fill in did have enough empty spot that go and.

Prior years conventions into future years.

And then just any estimate on.

When you think things go back to normal.

Well Tavis I think the when things go back to normal probably depends a lot on.

Healthcare remedies right. So winners treatments available when does the vaccine available I think until there's a vaccine.

Or immunity in next couple of years, you're not going to see things get all the way back to normalized.

It's not realistic fars groups are turning to listen we're setting a very low benchmark. This year, so the year over year increases.

Book could look terrific. These are kind of come off a base of virtually no citywides I think for the back half of this year.

The generally citywides take about three years to plan.

But we're going to go into unprecedented uncharted water here theres going to be plenty availability at convention centers and at Big box hotels.

Relatively short notice so could you put together citywide it's a three years and six month, yes, because we're going to have enormous availability in the United States.

Over the next couple of years, so we would envision that a lot of these citywides are.

There are orchestrated by people, who make their living organizing conventions.

So they're highly motivated to get them done it's a matter survival for their business model. So they're going to do everything they can to get them back up and running.

So we envision that you'll start seeing it ramp up pretty quickly when people are comfortable meeting in large groups again.

When that date is again, we can't give you assurances because it's really going to depend on the healthcare.

Evolution as we move forward, but we do think it'll it'll come back.

Relatively quickly from low levels, but it will return to normal for for a number of years.

Helpful. Thank you.

Thank you. Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is now open.

Thanks, just one left for me I may have missed this earlier on the call, but can you talk about demand trends for markets that are starting to open back up from shelter in place.

Yes, so the.

The small resorts were seeing I mentioned, some stats earlier in the queue and they were starting to see some pretty good.

Get off a very small numbers some pretty good demand sedona.

And beach and latest again off a very small numbers. So the demand in the last couple of weeks has certainly improved.

If you look across our portfolio.

So in April when things started to loosen.

The cadence got a little better as we went through so week by week give you. The four weeks in April started.

The 10.9% second week, 12.5% occupancy.

Third week was 19.1% and then we were almost 21% the last week of April so.

Things loosened up we saw a little better.

Occupancy levels, that's it or opened 10 opened hotels.

But nothing the too excited we are encouraged by the call volume in the last two weeks at the resorts.

And then for the urban business transient.

It's it's very small numbers at those hotels.

We are getting some group for group inquiry.

But on the business trends inside the even the call volumes are up a little bit, but there's still a very low levels.

That's really helpful. Thank you.

Sure.

Thank you.

I'm not showing any further questions at this time I would now like to turn the call back over to Mark for closing remarks.

Thank you. Thank you everyone on this call. We appreciate your continued support for Diamondrock.

Please stay safe and we look forward to update you on the next quarter.

Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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