Q1 2022 Diamondrock Hospitality Co Earnings Call
Ladies and gentlemen, this is the operator todays program is scheduled to begin shortly please continue to standby and thank you for your patience.
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And ladies and gentlemen, thank you for standing by and welcome to the Diamond Rock Hospitality <unk> first quarter 2022 earnings release at this time all participants are in a listen only mode. After the presentation. There will be a question and answer session to ask a question during that.
Session, you will need to press star one on your telephone keypad.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker, Jeff Donnelly Chief Financial Officer at Diamond Rock. Please go ahead.
Thank you Carmen and good morning, everyone. This is Jeff Donnelly, Chief Financial Officer of Diamond Rock Hospitality and welcome to our first quarter 2022 earnings call with me on the call today is Mark Brugger, our president and Chief Executive Officer.
Before we begin let me remind everyone that many of our comments today are not historical fact and are considered to be forward looking statements under federal Securities laws as described in our filings with the SEC. These statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those expressed or 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.
I am pleased to turn the call over to Mark Brugger.
Thanks, Jeff Thank you for joining us today for <unk>.
The recent rebound in travel demand has exceeded our expectations. Despite the omicron pause in January <unk>.
Americans are clearly getting back on the road after being locked down for the last two years.
The culmination of our strategically crafted portfolio and operational excellence has allowed us to deliver first quarter hotel adjusted EBITDA higher than the comparable period in pre pandemic 2019.
<unk> based on current demand trends, we expect portfolio total revenue to exceed.
Full year 2019 same store total revenues for the full year 2022.
Moreover, hotel adjusted EBITDA is projected to exceed 2019 levels for the next 12 month period.
Let me highlight a few of our successes this year.
The portfolio took 280 basis points of market share from competitive hotels compared to 2019.
Getting past Omicron impacted January results for February and March collectively were terrific with total revenues exceeding the comparable months of 2019 by two 5% and hotel adjusted EBITDA was up an impressive 16, 2% compared to 2019.
April total Revpar continued this positive story it was up four 2% versus comparable 2019.
For the entire first quarter comparable hotel adjusted EBITDA margins were 26% an increase of 122 basis points over comparable 2019, despite the headwind of January .
These robust results in the quarter that we comply with all our original unmodified loan covenants and we expect to exit covenant waivers at the end of the second quarter.
And to top it off we acquired the synergistic Kimpton Fort Lauderdale Beach resort on April one in an off market transaction for only $360000 per key.
In many ways our portfolio of 34 hotels is uniquely balanced for a one two recovery that should put diamondback upfront.
We have the right kind of assets and the right kind of market to set up for success in this cycle.
Todays travelers focused on experiential travel, especially in leisure.
We believe that our portfolio of 14 resorts will continue to outperform outperform for the foreseeable future because consumer demand for frequent leisure trips has accelerated.
The U S remains massively under our resorted and new supply remains permanently constrained due to the scarcity of prime resort land parcels and regulatory restrictions that often lead to an outright prohibition against do developments.
Importantly, thus far at resorts, we've seen little pricing resistance from the leisure customer.
And encouragingly the advanced bookings at our resorts.
Even as far out as next festival weekend into 2023 are at rates higher than this year.
On the group side.
We are well positioned with strong citywide demand in our key group markets This year and next.
Meeting planners are actively booking and we expect to exceed our budgeted goals for 2022.
The pent up group demand and the need to meet make it likely that group bookings will hit new highs over the next few years.
The last segment to recover this is transient is coming back and it has increased dramatically in just the last few weeks.
While we are seeing big jumps in BT demand, we should point out that is coming from very low levels. We still expect btu recoveries. It takes some time to fully heal and it will vary significantly by city.
With that said overall each demand segment is trending much stronger than we thought even as recently as our last earnings call.
Before getting into details on the numbers, let me just hit a hit a few reasons why <unk> is so well setup.
First our footprint.
Which we spent the last cycle strategically repositioning is just where you want to be for this entire upcoming growth cycle second.
We have several ROI repositioning that have just been completed and many more on the way.
Third.
We have restructured our management agreement such that over 90% of our hotels have short term agreements and that gives <unk> a unique advantage and.
And finally, we have a pipeline of deals populated with properties that have the kind of characteristics that continue powering our current outperformance.
Now jump into the numbers, let's turn to profit margins.
Resort and leisure properties are going to be the big long term winners in the profit margin game this cycle.
Our resorts expanded profit margins by 759 basis points in the first quarter compared to 2019 and are collectively at new highs.
Conversely, despite outperforming their comp sets.
Our urban hotel profit margins contracted by nearly 200 basis points in the first quarter from comparable 2019.
The urban hotels are now fully on the upswing in January during the <unk> total revenue at our urban hotels was 47% below the same period in 2019.
But by March this dwindle to just 16% below.
Actually for March our urban hotels finished at 65% of occupancy and ADR within 1% of 2019.
In April we saw comparable Revpar moves still hire at our urban hotels.
Urban hotel profitability is a major opportunity for <unk> <unk>.
<unk> full year 2021 hotel adjusted EBITDA for our urban hotels was $164 million or 90% below comparable 2019.
This year, we expect to see a surge of profit recovery, which is projected to restore as much as 60% of this pre pandemic urban profit in 2022.
They quit business is the most lucrative component of the group demand found that many of our urban hotels and several of our resorts too.
As group activity returns.
Banquet business builds we will see profit recovery accelerate.
Looking ahead to 2023, our portfolio should get a multi pronged benefit from the continued recovery of group the return of high margin banquet business.
And continued record restaurant sales.
Ultimately, we believe that the diamond rock portfolio will stabilize at margins 200 to 300 basis points higher than the prior peak.
While some of our peers have made promises about profit margin expansion and some unnamed future year <unk> has already proven out half of that promise gain with just our resort profit.
With just our resort portfolio profit margin success.
As they are on track to increase profit margins by 400 to 450 basis points in 2022 over 2019.
Note that resorts represent about 50% of our stabilized profits.
Before turning the call over to Jeff I did want to talk about our internal growth initiatives and how they are benefiting results.
Last year, we completed three repositioning.
The lodge at Sonoma.
The height of Vail luxury resort.
And the Margarita Bill key west and.
In the first quarter those three hotels generated massive revpar growth exceeding monthly 2019 levels by 22, 7% 22, 6% and 82, 7% respectively.
Putting it another way the three repositioned hotels delivered an incremental $5 million of EBITDA in Q1 as compared to 2019.
And are projected to produce over $15 million of incremental profit for the full year over comparable 2019.
That's a heck of a return on our investment.
Collectively these three properties are forecasted to generate an amazing 13% NOI yield in 2022 on our total investment in those properties.
In the first quarter of 2021.
We completed two more repositions the hotel Cleo Denver, a luxury collection hotel and the embassy suites, Bethesda, and we have several more opportunities on tap.
Collectively we believe that we will have executed more value, creating manager and brand conversions than any other full service lodging, REIT, which positions us to outperform going forward.
I'll now turn it over to Jeff to discuss the quarter in more detail Jeff. Thanks, Mark first quarter results were sharply ahead of our original forecast total revenue in hotel adjusted EBITDA in the quarter or $197 million and $51 million, respectively with comparable hotel adjusted EBITDA margins of 102.
92 basis points ahead of 2019.
The momentum in the quarter was terrific. Excluding January margins in the quarter were up 384 basis points compared to 2019 from.
Profits were strong and room profit margins were ahead of 2019, not surprisingly F&B revenues in F&B profitability lagged 2019 due to the omicron impact in January and the reason Mark alluded to earlier less high margin banquet business typically associated with groups.
Turning to the balance sheet, we finished the quarter with over $350 million of total liquidity and $200 million of Undrawn capacity on our revolver inclusive of the asset recycling capacity, we have a gross potential acquisition capacity of $650 million as Mark mentioned, the strong portfolio performance led to compliance with all original.
<unk> unmodified covenants in our credit facility in Q1, 2022, and we expect to have our origin covenant waivers at the end of the second quarter since it is a two quarter test.
Let's talk about performance starting with urban.
Comparable urban hotel revenues were $82 million in Q1 'twenty two a.
A $60 million improvement over 2021, which leaves a $34 million upside opportunity to get back to 2019 levels.
The urban hotels had a strong recovery over the course of the quarter with occupancy gaining 30 points from January to March and concluding the quarter with ADR less than 1% from hitting 2019 rates.
EBITDA margins at our urban hotels were 7% for the quarter, but but the progression is really the important story and highlights the opportunity.
In January EBITA margins at our urban hotels were negative 32% owing to the impact of moment crowd, but by March EBITDA margins were positive, 24% and within just 350 basis points of 2019.
Going forward, we expect the urban hotels will ultimately stabilize at profit margins better than our pre pandemic performance.
Diamond Rock has some special advantages, including the restructuring and conversion of the majority of our Marriott management agreements. These modifications significantly reduced our exposure to incentive management fees, eliminating the profit flow through drag other space as profitability is restored.
For example, in 2022, we expect to pay $4 million or 80% less and incentive management fees compared to 2019. This is a distinct advantage for diamond rock as the recovery matures as compared to what brand managed portfolio.
Turning to business transient omicron proved a temporary setback by delaying the return to office. Nevertheless, we saw strong steady improvement in business travel indicators over the course of the quarter.
Midweek occupancy increased from 36% in January to 57% in February .
70% in March and 78% for April .
Midweek occupancy on the books for the next four weeks is already surpassing in January and February and given the short term booking window, we expect significantly more demand will fill in as we move through the month and quarter.
Group activity really accelerated in the quarter cancellations are down conversion is up in person meeting activity is increasing and less desirable space only meetings are trending down.
In Q1, we had over 16000 group leads for $2 8 million room nights of business.
That is 36% more leads than we generated in the same prior same period prior to the pandemic and 40% sequential increase in room nights.
The outlook is very encouraging and we expect full year group room nights to recover to 85% of 2019 levels group.
Group rates on the books for the remainder of the year up five 5% over 2019 and another 6% in 2023.
Comparable resort revenues were $115 million in Q1 'twenty two.
Revpar was 31% ahead of ahead of 2019 driving hotel adjusted EBITDA margins up to nearly 40% of.
Our resorts showed strong and steady progress over the course of the quarter with total revenue up nearly 10% over 2019 in January despite omicron, 31% in February 35% in March and this strength is continuing as we move into Q2.
Occupancy on the books at our resorts for the next 12 months is up 12% year over year at 19% higher rates.
And just the next 90 days occupancy on the books at our resorts is up 32% year over year at 15% higher rates that is an acceleration in the ADR on the books as we move into the future.
In fact during festive week in late December 2022, our rates on the books are currently up 36% over the prior year. So if you intend to plan a vacation in one of our resorts I strongly encourage you to book early.
Let me give you a few specific property examples Henderson Beach resort summer season, ADR is up 16% over 2021 and festive season revenues are up 50% the highest our newly upgraded luxury resort in Vail is seeing festive season rates up $200 over the prior year.
<unk> in Q1, 2023, ADR pace is already up 38%.
This summer at the Lodge at Sonoma. Another recently up branded resort, we're seeing a 43% gain in ADR and 60% improvement in occupancy on the books.
Our over the revenue pace for fall is up 100% over 2021.
And finally at low barriers.
We are seeing an incredible 2023 advanced booking activity with overall revenue pace up 52% in fact low barriers of Sedona is expected to generate $195000 of EBITDA per key which translates into a 17% yield on 2020 to NOI.
<unk> has more than doubled since we acquired this resort in an off market transaction, just three years ago.
We expect our recently acquired an upgraded resorts will continue to outperform against this backdrop of strong leisure demand.
As Mark mentioned earlier, we expect total revenues for the entire portfolio for full year 2022 to meet or exceed full year 2019 same store total revenues.
The information is on page 13 of our press release and is an excellent guide.
Full year 2022 hotel adjusted EBITDA margins should ramp slightly behind that from the lag in group recovery with associated banquet profitability.
Given our strong performance. We we project we will have taxable income for 2022, and accordingly, we expect to recommence a quarterly dividend on our common shares beginning in the third quarter of 2022.
With that let me hand, the floor back to Mark.
Thanks, Jeff.
Our outlook is very constructive.
<unk> said, we do currently expect total hotel revenues to meet or exceed 2019 levels for the full year 2022.
And for four hotel adjusted EBITDA to exceed 2019 levels for the next 12 month period.
Our resorts continued to push ahead at an accelerating pace, while group and business transient demand at our urban hotels is kicking in to provide a double benefit and recovery trajectory.
Ultimately, we continue to believe that we will stabilize at higher portfolio of profit margins.
Just on the implementation of best practices from this downturn.
The benefit from recent brand to independent management conversions at another 20% of the portfolio.
And the boost from ROI projects.
On that note I should mention that we have several other high ROI projects underway or under evaluation.
These include the potential repositioning of Orchard sedona to be the cliffs at La bears.
The upgrading of our Burlington Hotel.
And the conversion of one of our branded urban properties to a lifestyle hotel.
Collectively the incremental stabilized EBITDA associated with those three projects is about $8 million a year.
This doesn't even include the benefit from other smaller projects like adding 14, new keys at the landing Lake Tahoe resort.
Adding a new rooftop bar at the Gwen Chicago.
Or re concept in the rooftop pool experience at.
At the Palomar Phoenix.
On the external growth front.
We completed the acquisition of the Kimpton Fort Lauderdale Beach resort in April .
This is a synergistic deal with our western resort located only two blocks away.
This newly built resort has the qualities, we look for lifestyle fee simple terminable at will management agreement, an amazing upside opportunities with the best rooftop bar in the market.
We expect the resort to stabilize north of an 8% yield.
Moreover, we have significant dry powder for future acquisitions and are currently closer one west coast boutique resort with several more deals under various stages of evaluation.
To wrap up.
We are still very early and in emerging travel recovery with significant pent up demand.
And with that backdrop, we are confident that <unk> has a unique portfolio with the right strategy and balance sheet to continue to distinguish itself in 2022 and going forward.
At this time, we'd like to open it up for your questions operator.
And as a reminder to ask a question simply press star one on your telephone to withdraw your question press the pound or hash key.
Your first question comes from Dori Kesten with Wells Fargo. Your line is open.
Thanks, Good morning.
Can you dig into the expectation at 22 revenue should meet or exceed 19 can you separate your portfolio by resorts in Irvine.
<unk>.
Hey, Dori, Yeah give me a second I'm, just looking up that that split and where we look for those numbers to be coming out, giving one second to say at full output.
The correct full year numbers on.
On a full year basis, we are expecting that our.
Resorts and.
I'm just looking at it in dollars relative to where we were before.
Sorry, just give me a second while I do the math in my head here.
I think our urban or urban asset or I'm, sorry, our resort assets will end up surpassing what we did in 2019.
About they'll do probably about $200 million give or take probably that's about $100 million better than they did in 2019.
And our urban assets would be probably about a $160 million give or take.
<unk>.
Oh, I'm, sorry, I'm, sorry, I was looking at the rock album, I apologize I haven't seen any numbers in front of me is that the resorts and sorry to be about $450 million.
Which would be about $100 million better than that the urban assets would be about $480 million.
Which would be about $100 million below.
Let me get that alright.
Yes, no I got it.
And theres been a weighting towards acquiring.
Acquiring the Sunbelt synthetically, Florida.
The concern by investors that resort peak this year.
Based on your resort specifically do you think this concerns there.
I'll jump in here, Jeff So dory good morning, So Jeff gave some good data points, but what we're seeing is we're actually seeing Q2 accelerate versus 19.
So quarter over quarter, we're seeing Q to improve and as the data points that Jeff gave an admittedly there there were booking now but we're seeing.
But a lot of the resorts people have experienced getting blocked out.
Over the last six months of resorts and vacations that they wanted to do so we're seeing people like sedona.
Sonoma, where people have been basically blocked out booking in advance and booking at higher rates to make sure. They can lock in their vacations. So we feel very good about going in for the balance of this year and going into 2023 based on the data points that we're seeing right now.
Okay. Thank you thanks alright.
Alright. Your next question is from Smedes Rose with Citi. Your line is open.
Alright, thank you.
Wanted to ask you a little bit more on the transaction market you mentioned.
The pipeline and then just wondering first of all if you could talk about.
Would you be kind of the scope of the size of the deals that you are interested in is it.
Are you leaning towards just kind of maybe doing more of these kind of smaller under 100 components.
Assets and are you seeing any tool.
Pricing I guess, the changing interest rate environment.
Yeah. So to answer your first question I think we look for Unlevered yields as the kind of magnetic north so is it strategic and can we get delivered good yield versus the the size limitation. So generally our pipeline is populated with deals that are between 50 and $150 million, that's kind of our sweet spot. We think we know how to do these.
Small and medium sized resorts, a little better than other people and so I think we can underwrite them a little bit more efficiently.
To your second question about our prices moving in relation to interest rates, we haven't seen that yet and the data points in the market and the deals that have crossed.
Kind of crossover and been reported so.
So far the demand has been.
Hasnt shown a softening and the feedback we're getting.
From market makers. If you will is that people are viewing hotels as an inflation hedge and the real estate world. So there is some incremental capital that's flowing towards hotels as a more attractive asset class within real estate and Thats.
Potentially offsetting the incremental cost of debt associated with those acquisitions.
Okay interesting and.
And then I guess the final thing I just wanted to ask when you look at it.
Relatively small, but I saw you took about a $500000.
Severance charges in the quarter.
And if it is just associated with positioning that eliminating positions at some of your hotels or do you feel like you're done now in terms of.
You know kind of re structuring or at the hotel operating model or is there more to go in order to reach your margin expectation.
Yes, So let me let me answer.
Both parts of that question. So I think the seventh diversity, referring to is the change in executive.
Our Seo departing and reversing his.
Crude stocks, so thats not in our hotels.
But what we're seeing at the property level as we've reduced substantially reduced permanently the manager count. So we might had assessed F&B assistant rooms director those kind of positions. We've learned a lot. During this downturn of what we can operate with.
I think we just did a model ground up of what we think the stabilized model is on managers and we think it's about a 10% permanent reduction.
In Ftes and summer, it's uneven some of our bigger hotels, it's a 40% reduction.
So those are those are the kind of data points that make us really feel good about emerging on the other side of this with higher stabilized margins.
As as travel fully recovers.
Okay. Thank you.
Your next question is from Chris <unk> with Deutsche Bank. Your line is open.
Hey, good morning, guys I appreciate all the data points as always.
Wanted to follow up a little bit on the <unk>.
Comment about the 200 to 300 basis points of margin expansion how much of that.
How much of that is kind of higher rates.
<unk> higher level versus how much of it is cost take outs.
Operational efficiencies and things like that.
Yes, so for <unk>, it really breaks into a couple of different buckets, obviously, having more resorts.
People with more resorts are going to be able to cling on to greater long term profit expansion.
In that segment and folks that don't have a greater weighting just because so much rates been gained in that space and we think a lot of that's permanent so that's just going to flow better. That's just the way the math works. So thats part of the part of it for US. There's other there's a couple of other unique ingredients everyone's could probably have more efficient labor models on the other side of this.
So that's going to be universal I think within our space to help people get to better margins on the other side and then a couple of the hotel.
Secret sauce for us we have those big Repositions, which have been completed theyre going to have higher rates associated with those reposition assets, which is going to flow better. So thats part of it and then I think something people haven't focused on but now is revenues are returning for folks is this.
The fact that we don't have 90% of our hotels don't have long term.
Management contracts on them, so as IMF kicks in.
We're not going to return to an IMF world at Diamond rock, So thats going to help us versus 19 levels.
Forward getting higher stabilized.
Margins in the portfolio. So there is a number of factors contributed to it.
Kind of all working in our favor.
Okay very helpful. Thanks, Mark.
And your next question comes from Austin, where Smith with Keybanc. Your line is open.
Great. Thanks, and good morning, everyone as far as the midweek occupancy figures that you provided I think you said it reached 78% in April can you give us a sense how much upside kind of remains to get to a more stabilized level and do you think.
That's kind of ramped.
<unk> hundred 78% do you think midweek ADR could could strengthen like you've seen in the resort portfolio.
Yeah, So let me without.
Without giving specific numbers. It was a couple of phenomenon, which are I think going to be good for midweek, obviously, the more group that we book in the stronger group is the better it is for mid week.
Particularly for the urban based assets, but I think the.
The other thing that we're noticing and Super encouraged is the small midweek group that's going into the resorts. So if you think about an asset like <unk>, which is in sausalito.
As more hybrid work environments have emerged, particularly in tech centric markets like San Francisco or Seattle.
There is more and more of this team leaders can organize and get their smaller groups together to launch products culture building training or whatever it may be just kind of 25 to 100.
100 person groups and so we're seeing a surge in midweek business at places like <unk>. The lodge at Sonoma, where these team leaders at particularly tech oriented companies are using that instead of getting people in the office spot. This week and so we think that that.
<unk> band of mid week push.
Is it is going to stabilize at higher levels than we've ever seen so we're leaning into that and as we're thinking about external growth opportunities that is clearly a thesis that we're willing to bet on as we move forward.
That's helpful. And then I am just curious could you quantify maybe the synergy you get from these sort of clustering of hotels like we saw you do here with the Kimpton in Fort Lauderdale.
Sure. So I can give you let me give you a numbers and kind of how it's working so we had we brought in when we bought the Kimpton Fort Lauderdale, we brought in the switch managers and brought in the same management company that we have at the Westin Fort Lauderdale, which is hei.
Which is doing a great job for us.
And so we will complex sales engineering will be able to have staff move between them.
And on that on that acquisition, which is in its only 96 rooms will probably two to $300000 of synergies and cost savings, which really made us the best buyer in the market for an asset like that even though it was off market.
<unk>.
And so we're looking more and more in synergistic deals I would say in our pipeline that's probably at the top of list for us because we think it really gives us a unique advantage as we look at those kind of assets.
Alright, thanks for the time.
Thanks Ross.
And your next question comes from Gregory Miller with Choice Securities. Your line is open.
Thanks, Good morning.
Tom.
So I'd like to ask you about the Margaritaville conversion, how that's progressing so far, particularly outside the room spend and Florida margins.
We set up that question.
Have you seen the two story bar that was built down there it's doing quite well.
As it moves down there yet.
Yes.
It's a homerun so.
As far exceeding our expectations and having Jimmy Buffett go there.
This year created a lot of social media and a lot of laws.
That property so.
I mean is there almost embarrassing good numbers.
Compared to 2019 revpar at that property so over 80%.
F&B revenues are up something similar there.
Just off the charts.
It's going to end up several million dollars ahead of our underwriting in 2022 versus the benefit we thought we'd get from the conversion.
So it's been it's been a home run for us.
Yes, I mean, just to give you another another kind of data point, we bought the hotel in 2019.
Yeah.
Right.
I would just look at the NAV.
It looks like we're up almost 100% of NAV at that one were about $80 million to $90 million in NPV first star total investment so.
It's clearly been one of our top deals.
Yes, actually great and one other point I'd make Greg.
I think F&B revenues there are on pace to be.
About triple what they were at 19.
Great. Thanks, Thanks, very much for all the color.
My follow up going on a different topic, and maybe I missed it a little bit in the prepared remarks.
Excuse me I was wondering if you could provide a little bit more detail on what youre seeing so far in the second quarter in terms of the business trout business transient recovery in the urban markets and are you seeing any major differences in the recovery between sunbelt markets, such as Worthington and.
Fort worth our Alpharetta.
Versus what Youre seeing in Chicago or D C or.
Or San Francisco or.
Have you seen trends.
And business transient.
Similar.
Ross the country or are you seeing some differences depending on geography.
As you saw in my comments on.
Midweek occupancy its been growing pretty steadily and I think a lot of it ultimately comes down to who your demand generators are we have some significant employers for example, and in Alpharetta that are significantly.
Significant contributors to that hotel, it's been building nicely and I would say pretty much across the board our hotels have been performing well I can't think of any off the top of my head that are real.
Standouts.
But I would say broadly they are performing quite well and I think we've seen occupancy. It just about all of our hotels grow the contribution from BT has been growing pretty robustly as we moved from January to February and as I mentioned, what we saw in April in our next four weeks.
It's been very encouraging.
I'm not sure we're a bellwether, but just a couple of data points in April in New York was higher for April than it was for our for our three back in the market was higher than it was in 2019.
Say in Boston, we've seen we're surprised on the uptake of group as much as transient, but really group short term.
Our western in Boston was ahead of expectations that we had some really nice for last minute wins.
Chicago has been more a story of group as well as we've kind of been able to book group into the big the Big Marriott There and then on the Gwen.
Really been good.
In Chicago on the high end consultants were the first to return net debt that's kind of the dominant hotel in a market for that kind of business.
And then I would say the other markets San Francisco, our hotels gained a lot of market share, but thats a market that clearly is lagging.
In D. C was lagging earlier in the year, although the last three weeks have been.
Surprisingly strong.
I think we'll have a lot more data points as we move forward, but if I look at our forecast for Q2, we are expecting the urban portfolio overall to accelerate versus 19 in gaining momentum so things seem like they're coming together.
Thank you both.
And your next question comes from Bill Crow with Raymond James Your line is open.
Good morning, Mark.
Commentary on urban who does.
Does that change.
What I thought was a pretty clear strategy that you wanted to shrink your exposure, especially the larger group hotels in urban markets.
No I mean, we continue to have I think.
A pretty clear strategy of Av.
I'll call midsize and smaller hotels more leisure oriented more experiential. So that's going to continue to be the way, we Orient the company, but we do have good exposure with.
Nice group hotels as well.
I think are going to benefit us over the next year or two we may use that momentum to monetize those assets over the next 24 months.
I think we have particular expertise at all segments, but the the resorts and leisure really up our power Alley, and we've created a tremendous amount of value with those kind of assets. So youll see us continue to try to distinguish our story from others, but.
It's nice to have a diversified portfolio at this time as other segments are roaring back as well.
Okay. It sounds like a little bit of a deferral maybe.
Portfolio change, but.
Hey, Jeff going back to <unk> question about the resort urban versus 19.
Is it 18 or 19 that Youll had all the.
Hurricane disruption.
I believe it was actually late 17 that we had the disruption that went through four.
For what was that in pensions reef.
We've taken about Key's yourself, Florida as well same.
Same storm.
Yeah.
Okay named Storm times losses Alright.
Alright, I just wanted to make sure we're confident of good lockers.
Terrific. Thank you.
Thanks Bill.
Thank you and your next question comes from Anthony Powell with Barclays.
Hi, good morning.
And then following up on that question. So obviously the resorts have been very strong and you were very very positive on group.
What's your kind of long term view and business for our business transient segment, it's coming back now, but do you expect that to be kind of.
West profitable segment, and it was pretty Tobin.
Longer term what is your kind of view on <unk>.
Short term the biggest travel and business transient demand.
Our view is it's coming back and we've heard very positive commentary from the big brands on their confidence level on that they obviously have a lot of data points. Its short term so unlike <unk>.
Resorts, our group, where we can kind of give you a longer data points BT as always it's a short term game.
And booking windows.
There is there has clearly been the evolution of business travel there has been some that's I think going to be displaced theres going be allowed to return to normal and theres, probably the evolution of some other business travel that we.
Are probably having trouble imagining right now because it hasnt occurred before.
So our general baseline assumption is it gets back to where it was I think the timing.
There are some people that are very bullish it gets there but in this year it could take another year.
But we have greater confidence in the leisure demand trend lines and the predictability of those and group frankly than the BT.
But we're still constructive that ultimately get back there I think it's just hard to figure out the exact timeline on that.
Got it thanks, and maybe one on Henderson Beach resort.
The growth there, but aqua is like 44% surprising I guess is there something seasonal in that that.
That makes it a lower occupancy in the first quarter or is that just the <unk>.
It was one previously I'm just curious more detail there would be great. Yes. So it's.
Destin Beach as northern Cal Northern Florida, So it's cooler in the winter. So it is seasonal.
Looking at our two desks and properties that we acquired in the last.
In the last 10 months, it's looking like we will do about 85% NOI yield our first full year of ownership 2022 for fiscal year. So they are tracking ahead of underwriting but that seasonality.
Exactly.
Exactly what we expected the orca in the second quarter.
Going to be 80% to 90%.
Okay. Thank you.
And as a reminder, ladies and gentlemen to ask a question press star one on your telephone.
Next question is from Michael Bellisario with Baird.
Okay.
Thanks, and good morning, everyone.
Hi, Michael.
Just wanted to drill.
Drill in on your mix of business can you.
High level not looking for exact numbers, but maybe in March April .
How much was <unk> how much was leisure how much was group and then how you see those three segments progressing and shifting.
The year unfolds.
We can circle back with you on the monthly breakdown, but I would tell you that on the.
The quarterly breakdown when I just think about that.
The revenue production of our I'll call it our urban versus resorts hotels in Q1, I think resorts are about 60% of our revenues urban the balance of 40, but when you move into Q2 that flipped.
Almost almost precisely flips in favor of urban so you will see that shift in.
A lot of that happens over that March April timeframe as you bridge the quarter. So I can circle back with you offline and Thats something some disclosure that we can put into our upcoming.
Slide presentations as well as how our.
Guest mix shifts as well.
Yes that would be helpful and I think as.
We've talked about before everyone's focused on all the undercurrent of shifting customer mix and market mix and trying to figure out now.
Now our nominal revpar is higher nominal rates higher or relative to the 2019 and it's different for different customer segments I'm just trying to understand.
How more urban demand and more group demand and maybe less leisure and <unk> is going to impact.
The headline figures that you report, but any additional disclosures that would be helpful. And then just one.
One follow up there you mentioned.
The next 12 months occupancy on the books, how much occupancy today is actually on the books and then I don't think you mentioned where.
Room night.
Pesos, sorry, you mentioned rate was but not not volume.
Okay, Let me get the.
Hey, Michael Let me is typically up some of the numbers already so on group. We expect despite the January omicron impact doing about 85% of room nights that we did in 2019.
That's how we're we're pacing right now so that's that's well ahead of what our expectations were entering this year. So that's a great result, and then kind of referring back to your initial comment on momentum and mix shift.
I can tell you based on our forecast we continue versus 19 continued to build momentum quarter over quarter versus 19.
Both leisure both resorts and urban.
It looks like they are really accelerating so we would expect our next earnings call to tell you that sequentially versus 19, we saw an acceleration in really all segments.
Not a slowing in any sense.
Yes, I think on your question on.
Booking pace for four group revenues I think this year, we're about 85% of what we did in 2019.
It's already on the books and I think given what we typically pick up in a year. We're in very good position on that front.
Thank you.
Thanks. Thank you and this concludes our Q&A session I will turn the call back to Mark Brugger for final remarks.
Thank you very much I appreciate that.
Let me just conclude by thanking the entire team at <unk> and all the all of the people that are in the field for delivering a very strong quarter and setting up for a very strong year I know, it's the culmination of a lot of hours a lot of hard work from.
Really several thousand people. So we just want to express my gratitude to them and I appreciate everyone that tuned in for this call. We appreciate your support and your interest in our company and look forward to.
Another quarter of good results for you take care.
And this concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
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<unk>.
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Operator.
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Yes.
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None of these brands.
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<unk>.
Yes.
Yes.
Thanks.
Okay.