Q4 2022 Diamondrock Hospitality Co Earnings Call
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Speaker 3: Good day and thank you for standing by welcome to the diamond rock hospitality companies 4th quarter 2022 earnings conference call at this time all participants on a listen only mode. After the speaker's presentation, there'll be a question and answer session.
Speaker 3: To ask a question during that session, you will need to press star 1 1 on your phone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 1 1 again. Please be advised that today's conference is being recorded and I would not like to handle conference over to your speaker today. Miss brianne Quinn.
Speaker 4: Senior Vice President and Treasurer. Ms. Quinn, please go ahead. Thank you, Chris. Good morning, everyone. Welcome to Diamond Rock's fourth quarter 2022 earnings column webcast. Before we get started, let me remind everyone that many of our comments today are not historical facts.
Speaker 4: and are considered to be forward-looking statements under federal securities laws.
Speaker 4: As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties.
Speaker 4: that could cause future results to differ materially from those expressed in or implied by our comments today.
Speaker 4: 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.
Speaker 4: With that, I'm pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.
Speaker 5: Good morning and thank you for joining us today. I'm here with our entire executive team and we'll be happy to take your questions after the prepared remarks.
Speaker 5: The fourth quarter capped off the best year in the history of Daimlerock, with record revenues, record margins, and record profits.
Speaker 5: For the full year, comparable hotel adjust to IBITDA was $319.8 million.
Speaker 5: This was an increase of 121.9%.
Speaker 5: or 175.7 million dollars over 2021.
Speaker 5: Results even surpassed pre-pandemic 2019.
Speaker 5: with comparable repart better by 5.5% and comparable hotel adjust to EBITDA better by $38.4 million.
Speaker 5: Importantly, comparable profit margins were 31.36%.
Speaker 5: surpassing our pre-pandemic peak by 184 basis points.
Speaker 5: These tremendous operating results were made possible by the consistent execution of our strategy to curate a portfolio that is uniquely focused on the leading secular travel trends.
Speaker 5: The portfolio we have assembled is comprised of irreplaceable experiential resorts and urban destination hotels that are tailored to be the hotel of choice in their particular markets.
Speaker 5: Our focus is paying off.
Speaker 5: as our portfolio performance has been among the fast in the lodging reach sector.
Speaker 5: And while the superior operating performance led to strong relative total sero would return during the past few years.
Speaker 5: Our stock today nevertheless treats it more than a 30% discount to consensus net asset value.
Speaker 5: We are proud of what we have built at DimeRock and we will continue to work diligently to close that discount.
Speaker 5: For example, during the fourth quarter we repurchased 1.6 million shares at an average price of only $7.81 per share.
Speaker 5: Going forward, we will use the power of our low leverage balance sheet.
Speaker 5: and ample liquidity to capitalize on these types of opportunities.
Speaker 5: Let's look a little closer at the company's accomplishments in 2022.
Speaker 6: First,
Speaker 5: We completed numerous ROI projects.
Speaker 5: including the Clio Luxury Collection conversion,
Speaker 5: the Bethesda Suites brand conversion, and executing our business plans for the repositioning completed in late 2021 of the Hyth luxury collection in Vail, the Margaritaville Resort in Key West, and the Lodge Resort in Sonoma.
Speaker 5: Second.
Speaker 5: We acquired three incredibly high quality lifestyle hotels in 2022 with an average REPR of over $450 and a stabilized NOI yield averaging over 9%.
Speaker 5: We acquired three incredibly high quality lifestyle hotels in 2022 with an average revpar of over $450 and a stabilized NOI yield averaging over 9%. And third, we acquired three incredibly high quality
Speaker 5: We completed our largest ever financing by favorably recasting $1.2 billion in bank debt.
Speaker 5: DIMROC is also well positioned for the future.
Speaker 5: We enter 2023 with a number of advantages.
Speaker 5: including one, an optimally balanced portfolio to the leisure, group, and business demand segments.
Speaker 5: Note that earnings mix in 2023 is projected to be about 60% from our urban markets and just over 40% from our resort markets.
Speaker 6: Two.
Speaker 5: A high number of ROI projects completed and pending that should deliver double-digit returns.
Speaker 5: Three, a portfolio that is the least encumbered of all the full-service public lodging reach.
Speaker 5: REITs, which gives us enhanced liquidity, control, and exit value.
Speaker 5: Fourth and finally, a balance sheet advantage with nearly $600 million in liquidity.
Speaker 5: to opportunistically drive incremental shareholder value.
Speaker 5: On the topic of external growth,
Speaker 5: We expect to have an advantage on acquisitions this year, as the debt markets are likely to remain very challenging for PE firms and other private buyers in 2023.
Speaker 5: With our significant dry powder, we are ready to pounce on opportunities that emerge.
Speaker 5: While there is a low volume of deals currently on the market,
Speaker 5: A core skill of our team remains in finding off-market deals and unique opportunities.
Speaker 5: Our most recent acquisition, just a few months ago, illustrates that point.
Speaker 5: The deal for the Lake Austin Spa Resort came about through a relationship that we had cultivated over a number of years with a well-known private equity firm. This firm had originally uncovered the opportunity and was very excited about it.
Speaker 5: They'd actually place the property under contract.
Speaker 5: completed due diligence, and were about to go hard on their deposit when their lender walked from its loan commitment as the debt markets froze up last summer.
Speaker 5: We were then their first call.
Speaker 5: And this created an opportunity for us to quietly come in and negotiate for the resort with a multi-million dollar discount, as the seller did not want to have a second failed deal.
Speaker 5: Lake Austin is a spectacular acquisition for us.
Speaker 5: We bought a high-end resort at a trailing NOI cap rate of nearly 9%.
Speaker 5: almost unheard of yield for a luxury property.
Speaker 5: one which will generate our highest total RepR and EBITDA per key.
Speaker 5: As good as that is, since closing on the DL, we have confirmed that there are considerable expansion possibilities on the site.
Speaker 5: which will really make this one a home run.
Speaker 5: As we go forward, these are the kind of deals that we are looking for. High quality, great returns, and value-add opportunities.
Speaker 5: I'll now turn the call over to Jeff to discuss the numbers in greater detail. Jeff?
Speaker 7: Thanks. As Mark said, it was a record quarter and record year for Diamond Rock.
Speaker 7: Total comparable revenues for the company were $257 million in the quarter, an increase of $47 million or nearly 23% over the comparable period in 2021.
Speaker 7: comparable revpar for the portfolio in the fourth quarter was $196 or 6.7% higher than 2019. This growth was driven by room rates over 19% above 2019.
Speaker 7: Occupancy is down 780 bassist points to 2019.
Speaker 7: Closing this gap remains one of several sources of future growth.
Speaker 7: Other revenue which speaks directly to our asset management teams creativity and identifying and expanding new income streams was up 31% or $5.1 million over 2019.
Speaker 7: F&B revenue was over $5.2 million above 2019, driven by the repositioning of several F&B developments during the pandemic.
Speaker 7: We will share with you soon several new or upgraded outlets we are working on for 2023 and beyond that will continue to drive profits to new levels.
Speaker 7: Comparable hotel adjusted EBITDA was $77 million, which beat fourth quarter 2019 by 11.2 million or 17%.
Speaker 7: comparable hotel adjusted even done margins were 30%.
Speaker 7: up 724 basis points over 2021 and 192 basis points to 2019.
Speaker 7: Adjusted EBITDA was $67.4 million, nearly $5 million over fourth quarter 2019. And finally FFO per share was 23 cents or 85% of the fourth quarter of 2019.
Speaker 7: Demand across the portfolio remained robust in the fourth quarter, but it was specifically the demand at our urban hotels that surpassed our expectation in the fourth quarter as it has throughout 2022.
Speaker 7: Recall it at the end of the third quarter, we expected our ref par in our urban hotels to finish at 80 to 85 percent of 2019 levels.
Speaker 7: Short-term growth and business transient demand, however, drove Urban Revpart in 97.5% of 2019, outperforming our forecast.
Speaker 7: Short-term group and business transient continue to improve and we still have a significant room for further days as the citywide calendar across our footprint is stronger in 23 and 24 than it was in 22.
Speaker 7: Resort performance remains strong with total REF power-up nearly 29% over the same period in 2019, driven by a greater than 40% increase in room rates.
Speaker 7: It is important to note that Q4 occupancy was still 8 percentage points behind 2019, which means we have room to run in 2023 and 24 at our resorts.
Speaker 7: Our fourth quarter resort profit margins are 341 basis points above 2019.
Speaker 7: We are confident resorts will hold on to premium performance going forward because of the strong secular demand for experiential travel and high barriers to new competitive supply.
Speaker 7: So let's talk about the demand segments.
Speaker 7: Leisure revenues were great, up 26% in the quarter compared to 2019, on a 29% increase in average daily rates.
Speaker 7: The resort markets had some variations. We expect healthy growth this season in markets like Vail and Huntington Beach.
Speaker 7: Additionally, group oriented resorts like our Fort Lauderdale Beach Resort can mix shift, group up and lock in performance.
Speaker 7: Key West continues to show strong growth in peak demand weeks, but it's giving back a little occupancy relative to 2021 in the lower demand shoulder periods.
Speaker 7: Nevertheless, Key West remains at dramatically higher performance levels than in 2019 with great flow through and incredible profit margins.
Speaker 7: BT is probably the most interesting story. Business transient revenues were $47 million in the quarter. It's up 22% over the fourth quarter of 2021.
Speaker 7: driven by nearly 32% increase in average daily rate.
Speaker 7: Fourth quarter BT revenues were nearly 90% of the same period in 2019, but on 21% higher room rates.
Speaker 7: We believe BT will continue to be a significant source of growth for DiamondRock.
Speaker 7: BT was over 25% of rooms sold in Q422 versus 34% of rooms sold in Q419.
Speaker 7: In full year 2021, BTU revenues were roughly 50% of 2019 levels, and in 2022, BTU revenues were 77% of 2019. So no matter how you look at the data, there was significant room for continued growth from the burgeoning return of corporate travel.
Speaker 7: Group demand was strong in the quarter. Fourth quarter group revenues were nearly 103% of the same period in 2019, and acceleration from 91% of 2019 for full year 2022.
Speaker 7: The group room rate was up nearly 13% of the quarter, improvement from 10% growth in full year 2022.
Speaker 7: Banquet revenue is at nearly 99% of 2019 levels, and the quality of our group is improving, and we expect total group spend to accelerate as we move through 2023 and 2024.
Speaker 7: When groups come and they are coming, they are spending significantly outside the room.
Speaker 7: We have a terrific setup for 2023 and beyond. Citywide calendars in our core markets are already in line, our head of total room production in 2022, pointing to a stronger base of business in the market. Boston, Phoenix, Washington, D.C., Chicago, and San Diego are all well positioned.
Speaker 7: Specific to our hotels, there were over 450,000 group room nights on the books at the start of this year, with an expected total production of nearly 740,000 room nights budgeted for 2023.
Speaker 7: This compares to approximately 4,540,000 ruminates on the books at the start of 2019 and final total production of 782,000 ruminates in 2019.
Speaker 7: Given the increased availability in our calendar and a strong citywide calendar, we expect to see outsized growth in short term in the year for the year group sales just as we saw throughout 2022.
Speaker 7: Switching gears, we continue to be excited by the growth of our ROI projects. We upbranded four hotels in the past two years, including the Hice and Vale, the Lodge in Sonoma, Margaritaville in Key West, and the Clio in Cherry Creek.
Speaker 7: Collectively, these four hotels are producing $15.5 million more profit than they did in 2019. This is a 56% increase in hotel adjusted EBITDA and 50% ahead of initial underwriting.
Speaker 7: This year, we will convert the Hilton Burlington to the Lifestyle Cheerio collection. This will involve completely reimagining the arrival and lobby experiences.
Speaker 7: as well as adding a new restaurant overseen by a local James Beard award-winning chef.
Speaker 7: In Boston, a major repositioning of the Hilton is underway, and later this year we will unveil what will be the most exciting lifestyle hotel in downtown, serving both Faneuil Hall Leisure and Financial District business travelers.
Speaker 7: There is more to come down the road. Franchise agreements at our courtyard Denver downtown in West and Boston Seaport expire in the next few years and will present value creation opportunities. An exciting transformation involves the opportunity to reinvent the orchards in in Sedona.
Speaker 7: Last year, the Orchard was ran at a $700-night discount to our adjacent Obers to Sedona Resort.
Speaker 7: The orchards have unparalleled panoramic views of Sedona's red rock formations, so our plan is to reposition that hote to capture much of that rate differential. We will have more to share as our master plan develops.
Speaker 7: We have been active acquirers in the past 18 months and performance of our new hotels have been strong. Our two resorts in Destin collectively generated NOI of over $10 million in full year 2022 exceeding initial underwriting by 15%.
Speaker 7: In Marathon, EBITDA at the Tranquility Bay Resort was ahead of initial underwriting by 51%, or $2.7 million. In fact, Tranquility yielded 12.5% on its purchase price in its first year.
Speaker 7: The bourbon in New Orleans is right in line with pro forma expectations and just like the shore break in Fort Lauderdale, we are executing on our three year business plan to enhance positioning to achieve new levels of profitability.
Speaker 7: Lake Austin, which Mark spoke about, was acquired in late November and still managed to surpass initial underwriting the final weeks of 2022.
Speaker 7: Switching briefly to ESG matters, we are proud to be named the hotel sector leader in the Americas by Gresby for the third consecutive year. We introduced new environmental and social targets for 2030, as well as our goal to become a net-zero company by 2050. This and much more can be found in our 2022 Corporate Responsibility Report, which will be published to our website in December .
Speaker 7: As Mark mentioned earlier, we recast and expanded our credit facility in 2022. We have nearly $600 million of total liquidity between our cash on hand and our undrawn revolver, which is fully available to us.
Speaker 7: During the quarter we placed $150 million, or say during the first quarter, we placed $150 million of incremental interest rate swaps.
Speaker 7: As of this moment, 68% of our total debt and preferred capital is either fixed or swapped.
Speaker 7: The most effective way to manage interest rate exposures, of course, to maintain low leverage from the start, and on this point we concluded 2022 with net debt to EBA Dove four times, and awaited average debt maturity of 3.7 years.
Speaker 7: We have no material near-term debt maturities.
Speaker 7: and 31 of our 35 assets are unencumbered by debt. Moreover, we have no significant deferred maintenance, which can be a hidden pressure on the true investment capacity and leverage of a company.
Speaker 7: These qualities put Diamond Rock in a unique position, particularly for a company our size.
Speaker 7: to be opportunistic on capital allocation, whether that is taking advantage of pricing dislocation of our common or preferred securities
Speaker 7: pursuing value-added ROI projects, or capitalizing upon opportunities in real estate markets.
Speaker 7: We continue to review accretive recycling opportunities within our portfolio, but we are being prudent to maximize shareholder value. On that note, I will turn the floor back to Mark.
Speaker 5: Thanks, Jeff. Our outlook remains constructive. Importantly, we are starting from a position of strength.
Speaker 5: Our portfolio recovered quickly as our portfolio's favorable composition led to all-time record performance.
Speaker 5: We also ended 2022 with great profit margins.
Speaker 5: 184 basis points above Briar Peak.
Speaker 5: For 2023, the significant variability of the overall U.S. economy, in our view, makes providing guidance of little value at this time.
Speaker 5: Like the rest of the industry, we do expect some challenges this year to profit growth.
Speaker 5: margins from rising property taxes and insurance costs.
Speaker 5: as well as from increases in hotel staffing and wages that occurred progressively throughout 2022.
Speaker 5: By the end of 2023, we expect expense comparisons to normalize.
Speaker 5: Also, for this year, we are projecting corporate G&A to be approximately $32.5 million and interest expense to be roughly $61 million.
Speaker 8: However...
Speaker 5: despite these headwinds.
Speaker 5: Travel demand continues to be very strong.
Speaker 5: and our operator-prepared budgets show growth in every segment of the business in 2023.
Speaker 5: We will strive to set new records.
Speaker 5: for comparable total revenues and hotel adjusted EBITDA. Again, this year.
Speaker 5: As we look out even further.
Speaker 5: We remain optimistic on travel generally, and we expect the industry to climb to new heights to cycle.
Speaker 5: We remain bullish on the future of leisure travel in particular.
Speaker 5: Experiences.
Speaker 5: are one of the most highly valued and sought-after assets in the world, and travel is unique for its ability to satisfy that consumer need.
Speaker 5: Leisure was a long-term outperformance trend line well before the onset of the pandemic.
Speaker 5: And we believe that this positive trend will only continue in the years to come.
Speaker 9: Thank you.
Speaker 5: This gives us high conviction.
Speaker 5: that our resort properties will maintain a significant premium to 2019 performance.
Speaker 5: and build upon that base going forward.
Speaker 5: Our urban hotels.
Speaker 5: which still constitute the majority of our portfolio.
Speaker 5: have an attractive footprint that will drive a second tailwind for Daimlerock.
Speaker 5: That combined with the already achieved success at our resorts.
Speaker 5: has the power to take us to new highs in revenues and profits.
Speaker 5: The group funnel for future business at our urban hotels looks great.
Speaker 5: as the need to get teams together is more necessary now than ever.
Speaker 5: As for business transient, there is still room for improvement and uncertainty on where demand will ultimately settle out, but there is clearly positive momentum.
Speaker 8: to wrap up.
Speaker 5: 2022 is a record year for Diamond Rock and we believe that we are well positioned for this cycle with a model portfolio, a focus strategy and ample liquidity to move quickly.
Speaker 5: It remains a great time to be in the travel industry.
Speaker 5: Now we would like to open it up for your questions.
Speaker 3: Thank you. As a reminder to ask a question, please press stall 11 on your phone and wait for your name to be announced. To draw your question, please press stall 11 again.
Speaker 3: One moment please for our first question.
Speaker 3: Again, one moment for our first question.
Speaker 3: Our first question will come from Smith Rose of City. Your line is open.
Speaker 10: Hi, thanks, good morning.
Speaker 10: I wanted to ask you, Mark and Jeff, you talked a little bit about the gap to occupancy from 2019 and it sounds like you believe that that gap could continue to close in 23. And just wondering kind of what gives you confidence there? Do you feel like it's more?
Speaker 10: on the business side or just more on the leisure side. And I guess if you could maybe just couple that with your remarks around margin pressures in 23 and.
Speaker 10: I kind of lost you right there at the end. I mean, are you expecting margins to be flat or kind of decline in 23 versus 22? If you could just speak to that a little bit.
Speaker 5: First, please. Mark, good morning. So to take the first question on occupancy, yes, we expect the majority of the gain this year to be in occupancy, particularly at the urban hotels. If you look at just January as a harbinger, the occupancy was up versus last year, 15.8%.
Speaker 5: And we're seeing almost all of that coming through the urban properties. So there's room to run there. Group's going to be a big part of that component. And we saw the momentum building, as Jeff talked about in the prepared remarks, as we moved through 2022, concluding the fourth quarter at almost parity to where we were in 2019. And we're seeing a big part of that coming through the urban properties as we moved through
Speaker 5: So I think the data and the momentum and the trend line are pretty clear that occupancy gains are going to be significant as we move into 2023.
Speaker 5: Well, in margins, there are pressures, I mentioned in my concluding remarks, that we are seeing like the rest of the industry, wage pressures, property insurance taxes, the kind of normal contrary of things that are going to be affected by inflation. We are offsetting those by productivity gains. We do have less managers of the properties. We are doing things differently. We have a number of energy initiatives.
Speaker 5: 2023, if we could hold GLP margins flat, we would consider that a success.
Speaker 10: So can you just say, I'm just to follow up, what sort of presenting features are you expecting I get from wages and benefits at the property level for 23?
Speaker 5: We're not giving specific guidance, but we've seen it ranges from 4% to 18% in our properties.
Speaker 5: It's a little bit misleading on the percentages because some of the low-cost markets the percentages actually been higher So you might move from $14 to $17 and in some of the higher wage markets You might be at $28 already. So the increase is smaller, but it's on a much larger base
Speaker 5: So, we're seeing wide variability within the portfolio, but we would expect the industry to be up high single digits certainly in expenses this year.
Speaker 10: All right, thank you.
Speaker 3: Thank you.
Speaker 3: One moment please for our next question.
Speaker 3: One moment again. Our next question will come from Dean De Asad of Bank of America. Your line is open.
Speaker 11: Hi, good morning, everybody. Mark, just to clarifying, I think in your prepare to mark, you were talking about operator-prepared budgets are showing growth in every segment for 2023. Does this hold true for all four-quarters of the year or is this, you know, one- one-cube kind of driving a lot of that?
Speaker 5: The growth in this year given the comps for last year are going to be weighted towards the first half of the year. Certainly the 40% increase we had in red part in January isn't going to be consistent for every month of this year. But it looks good. I mean every segment whether it's group, business or resorts we're showing growth in the operated prepared budgets. So we're encouraged by that trend.
Speaker 11: Awesome, great. And then my other question for you is how are you underwriting leisure rates for this year in your budgets as we look into all 23s?
Speaker 5: Yes, interesting. Leisure is very disparate this year. So while, for instance, Jeff talked about the preparing marks, Key West and the Shoulder Seasons is getting a little softer. We're going to see new record performance and very strong performance in Q1 at Vale, Sonoma, Huntington Beach.
Speaker 5: all continue to accelerate in their ability to charge higher rates. So I think it was we look at underwriting to your specific question. It's really very market specific and what the individual leaser demand drivers are in that particular market.
Speaker 11: Got it. Thank you very much.
Speaker 3: Thank you.
Speaker 3: Again, one moment, please, for our next question.
Speaker 3: And our next question will come from Michael Belisario of Beard. Your line is open. …
Speaker 3: And our next question will come from Michael Belisario of Beard. Your line is open. Thanks. Good morning, everyone.
Speaker 7: Mark or maybe for Justin just on group trends I was hoping you could perhaps differentiate what you're seeing in terms of spend and booking behavior at your big-box hotels versus what you're seeing on the group side at your resort properties.
Speaker 12: Do you want to take that one?
Speaker 7: Sure, I mean we continue to see growth in group demand throughout the portfolio. I think as Mark mentioned on the resort side, maybe first, part of our success going forward is that we've seen a little bit of fall off in leisure transient.
Speaker 7: group option. So the group growth there actually can be just as significant as you see on the urban side. It's usually replace the leisure traveler and the postal groups that we're filling incremental demand. But we did about seven percent incremental group bookings in the fourth quarter versus the same quarter in 2019 and at rates that are
Speaker 7: over 10% higher, so we continue to see the group booking trend accelerate throughout the portfolio. And just given that shorter booking window and given our larger space availability throughout the portfolio, we're pretty excited about group opportunity as the year progresses.
Speaker 13: And then just to follow up on the lake often acquisition, you touched on a little bit, can you provide maybe some timing or maybe your initial thoughts on the timing of some of those longer term ROI projects and redevelopment potential there at the property?
Speaker 5: Sure, so this is Mark Hacking. We just closed on that in November , but we've been working with the lane use attorneys and others in evaluating the rights that we have with the property. So we think we have significant, we've confirmed with the lane use that we've significant expansion opportunities. It probably takes a couple of years to actually get through that. There's an extension of the sewer lines or things that would need to get done. So we've been working with the lane use attorneys and others in evaluating the rights that we've been working with.
Speaker 5: But we feel fairly confident that we have the ability to do it. And we are going to evaluate this year the kind of the master plan and get it locked in and then be able to execute on it.
Speaker 3: Melissa.
Speaker 14: That's all for me. Thank you.
Speaker 15: Thank you Michael.
Speaker 3: Thank you.
Speaker 3: One moment, please, for our next question.
Speaker 3: I don't think this question will come from Anthony Powell of Barclays. Your line is open.
Speaker 16: Hi, good morning. Just a question on revenues and margins. If you could maybe get into what you think you need to rep our growth to be this year for your portfolio to get to those flat GOP margins and and maybe talk about that more on an ongoing basis, given the
Speaker 16: Given wage pressures, insurance costs, whatnot on an ongoing basis.
Speaker 5: Sure, it's hard because we're not given specific guidance, but the industry, if you'll get SDR, they're saying the industry is up about 3.7 percent, upper up scale, up about 8, a little over 8 percent. We think of that kind of environment, generally, for upper up scale, we'd be able to hold margins for the industry kind of to EOP flat. We're going to be able to hold the margins for the industry kind of to EOP flat.
Speaker 5: So that's the environment. We'll depend how the economic outlook plays out. But right now, I think that's kind of a fair assessment on margins.
Speaker 5: So that's an environment, you know, will depend how the economic outlook plays out. But right now, I think that's kind of a fair assessment on margins. Do you have to give anything else to add on that?
Speaker 7: No, that's the comment I was going to make as well just as earlier you mentioned that
Speaker 7: should be expecting sort of high single digit expense increases. So, saying to get high single digit, to get flat margins, GOP margins, you would need.
Speaker 16: Actually, high single digit revenue growth. Got it. And I guess more on the economic outlook. I mean, he talked about the opportunity to have good short-term bookings. And you know, later this year, I guess given the uncertain environment how certain are you and your ability to drive some of those short-term bookings in group throughout the year.
Speaker 5: So I would say a couple of comments on the group piece. So we saw in the fourth quarter, just to mention, the acceleration of bookings in the quarter quarter quarter in the quarter four, 2023. So we crossed over the end of the year with good momentum. The window for booking group remains shorter than pre-pandemic.
Speaker 5: So, people are booking even large groups on relatively short timelines. That seems to be the world order that we're in this year. They were really encouraged on not only some momentum that we experienced in the fourth quarter, but the fact that the availability that remains in 2023 is still on some very attractive dates.
Speaker 5: Sometimes when we have, we cross over, we have sold the best date, all the best dates, if you will. But we still have very attractive dates like summertime in Boston, summertime in Chicago that are still available. And that gives us more confidence in the ability to close the group booking gap and the fact that we're going to be able to put high quality groups into those open periods.
Speaker 12: Great, thank you.
Speaker 3: Thank you.
Speaker 3: And one moment please for our next question. Our next question will come from Dwayne Finningworth of Evercore ISI. Your line is open.
Speaker 16: Hey good morning, thank you. Just with respect to the, I think you put out a January of ten and a half relative to 2019 in your investor deck. Sorry for the short-term question but could you put sort of January in context from a comps perspective relative to you know
Speaker 5: We do anticipate that Q1 will be the biggest year from the EZ-Comp to Q1 of 2022 with the Omicron impact. But we're expecting the entire quarter to be fairly robust and all the urban markets in fact, we expect total repar to exceed.
Speaker 5: 2019 levels at our hotels in markets like Salt Lake City, Dallas, Fort Worth, New York and Phoenix.
Speaker 5: So that's going to help power our Q1 overall. And even the resorts, as I mentioned, while Florida Keys may be moderating from being up over 50% from 2019, we still expect robust growth in Q1 from resorts in Vail, Huntington Beach, and Sonoma, among others. So we expect to finish, I think, at total Q1 with total repart.
Speaker 17: That's helpful helpful car. Thank you, and then just um you know the the comment on the Florida Keys And maybe what we're seeing is just sort of
Speaker 17: normal seasonality coming back, you know, relative to a period of time where there was no seasonality. It was sort of peak, peak forever. I'm just wondering, is your approach to revenue management different in these off-peak shoulder seasons? Is there something through the pandemic that you learned?
Speaker 5: that changes your approach to off peaks versus the past. And thanks for taking the questions. We're doing, on the Florida Keys, let's say, we can't own enough Florida Keys in some ways. So we're talking about rates that are 50% higher than they were in 2019 with incredible ability to flow that higher rate to the bottom line. So it's incredibly profitable place.
Speaker 5: last gasp of work from home before they had to go back to the office a couple days a week. And the floors were, you know, they really participated in that surge, if you will, from the last minute pushback caused by the Elmacron variant. So what we're seeing now is, yeah, Christmas week we can still push it, but that unusual surge that we saw is moderating a little bit. And when I mean moderating, it's not like it's going back to anywhere close.
Speaker 3: Thank you.
Speaker 3: Thank you. One moment please for our next question.
Speaker 3: Again, one moment please.
Speaker 3: Our next question will come from Patrick Scholes of Truist Securities. Your line is open.
Speaker 13: Most of my questions have been answered. When we think about comparable margins...
Speaker 13: versus 2019 and ability to have permanent margin increase. What are your latest thoughts on that?
Speaker 5: May not been specifically folks, but you know if we go back six months a year ago through the industry Just thinking plus 100 maybe 200 basis points is that with that something like that still be on the table. Thank you Yeah, let's jump in some details, but you know we ended 2022 184 basis points above 2019 so
Speaker 5: I think Dimerock's proven we can operate our hotels at higher margins. Now in 2023, there will be some expense pressures, so there will be some pressure against that margin increase, but we're already substantially higher than we were in 2019.
Speaker 7: Yes, you want to jump in some details? Yeah, I was also going to chime in on that Patrick there. I think on the resorts side of the portfolio is Mark mentioned earlier. That's where our rate growth has been highest and our flows have been strongest. And I think that's going to be the area too, where you continue to see our premium performance on margins.
Speaker 7: holding out better. There's a lot of structural reasons for that as it relates to, you know, for everything from taxes and insurance to labor costs in those markets that drive that. But I think that's probably where you'll see those premium margins more apt to be held and relative to 19.
Speaker 10: Okay, thank you. I'm all set. Let's find out.
Speaker 13: Thank you. I'm all set. Thank you.
Speaker 3: One moment, please, for our next question.
Speaker 3: Our next question will come from Chris Borwanka of Deutsche Bank. Your line is open. Your line is open.
Speaker 17: Yeah, hey, good morning guys.
Speaker 16: Mark, I think you mentioned in the prepared comments, you still have a lot of room to go, even at the resorts on occupancy.
Speaker 16: And the question would be, you know, do you think, can you get that at the rates that you want to get? Or is it, is there going to be a function of eventually rates come down, OCC goes up, which obviously, you know, is a little tougher for margins? I mean, how do you get that full occupancy back in the resorts?
Speaker 5: So Chris, it's a great question. The resorts are really, you have to think about them, they're their own micro businesses and it's going to be different at different kinds of resorts. In Fort Lauderdale, for instance, Justin was saying we're grouping up to replace some of that leisure. So the way we're going to get back to the kind of Max Ochs hotel like Fort Lauderdale, which has a great group meeting platform, is that we're going to have to have a group meeting.
Speaker 5: that we're going to supplement in more and more group than we had last year and that's going to allow us to close that gap. Some other hotels, you know, if you have a hundred room hotel that has no group it's going to be harder to recover that and we're going to have to play with the rate strategy there a little bit to figure out where the maximum profit mix is on revenues. So the overall goal is to continue to maximize profits.
Speaker 5: We'll close some of the occupancy gap through adding group throughout the portfolio, but it might not close entirely in 2023.
Speaker 17: Okay, thanks, Mark. And then I was hoping we could go back to the comment about group and still having some prime dates. I thought that's a little bit unusual, maybe different than what we've heard from others. I mean, are those, again, are those open because the rates are at a level?
Speaker 17: where there's more selective demand. And I mean, do you worry at all that?
Speaker 17: You know that you're gonna miss it, but something changes in the macro and it's too late to even get close in
Speaker 5: That's a good question. I think it's more the fact that our portfolio, a lot of the prime dates in markets like Chicago and Boston are still six months out, you know, five, six months out, and the nature of group bookings stays a little shorter window. So I think it just happens to be the geography of our portfolio. We're actually super
Speaker 7: Super happy with the way it's laying out on the calendar basis this year, but I'll adjust and add any details for the question. I think it also comes down to average group size. I mean, our portfolio skews maybe a little bit smaller than some of our competitors. Those average groups that are maybe in that 50 to 150 rooms are going to book shorter and then maybe some of the larger hotels. They're 500 and plus.
Speaker 8: So, gives us the ability to sort of look towards a higher percentage of our business from that short-term booking window.
Speaker 17: Okay, very helpful. Thanks, guys. Thank you.
Speaker 8: Very helpful. Thanks guys. Thank you. Thank you.
Speaker 3: And one moment please for our next question. Our next question will come from Floris Van Digecombe of Compass Point LLC. Your line is open.
Speaker 10: Thanks guys for taking my question.
Speaker 18: I know you're not providing guidance, but you're hoping to keep margins the same. And you're saying that some of your costs could go up, your operating costs could go up by 8% or somewhere in that range, which would essentially mean that you're not providing
Speaker 18: your your EBITDA would have to go higher as well. I mean.
Speaker 18: Put another way, under what scenario do you see EBITDA going down, barring a hard landing recession? What scenario do you see Diamond Rock posting negative EBITDA growth in 23? That's my first question.
Speaker 5: Well, we're not giving guidance, but as we mentioned earlier, you know, STR's guidance of 3.7 percent for the industry and high single digits for up or upscale, you know, in that environment that's the environment that we think we can hold GOP margins flat if that's kind of the economic scenario that they're utilizing. That's how the industry plays out.
It is mark it is I just.
I guess.
My second question is I noticed.
You still had.
Last year, two hotels that actually posted negative EBITA youre embassy suites in Bethesda, and your Kimpton in Fort Lauderdale, maybe talk a little bit about that and maybe also touch upon actually your highest EBITDA producer, which doesn't really fit into I think where you want to take the company, which is your Chicago.
Which represents over 10% of your EBITDA.
What how should we think about that hotel going forward and how would you replace.
The the lost income if you were to.
Trade out of that out of that asset.
Okay. So on the two that you mentioned Bethesda suites had a brand transition which was disruptive.
So thats. The reason had date of negative EBITDA, it's ramping back up this year.
The short break in Fort Lauderdale, we acquired were repositioning that asset so as anticipated we're redoing the roofing that repositioning won't be done until probably the end of the second quarter of this year and it's about both of these are tiny assets for the overall portfolio, but.
Both are both working transition Thats. The reason <unk> February it had a great year exceeded our expectations the market and the ability for.
For us to bring leisure and over the summer and then the group rebound as the year went in Chicago were ahead of our expectations.
And so we're very pleased with the performance of that asset.
You mentioned Chicago.
We do think about monetizing some of our Chicago assets as we move forward.
Thinking about portfolio composition, and clearly having the better results puts us in a better position to do that right now the market is not very accommodating for large asset sales given the inability to secure large loans.
That will probably change as the year progresses on so we'll continue to monitor the debt markets and think about those things and capital recycling and if we did monetize.
A branded heart branded asset, it's going to be continuing putting that dollars back into the areas, where we think there is can be outsized growth over the next decade and thats in lifestyle experiential assets in very high barrier to entry markets. So it's going to be more of what we've been buying that's going to be more like Austin, it's going to be more henter speeches.
That's going to be unique assets like the Bourbon Orleans in the French quarter.
Continue to move the company in that direction and Youre seeing it our results were tremendous in 2022.
In large part because we've been positioned.
Positioning the portfolio for those demand trends that have been really compelling over the last couple of years.
Thanks Mark.
Thank you.
Thank you.
One moment please for our next question.
Next question will come from Chris Darling of Green Street. Your line is open.
Thanks, Good morning, everyone.
Related to staffing levels are you more or less running at the right head count today or is there more work to be done in terms of the hiring across the portfolio.
And you in particular I think generally we're running at the required staffing levels for what we anticipate the business levels to be as we progressed through the year. We will have some comparable that are not perfect on a year over year basis, just given where business levels were same time last year as <unk> sort of worked its way through the country and early <unk>.
22, but I think by the end of last year, we're pretty much fully ramped from a staffing perspective.
Terms of where we see operating fundamentals going forward, but those levels are at a lot of cases significantly below 2019, we've been able to really rethink and streamline the business as we ramp these SaaS back up from what was a pretty significantly reduced level. During the build of pandemic I think our hotel the Westin Boston.
Probably a great example of that we're forecasting about 20 less managers in 2023 budget versus 2019 operating level. So we've really found ways to complex roles throughout the portfolio, especially in some of the larger assets define a more efficient and streamlined business model.
Got it that's helpful. And then shifting gears Mark you mentioned theres not too much available on the transaction market today, but curious if you've considered putting capital to work maybe in the form of Mezz debt preferred equity just thinking about other ways to maybe get a foot in the door of assets you might like to own those are the longer term.
Chris It's a great question, we do have strategic conversations all the time about capital deployment, but.
But we love our balance sheet, we loved the clean story of the Diamondback is today and frankly, there's a lot of competition from private equity and doing mezz debt and <unk>.
Tranches of buying tranches of debt and other places.
Actually at the competition there is fairly intense.
We're most likely to keep it relatively simple.
We wouldn't do something creative on that front, but I think that it has to be a very a very high bar to overcome for us to move down that and frankly, we find opportunities that we found that six opportunities.
Great acquisitions in the last 24 months and.
The volume is low on the market, we're having active conversations about deals primarily off market deals right now so it's not like it's zero.
One of the advantages of having only 35 assets are being our size. If we can do a few deals. This year. It can really move the needle for us we don't need to do a $1 billion of acquisitions to be the top performing REIT in 2023. So I think we will continue to find smart deals one of the things we've been able to do is find off market deals.
And looking at our pipeline, we have a number of those that were in active dialogue on today.
Got it I appreciate the thoughts that's all from me.
Thanks, Ross Thanks, Chris.
Thank you.
One moment for our next question please.
Our next question will come from Stephen Grambling of Morgan Stanley . Your line is open.
Hi, Thanks.
Comment on the first quarter were helpful are there any additional thoughts you can provide on the quarterly cadence for the remainder of the year as we think about big citywide or other factors to consider for whether it's revenue or margins by quarter and as it related follow up whether we're cancellation fees in 2022.
Outside there is any way to think about how cancellation fees may have contributed on a quarterly basis last year.
If you want to take that one.
Yes.
I'll say, we're not we're not going to give guidance on revenues and margins by quarter, but.
As Mark said, our first quarter is probably going to be significant in terms of revenue growth I actually think that.
EBITDA growth year over year is probably going to be more part of the year weighted.
Just given the comparisons to last year.
And how the business ramps.
Over last year, so I think from a.
A risk adjusted standpoint, I think having our earnings more front end weighted is an encouraging start sign.
I'm looking at just that I'm not sure if we have the thing.
Cancellation fee revenue handy or if we can always follow up offline.
We did have like I think most of our competitors more cancellations versus 19, but it was a little over $2 billion more than we had at 19, so it's not that.
That material to over $1 billion in revenue I think it's less material to us than it is to probably some of our others with a larger group component.
Makes sense that's it for me thanks, so much.
Thank you.
Thank you.
And one moment please for our next question.
Our next question will come from Bill Crow of Raymond James Your line is open.
Yeah. Thanks, good morning.
Jeff one for you.
If we just think about <unk>.
Revenues up in the mid to high single digit range, which I think you've established.
Or the industry is.
Excuse me.
When we think about expenses up a similar amount and we kind of get to a flattish.
EBITDA number maybe a slight positive bias, but you do you have made transactions over the course of the year and I'm just thinking about how the portfolio changes would be additive to kind of the baseline number.
Yes, I guess I would say bill that we tend to think of all of this on a comparable basis I mean, I guess, when we're giving guidance or talking about the portfolio in that way. It is.
I'll call. It same store on that level. So I wouldn't think of the acquisitions as sort of incremental or outside of that we're trying to be as transparent as possible and adjust.
For the transactions that we've already made in our past numbers and how we think about the year going forward. So.
I don't know if thats helpful to you.
I guess, but.
Austin for example, you only owned it for a short period of time right.
Get that benefit.
Rolling through this year.
Certainly and it's a very profitable asset, but when we think about our year over year growth.
We obviously look to historical contributions that asset would have made to the extent we had owned it for all prior periods. So okay alright, that's it thank you.
Thanks.
Thank you.
And speakers I see no further questions in the queue.
I'd now like to turn the conference back to Mark Brugger for closing remarks.
Thank you for everyone on the call. We appreciate your interest in <unk> and we look forward to updating you next quarter have a great day.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
The conference will begin shortly.
Lower Johan during Q&A, you can dial star one one.
Okay.
Yes.
Yes.
Okay.