Q1 2023 Diamondrock Hospitality Co Earnings Call
Okay.
Good day, and thank you for standing by welcome to the Diamond Rock Hospitality companies first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
You will then hear an automated message advising you were having this race to remove yourself from the queue. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Finally, Quinn senior Vice President and Treasurer of Diamond Rock Hospitality. Please go ahead.
Thank you good morning, everyone welcome to Diamond <unk> first quarter 2023 earnings call and webcast before we get started let me remind everyone that many of our comments today are not historical facts and are considered to be forward looking statements under federal securities laws.
As described in our filings with the SEC.
These statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those expressed in our comments today.
In addition on today's call, we will discuss certain non-GAAP financial information a.
A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release.
With that I am pleased to turn the call over to Mark Brugger, our president and Chief Executive Officer.
Thank you for joining us today.
Our first quarter results for the Diamondback portfolio set records for both revenues and total profits.
In the quarter comparable Revpar increased 16, 9% and comparable revenues increased 18% over the prior year.
Hotel adjusted EBITDA increased $8 5 million.
Or 15, 9%.
Results were also well ahead of 2019 with comparable Revpar up 13, 8% and hotel adjusted EBITDA of 19, 5%.
These record results speak to the quality of our real estate, our favorable geographic footprint and our strategy to have a portfolio of differentiated hotels and resorts.
It is the <unk> portfolio that is our competitive advantage.
The diamondback portfolio distinguishes itself from its public peers by having only two of its 35 hotels subject to long term management agreements.
This increases both the liquidity and NAV.
These unencumbered properties.
The portfolio today is comprised of 35 properties.
In urban Gateway markets, and 15 and prime resort locations.
It's a well balanced portfolio by.
<unk> full year revenue it is about 60% urban and 40% resort.
We believe that we are carefully curated a unique portfolio that could outperform the industry averages over the long term because of our focus on the right markets.
And the favorable experience will travel trends.
Our urban properties are concentrated in some of the most desirable submarkets of the best Gateway cities.
These submarkets include New York's times square in Midtown East.
Boston Seaport of financial districts.
Chicago's magnificent mile Denver.
Denver's Cherry Creek District.
Seven years, Little Italy, and Salt Lake City's Temple square.
Just as importantly, we have largely avoided markets like San Francisco, Portland, and Los Angeles, where values have been crushed for postpaid demick structural changes in demand <unk>.
<unk> transfer taxes.
Our reduced operating efficiencies from recently adopted hotel ordinances.
Our resorts.
Like our gateway hotels are.
We are situated in prime locations like the vortex among the red rocks the sedona.
No cap mountain surveil, the wine country and Sonoma.
Or the beaches of the Florida keys.
Collectively these resort markets are positioned to outperform in the coming decade from the accelerated paradigm shift towards more leisure travel.
Powerfully is combined with little to no supply increases.
Let's get into the trends that we're currently seeing within the portfolio.
The group segment showing considerable strength.
Compared to the first quarter of last year.
Room revenue increased 59%.
And in the quarter for the quarter activity was up nearly 15%.
The benefit of owning well maintained hotels in key Submarkets is readily apparent in the performance of our group centric hotels.
Revpar at the San Diego Westin increased 71% over Q1 2022 and.
And Revpar, the Chicago Marriott increased 62%.
Similarly.
Par at the Boston Westin Seaport increased 40% over the first quarter of 2022, which.
Which impressively was more than 10% over its prior first quarter peak.
This is transient demand has also rapidly recovered.
Midweek business transient occupancy at urban properties increased 58%.
In the first quarter from the comparable period.
This strong business transient demand helped set records for our trio of select service hotels in Manhattan.
Which were stars in the first quarter with Revpar, increasing an average of 45, 6% over Q1 2022.
8% higher than the comparable period in 2019.
Business transient demand also propelled results at the hotel envelope, which entered its status as the number one tripadvisor ranked hotel in San Francisco.
This tiny boutique delivered nearly an 80% increase in revpar over last year.
And double digit revpar growth compared to 2019.
Just as encouraging was the intra quarter momentum for BT.
In January midweek business transient occupancy at our urban hotels.
51, 7% of comparable 2019 levels.
And by March.
It was 16 percentage points higher at 67, 7% of 2019 levels.
Okay.
However, it is really the resort segment that continues to be the big long term beneficiary of travel trends that began before the onset of the pandemic.
There is a fundamentally favorable imbalance.
Bust leisure demand for the limited number of resorts in the U S.
This imbalance underpins our belief that resorts remain a great capital allocation choice for the coming years.
In fact is now obvious that the more resorts you acquired prior to the pandemic the better off you are now.
As you know <unk> nearly doubled its number of resorts prior to the pandemic through the acquisition of seven different resorts and the five years prior to 2020.
It was this deliberate capital allocation that helped fuel our record setting performance.
For our entire resort portfolio. The results in the first quarter were very strong with Revpar that was 34% higher than 2019 and.
And adjusted EBITDA that was 47% higher than 2019.
This operating outperformance yielded enormous.
Increases for our resorts where.
Where we estimate NAV.
<unk> breached by nearly $200 million.
We're about $1 per share since 2019.
For the industry.
<unk> reported that the resorts segment in the U S increased year over year Revpar by 12, 9% in the first quarter.
As the world settles down post pandemic each resort market is establishing a new normal baseline, which began happening around September of last year.
Encouragingly.
This first quarter, we saw record Revpar performance from our luxury collection resort in Vail up 18, 8%, our Hilton in Vermont up 13, 5%.
The lodge at Sonoma up 11, 5%.
And the Kimpton short break in Huntington Beach, which is a another number one ranked Tripadvisor hotel.
After experiencing explosive growth during the last few years, we are seeing the resorts and desk and beach in the Florida keys stabilizing at their new normal sleep behind last year, but still more than 38% above 2019.
We expect this new normal adjustments.
We'll continue until we get to lap this trend in late 2023.
<unk> is likely to resume its outperformance headed into 2024 and beyond.
That's a good transition to give you an update on the acquisition market more generally.
While Jeff will discuss our current capital allocation options, including share repurchases at the steep discounts.
We remain active in trying to find more acquisitions of the kind that have worked so well for us.
Unique.
Spiritual hotels.
Generally owner operated and held by non institutional folks.
Focusing on these type of deals for almost a decade.
And have a first mover advantage.
<unk>, well honed skill set for identifying and unlocking value at these type of properties puts us in a great position to create value when we can provide them loose.
Of course.
A deal we would do this year, we will have to be something that we really love.
But there are a few special opportunities out there where we are actively engaged in conversations.
For broadly marketed deals we expect the low transaction volumes to begin slowly picking up later in 2023 and into next year.
Before turning the call over to Jeff to discuss our fortress balance sheet and earnings in greater detail we.
We did want to provide comments on our outlook.
Regarding group.
And full year 2022, we generated 83% of prior peak group room nights.
Clearly there is significant room for improvement and we are making excellent progress.
In the first quarter grew.
Group room nights were 88% of prior peak.
Our current forecast is to finish 2023 at 94%.
Group room nights, and 102% of peak group revenue.
We are resolutely closing in on that target.
Our group revenue booked in Q1 for the remainder of 2023 was up 28% over last year with the strongest gains to be founded in the next two quarters.
Our full year forecast has group room rate up 14, 5% to 2019.
But it's still about 46000 room nights behind prior peak.
Including out of the room spend closing that gap and capturing those rooms.
Could add $20 million of incremental revenue to our 2024 results.
On leisure.
It's been the top performing segment over the past few years.
In 2023, we expect each market will reach a different level of new normal.
After which leisure will likely return to its long term secular growth trend line, but off of a much higher base with the new normal 2023 resort NOI about 50% higher than 2019.
As one point of additional opportunity for our resorts.
They are projected to end 2023 at four percentage points of occupancy.
Below prior peak.
And closing that gap next year could be worth another $24 million in revenue.
Finally.
This is travelers are clearly getting back on the road, but we are seeing that positive <unk> trend late moderate a little on the demand side, while we continue to push rate to maximize profitability.
I will sum up by saying that while the economic outlook is still too volatile to provide investors with useful earnings guidance.
We continue to expect <unk> to achieve record revenues in 2023.
With that let me turn it over to Jeff.
Thanks, as Mark said at the onset of the call. It was another strong quarter for Diamond rock.
Comparable total revenue was up 18% over 2022 and 14% over 2019.
Hotel adjusted EBITDA increased 16% over last year. This enabled us to generate corporate adjusted EBITDA of $55 4 million and adjusted <unk> of <unk> 18 per share.
Comparable revpar for the portfolio in the first quarter was $185 or nearly 17% higher than 2022, and nearly 14% higher than 2019.
This growth was driven by a 23% increase in room rates over 2019.
Occupancy was down 540 basis points to the first quarter and 19. This is a 240 basis point sequential improvement from Q4 2020 to.
Closing this gap remains one of several sources of future growth for Diamond rock.
F&B and other revenue increased 14, 1% or over $10 million on a combined basis to nearly $83 million driven.
By several repositioned F&B outlets and new income streams created by our asset managers during the pandemic.
We will share with you soon several new or upgraded outlets. We are working on that will continue to drive profits to new levels in 2024 and beyond.
Comparable hotel adjusted EBITDA was $61 9 million, which beat first quarter 2019 by $10 $1 million or nearly 20%.
Adjusted EBITDA was $10 $5 million and 23% better than 2022, and <unk> per share was 28, 6% better than 2022.
Yeah.
Profit margins remain a great story for us.
Comparable hotel adjusted EBITDA margins were 25, 8%.
Up 117 basis points to 2019 are.
Our resort portfolio finished the first quarter with a comparable hotel adjusted margin of 34, 9% or 379 basis points higher than the same period in 2019.
Importantly, this performance expanded upon the 341 basis point improvement reported by our resort portfolio in the fourth quarter of 2002.
Comparable hotel adjusted EBITDA margins at our urban hotels were 18, 2% up 823 basis points over 2022.
Urban hotels have yet to see demand recover to 2019 levels. So while we rebuild profitable corporate business, we are identifying permanent inefficiencies to amplify our ultimate recovery.
Operating efficiency is a critical factor in all aspects of capital spending on rooms outlets and even back of house design.
Our immediate example of efficiencies can be found at our Chicago Marriott magnificent mile, which now operates with 20% fewer managers than it did in 2019.
Our goals for 2023 is for hotel adjusted EBITDA margins to be roughly flat to 2019 portfolio wide increases in property insurance and property tax are expected to be headwinds for the industry and for Diamondback.
Looking to the remaining three quarters of 2023, we expect total expense growth at our resorts will increase in the low single digits over 2022.
For our urban hotels expense growth is likely in the range of 12% to 13% for the remainder of the year as we grow our banquet business and fill positions as we rebuild occupancy.
We are working hard to offset these increases through aggressive asset management converting contract workers back to full time employees and more efficient staffing models.
Moving to capital allocation as discussed in the prior earnings call in early February we executed two hedges to end the quarter was 64% of our total debt fixed or swapped.
Subsequent to quarter end, we acquired the fee simple interest in the remaining land parcels under the Worthington Renaissance parking structure for approximately $1 8 million.
We now own a 100% fee simple interest in the hotel.
Transaction enhances the liquidity and finance ability of this asset and more importantly, reinforces diamond rocks low exposure to ground leased assets.
At the end of March we acquired 56400 shares of common stock at $7 26 per share before our window closed.
This price represents nearly a 10 and a half cap rate 10, 5% cap rate on trailing NOI.
$270000 per key of enterprise value, which is less than half of our replacement cost.
We are disappointed we cannot be more active at these levels.
Share repurchases are a key component of our capital allocation opportunity set and we constantly evaluate repurchases against external growth opportunities as well as the high yields and long term value creation from our ROI pipeline.
Speaking of Rois the portfolio continues to drive cash flow and create value as we execute our high ROI repositioning plans in the last 24 months, we have completed the conversion and up branding of the Vail Marriott to the height of luxury collection hotel the <unk> Marriott Denver, two hotel Cleo luxury collection hotel.
The key west Sheraton suites to the Margaritaville Beach House, and the Lodge at Sonoma to an autograph collection.
In the first quarter. These four hotels alone generated a collective of Revpar increase of 46% over 2019 with hotel adjusted EBITDA up 75% since 2019.
<unk> net asset values increase at these hotels and we are seeing a handsome return on our investments.
Since 2021, we have or will execute a total of $90 million of ROI projects at 16 of our 35 hotels, creating and executing these types of repositioning as a core competency for diamond rock.
We are currently underway with three more ROI repositioning the.
The Hilton Boston to a lifestyle hotel that will be completed late summer.
Hilton Burlington to a lifestyle hotel to be named hotel Champlain, our Lakeside resort to be completed this fall as part of the carryover collection.
And the Bourbon Orleans repositioning to a premium urban lifestyle hotel in the French quarter to be completed before the Super Bowl and Mardi Gras in early 2024.
We also have plans to create significant value and other set several other properties, including our orchards Inn Sedona are lake Austin Spa resort and our landing Lake Tahoe resort.
These will allow us to grow value and drive premium core growth in future years, there is more to come so stay tuned.
Turning to the balance sheet, we remain committed to having a strong and flexible balance sheet.
Our leverage is conservative as demonstrated by the low trailing four quarter net debt to adjusted EBITDA ratio of three eight times.
Our liquidity is very strong at $585 million, including $185 million of cash.
Our $400 million revolver is undrawn, but just as critical to $400 million is fully available to us even under our most restrictive debt covenants.
Moreover, we expect to generate over $215 million of cash this year before capital expenditures and dividends.
We have few demands on our balance sheet and this allows us to play offense at a time when others may be forced to sell at depressed prices.
Conversely, and to be clear this is not our expectation if real estate capital markets were to remain choppy for an extended period. We project. We will have the capacity to retire all debt maturities fully fund all capital expenditures fund all pending ROI projects and pay projected preferred and common dividends through 2020.
Five from current liquidity and retained cash flow.
This scenario is not our house view of the future, but we believe it is an important point of differentiation for Diamond rock.
We believe our well maintained portfolio low leverage flexible and liquid structure.
Long weighted average maturity and strong relative and strong cash flow are distinct and material advantages. Moreover, unwinding, our balance sheet does not create a drag on our NAV.
With that let me turn the call back to Mark.
Thanks, Jeff.
Let me add by saying that we remain bullish on the future of travel.
Travelers to one one of the most highly valued assets in our society and around the world.
Leisure demand enjoyed a strong period of outperformance that began before the pandemic and we see that secular trend of outperformance continuing in the coming years.
One group.
The funnel for future business looks very strong.
A business travel while there is still some uncertainty as to where demand ultimately settles out there clearly has been positive momentum and we are primed to take share from other hotels because of our excellent locations.
And from repositioning like the clear Denver luxury collection hotel or the upcoming conversion of our hotel in Boston.
To wrap up the first quarter of 2023 was a record for <unk> portfolio in terms of both revenues and profits.
Moreover, we believe that we are well positioned for this cycle with a very high quality portfolio.
A focused strategy.
Ample liquidity to move Opportunistically.
At this time.
Like to open it up for your questions.
Thank you.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby will be compile the Q&A roster.
One moment for your first question.
First question comes from the line of Austin, <unk> with Keybanc capital markets. Your line is now open.
Thanks, and good morning, everybody Mark can you just put some further details around your comment that BT is moderating.
Just curious if that's specific to any markets do you think this is a little bit of an air pocket.
Or are we actually seeing BP stall.
Given what's happening maybe just more broadly.
Given the macro backdrop.
Good morning, Austin, So I think it's somewhat in comparison to the other segments. So leisure has been great were well above an elevated from prior peak levels group is rebounding and I think as we mentioned our group revenues will exceed prior peak this year and then Bts.
It's coming back it came back behind those other two segments.
We saw good momentum in the first quarter I think what we're trying to convey is we don't see it breaching prior peak levels. This year and it may settle out at something below what the demand levels were in 2019 ultimately so good good positive volume momentum that came on in the fourth quarter continued through the first quarter.
But we're trying to indicate we don't see we talked about 16 percentage points of growth from January to March we don't see that same velocity, while we continue to see Healy we won't see the same philosophy for the balance of the year.
Okay got it and then just on group I know you gave some stats, but what percent of group revenues on the books relative to budget.
And how much do you expect to pick up I guess in the quarter for the quarter over the balance of the year and can you just talk a little bit about how the short term leads are today relative to maybe what you saw last year.
So I'll take the front of that question, maybe I'll hand, it over to Justin talked a little bit more about groups. So we have today, we ended the quarter with about 80% of the group room nights already under contracts that we need to hit our forecast for the full year. So we feel good about the position that we're sitting in for group adjusted you add some comments on group yes.
We hit it in our in our highlights and we've seen group as an area of strength just in the industry generally and in full year 'twenty. Two we did 83% of prior peak Q1 was 88% of prior peak and our current forecast is to get back to 94% of prior peak just in group room nights, and we're expecting to exceed that in volume, but I think more.
<unk>, what we're seeing is.
In the year for the year pickup is actually accelerating so in Q1 or in the quarter pickup for the remainder of 2023 was up 28% just in room night volume versus Q1, 2019, So we continue to see that velocity.
Well being somewhat short term expand over what we saw last year and so we're optimistic we can even further close that room night gap to what we're projecting for full year 'twenty three.
Got it thanks, Jessica and thanks Mark.
Got it.
Thank you one moment for our next question.
Next question comes from the line of Dori Kesten with Wells Fargo. Your line is now open.
Thanks, Good morning.
A bit about your appetite to acquire this year Mark should you transaction with you.
To acquire pretty similar to what you have over the last several years relatively small relationship potentially owner managed.
It's a great question. So we're still focused this isn't the time to go out and do a big deal. We think we have AMT.
Ample liquidity and something we do given our cost of capital would have to be.
Something that has relatively high returns in a market where there is still a lot of private equity chasing deals. So we think our competitive advantage remains in these relationships we built often in.
Differentiated resort markets.
From owner operators, so that continues to be the bulk of the conversations that we're having that's where we think we can create more value. It's where we think we can buy things relative to our cost of capital that might make sense.
But I can say in the broadly marketed deals we've seen there is still it's still very competitive in the pricing.
The pricing on those probably just doesn't make sense for us. So we're trying to focus on the things, where we think we have a competitive advantage.
Okay.
Some peers have talked about selectively reducing FTE in the near term do you feel the need to do so.
Or is your focus more on auditing contract win with permanent workers.
He went through about the efforts we have for maintaining our merchants.
Sure I think specifically on labor.
We're doing a number of things I think one of the things Mark spoke about specifically on the reserve side, where we've really cultivate cultivated a unique portfolio of small independent experiential resorts. We continue to look at how we can more efficiently run those small businesses by pooling resources and I think it gives us an advantage both from a margin perspective, but also on potential acquisitions, so forecast like cultivating.
And shift of luxury travel agents or small group meeting sales or even optimizing E channel Placemat. We are using external third party resources in lieu of on property staffing for some of these smaller assets. It allows us really to get best in class resources for a significantly lower cost and eliminate those arent property ftes versus the owner operator.
Run rate model I think with respect to contract we are focused on decreasing reliance on contract labor our portfolio wide I think in the tight labor market in the last couple of years, everyone was forced to staff up quickly and really use all labor sources, we could secure but given that market contract labor costs, it really inflated much faster, but overall wage growth in many of our mark.
It now represents a premium cost and a lot of those markets to bringing those associates onto our property level teams, especially we factor in additional turnover and training.
We are.
Continue to push for.
More ftes on staff within our individual assets just as an example, since acquiring lake Austin, we've moved entirely away from contract labor in our Spa operations and we're seeing that benefit both on the <unk> expense side, but it also helps us deliver better service the guest and probably more importantly, eliminating that middle man delivers a better paycheck to you.
Yes.
Okay. Thanks.
Thank you.
One moment for our next question.
Our next question comes from the line of Duane <unk> with Evercore ISI. Your line is now open.
Hey, good morning. Thanks.
Just on F&B, one on one of the trends we've seen are really across a logic in this sector is higher F&B.
Relative to room revenue I Wonder if you could just provide some context on.
What do you think is driving that.
And again from an industry perspective, if you see it as sustainable.
Sure so.
This is mark I'll kind of kick that off so I think generally what we're seeing is we're seeing better than anticipated outside the room spend on banquet set of groups that have been coming over the last really six months I would say have generally surprised to the upside in their on their rental what theyre doing for for the events of food items.
I think there's a general sense that from the media planners that if you're going to get people on the road and get them together it needs to field meaningful and have satisfied attendees you need to really kind of rollout the carpet to make sure that they feel like it's worth the effort given.
Given the tight labor market. So we've been very pleased on that side I think for the <unk> portfolio, specifically, otherwise we hit New records for outlets last year. So we've made a conscious effort to.
And we think increase the guest experience by putting in a number of specialty restaurants within our our hotels, whether thats, a Richard Sandoval turo or a Michael Mina restaurant.
Vivian Howard in Charleston, we've.
Cultivated a number of these relationships.
Which have led to too much higher F&B, particularly in the outlet and that's sustainable I think that continues to be something that makes our hotels more desirable.
<unk> continues to resonate with travelers today to have those those kind of choices within the properties.
And anything else on the F&B I think on the resorts, we're pretty pleased to see continued growth in outlets in.
In food and beverage I think due to some of those repositioning, but I do think that the comparable on a year on a year over year basis will probably moderate for the urban's I mean, there was there were a few of our urban assets and I think there's just in the industry generally where the outlets were not fully opened Q1 of 'twenty, two and and we didn't have for example room service installed in Q1 of 'twenty two.
So I do think some of that food and beverage growth will probably moderate just in terms of outsized revenue growth as we go through the year.
Thanks, and Marc maybe I'll stick with you when we were together in Bethesda with investors in late March you.
You had talked about increased dialogue with private equity firms kicking tires on the sector and potentially kicking tires on diamond Roc specifically.
Can you give us an update on on that kind of the tenor and the pace of those conversations.
Sure. So I guess, we always have regular conversations with private equity firms.
Theres, probably about I think with less plus chart I saw was about $230 billion raised to deploy against real estate.
Ed hotels have moved up as a desirable asset class among those private equity firms. That's what we're hearing we've been engaged in regular conversations with folks as we always are I'm not sure it's appropriate to comment on some of the substance of some details of those conversations but I can tell you the interest in the sector.
From our conversations remains remains very high.
Thank you.
Thank you one.
One moment for our next question please.
Our next question comes from the line of Smedes Rose with Citi. Your line is now open.
Alright, Thanks, I just wanted to ask you.
Talked about kind of returned to a kind of a new normal.
In Florida.
And I was wondering would you apply that kind of what youre seeing the lake Austin properties, which looks like it's all pretty steep year over year declines.
And are you still comfortable with what you underwrote those assets with.
In your initial guidance when you had when you purchased them.
Sure. So let me let me.
Start with leisure generally so we are we are seeing leisure demand. We think it all time high if you look at the STR data year over year Q1, Revpar was up 12, 9%.
Recently, we were just listened to airline Ceos in the cruise lines Ceos Youre hearing about the robust demand and frankly, the airlines probably have the best data set.
So we are believers that there is more leisure and thats going to continue I think some of what we're seeing in the Florida keys is a couple that might have.
Go onto Florida keys last year.
We're nervous about Covid now maybe they are taking a cruise or they'll go into the Caribbean, but the overall pie is much bigger and thats a trend that we can take continues to be a smart place to asset.
Allocate capital on <unk>.
Austin specifically.
Specifically that resort there was an ice storm in the first quarter that was about a $500000 hit.
On the bottom line, we're still through cost savings, we're still on our underwriting for the first quarter. So we feel good about our position there Justin spoke about some of the things we did on the labor there.
Systems, we talked about when we acquired it converting from an owner operator pretty primitive pricing model that.
That they had in place with sophisticated new systems and best in class operating tools.
Given the backlog on getting those implemented they are really getting implemented and.
April and May and we think we'll see enormous returns from those and our ability to professionally asset manage and revenue manage that property going forward.
Okay. Thanks, and then I just wanted to ask you and Sonoma.
You were up but I just wondering did you guys see any sort of weather impact out there from the biggest to bringing activity during the quarter that maybe the press results at all or.
Now, we thought Sonoma performed well hit our expectations actually exceeded our expectations a little bit so.
So we didn't see any weather impact.
We had some minor disruption, maybe a day and a half but it wasn't significant to the overall quarter.
Great. Okay. Thank you guys.
Thank you.
One moment for our next question.
And our next question comes from Floris Van <unk> with Compass point research and trading your line is now open.
Thanks.
Good morning, guys.
I had a question.
On your redevelopment.
Assets, obviously, you've got a couple of hotels that you are rebranding.
And I wanted to you Havent disclosed what your rebranding the Boston Hilton to maybe if you could give us a little bit of insight into your thinking about.
Having that be a soft brand versus a.
Lifestyle, unbranded hotel and and what the cost.
Benefits potentially could be because we understand that.
Off brands, while they might've been seemed like an autograph or a material might've been cheaper.
Two years ago, they probably orange as.
As cheap as they as they were back then and if you could give us some more update on that that'd be great.
Sure.
One we think it's a fabulous location in Boston, It's a seven day, a week location, which gives us a lot more optionality, we're not dependent on the brand and the brand channel at that particular location.
We're spending about $31 million on the property this year.
Now it was due for rooms, redo, so thats not all incremental to to the repositioning.
But we'll have repositioned brand new spectacular Jim that we built out.
Well as the meeting space sloppy everything redone. So we think it's kind of a unique special property.
We probably will go independent at that property the summer Jeff do you want to give some numbers I know you have the analysis in front of you yes, how.
How're you doing.
Art mentioned, we're looking at.
The path, we ultimately take of that asset.
This summer I think there'll be some displacement, depending on whether or not we go for.
<unk> fully independent to remain within the Hilton system.
The change is going to cause some disruption I think the figures we've looked at for the full year is probably going to be around $5 million to $6 million on sort of a revenue and EBITDA impact.
Then the plan is that as we.
Grow back.
We will be able to pick up substantially more than that.
Just because I think that in that particular location and being able to appeal to a leisure customer.
Being so close to all the tourist destinations, but also a business customer in the financial district.
Having more of an independent feel to that hotel will be able to command a much higher rate premium than we have in the past and ultimately better profitability.
So it could be several million dollars more than the disruption.
We will realize this year in terms of earn back on NOI in the future.
Thanks, and maybe my follow up I mean.
It looked at the EBITDA contribution of your Worthington.
<unk> hotel and <unk>.
And your Salt Lake and they jumped up significantly was the Worthington increased due to the buying out of the ground rents or what was behind the big jump in and performance from those particular those two hotels.
So on Worthington, let's talk about that specifically so the ground lease is relatively small as tens of thousands of dollars in lease payments. It was not a material difference to the earnings result.
Frankly, it didn't impact Q1.
We are excited to.
Covered a portion of the parking garage.
I was excited to eliminate any ground lease and now we have complete control of the property.
And frankly, there is probably other things in the future that can be done with that location of that parcel. So we think that that's a win for four <unk> Worthington had good group exposure.
Markets like Fort worth markets like Salt Lake City.
Those cities are doing particularly well.
Some other major markets become less desirable.
Those markets are really primed to take share from.
From the San Francisco is important.
As economy, we're seeing.
Office, and the desirability of kind of companies wanting to be in those locations.
Really exceed what we're seeing on a nationwide trend. So they are benefiting from that.
Thanks Mark.
Thank you one moment our next question.
Our next question comes from the line of Michael.
Bellisario with Baird. Your line is open.
Thank you and good morning, everyone.
Mark just wanted to go back to.
Some commentary on the resorts and performance during the quarter, maybe just give us your view of in aggregate how they perform versus your internal expectations and were there any particular markets that were better or worse than forecasted during the quarter. Aside from the commentary you already provided on Sonoma.
Yes, I mean in addition, snowmobile sale Huntington Beach.
We're ahead of our expectations I think the ones that were there.
What kind of were different than our forecast.
At.
Lake Tahoe, Theres, obviously record amounts of snow and that impacted performance.
But it's a tiny assets so it doesn't move our overall numbers and I would just say this.
Except for Fort Lauderdale, which we were able to group up very effectively.
Yes, the Florida keys, we're behind our expectations for the first quarter.
As kind of things kind of new normal weather significantly ahead of 2019, we think we're establishing the new normal for the Florida keys in 2023, and hopefully we'll be able to grow from that as we move into 2024.
Okay.
Got it thanks, and then just a follow up and switching gears on on margins just wanted to dig into the commentary. There did you say flat margins for the remainder of the year or is your expectation that the full year 'twenty three is roughly flat at the hotel EBITDA level and then.
Any quarterly cadence to <unk> that you can provide to help with modeling would be appreciated. Thanks.
Hey, Mike This is Jeff I would say that.
Full year basis, the thinking was that margins would be approximately flat to what they were in 2009 2019, which is I believe about 29, 5% was the number back in 2019 that we had on a comp basis out there.
In terms of the cadence I'm just I'm just eyeballing this lower.
While we're talking.
<unk>.
No I mean, I think I think when you look at the remainder of the year I think for from a timing standpoint, probably our most difficult quarters in the second quarter. When you begin to think about margin gains just because.
You certainly had strong when you think about the comparisons to last year.
<unk> had revenues that were very strong and ramping over the course of the year. So the comparisons get tougher and at the same time, you think about the rebuild of expenses last year, you still were earlier in the year seeing wage rates rise.
Staffing, obviously moves with occupancy recovery, so I think probably the first half of the year generally has more difficult.
Margin comparisons for us in the back half of the year just to add on to that on the resort to deal with the Sedona and the South Florida markets. You can see the new normal kind of getting into place started in September of last year or so of those comps.
So get easier, which which I think will help the overall margin story as we kind of move into fourth quarter and to start 2024.
Okay.
Helpful. Thank you.
Thank you one moment for our next question.
Okay.
Question comes from the line of Anthony Powell with Barclays. Your line is now open.
Hi, Good morning, I guess, a follow up on the fourth quarter, and then leisure trying to re accelerating.
Is that based on booking trends youre seeing from holiday period, and do you expect the growth to be more occupancy or rate.
Great question, So leisure leisure doesn't usually look out six to nine months, but what we're seeing and kind of what we're watching and real time September October November December of last year, particularly in Sedona, and South Florida as we can kind of see the the world reopens. So while demand was robust generally for leisure people felt comfortable.
Travelling to alternate destinations so kind of got to that new normal I think as the world was opening up that people are comfortable so our expectation is that.
That comp gets much easier when we approach the fourth quarter.
Both of them.
Price evenly split between octane rate is there expectation right now.
Got it thanks, and maybe one more in terms of dispositions.
We've talked about maybe selling some group hotels.
In the past, but given what you said about group being kind of a strong segment.
Does it make sense to retain the group hotels that you're at currently own or even add more in the future.
Yes, we like group.
Globally by room type about half of our hotels are.
We're number are about 40, but we can calculate about 49% of our hotel rooms are in.
Group centric hotels over 400 keys.
I think it's I think it's fine I mean, I think group will continue to be good this year and next year, we still like the leisure segment, probably to divest over the next five to 10 years.
But this year our group hotels are doing excellent probably the value of all of those hotels increases over the next 12 months.
And for large hotels, it still remains a difficult debt markets. So those.
Those things combined to lead us to it's probably better to.
Hold any group hotel in 2023.
With that thank you.
Everything is for sale at the right price.
Got it alright. Thanks.
As a reminder to ask a question Thats Star one one.
And currently showing no further questions at this time I'd like to hand, the conference back to Mr. Berger for any closing comments.
Thank you operator.
Thank you to everyone on this call. We appreciate your interest in <unk> and we look forward to updating you next quarter take care and have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Okay.
Okay.
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Okay.