Q2 2024 DiamondRock Hospitality Co Earnings Call

Speaker Change: [inaudible]

Speaker Change: Hot Town, summer in the city, back of my neck gettin' dirty and gritty Bend down, isn't it a pity, just seem to be a shadow in the night If I bleed, it'll be alright, and babe, don't you know it's a pity the days Can't be like the nights in the summer, in the city, in the summer, in the city Cool town, eatin' in the city, just so fine and lookin' so pretty Cool town

Operator: Good day, and thank you for standing by. Welcome to DiamondRock Hospitality Company's second quarter 2024 earnings conference. At this time, all participants are on a listen-only basis. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: Good day and thank you for standing by. Welcome to DiamondRock Hospitality Company's second quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you'll need to press star 11 on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer. Please go ahead.

Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer. Please go ahead.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer. Before we begin, 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 what we discussed 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.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer.

Speaker Change: Before we begin, 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. Thank you. Thank you. Thank you.

Speaker Change: that could cause future results to differ materially from what we discussed today.

Speaker Change: 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.

Briony Quinn: We were pleased with our second quarter results, which exceeded our expectations going into the quarter. Comparable res par grew 2.2% over last year, which was 260 basis points higher than the growth that we saw in the first quarter and exceeded the 100 to 150 basis points of sequential acceleration we expected. Total rev par increased four and a half percent, also an acceleration from the 2.4% total REVPAR growth in the first quarter.

Speaker Change: We were pleased with our second quarter results, which exceeded our expectations going into the quarter.

Speaker Change: Comparable RASPAR grew 2.2% over last year, which was 260 basis points higher than the growth that we saw in the first quarter, and exceeded the 100 to 150 basis point of sequential acceleration we expected.

Speaker Change: Total REVPAR increased 4.5%.

Speaker Change: also an acceleration from the 2.4% total REVPAR growth in the first quarter.

Briony Quinn: The 230 basis point gap between total REVPAR growth and room REVPAR growth was the result of an intentional mix shift toward group business that drove strong out of room spend. The strategy has worked. Group revenue increased 7.2% over last year, and banquet catering and AV revenue increased over 20%. The strong revenue growth was driven by both our resort and urban hotels.

Speaker Change: The 230-basis point gap between total REVPAR growth and room REVPAR growth was the result of an intentional mix shift toward group business that drove strong out-of-room spend.

Speaker Change: The strategy has worked. Group revenue increased 7.2% over last year, and banquet catering and AV revenue increased over 20%.

Speaker Change: The strong revenue growth was driven by both our resort and urban hotels.

Briony Quinn: Comparable REVPAR at our resorts was 1.9% higher than last year, with total REVPAR 2.7% higher. Comparable RevPAR at our urban hotels was 2.2% higher than last year, with total RevPAR 5.4% above 2023. Comparable hotel operating expenses increased four and a half percent from last year, which was largely in line with our expectation. However, total wages and benefits increased by 7%, a better growth rate than the prior quarter. Early in the second quarter, we renewed our insurance program with a better-than-anticipated outcome. Overall, our premium cost was reduced by 16%, which led to insurance expense for the quarter declining 14.5% from 2023.

Speaker Change: Comparable REVPAR at our resorts was 1.9% higher than last year with total REVPAR 2.7% higher.

Speaker Change: Comparable RevPAR at our urban hotels was 2.2% higher than last year, with total RevPAR 5.4% above 2023.

Speaker Change: Comparable hotel operating expenses increased four and a half percent from last year, which was largely in line with our expectations.

Speaker Change: Total wages and benefits increased by 7%, a better growth rate than the prior quarter.

Speaker Change: Early in the second quarter, we renewed our insurance program with a better-than-anticipated outcome. Overall, our premium cost was reduced by 16%, which led to insurance expense for the quarter declining 14.5% from 2023.

Briony Quinn: Comparable hotel-adjusted EBITDA was $99.5 million, reflecting a 5.5% growth over last year on a 20 basis point increase in margin. Adjusted FFO per share increased 6% over 2023 to $0.34 per share. Turning to our outlook, the success of our group strategy has exceeded our expectations. Shifting our mix towards group bookings as well as focusing on building occupancy in our resorts may reduce room REVPAR growth, but it has done so to the benefit of total REVPAR and ultimately profit.

Speaker Change: Comparable hotel-adjusted EBITDA was $99.5 million, reflecting a 5.5% growth over last year on a 20 basis point increase in margin.

Speaker Change: Adjusted FFO per share increased 6% over 2023 to $0.34 per share.

Speaker Change: Turning to our outlook, the success of our group strategy has exceeded our expectations.

Speaker Change: Shifting our mix towards group, as well as a focus on building occupancy in our resorts, may reduce room REVPAR growth, but it has done so to the benefit of total REVPAR and ultimately profit.

Briony Quinn: Accordingly, we are adjusting our RevPAR growth outlook to a range of one and a half to three percent. However, we expect total RevPAR growth to be in the range of 3 to 4.5%. Our group strategy has performed well, and we expect it will continue to drive incremental revenue and profit, but due to the types of groups on the calendar, we do not expect out-of-room spending in the second half of the year to contribute 250 basis points toward total REVPAR growth as it did in the first half of the year. We now expect 2024 adjusted EBITDA to range between $278 million and $290 million.

Speaker Change: Accordingly, we are adjusting our REVPAR growth outlook to a range of 1.5% to 3%.

Speaker Change: However, we expect total REVPAR growth to be in the range of 3-4.5%.

Speaker Change: Our group strategy has performed well, and we expect it will continue to drive incremental revenue and profit.

Speaker Change: But due to the types of groups on the calendar, we do not expect out-of-room spending in the second half of the year will contribute 250 basis points toward total res par growth as it did in the first half of the year.

Speaker Change: We now expect 2024 adjusted EBITDA to range between $278 million and $290 million.

Briony Quinn: Our 2024 adjusted FFO is expected to range between $201.5 million and $213.5 million. And the resulting adjusted FFO per share range increases from 9 to 95 cents to $1. Turning to capital allocation, we commenced share repurchase activity during the quarter. To date, we have repurchased 2.8 million shares with a weighted average price of $8.36 per share for total consideration of approximately $23.5 million.

Speaker Change: Our 2024 adjusted FFO to range between $201.5 million to $213.5 million.

Speaker Change: and the resulting adjusted FFO per share range increases from $0.09 to $0.95 to $1.00.

Speaker Change: Turning to capital allocation, we commenced share repurchase activity during the quarter.

Speaker Change: To date, we have repurchased 2.8 million shares with a weighted average price of $8.36 per share for total consideration of approximately $23.5 million.

Briony Quinn: We continue to explore asset dispositions, the proceeds of which can fund additional share repurchases, internal ROI projects, or external growth. Our balance sheet remained strong. As of the end of the quarter, our net debt to EBITDA ratio was 3.8 times trailing four-quarter results, and our liquidity was $630 million. We plan to repay our $73 million mortgage maturity in early August with cash on hand.

Speaker Change: We continue to explore asset dispositions the proceeds of which can fund additional share repurchases, internal ROI projects, or external growth.

Speaker Change: Our balance sheet remained strong. As of the end of the quarter, our net debt-to-EBITDA ratio was 3.8 times trailing four-quarter results, and our liquidity was $630 million.

Speaker Change: We plan to repay our $73 million mortgage maturity in early August with cash on hand.

Briony Quinn: In addition, we intend to exercise our one-year extension right on our $300 million term loan, bringing the maturity to January 2026. We continue to monitor and assess all available options to address our upcoming 2025 debt maturities, and we'll continue to keep you updated on that front. I also want to share that during the quarter, DiamondRock successfully completed the implementation of a new Oracle cloud-based ERP system that has streamlined our accounting-related activities, as well as a new enterprise analytics system to better collect and analyze the enormous volume of hotel-level operating and financial data available to us.

Speaker Change: In addition, we intend to exercise our one-year extension right on our $300 million term loan, bringing the maturity to January 2026.

Speaker Change: We continue to monitor and assess all available options to address our upcoming 2025 debt maturities, and we'll continue to keep you updated on that front.

Speaker Change: I also want to share that, during the quarter, DiamondRock successfully completed the implementation of a new Oracle cloud-based ERP system that has streamlined our accounting activities.

Speaker Change: accounting-related activities, as well as a new enterprise analytics system to better collect and analyze the enormous volume of hotel-level operating and financial data available to us.

Briony Quinn: Together, we expect these systems will extend our impact while maintaining one of the most efficient teams amongst our peers. Kudos to our accounting and asset management teams for their efforts on this significant project. I'll now turn the call over to Jeff for additional color on the quarter. Thanks, Briony, and thanks to all of you for joining us this morning. I want to highlight the excellent efforts of our entire team, who worked hard this quarter to deliver strong Q2 results amid a transition in leadership and information systems.

Speaker Change: Together we expect these systems will extend our impact while maintaining one of the most efficient teams amongst our peers.

Speaker Change: Kudos to our accounting and asset management teams for their efforts on this significant project. I'll now turn the call over to Jeff for additional color on the quarter.

Briony Quinn: I also want to recognize Bill Tennis, who recently retired after serving as Diamond Rock's General Counsel for 14 years. Finally, I want to welcome Anika Fisher, who joined Diamond Rock as Senior Vice President and General Counsel from Essex Property Trust. She's been an excellent addition to our team, and I'm personally very happy to have this rising star on board.

Jeff Donnelly: Thanks Briony and thanks to all of you for joining us this morning. I want to highlight the excellent efforts of our entire team who worked hard this quarter to deliver strong Q2 results amid a transition in leadership and information systems.

Speaker Change: I also want to recognize Bill Tennis, who recently retired after serving as Diamond Rock's General Counsel for 14 years.

Speaker Change: Finally, I want to welcome Anika Fisher, who joined DiamondRock as Senior Vice President and General Counsel from Essex Property Trust. She's been an excellent addition to our team, and I'm personally very happy to have this rising star on board.

Jeff Donnelly: Now let's talk a little more about the second quarter. It is critical to understand that we're focused on maximizing profit, not rev par, not margin. This is why Justin and his team made the conscious decision a few quarters ago to increase our focus on groups. All else equal, this mixed shift can result in slightly lower room res par gross to the benefit of higher total res par gross.

Speaker Change: Now let's talk a little more about the second quarter.

Speaker Change: It is critical to understand we're focused on maximizing profit, not rev par, not margin. This is why Justin and his team made the conscious decision a few quarters ago to increase our focus on group.

Speaker Change: All else equal, this mixed shift can result in slightly lower room res par growth to the benefit of higher total res par growth.

Jeff Donnelly: The year-to-date spread between our room RevPAR and total RevPAR growth was a robust 250 basis points. And while higher total RevPAR growth can result in higher total expenses, expense growth, and possibly even lower margin, it accrues to the benefit of higher bottom line profit. And to us, profit is... As Briony mentioned, comparable EBITDA for the portfolio increased 5.5% in the quarter, and F&B profit at our urban hotels increased nearly 27% after the incremental costs, such as food and labor, associated with non-room group revenue. Urban hotels had the largest spread between total RevPAR and RevPAR growth. The Clios spread was 1,000 basis points, the Worthington 780, the Chicago Marriott 740, Weston Seaport 520, and the Gwen 480 basis points.

Speaker Change: The year-to-date spread between our room RevPAR and total RevPAR growth was a robust 250 basis points.

Speaker Change: And while higher total REVCAR growth can result in higher total expense growth, and possibly even lower margin, it accrues to the benefit of higher bottom line profit.

Speaker Change: And to us, profit is king.

Speaker Change: As Briony mentioned, comparable EBITDA for the portfolio increased 5.5% in the quarter and F&B profit at our urban hotels increased nearly 27% after the incremental costs, such as food and labor, associated with non-room group revenue.

Speaker Change: Urban hotels had the largest spread between total RevPAR and RevPAR growth.

Speaker Change: The CLIOS spread was 1,000 basis points, the Worthington, 780, Chicago Marriott, 740, Weston-Seaport, 520, and the Gwenn, 480 basis points.

Jeff Donnelly: Looking ahead to the second half of 2024, group room revenue on the books is up 14% over the prior year, with well over 30% growth at the Chicago Marriott, Weston DC, and the Worthington. For the year, we have 704,000 group room nights on the books, which is a 7.3% increase over 2023 and represents 88% of our 2024 budget. Turning to our resorts, this was the first quarter of positive RevPAR growth in our resort portfolio since the end of 2022.

Speaker Change: Looking ahead to the second half of 2024, group room revenue on the books is up 14% over the prior year with well over 30% growth at the Chicago Marriott, Weston DC, and the Worthington.

Speaker Change: For the year, we have 704,000 group room nights on the books, which is a 7.3% increase over 2023 and represents 88% of our 2024 budget.

Speaker Change: Turning to our resorts, this was the first quarter of positive REVPAR growth in our resort portfolio since the end of 2022. Resort comparable occupancy increased 8.6% offset by a 6.1% decline in ADR.

Jeff Donnelly: Resort comparable occupancy increased 8.6%, offset by a 6.1% decline in ADR. Despite the increased reliance on occupancy, which is a historically more expensive source of revenue, we were able to drive EBITDA 7.1% higher by holding expenses to 2.5% growth.

Speaker Change: Despite the increased reliance on occupancy, a historically more expensive source of revenue growth, we were able to drive EBITDA 7.1% higher by holding expenses to 2.5% growth.

Jeff Donnelly: Importantly, we are outperforming our markets, taking share in 14 of our 16 resorts, and like our urban hotels, we have leaned into groups, sometimes to the detriment of average rates, to maximize total res par and profit. It is no longer 2021 or 2022 when resorts were richly rewarded for holding out for last minute transients, but it isn't quite 2019 either. Our resorts are still operating over 40% above 2019 levels, and we are staying nimble on our revenue strategy to maximize profit.

Speaker Change: Importantly, we are outperforming our markets, taking share in 14 of our 16 resorts, and like our urban hotels, we have leaned into groups, sometimes to the detriment of average rate, to maximize total REV PAR and profit.

Speaker Change: It is no longer 2021 or 2022 when resorts were richly rewarded for holding out for last-minute transient, but it isn't quite 2019 either.

Speaker Change: Our resorts are still operating over 40% above 2019 levels and we are staying nimble on our revenue strategy to maximize profit.

Jeff Donnelly: In the back half of the year, we expect we will profitably trade off ADR for occupancy. It is partly for this reason we expect our full-year room REVPAR growth will be slightly lower than original guidance, although the total REV PAR and profit growth expectations are higher. We completed the room renovation of the Westin San Diego Bayfront.

Speaker Change: In the back half of the year, we expect we will profitably trade off ADR for occupancy.

Speaker Change: It is partly for this reason we expect our full-year room REVPAR growth will be slightly lower than original guidance, but the total REVPAR and profit growth expectations are higher.

Speaker Change: We completed the room renovation of the Westin San Diego Bayfront. We also completed the conversion of Hilton Burlington to Hotel Champlain.

Jeff Donnelly: We also completed the conversion of Hilton Burlington to Hotel Champlain. The hotel has a casual, fun, and creative new restaurant called Original Skiff Fish and Oysters by renowned chef Eric Ornstedt. The hotel product feels great from the sense of arrival to the two-story lobby, new health club, and spacious rooms. We have a pipeline of additional ROI opportunities underway, such as the new hotel bar at Havana Cabana, a marina at Tranquility Bay, and the integration of our two Sedona resorts in 2025.

Speaker Change: The hotel has a casual, fun, and creative new restaurant called Original Skiff Fish and Oysters by renowned chef Eric Ornstead.

Speaker Change: The hotel product feels great from the sense of arrival to the two-story lobby, new health club, and spacious rooms.

Speaker Change: We have a pipeline of additional ROI opportunities underway such as the new hotel bar at Havana Cabana, a marina at Tranquility Bay, and the integration of our two Sedona resorts in 2025.

Jeff Donnelly: We are constantly reviewing our portfolio for value-add opportunities but are also reexamining our six-year capital expenditure plan to maximize efficiency for increased capital retention. In this regard, we have elected to reduce the scope of the ROI project we are pursuing in New Orleans by 40 percent.

Speaker Change: We are constantly reviewing our portfolio for value-add opportunities, but are also reexamining our six-year capital expenditure plan to maximize efficiency for increased capital retention.

Speaker Change: In this regard, we have elected to reduce the scope of the ROI project we are pursuing in New Orleans by 40%. We had previously expected to spend about $13 million to renovate the 220 rooms and reconcept the lobby and pool areas to create new F&B outlets.

Jeff Donnelly: We had previously expected to spend about $13 million to renovate the 220 rooms and reconceptualize the lobby and pool areas to create new F&B outlets. The rationale for the original budget was based upon the expectation the expenditure would justify the implementation of an urban amenity fee, capture incremental market share, and drive incremental F&B outlet profits since conception. We have asset managed the hotel to gain a significant share. We now believe it is prudent to reduce the scope of the capital plan to focus exclusively on renovating the rooms.

Speaker Change: The rationale for the original budget was based upon the expectation the expenditure would justify the implementation of an urban amenity fee, capture incremental market share, and drive incremental F&B outlet profit.

Speaker Change: since conception.

Speaker Change: We have asset managed the hotel to gain significant share, and we now believe it is prudent to reduce the scope of the capital plan to focus exclusively on renovating the rooms product.

Jeff Donnelly: The revised scope still supports the business case behind the amenity fee, while retaining the optionality to pursue additional outlets later. We expect the renovation will be complete before the Super Bowl. This is a good moment to step back and talk about strategy. Shareholders have asked us how the recent leadership transition will change strategy. And we've said we will continue to have a long-term focus on growing our leisure market exposure, whether those are resorts and unique destinations or hotels and lifestyle cities, but we also see value in targeted urban markets.

Speaker Change: The revised scope still supports the business case behind an amenity fee, while retaining optionality to pursue the additional outlets later. We expect the renovation will be complete before Super Bowl.

Speaker Change: This is a good moment to step back and talk about strategy.

Speaker Change: Shareholders have asked us how the recent leadership transition will change strategy and we've said we will continue to have a long-term focus on growing our leisure market exposure, whether those are resorts and unique destinations or hotels and lifestyle cities, but we also see value in targeted urban markets.

Jeff Donnelly: We've also said you should expect we will be more deliberate and analytical in our actions. Our overarching focus is identifying avenues to drive incremental earnings per share as a path towards narrowing our discount to net asset value. The stock market focuses on RevPAR, but this only captures a portion of revenue and doesn't contemplate the effect leverage, branding, age, and other factors have on long-term earnings growth.

Speaker Change: We've also said you should expect we will be more deliberate and analytical in our actions.

Speaker Change: Our overarching focus is identifying avenues to drive incremental earnings per share as a path towards narrowing our discount to net asset value.

Speaker Change: The stock market focuses on REVPAR, but this only captures a portion of revenue and doesn't contemplate the effect leverage, branding, age, and other factors have on long-term earnings growth.

Jeff Donnelly: To support our focus on earnings per share growth, we're working to reduce our. At the corporate level, we focused on our DNA through our leadership transition, as well as the implementation of new technologies to drive efficiency. At our hotels, we are working to reduce our capital expenditures as a percentage of revenues through thoughtful scrutiny of what truly creates cash flow and value. Full-service hotel REITs historically spend about 11 to 12% of revenue on capital expenditures.

Speaker Change: To support our focus on earnings per share growth, we're working to reduce our costs.

Speaker Change: At the corporate level, we focused on our G&A through our leadership transition, as well as implementation of new technologies to drive efficiency.

Speaker Change: At our hotels, we are working to reduce our capital expenditures as a percentage of revenues through thoughtful scrutiny of what truly creates cash flow and value.

Speaker Change: Full-service hotel REITs historically spend about 11 to 12 percent of revenue on capital expenditures.

Jeff Donnelly: When you consider typical dividend payouts and that most companies are well over five times leveraged, including preferred, it is simply too high to have meaningful retained earnings to organically fund share repurchases, pursue ROI projects, or acquisitions to drive earnings for share growth.

Speaker Change: When you consider typical dividend payouts, and that most companies are well over five times leveraged, including preferred, it is simply too high to have meaningful retained earnings to organically fund share repurchases, pursue ROI projects, or acquisitions to drive earnings for share growth.

Jeff Donnelly: It is a priority for us to manage our annual capital expenditures to the high single digits. Every 100 basis points we reduce our capital expenditures is over $10 million preserved and potentially 50 basis points of per share earnings growth. The $5 million reduction in scope in New Orleans, while small, is significant because it highlights how DiamondRock is improving to be prudent and aggressive stewards of your capital. It also highlights that we are the sole decision maker on the scope and timing of renovations at our independent hotels in order to cater the product to our target customers in that specific market. What else can we do? Average age is important.

Speaker Change: It is a priority for us to manage our annual capital spend to the high single digits.

Speaker Change: Every 100 basis points we reduce our capital expenditures is over $10 million preserved and potentially 50 basis points of per share earnings growth.

Speaker Change: The $5 million reduction in scope in New Orleans, while small, is significant because it highlights how DiamondRock is improving to be prudent and aggressive stewards of your capital.

Speaker Change: It also highlights that we are the sole decision maker on the scope and timing of renovations at our independent hotels in order to cater the product to our target customer in that specific market.

Jeff Donnelly: Real estate can, of course, be renovated. But like a snowball rolling downhill, the frequency and scope of capital investment picks up speed and size with age. Yet, market values do not always accurately reflect the obsolescence of older assets.

Speaker Change: What else can we do?

Speaker Change: Average age is important. Real estate can of course be renovated but like a snowball rolling downhill, the frequency and scope of capital investment picks up speed and size with age.

Speaker Change: Yet market values do not always accurately reflect the obsolescence of older assets. We've all seen instances of new hotels transacting at similar EBITDA multiples despite the growing capital needs of an older asset.

Jeff Donnelly: We've all seen instances of new hotels transacting at similar EBITDA multiples despite the growing capital needs of an older asset. We are working to take advantage of opportunities to recycle non-core assets in our portfolio into higher after-capital cash flow yields such that it accretes to earnings. We also need to be flexible and adapt our investment strategy to the local environment.

Speaker Change: We are working to take advantage of opportunities to recycle non-core assets in our portfolio into higher after-capital cash flow yields such that it accretes to earnings.

Speaker Change: We also need to be flexible and cater our investment strategy to the local environment. For instance, in some markets, urban markets, an upscale hotel may be far more lucrative over the long term than an upper upscale product given the similar profit per key but reduced capital scope.

Operator: For instance, in some markets, urban markets, and Upscale Hotels, may be far more lucrative over the long term than an upper upscale product given the similar profit per key but reduced capital scope. In conclusion, our asset focus remains largely unchanged, but what has changed are the approaches we are taking to drive earnings per share growth. It is our belief this focus will ultimately drive relative multiple expansion and total shareholder return. At this time, we would like to open it up so Justin, Briony, and I can take your questions. And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: In conclusion, our asset focus remains largely unchanged, but what has changed are the approaches we are taking to drive earnings per share growth.

Speaker Change: It is our belief this focus will ultimately drive relative multiple expansion and total shareholder return.

Operator: Please stand by while we compile the Q&A roster and one moment for our first question. And our first question comes from Austin Wurschmidt from KeyBank Capital Markets. Your line is now open.

Speaker Change: At this time, we would like to open it up so Justin, Briony, and I can take your questions.

Speaker Change: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question.

Speaker Change: And our first question comes from Austin Wurschmidt from KeyBank Capital Markets. Your line is now open.

Austin Wurschmidt: Thanks, and good morning, everybody. Um, Jeff, I guess I'm just curious how far along you are in sort of identifying the non-core assets that you'd potentially like to sell, and if you can just kind of provide an update on the transaction market's depth of, you know, the buyer pool, and interest for you to execute kind of on this new strategy investment. Yeah, good morning, Austin.

Austin Wurschmidt: Thanks, and good morning, everybody. Jeff, I guess I'm just curious how far along you are in sort of identifying the non-core assets, you know, that you'd potentially like to sell. And if you can just kind of provide an update on the transaction market, kind of depth of, you know, the buyer pool and interest.

Speaker Change: for you to execute kind of on this new on strategy investments.

Jeff Donnelly: I would say that, you know, from the list of non-core assets, I would describe them as really the assets we've talked about in the past. I mean, we highlighted previously, like our Weston in Washington, DC, the Chicago Marriott, you know, and even like our Fifth Avenue Courtyard in New York. I would tell you that the list isn't more extensive.

Jeff Donnelly: Yeah, good morning, Austin. I would say that, you know, from the list of non-core assets, I would describe it as really the assets we've talked about in the past. I mean, we've highlighted previously like our Weston in Washington, D.C., Chicago Marriott.

Jeff Donnelly: and even like our Fifth Avenue Courtyard in New York. I would tell you that list isn't more extensive. It hasn't changed materially. I think it's how we're looking at those assets when we kind of think about the long-term capital needs of them.

Jeff Donnelly: It hasn't changed materially. I think it's how we're looking at those assets when we kind of think about the long-term capital needs of them and where we think we can find reinvestment opportunities. It's not all going to happen in a day. But I think those are the sort of the most likely characters that we look at as non-core for us in the coming quarters.

Jeff Donnelly: and where we think we can find reinvestment opportunities. It's not all going to happen in a day, but...

Jeff Donnelly: I think those are the most likely characters that we look at as non-core for us in the coming quarters.

Jeff Donnelly: As far as the current market, and Justin can chime in as well, I think it's been challenging out there. I think for buyers, it's not that there's not a lot of capital chasing assets. I think with debt costs relatively high, it could be difficult for folks to get things financed and bought at a level that's attractive, but it's also appealing to us. And therein lies the bid-ask spread between buyers and sellers. But, I don't know, Justin, if you want to add something in.

Justin Leonard: As far as the current market, and Justin can chime in as well, I think it's been challenging out there, I think, for buyers. It's not that there's not a lot of capital chasing assets. I think with debt costs relatively high, it could be difficult for folks to get things financed and bought at a level that's accretive, but it's also appealing to us. And therein lies the bid-ask spread between buyers and sellers. But, I don't know, Justin, if you want to add in? Yeah, we're still seeing a, you know, significant drop-off in transaction volume. I think if you look at the last sort of eight to ten years,

Justin Leonard: Yeah, we're still seeing a, you know, significant drop off in transaction volume. I think if you look at the last sort of eight to 10 years, hospitality transactions have been sort of a $20 to $25 billion transactional market on an annual basis, and the first half of the year was about five. So that gives you a sense of kind of the amount of transactions that are actually getting done relative to a normal run rate. We're just, we still see a pretty large bid-ask spread between buyers and sellers. That's helpful.

Jeff Donnelly: [inaudible]

Austin Wurschmidt: And then just separately, in the last quarter, you had indicated that, you know, the rate impact on leisure was really more of this mixed shift strategy to more group, which, you know, clearly benefited you this past quarter by, you know, shrinking the base, but what's the latest update on just rate sensitivity of that, you know, leisure transient, you know, customer and, you know, does the group demand remain strong enough for you to continue kind Yeah, I think it's more of a reversion back to the prior pattern, as opposed to just seeing a weakness in the overall, you know, leisure transient customer. I mean, during, you know, kind of during the period of COVID, you were penalized for having a group; you were penalized for having a base because the demand was so strong, and the demand pattern was so consistent.

Speaker Change: Got it. That's helpful. And then...

Speaker Change: Just separately, you know, last quarter you had indicated that, you know, the rate impact to leisure was really more of this mixed shift strategy to more group, which, you know, clearly benefited you this past quarter.

Speaker Change: By, you know, shrinking the base, but what's sort of the latest update on just rate sensitivity of that, you know, leisure transient, you know, customer and

Jeff Donnelly: And, you know, does the group demand remain strong enough for you to continue kind of with that, you know, strategy of filling the base without having to sacrifice on rate too much?

Jeff Donnelly: Thanks.

Speaker Change: I think it's more of a reversion back to prior patterns, as opposed to just seeing a weakness in the overall, you know, leisure transient customer.

Jeff Donnelly: I think we've seen, you know, midweek in some of our resorts reverting not back to what it was in 19, but definitely not what it was in 21. So we're having to layer in more of those, you know, discounted leisure customers midweek and more groups. And I think that's where we've had success, honestly, in building the base. I think we can continue to do that. I mean, we were up 20% in group in our resorts for Q2. And we anticipate being up about the same in Q3. That's where our pace is sitting.

Jeff Donnelly: More of those, you know, discounted leisure customers, midweek, and more group. And I think that's where we've had success, honestly, in building the base. I think we can continue to do it. I mean, we were up 20% in group in our resorts for Q2, and we anticipate to be up about the same in Q3. That's where our pace is sitting. So that continued shift, I think we still have the ability.

Jeff Donnelly: to put more group into these resort assets and get back to closer to what we were in 2019 from resort percentage of segmentation.

Speaker Change: Thanks for taking the questions.

Speaker Change: And thank you. And one moment for our next question.

Austin Wurschmidt: So that continued shift, I think we still have the ability to put more group into these resort assets and get back to closer to what we were in 2019 from a resort percentage of segmentation. Thank you for taking the question. And thank you, and one moment for our next question. And our next question comes from Patrick Schultz from Truist. Your line is now open. Good morning, Patrick. Thank you. Good morning, everyone.

Speaker Change: And our next question comes from Patrick Schultz from Truist. Your line is now open.

Jeff Donnelly: Morning, Patrick. Thank you. Good morning, everyone.

Patrick Schultz: You know, when I think about your results this year and your portfolio composition, certainly the composition, I think of you folks more as leisure-centric. I find it very interesting that you've been able to raise your guidance for consecutive quarters, which is quite unique here. You certainly have talked about certainly shifting the group mix in there, but you know, anything else you'd like to call out there, you know, how you've been able to do that, you know, especially in relation to other public REITs that haven't been able to do that, are maybe less resort centric. And then I'll also relate that to, you know, one of the themes is gaining certainly some pressure on the leisure customer Jeff, any other color thoughts around that?

Patrick Schultz: You know, when I think about your results...

Patrick Schultz: This year and your portfolio composition, certainly the composition, I think of you folks more leisure centric. I find it very interesting that you've been able to consecutive quarters to have

Speaker Change: raise your guidance, which is quite unique here.

Speaker Change: You know, you certainly have talked about certainly shifting group mix in there, but, you know, anything else you'd like to call out there, you know, how you've been able to do that, you know, especially in relation to

Speaker Change: other public REITs that haven't been able to, that's...

Speaker Change: are maybe less resort centric. And then I'll also relate that to, you know, one of the themes is earning certainly some pressure on the leisure customer.

Speaker Change: Jeff, any other caller thoughts around that? Thank you. And then I'll have another question.

Jeff Donnelly: And then I'll have another question. Thanks, Patrick.

Jeff Donnelly: Thanks, Patrick. I mean, we discussed this, you know, in our remarks and I think in our release, but I think

Jeff Donnelly: You know, Justin and his team were smart, you know, several quarters ago to really lean in on group and group.

Jeff Donnelly: Not just at our urban hotels, but even at the leisure hotels or more resort-oriented hotels, as Justin just said a moment ago.

Speaker Change: You know, I think in the last few years, a lot of hotels out there were effectively trained to always be taking transients, and they could be maximizing their rate every day of the year, and then as we began the transition to today, you began to see those patterns change, and I think there's a little bit of re-education at some of these resorts to realize that

Jeff Donnelly: I mean, we discussed this, you know, in our remarks and, I think, in our release, but I think, you know, Justin and his team were smart, you know, several quarters ago to really lean in on group and group, not just at our urban hotels but even at the leisure hotels or more resort-oriented hotels. And as Justin just said a moment ago, you know, I think in the last few years, a lot of hotels out there have been effectively trained to always be taking transients, and there's, you know, they could be maximizing their rate every day of the year. And then, as we began the transition to today, you began to see those patterns change.

Jeff Donnelly: And I think there's a little bit of re-education at some of these resorts to realize that, This is a made up example, but the $500 rate you get on a weekend, it's okay to sell it for $3.50 a night to a group midweek. The transient guest doesn't perceive that, but it's revenue to us that otherwise might have been missed had we been trying to hold out for a transient guest during the week. I think you're just trying to lean in and realize that those patterns are changing.

Jeff Donnelly: This is a made up example, but you know, the $500 rate you get on weekend, it's okay to sell it for $350 a night to a group midweek.

Jeff Donnelly: The transient guest doesn't perceive that, but it's revenue to us that otherwise might have been missed had we been trying to hold out for a transient guest during the week. I think you're just trying to lean in and realize that those patterns are changing. But to be clear, it's not necessarily discounting, per se, because again, that weekend customer isn't seeing that rate change.

Patrick Schultz: But to be clear, it's not necessarily discounting per se, because again, that weekend customer isn't seeing that rate change. This is just sort of finding different guests at different price points that you can bring in. I think it was just being smart to lean in on that early, and there are groups that we can bring in at resort-oriented properties, just as there are at urban-oriented properties. At our resorts, it might be more of a smurfy-type business, but I think it's just trying to be realistic about the current environment.

Jeff Donnelly: This is just sort of finding different guests at different price points that, you know, you can bring in. And I think it was just, you know, being smart to lean in on that early. And, you know, there's groups that we can bring in at resort-oriented properties, just as there are at urban-oriented properties. And at our resorts, it might be more smirky-type business.

Jeff Donnelly: I think it's just trying to be realistic about the current environment.

Patrick Schultz: Okay, no, that's great. And then another question. And I suspect I know the answer to this, but I'd like to hear it crystal clear from you. You know, what is your appetite for dilutive trophy asset acquisitions and levering up now that rates are higher? Thank you. A little bit of a softball. Delude is not appealing to us.

Speaker Change: Okay, no, that's great. And then another question...

Speaker Change: And I suspect I know the answer to this, but I'd like to, you know...

Speaker Change: Crystal Clear from you. What is your appetite for

Speaker Change: dilutive trophy asset acquisitions and levering up now that rates are higher. Thank you.

Jeff Donnelly: At the end of the day, you want to be allocating capital well. I recognize that there can be assets, and I'm not saying that I'm amenable to them, where you sort of step back to step forward someday, you know, where the initial yields can be low and the IRRs can be great. And I would tell you that there are a lot of those in the marketplace today. There are a lot of distressed urban assets that are selling at a very low basis, but they often have zero or negative yields. And that's not really appealing to us because it's a very painful cost of carrying and really weighs against a long-term IRR. You know, so I would say it's very difficult for us to make those pencils.

Speaker Change: Thank you.

Speaker Change: A little bit of a softball. Dilutive's not appealing to us. At the end of the day, I mean, you want to be allocating capital well. I recognize, to be clear, that there can be assets, I'm not saying that I'm amenable to them, where you sort of step back to step forward someday, you know, where the initial yields can be low and the IRRs can be great. And I would tell you that there are a lot of those in the marketplace today. There's a lot of sort of distressed urban assets that are selling at

Speaker Change: on a very low basis, but they have oftentimes.

Jeff Donnelly: Jeffrey Donnelly, Jeffrey Donnelly, Briony Quinn

Patrick Schultz: And conversely, at the other end of the spectrum, I know there's been deals that have been done at sort of mid-single-digit cap rates but at a basis that oftentimes is very high or very close to replacement costs. And that's not particularly appealing to us either, given that, you know, it's hard to underwrite a lot of upside to that asset down the road. We're really trying to find that middle ground where we can get a good deal on the asset from a basis perspective but also get some yield. So it's a little bit of a needle to thread, but that's really what we're looking for in urban markets. I'm all set.

Jeff Donnelly: of Mid-Single-Digit Cap Rates, but on a basis that oftentimes is very high or very close to replacement costs. And that's not particularly appealing to us either, given that...

Speaker Change: It's hard to underwrite a lot of upsides of that asset down the road. We're really trying to find that middle ground where we can get a good deal on the asset from a basis perspective, but also get some yield. So it's a little bit of a needle in the thread, but that's really what we're looking for in urban markets.

Dori Kesten: And thank you. And one moment for our next question. And our next question comes from Dori Kesten from Wells Fargo Securities. Your line is now open. Thanks. Good morning.

Speaker Change: I'm all set. Thank you.

Speaker Change: And thank you. And one moment for our next question.

Jeff Donnelly: And our next question comes from Dori Kesten from Wells Fargo Securities. Your line is now open.

Justin Leonard: What does the new enterprise analytics platform give you access to that you didn't previously have? And how do you intend to utilize it? I think, Dori, what we're really excited about is we have 12 different managers within the portfolio, all with a different reporting process. And so it's really given us the ability to standardize and remap every single one of those P&Ls into a standardized format and do a significant amount of benchmarking within the portfolio and identify issues, particularly from a cost perspective. I think, you know, before it was, it was a lot more cumbersome for us to take all of those different packages and try to isolate where we were overspending.

Dori Kesten: Thanks, good morning. What does the new enterprise analytics platform give you access to that you didn't previously have and how do you intend to utilize it?

Speaker Change: I think, Tori, what we're really excited about is, you know, we have, I think, 12 different managers within the portfolio, all with a different reporting process, and so it's really given us the ability to do a standardized, remap every single one of those P&Ls into a standardized format and do a significant amount of benchmarking within the portfolio and identify issues, particularly from a cost perspective. I think, you know, before it was a lot more cumbersome for us to take, you know, all of those different packages and try to isolate where we were spending within certain categories and what we've been able to do over the last two quarters. I think, you know, hopefully you can see that in some of the cost mitigation is really line all of them up and put them in buckets where they're comparable assets and look for some best practices that we can translate.

Dori Kesten: Within certain categories, and what we've been able to do over the last two quarters, I think, you know, hopefully you can see that in some of the cost mitigation is really line all of them up and put them in buckets where they're comparable assets and look for some best practices that we can translate throughout the entire portfolio. And then, if you think about the likely trajectory of occupancy over the next few quarters, are we in an environment where your FTEs may be contracting, flat, or growing?

Speaker Change: throughout the entire portfolio.

Tori: Okay. And then if you think about the likely trajectory of occupancy over the next few quarters, are we in an environment where your FTEs may be contracting, flat, growing?

Dori Kesten: I think on a year-over-year basis, if we continue to see what we're forecasting, which is significantly more out-of-room spend, we'll see FTE growth. The reality is food and beverage is a relatively labor-intensive business. In the last two quarters, we've had 11% food and beverage growth. It takes a fair amount of man hours.

Speaker Change: I think on a year-over-year basis, if we continue to see what we're forecasting, which is significantly more out-of-room spend, we'll see FTE growth. The reality is food and beverage is a relatively labor-intensive business. In the last two quarters, we've had 11% food and beverage growth. It takes a fair amount of man-hours, that's why it's a bit of a lower-margin business.

Speaker Change: So, I think all else equal, if that continues to be the trend, we'll probably see a little bit growth in FTE, but I think it stabilizes.

Justin Leonard: That's why it's a bit of a lower-margin business. So I think, all else equal, if that continues to be the trend, we'll probably see a little bit of growth in FTE, but I think it stabilizes towards the end of the year. Okay, and then you addressed the ROI project at Bourbon Street in New Orleans. Have you made any other material changes to the ROI pipeline in the last few months, whether it's adding to plans, redlining, or completely pulling out?

Speaker Change: towards the end of the year.

Speaker Change: Okay. And then you addressed the ROI project at Bourbon, New Orleans. Have you made any other material changes to the ROI pipeline in the last few months, whether it's adding to plans, redlining completely, pulling in?

Justin Leonard: There's been no material changes to the ROI pipeline at this time, Dori, and nothing that's really materially been added or altered at this point, but we're always looking at projects available in our pipeline or in our portfolio that we can identify. So, but no big changes. Okay, and just the last one. I might have missed this. Did you provide any guardrails around Q3 REVPAR growth or margin expectations? Dori, this is Briony.

Speaker Change: There's been no material changes to the ROI pipeline at this time.

Doreen: Doreen, and nothing that's really materially been added or altered at this point, but we're always looking at projects, you know, available in our pipeline or in our portfolio that we can identify. So, but no big changes.

Speaker Change: Okay, and just last one, I might have missed this. Did you provide any guardrails around Q3 REVPAR growth or margin expectations?

Dori Kesten: We have not, but I would tell you that I would expect our Q3 REV-R to be slightly higher than the growth rate we saw in Q2. Okay, thank you. And thank you, and one moment for our next question. And our next question comes from Smedes Rose from Citi. Your line is now open.

Speaker Change: Dori, this is Briony. We have not, but I would tell you that I would expect our Q3 REV part to be slightly higher than the growth rate we saw in Q2.

Speaker Change: Okay, thank you.

Speaker Change: And thank you, and one moment for our next question.

Speaker Change: And our next question comes from Smedes Rose from Citi. Your line is now open.

Smedes Rose: Hi, thanks. I just wanted to switch to uses of capital. Could you just talk about where share repurchase kind of falls in terms of priorities? And would you consider maybe just sort of putting in place almost sort of a programmatic repurchase program, where you just have sort of a constant dollar amount being targeted for share repurchase every quarter? Good morning, Smedes.

Smedes Rose: Hi, thanks. I just maybe wanted to switch to uses of capital. Could you just talk about

Smedes Rose: where share repurchase kind of falls in terms of priorities. And would you consider maybe just sort of putting in place almost sort of a programmatic repurchase program where you just have sort of a constant dollar amount being targeted to share repurchase every quarter?

Jeff Donnelly: In effect, that's a little bit of what we did this quarter. As a matter of fact, not so much that we had a specific dollar number that, you know, you had to hit at any price. But I would tell you that right now, I think allocation of capital to share repurchases is one of the more lucrative areas that we can put money towards. I think we trade it north of a nine-cap.

Smedes: Good morning, Smedes. In effect, that's a little bit of what we did this quarter, as a matter of fact, not so much that we had a specific dollar number that, you know, you had to hit at any price, but I would tell you that right now I think allocation of capital to share repurchases is one of the more lucrative areas that we can put money towards. I think we trade it north of a nine cap, and

Speaker Change: Given that we have a little bit higher than average leisure exposure, you know, just on that alone, you look at where cap rates are, resort-type assets in the marketplace, they're...

Jeff Donnelly: And given that we have a little bit higher than average leisure exposure, you know, just on that alone, you look at where cap rates are for resort-type assets in the marketplace, they're handled probably at five and six cap rates. So I think we were able to buy those resorts relatively inexpensively. And same thing on urban, as I mentioned earlier, there's not a lot of urban assets that have transacted; they're a little more of a barbell.

Speaker Change: handled the probably five and six cap rates, so I think we were able to buy those resorts relatively inexpensively. And same thing on urban, as I mentioned earlier, there's not a lot of urban assets that have transacted, they're a little more barbelled.

Jeff Donnelly: You know, if they're distressed, they have sort of zero cap rates, and if they're operating, I think some of our peers are paying sort of stabilized sixes. So there's a big gap, and I would tell you that I think right now share of purchases is very, very appealing. We do watch our leverage, though; I emphasize that all the time.

Speaker Change: If they're distressed, they're sort of at zero cap rates. And if they're operating, I think some of our peers are paying sort of stabilized sixes. So there's a big gap. I would tell you that I think right now, share of our purchases are very appealing. We do watch our leverage though. I emphasize that all the time. So I think while we're comfortable buying.

Jeff Donnelly: So I think while we're comfortable buying back shares and recycling capital from asset sales into share purchases, we do try to be careful about where we maintain our overall financial leverage. Okay, and then I just wanted to ask you, I guess you have quite some time here to address the 2025 maturities, but just sort of, in general, would you rather move to more unsecured debt? Or do you think it's just refinancing at property level? Kind of just generally, what's your sort of preference there?

Speaker Change: Buying back shares and recycling capital from asset sales into sharing purchases, we do try to be careful about where we maintain our overall financial leverage.

Speaker Change: Okay, and then I just wanted to ask you, I know it's, I guess you have quite some time here to address the 2025 maturities that just sort of...

Speaker Change: In general, would you rather move to more unsecured debt or you think it's just refinancing at property level, kind of just generally, what's your sort of preference there, all else equal?

Smedes Rose: Thank you, Stace. Generally, our preference is to move to be more of an unsecured borrower. I think we continually evaluate the secured market, and we certainly would do that if it was more attractive, but I think becoming an unsecured borrower just provides us with a little bit more flexibility at the operating level. Okay, thank you. And thank you, and one moment for our next question. And our next question comes from Duane Pfennigwerth from Evercore ISI. Your line is now open. Hey, thanks. Good morning.

Speaker Change: Generally our preference is to move to be more of an unsecured borrower. I think we continually evaluate the secured market and we certainly would do that if it was more attractive, but I think becoming an unsecured borrower just provides us a little bit more flexibility at the operating level.

Speaker Change: Okay, thank you.

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Duane Pfennigwerth from Evercore ISI. Your line is now open.

Duane Pfennigwerth: Just on your comments on grouping up, I wonder what the downside, if any, of grouping up is? Other than the reported metrics of REVPAR, which you did a good job of walking us through, what are the set of circumstances where you'd be leaving money on the table by taking a more aggressive approach on grouping up? I mean, grouping is, you know, especially in the larger assets; it's a long booking window.

Duane Pfennigwerth: Hey, thanks. Good morning.

Duane Pfennigwerth: Just on your comments on grouping up, I wonder, what is the downside, if any,

Duane Pfennigwerth: of grouping up. Other than the reported metrics of REVPAR, which, you know, you did a good job of kind of walking us through, you know, what are the set of circumstances that you'd be leaving money on the table by taking a more aggressive, you know, approach on group?

Speaker Change: Group is a, you know, especially in the larger assets, it's a long booking window, and so I think what you're giving, you know, you're taking surety.

Duane Pfennigwerth: And so I think what you're giving, you're taking surety for potential rate upside if the market were to reaccelerate. I think we just decided, you know, a year ago that we would rather have some of the safety that goes along with taking a significant shift towards a group piece of the market and the ancillary spend that comes along with it. So I think that's really the risk is that you put too much on the books at a low rate or a lower rate than the market rate you could ultimately achieve in transient.

Speaker Change: For potential rate upside, if the market were to reaccelerate, I think we just decided a year ago that we would rather have some of the safety that goes along with taking a significant shift towards a piece of the market and the ancillary spend that comes along with it.

Speaker Change: I mean, that's really the risk, is that you put too much on the books at a low rate, or a lower rate in the market, you could ultimately achieve in transient. I think that that's really where the re-education has had to come across, because in the middle, you know, especially in leisure assets, you know, during COVID, you got penalized for having groups.

Justin Leonard: I think that's really where the re-education has had to come from because in the middle, you know, especially in leisure assets, you got penalized for having groups because the rates ran so fast and so far. If you had a group on the books from a year prior, you were giving up, you were losing share in the market. So I think just sort of rethinking that as we return to a little bit more of a normal pattern, it's taking a little bit of time to work that through our operations.

Duane Pfennigwerth: Because the rates ran so fast and so far, if you had group on the books from a year prior, you were giving up, you were losing share in the market. So I think just sort of rethinking that as we return back to a little bit more of a normal pattern has taken a little bit of time to work that through our operators.

Justin Leonard: One thing I would add to that, Duane, is that you think about the average size of our assets. We're around 200-225 rooms. The type of groups that come to our hotel are not necessarily groups that are going to book three years in advance. You know, our average group size is relatively smaller compared to some of the big box hotels in the marketplace, which are arguably going to have a longer booking window or maybe are not as appealing to, you know, a 30 person off. So we have a little bit of ability to be more nimble when we group up. It makes a lot of sense.

Duane Pfennigwerth: Yeah, one thing I would add to that, Duane, is that when you think about the average size of our assets, you know, we're around 200, 225 rooms, you know, the type of groups that's coming to our hotel are not necessarily groups that are going to book three years in advance.

Speaker Change: You know, our average group size is relatively smaller compared to some of the big box, you know, hotels in the marketplace, which are arguably going to have a longer booking window, or maybe are not as appealing to, you know, a 30 person offsite.

Speaker Change: So we have a little bit of ability to be more nimble when we group up.

Justin Leonard: And then just for my follow-up on the larger asset disposition front, you know, if you had to guess how long we need to wait for that unlock, and again, what are the set of circumstances we need to see for your recycling strategy to really kick in? Thanks for taking the question. I can't really give you a date.

Speaker Change: Makes a lot of sense. And then just for my follow up on the larger asset disposition front, you know, if you had to guess, how long do we need to wait for that unlock?

Speaker Change: And again, what are the set of circumstances we need to see for your recycling strategy to really kick in? Thanks for taking the questions.

Jeff Donnelly: I mean, I think we're just looking for an opportunity where rates, fortunately, seem to be moving or the expectation of rate cuts seems to be moving in a favorable direction, and results at our hotels are doing well. So I think the stars are aligning for that. But, you know, as Justin mentioned, there's not a lot of assets that have been on the market that could play to our advantage. But I think there's going to be time, you know, in the coming quarters where we're going to investigate this. So I can't give you a specific date. I don't want to negotiate or get it wrong. Makes sense.

Speaker Change: I can't really give you a date I mean I think we're just looking for an opportunity where I think where rates are fortunately seem to be moving or the expectation of rate cuts seem to be moving in a favorable direction and results that our hotels are doing well so I think the stars are aligning for that but

Duane Pfennigwerth: You know, as Justin mentioned, there's not a lot of assets that have been on the market that could play to our advantage, but I think there's going to be time, you know, in the coming quarters where we're going to investigate this. So, I can't give you a specific date. I don't want to negotiate or get myself involved.

Speaker Change: Makes sense. Thank you.

Duane Pfennigwerth: Thank you. And thank you. And one moment for our next question, and our next question comes from Michael Bellisario from Baird. Your line is now open. Thanks. Good morning, everyone. [inaudible] For Jeff or Justin here, I want to go back to the group. Yeah, that 14% pace that you mentioned for the back half, where do you think that will actually be by the end of the year? And then what's the pace differential between 3q versus 4q?

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Michael Bellisario from Baird. Your line is now open.

Michael Bellisario: Thanks. Good morning, everyone.

Speaker Change: I don't like it.

Michael Bellisario: For Jeff or Justin here, I want to go back to group. Yeah, that 14% pace that you mentioned for the back half, where do you think that actualizes by the end of the year? And then what's the pace differential 3q versus 4q?

Michael Bellisario: Um, my gut is I think forecast we've got a very high single digit in terms of actualized on a year over year basis, and it's slightly better in Q3 versus, on a year, just from a paper. Got it. And then, that 88% of booked so far that's of your target budget, let's call it 20% remaining for the back half of the year. Like, what's the risk there?

Speaker Change: My gut is I think forecasts, we've got a very high single digit in terms of actualized on a year-over-year basis, and it's slightly better in Q3 versus Q4 on a year, just from a pace perspective.

Speaker Change: Got it, and then...

Speaker Change: that 88% of booked so far that's of your target budget let's call it 20% remaining for the back half of the year

Michael Bellisario: What are you hearing from your hotels or corporate planners? Has there been any change in the size of the event or booking window or cancellation attrition just for that remaining piece that still needs to be booked for the year? We're not seeing any significant change in trend in terms of, you know, group rooming lists coming in at or above attrition levels or what we're seeing from an inbound lead perspective. I think we're a little bit more conservative in our forecast and in the year-over-year pickup for the back half of the year than what we actually produced in the first half of the year. So I don't think we see any reason right now to sort of change that out.

Speaker Change: What's the risk there? What are you hearing from your hotels or corporate planners? Any change in size of event or booking window or cancellation attrition just for that remaining piece that still needs to be booked for the year?

Speaker Change: We're not seeing any significant, you know, change in trend in terms of, you know, group rooming lists coming in, you know, at or above attrition levels or what we're seeing from an inbound lead perspective. I think we're a little bit more conservative in our forecast and in the year for the year pickup for the back half of the year than what we actually produced in the first half of the year, so I don't think we see any reason right now to sort of change that outlook.

Michael Bellisario: And then just one more on group and thinking here in Chicago with the DNC in a few weeks, and just more broadly, big events, how meaningful is something like that, especially in a maybe a slower week in late August in Chicago, is that it's something like that moving the rev part needle for your entire portfolio, a half a percentage point, a percentage point. How meaningful are some of these big super events that are kind of one time events in I think the reality of big events, especially for large hotels, is that a lot of that block is required to be given in order to secure the event in the beginning, right?

Speaker Change: Got it. And then just...

Speaker Change: One more in group.

Speaker Change: thinking here in Chicago with the DNC in a few weeks.

Speaker Change: and just more broadly, big events.

Speaker Change: How meaningful is something like that, especially in maybe a slower week in late August in Chicago? Is something like that moving the rev part needle for your entire portfolio? A half a percentage point? A percentage point? How meaningful are some of these big super events that are kind of one-time?

Speaker Change: you're driving the rev par for your portfolio in the back half.

Michael Bellisario: So when you think through, a lot of times, the Super Bowl or, you know, the DNC, for someone like the Marriott, they're part of that initial bid. So the room, you know, the room rate that you get is not as much of a premium as you might think. And a lot, a lot of times, it's actually more beneficial for some of our smaller hotels because they're outside of the large block that's required to be given in order to garner the group in the first place. And they can really compress around. That's helpful.

Speaker Change: Um, you know, not as meaningful as you might think. I think the reality of the super events, especially for the large hotels, is a lot of that block.

Speaker Change: is required to be given in order to secure the event in the beginning, right? So when you think through...

Speaker Change: A lot of times, Super Bowl or the DNC, for someone like the Marriott, they're part of that initial bid, so the room rate that you get is not as much of a premium as you might think, and a lot of times, it's actually more beneficial for some of our smaller hotels.

Speaker Change: Because they're outside of the large block that's required to be given in order to garner the group in the first place, and they can really compress around it.

Speaker Change: That's helpful. That's all for me. Thank you.

Michael Bellisario: That's all from me. Thank you. And thank you. And one moment for our next question. And our next question comes from Dany Asad from Bank of America. Your line is now open.

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Dany Asad from Bank of America. Your line is now open.

Dany Asad: Hi, good morning guys, just to go back to the guidance update. When we think about your change in EBITDA, can you just, and I know you had in your prepared remarks, and we kind of touched on it, like, you know, the difference between REF PAR and total REF PAR. But can you just explain, like, what specifically it is that's offsetting, you know, the rooms, the REF PAR reduction to kind of drive EBITDA higher when we think about that total REF PAR piece?

Dany Asad: Hi, good morning guys. Just to go back to the...

Dany Asad: the guidance update. When we think about...

Speaker Change: that, you know, you're changing EBITDA.

Dany Asad: Can you just, like, and I know you had in your prepared remarks, and we kind of touched on it, like, you know, the difference between RevPAR and total RevPAR.

Speaker Change: But can you just explain, like, you know, what specifically it is that's offsetting, you know, the rooms, the REF PAR reduction to kind of drive EBITDA higher when we think about that total REF PAR piece?

Dany Asad: So just to quantify a little bit the change in our EBITDA, I think a portion of that reflects a little bit of the performance that we saw in Q2, maybe call that around a million dollars. We also talked about on the call our positive insurance renewal. And that should benefit us about a million dollars a quarter for the balance of the year, given that that was a Q2 renewal. And then the balance really reflects the benefit of our mixed shift in the back half, although lower than the first half, I think it's better than we originally anticipated. So there's a little bit of that in there.

Speaker Change: So, just to quantify a little bit the change in our EBITDA, I think a portion of that reflects a little bit about performance that we saw in Q2, maybe call that around a million dollars. We also talked about on the call our...

Speaker Change: Our positive insurance renewal, and that should benefit us about a million dollars a quarter for the balance of the year, given that that was a Q2 renewal.

Speaker Change: And then the balance really reflects the benefit of our mixed shift in the back half, although lower than the first half, I think it's better than we originally anticipated. So there's a little bit of that in there. And then we are offset by a little higher corporate GNA.

Briony Quinn: And then we are offset by a little higher corporate GNA, about a million dollars on that front. But when you look at our GNA overall, it's still lower than pre-transition.

Speaker Change: about a million dollars on that front but when you look at our G&A overall it's still lower than pre-transition.

Dany Asad: Thank you. Thank you, Briony. And Jeff, in one of your answers earlier, you know, we were just thinking about your capital recycling strategy. Some of the hotels you highlighted seem to tilt a little bit more towards, you know, urban versus resort, a little bit more on the urban side. As you look to redeploy that capital, are you going to, you know, is it going to be one for one? Like, are you going to be looking to redeploy that same capital into, you know, urban markets? Where would it be in the country?

Speaker Change: Got it. Got it. Thank you. Thank you, Briony. And Jeff, in one of your answers earlier, you know, we were just thinking about your capital recycling strategy.

Speaker Change: Some of the hotels you highlighted seem to tilt a little bit more towards, you know, urban versus resort and a little bit more on the urban side.

Speaker Change: As you look to redeploy that capital,

Speaker Change: Are you going to, you know, is it going to be one for one? Like, are you going to be looking to redeploy that same capital into, you know, urban markets? Where would it be in the country?

Jeff Donnelly: Just given your mix of already, you know, leisure versus, you know, urban, are you comfortable with that? And kind of where would those extra dollars go? So it means that if we were to sell an urban asset, we would need to redeploy it? Yeah, yeah.

Speaker Change: just given your mix of already, you know, leisure versus, you know, urban. Are you comfortable with that and kind of where would those extra dollars go?

Speaker Change: Meaning that if we were to sell an urban asset, we would need to redeploy it? Yeah, yeah, that's right.

Dany Asad: I think right now, maybe we're about two-thirds, 60%, give or take, in urban markets, and I think, longer term, it's appealing to us to grow our resort or leisure exposure. We want to do so profitably, and I think right now, it's very difficult to do that. That doesn't mean we've stopped looking. I think what could happen, or I guess I'd say I'd like to see happen, is that maybe you sell one of those larger urban assets, and then does that result in two transactions?

Speaker Change: I mean, I think right now, maybe we're about two-thirds, 60%, give or take, in urban markets. And I think longer term, it's appealing to us to grow our resort or leisure exposure. We want to do so profitably. And I think right now, it's very difficult to do that. That doesn't mean we've stopped looking.

Speaker Change: I think what could happen, or I guess I'd say I'd like to see happen, is that maybe you sell one of those larger urban assets and it doesn't result in two transactions. It results in an urban asset that you purchase that right now can have some attractive returns if we find the right situations. But maybe it results in a resort asset as well, and so potentially you can replace...

Jeff Donnelly: Maybe it results in an urban asset that you purchase that right now can have some attractive returns if we find the right situations, but maybe it results in a resort asset as well, and so potentially, you can replace the same or roughly the same amount of income and end up with sort of a higher concentration of leisure, but you have sort of two assets and are a little more diversified that have a better growth profile. I don't know if that answers your question entirely.

Speaker Change: and the other is that you end up with sort of a higher concentration of leisure but you have sort of two assets and a little more diversified that have a better growth profile.

Jeff Donnelly: We don't have specific target markets where we say we've got to be in market X or we've got to be in market Y. We're really just looking for situations where we can add value at the end of the day. Got it. That's it for me.

Speaker Change: I don't know if that answers your question entirely. We don't have specific target markets where we say we've got to be in market X or we've got to be in market Y. We're really just looking for situations where we can accrete value at the end of the day.

Speaker Change: Got it. That's it for me. Thank you very much. And thank you. And one moment for our next question.

Chris Woronka: Thank you very much. And thank you, and one moment for our next question. And our next question comes from Chris Woronka from Deutsche Bank. Your line is now open. Hey, good morning, everyone.

Speaker Change: And our next question comes from Chris Woronka from Deutsche Bank. Your line is now open.

Chris Woronka: Thanks for taking my question. Jeff, you know, I think you guys still have about 13 independent hotels in the portfolio, and I'm curious as to whether there's, you know, been any recent kind of thought on branding any of them. I realize there are a lot of markets where, you know, the demand is kind of self-sustaining, and they're recognizable. But, you know, as I see some of the hotels that the brands are letting in, frankly, to the soft brands, it kind of makes me wonder whether you, you know, are leaving on the table there? No, I would definitely say not.

Chris Woronka: Hey, good morning, everyone. Thanks for taking my question.

Chris Woronka: Jeff, you know, I think you guys still have about 13 independent hotels in the portfolio, and I'm curious as to whether...

Chris Woronka: There's, you know, been any recent kind of thought on branding any of them. I realize there are a lot of markets where, you know, the demand is kind of self-sustained and they're recognizable, but

Speaker Change: You know, as I see some of the hotels that the brands are letting in, frankly, to the soft brands, it kind of makes me wonder whether you, you know, is there something you're leaving on the table there?

Jeff Donnelly: You know, I think, you know, I think there's a lot of focus that people pay to the top line. But I, you know, look at the Dagny. I know, that's one where we went the other direction; we were, we left a hotel system.

Speaker Change: No, I would say definitely not. You know, I think, you know, I think there's a lot of focus that people pay to the top line. But I, you know, look to the Dagny. I know, that's one where we went to the other direction. We were, we

Chris Woronka: We exited a hotel system, and we've said up front that that's one where we could shed potentially 8-10% of top-line revenue leaving the system, but you will also gain back a significant amount of expense.

Chris Woronka: And we've said up front that that's one where, you know, we can shed potentially 8-10% of top line revenue leaving the system, but you will also gain back a significant amount of expense. And that decision was really based on that sort of middle of the P&L, if you will, the driver of bottom line profit. And so far, we continue to be on target with that.

Chris Woronka: That decision was really based on that sort of middle of the...

Chris Woronka: P&L, if you will, to drive bottom line profit. And so far, we continue to be on plane with that. So I guess I would tell you that, you know, our job as owner is really to drive profit, not top line revenue. And so I hear you that there is an opportunity there to collect a check. But typically, the key money checks,

Jeff Donnelly: So I guess I would tell you that, you know, our job as owners is really to drive profit, not top line revenue. And so I hear you that there is an opportunity there to collect a check. But typically, the key money checks, I think if you speak to the brands, they tend to expect mid-teen IRRs on that money, which means it's not cheap. Yeah, yeah, fair enough, Jeff.

Speaker Change: You know, I think if you speak to the brands, they tend to expect mid-teen IRRs on that money, which means it's not cheap.

Chris Woronka: You're you're right on that. Keeping with the brand question. So let's just hypothetically say that, you know, we do have a downturn at some point in the next year, given that the brands gave you guys a fair amount of flexibility during the pandemic on Brand Standards. Do you think, you know, A, would they be willing to kind of do that again? And B, are there things you can still do? Because it feels like you're, you know, in the post-COVID world, you're already running pretty well. There are always opportunities to get more efficient. I mean, I don't think anybody ever sort of, you know, ran the perfect race or, you know, hit the perfect game.

Speaker Change: Yeah, yeah, fair enough, Jeff. You're right on that.

Speaker Change: Keeping with the brand question, so let's just hypothetically say that, you know, we do have a downturn at some point in the next year, given, you know, the brands gave you guys a fair amount of flexibility during the pandemic on

Speaker Change: Brand Standards. Do you think, you know, A, would they be willing to kind of do that again? And B, are there things you can still do because it feels like you're, you know, in the post-COVID world, you're already running pretty efficiently?

Chris Woronka: So I think there's always opportunities for efficiencies out there. As far as what the brands will do, I'd like to believe that, you know, they've learned from this past event that they can flex on brand standards in difficult times, and things can be, I'll say, okay or successful for their system. So I'd like to believe that the next time that we confront another event, not necessarily a pandemic, but even a recession, they might be a little more tolerant on that front.

Speaker Change: I think there's always opportunities to get more efficient.

Speaker Change: Rose the perfect racer, you know, hits the perfect game.

Speaker Change: So I think there's always opportunities for efficiencies out there. As far as what the brands will do, I'd like to believe that, you know, they've learned from this past event that they can flex on brand standards in difficult times and things can be, I'll say, okay or successful for their brands.

Speaker Change: for their system. So I'd like to believe that the next time that we confront another event, not necessarily a pandemic, but even a recession, they might be a little more tolerant on that front. So that could be appealing.

Speaker Change: Okay, very good. Thanks, guys.

Chris Woronka: So that can be appealing. Okay, very good. Thanks, guys. And thank you. And one moment for our next question. And our next question comes from Chris Darling from Green Street. Your line is now open. Thanks. Good morning.

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Chris Darling from Green Street. Your line is now open.

Chris Darling: We're going back to some of the prior discussion around capital recycling. I was wondering if you could speak to your philosophy of property. Yeah, it's a good question, Chris.

Chris Darling: Hey, thanks. Good morning.

Chris Darling: Circling back to some of the prior discussion around capital recycling, wondering if you could speak to your philosophy as it pertains to, on the one hand, trying to maximize the price at which you sell a property versus, you know, taking advantage of the arbitrage opportunity inherent in fair price, even if you don't quite

Chris Darling: realize every last dollar is valued.

Jeff Donnelly: I think there's a tendency, in my experience, for people that, you know, just sort of focus on maximizing that last dollar. And to me, it's, it's sort of a paired trade, if you will; it's looking at, you know, what you're selling and what you're buying. And there are times where, you know, you might not maximize value on an asset, but if you're able to buy something, whether it's your shares or another property that has a more attractive IRR going forward, that seems like a sensible trade. You may be shifting gears.

Speaker Change: Yeah, it's a good question, Chris. I think there's a tendency, in my experience, for people that

Chris Darling: You know, just sort of focus on maximizing that last dollar, and to me, it's sort of the paired trade, if you will. It's looking at, you know, what you're selling and what you're buying, and there are times where

Chris Darling: You might not maximize value on an asset, but if you're able to buy something, whether it's your shares or another property that has a more attractive IRR going forward, that seems like a sensible trade for me.

Chris Darling: You may be shifting gears, just one more for me.

Chris Darling: If you look across your portfolio, whether it's on the resort, www.smedes.com, Do you have any thoughts on that? I mean, I think we'd just be speculating from a trading down perspective. I think we do see a bit more people sort of looking for a discount or looking for a sale and willing to change their travel pattern relative to price. I don't know if that's necessarily trading down or as much as it is trading days, but I think that's what we've been doing, I think, as we revert back to our prior pattern is really trying to do more kind of price variability between weekends and midweek and between peak I think that's definitely a trend that we've seen kind of continue over the last 18 months. Appreciate the thoughts.

Speaker Change: When you look across your portfolio, whether it's on the resort or the urban side, are you seeing any evidence that the consumer is trading down in any regard? Or is the weakness kind of we've talked about in the leisure transient segment truly a matter of where those individuals are choosing to travel rather than a matter of whether they're spending?

Chris Darling: [inaudible]

Speaker Change: I mean, I think we'd just be speculating from a trading down perspective.

Speaker Change: Would you see a bit more, you know, a bit more people sort of looking for a discount or looking for a sale and willing to change travel pattern relative to price?

Speaker Change: I don't know if that's necessarily trading down, or as much as it is trading days, but I think, you know, that's what we've been doing, I think, as we revert back to prior pattern, is really trying to do more

Chris Darling: You know, kind of price variability between weekends and midweek and between peak periods and non-peak periods in order to, you know, encourage travelers to fill up our hotels off-season. I think that's definitely a trend that we've seen kind of continue over the last 18 months.

Speaker Change: I appreciate the thoughts. That's all for me.

Bill Crow: And thank you. And one moment for our next question, and our next question comes from Bill Crow from Raymond James. Your line is now open.

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Bill Crow from Raymond James.

Jeff Donnelly: Hey, good morning, guys. Jeff, I'm wondering, as you think about grouping up, smaller urban properties and your leisure-oriented properties, are those more kind of dependent on in-the-corner, for-the-corner group bookings, say, compared to Chicago or some of the bigger assets out there, and therefore maybe a bit more sensitive to the leading edge of changing economic conditions? Um, I don't necessarily think so, Bill.

Speaker Change: Your line is now open.

Bill Crow: Hey, good morning, guys. Jeff, I'm wondering, as you think about grouping up...

Bill Crow: smaller urban properties and your leisure oriented properties.

Bill Crow: Are those more kind of dependent on in-the-corner, for-the-corner group bookings, say, compared to Chicago or some of the bigger assets out there, and therefore maybe a bit more sensitive to the leading edge of changing economic conditions?

Bill Crow: I mean, I understand the root of the question. I think for, you know, some of our properties that it can, it can be everything from a wedding, it could be, you know, social related, like smart business, it can be small corporate off sites. And sometimes those follow restructurings at companies, which can be a negative event yet in the economy, but yet, you know, drives a sort of, let's get the team together and figure out new strategies.

Jeff Donnelly: I don't necessarily think so, Bill. I mean, I understand the root of the question. I think for, you know, some of our properties that it can

Speaker Change: It can be everything from a wedding, it can be social related like smart business, it can be small corporate offsites, and sometimes those follow restructurings at companies which can be a negative event in the economy, but yet

Speaker Change: , you know, drives a sort of let's get the team together and figure out new strategies.

Speaker Change: It's difficult to say. I mean, you know, there are times when we say this a lot internally, where

Bill Crow: So it's difficult to say. I mean, you know, there are times we say this a lot internally, where we think we're big enough to see trends, but we question whether or not we really see trends. And certainly, a bigger property like Chicago Marriott does tend to have a longer booking window, just given the nature of that asset. We can, of course, accommodate small groups, but something an asset of that size tends to have much greater success with those larger groups.

Speaker Change: We think we're big enough to see trends, but we question whether or not we really see trends.

Speaker Change: And certainly a bigger property like Chicago Marriott does tend to have a more, a longer booking window just given the nature of that asset. You know, we can of course accommodate small groups.

Speaker Change: An asset of that size tends to have much greater success in those larger groups. So, I'm not sure if I'm quite answering your question, but I think there's a very big audience of sort of small group activity that our hotels, both resort and urban, can tap into.

Bill Crow: So I'm not sure if I'm quite answering your question. But I think there's a very big audience for sort of small group activity that you know, our hotels, both resort and urban, can tap into. Do you think that it's more or less sensitive to economic change, the smaller groups?

Speaker Change: Do you think that, that, uh...

Speaker Change: that is more or less sensitive to economic change. So the smaller groups, and I'm not talking weddings, because I think that's kind of independent of the economy largely. But do you think you're more volatile, maybe, on the group front in your hotels?

Jeff Donnelly: And I'm not talking weddings, because I think that's kind of independent of the economy largely. But do you think you're more volatile, maybe, on the group front in your hotels? I think so. I mean, it's hard to know the alternative quite candidly.

Bill Crow: And I think just looking at, you know, our pace for the rest of the year, you know, vis-a-vis just what I've been hearing about some of our peers, it doesn't feel like we have been as sensitive, I guess, just looking at very near-term results. It feels like we've actually been a little more resilient on that group front than some of the bigger box hotels. So, just on near-term results, the answer would be no, but I can't say definitively. Okay, thank you. And thank you. And I'm showing no further questions.

Speaker Change: I don't think so. I mean, it's hard to know the alternative quite candidly, and I think just looking at, you know, our pace for the rest of the year, you know, vis-a-vis just what I've been hearing about some of our peers, it doesn't feel like

Speaker Change: We have been as sensitive, I guess, just looking at very near-term results, it feels like we've actually been a little more resilient on that group front than some of the bigger box hotels. So just on near-term results, the answer would be no, but I can't say definitively.

Speaker Change: Okay, thank you.

Operator: I would now like to turn the call back over to Jeff Donnelly for closing remarks. Oh, thank you everybody for joining us today. We really appreciate it. Have a great summer, and hopefully, we'll see you out on the road.

Speaker Change: And thank you. And I am showing no further questions. I would now like to turn the call back over to Jeff Donnelly for closing remarks.

Jeff Donnelly: Well, thank you everybody for joining us today. We really appreciate it. Have a great summer and hopefully we'll see you out on the road. Thanks.

Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: Hot Town, summer in the city, back of my neck gettin' dirty gritty Bend down, isn't it a pity, doesn't seem to be a shadow in the city All around, people lookin' half dead, walkin' on the sidewalk hotter than a match head But tonight it's a different world, go out and find a girl Come on, come on, if that's alright, if I say it'll be alright And babe, don't you know it's a pity the days can't be like the nights in the summer, in the city, in the summer, in the city Cool town, meetin' in the city, dressed so fine and lookin' so pretty Cool cat, lookin' for a kitty, gonna look in every corner of the city Till I'm wheezing like a baby

Speaker Change: DarvinLocomotive astap, Runnin' up the stairs Gonna meet you on the rooftop But tonight is a different world, oh, I'll be guardin' your soul

Speaker Change: [inaudible]

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Speaker Change: https://www.youtube.com.uk https://www.youtube.com.uk

Speaker Change: Good day and thank you for standing by. Welcome to DiamondRock Hospitality Company second quarter 2024 earnings conference call.

Jeff Donnelly: Thanks. This concludes today's conference call. Thank you for participating. You may now disconnect. Hot Town, summer in the city, back of my neck getting dirty gritty Bend down, isn't it a pity, doesn't seem to be a shadow in the city All around, people looking half dead, walking on the sidewalk hotter than a match head But at night it's a different world, go out and find a girl Come on, come on, if that's all right, if I say it'll be all right And babe, don't you know it's a pity the days can't be like the nights in the summer in the city, in the summer in the city Cool town meeting in the city, dressed so fine and looking so pretty Cool cats looking for a kitty, gonna look in every corner of the city Till I'm wheezing like a bus stop, running upstairs, gonna meet you on the rooftop, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? https://www.youtube.com ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Welcome to DiamondRock Hospitality Company second quarter 2024 earnings conference.

Speaker Change: At this time, all participants are on a listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you'll need to press star 11 on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again.

Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer. Please go ahead.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer.

Speaker Change: ? ? ? ? ? ? ? ? ?

Speaker Change: Good day, and thank you for standing by. Welcome to DiamondRock Hospitality Company, second quarter, 2024 earnings conference call.

Operator: At this time, all participants are on a listen-only line. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: At this time, all participants are in a listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you'll need to press star 11 on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Finance Officer. Please go ahead.

Briony Quinn: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer. Please go ahead.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer. Good day, and thank you for standing by.

Operator: Welcome to DiamondRock Hospitality Company's second quarter 2024 earnings conference. At this time, all participants are on a listen-only basis. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer. Please go ahead.

Speaker Change: Before we begin, 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. Thank you for your time. We appreciate it.

Briony Quinn: Thank you, Justin. Good morning, everyone, and thank you for joining us. With me on the call today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer. Before we begin, 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 what we discussed 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.

Speaker Change: that could cause future results to differ materially from what we discussed today.

Speaker Change: 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.

Briony Quinn: We were pleased with our second quarter results, which exceeded our expectations going into the quarter. Comparable res par grew 2.2% over last year, which was 260 basis points higher than the growth that we saw in the first quarter and exceeded the 100 to 150 basis points of the sequential acceleration we expected. Total rev par increased four and a half percent. Also, an acceleration from the 2.4% total REVPAR growth in the first quarter.

Speaker Change: We were pleased with our second quarter results, which exceeded our expectations going into the quarter.

Speaker Change: Comparable RASPAR grew 2.2% over last year, which was 260 basis points higher than the growth that we saw in the first quarter, and exceeded the 100 to 150 basis point of sequential acceleration we expected.

Speaker Change: Total REV PAR increased four and a half percent.

Speaker Change: Also an acceleration from the 2.4% total REVPAR growth in the first quarter.

Speaker Change: The 230-basis point gap between total REVPAR growth and room REVPAR growth was the result of an intentional mix shift toward group business that drove strong out-of-room spend.

Briony Quinn: The 230 basis point gap between total REVPAR growth and room REVPAR growth was the result of an intentional mix shift toward group business that drove strong out of room spend. The strategy has worked. Group revenue increased 7.2% over last year, and banquet catering and AV revenue increased over 20%. The strong revenue growth was driven by both our resort and urban hotels.

Speaker Change: The strategy has worked. Group revenue increased 7.2% over last year, and banquet catering and AV revenue increased over 20%.

Speaker Change: The strong revenue growth was driven by both our resort and urban hotels.

Briony Quinn: Comparable RevPAR at our resorts was 1.9% higher than last year, with total RevPAR 2.7% higher. Comparable RevPAR at our urban hotels was 2.2% higher than last year, with total RevPAR 5.4% above 2023. Comparable hotel operating expenses increased four and a half percent from last year, which was largely in line with our expectation. However, total wages and benefits increased by 7%, a better growth rate than the prior quarter. Early in the second quarter, we renewed our insurance program with a better-than-anticipated outcome. Overall, our premium cost was reduced by 16%, which led to insurance expense for the quarter declining 14.5% from 2023.

Speaker Change: Comparable REVPAR at our resorts was 1.9 percent higher than last year with total REVPAR 2.7 percent higher.

Speaker Change: Comparable RevPAR at our urban hotels was 2.2% higher than last year, with total RevPAR 5.4% above 2023.

Speaker Change: Comparable hotel operating expenses increased four and a half percent from last year, which was largely in line with our expectations.

Speaker Change: Total wages and benefits increased by 7%, a better growth rate than the prior quarter.

Speaker Change: Early in the second quarter, we renewed our insurance program with a better than anticipated outcome. Overall, our premium cost was reduced by 16%, which led to insurance expense for the quarter declining 14.5% from 2023.

Briony Quinn: The comparable hotel adjusted EBITDA was $99.5 million, reflecting a 5.5% growth over last year on a 20 basis point increase in margin. Adjusted FFO per share increased 6% over 2023 to $0.34 per share. Turning to our outlook, the success of our group strategy has exceeded our expectations. Shifting our mix towards group bookings as well as focusing on building occupancy in our resorts may reduce room REVPAR growth, but it has done so to the benefit of total REVPAR and ultimately profit.

Speaker Change: Comparable hotel-adjusted EBITDA was $99.5 million, reflecting a five and a half percent growth over last year on a 20 basis point increase in margin.

Speaker Change: Adjusted FFO per share increased 6% over 2023 to $0.34 per share.

Briony Quinn: Accordingly, we are adjusting our RevPAR growth outlook to a range of one and a half to three percent. However, we expect total REVPAR growth to be in the range of 3 to 4 and a half percent. Our group strategy has performed well, and we expect it will continue to drive incremental revenue and profit, but due to the types of groups on the calendar, we do not expect out-of-room spending in the second half of the year to contribute 250 basis points toward total RESPAR growth as it did in the first half of the year. We now expect 2024 adjusted EBITDA to range between $278 million and $290 million. Our 2024 adjusted FFO is expected to range between $201.5 million and $213.5 million.

Speaker Change: Turning to our outlook, the success of our group strategy has exceeded our expectations.

Speaker Change: Shifting our mix towards group, as well as a focus on building occupancy in our resorts, may reduce room REVPAR growth, but it is done so to the benefit of total REVPAR and ultimately profit.

Speaker Change: Accordingly, we are adjusting our REVPAR growth outlook to a range of 1.5% to 3%.

Speaker Change: However, we expect total REVPAR growth to be in the range of 3-4.5%.

Speaker Change: Our group strategy has performed well, and we expect it will continue to drive incremental revenue and profits. But due to the types of groups on the calendar, we do not expect out-of-room spending in the second half of the year will contribute 250 basis points toward total RESPAR growth as it did in the first half of the year.

Speaker Change: We now expect 2024 adjusted EBITDA to range between $278 million and $290 million.

Speaker Change: Our 2024 adjusted FFO to range between $201.5 million to $213.5 million.

Briony Quinn: And the resulting adjusted FFO per share range increases from $0.09 to $0.95. Now, turning to capital allocation. We commenced share repurchase activity during the quarter, and to date, we have repurchased 2.8 million shares at a weighted average price of $8.36 per share for total consideration of approximately $23.5 million. We continue to explore asset dispositions, the proceeds of which can fund additional share repurchases, internal ROI projects, or external growth. Our balance sheet remains strong.

Speaker Change: and the resulting adjusted FFO per share range increases from $0.09 to $0.95 to $1.00.

Speaker Change: Turning to capital allocation, we commenced share repurchase activity during the quarter. To date, we have repurchased 2.8 million shares with a weighted average price of $8.36 per share for total consideration of approximately $23.5 million.

Speaker Change: We continue to explore asset dispositions, the proceeds of which can fund additional share repurchases, internal ROI projects, or external growth.

Briony Quinn: As of the end of the quarter, our net debt to EBITDA ratio was 3.8 times trailing four-quarter results, and our liquidity was $630 million. We plan to repay our $73 million mortgage maturity in early August with cash on hand.

Speaker Change: Our balance sheet remained strong. As of the end of the quarter, our net debt to EBITDA ratio was 3.8 times trailing four-quarter results and our liquidity was $630 million.

Speaker Change: We plan to repay our $73 million mortgage maturity in early August with cash on hand.

Briony Quinn: In addition, we intend to exercise our one-year extension right on our $300 million term loan, bringing the maturity to January 2026. We continue to monitor and assess all available options to address our upcoming 2025 debt maturities, and we'll continue to keep you updated on that front. I also want to share that during the quarter, DiamondRock successfully completed the implementation of a new Oracle cloud-based ERP system that has streamlined our accounting-related activities, as well as a new enterprise analytics system to better collect and analyze the enormous volume of hotel-level operating and financial data available to us.

Speaker Change: In addition, we intend to exercise our one-year extension right on our $300 million term loan, bringing the maturity to January 2026.

Speaker Change: We continue to monitor and assess all available options to address our upcoming 2025 debt maturities, and we'll continue to keep you updated on that front.

Speaker Change: I also want to share that during the quarter, DiamondRock successfully completed the implementation of a new Oracle cloud-based ERP system that has streamlined our accounting activities.

Speaker Change: accounting related activities.

Speaker Change: as well as a new enterprise analytic system to better collect and analyze the enormous volume of hotel-level operating and financial data available to us.

Briony Quinn: Together, we expect these systems will extend our impact while maintaining one of the most efficient teams amongst our peers. Kudos to our accounting and asset management teams for their efforts on this significant project. I'll now turn the call over to Jeff for additional color on the quarter. Thanks, Briony, and thanks to all of you for joining us this morning.

Speaker Change: Together, we expect these systems will extend our impact while maintaining one of the most efficient teams amongst our peers.

Speaker Change: Kudos to our accounting and asset management teams for their efforts on this significant project. I'll now turn the call over to Jeff for additional color on the quarter.

Jeff Donnelly: I want to highlight the excellent efforts of our entire team who worked hard this quarter to deliver strong Q2 results amid a transition in leadership and information systems. I also want to recognize Bill Pennis, who recently retired after serving as Diamond Rock's General Counsel for 14 years. Finally, I want to welcome Anika Fisher, who joined DiamondRock as Senior Vice President and General Counsel from Essex Property Trust. He's been an excellent addition to our team, and I'm personally very happy to have this rising star on board.

Jeff Donnelly: Thanks Briony and thanks to all of you for joining us this morning. I want to highlight the excellent efforts of our entire team who worked hard this quarter to deliver strong Q2 results amid a transition in leadership and information systems.

Speaker Change: I also want to recognize Bill Tennis, who recently retired after serving as Diamond Rock's General Counsel for 14 years.

Speaker Change: Finally, I want to welcome Anika Fisher, who joined DiamondRock as Senior Vice President and General Counsel from Essex Property Trust. She's been an excellent addition to our team, and I'm personally very happy to have this rising star on board.

Jeff Donnelly: Now let's talk a little more about the second quarter. It is critical to understand that we're focused on maximizing profit, not RevPAR, not margin. This is why Justin and his team made the conscious decision a few quarters ago to increase our focus on group. All else equal, this mixed shift can result in slightly lower room RevPAR growth to the benefit of higher total RevPAR growth. The year-to-date spread between our room RevPAR and total RevPAR growth was a robust 250 basis points.

Speaker Change: Now let's talk a little more about the second quarter.

Speaker Change: It is critical to understand we're focused on maximizing profit, not rev par, not margin. This is why Justin and his team made the conscious decision a few quarters ago to increase our focus on group.

Speaker Change: All else equal, this mixed shift can result in slightly lower room res par growth to the benefit of higher total res par growth.

Speaker Change: The year-to-date spread between our room RevPAR and total RevPAR growth was a robust 250 basis points.

Jeff Donnelly: And while higher total REVCAR growth can result in higher total expenses, expense growth, and possibly even lower margin, it accrues to the benefit of higher bottom-line profit, and to us, profit is. As Briony mentioned, comparable EBITDA for the portfolio increased 5.5% in the quarter, and F&B profit at our urban hotels increased nearly 27% after the incremental costs, such as food and labor, associated with non-room group revenue. Urban hotels had the largest spread between total RevPAR and RevPAR growth. The Clios spread was 1,000 basis points, the Worthington 780, the Chicago Marriott 740, Weston Seaport 520, and the Gwen 480 basis points.

Speaker Change: And while higher total REVCAR growth can result in higher total expense growth, and possibly even lower margin, it accrues to the benefit of higher bottom line profit.

Speaker Change: and to us, profit is king.

Speaker Change: As Briony mentioned, comparable EBITDA for the portfolio increased 5.5% in the quarter and F&B profit at our urban hotel has increased nearly 27% after the incremental costs, such as food and labor, associated with non-room group revenue.

Speaker Change: Urban hotels had the largest spread between total RevPAR and RevPAR growth. The Clio's spread was 1,000 basis points. The Worthington's 780. Chicago Marriott, 740. Weston Seaport, 520. And the Gwen, 480 basis points.

Jeff Donnelly: Looking ahead to the second half of 2024, group room revenue on the books is up 14% over the prior year, with well over 30% growth at the Chicago Marriott, Weston, D.C., and the Worthington. For the year, we have 704,000 group room nights on the books, which is a 7.3% increase over 2023 and represents 88% of our 2024 budget. Turning to our resorts, this was the first quarter of positive REVPAR growth in our resort portfolio since the end of 2022.

Speaker Change: Looking ahead to the second half of 2024, group room revenue on the books is up 14% over the prior year with well over 30% growth at the Chicago Marriott, Weston DC, and the Worthington.

Speaker Change: For the year, we have 704,000 group room nights on the books, which is a 7.3% increase over 2023 and represents 88% of our 2024 budget.

Speaker Change: Turning to our resorts, this was the first quarter of positive REVPAR growth in our resort portfolio since the end of 2022. Resort comparable occupancy increased 8.6% offset by a 6.1% decline in ADR.

Jeff Donnelly: Resort comparable occupancy increased 8.6%, offset by a 6.1% decline in ADR. Despite the increased reliance on occupancy, which is a historically more expensive source of revenue, we were able to drive EBITDA 7.1% higher by holding expenses to 2.5% growth.

Speaker Change: Despite the increased reliance on occupancy, a historically more expensive source of revenue growth.

Speaker Change: We were able to drive EBITDA 7.1% higher by holding expenses to 2.5% growth.

Jeff Donnelly: Importantly, we are outperforming our markets, taking share in 14 of our 16 resorts, and, like our urban hotels, we have leaned into groups, sometimes to the detriment of average rates, to maximize total revenue and profit. It is no longer 2021 or 2022 when resorts were richly rewarded for holding out for last-minute transient, but it isn't quite 2019 either. Our resorts are still operating over 40% above 2019 levels, and we are staying nimble on our revenue strategy to maximize profit. In the back half of the year, we expect we will profitably trade off ADR for occupancy.

Speaker Change: Importantly, we are outperforming our markets, taking share in 14 of our 16 resorts, and like our urban hotels, we have leaned into groups, sometimes to the detriment of average rate, to maximize total res par and profit.

Speaker Change: It is no longer 2021 or 2022 when resorts were richly rewarded for holding out for last-minute transient, but it isn't quite 2019 either.

Speaker Change: Our resorts are still operating over 40% above 2019 levels, and we are staying nimble on our revenue strategy to maximize profit.

Speaker Change: In the back half of the year, we expect we will profitably trade off ADR for occupancy.

Jeff Donnelly: It is partly for this reason we expect our full-year room RevPAR growth to be slightly lower than original guidance, but the total rev par and profit growth expectations are higher. We completed the room renovation of the Westin San Diego Bayfront.

Speaker Change: It is partly for this reason we expect our full-year room REVPAR growth will be slightly lower than original guidance, but the total REVPAR and profit growth expectations are higher.

Jeff Donnelly: We also completed the conversion of Hilton Burlington to Hotel Champlain. The hotel has a casual, fun, and creative new restaurant called Original Skiff Fish and Oysters by renowned chef Eric Ornstead. The hotel product feels great from the sense of arrival to the two-story lobby, new health club, and spacious rooms. We have a pipeline of additional ROI opportunities underway, such as the new hotel bar at Havana Cabana, a marina at Tranquility Bay, and the integration of our two Sedona resorts in 2025.

Speaker Change: We completed the room renovation of the Western San Diego Bayfront. We also completed the conversion of Hilton Burlington to Hotel Champlain.

Speaker Change: The hotel has a casual, fun, and creative new restaurant called Original Skiff Fish and Oysters by renowned chef Eric Ornstead.

Speaker Change: The hotel product feels great from the sense of arrival to the two-story lobby, new health club, and spacious rooms.

Speaker Change: We have a pipeline of additional ROI opportunities underway, such as the new hotel bar at Havana Cabana, a marina at Tranquility Bay, and the integration of our two Sedona resorts in 2025.

Jeff Donnelly: We are constantly reviewing our portfolio for value-add opportunities but are also reexamining our six-year capital expenditure plan to maximize efficiency for increased capital retention. In this regard, we have elected to reduce the scope of the ROI project we are pursuing in New Orleans by 40 percent.

Speaker Change: We are constantly reviewing our portfolio for value-add opportunities, but are also reexamining our six-year capital expenditure plan to maximize efficiency for increased capital retention.

Speaker Change: In this regard, we have elected to reduce the scope of the ROI project we are pursuing in New Orleans by 40%. We had previously expected to spend about $13 million to renovate the 220 rooms and reconcept the lobby and pool areas to create new F&B outlets.

Jeff Donnelly: We had previously expected to spend about $13 million to renovate the 220 rooms and reconceptualize the lobby and pool areas to create new F&B outlets. The rationale for the original budget was based upon the expectation the expenditure would justify the implementation of an urban amenity fee, capture incremental market share, and drive incremental F&B outlet profits since conception. We have asset managed the hotel to gain a significant share, and we now believe it is prudent to reduce the scope of the capital plan to focus exclusively on renovating the rooms. The revised scope still supports the business case behind the amenity fee, while retaining the optionality to pursue additional outlets later. We expect the renovation will be complete before the Super Bowl.

Speaker Change: The rationale for the original budget was based upon the expectation the expenditure would justify the implementation of an urban amenity fee, capture incremental market share, and drive incremental F&B outlet profit.

Speaker Change: since conception.

Speaker Change: We have asset managed the hotel to gain significant share, and we now believe it is prudent to reduce the scope of the capital plan to focus exclusively on renovating the rooms product.

Speaker Change: The revised scope still supports the business case behind the amenity fee, while retaining optionality to pursue the additional outlets later. We expect the renovation will be complete before Super Bowl.

Jeff Donnelly: This is a good moment to step back and talk about strategy. Shareholders have asked us how the recent leadership transition will change strategy. And we've said we will continue to have a long-term focus on growing our leisure market exposure, whether those are resorts and unique destinations or hotels and lifestyle cities, but we also see value in targeted urban markets. We've also said you should expect us to be more deliberate and analytical in our actions.

Speaker Change: This is a good moment to step back and talk about strategy. Shareholders have asked us how the recent leadership transition will change strategy, and we've said we will continue to have a long-term focus on growing our leisure market exposure.

Speaker Change: Whether those are resorts and unique destinations or hotels and lifestyle cities, but we also see value in targeted urban markets.

Speaker Change: We've also said you should expect we will be more deliberate and analytical in our actions.

Jeff Donnelly: Our overarching focus is identifying avenues to drive incremental earnings per share as a path towards narrowing our discount to net asset value. The stock market focuses on RevPAR, but this only captures a portion of revenue and doesn't take into account the effect leverage, branding, age, and other factors have on long-term earnings growth.

Speaker Change: Our overarching focus is identifying avenues to drive incremental earnings per share as a path towards narrowing our discount to net asset value.

Speaker Change: The stock market focuses on REVPAR, but this only captures a portion of revenue and doesn't contemplate the effect leverage, branding, age, and other factors have on long-term earnings growth.

Jeff Donnelly: To support our focus on earnings per share growth, we're working to reduce our. At the corporate level, we are focusing on our G&A through our leadership transition, as well as the implementation of new technologies to drive efficiency. At our hotels, we are working to reduce our capital expenditures as a percentage of revenues through thoughtful scrutiny of what truly creates cash flow and value. Full-service hotel REITs historically spend about 11 to 12% of revenue on capital expenditures.

Speaker Change: To support our focus on earnings per share growth, we're working to reduce our costs.

Speaker Change: At the corporate level, we focused on our G&A through our leadership transition as well as implementation of new technologies to drive efficiency.

Speaker Change: At our hotels, we are working to reduce our capital expenditures as a percentage of revenues through thoughtful scrutiny of what truly creates cash flow and value.

Speaker Change: Full-service hotel REITs historically spend about 11 to 12 percent of revenue on capital expenditures.

Jeff Donnelly: When you consider typical dividend payouts and that most companies are well over five times leveraged, including preferred, it is simply too high to have meaningful retained earnings to organically fund share repurchases, pursue ROI projects, or acquisitions to drive earnings for share growth. It is a priority for us to manage our annual capital spend to the high single-digits. Every 100 basis points we reduce our capital expenditures is over $10 million preserved and potentially 50 basis points of per share earnings growth.

Speaker Change: When you consider typical dividend payouts, and that most companies are well over five times leveraged, including preferred, it is simply too high to have meaningful retained earnings to organically fund share repurchases, pursue ROI projects, or acquisitions to drive earnings per share growth.

Speaker Change: It is a priority for us to manage our annual capital spend to the high single digits.

Speaker Change: Every 100 basis points we reduce our capital expenditures is over $10 million preserved and potentially 50 basis points of per share earnings growth.

Jeff Donnelly: The $5 million reduction in scope in New Orleans, while small, is significant because it highlights how DiamondRock is improving to be prudent and aggressive stewards of your capital. It also highlights that we are the sole decision maker on the scope and timing of renovations at our independent hotels in order to cater the product to our target customers in that specific market. What else can we do? Average age is important.

Speaker Change: The $5 million reduction in scope in New Orleans, while small, is significant because it highlights how DiamondRock is improving to be prudent and aggressive stewards of your capital.

Speaker Change: It also highlights that we are the sole decision maker on the scope and timing of renovations at our independent hotels in order to cater the product to our target customer in that specific market.

Jeff Donnelly: Real estate can, of course, be renovated, but like a snowball rolling downhill, the frequency and scope of capital investment picks up speed and size with age. Yet, market values do not always accurately reflect the obsolescence of older assets. We've all seen instances of new hotels transacting at similar EBITDA multiples despite the growing capital needs of an older asset. We are working to take advantage of opportunities to recycle non-core assets in our portfolio into higher after-capital cash flow yields such that it accretes to earnings. We also need to be flexible and adapt our investment strategy to the local environment.

Speaker Change: What else can we do?

Speaker Change: Average age is important. Real estate can of course be renovated but like a snowball rolling downhill, the frequency and scope of capital investment picks up speed and size with age.

Speaker Change: Yet market values do not always accurately reflect the obsolescence of older assets. We've all seen instances of new hotels transacting at similar EBITDA multiples despite the growing capital needs of an older asset.

Speaker Change: We are working to take advantage of opportunities to recycle non-core assets in our portfolio into higher after-capital cash flow yields such that it accretes to earnings.

Speaker Change: We also need to be flexible and cater our investment strategy to the local environment. For instance, in some markets, urban markets, an upscale hotel may be far more lucrative over the long term than an upper upscale product given the similar profit per key but reduced capital scope.

Speaker Change: In conclusion, our asset focus remains largely unchanged, but what has changed are the approaches we are taking to drive earnings per share growth. It is our belief this focus will ultimately drive relative multiple expansion and total shareholder return.

Jeff Donnelly: For instance, in some markets, urban markets, and Upscale Hotels, may be far more lucrative over the long term than an upper upscale product given the similar profit per key but reduced capital scope. In conclusion, our asset focus remains largely unchanged, but what has changed are the approaches we are taking to drive earnings per share growth. It is our belief this focus will ultimately drive relative multiple expansion and total shareholder return. At this time, we would like to open it up so Justin, Briony, and I can take your questions. And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: At this time, we would like to open it up so Justin, Briony, and I can take your questions.

Speaker Change: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question.

Austin Wurschmidt: Please stand by while we compile the Q&A roster and one moment for our first question. And our first question comes from Austin Wurschmidt from Key Bank Capital Markets. Your line is now open.

Speaker Change: And our first question comes from Austin Wurschmidt from KeyBank Capital Markets. Your line is now open.

Jeff Donnelly: Thanks, and good morning, everybody. Um, Jeff, I guess I'm just curious how far along you are in sort of identifying the non-core assets that you'd potentially like to sell, and if you can just kind of provide an update on the transaction market's depth of, you know, the buyer pool, and interest for you to execute kind of on this new strategy investment. Yeah, good morning, Austin.

Austin Wurschmidt: Thanks, and good morning, everybody.

Austin Wurschmidt: Jeff, I guess I'm just curious how far along you are in sort of identifying the non-core assets, you know, that you'd potentially like to sell and if you can just kind of provide an update on the transaction market, kind of depth of, you know, the buyer pool and interest for you to execute kind of on this new on strategy investments.

Jeff Donnelly: I would say that, you know, from the list of non-core assets, I would describe them as really the assets we've talked about in the past. I mean, we highlighted previously, like our Weston in Washington, DC, the Chicago Marriott, you know, and even like our Fifth Avenue Courtyard in New York. I would tell you that the list isn't more extensive.

Speaker Change: Yeah, good morning, Austin. I would say that, you know, from the list of non-core assets, I would describe it as really the assets we've talked about in the past. I mean, we've highlighted previously like our Weston in Washington, D.C.

Speaker Change: Chicago Marriott

Speaker Change: and even like our Fifth Avenue Courtyard in New York. I would tell you that list isn't more extensive. It hasn't changed materially. I think it's how we're looking at those assets when we kind of think about the long-term capital needs of them.

Jeff Donnelly: It hasn't changed materially. I think it's how we're looking at those assets when we kind of think about the long-term capital needs of them and where we think we can find reinvestment opportunities. It's not all going to happen in a day, but I think those are the sort of the most likely characters that we look at as non-core for us in the, you know, coming quarters.

Speaker Change: and where we think we can find reinvestment opportunities. It's not all gonna happen in a day, but I think those are the most likely characters that we look at as non-core for us in the coming quarters.

Jeff Donnelly: As far as the current market, and Justin can chime in as well, I think it's been challenging out there. I think for buyers, it's not that there's not a lot of capital chasing assets. I think with debt costs relatively high, it could be difficult for folks to get things financed and bought at a level that's attractive, but it's also appealing to us. And therein lies the bid-ask spread between buyers and sellers. But I don't know, Justin, if you want to add anything in.

Justin Leonard: As far as the current market, and Justin can chime in as well, I think it's been challenging out there, I think, for buyers. It's not that there's not a lot of capital chasing assets. I think with debt costs relatively high, it could be difficult for folks to get things financed and bought at a level that's accretive, but it's also appealing to us. And therein lies the bid-ask spread between buyers and sellers. But, I don't know, Justin, if you want to add in? Yeah, we're still seeing a significant drop-off in transaction volume. I think if you look at the last sort of 8 to 10 years, hospitality transactions are...

Justin Leonard: Yeah, we're still seeing a, you know, significant drop off in transaction volume. I think if you look at the last sort of eight to 10 years, hospitality transactions have been sort of a $20 to $25 billion transactional market on an annual basis, and the first half of the year was about five. So that gives you a sense of kind of the amount of transactions that are actually getting done relative to a normal run rate. We're just, we still see a pretty large bid-ask spread between buyers and sellers. That's helpful.

Speaker Change: [inaudible]

Austin Wurschmidt: And then just separately, you know, last quarter, you had indicated that, you know, the rate impact on leisure was really more of this mixed shift strategy to more group, which, you know, clearly benefited you this past quarter by, you know, shrinking the base, but what's the latest update on just rate sensitivity of that, you know, leisure transient, you know, customer and, you know, does the group demand remain strong enough for you to continue I think it's more of a reversion back to the prior pattern, as opposed to just seeing a weakness in the overall, you know, leisure transient customer. I mean, during, you know, kind of during the period of COVID, you were penalized for having a group; you were penalized for having a base because the demand was so strong, and the demand pattern was so consistent.

Speaker Change: Got it. That's helpful. And then...

Speaker Change: Just separately, in the last quarter, you had indicated that, you know, the rate impact to leisure was really more of this mixed-shift strategy to more group, which, you know, clearly benefited you this past quarter.

Speaker Change: By shrinking the base, but what's sort of the latest update on just rate sensitivity of that, you know, leisure transient, you know, customer and, and, you know, does the group demand remain strong enough for you to continue kind of with that, you know, strategy of filling the base without having to sacrifice on rate too much? Thanks.

Jeff Donnelly: I think we've seen, you know, midweek in some of our resorts reverting not back to what it was in 19, but definitely not what it was in 21. So we're having to layer in more of those, you know, discounted leisure customers midweek and more groups. And I think that's where we've had success, honestly, in building the base. I think we can continue to do that. I mean, we were up 20% in group in our resorts for Q2. And we anticipate being up about the same in Q3. That's where our pace is hitting.

Speaker Change: Yeah, I think it's more of a reversion back to prior patterns as opposed to just seeing a weakness in the overall, you know, leisure transient customer.

Speaker Change: During, you know, kind of during the period of COVID, you were penalized for having group, you were penalized for having base because the demand was so strong and the demand pattern was so consistent. I think we've seen, you know, midweek in some of our resorts reverting not back to what it was in 19, but definitely not what it was in 21. So we're having to layer in

Speaker Change: More of those discounted leisure customers, midweek, and more group. And I think that's where we've had success, honestly, in building the base. I think we can continue to do it. I mean, we were up 20% in group in our resorts for Q2, and we anticipate to be up about the same in Q3. That's where our pace is sitting. So that continued shift, I think we still have the ability.

Speaker Change: to put more group into these resort assets and get back to closer to what we were in 2019 from resort percentage of segmentation.

Austin Wurschmidt: So that continued shift, I think we still have the ability to put more group into these resort assets and get back to closer to what we were in 2019 from a resort percentage of segmentation. Thank you for taking the question. And thank you, and one moment for our next question. And our next question comes from Patrick Scholz from Truist. Your line is now open. Thank you. Good morning, everyone.

Speaker Change: Thanks for taking the questions.

Speaker Change: And thank you, and one moment for our next question.

Speaker Change: And our next question comes from Patrick Schultz from Truist. Your line is now open.

Speaker Change: Good morning. Thank you. Good morning, everyone.

Patrick Schultz: You know, when I think about your results... This year and your portfolio composition, certainly the composition, I think of you folks more as leisure-centric. I find it very interesting that you've been able to consecutive quarters to raise your guidance, which is quite unique here. You certainly have talked about certainly shifting the group mix in there, but anything else you'd like to call out there, you know, how you've been able to do that, especially in relation to other public REITs that haven't been able to do that, are maybe less resort centric. And then I'll also relate that to, you know, one of the themes is earnings certainly some pressure on the leisure customer. Jeff, any other color thoughts around that?

Patrick Schultz: You know, when I think about your results...

Patrick Schultz: This year and your portfolio composition, certainly the composition, I think of you folks more leisure centric. I find it very interesting that you've been able to consecutive quarters to have

Speaker Change: Raise Your Guidance, which is quite unique here.

Speaker Change: You know you certainly have talked about certainly shifting group mix in there, but you know anything else you'd like to call out there You know how you've been able to do that. You know especially in relation to

Speaker Change: other public REITs that haven't been able to, that's...

Speaker Change: are maybe less resort-centric. And then I'll also relate that to, you know, one of the themes is earning certainly some pressure on the leisure customer.

Speaker Change: Jeff and any other caller thoughts around that thank you and then I'll have another question

Jeff Donnelly: And then I'll have another question. Thanks, Patrick.

Jeff Donnelly: Thanks, Patrick. I mean, we discussed this, you know, in our remarks and I think in our release, but I think

Speaker Change: You know, Justin and his team were smart, you know, several quarters ago to really lean in on group and group.

Speaker Change: Not just at our urban hotels, but even at the leisure hotels or more resort-oriented hotels, and as Justin just said a moment ago,

Speaker Change: You know, I think in the last few years, a lot of hotels out there were effectively trained to always be taking transients and there's, you know, they could be maximizing their rate every day of the year.

Justin Leonard: And then as we began the transition to today, you began to see those patterns change. And I think there's a little bit of re-education at some of these resorts to realize that.

Speaker Change: This is a made-up example, but you know, the $500 rate you get on weekend, it's okay to sell it for $350 a night to a group midweek.

Speaker Change: The transient guest doesn't perceive that, but it's revenue to us that otherwise might have been missed had we been trying to hold out for a transient guest during the week. I think you're just trying to lean in and realize that those patterns are changing, but to be clear, it's not necessarily discounting per se, because again, that weekend customer isn't seeing that rate change.

Jeff Donnelly: I mean, we discussed this, you know, in our remarks and, I think, in our release, but I think, you know, Justin and his team were smart, you know, several quarters ago to really lean in on group and group, not just at our urban hotels but even at the leisure hotels or more resort-oriented hotels. And as Justin just said a moment ago, you know, I think in the last few years, a lot of hotels out there have been effectively trained to always be taking transients. And there's, you know, they could be maximizing their rate every day of the year. And then, as we began the transition to today, you began to see those patterns change.

Jeff Donnelly: And I think there's a little bit of reeducation at some of these resorts to realize that, This is a made up example, but you know, the $500 rate you get on a weekend, it's okay to sell it for $350 a night to a group midweek. The transient guest doesn't perceive that, but it's revenue to us that otherwise might have been missed had we been trying to hold out for a transient guest during the week.

Speaker Change: This is just sort of finding different guests at different price points that, you know, you can bring in. And I think it was just, you know, being smart to lean in on that early. And, you know, there's groups that we can bring in at resort-oriented properties, just as there are in urban-oriented properties. And at our resorts, it might be more smurfy-type business.

Jeff Donnelly: I think you're just trying to lean in and realize that those patterns are changing. But to be clear, it's not necessarily discounting per se, because again, that weekend customer isn't seeing that rate change. This is just sort of finding different guests at different price points that you can bring in. I think it was just being smart to lean in on that early, and there are groups that we can bring in at resort-oriented properties, just as there are at urban-oriented properties.

Speaker Change: I think it's just trying to be realistic about the current environment.

Speaker Change: Okay, that's great. And then another question...

Speaker Change: And I suspect I know the answer to this, but I'd like to, you know...

Jeff Donnelly: At our resorts, it might be more of a smirky-type business, but I think it's just trying to be realistic about the current environment. Okay, no, that's great. And then another question. And I suspect I know the answer to this, but I'd like it here at Crystal Clear from you. You know, what is your appetite for?

Speaker Change: Crystal Clear from you. What is your appetite for

Patrick Schultz: dilutive trophy asset acquisitions and levering up now that rates are higher. Thank you. A little bit of a softball.

Speaker Change: dilutive trophy asset acquisitions and levering up now that rates are higher. Thank you.

Jeff Donnelly: Dilutive is not appealing to us. At the end of the day, I mean, you want to be allocating capital well. I recognize, to be clear, that there can be assets, I'm not saying that I'm amenable to them, where you sort of step back to step forward someday, you know, where the initial yields can be low and the IRRs can be great. And I would tell you that there are a lot of those in the marketplace today.

Speaker Change: A little bit of a softball. Diluted is not appealing to us. At the end of the day, I mean, you want to be allocating capital well. I recognize, to be clear, that there can be assets, I'm not saying that I'm amenable to them, where you sort of step back to step forward someday, you know, where the initial yields can be low and the IRRs can be great. And I would tell you that there are a lot of those in the marketplace today. There's a lot of sort of distressed urban assets that are selling at

Jeff Donnelly: There are a lot of sort of distressed urban assets that are selling at a very low basis, but they oftentimes have zero or negative yields. And that's not really appealing to us because it's a very painful cost of carry and really weighs against a long-term IRR. You know, so I would say it's very difficult for us to make those pencils.

Justin Leonard: on a very low basis, but they have, oftentimes...

Speaker Change: Jeffrey Donnelly, Jeffrey Donnelly, Briony Quinn

Patrick Schultz: And conversely, at the other end of the spectrum, I know there have been deals that have been done at sort of mid-single-digit cap rates but on a basis that is often very high or very close to replacement costs. And that's not particularly appealing to us either, but given that it's hard to underwrite a lot of upside to that asset down the road, we're really trying to find that middle ground where we can get a good deal on the asset from a basis perspective but also get some yield. So it's a little bit of a needle in the thread, but that's really what we're looking for in urban markets. I'm all set.

Speaker Change: of Mid-Single-Digit Cap Rates, but on a basis that oftentimes is very high or very close to replacement costs. And that's not particularly appealing to us either, given that...

Speaker Change: It's hard to underwrite a lot of upsides of that asset down the road. We're really trying to find that middle ground where we can get a good deal on the asset from a basis perspective, but also get some yield. So it's a little bit of a needle in the thread, but that's really what we're looking for in urban markets.

Dori Kesten: And thank you. And one moment for our next question. And our next question comes from Dori Kesten from Wells Fargo Securities. Your line is now open. Thanks. Good morning.

Speaker Change: I'm all set. Thank you.

Speaker Change: And thank you. And one moment for our next question.

Speaker Change: And our next question comes from Dori Kesten from Wells Fargo Securities. Your line is now open.

Justin Leonard: What does the new enterprise analytics platform give you access to that you didn't previously have? And how do you intend to utilize it? I think, Dori, what we're really excited about is, you know, we have, I think, 12 different managers within the portfolio, all with a different reporting process. And so it's really given us the ability to do a standardized, remap every single one of those P&Ls into a standardized format, and do a significant amount of benchmarking within the portfolio to identify issues, particularly from a cost perspective. I think, you know, before it was, it was a lot more cumbersome for us to take all of those different packages and try to isolate where we were overspending.

Dori Kesten: Thanks, good morning. What does the new enterprise analytics platform give you access to that you didn't previously have and how do you intend to utilize it?

Speaker Change: I think, Dori, what we're really excited about is, you know, we have, I think, 12 different managers within the portfolio, all with a different reporting process, and so it's really given us the ability to do a standardized, remap every single one of those P&Ls into a standardized format, and do a significant amount of benchmarking within the portfolio to identify issues, particularly from a cost perspective, I think.

Dori Kesten: You know, before it was a lot more cumbersome for us to take, you know, all of those different packages and try to isolate where we were overspending within certain categories and what we've been able to do over the last two quarters. I think, you know, hopefully you can see that in some of the cost mitigation is really line all of them up and put them in buckets where they're comparable assets and look for some best practices that we can translate.

Dori Kesten: And what we've been able to do over the last two quarters, I think, you know, hopefully you can see in some of the cost mitigation is really line all of them up and put them in buckets where they're comparable assets and look for some best practices that we can translate throughout the entire portfolio. And then, if you think about the likely trajectory of occupancy over the next few quarters, are we in an environment where your FTEs may be contracting, flat, or growing?

Speaker Change: throughout the entire portfolio.

Speaker Change: Okay, and then if you think about the likely trajectory of occupancy over the next few quarters, are we in an environment where your FTEs may be contracting, flat, growing?

Dori Kesten: I think on a year-over-year basis, if we continue to see what we're forecasting, which is significantly more out-of-room spend, we'll see FTE growth. The reality is food and beverage is a relatively labor-intensive business. In the last two quarters, we've had 11% food and beverage growth. So it takes a fair amount of man hours.

Speaker Change: I think on a year-over-year basis, if we continue to see what we're forecasting, which is significantly more out-of-room spend, we'll see FTE growth. The reality is food and beverage is a relatively labor-intensive business. In the last two quarters, we've had 11% food and beverage growth, so it takes a fair amount of man-hours. That's why it's a bit of a lower-margin business.

Speaker Change: So, I think all else equal, if that continues to be the trend, we'll probably see a little bit growth in FTE, but I think it stabilizes.

Justin Leonard: That's why it's a bit of a lower-margin business. So I think, all else equal, if that continues to be the trend, we'll probably see a little bit of growth in FTE, but I think it stabilizes towards the end. Okay, and then you addressed the ROI project at Bourbon Street in New Orleans. Have you made any other material changes to the ROI pipeline in the last few months, whether it's, you know, adding to plans, redlining, completely pulling out? There have been no material changes to the ROI pipeline at this time.

Speaker Change: towards the end of the year.

Speaker Change: Okay. And then you addressed the ROI project at Bourbon, New Orleans. Have you made any other material changes to the ROI pipeline in the last few months, whether it's, you know, adding to plans, redlining, completely pulling in?

Speaker Change: There's been no material changes to the ROI pipeline at this time.

Dori Kesten: Dori, and nothing that's really materially been added or altered at this point, but we're always looking at projects, you know, available in our pipeline or in our portfolio that we can identify. So, but no big changes. Okay, and just last one. I might have missed this. Did you provide any guardrails around Q3 REVPAR growth or margin expectations? Dori, this is Briony.

Dori Kesten: Dori, and nothing that's really materially been added or altered at this point, but we're always looking at projects, you know, available in our pipeline or in our portfolio that we can identify. So, but no big changes.

Speaker Change: Okay, and just last one, I might have missed this. Did you did you provide any guardrails around Q3 RevPAR growth or margin expectations?

Briony Quinn: We have not, but I would tell you that I would expect our Q3 REV-R to be slightly higher than the growth rate we saw in Q2. Okay, thank you. And thank you, and one moment for our next question. And our next question comes from Smedes Rose from Citi. Your line is now open.

Speaker Change: Dori, this is Briony. We have not, but I would tell you that I would expect our Q3 REV part to be slightly higher than the growth rate we saw in Q2.

Speaker Change: Okay, thank you.

Speaker Change: And thank you, and one moment for our next question.

Speaker Change: And our next question comes from Smedes Rose from Citi. Your line is now open.

Smedes Rose: Hi, thanks. I just maybe wanted to switch to uses of capital. Could you just talk about where share repurchase kind of falls in terms of priorities? And would you consider maybe just sort of putting in place almost sort of a programmatic repurchase program, where you just have sort of a constant dollar amount being targeted for share repurchase every quarter? Good morning, Smedes.

Jeff Donnelly: In effect, that's a little bit of what we did this quarter. As a matter of fact, not so much that we had a specific dollar number that, you know, you had to hit at any price. But I would tell you that right now, I think allocation of capital to share repurchases is one of the more lucrative areas that we can put money towards. I think we trade it north of a nine-cap.

Jeff Donnelly: And given that we have a little bit higher than average leisure exposure, you know, just on that alone, you look at where cap rates are for resort-type assets in the marketplace, they're, And we probably have five and six cap rates. So I think we were able to buy those resorts, you know, relatively inexpensively. And same thing on urban.

Jeff Donnelly: As I mentioned earlier, there are not a lot of urban assets that have transacted. They're a little more insulated. You know, if they're distressed, they're sort of at zero cap rates, and if they're operating, I think some of our peers are paying sort of stabilized sixes. So there's a big gap. I would tell you that I think right now the share of our purchases is very appealing. We do have to watch our leverage, though. I emphasize that all the time.

Jeff Donnelly: So I think while we're comfortable buying back shares and recycling capital from asset sales into share purchases, we do try to be careful about where we maintain our overall financial leverage. Okay, and then I just wanted to ask you, I guess you have quite some time here to address the 2025 maturities, but just sort of, in general, would you rather move to more unsecured debt? Or do you think it's just refinancing at property level? Kind of just generally, what's your sort of preference there?

Smedes Rose: Thank you, Stace. Generally, our preference is to move to be more of an unsecured borrower. I think we continually evaluate the secured market, and we certainly would do that if it was more attractive, but I think becoming an unsecured borrower just provides us with a little bit more flexibility at the operating level.

Speaker Change: We'll do that if it was more attractive but I think.

Speaker Change: Becoming an unsecured borrower just provides us a little bit more flexibility at the operating level.

Smedes Rose: Okay. Thank you.

Jeff Donnelly: Okay, thank you. And thank you, and one moment for our next question. And our next question comes from Duane Pfennigwerth from Evercore ISI. Your line is now open. Hey, thanks. Good morning.

Speaker Change: Thank you one moment our next question.

Speaker Change: And our next question comes from Duane <unk> from Evercore ISI. Your line is now open.

Duane Pfennigwerth: Just on your comments on grouping up, I wonder what the downside, if any, of grouping up is? Other than the reported metrics of REVPAR, which you did a good job of kind of walking us through, what are the set of circumstances where you'd be leaving money on the table by taking a more aggressive approach on grouping up? Grouping is, you know, especially in the larger assets; it's a long booking window.

Duane Pfennigwerth: Hey, Thanks, good morning.

Duane Pfennigwerth: Just on your comments on grouping up I Wonder what is the downside if any.

Duane <unk>: Of grouping up other than the reported metrics of Revpar, which you.

Speaker Change: You did a good job of kind of walk us through.

Speaker Change: What are the set of circumstances that you'd be leaving money on the table by taking a more aggressive.

Speaker Change: Approach on group.

Speaker Change: Okay, Great group is a.

Speaker Change: Especially in the larger assets a long booking window. So I think what youre given youre, taking surety for potential rate upside if the market were to Reaccelerate I think we just decided a year ago that we would rather have some of the safety that goes along with taking a significant shift towards the group piece of the market and the ancillary spend that comes along.

Duane Pfennigwerth: And so I think what you're giving, you're taking surety for potential rate upside if the market were to reaccelerate. I think we just decided, you know, a year ago that we would rather have some of the safety that goes along with taking a significant shift towards a group piece of the market and the ancillary spend that comes along with it. So I think that that's really the risk, is that you put too much on the books at a low rate or a lower rate in the market than you could ultimately achieve in transient.

Speaker Change: So I think that's I mean, that's really the risk is that you put too much on the books at a low rate or a lower rate in the market you can ultimately achieve and transient I think that's really where the reeducation has had to come across because in the middle especially in leisure assets. During Covid you got penalized for having group because the rates ran so fast and so far.

Duane Pfennigwerth: I think that that's really where the re-education has had to come from because in the middle, you know, especially in leisure assets, you know, during COVID, you got penalized for having groups because the rates ran so fast and so far. If you had a group on the books from a year prior, you were giving up, you were losing share in the market.

Speaker Change: <unk>.

Speaker Change: If you had group on the box from a year. Prior you were giving up you were losing share in the market. So I think just to sort of rethinking that as we return back to a little bit more of a normal pattern.

Justin Leonard: So I think just sort of rethinking that as we return back to a little bit more of a normal pattern, it's taken a little bit of time to get used to that. One thing I would add to that, Duane, is that when you think about the average size of our assets, you know, we're around 200-225 rooms, the type of groups that come to our hotel are not necessarily groups that are going to book three years You know, our average group size is relatively smaller compared to some of the big box hotels in the marketplace, which are arguably going to have a longer booking window or maybe are not as appealing to, you know, a 30 person office. So we have a little bit shorter, which gives us a little bit of the ability to be more nimble when we group up. It makes a lot of sense.

Speaker Change: It's taken a little bit of time to work that through our operators.

Speaker Change: But one thing I would add to that Duane is that when you think about the average size of our assets were around 200 225 rooms. The type of groups, that's coming to our hotel or not necessarily groups that are going to book three years in advance.

Speaker Change: Our average group size is relatively smaller compared to some of the big box hotels in the marketplace with Robert arguably going to have a longer booking window or maybe are not as appealing to a 30 person offsite.

Speaker Change: So you have a shorter.

Speaker Change: Little bit of the ability to be more nimble than we do about.

Duane Pfennigwerth: And then just for my follow-up on the larger asset disposition front, you know, if you had to guess how long we need to wait for that unlock, and again, what are the set of circumstances we need to see for your recycling strategy to really kick in? Thanks for taking the question. I can't really give you a date.

Speaker Change: Makes it makes a lot of sense and then just for my follow up on the larger asset.

Speaker Change: Disposition front.

Speaker Change #100: If you had to guess how long do we need to wait for that unlock.

Speaker Change: And again, what are the set of circumstances, we need to see for your recycling strategy to really kick in thanks, Thanks for taking the questions.

Jeff Donnelly: I mean, I think we're just looking for an opportunity where I think rates fortunately seem to be moving or the expectation of rate cuts seems to be moving in a favorable direction, and results at our hotels are doing well. So I think the stars are aligning for that. But, you know, as Justin mentioned, there's not a lot of assets that have been on the market that could play to our advantage. But I think there's going to be time, you know, in the coming quarters where we're going to investigate this. So I can't give you a specific date.

Speaker Change: I can't really give you a date I mean, I think we're just looking for an opportunity where I think where rates are fortunately seem to be moving or the expectation of rate cuts seem to be moving in a favorable direction and results at our hotels are doing well. So I think the stars are aligning for that but.

Speaker Change: As Justin mentioned, there's not a lot of assets that have been on the market that could play to our advantage, but I think theres going to be time in the coming quarters, where we're going to investigate that so I can't give you a specific date I don't want to negotiate against yourself.

Speaker Change #102: Makes sense. Thank you.

Speaker Change: And thank you and one moment our next question.

Duane Pfennigwerth: I don't want to negotiate or get. That makes sense. Thank you. And thank you. And please wait one moment for our next question. And our next question comes from Michael Bellisario from Baird. Your line is now open. Thanks. Good morning, everyone. Where am I going? For Jeff or Justin here, I want to go back to the group. Yeah, that 14% pace that you mentioned for the back half, where do you think that will actually be by the end of the year? And then what's the pace differential between 3q versus 4q?

Speaker Change #100: And our next question comes from Michael Bellisario from Baird. Your line is now open.

Michael Bellisario: Thanks, Good morning, everyone.

Mike: Sure Mike.

Speaker Change: <unk>.

Speaker Change: Sure.

Speaker Change #107: Jeff or Justin here, when I go back to the group.

Speaker Change #107: Yes, that's 14% pace that you mentioned for the back half where do you think that actualized is by the end of the year and then what's the pace differential.

Speaker Change #100: <unk> versus <unk>.

Michael Bellisario: Um, my gut is I think forecast we've got a very high single digit in terms of actualized on a year over year basis, and it's slightly better in Q3 versus, on a year, just from a page. Got it. And then, that 88% of booked so far that's of your target budget, let's call it 20% remaining for the back half of the year. Like, what's the risk there?

Speaker Change: Mike as I think I think forecast, we've got a very high single digit in terms of actualized on a year over year basis.

Speaker Change: Better in Q3 versus Q4 on a year just from a pace perspective.

Speaker Change #103: Got it and then.

Speaker Change: That 88% of.

Speaker Change: Booked.

Speaker Change: So far that's.

Speaker Change #104: Of your target budget, let's call it 20% remaining for the back half of the year.

Michael Bellisario: What are you hearing from your hotels or corporate planners? Has there been any change in the size of the event or booking window or cancellation attrition just for that remaining piece that still needs to be booked for the year? We're not seeing any significant change in trend in terms of, you know, group rooming lists coming in at or above attrition levels or what we're seeing from an inbound lead perspective. I think we're a little bit more conservative in our forecast and in the year-over-year pickup for the back half of the year than what we actually produced in the first half of the year. So, I don't think we see any reason right now to sort of change that outlook.

Speaker Change #100: But whats the risk there what are you hearing from.

Speaker Change #106: Your hotels are corporate planners any any change in size of event or booking window or cancelation attrition just for that remaining piece that still needs to be booked for the year.

Speaker Change #108: We're not seeing any significant change in trend in terms of group room with coming in at or above attrition levels are what we're seeing from an inbound lead perspective, I think we're a little bit more conservative in our forecast and in the year for the year pick up for the back half of the year than what we actually produced.

Speaker Change: The first half of the year. So I don't think we see any reason right now to sort of change that outlook.

Michael Bellisario: And then just one more on groups, you know, thinking here in Chicago with the DNC in a few weeks, and just more broadly, big events: how meaningful is something like that, especially in maybe a slower week in late August in Chicago? Is something like that moving the rev part needle for your entire portfolio, a half a percentage point, a percentage point? How meaningful are some of these big, super events that are kind of one-time events driving the rev part for your portfolio in the back half? You know, not as meaningful as you might think.

Speaker Change #102: Got it and then just one more on group.

Speaker Change #111: Thinking here in Chicago with D&C in a few weeks and just more broadly big events, how meaningful is something like that especially in a maybe a slower week in late August in Chicago is that if something like that moving the revpar needle for your entire portfolio of half a percentage point.

Speaker Change: Percentage point is.

Speaker Change: How meaningful are some of these big Super events that are kind of one time driving the revpar for your portfolio in the back half.

Michael Bellisario: I think the reality of the big events, especially for the large hotels, is a lot of that block is required to be given in order to secure the event in the beginning, right? So when you think through a lot of times the Super Bowl or, you know, the DNC, for someone like the Marriott, they're part of that initial bid. So the room, you know, the room rate that you get is not as much of a premium as you might think.

Speaker Change #111: Not as meaningful as you might think I think the reality of the Super events, especially for the large hotels is a lot of that block is required to be given in order to secure the event.

Speaker Change: At the beginning to rethink through a lot of time Super Bowl or the D&C for someone like the Marriott, they're part of that initial bid. So the room. The room rate that you get is not as much of a premium as you might think.

Michael Bellisario: And a lot of times, it's actually more beneficial for some of our smaller hotels because they're outside of the large block that's required to be given in order to garner the group in the first place. And they can really compress around. That's helpful.

Speaker Change #108: Lot of times, it's actually more beneficial for some of our smaller hotels, because they're outside of the large block that's required to be given in order to garner the group in the first place that they can really compressed around it.

Michael Bellisario: That's all from me. Thank you. And thank you. And one moment for our next question. And our next question comes from Dany Asad from Bank of America. Your line is now open.

Speaker Change #111: That's helpful. That's all for me. Thank you.

Speaker Change #110: And thank you.

Speaker Change #107: And one moment our next question.

Speaker Change #112: And our next question comes from Danny Assad from Bank of America. Your line is now open.

Dany Asad: Hi, good morning, guys. Just to go back to the The Guidance Update. When we think about the, you know, your change in EBITDA, can you just, and I know you had in your prepared remarks, and we kind of touched on it, like, you know, the difference between REF PAR and total REF PAR? But can you just explain, like, what specifically it is that's offsetting, you know, the rooms, the REF PAR reduction to kind of drive EBITDA higher when we think about that total REF PAR piece?

Danny Assad: Hi, good morning, guys.

Danny Assad: Just to go back to the the the.

Danny Assad: The guidance update when we think about the.

Speaker Change #101: The change in EBITDA.

Danny Assad: Can you just like I know you had in your prepared remarks, and we kind of touched on the different seen revpar and total revpar.

Speaker Change #113: But can you just explain like.

Speaker Change #118: What specifically it is that's offsetting the rooms, the revpar reduction to kind of drive EBITDA higher.

Speaker Change #101: When we think about that total revpar piece.

Dany Asad: So just to quantify a little bit the change in our EBITDA, I think a portion of that reflects a little bit of the performance that we saw in Q2, maybe call that around a million dollars. We also talked about on the call our positive insurance renewal. And that should benefit us about a million dollars a quarter for the balance of the year, given that that was a Q2 renewal. And then the balance really reflects the benefit of our mixed shift in the back half, although lower than the first half, I think it's better than we originally anticipated. So there's a little bit of that in there.

Danny Assad: Sure Danny.

Danny Assad: So just to quantify a little bit the change in our EBITDA I think a portion of that reflects a little bit of outperformance that we saw in Q tail, maybe call that around $1 million.

Danny Assad: We also talked about on the call are.

Danny Assad: Our positive insurance renewal and that should benefit us about $1 million a quarter for the balance of the year given that that was the Q2 renewal.

Speaker Change #101: And then the balance really reflects the benefit of our mix shift in the back half, although lower than the first half I think better than we originally anticipated so theres a little bit of that in there and then and then we are offset by a little higher corporate G&A.

Briony Quinn: And then we are offset by a little higher corporate GNA, about a million dollars on that front. But when you look at our GNA overall, it's still lower than pre-transition. We were just thinking about your capital recycling strategy. Some of the hotels you highlighted seem to tilt a little bit more towards, you know, urban versus resort and a little bit more on the urban side.

Speaker Change #101: About $1 million on that front.

Speaker Change #101: But when you look at our G&A overall, it's still lower than than pre transaction.

Speaker Change #112: Got it got it. Thank you thank you, Brian and Jeff and one of your answers earlier.

Speaker Change #113: Thinking about your capital recycling strategy some of the hotels, you highlighted seem to tilt a little bit more towards urban versus resort in it a little bit more on the urban side as.

Dany Asad: As you look to redeploy that capital, are you going to, you know, is it going to be one for one? Like, are you going to be looking to redeploy that same capital into, you know, urban markets? Where would it be in the country?

Speaker Change #112: As you look to redeploy that capital.

Speaker Change #111: Are you going to.

Speaker Change #113: Is it going to be one for one like are you going to be looking to redeploy that capital into urban markets, where would it be in the country.

Jeff Donnelly: Just given your mix of already, you know, leisure versus, you know, urban, are you comfortable with that? And kind of where would those extra dollars go? Meaning that if we were to sell an urban asset, we would need to redeploy it?

Speaker Change #124: Just given your mix of already leisure versus.

Speaker Change #111: Urban.

Speaker Change #114: Are you are you comfortable with that and kind of where were those those extra dollars go.

Speaker Change #113: Meaning that if we were to sell an urban asset wherever you to redeploy yeah, Yeah, that's right.

Dany Asad: Yeah, yeah. Do you think right now maybe we're about two-thirds, 60%, give or take, in urban markets, and I think, longer term, it's appealing to us to grow our resort or leisure exposure? We want to do so profitably, and I think right now it's very difficult to do that. But that doesn't mean we've stopped looking. I think what could happen, or I guess I'd say I'd like to see happen, is that maybe you sell one of those larger urban assets, and it doesn't result in two transactions.

Speaker Change #101: Right now maybe we're about two thirds, 60% give or take in urban markets and I think longer term, it's appealing to us to grow our resorts leisure exposure, we would want to do so profitably and I think right now it's very difficult to do that that doesn't mean, we've stopped looking I think what could happen I guess I'd say I'd like to see happen is that maybe you sell.

Speaker Change #113: One of those large urban assets and does it resulted in two transactions that resulted in an urban asset that you purchased that right now can have some attractive returns if we find the right situations, but maybe it results in a resort asset as well so potentially you can replace the same or roughly the same amount of income.

Jeff Donnelly: It results in an urban asset that you purchase that right now can have some attractive returns if we find the right situations, but maybe it results in a resort asset as well, and so potentially, you can replace the same or roughly the same amount of income and end up with sort of a higher concentration of leisure, but you have sort of two assets and are a little more diversified that have a better growth profile. I don't know if that answers your question entirely. We don't have specific target markets where we say we've got to be in market X, or we've got to be in market Y.

Speaker Change #113: And end up with sort of higher concentration of the leisure, but you have sort of two assets and a little more diversified that have a better growth profile. So.

Dany Asad: We're really just looking for situations where we can accumulate value at the end of the day. Got it. That's it for me.

Speaker Change #113: I don't know if that answers your question entirely.

Speaker Change #113: Specific target markets, where we say we've got to be in market X. So we've got to be in market why.

Speaker Change #113: Just looking for situations, where we can accrete value at the end of the day.

Speaker Change #118: Got it that's it for me thank you very much.

Chris Woronka: Thank you very much. And thank you, and one moment for our next question. And our next question comes from Chris Woronka from Deutsche Bank. Your line is now open. Hey, good morning, everyone.

Speaker Change #114: Thanks.

Speaker Change #118: And thank you and one moment our next question.

Chris <unk>: And our next question comes from Chris <unk> from Deutsche Bank. Your line is now open.

Chris Woronka: Thanks for taking my question. Jeff, you know, I think you guys still have about 13 independent hotels in the portfolio, and I'm curious as to whether there's, you know, been any recent kind of thought on branding any of them.

Chris: Hey, good morning, everyone and thanks for taking to taking my question.

Chris: Jeff I think you guys still have about 13 independent hotels in the portfolio.

Chris: Curious as to whether there's been any recent kind of thought on branding any of them I realize there are a lot of markets where the demand is.

Jeff Donnelly: I realize there are a lot of markets where, you know, the demand is kind of self-sustaining, and they're recognizable. But, you know, as I see some of the hotels that the brands are letting in, frankly, to the soft brands, it kind of makes me wonder whether you are leaving something on the table there. No, I would definitely say not.

Speaker Change #124: Kind of self theme and theyre recognizable but.

Speaker Change #136: I see some of the hotels that the brands are letting and frankly to the soft brands that kind of makes me wonder whether you.

Speaker Change #138: Is there something you're you're leaving on the table there.

Jeff Donnelly: You know, I think, you know, I think there's a lot of focus that people pay to the top line, but I, you know, look at the Dagny. I know, that's one where we went the other way, and we were, we exited a hotel system. And we've said up front that that's one where, you know, we could shed potentially 8-10% of top line revenue leaving the system, but you will also gain back a significant amount of expense.

Chris: No.

Speaker Change #119: I would say definitely not.

Speaker Change #137: I think.

Chris: I think theres a lot of focus the people pay to the top line, but look to the Dag me.

Speaker Change #119: That's why we went to the other direction.

Chris: We exited our hotel system, and we said upfront that Thats, one where we could shed potentially a 10% of topline revenue, leaving the system, but you will also gain back a significant amount of expense and Thats that decision was really based on that sort of middle of the P&L. If you will that drive bottom line profit and so far we continue.

Jeff Donnelly: And that's, that decision was really based on that sort of middle of the P&L, if you will, the drive for bottom line profit. And so far, we continue to be on track with that. So I guess I would tell you that, you know, our job as owners is really to drive profit, not top-line revenue. And so I hear you that there is an opportunity there to collect a check. But typically, the key money checks, You know, I think if you speak to the brands, they tend to expect mid-teen IRRs on that money, which means it's not cheap.

Chris: To be on plan with that so I guess I would tell you that our job is owner is really to drive profit not topline revenue and so.

Speaker Change #137: So I hear you that there is an opportunity there to collect the check but typically the key money checks.

Speaker Change #124: I think if you speak to the brands they tend to expect mid teen IRR on that money, which means it's not cheap.

Chris Woronka: Yeah, yeah, fair enough, Jeff. You're you're right on that. Keeping with the brand question.

Speaker Change #124: Yes, Yes fair enough, Jeff you are right on that.

Jeff Donnelly: So let's just hypothetically say that, you know, we do have a downturn at some point in the next year, given that the brands gave you guys a fair amount of flexibility during the pandemic on Brand Standards. Do you think, you know, A, would they be willing to kind of do that again? And B, are there things you can still do? Because it feels like you're, you know, in the post-COVID world, you're already running pretty well. There are always opportunities to get more efficient. I mean, I don't think anybody ever sort of, you know, ran the perfect race or, you know, hit the perfect game.

Jeff Donnelly: Keeping with the brand question. So lets just hypothetically say that we do have a downturn.

Chris: Some point in the next year.

Speaker Change #124: Given the brand's gave you guys a fair amount of flexibility during the during the pandemic.

Speaker Change #129: Brand standards do you think.

Speaker Change #137: Would they be willing to kind of do that again in D.

Speaker Change #138: Or are there things you can still do because it feels like you are.

Speaker Change #124: The post Covid world, you're already running pretty efficiently.

Chris Woronka: So I think there's always opportunities for efficiencies out there. As far as what the brands will do, I'd like to believe that, you know, they've learned from this past event that they can flex on brand standards in difficult times, and things can be, I'll say, okay, or successful for their, for their system. So I'd like to believe that the next time that we confront another event, not necessarily a pandemic, but even a recession, they might be a little more tolerant on that front. So that can be appealing.

Speaker Change #131: There's always opportunities to get more efficient I mean, I don't think anybody ever sort of Roes the perfect racer hits the perfect game.

Speaker Change #124: So I think theres always opportunities for efficiencies out there as far as what the brands will do I'd like to believe that.

Speaker Change #124: They've learned from this past events that they can flex on brand standards in difficult times and things can be let's say, okay are successful for their for their system. So I would like to believe that the next time that we confront.

Speaker Change #124: Another event not necessarily a pandemic, but even in recession, they might be a little more tolerant.

Speaker Change #124: So that could be appealing.

Jeff Donnelly: Okay, very good. Thanks, guys. And thank you. And one moment for our next question. And our next question comes from Chris Darling from Green Street. Your line is now open. Thanks. Good morning.

Speaker Change #131: Okay very good thanks, guys.

Speaker Change #124: All right.

Speaker Change #136: Thank you.

Speaker Change #136: And one moment our next question.

Speaker Change #136: And our next question comes from Chris Darling from Green Street. Your line is now open.

Chris Darling: Hey, Thanks, good morning.

Chris Darling: We're going back to some of the prior discussion around capital recycling. I was wondering if you could speak to your philosophy of capital recycling, of Property. Yeah, it's a good question, Chris.

Chris Darling: Circling back to some of the prior discussion around capital recycling I'm wondering if you could speak to your philosophy as it pertains to on the one hand trying to maximize the price at which you sell a property versus taking advantage of the arbitrage opportunity inherent into the share price.

Speaker Change #136: Slight realized every last dollar of value.

Jeff Donnelly: I think there's a tendency, in my experience, for people that, you know, just sort of focus on maximizing that last dollar. And to me, it's, it's sort of a paired trade, if you will; it's looking at, you know, what you're selling and what you're buying. And there are times where, you know, you might not maximize value on an asset, but if you're able to buy something, whether it's your shares or another property that has a more attractive IRR going forward, that seems like a sensible trade.

Speaker Change #138: Yes, it's a good question, Chris I think there is a tendency in my experience for people that just sort of focus on maximizing that last dollar and to me. It's it's sort of the paired trade. If you will it's looking at what you are selling and what youre buying and there are times, where you might not maximize value on an asset, but if you were able to buy something.

Speaker Change #138: Whether it's your shares or another property that has a more attractive IRR going forward. It seems like a sensible trade for me.

Chris Darling: You may be shifting gears. If you look across your portfolio, whether it's on the resort, do you have any thoughts on that? I mean, I think we'd just be speculating from a trading down perspective.

Chris Darling: Yes, that's helpful.

Speaker Change #137: Maybe shifting gears just one more for me.

Speaker Change #138: When you look across your portfolio, whether it's on the resort with the urban side are you seeing any evidence that the consumers trading down in any regard.

Speaker Change #149: The weakness kind of we've talked about in the leisure transient segments truly a matter of where those individuals' accusing the travel rather than a matter of whether theyre spending.

Speaker Change #138: Great.

Speaker Change #138: So severely thoughts about it.

Speaker Change #153: I think we're just we just be speculating from a trading down perspective, I think we.

Chris Darling: I think we do see a bit more people sort of looking for a discount or looking for a sale and willing to change their travel patterns relative to price. I don't know if that's necessarily trading down or as much as it is trading days, but I think that's what we've been doing, I think, as we revert back to the prior pattern is really trying to do more kind of price variability between weekends and midweek and between peak periods and non-peak periods in order to encourage travelers to fill up our hotels in the off-season. I think that's definitely a trend that we've seen kind of continue over the last 18 months.

Speaker Change #143: We do see a bit more bit more people sort of looking for a discount or looking for a sailor and willing to change travel pattern relative to price I don't know if thats necessarily trading down or is it or as much as it is trading days, but I think that's what we've been doing I think as we revert back to prior pattern is really trying to do more.

Speaker Change #138: Kind of price variability between weekend and mid week in between peak periods to non peak periods.

Speaker Change #138: Encourage travelers to fill up our hotels off season.

Speaker Change #138: That's definitely a trend that we've seen kind of continue over the last 18 months.

Bill Crow: I appreciate the thoughts. And thank you. And one moment for our next question. And our next question comes from Bill Crow from Raymond James. Your line is now open.

Speaker Change #151: I appreciate the thought that's all for me.

Speaker Change #144: And thank you.

Speaker Change #137: One moment for our next question.

Chris Darling: And our next question comes from Bill Crow from Raymond James.

Speaker Change #149: Your line is now open.

Jeff Donnelly: Hey, good morning, guys. Jeff, I'm wondering, as you think about grouping up, smaller urban properties and your leisure-oriented properties, are those more kind of dependent on in-the-corner, for-the-corner group bookings, say, compared to Chicago or some of the bigger assets out there, and therefore maybe a bit more sensitive to the leading edge of changing economic conditions? Um, I don't necessarily think so, Bill.

Bill Crow: Hey, good morning, guys, Jeff I'm wondering as you think about grouping up.

Bill Crow: Smaller urban properties at your leisure oriented properties are those more kind of dependent on in the quarter for the quarter group bookings say compared to Chicago or some of the bigger assets out there and therefore, maybe a bit more sort of spoke to the Lady there.

Speaker Change #150: <unk> economic conditions.

Bill Crow: I think for some of our properties, it can be everything from a wedding to, you know, socially related, like smart business, it can be small corporate off sites. And sometimes those follow restructurings at companies, which can be a negative event in the economy, but yet, you know, drives a sort of, let's get the team together and figure out new strategies. So it's difficult to say. I mean, you know, there are times we say this a lot internally, where we think we're big enough to see trends, but we question whether or not we really see trends.

Bill Crow: I don't necessarily think so bill I mean, I understand the root of the question I think for some of our properties that can it can be everything from a wedding it could be social related like smart business. It can be small corporate off sites and sometimes those follow restructurings at companies, which can be a negative event.

Bill Crow: The economy, but yet drives a sort of let's get the team together and figure out the strategy. So.

Bill: It's difficult to say.

Speaker Change #160: There are times when we say this a lot internally, where we think we're big enough to see trends, but we question, whether or not we really see trends.

Bill Crow: And certainly, a bigger property like Chicago Marriott does tend to have a longer booking window, just given the nature of that asset. We can, of course, accommodate small groups, but something an asset of that size tends to have much greater success with those larger groups.

Bill Crow: And <unk>.

Speaker Change #157: Certainly a bigger property like Chicago Marriott does tend to have a more a longer booking window, just given the nature of that asset. We can of course accommodate small groups, but something an asset of that size tends to have much greater success on those larger groups. So I'm not sure if I'm quite answering your question, but I think there's a very big audience of sort of small group activity.

Chris Darling: Our hotels, both resort and urban can tap into.

Jeff Donnelly: So I'm not sure if I'm quite answering your question. But I think there's a very big audience for sort of small group activity that our hotels, both resort and urban, can tap into. Do you think that that is more or less sensitive to economic change, the smaller groups? And I'm not talking about weddings, because I think that's kind of independent of the economy, largely.

Chris Darling: Do you think that.

Bill Crow: But it's more or less sensitive to economic trade. So the smaller groups not talking weddings, because I think that's kind of independent of the economy largely but.

Speaker Change #155: Do you think youre more volatile maybe.

Speaker Change #158: The group hotels.

Bill Crow: But do you think you're more volatile, maybe, on the group front in your hotels? I think so. I mean, it's hard to know the alternative quite candidly. And I think just looking at, you know, our pace for the rest of the year, you know, vis-a-vis just what I've been hearing about some of our peers, it doesn't feel like we have been as sensitive, I guess, as just looking at very near-term results. It feels like we've actually been a little more resilient on that group front than some of So, just on near-term results, the answer would be no, but I can't say definitively.

Chris Darling: Thanks.

Speaker Change #160: It's hard to know the alternative was quite candidly and I think just looking at.

Chris Darling: Our pace for the rest of the year vis vis just what I've been hearing about some of our peers it doesn't feel like.

Chris Darling: We have been in a sensitive I guess just looking at very near term results. It feels like we've actually been a little more resilient on that group front and some of the bigger box hotels. So.

Bill Crow: Just on near term results.

Chris Darling: So it would be no, but I cant say definitively.

Jeff Donnelly: Okay, thank you, and thank you, and I'm showing no further questions.

Speaker Change #156: Okay. Thank you.

I would now like to turn the call back over to Jeff Donnelly for closing remarks. Thank you everybody for joining us today. We really appreciate it. Have a great summer, and hopefully, we'll see you out on the road. Thanks. This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change #158: And thank you.

Speaker Change #158: Im showing no further questions I would now like to turn the call back over to Jeff Donnelly for closing remarks.

Jeff Donnelly: Well. Thank you everybody for joining us today, we really appreciate it have a great summer and hopefully we will see you out on the road. Thanks.

Speaker Change #163: This concludes today's conference call. Thank you for participating you may now disconnect.