Q4 2024 DiamondRock Hospitality Co Earnings Call
Now, I wanna touch the top of the face
Good day and thank you for standing by.
Speaker Change: Welcome to the Diamond Rock Hospitality Company 4th Quarter and Full Year 2024 Earnings Conference Call.
At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: 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. 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: Good morning, everyone, and welcome to Diamond Rock's fourth quarter 2024 earnings call and webcast.
Speaker Change: Joining me on today's call is Jeff Donnelly, our Chief Executive Officer.
and Justin Leonard, our President and Chief Operating Officer.
Speaker Change: 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.
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.
Speaker Change: We are pleased to report that our results for the fourth quarter, which we already anticipated to be strong, came in even better than expected.
Speaker Change: Comparable total REV PAR increased five and a half percent over 2023, well ahead of our expectations going into the quarter, and over 250 basis points stronger than the growth achieved in the prior quarter.
Speaker Change: The upside to our expectations was most pronounced in our urban footprint, particularly in November and December. Respar at our urban hotels increased 8.2% on a 5.4% increase in average daily rate.
Speaker Change: November performance was less affected by the U.S. election than we originally expected, and more importantly, the calendar in December was favorable for two reasons.
Speaker Change: The combination of these calendar shifts led to exceptional growth across all our urban markets with December REVPAR up 13.2% led by our hotels in Chicago, Salt Lake, San Diego, and Boston.
Speaker Change: Florida continues to see headwinds owing to what can best be characterized as a hangover from the pandemic.
Speaker Change: Heavy visitation price inflation, Florida fans relocating to Florida et cetera, but we're hopeful the market finds its footing in 2025.
Speaker Change: Our Florida resorts collectively saw a five 8% decline in Revpar.
Speaker Change: While all our other resorts, excluding orchards Inn, which is under renovation grew revpar of four 5% in the fourth quarter.
Speaker Change: Chico Hot Springs, again performed well delivering near nearly 18% revpar growth on over 12% ADR growth as our revenue management and marketing strategies continue to play out at that hotel.
Speaker Change: Both Vale and Sonoma had strong revenue and EBITDA growth in the fourth quarter.
Speaker Change: Group remained our strongest segment in the fourth quarter as it has throughout 2024.
Speaker Change: Fourth quarter group room revenues increased eight 1% over 2023 on a five 9% increase in room nights.
Speaker Change: At our urban hotels group room revenue increased 10, 2%, which drove a six 4% increase in total food and beverage revenue.
Speaker Change: We continue to add groups to our resorts to build a base to preserve transient pricing and improved profitability. This strategy allowed us to deliver EBITDA growth at our resorts on essentially flat revenue.
Speaker Change: Turning to profit.
Speaker Change: Hotel adjusted EBITDA in the fourth quarter was $75 9 million, reflecting 16, 4% growth over 2023 on a margin that was 250 basis points higher.
Speaker Change: Corporate adjusted EBITDA was $68 7 million, representing almost 20% growth over 2023.
Speaker Change: Adjusted funds from operations was <unk> 24 per share <unk>, <unk> or 33% over 2023.
Speaker Change: Before I turn the call over to Jeff to discuss recent events outlook and strategy, let me touch on our dividend and our balance sheet.
Speaker Change: At the end of the fourth quarter, we announced we would pay a <unk> 20 per share stub dividend. In addition to the regular <unk>.
Speaker Change: For share quarterly dividend, we have paid throughout 2024.
Speaker Change: In total we paid 32 per share of common dividends for 2024.
Speaker Change: With that announcement, we communicated our intention to pay regular quarterly dividends of eight <unk> per share in 2025, and depending on our 2025 operating income and additional stub dividend in the fourth quarter.
Speaker Change: Several analysts reports and outlooks still reference a <unk> <unk> per share quarterly dividend. So I'm not sure I have this material change was widely understood and in fact last night, we announced our common dividend for the first quarter of <unk> <unk> per share.
Speaker Change: Turning to the balance sheet, we have three mortgage loans totaling just shy of $300 million maturing in 2025 at a weighted average cost of approximately four 2%.
Speaker Change: Moreover, we have a $300 billion term loan maturity in early 2026 that as of year end had an average cost of approximately five 8% or 135 basis points over so far.
Speaker Change: Finally, our eight and quarter percent.
Speaker Change: Preferred stock is callable in August we continue to review the most cost effective options to refinance these maturities through a combination of an inaugural corporate debt issuance placement of mortgage debt and a recast of our corporate credit facility.
Speaker Change: Included in the 2025 guidance, Jeff will discuss we have assumed that the maturing loans are replaced at a high 6% interest rate.
Jeff Donnelly: Despite this we do expect our overall interest expense to be slightly lower in 2025, as we realize the full year benefit of interest rate swaps, we executed in late 2024.
Speaker Change: On that note I'll turn the call over to Jeff.
Jeff Donnelly: Thanks, Brian. Thank you all for joining us this morning kudos to the entire team at Diamond rock for exceeding expectations, not just in the fourth quarter, but throughout the year.
Jeff Donnelly: It has been a very busy year, our board took steps to reduce our G&A costs and increase efficiency.
Speaker Change: Under Justin our asset managers exceeded performance throughout the year in fact, we exceeded our original full year total revpar growth adjusted EBITDA and <unk> per share guidance.
Jeff Donnelly: <unk>, which we released several times throughout the year.
Jeff Donnelly: Moreover, our design and construction team rationalized, our capital expenditures to minimize cost and maximize impact.
Jeff Donnelly: Under Brian <unk>.
Speaker Change: Our finance and accounting team seamlessly implemented new systems to improve and expedite financial reporting and data analysis and they handled this yeoman's task without a hitch.
In order to Fisher has been a terrific addition to the team she helped update corporate policies strengthened governance and internalized legal work that might have otherwise been outsourced to a costly third party.
Speaker Change: I also want to applaud our entire team for receiving NAREIT leader in the light award in recognition of our corporate responsibility success.
Speaker Change: I'm so proud of what we've accomplished and how we are positioned for the future.
Speaker Change: Let me start with capital expenditures in 2024, we completed room renovations at Bourbon Orleans, and Western San Diego Bay view, the rebranding of the Hilton Burlington to hotel Champlain, and a small renovation at the Westin Fort Lauderdale among other projects.
Speaker Change: The rooms at Westin San Diego were completed in early 2024 at a cost of $14 million. The public spaces will be completed in 2025, where money will be used to improve the sense of arrival and expand the bar area.
And provide grab and go food options.
Speaker Change: We spent about $5 million.
Speaker Change: Bourbon Orleans, updating the rooms and corridors, we introduced the destination fee for our food and beverage credit that guests can redeem in the hotel.
Speaker Change: Fourth quarter other income was up about 80% over the prior year and we continue to see Revpar increases recall, we reduced the scope of our renovation here eliminating the addition of a lobby and pool area F&B outlets to enhance the overall ROI.
Speaker Change: The $8 million expenditure at hotel Champlain enhanced our arrival in food and beverage outlets. These.
Speaker Change: <unk> opened in June and in the last six months of the year F&B outlet sales were up $850000 or nearly 40% over the prior year.
Speaker Change: We need to see more from these venues, we're aiming for upwards of $1 million of incremental F&B profit in 2025.
Speaker Change: Lastly, the spa renovation in Fort Lauderdale was one of the $5 million of endeavor.
Speaker Change: What should we expect a very rapid payback.
Speaker Change: Looking to 2025, the redevelopment and repositioning of the orchards in Sedona is well underway and we expect to be finished with the rooms product by summer 2025, and the new pool amenity by fall we've.
Speaker Change: We've spent about $10 million, thus far in 2024, and the remaining $15 million will come in 2025, we expect this project will cause about $1 $2 million of EBITDA disruption in the first half of the year.
Speaker Change: More in Q1 than in Q2.
On a full year basis, we expect disruption will be about a half a million dollars as we expect significant year over year improvement when the repositioning is complete in late 2025.
Speaker Change: Finally, we are working to refine the scope of the renovation and expansion of the landing resort in Lake Tahoe to deliver a more impactful ROI just as we did with Bourbon Orleans. There is more work to be done we'll have an update in the coming quarters as to whether and how we're moving forward.
Speaker Change: It is important to circle back to performance of the Designee repositioning our hotel, we converted to an independent in August 2023.
Speaker Change: The hotel remains number two on Tripadvisor and all of Boston up from the mid <unk> when it was Brian.
Speaker Change: The decision to go independent was not about higher revenue, although that has been strong up 15% in the quarter and 9% for the year. The decision was about expense control to drive profitability. Our thesis was that the brand contribution was simply too expensive and we can match or improve profits as an independent while enhancing value with an unencumbered.
Speaker Change: Property.
Speaker Change: I am pleased to report hotel EBITDA the bag he was up 90% in the quarter and up 40% for the year to $14 million.
Speaker Change: Surpassing our 2020 for budget by $2 million were looking for more of these opportunities.
Speaker Change: So let's talk about our recent sale in Washington D C.
Speaker Change: We closed the 410 room, Westin for $92 million, which equates to about a 7% trailing NOI cap rate or 12 times EBITDA.
Speaker Change: We intentionally manage the marketing to capture the post election bidding excitement and time closing to capture the ignore duration benefit.
Speaker Change: We've been fortunate to avoid the uncertainty that has since overtaken the Washington DC market.
Speaker Change: <unk> performed better than expected last year several hotels in the brand family renovated in the past year, and we were able to draft off their associated average daily rate increases.
Speaker Change: Disappointed I could not return more of the capital that was invested in this hotel, but I am very pleased with the proceeds our team realized and the very real brand made mandated renovation we avoided.
Speaker Change: We anticipated the room renovation may have surpassed $30 million of lobby atrium renovation could have pushed this figure meaningfully higher.
Speaker Change: Given the market dynamics in Washington, D C and especially the sub market, we felt the incremental investment could have been wasted and not produced a return on your capital.
Speaker Change: That is why I believe our free cash flow yield cap rate on sale was closer to 5% if not lower.
Speaker Change: We are not collectors of hotels, they are merely the medium through which we are investing.
Speaker Change: We're here to invest harvest and reinvest your capital our job is to do this again and again to drive total shareholder return or return capital to you if we cannot.
Len: Today, the pool of external growth opportunities as not particularly deep Len.
Len: Lenders are making it easy for under capitalized owners to continue kicking the can down the road unless they receive an unrealistic price.
Len: We will continue to look at our portfolio for opportunities to prune hotels, where we feel we can realize attractive pricing.
Len: Given our source of funds are common shares preferred equity and in some cases, even our debt are among the most accretive options for deployment today.
Len: Let's get to our 2000 and our outlook for 2025, we expect revpar to grow 1% to 3% for the year total revpar growth is expected to be in line with Revpar growth are.
Len: Group pace continues to improve with group revenue for the year up about 2%, which is about a 500 basis point improvement in our 2025 pace since our third quarter call.
Len: In the first half of the year group pace is up in the mid to single mid to high single digits.
Len: The headwind to our year over year group pace is found at the Chicago Marriott.
Len: Call the Chicago Marriott benefited from the Democratic National Convention in August of 2024, and a strong calendar throughout the back half of 2024.
Len: A victim of its own success.
Len: As an interesting data point, if we exclude the Chicago Marriott from just the back half of 2025 Diamond rocks comparable full year 2025 group revenue pace increases close to 400 basis points to nearly 6% from just under 2%.
Len: Now, it's still early but large group sales is where marriott itself since.
Len: Since the end of the third quarter, we've seen the Chicago Marriott's revenue pace in the second half of 2025 increased by over 500 basis points. So we're optimistic we'll narrow this gap.
Len: Looking ahead to 2026 companywide revenue pace is up 15% on strong room demand and rate growth. So we remain very encouraged.
Len: On the resort front, we remain cautious.
Len: We expect leisure will continue to see headwinds due to a combination of known issues such as the value proposition of foreign destinations and new concerns such as the resurgence of inflation and job uncertainty.
Overall, our guidance expects continued softness in leisure and in the first quarter, We expect Florida markets will see mid single digit Revpar declines.
Len: As I mentioned earlier, we expect to see about $1 $2 million of EBITDA disruption of the orchards in the first half of the year, but we expect to get back all but about half a million dollars by the end of the year.
Len: Continuing with guidance.
Len: 125, corporate adjusted EBITDA is expected to be in the range of 275 million to $300 million.
Len: Adjusting for the net impact of the AC Minneapolis acquisition, and the Western DC sale as well as the removal of share based compensation.
Len: 125, adjusted EBITDA slightly behind 2024 at the midpoint.
Len: As Brian mentioned, we had a bit of financing work to do in 2025 and included in our guidance is the assumption we will execute some combination of a corporate debt issuance credit facility recast and possibly a mortgage loan on a hotel.
Len: Adjusted <unk> is expected to be in the range of $199 million to $224 million and adjusted <unk> per share is expected.
Len: In the range of 94 to $1 six.
Len: In conclusion, our focus is on increasing earnings per share one aspect of that means focusing on free cash flow per share that is <unk> after normalized capital expenditures and dividends.
Len: Our free cash flow Diamond rocks, and preserve and create the more we can return to shareholders through share repurchases dividends and to reinvest to generate higher earnings.
Len: Encourage folks to consider <unk> and free cash flow metrics in their valuation assessment of the sector. The disparity between portfolios is most evident in balance sheets and physical asset condition. So it is important to consider the financial metrics that reveal these differences instead of focusing on metrics that ignore them such as EBITDA.
Len: With that I will thank you for your time and we will take your questions.
Len: Thank you.
Len: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And our first question comes from the Retesting of Wells Fargo Securities. Your line is open.
Speaker Change: Hi, Thanks, good morning.
Speaker Change: Jeff I think there tends to be an oversimplification of applying one company's demand trends broadly across <unk>.
Speaker Change: <unk> can you can you give us a sense of your your leisure BT group revenue growth expectations that aggregate up to the 1% to 3% Revpar guide and just highlight.
Speaker Change: Why your portfolio may not align immediately with peers.
Dori: Good morning, Dori I mean.
Speaker Change: Let's say off the cockpit.
Speaker Change: A lot of it obviously relates to your footprint just speaking to like for example on the leisure side I.
Speaker Change: I think where a lot of the weakness that we've seen in leisure that we referenced.
Speaker Change: Really it's been in Florida, where frankly, our portfolio tends to be a little more what I would say popular priced or more.
Speaker Change: Sort of appeal to a broader consumer side, where it's outside of Florida, a lot of our properties tend to be at sort of the luxury Ed where we haven't seen as much of a headwind.
Speaker Change: I think from a ranking standpoint, we tend to think of group being better than BT and BP betting better than leisure, but I don't think we have a.
Speaker Change: Our budget available by segment that I could give you.
Speaker Change: That went back into the one to three because we tend to budget more by hotel location than we do necessarily by segment.
Speaker Change: Okay. That's fair and then just you talked about I.
Speaker Change: I guess can you talk about what youre seeing today on the transaction front.
Speaker Change: Maybe just highlighting the volume of off market deals youre seeing today versus say six months ago and then.
Can you talk about how competitive the process was for the Westin City Center.
Speaker Change: Sure I mean, I think we're seeing as big as everyone looks at the transaction volume transaction volume is still down significantly from from kind of prior run rate, we'd see it down about 75% versus kind of like pre COVID-19 transaction volume. So I think there are very few transactions that are that are getting done and I think if you really back out some of the very large.
Speaker Change: Transactions, which are driving a lot of that volume I mean, we have not seen a lot of stuff.
Speaker Change: Get across the finish line and there's still a pretty significant bid ask so while we're actively out there and sort of soliciting bids I wouldn't say that we're soliciting bids it.
Speaker Change: A number that people, particularly like and we haven't seen a lot of forced selling in the market. So it's a pretty quiet transaction market I think that really is similar to what we saw six months ago. I think people were optimistic we would see a drop off in rates, so that might drive to drive some incremental volume, but given what's happened to interest rates I think the market still seems to be sort of stuck.
Speaker Change: In a holding pattern.
Speaker Change: Okay, and then last one does your 25 guide assume further hotel level operating efficiencies are achieved coming off those in 'twenty four.
Speaker Change: I think I think we're seeing a little bit of a slowing of expense growth a lot of our expense growth last year was good was driven by our great group year.
Speaker Change: The vast majority of our rooms revenue growth in food and beverage growth, particularly really came from the group segment, which just had a lot of labor to service that incremental food and beverage business. So I think as our group pace has slowed a little bit if we're going to see a slowing of that labor growth number, but we've also been very focused on productivity within the portfolio I think the business intelligence tool that we put in play.
Speaker Change: This last year really gives us a lot more visibility into individual hotel P&L and we've been able to sort of highlight some inefficiency in transplant some best practices throughout the portfolio.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Austin worsening of Keybanc capital markets. Your line is open.
Hey, good morning, everybody.
Speaker Change: Jeff you referenced the drag from the Florida result, Florida resort assets.
Speaker Change: Last quarter, and maybe continuing into the early part of the year, but just maybe broad strokes. How are you thinking about this.
Speaker Change: Set of assets relative to the overall portfolio as you look out over the course of the year given there has been a little bit of.
Speaker Change: Normalization and resort patterns, and just curious where we are in where are you.
Speaker Change: We are in that.
Speaker Change: That normalization process.
Speaker Change: Good morning Austin.
Speaker Change: Thats great question.
Which any.
Speaker Change: Many of US had a crystal ball on that but I think our expectation.
Speaker Change: How we're thinking about.
Speaker Change: This year is the belief that in the back half of the year as we begin to.
Speaker Change: Comp over what we saw in the back half of 'twenty four is that Florida in particular will begin to find its footing a little bit we're not expecting to.
Speaker Change: To be clear like a hockey stick recovery, it's just that the year over year declines will begin to subside.
Speaker Change: So that's how we're thinking about it you know to step back for a moment I think there's just a lot of uncertainty right now in the economy, I mean inflation seems to be something thats been difficult to get tamed and unemployment is up a little bit. So we recognize that consumers are continuing to be under a bit of pressure and I think.
Speaker Change: That's why we're a little more cautious on the outlook for some of those as I describe it as more popular price resorts.
Speaker Change: Okay. That's helpful. And then just to your comments on Capex.
The Westin D C and how you guys have continued to convey youre thinking about managing free cash flow any other large kind of.
Speaker Change: Hotels with mandated capex projects that you're staring down and considering maybe it's better to evaluate other options instead of moving forward with those with those projects and that's all for me. Thanks.
Speaker Change: Yeah, I mean, and some of them I would actually say it doesn't necessarily have to be large in dollars in absolute terms. It can just be large relative to the earnings that we expect out of that hotel.
Speaker Change: And also just relative to how the market will start to pay you for that hotel.
Speaker Change: So some of the properties, we've mentioned in the past and as you know potentially noncore would sort of fit that bill where they can be.
Speaker Change: The capex over the next few years could actually come very close to equate into the NOI of the hotel.
Speaker Change: I don't know.
Speaker Change: Anything to add or.
Speaker Change: No I think we are actively looking at the portfolio and I think.
Speaker Change: Going to figure out the best use of capital dollars, we've been elongated because some of those renovation cycles in order to try and get more bang for our Buck.
Jeff Donnelly: Unfortunately, I think some of the assets that require a significant amount of capital or not necessarily the ones that are going to trade for a premium price. So I think that's really the balance that we're making in looking at some of those assets as Jeff said it may not be necessarily the biggest number from a capex perspective, but where will the market price through it may actually come in markets that were a little bit more optimistic about what the capex.
Speaker Change: X number as a percent of total value is large.
Speaker Change: Okay.
Speaker Change: I appreciate the time thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from speeds Rose of Citi. Your line is now open.
Rose Citi: Hi, Thanks, I was just wondering if you could share.
Speaker Change: The increase in labor property level labor and wage and benefits was for 2004.
Speaker Change: We're expecting in 'twenty, five and maybe just any thoughts on the pace going forward. It seems like yours, or maybe a little bit lower than some of your peers. So just wanted to put some numbers around it.
Speaker Change: Sure sure.
Speaker Change: Yes.
Speaker Change: And I think we've mentioned this in a lot of our benefit growth and wage growth is really driven by the massive amount of increase we had in food and beverage and we saw it abate towards the end of the year, but in totality, we actually saw wages up about 7% for the year Sal.
Speaker Change: Salaries and wages salaries were about five in benefits picked up at about 12, 5%. So we saw that significantly abate as we got to the third and fourth quarter. We had 10 plus percent food and beverage growth and saw significant growth is really driven by a lot of that food and beverage labor, but then as we got to the end of the year that number is.
Speaker Change: <unk> to about a 4% year over year growth is food and beverage was more comparable to the year prior.
Speaker Change: And our 2025 guidance.
Speaker Change: Seems that wages and benefits will grow sort of around 4%.
Speaker Change: Okay and do you would you expect the pace to continue to slow I guess as we go into 2006 are kind of.
Speaker Change: Just your general thoughts or they would still have a lot of the year with young but.
Speaker Change: I think I think marginally I think we're seeing more applicants for open job positions in.
Speaker Change: It's definitely not throw the break that pace of labor growth that we saw that the jobs market seems to have slowed a little bit and I think with with more Apple again, there's probably less wage pressure in the majority of our markets that is true and I would say that the the only thing in 2026 for US as we will have a union contract reset in New York, but we only have three limited service.
Speaker Change: Hotels, there so that shouldn't be as impactful for us as a lot of the full service hotels, but we will have that headwind. If you will in 2026 ship.
Speaker Change: Great and then I just wanted to ask you on the dividend you mentioned similar to the kind of quarterly run rate and then the potential step dividend based on your guidance now would you expect to pay a stub dividend or can be.
Speaker Change: Thank you Heather.
Speaker Change: Loss on the sale of the Westin does that count against the.
Speaker Change: Dividend.
Speaker Change: <unk> dividend payouts, yes, that's.
Speaker Change: Sure. We will have we will have a loss on D. C. I think that the.
Speaker Change: Tax loss is actually a little lower than the than the GAAP loss, but I do expect that we will pay a stub dividend in the fourth quarter I can't tell you today.
Speaker Change: What that might be but that's our expectation.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Bellisario of Baird. Your line is open.
Michael Bellisario: Okay. Thanks, good morning, everyone.
Rose Citi: Good morning, Mike.
Rose Citi: Just want to go back to Capex for a second just to dig.
Rose Citi: Dig into the.
Rose Citi: Potentially refined scope at the landings.
Rose Citi: Just maybe also in relation to what you did in New Orleans are you dialing back spend because of cost inflation and returns are lower or are you seeing something different in these markets fundamentally that maybe changing your view about where and how much you should be investing there.
Speaker Change: I'll chime in adjusting and joining in I mean is it related to the Bourbon and I think the.
Speaker Change: The scope of work and meeting like the actual design not setting aside the costs for a moment I think it was something that we were pursuing and then when you actually kind of went to go bid that out I think the.
Speaker Change: The sheer cost was a little bit higher than our expectation and frankly, there are some costs such as room renovations that.
Speaker Change:
Speaker Change: They don't trigger incremental operating expenses and there is some.
Speaker Change: <unk> like in that case, we are adding.
Speaker Change: More food and beverage outlets in bars that are going to trigger additional staffing and you have to think about whether or not that's really something that you want to be doing there from a return perspective. So I think in the case of Bourbon and we felt that just the room renovation and the destination fee that followed.
Speaker Change: Good effectively produce a better return than if we had spent all the incremental money on building food and beverage outlets that generally tend to run with lower margins.
Speaker Change: So it was just really thinking about where like we can minimize the dollars and generate the biggest return it doesn't mean that we cant hold that option for F&B outlets.
Speaker Change: On the side for the future, but that's just how we have thought about that one Justin speak to the landings, Yeah, I think I think clearly.
Speaker Change: When it comes to landing, we're just trying to be.
We're disciplined about what the true potential ROI is for capital dollars invested we have some we have some entitlements to build it additional room product, but it is a hotel that doesn't run high occupancy for a good portion of the year and I think perhaps some of our underwriting initially about what we can do in terms of incremental occupancy, but we added 40 rooms, we really dug.
Speaker Change: Intuit, we thought was a little overly optimistic and I think that combined with the fact that cost came in a little higher than we had originally anticipated when we price. The project. It's just taken us back to the drawing board to see if we can find a better way to utilize those 14 additional entitlements, but do it in a more cost effective way given that we're only going to get occupancy.
Speaker Change: Kind of premium occupancy nights.
Got it understood. That's helpful. There and then just on the group comments you guys made just a segue from Chicago, maybe what hotels what markets did you see the pace pick up since <unk> and <unk>.
Speaker Change: There is the potential still exist in the portfolio to continue filling in as the year progresses.
Speaker Change: Yes.
Speaker Change: Some of our short and mid sized urban hotels had some nice movement. So.
Speaker Change: Denver.
Speaker Change: Salt way San Diego, all had some decent movement and close a decent amount of business towards the end of the year. So I think we're seeing some good progress I think particularly in Salt Lake in San Diego, which are two hotels. We just renovated I think we're starting to see some of the benefit of those capital dollars invested.
Speaker Change: Group tours were able to close a little bit more of that group business.
Speaker Change: That's helpful. Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Duane <unk> of Evercore ISI. Your line is open.
Peter: Hi, Thanks. This is Peter on for Duane Thanks for taking the questions.
Speaker Change: Jeff or Justin if you could help.
Speaker Change: Help us think about the revpar growth by quarter. This year anything that you would highlight on the shape of revpar throughout the year.
Speaker Change: Maybe a tough comp in a certain quarter easier comp than other quarters and then in particular in <unk>. It sounds like Florida resort is expected to be down.
Speaker Change: But you did get the benefit of the inauguration in D C and the Super Bowl. So just kind of help us think about <unk> and then how it evolved through the rest of the year.
Speaker Change: I mean looking at it I think when you look at it overall I think our first quarter is where our expectation is that our revpar will be a little bit softer than the average of the remaining quarters.
Speaker Change: It's a little bit of like tale of two cities I would say in the <unk>.
Speaker Change: Resorts, we're expecting as I said in my remarks will be a little softer in the first part of the year and then first quarter, we tend to be very resort or leisure driven really it's that's when ski markets and say you like Florida markets would typically be at their peak and we're expecting <unk> to be on the soft side.
As we move through the remainder of the year, that's when the urban markets tend to stay here, a little bit better and we have a little more visibility.
Speaker Change: I would say are probably toughest comp on the urban side is what August due for August August during Q4 August because Chicago the Democratic National Convention came through and just also in the fourth quarter. We had very good group pace, but when you blend it together I would say the first quarter I think there's going to be on the lower side relative to the rest of the year.
Speaker Change: And maybe relatively.
Speaker Change: And that's what 2% to 3% range.
Speaker Change: And the remaining three quarters.
Speaker Change: That's very very helpful. Thank you for that.
Speaker Change:
Speaker Change: And then I guess just on the expense side could you highlight maybe some initiatives that you've taken.
Speaker Change: Anything in particular, that's kind of helped your expense growth for this year, which seems to be a little bit better than peers. Thanks for taking the questions.
Yeah.
Speaker Change: Found the magic bullet I think it's really just a focus on productivity and I think a lot some of the tools that we've enacted and I think we've been able to sort of dig a little bit deeper into some of our managers labor management tools really.
Speaker Change: To try and figure out where are we having successes from a productivity, particularly of rooms, and where can we utilize.
Speaker Change: Some of the standards that are in place at those hotels that are able to drive higher flow through in better rooms productivity and utilize some of those other assets I think that's really where we've had success.
Speaker Change: It's just kind of blocky blocking and tackling of like how do we how do we come back the increase in labor cost with a bit of increased productivity to hopefully offset some of that wage inflation.
Speaker Change: Got it I appreciate the thoughts.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Floris Van <unk> of Compass point LLC. Your line is open.
Speaker Change: Good morning, guys.
Speaker Change: Jeff I appreciated your comments on.
Speaker Change: SSO and why it's important to look at the the capital structure in the balance sheet and actually what comes down to what pays the dividends.
Speaker Change: One of the interesting things I think is if we look at your stock and.
Most of your peers as well frankly.
Speaker Change: You look cheap on both.
Speaker Change: <unk> and EBITDA.
Just want to you sort of alluded to this but maybe if you can expand on the fact.
Speaker Change: Are there better opportunities today than buying your own stock back what would make.
Speaker Change: I guess, maybe ROI projects potentially could get higher returns, but if you can talk about your as you look out at the at your portfolio today, where you find the best or the most attractive returns available.
Speaker Change: Yeah no. Thank you for the question Floris I mean, certainly share repurchases are attractive I think if you when you consider our source of funds for example in U.
You look at what we are saying sort of Capex adjusted where we were thinking that we sold the Westin D. C and you could conceptually do the same for our portfolio. We just think it is.
Speaker Change: Much.
Speaker Change: <unk> sort of free cash flow yield and our shares than it is in the western DC.
Speaker Change: There's other there's other investments as well as you mentioned ROI.
Speaker Change: Projects within our portfolio because for us, we're able to better understand those risks than most.
And also there are some pieces of our capital structure, where depending on the source of funds there can be opportunities to accretively pay off debt and reduce leverage or call. Our preferred. So we do look at all of those options.
Speaker Change: Now I mean, we'd love to be finding compelling external growth opportunities at 10 caps in a fraction of replacement costs, but there's just not a lot of that out there.
Speaker Change: Yes, maybe.
Speaker Change: Follow up question as you think about portfolio composition you sold another.
Speaker Change: $90 million of hotel in DC.
Speaker Change: Do you see.
Speaker Change: The portfolio of your hotels.
Speaker Change: In two years' time is it going to be more concentrated or do you think it's going to be more.
Speaker Change: Diversified in terms of single asset exposures.
Speaker Change: I guess I'd like to believe that will be more diversified I think there will continue to be some asset sales over the next few years.
Speaker Change: It might skew towards larger assets.
Speaker Change: If we're successful on that recycling that capital will allow us to diversify our portfolio a little bit lumpy.
Speaker Change: It would be my expectation.
Speaker Change: And in terms of management is there.
Speaker Change: You could argue that having fewer assets are easier to manage how do you look at in terms of managing your portfolio and driving.
Speaker Change: Driving growth is it.
Speaker Change: I guess you are.
Speaker Change: Close in contact with all of your local operators.
Speaker Change: Are you benchmarking.
Speaker Change: Across the portfolio and are you finding opportunities to to increase the operations as well.
Speaker Change: We just work harder than everybody else.
Speaker Change: No I think candidly, Florida, we have the most.
In terms of percentage of your portfolio are by far the most third party manage it just gives us.
Speaker Change: A lot of say in the operations at our individual assets were really able to dictate a lot of a lot of the policies and procedures and staffing levels.
Speaker Change: To a higher degree I think that we ultimately can on some of the brand managed assets and that gives us more of a say and cost mitigation strategies.
Thanks, guys.
Jorge: Thanks Jorge.
Speaker Change: Thank you I'm showing no further questions at this time I would like to turn it back to Jeff Donnelly for closing remarks.
Speaker Change: Well. Thank you everybody for joining us this quarter and we look forward to seeing you on the road. Thanks.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Hum.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: <unk>.
Speaker Change: We do.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Sure.
Matt.
Speaker Change: Sure.