DiamondRock Hospitality Company (DRH) Q4 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2010 DiamondRock Hospitality Company Earnings Conference Call. My name is Michael, and I will be your coordinator for today. [Operator Instructions] I will now turn the presentation over to your host for today's conference, Mr. Mark Brugger, Chief Executive Officer. You may proceed.

Thanks, Michael. Good morning, everyone, and welcome to DiamondRock's Fourth Quarter 2010 Earnings Conference Call. Today I'm joined by John Williams, our President and Chief Operating Officer; as well as Sean Mahoney, our Chief Financial Officer. As usual, before we begin, I would just like to remind everyone many of our comments today are not historical facts and are considered forward-looking statements under Federal Securities law and may not be updated in the future. These statements are subject to risks and uncertainties described in our securities filings. Moreover, as we discuss certain non-GAAP financial measures, it may be helpful to review the reconciliation to GAAP in our earnings press release. We are pleased to report that 2010 was a very successful year for both lodging industry and for DiamondRock in particular. The company was able to achieve all of its major objectives including: impressive portfolio growth, completing accretive acquisitions, enhancing our already strong balance sheet and now returning to paying quarterly dividends. Our internal growth was a result of increased demand in a number of segments, none more important than the return of the highly profitable business transient customer. In addition, group demand improved significantly during 2010. Our premium hotel portfolio was well positioned to capture this increase in demand. Fourth quarter RevPAR grew 8.3% with the majority of that growth coming from an increase in average rate. Importantly, we saw pricing power continue to return as 18 of our 23 hotels were able to increase average rates during the quarter. For the full year 2010, RevPAR improved 4.8%. Profit margins in the quarter were excellent. Our aggressive asset management was able to drive hotel profitability as a result of vigilant cost-containment efforts. Fourth quarter EBITDA margins increased a robust 398 basis points. Even removing the positive impact of property tax reductions, profit margins in the quarter expanded by approximately 200 basis points. For the full year, profit margins were better by 153 basis points. As a result of good top and bottom line growth, the company generated adjusted EBITDA of $51.2 million for the fourth quarter and $138.5 million for the full year. Adjusted FFO per share was $0.22 for the fourth quarter and $0.63 for the full year. It is worth noting that these results exceeded both guidance and consensus. Turning to acquisitions. 2010 marked the return of an acquisition environment that favored well positioned public REITs. DiamondRock deployed $326 million in four major acquisitions, which ranged from taking advantage of distressed debt opportunity in downtown Chicago to acquiring a core holding in New York City at an attractive 8.5 cap rate. These 2010 hotel acquisitions achieved excellent growth with combined RevPAR increasing 11.5%. Moreover, we continue to execute our acquisition strategy and subsequent to year end, we entered into a purchase and sale agreement to acquire hotel under development in Times Square. This acquisition will be our fourth hotel in New York City. John will provide more details on these acquisitions as well as our pipeline in a moment. At this time, we would like to provide an update on our one distressed debt opportunity, the Allerton Chicago hotel. As we previously reported, the loan matured more than a year ago and is in default. We continue to prosecute these foreclosure with a next hearing schedule for later this month. In the meantime, we continue to collect interest on the loan. We ultimately anticipate one of two outcomes later this year, either completion of the foreclosure, giving us an attractive cost basis as owner of the hotel or alternatively, get a repaid [ph] the note in full at a substantial profit. Now before turning the call over to John, I did want to touch on our terrific balance sheet. In 2010, we greatly enhanced our already strong balance sheet, and today have net debt to enterprise value of less than 25%. Moreover, the company's very liquid and has great financial flexibility with approximately $200 million of unrestricted cash, 13 unencumbered hotels, and undrawn $200 million corporate revolver. Our balance sheet will allow us to take advantage of this excellent acquisition market. And as John will discuss, we are looking at an exciting pipeline of opportunities. In addition, we will generate significant free cash flow in 2011. And appropriately, the board has reinstituted quarterly dividends by declaring $0.08 per share payable in cash to our shareholders of record as of March 25. With that, I will turn the call over to John

Thanks, Mark. The fourth quarter continued the positive operating trends of 2010 with improving RevPAR led for the second consecutive quarter by average rate increases for the portfolio. Pro forma RevPAR increased 8.3% for the portfolio in Q4 to $111.61 as a result of a 4.4% increase in average daily rate and a 2.5% increase in occupancy. For the year, RevPAR was up 4.8% comprised of 2.7% increase in occupancy and a 1% increase in rate. The increase in portfolio RevPAR in Q4 was driven by improvements in several room segments. Business Transient revenue, by far the highest rated segment, was up 14.4%. Group revenue was up 5.7%, and Leisure and Discount Transient revenue was up 3.9%. Lower rated contract and other revenue was up 12.4% in Q4, but represents only 3.8% of our total portfolio room revenue and the increases were concentrated at our three airport hotels. These positive trends and segmentation accelerated throughout the year. As expected in the early stages of recovery, rate increases are the result of shifts in segmentation from lower-rated leisure and other to higher-rated business and group. But more importantly, from shifts to higher rate categories within segments. In the fourth quarter, corporate and premium demand was very strong. Room nights in these two categories increased 19% at a rate 7% higher than Q4 2009, resulting in a 27% increase in rooms revenue coming from the highest transient rate categories. In addition, special corporate revenue was up over 14% in the quarter. Q4 also continued the positive trend of accelerated short-term group bookings. In the quarter for the quarter, group room nights booked increased 28% compared to Q4 2009. These trends also accelerated throughout the year. 2011 group revenue pace continues to improve. As of Q4, group revenue pace is up slightly versus the same time last year, representing continued improvement from Q1 of 2010 when 2011 pace was off over 15%. In Q4, pro forma EBITDA margins for our portfolio improved 398 basis points with approximately half of the increase due to the successful property tax appeals. For the year, EBITDA margins were up 153 basis points. Cancellation and attrition fees in Q4 were up just 13% versus 52% for the full year, a dramatic improvement and a strong indication of improved group revenue actualization. Total food and beverage revenue in Q4 was up 2.9%. Food and beverage department margins increased 153 basis points in the quarter. For the year, food and beverage revenues were up 2.2% with margins up an impressive 168 basis points. The margin improvement in both Q4 and the full year came from improved profitability in the property restaurant outlets and room service where margins for the full year were up over 400 basis points on just a 1% increase in revenue. For the year, we were able to reduce portfolio kitchen costs by almost $1 million. As we've mentioned before, outlet profitability has been a particular focus of our asset managers for the past year, so these results are very rewarding. As a testament to our operator's continued focus on cost containment efforts in 2010, I wanted to share a few highlights. Portfolio labor and benefit cost in 2010 were up just 1.5% in spite of higher occupancy. Sales per man hour improved 4.7% in 2010. Man hours per occupied room improved 5.4% for the year, and support costs per available room including property level G&A, repairs and maintenance, utilities and sales and marketing were up 3.3% due mainly to bonus accruals and Marriott sales initiatives. Full year property taxes are $4.9 million lower than 2009 after successful property tax appeals at the Atlanta Renaissance and the New York Courtyards, as well as beneficial reassessments at our Chicago hotels. Turning to CapEx. We're fortunate that we entered the downturn with a mostly renovated portfolio, allowing us to appropriately curtail capital spending without negatively impacting business. In 2010, we invested approximately $31.5 million in the portfolio, including $10.6 million of owner funded capital with the balance coming from property level reserves. Last quarter, we detailed the $45 million renovation and repositioning project we've developed for the Marriott St. Thomas Frenchman's Reef Resort. This Marriott flagship hotel will become Marriott's premier group and transient Caribbean resort. The repositioning will provide significant rate potential, improved operating efficiency and dramatic energy efficiency and savings. We described the key elements of this exciting project last quarter, and we've included the description in our press release. The project will commence May 1 and conclude in October. Two of the four resort buildings will be closed, approximately 300 rooms, during the seasonally slower period and will impact EBITDA by approximately $5.5 million in 2011. Now on to acquisitions. As Mark said, we've been very active this year. We acquired three hotels in 2010: the 821-room Minneapolis Hilton, the Hilton Garden Inn in Manhattan's Chelsea district and the Charleston Renaissance. We also acquired the first mortgage secured by the 443-room Allerton Hotel on North Michigan Avenue in Chicago. Two of the four acquisitions were off-market. The four acquisitions put $325 million of our investors capital to work accretively. We recently announced that we contracted to purchase at completion a development project at 42nd and Broadway in Times Square. The hotel will be branded and will be between 250 and 400 rooms, representing an investment of $115 million to $180 million depending upon the final approved room count. On a pro forma basis, the three acquisition hotels grew RevPAR 11.5% and EBITDA margins 287 basis points in 2010, significantly outperforming our underwriting. We'll continue to be active on the acquisition front, and we'll remain disciplined in our underwriting. The three hotels acquired last year were bought at cap rates on budgeted 2011 NOI at 8.3%. DiamondRock continues to have an exciting pipeline of acquisition opportunities. We are seeing a number of motivated sellers come to market, particularly as debts mature. We anticipate debt trend will continue. Today, we're actively pursuing eight projects with the value of over $500 million. These opportunities are in a broad range of markets, such as Los Angeles, Seattle, Denver, Manhattan and Miami. The acquisition market remains very competitive and consummating these and other opportunities will remain challenging. But we anticipate a healthy acquisition environment in 2011, and we have a clear strategy, improving sourcing ability with a proving closing record to capitalize on it. The recovering lodging market as demonstrated by accelerating positive trends we've discussed should persist as increasing business investment, recovering consumer confidence and constrained industry supply provide a very healthy environment for sustained growth in the lodging industry. Mark?

Thanks. As John noted, positive momentum in the lodging fundamentals is continuing, and our visibility is improving. We are particularly optimistic because these variable trends are enhanced by the backdrop of constrained, new hotel supply, projected to be less than half of its historical average in 2011. Accordingly, our outlook is for the hotel industry to deliver RevPAR growth of 6% to 8% in 2011. We also expect DiamondRock's comparable 2011 RevPAR growth to be in the range of 6% to 8%. Of course in order to provide investors a clearer picture of the company's true performance, Frenchman's results are excluded because of the significant disruption from its repositioning. Based on our RevPAR outlook, we expect DiamondRock to generate adjusted EBITDA of $156 million to $160 million despite being impacted by $5.5 million of renovation disruption at Frenchman's Reef. Accordingly, adjusted FFO is expected to range from $100 million to $103 million, which assumes income tax expense of $7 million to $9 million. This translates into adjusted FFO per share of $0.60 to $0.62. I would note that the guidance does vary from some analysts' models we have reviewed. This is mainly attributable to three things: one, share count adjustment for the January equity offering; two, Frenchman's renovation disruption number; and three, corporate income tax provision, which are non-cash. In concluding the prepared remarks, let me say that we believe DiamondRock is extremely well positioned to deliver shareholder value through both internal growth and external opportunities. Our high quality portfolio, enhanced by our recent acquisitions, is primed to take advantage of the lodging recovery as well as continue to benefit from thoughtful asset management initiatives like the Frenchman's Reef repositioning. On acquisition, the company's already demonstrated the ability to source value-enhancing deals in this market, and our strong balance sheet enables us to opportunistically pursue deals going forward. With that, we would now like to open up the call for any questions you might have. Operator?

[Operator Instructions] And your first question comes from the line of Eli Hackel of Goldman Sachs.

Just a question on the acquisition environment. It's more of a broad-based question, but I guess, how do you know as the cycle progresses, when the time really is to start slowing down some of the acquisitions and maybe hold off until the next cycle? I mean, last year maybe it was a little bit easier as we are clearly in the first year. But as you move in throughout 2011 and 2012, how do you start making those decisions?

This is John. I think, it's all about the underwriting in the assets. As we underwrite the assets, we look at current year, current year trends and then project that obviously into the future depending on what is going on in the local market. In the case of Charleston, for example, Boeing is building a plant to assemble the Dreamliner there. Clearly, that's got a multiyear positive impact on growth in the marketplace. As far as trying to peg the macro trends, I mean we all try and peg the macro trends. And we were fortunate last time we made our last acquisition in Boston, a good year ahead of when things really went south, but I think, we obviously read the macro market along with everyone else. But I think we put a lot more and we pay attention to it, but we put a lot more effort into our local market underwriting and just trying to make sure that the trends we see in the local market have some life cycle.

And your next question comes from the line of Will Marks of JMP Securities.

I had a question, I guess, starting with you made a comment about leisure as we go through the cycle you displaced, leisure travel with business travel. I'm curious what your portfolio will look like at that point. You have a fair number of leisure assets. What is the real breakdown today versus what it could be?

I'll take that one. This is John again. In the last peak, we ran about 33% or 34% Commercial Transient business. We ran about 35% or 36% group with the balance being leisure and other. And I think that's probably where we're headed. I think, Minneapolis is probably moved us a little firmer into the Group category. But the real swing in the destination resorts is between Group and Leisure, and that's where the strategy comes in, obviously. As you see Leisure weaken, you bulk up on group and vice versa. But I would think that as we get back into the next stage of the recovery, I think we'll continue to see the trends in business transient strengthen at the expense of lower-rated leisure and other as well as lower-rated OTAs and things like that.

Also when you listed some acquisition location targets, I think Miami and Los Angeles. For the most part though, is it an urban kind of a business travel focus? Or are you looking at more resort locations as well?

I think our strategy is pretty well stated. We're looking in urban markets for both business transient and convention hotels. We're also looking at destination leisure markets. And by destination, I mean, air service or a very strong and proven drive-in market. So that's our strategy and that's what we're executing against.

This is Mark. Just to add, we've spent a lot of time, we continue to spend a lot of time on research and trying to target markets. You obviously need to be opportunistic in a competitive environment. But there's probably, there's 20 markets at the top, 35 that we targeted at the higher growth that are markets to be in. So we use that as a screen as opportunities come in. We probably have a little broader market, acquisition market targets than some of our peers. But we spend a lot of time trying to figure out what markets we think are going to outperform before we decide to pursue any opportunity.

And then just last question on the guidance. Can you be specific at all on G&A growth? What we expect to see this year?

Yes, this is John. G&A year-over-year should be relatively flat to 2010.

Your next question comes from the line of Chris Woronka of Deutsche Bank.

Just really a couple of housekeeping things. Can you tell us how much incentive fees were up for the quarter and kind of how you're thinking about those for '11?

Sure, Chris. This is Sean again. They were up for the quarter with $2.7 million for the fourth quarter compared to $1.6 million last year. For the full year, they were up about 19%, 5.2 versus 4.3. In 2010, IMF was earned at our Chicago, Austin and Griffin Gate assets. Those assets will continue earning IMF in 2011. Plus Minneapolis Courtyard, Midtown Charleston and Worthington Wall switch over into IMF into 2011 as well, which is reflected within our guidance.

And then just based on some rough math, it looks like if we kind of back out the property tax adjustments from the fourth quarter, your kind of hotel expenses were up about 3.5%. And that would include the incentive fee increases that maybe 3% plus the IMF difference, is that kind of a rough ballpark the way we could think about it for this year?

Well, Chris, I think it depends on what you count as operating expenses. We take it all the way down to EBITDA. I think our expenses were up significantly less than 3%. I have to get the exact number. If you take it down to house profit, for example, then the 3% may be a pretty good number, but a lot depends on the below the line stuff including property tax and incentive management fees.

Chris, this is Sean again. A big driver for 2011 is going to be the impact of property taxes on 2011. It's a double-edged sword in the sense that our fourth quarter, we had very positive news on the property taxes. For next year, you're going to have the reverse of that in 2011, which is going to impact our margins about 70 basis points in 2011 because of the reversal effect of property taxes.

And just a follow-up on that is the next question, I guess, how many appeals do you have still going on? And I believe you only record the refunds when you receive the cash, is that right?

Correct. When we receive the cash or when we receive legal notification that we've earned the award, we still have appeals on about roughly half of our portfolio. Some of those appeals are multiyear, and we're obviously rigorously going through appeals to make sure that we get the best outcome for the company.

And then just finally on the acquisitions, you mentioned that you were looking at. Are there any kind of fixer uppers in those or are those all pretty much stabilized?

They have kind of runs a spectrum. We've got some fixer upper -- we've got some renovation work to do in a couple of them. There's a brand change opportunity in a couple of them and a couple of them are working with existing operators. So it kind of runs a spectrum. Chris, I wanted to clear up one thing. On the below house profit or the change in operating costs all the way down to EBITDA, I think for the year of 2010, we were less than 1%, probably a lot because of the property tax. But also I think our operators did a great job at containing cost. I don't have that comparable number for 2011. We'll have to get that for you.

And your next question comes from the line of Jeff Donnelly of Wells Fargo.

Mark, I'm just curious on the New York City development you guys are committed to. New York can be somewhat notorious for construction delays. I'm just curious what assumption you guys have made around timing issues and I guess how confident are you at this sort of early point that it can be delivered in 2013 without any material flip?

Just to give you a status update, they are currently in the process of demolition on this site. They are applying for the permits to do the foundation work, which they can do despite not having final numbers on the room count because there's some variances. They're trying to seek to get a bigger hotel. We feel very comfortable that it will be done in 2013, but nothing's for certain. We have the -- the entitlements are there, but we're at the base hotel already, so that's behind us. And it's relatively straightforward construction project. So 2013 seems like a reasonable delivery date.

And is that towards the end of the year or end of that year, I should say?

It's difficult to know, but probably midyear, give or take.

And I guess I can switch gears, maybe this is for Mark or for John. Can you talk about trends and full service per key, full service hotel pricing on a per-key basis? I know not all transactions are apples-to-apples, but I'm curious what your view would be on what the increase in per-key prices has been over the last, say 12 months and maybe you're sort of expecting that could be over the next six to 12 months given the transactions that you've heard of brokers bringing to market? Can you give any sense there?

It's difficult to kind of track that because every deal is unique. It feels like things were at a bigger discount replacement cost a year ago than they are today. And it's clearly a key metric that we focus on when we look at acquisitions. But it's really the yield and the projected yield and IRR, obviously, that's most important to us in underwriting. So it's an interesting step, but I think if you look at the data and we have a lot of detailed information on a number of the deals we did obviously, but a lot of the ones that we didn't do. And it's a little too easy to say it's trends on per key versus individual issues or ground leases, below market or above market management agreement, other things that are impacting those per-key numbers.

I'm curious and maybe kind of sticking with transactions. I mean what are you guys seeing in the Resort segment because that's one of the niches in the market that just doesn't seem to had a recovery in transaction volume or pricing yet. Do you see that turning in the near future?

Jeff, this is John. I think what we're seeing is that there's a lot more distress in that Resort market. If you take Phoenix and Tucson, for example, the Westin in Tucson just went through a bankruptcy reorganization and the price per key that came out of that devaluation was astounding, astoundingly low. And in Phoenix, I think they are just beginning to see the beginning of a recovery to the extent those assets are able to be preserved through the beginning of a recovery. You may start to see some transaction activities on those, but I think that market was particularly hard hit. And I think that people are sort of in a survival mode in that market, the real pure distress unless the lenders' forced to bring it to market, the real pure distress properties are probably not seeing the light of day right now.

But is it at a point where you guys think there's any opportunities for you to be had or is it just the demand hasn't fell back in convincingly enough to go after some of those resort assets?

We would definitely go after some of those resort assets if they became available either through distress or through a normal sale process. We see that market recovering. As I said, it's been late recovering particularly in the destination resorts in the Southwest. But it's clearly a market we believe in.

And then just a last question, maybe it's got a two or three parts to it. But maybe you can give us a little comfort on just urban select service properties, specifically their pricing on return prospects. I mean just because we see more and more folks including DiamondRock going after urban courtyards and Hilton Garden Inns. And per-key prices are understandably outsized versus their suburban counterparts, but I'm just curious how do you think about replacement cost on those assets versus call it, their full service counterparts in the same submarkets. Would you guess that for the select service assets, they're 10% to 20% lower or more versus say, a comparable full-service asset, if you will?

I'll try that first. I think there is probably a bigger discount to replacement cost on the full service hotels because of the operating cost associated with them. I think on the limited service, we had some pretty good visibility, particularly in Manhattan on what replacement costs are. And I think they're trading at or near replacement cost at this point. And I think the model there that we like so much is the ability to get virtually full service rates with a lower cost limited service operating model. And I think a lot of people see that as well. We did that initially when we formed the company, we got the two courtyards very early on in Manhattan, and I think that, that model's proven to be a very profitable model.

Jeff, I would just add that we looked at a lot of the data. We think replacement cost is probably between $400,000 and $500,000 for a limited service hotel between 650 and a million depending on the quality in the F&B and the meeting space for most full service hotels in New York City. But we're big believers on the limited service in the urban markets like Manhattan. If you look at our EBITDA margins on our limited service hotels at the fourth quarter, they range between 40% and 52%, which is astonishing, with average rates for the courtyard that we had in Midtown over $250. So the rate differential isn't that great and the flow-through was substantially higher than what you're seeing in the full-service hotels, particularly what we're making. We don't have the banquet and the outlets, [indiscernible] actually lose money in the big hotels.

That's my part of my, my sort of second part of my question is do you think they compared to their full-service counterparts at the, I'll call it, potential profit per key at one of these urban flex service assets is the same or even potentially higher than their full service counterparts?

Yes, I mean we've looked at the data, particularly in downturns because you can manage the cost structure much better. We've seen that the profit per key in the downturn particularly can be much greater than some of these full service hotels.

Your next question comes from the line of Sule Laypan of Barclays Capital.

You mentioned your 13 unencumbered hotels and I was just wondering what's your position on eventually levering those up in the future upon acquisition? And what would be like a target number of hotels that will remain unencumbered?

Sule, this is Sean. I think one of our core tenants of our capital structure philosophies that we want to keep a significant portion of our portfolio unencumbered. That being said, with 13 unencumbered hotels, there's a handful of hotels that in this market, I think would garner very attractive debt terms today. So that's something that we're always looking at and investigating. The secured markets are very active right now. We're seeing LTVs in the 65% range, which would have been unheard of a year ago for the secured market. This is -- and it's really a function of the CMBS market heating up again. We're seeing rates in sort of the mid- to high-5s depending on where the other ten-year treasuries that have been pretty volatile over the last month or so. But we feel good that you can get attractive secured financing today on highly stable institutional quality assets, which those 13 unencumbered hotels represent.

Your next question comes from the line of Bryan Maher of Citadel Securities.

A couple of quick questions. As it relates to your guidance, excluding Frenchman's Reef, to the extent that Frenchman's Reef has profits in the first quarter and the fourth quarter, when would we be adding that to the number that you're putting out as your outlook?

Bryan, this is Mark. Just to clarify, so we excluded for the stats when we talk about RevPAR, but it's included for the full year in both EBITDA and FFO.

As it relates to the income tax expense, $7 million to $9 million, what's really driving that?

Sure, Bryan, this is Sean. There's three big drivers to the increase of the income tax expense on the year-over-year. The first is the obvious of improved hotel operations result and higher income taxes. The second is about six or seven of our leases renewed in 2011. These leases that will renew in 2011 were leases that were added into in the prior downturn and we're generating significant tax losses on an individual lease basis for 2010, which has an impact on the comparability between years. And then the third is that the leases that we renewed in 2010 had to be renewed under the economic outlook at the time of the renewal, which would have been the beginning of 2010, which was a very negative outlook. So those leases are actually generating above what would be a current market leakage.

And then just lastly on the Allerton loan. What's the holdup there? I mean how long do you think that the current borrower can protract the situation?

I'll take your question, Bryan, this is Mark. We have a next hearing set for March. I think the judges in this environment are apt to give borrowers every bite of the apple in the foreclosure process. So in March, we'll have a better feel on how quickly it will go. But they still have appeal rights and it just takes a while to wind itself through the Court System in Illinois.

[Operator Instructions] Your next question comes from the line of Josh Attie of Citigroup.

Can we talk about the guidance a little bit? If you exclude Frenchman's Reef, maybe what kind of flow-through RevPAR EBITDA flow-through does it assume for the other 22 hotels at the low end and the high end?

On margins?

Yes or just EBITDA -- or just the multiple of RevPARs up, fixed what's the growth rate for EBITDA for the 22 hotels?

Well, the guidance implies kind of, if you think about the midpoint of about 100 basis points of margin improvement and it would be 70 basis points higher except for the tough comp due to the property taxes, if that gets you a better handle on the growth rate.

It helps a little bit. I guess, I'm just trying to figure out what the -- at the midpoint of the guidance what the EBITDA growth rate would be? And if I look at pro forma, it looks like the portfolio did $161 million in 2010 of property EBITDA. And if I take that number and I grow it at -- if I assume 2x flow through, if I take that 161, I'd grow it at 14%, I guess, call it 183, 184. And if I take out G&A of what you said was going to be 16.5 and I take out the renovation disruption of 5.5 and then add in a loan interest income. I get to kind of 164 at the midpoint. So I guess I'm trying to figure out how you get to the low end, what kind of growth rate that would imply for the other 22 hotels?

Josh, this is Sean. If you look at our expected 2011 results at the midpoint, excluding Frenchman's Reef, you should expect hotel adjusted EBITDA to grow approximately 9% on the RevPAR growth. And from a flow-through perspective on house profit, it's north of 50% flow-through and assumed within our guidance.

So 9% growth with the other 22 hotels at the midpoint?

Correct.

On 7% RevPAR?

That's right.

And what was -- in that 161, what was the amount of the property tax refund?

The property tax is it varies by hotel, but net-net, our property taxes are going to increase over $5 million next year. And that's driven by our Chicago assets, our New York assets, our Atlanta Waverly assets as well as the contractual increase in property taxes at our Boston Westin.

So that's the main reason why at the midpoint, the growth is only 9% on 7% RevPAR?

Right. The property taxes are a big driver of hurting our growth on the bottom line next year.

It was $5 million of the increase, but what was -- if I wanted to adjust that 161 and make it a normalized number, what was the amount of the one-time refund that we could back out?

I think probably between $2.5 million, roughly would be sort of a, would be in the year, for the year one-time refund that relates to this year. The prior year, about half of that was related to 2010 and the other half related to prior year. So the total refund of close to $5 million, half of which related to 2010 and roughly half of which related to prior year.

And that's why it goes up by $5 million in 2011?

That's right.

There are no further questions at this time. I would now like to turn the call over to Mark Brugger for closing remarks.

Thank you, everyone. We appreciate your continued interest in DiamondRock, and we look forward to updating you next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.