Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Diamondrock Hospitality Co. Earnings Conference Call. My name is Larry, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Mark Brugger. Please proceed.

Thanks, Larry. Good afternoon, everyone, and welcome to DiamondRock's first quarter 2012 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 like to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under Federal Securities law. They may not be updated in the future. These statements are subject to risks and uncertainties as described in our SEC 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. I am pleased to report that our first quarter results exceeded both guidance and consensus estimates as a result of the strengthening of the U.S. lodging fundamentals and the favorable market concentration of our hotels. In the first quarter, our portfolio delivered 8.8% RevPAR growth. Our RevPAR growth outperformed first quarter industry RevPAR growth by almost 100 basis points. Top line growth contributed to 119 basis point expansion in hotel adjusted EBITDA margins, as high profit flowed through from both rooms and food and beverage departments. Our margin expansion is especially impressive since more than 1/2 of the RevPAR growth was derived from growth in occupancy as opposed to rates. It is our outperformance during the quarter and improved conviction in the lodging recovery that enabled us to significantly increase our 2012 guidance, which I will discuss in a few minutes. Finally, the portfolio gained more than a full point of market share during the quarter. The outperformance was broad throughout the portfolio with 18 of our 23 hotels exceeding budget. As expected, the Boston market continues to benefit from a favorable 2012 convention calendar. The Westin Boston Waterfront…

Thanks, Mark. Q1 continued the trend of improved performance in our portfolio as increased demand in all segments led the occupancy up 4.3 percentage points and average rate up 2.3%. We believe that we're set up for a sustained recovery and an extended lodging upturn because of the absence of new supply, the indications of continued recovery in the U.S. economy and increasing international travel activity. In describing our results and to provide our investors with the clearest report on how our portfolio actually performed, I'll exclude the 3 hotels sold in Q1 and Frenchman's Reef, because of last year's substantial renovation, unless I indicate otherwise. In the first quarter, RevPAR for the DiamondRock portfolio increased 8.8%. First quarter food and beverage revenue was up 4.2% and included a 3.6% increase in high profit margin banquet and AV departments, and a 7.3% increase in revenue in our outlets. Demand was good in the first quarter with all segments showing growth, more evidence of continued demand recovery. The room segmentation for the portfolio by revenue in Q1 was 29% group, 34% business transient, 30% leisure and 7% contract and other, reflecting a very balanced revenue mix of our portfolio. We continue to see positive trends in the Business Transient segment, with premium and special corporate rates up 7% and 6%, respectively. Our group booking pace continues to improve, and as of Q1, revenue pace for the balance of 2012 is up 13.4% including Frenchman's Reef. And bookings in the quarter for the quarter were up 54% in Q1. Bookings in Q1 for the remainder of the year are up 16%. We were able to deliver a large part of the portfolio revenue increases to the bottom line. Our aggressive cost containment efforts over the past several years led to continued strong…

Thanks, John. With that, we would now like to open up the call for any questions that you might have.

[Operator Instructions] And our first question comes from the line of Sule Sauvigne.

I'm wondering, you mentioned that New York City was part of the reason you're raising guidance, given the strong performance there. And I'm just wondering what kind of RevPAR growth are you assuming for your hotels in that market?

Well, I can tell you that the RevPAR growth in the first quarter was about 10.7%, and the market is up 8.3%, the total market. And that includes supply, up at about 1.9%, and demand at about 9.3%. So the first quarter is typically the softest quarter in New York. So that makes us feel pretty good about the balance of the year.

Okay. I think last quarter you had said you're expecting your New York City hotels to be up 5% to 7% this year, so is it fair to assume maybe now you're expecting somewhat higher than that?

Sule, this is Sean. Yes, we -- in our release the first -- sorry, year end, we said 5% to 7%. Our expectations now for New York City are 6% to 8% for the year.

Our next question comes from the line of Eli Hackel.

Just have 2 questions. First just on Frenchman's, can you give us maybe a little bit better perspective in terms of when the property should really start to ramp, it was down -- it was up a lot in the quarter. It was down a lot in last year's quarter but net-net the past 2 years it's about -- the RevPAR was where it was. Should we really start to ramp through the year, and then that's when you really get your return? And then also just a quick question on New York. Can you give any commentary in terms of what you're seeing on 2 fronts, one from the financial services industry, and two, do you guys, track international travelers to your hotels and have you really been seeing an increase on the international travel side and the other thing on New York, just your current thoughts about the supply and also specifically supply in the Times Square area, which is seeing an increase over the next year or so. Those questions would be good.

Okay, Eli, this is John. On Frenchman's, we're seeing dramatic increases in revenue and group revenue beginning in the second quarter. If you remember the renovation started in the third quarter, so the first 2 quarters are somewhat comparable. But for the balance of the year, we're seeing revenue up -- revenue group pace up 104% and that's about 95% rooms and 5% ADR. So yes, I think we expect the hotel to come out at or above pro forma this year. And then big question is can we continue to wrap it in years 2 and 3, which we protect in our pro forma. As far as New York, international travel, we don't specifically track that except at the Lexington Hotel. And at the Lexington Hotel, we are not seeing a dramatic falloff in International business. As a matter of fact, Lexington sort of surprised us on the upside in the first quarter, as did the 2 Courtyards. Chelsea is a little bit more challenged because of supply in the Chelsea area. As far as supply at Times Square, we are much less concerned being that our development project is at 42nd and Broadway, the heart of Times Square. I think that demand sort of emanates from 42nd and Broadway. So we're not concerned about it at this point in Times Square. We're a little bit concerned about it in the balance of the city, although as I just said supply is down about 1.9% this year and demand is up over 8%. So it appears that demand is keeping up and even staying ahead of the supply.

Our next question comes from the line of Will Marks.

I wanted to ask you first just tied to the last question you mentioned about not tracking the international travel, but I think in your prepared comments you talked about that's a key driver of growth. I think I misunderstood you though.

Well, I said that's one of the components that leads us to believe that there's a bright future in this cycle of lodging. International travel to New York and other gateway cities. The Courtyards aren't that a big player in the international market, except as it creates compression in the city. The Lexington, however, is about 35% of its business comes primarily from Europe, and that's where I said we've not really seen a falloff.

Got it, okay. Second question just on maybe some general comments on what you're seeing with group travel, from some of the other companies it sounds as if we're hearing group is picking up.

Yes, we're feeling very good about group. For the balance of the year, we have about 13.4% increase over last year's pace. That's with Frenchman's Reef -- or excuse me that -- yes that's with Frenchman's Reef. Within the year, we're seeing a dramatic pickup in the quarter, for the quarter and in the quarter for the balance of the year. And those numbers are very encouraging as well.

Do you have the figures without Frenchman's Reef, is there a way to separate it out?

I do, excluding Frenchman's Reef the portfolio for the balance of the year is about 10.7%. That's about 6% in room nights and about 4% in food and -- excuse me, in ADR.

Okay, great. And that's basically bookings for the last 9 months of the year versus same time last year?

That's right.

And then just final question on -- kind of tied to Allerton. I mean, it sounds like there could be a pretty favorable result here. Are you looking at any other debt deals, or you think we'll see all equity going forward?

The Allerton been an interesting process, and certainly a learning process for us, we think we'll have a favorable outcome there. Currently, we're evaluating and John can touch a little bit more on the pipeline, we're evaluating some of the hotel opportunities. We are not currently evaluating other distressed debt opportunities, we don't see any that are interesting in the market currently.

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

Mark, I think I asked you the question last quarter about whether or not you guys thought you had the balance sheet to participate in any sort of industry consolidation should that come to pass. I'm just curious to see if maybe your view on the industry landscape has changed, and maybe what odds you see for much potential for consolidation in the industry over the next 12 to 18 months.

Yes, I do think we have the -- I mean, one of the comments we made last quarter was that we have a balance sheet among the lowest levered in the industry. And there is a potential to be consolidator and get some size that reduce the cost of capital. That was something that the company would be interested in. There's obviously the public-to-public. There are also some interesting portfolios, opportunities out there that we could take advantage of given our balance sheet. So those are things that we strategically think about over the next 12 to 24 months as potential.

And I apologize if I missed some of your comments in the beginning, and -- but I caught it in John's, where he mentioned that you're seeing more transactions. I think in late January at ALIS [ph], everyone thought it was kind of a desert out there for deals. What sort of buyer or maybe portfolio -- or I should say seller or maybe portfolio seller has kind of come to market in the last few months. Is it the brands coming out? And I guess do you find them more, I guess, call it more willing? Their expectations are coming down on pricing?

No, expectations -- I think people are true believers in the cycle, both the sellers and the buyer. So I don't see that pricing is coming in. The debt markets are better than they were 6 months ago. People have more confidence in their operating results for 2012. So there's a lot of firming on what people think the revenue or profits are for the hotels, which is giving more certainty. The portfolios, there's a lot of private equity firms which bought deals in 2005, '06, '07 during the high-volume years, that will come up on their maturity so that's going to be one source. And there are a number of people with debt maturities coming up that are forcing, both on the portfolio and the virtual asset side. We are still not seeing a huge uptick on one-off deals. But we have talked about and explored more portfolio deals than one-off deals in the last several months.

And then maybe this one is for John. But is there much color you can give us on the Group business that you've seen thus far in the bookings, I should say. I mean is -- I guess, for instance, are there some industries or segments that are maybe conspicuously absent in your bookings or have group events been more chicken than steak, as they say? I'm just curious. Any kind color you can give us?

We're looking for the steak, Jeff. The -- well, I can tell you this, the corporate group bookings in room nights are up the most of all of the -- of each of the segments and it's -- they're up 24%. So that's good news. I think within the Corporate segment, I think we're seeing a little less financial, a little more pharma and things like that, technology. I think one area that we expect to see a decline would be government group, which doesn't really impact us that much, but it's -- it will be quasi-significant for the industry, I think. But in general, I think that it's encouraging that corporate room nights are coming back with gusto and that rates are relatively flat right now, but I think that begs the potential for higher rates.

And just a last question, it's kind of specific. But I think last year, or late last year out in Vail, I think the Vail Resorts got approval from, I think it's like the U.S. Forest Service to use the lands there year round. I think it required some sort of motion in front of Congress. And I guess I was curious, has there any kind of a push there or coordinated push to have more of a summer season in Vail or do you think that's still years away?

Well. I think, the potential though is more in kind of the arts, festivals, music, art et cetera, which we've been pushing them to do for years. They're at a little bit of a disadvantage because Aspen is so strong in that area. But they have seen an uptick with the Vilar Center in Beavercreek. And some of the new developments in Lionshead in Vail, and I think they're getting some traction on those arts activity in the summertime.

Our next question comes from the line of Tim Wengerd of Deutsche Bank.

You mentioned in your comments that you could receive another loan to replace the Allerton loan that's in place right now. Do you have any update on, I guess, the process for how a new -- for the size of a new loan or how the size of a new loan would be determined?

Sure. So we have -- we currently have a note that we purchased that had a face value about $69 million, almost $70 million in value. The way the bankruptcy rules work is that they put a disclosure plan in and we, as a secure debtor, would -- come out with something that had a substantially similar value. There's some negotiations, there are some dispute about how much interest has been paid and was it penalty interest or not. But I think the proposed note on the last disclosure statement they've put in was about $66 million. We think that it should be a number that's substantially higher than that, but that's what the bankruptcy judge will decide over the next several months.

Okay. And then you talked a little bit about the G8 summit changing locations. I think you had lost some State Farm business last quarter, and I'm wondering if you guys have been able to replace that, and if bookings for 2Q Chicago are -- have improved substantially since February?

This is John. Yes, the revenue bookings have improved for the second quarter. They're up about 23%. Having said that, you don't replace $1 million State Farm piece of business just with short-term groups. And in the first quarter, it was interesting, we had 2 non-repeating groups that were there in 2011. So although Chicago was strong year round in 2012, the first quarter, we actually had a very tough comp. So we took the same approach there that we are taking for the G8 timeframe, which was to go after packages and Transient business. And so that impacts food and beverage, but it's a good fill in and May is a strong month in Chicago, so we're hopeful that we're going to be able to fill that in to some extent.

So revenues are up 23% in 2Q, like the pace?

The pace, the group booking pace in second quarter is up 23%.

Our next question comes from the line of Andrew Didora of Bank of America. Our next question comes from the line of Enrique Torres of Green Street Advisors.

You talked about potential doing portfolio deals. Some of your peers have started to access the unsecured market. Is that something -- for financing, is that something you would consider if you were to grow the company through a large portfolio transaction?

Enrique, this is Sean. That's something that as we think through the next sort of 3- to 5-year time horizon for DiamondRock that, that's clearly an option that we would look at. We currently really like our capital structure as it stands right now, with a -- more than half of our portfolio unencumbered by debt and having no corporate debt other than our line of credit, and 13 unencumbered assets -- I'm sorry 12 unencumbered assets. So we like where we stand right now relative to our size, but to the extent that we would grow in size and the unsecured market would be more efficient, that's something we would definitely look at in the future.

Okay. That's helpful. And then in terms of -- translate your RevPAR numbers and walk down to your EBITDA, like in your earnings numbers. Can you give me an idea of what that looks for in terms of same-store margin growth, how that fits into your guidance numbers?

Are you referring, Enrique, for the second quarter or for the full year?

For the full year.

For the full year we don't give margin guidance. I can tell you what back half of the year implied RevPAR would be, and then you can use your own judgment on where -- how you think that's going to flow. But the back half midpoint to midpoint will be roughly 6.9% RevPAR for our portfolio. But we have not given margin guidance for the full year -- or for the quarters.

And our next question comes from the line of Josh Attie of Citi.

When you look at what's in your acquisition pipeline and also what demand might be for some of your non-core hotels, do you think it's more likely you're a net buyer or a net seller for the remainder of the year, excluding what you've already sold?

This is Mark, Josh. We're -- we anticipate being a net buyer. Obviously, we've done over $0.25 billion of dispositions year-to-date. We are sitting on cash. We think there'll be interesting opportunities. There may be 1 or 2 hotels that we do bring to market given that we do think it's a good time to transact. But we plan to be active, we still think we're early in the lodging cycle, we still think it's a good time to buy. We're going to continue to try and find high growth opportunities and deploy our capacity.

And how do you think about -- how should we think about the right level for the dividend? Is it a percentage of cash flow, or is there another metric that you look at, and as the earnings recover over the next few years, how should we think about what the growth in the dividend might be?

Sure. Every board meeting we have a very active conversation about the dividend and where to set the dividend. And it's not a strict formula. Obviously we look at what our taxable income will be in the year, need to distribute that. But we also look at what alternative uses of capital we have and what the competitive landscape looks like among our lodging peers to make sure that we have a competitive dividend. And then we have to stress-test it to see, in the event in a couple of years if we have a downturn, what does the dividend look like and is it sustainable? So we evaluate all those in trying to determine what the appropriate dividend is now. Our dividend is very well covered this year. It will -- we anticipate it will meet our taxable income but as earnings improve and if they exceed our expectations, clearly that's something that, at the Board level, we continue to evaluate.

Our next question comes from the line of Nikhil Bhalla FBR & Co. Nikhil Bhalla - FBR Capital Markets & Co., Research Division: Just a question on your second quarter RevPAR guidance that you've guided to in terms of 5% to 7%, 100 basis points below the full year guidance. If you could just give us some sense of how you think about the year in terms of RevPAR rates for each quarter.

Sure. This is Sean. We didn't give specific RevPAR guidance for the year, but you should expect with some of the disruption that we're going to have particularly in Worthington that our third quarter RevPAR will probably not be as strong as the fourth quarter. So when you think through the balance of our year, that's the one outlier and that's really going to be driven by Worthington in the third quarter and the fact that there's going to be disruption from the façade repair.

Our next question comes from line of Wes Golladay of RBC Capital Markets.

I think you guys mentioned moderating travel agent fees. Is there any special -- anything special driving this? Is it change in distribution at all or...

This is John. I don't think there is a big change in distribution I just think we've had several quarters of outsized increases, and I think the comps are getting easier.

Okay. So going forward it's something that you believe will moderate for the balance of the year?

We'd hope so.

Okay. And going back to your Group business, how much of this was put on during the downturn, say, the 2009, 2010 period for the balance of 2012?

Not much, except Boston, Chicago and Minneapolis have some multi-year advanced bookings. I can't give you an exact percentage but it's probably in the 20% to 25% range if that.

Okay. Okay. And last one going back to your RevPAR guidance, home much do you think, I guess, would the mix between occupancy gains and ADR growth be for the year?

This is Sean. For the full year, we're expecting the bulk of our RevPAR is going to be ADR. We expect maybe 1% to 1.5% is going to be occupancy with the balance being late driven.

[Operator Instructions] Our next question comes from the line of Smedes Rose of KBR (sic) [KBW]. Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division: I just wanted to ask you what the timing is on the opening of the Hilton Garden Times Square? And then also I think there's still a big NATO Meeting in Chicago, I'm just wondering if you expect any disruption from that or is that just kind of smaller in scope or in terms of protests or whatever expected around that?

Yes, this is Mark, Smedes. Your first question, the construction is underway on 42nd Street. The current timeline, I believe, is another 22, 24 months. It could come inside that, it ought to be weather dependent and a couple other things. But we're anticipating first, second quarter of 2014 at this point. As to the Chicago question, the NATO was scheduled on the heels of the G8 Summit. It traditionally has been a less disruptive event, there traditionally aren't protesters in anywhere close to what they have for the G8. Although I know some people are quoted -- some of the traditional protesters saying they have already booked, they're coming to Chicago anyway. Their tickets. But we're not anticipating that, that will have significant disruption to our properties in the city. Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division: Great. Okay. And then I'm just wondering, is there any color you can give or trends that you cite for 2013 on the group pace so far?

This is John. The group pace in 2013 is relatively flat. It's not a meaningful number at this point. It's improving. It was done actually by 3.5% last quarter. It's down a little bit now, but I think it's -- it becomes meaningful in the third and fourth quarter as it gets closer, so we're not concerned at this point.

Our final question comes from the line of Dan Donlan of Janney Capital Markets.

First question, Sean, on the corporate G&A x acquisition costs, can you give us any type of guidance there on what to expect for the full year?

Sure. You should expect roughly $20 million for the full year which will be about $1.7 million -- sorry, $1.5 million less than 2011. And really the driver of that is going to be the fact that we recorded the LAX tip settlement last year through corporate G&A, which was $1.7 million, and then there is some increases in just other overhead, which will net that down to $1.4 million, $1.5 million for the year.

Okay. And then I guess on, kind of, these portfolio deals that you guys are talking about. Could you maybe give us size potential of these deals and/or -- and also is it limited service, select full-service, a mix of both? Or any type of color there would be appreciated.

This is Mark. I don't want to over state it. We are a full-service company so portfolios we're interested in are full-service hotels, generally. The portfolios we come through, you're always trying to generate off-market deals so we're looking at the portfolios would be -- go through the various people that hone [ph] real estate and to try to begin those conversations. So the size is really amorphous since people hold different amounts of hotels and the ultimate portfolio may change depending on what they want to do. But there's a lot of real estate out there. We think that it's a good financing environment, and we think it's an interesting time to be active in the marketplace.

Okay. And then as far as external growth and maybe some markets versus others, is there any particular market that you want to focus on and maybe you might get more aggressive with than others?

What we said on the last call, we're still interested there -- we obviously like the markets the we're in so we'd look into New York's and Chicago's, Boston. They're all good markets and we think that there's great long-term growth potential. We've also expressed that we're interested in San Diego, Miami, Seattle, West L.A., San Francisco would all be growth markets that we're interested in growing. We try to be a little bit broader and look at each opportunity in the major markets as they present themselves and underwrite each deal individually, but certainly those market representations would be advantageous for DiamondRock.

With no further questions, I would like to turn the conference back over to Mr. Mark Brugger for closing remarks.

Thank you, Larry. To everyone on this call, we would just like to express our continued appreciation for your interest in DiamondRock and we look forward to updating you next quarter.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a great day.