Good morning, everyone. Welcome to DiamondRock’s Third Quarter 2022 Earnings Call and Webcast. Before we get started, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those expressed or implied by our comments today. In addition, on today’s call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. With that, I’m pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer. Mark?

Thank you for joining us today for DiamondRock’s third quarter earnings call. Our entire executive team joins me today to answer your questions. The third quarter was a record quarter for DiamondRock. Demand in leisure, business travel and group business all exceeded our expectations. Consumers continue to spend on experiences like travel, and we see this continuing into 2023. We believe we are in a golden age of travel distinguished by a societal shift in the necessity of travel that has been created by the rapid adoption of hybrid work environments, changes in mobility, preferences for experience over things and the wonder lost of boomers and millennials alike. The future of travel is very bright. The DiamondRock portfolio continues to separate itself from our peers with over 60% of our hotels falling into the luxury resort, lifestyle resort or urban lifestyle categories. Of our last nine acquisitions, over two-thirds are Waterfront resorts, all our lifestyle and all are unencumbered by long-term management agreements. In fact, among the full-service lodging REITs, we have the lowest exposure to long-term brand management and commences and among the lowest exposure to ground leases. These qualities enhance operational control and increase exit value, a distinguishing factor that should drive a premium valuation. It is our strategy to curate a portfolio of experiential resorts in urban lifestyle hotels that deeply resonate with what today’s travelers want. DiamondRock’s experiential hotel focus is paying off. Our performance through the pandemic has been stronger than our peers. In fact, the portfolio took another 180 basis points of market share from the competitive set in the third quarter alone. This focus does not mean we sacrifice diversification. We remain well balanced with corporate demand contributing over one-third of stabilized earnings and group demand exceeding 25%. Our focus puts us in…

Thanks, Mark. Let’s look at the results and note that throughout our prepared remarks when we give comparable stats to 2019, it excludes the Kimpton Fort Lauderdale because that hotel is new and was not open in 2019. You’ll find a detailed table of our quarterly comparable data on Page 15 of this morning’s press release. Okay. Total comparable revenues for the company were $267 million in the quarter, an increase of $28 million over the comparable period in 2019. Comparable RevPAR for the portfolio in the third quarter was $211 or 8.7% higher than 2019. This growth was driven by room rates nearly 18% above 2019. Occupancy is down over 600 basis points to 2019 and closing this gap remains one of our several sources of future growth. Other revenue, which speaks directly to our asset management team’s creativity in identifying and expanding new income streams was up over 20% – 27% or $4.5 million over 2019. F&B revenue was over $8 million above 2019, double the $4 million positive variance in the second quarter. Similarly, total banquet and group contribution was up nearly $3 million, an increase of over 9% versus 2019 despite group room nights being down over 7% to 2019. With fewer groups in-house, we’re generating more ancillary revenue by up-selling the groups through creative strategies. Outlet performance was the strongest of any third quarter in the company history as many of the celebrity chef venues we created and opened just prior to or during the pandemic drove dramatically more business to many of our hotels. And there is more to come. We will share with you soon several new or upgraded outlets we are working on for 2023 and beyond that will continue to drive profits to new levels. Hotel adjusted EBITDA was $84.2 million,…

Thanks, Jeff. Our outlook remains positive for travel. Obviously, it was a successful quarter, and we expect the fourth quarter will be good as well. Our hotels have raised their full year forecast since our last call. Accordingly, our outlook for 2022 has increased based on continued robust to travel demand. We expect full year total hotel revenues and hotel adjusted EBITDA will both exceed 2019. To help you model our expected results, let me provide a few more pieces of information. In the fourth quarter of 2019, our resort lifestyle hotel segment contributed 45% of comparable total hotel revenues, which is shown in the table on Page 15 of our press release. We expect total hotel revenues in the fourth quarter of 2022 from this segment will increase better than 20% compared to 2019, with hotel adjusted EBITDA margins better than the 25% achieved in 2019. Our urban gateway hotels contributed the remaining 55% of the fourth quarter 2019 comparable total hotel revenues. We currently expect fourth quarter 2022 total hotel revenues from our urban gateway hotels to be about 85% of fourth quarter 2019, owing in part to the seasonal patterns and differences in the spread of citywide events over the two time periods. A few other data points. We now expect full year G&A to be in the range of $30 million to $31 million, below our marginal guidance of $31 million to $33 million. Income tax expense is now forecasted to be $1.5 million to $2 million, up modestly from a prior estimate of $0.5 million to $1.5 million, but for the best kind of reason, increased hotel earnings. Interest expense, including the benefit of swaps is expected to be approximately $52 million to $53 million. As we look out to 2023, we are encouraged that the positive demand trends will continue and that we can push through a moderating economy. The first quarter will benefit from easy comparisons to the Omicron impacted first quarter 2022. And throughout the year, we expect to see group and business travel continue to heal from its pandemic suppressed levels. Remember, GDP is $4 trillion larger now than in pre-pandemic 2019 and RevPAR is still behind trend line as traveler covers from a health care crisis. Leisure looks solid. And we expect to start the New Year strong with record rates the first week of 2023 at many of our resorts like the Vail Hythe currently up 18.6% over 2022. And the Margaritaville Key West, which is on pace to set a record for rate at $590 during that first week. In short, we continued to be constructive on the outlook for 2023. I’ll just wrap up by saying that we are confident that DiamondRock’s unique portfolio and fortress balance sheet will allow us to continue to distinguish DiamondRock going forward. At this time, we would like to open up the call for your questions.

Thank you. [Operator Instructions] And our first question comes from the line of Smedes Rose with Citi. Your line is open. Please go ahead.

Hi. good morning. I wanted to ask you a little bit more – you mentioned a few times in your opening remarks about closing the occupancy gap going forward. So, as we think about 2023, would it be your expectation that occupancy would grow as a bigger piece of overall RevPAR growth and rate growth might moderate? Or how are you kind of thinking about, I guess, the cadence of RevPAR growth as we go through 2023?

Yes. But we’re still behind in occupancy really at all three segments on a full year basis. So, I think we closed the gap on those. We’ll probably see more midweek group in our resort properties in particular. And that’s probably an opportunity to keep pushing the occupancy up at those properties. And then group is going to heal, right, as Q1 comps to Omircron impacted Q1 of 2022, you should see more occupancy, because we should do better, particularly in the group and the business transient in the first quarter. So that will help close that gap as well. So it’s a combination, but I think the Q1 comparison is going to push occupancy certainly in the business in group transient on a full year basis.

Okay. I mean, as you just – I mean, do you think there’s a lot of just rate growth overall still available? Or do you feel like it’s more sort of sustainable at this point?

No, it’s both. I mean, October, we saw a huge rate growth. I mean if you just looked at our resorts just in October, they were up 46% in rate, and our urban gateway hotels were up mid-single digits. So rates still growing. And I feel like we’re entering the New Year with pricing power, particularly on popular dates, whether it’s midweek and urban markets or the more desirable resort weeks, I think we’re going to have the pricing power to continue to push that pretty hard.

Okay. And then I just wanted to – you mentioned that it remains hypercompetitive for the kinds of leisure hotels that you want to buy. I guess it’s a little surprising because we’ve just seen an overall kind of fall off in transaction activity barring following pretty high-profile deals. But – what – could you maybe just talk a little bit more about buyers and availability of financing and kind of just what you’re seeing for these kinds of properties you’re looking at?

Sure. So, I mean just kind of said in the table in the overall market right now, it looks like urban markets, there’s very few on the market. It’s not a terrific time to sell those. These leverage is a key to that. And I think people are having trouble handicapping where business transient ultimately settles out on kind of their underwriting pro formas. People still like leisure. They still believe in resorts. There is a wall of capital still available for real estate acquisitions out there from a variety of sources. And so those – there are some of those properties on the market, and they are getting lots of bids when they do bring those to market. So it’s still the place where the investment community has been most level of confidence and belief in the future. So it’s still a pretty active market for those. And so for us, our experience over the last, I’ll say particularly three months to five months as rates have gone up is that the broadly marketed deals, particularly the larger ones, seem to be getting a lot of attention and pricing places, pricing at levels that aren’t attractive for us. And so we continue to try to focus our efforts on these owner operators assets between really $50 million and $150 million, where we think we have an advantage by dealing mostly off-market with these relationships and buying probably 100 basis points to 200 basis points better yields than the broadly marketed luxury resorts.

Okay, thank you. Appreciated.

Thank you. And one moment for our next question. Our next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open. Please go ahead.

Yes. I just wanted to piggyback on the last question there. You guys having focused on more off-market relationship deals that you’ve kind of followed over a multiyear period. Is there anything you can share in terms of sort of the locations and size of deals that you’re evaluating? And Mark, is there anything that gives you pause today with moving forward with a new acquisition? And how you’re thinking about sort of underwriting those?

Great question. So continue to look at leisure-oriented assets with super high barrier to entry markets. The size is generally between $50 million and $150 million. That’s kind of a sweet spot for us. And as far as pause listen, I think stocks are trading at deeply discounted value so that always gives you were, I think, a higher bar to pursue acquisitions. So, I think the way we think about it is we wouldn’t do a single or double right now or need to be a triple or a home run. But it’s going to be of similar characteristics. It’s going to be in the markets like Sedona or Sausalito or Destin Beach. One of our peers just did [ph] deal in Jackson Hole, we like that market a lot. That would fit our criteria, but the kind of asset, the long-term brand management and the size did not and doesn’t fit what we’re trying to do here.

That’s helpful. And then I just wanted to hit on – you kind of provided a comparison of the group room night versus 2019. If I recall correctly, 2019 was sort of an off year for your portfolio. And I’m curious if you could kind of give us a sense of what the 2018 group room nights look like versus what you’re seeing for 2023 and 2024?

We can always circle back to you with specific numbers, Austin, follow up after the call. I don’t have the 2018 numbers here, unless.

I don’t think – this is Justin. I don’t think 2019 was significantly off. I think 2020 was shaping up to be the best year of the portfolio was ever going to have in terms of pace going into 2020. And so a lot of the numbers that we talk about pace for next year, we’re really comparing. This year versus 2019 for 2020, which is not actually a year that actualized, but 2020 was expected to be, I think going into it, we were up 15% versus 2018 or 2019. So something they take into account when we talk about numbers relative to 2019.

Got it. No, that’s helpful. And then just this last one, just curious how the leads look for future additional bookings, and when do you think sort of you see that booking window extend versus what you saw this quarter within the quarter for the quarter?

Yes. So in group, as Jeff mentioned in the prepared comments, the in the quarter, for the quarter and into quarter for next year were very strong at very healthy rates – we don’t have as many large hotels as some of the other folks in the space. So our booking window is shorter, just by the nature of our assets. But the velocity of those leads continues to be good. The rates we’re achieving is good. And as we talked about for Q3, our ability to up-sell folks, particularly at the kind of more experiential hotels that we have, where we can offer other things has been remarkable and exceeded our expectations. So, we continue to focus on the center programs for our sales folks and providing other experiences to up-sell groups when they do come. So we’re optimistic that even on less room nights, we’ll be able to drive revenues because we think we have more ways to sell them stuff when they arrive.

That’s helpful. Thanks, Mark.

Thank you. And one moment for our next question. Our next question comes from the line of Michael Bellisario with R.W. Baird. Your line is open. Please go ahead.

Thanks. Good morning, everyone.

Hi, Mike.

I want to go back to the occupancy topic and just kind of follow up on that first question. Just across the portfolio occupancy, you’ve been down 500 basis points to 600 basis points the last handful of months, and I would think presumably group and BT have been pretty normal or kind of getting back to normal levels in those recent months. I guess two-part question. One, where is the occupancy still down in the portfolio more so segment wise? And then I guess, two, is that intentional on your part? Or do you think maybe a bit structural with where elevated ADRs are today? And maybe that impacting certain segments of demand fully recovering?

It’s a great question. I mean, obviously, we’re trying to maximize profitability and rate is more profitable than occupancy. So, if we have to make the trade, we’re always going to lean towards the rate. Again, on a full year basis, as we move into 2023, Q1, you should see – you should really see a lot of occupancy gain on a quarter-over-quarter basis because of the Omicron impact, so that will help. On resorts, our experience has been it’s better to try to push the rate and the push occupancy. I suspect as we move into next year, we’ll do more midweek group bookings, which will help on some of the occupancies that were sold out almost every weekend. So that’s how we hope to close some of that gap. On BT, it’s going to be the continued return of business transient. It wasn’t very strong in the first half of the year. Hopefully, we’ll gain momentum as we go into 2023 on that segment. And then full year group, we continue to hope those trends continue. Certainly, the velocity we saw in Q3 was encouraging.

So it doesn’t sound structural. I mean it’s a bit intentional on your part with rate, but it sounds like you’re optimistic that the occupancies gap will continue to close just as the broader recovery and some of the still impacted segments improved, right?

Yes. I mean I think if I had to go segment by segment, the groups obviously the easier one to see the visibility and to close the gap, particularly with the, we’ll call the abnormal Q1. On the leisure, we think the kind of mid-week strategy is the way we help close that gap and where the opportunity is. And I think BT is a little bit of a wildcard of where that stabilizes, right? Do we get back to 90%, 95%, 100%, that’s a very short-term booking and that’s the one that’s probably hardest to underwrite at this moment.

Got it. That’s helpful. And then sort of related on the group front Jeff, I think you mentioned 3.1 million room nights next year on the books. And I think I heard you right 3.2 million in 2024. I guess why do you have more rooms on the books further out? And why do you think that dynamic is playing out with that?

Yes. And to be clear, I mean, that’s not for our portfolio. That’s just what we get from this convention of visitor bureaus in each respective markets. So, we are just trying to track and get directionally, what we’re seeing in the markets that we operate in, where we have sort of larger sort of convention-oriented hotels. So, I think some of that actually has to do with a lot of the events that were originally planned back in 2020, 2021, pushing out a few years into those markets. And it’s frankly, a favorable footprint for us in terms of where convention activity has been going.

And I guess maybe specific to your portfolio, how does 2023 compared to 2024 at this point?

It’s hard because the 2024 bookings are a small percentage. So it looks good, but it’s a small percentage of would be misleading the kind of thrust stats out there.

That’s all from me. Thank you.

Thanks, Mike.

Thank you. One moment for our next question. And our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open. Please go ahead.

Hey, good morning. Thank you for the time. I wondered if you could – within the category of things you control, could you frame out for us the top two or three EBITDA improvement potential ROI projects, rebranding projects on the horizon into next year. And I don’t know if you’ve put numbers to how meaningful those could be, I would appreciate any thoughts you have.

Sure. Well, we’ll continue to ramp up on ones that we’ve completed. So last year, we completed the three, I spoke about in the prepared comments, The Lodge at Sonoma, The Vail Luxury Collection and the Margaritaville in Key West. We expect those all to continue to ramp up. They’re not done yet, particularly Vail, which converted in November, which now we had the bookings for prime season already booked as a Marriott, not as a luxury hotel. So, we’ll see continued ramp-up with the 2023 from those projects. And Q1 of this year, we did other conversions, including the Clio in Cherry Creek, Denver, which we converted to a luxury collection. So that we’ll really see the benefits as we move into 2023, more than 2022. And then in first half of next year, we hope to complete a couple of other conversions, including converting the Hilton Burlington to a Curio and put in a Celebrity Chef restaurant in there. And then we’re working on the repositioning of our Boston property as well, our Hilton Boston to a more lifestyle hotel in the middle of next year. So that will occur as well. So there’s a lot of things going on within the portfolio, but I think to continue to ramp from repositionings we’ve done, and we’ve probably done more as a percentage or portfolio than anyone else in the public markets. But those aren’t won and done. Those are multiyear beneficial projects for us.

That’s great. Thank you. And then I think you touched on it in your remarks as well, but out of the room spend, food and beverage events, are you doing anything different on that front? Is this pent-up demand? Would you characterize this as sort of structural shift in spending? Any thoughts you have there would be great.

Yes. I mean, what’s happening if you kind of step back and say, why is that occurring? Partly, we have the kind of hotels that people want to get as they’re kind of getting their folks back together, right? They’re hitting the go button and having to pull people together. They want to make it a work while experience. And they want to – it’s a tight employment environment. They want to treat their employees right. They want to do culture-building activities they want to make those employees feel good. And that means they want to do other things. They want to do the nicer dinner, the buffets, the happy hours, the rooftop reception. Sometimes we do [Audio Gap] offsite experiential trips for them. That is the trend. If you kind of think about if you’re kind of make people get together and you really want it to be a special occasion because they’re not in the office much or they haven’t been in the office for a year. You’re going to spend more when they’re together and you want to treat them all is you want them to love your company or your association as it may be. And that’s what we’re seeing, and we’re trying very hard to provide this kind of experiences for them. And we’re obviously being compensated for that, but we’re always trying to think of creative ideas of how we can make it more meaningful to go to Cavallo or to go to [indiscernible] to your incentive travel or you get together. And so that’s what we’re seeing. And it’s been successful, as you can see from here outside the room revenue and even our banquet revenues, which were several million dollars ahead of where they were in 2019, even on lower room nights. These people are spending.

Thanks. And maybe I’ll sneak one last one in. Just on the citywide which were great. Are you observing any change in seasonality with respect to citywides? And on 2023, specifically, when does that really start to reaccelerate? And thank you for taking the questions and sorry for any background noise here at the airport.

No problem. I’ll let Jeff jump in here. But I would say on the citywides, yes, it’s more short term. We’ve seen more big groups book in hotels and citywides on shorter notice than we’ve ever seen before in our careers really. Earlier this year, not very many months ago, kind of we got the all clear from a healthcare crisis perspective. And I think a lot of companies were desperate looking for that signal to get their folks back together, which hadn’t been together. So, we see big group patterns happening in shorter time periods. And that’s created different calendar events, if you will, because you had the pent-up demand. And so it is causing some anomalies on what we would think would be normal spreads. And Chicago and Boston both in Q3 benefit from some of those at our hotels. So that’s a pattern we’re certainly seeing. I know Jeff or Justin, if you have additional comments.

Yes. The one thing I would add to that, Duane, is that it’s a good question. I think you’ve seen it broaden out a little bit because in some of the cities, it’s going to vary city-by-city, but the number of citywide events will be up in 2023 versus 2022 is the expectation and when you think about the availability in the convention center, it’s got to broaden out a little bit to accommodate some of that demand, but that’s going to vary market-by-market. So it’s a little choppy. I’ll look across the markets that we have the data for and circle back to you. I’ve seen any change in the quarterly seasonality of it. But I think it’s generally pretty consistent. But as you’ve seen the activity pick up, it probably broadens out a little bit across – outside of the typical summer months and maybe in more shorter periods.

Thank you very much for the thoughts.

Thank you. And one moment for our next question. Our next question comes from the line of Anthony Powell with Barclays. Your line is open. Please go ahead.

Hi, good morning. I guess a follow-up question on the out-of-room spend in the corporate group. What percent of your corporate group is, you think technology? And do you think a split out in spending in markets like – or hotels like Cavallo Point, Lake Tahoe that may be a headwind for those properties next year, given what’s going on with some of the tech companies that we follow and hear about?

Yes. I mean we do as a higher end; we do have a little bit of technology. I don’t have a particular breakout, but it’s really about what’s happening in those particular cities. So San Francisco obviously, it’s been the most impacted by technology. I suspect Seattle would be another one that’s impacted. So yes, those have some impacts, but it’s more about what’s occurring in those markets because we can always substitute out pharma, financials or others for the small technology, but you’re not going to be able to outrun if it’s impacting the overall market. So, I think we think about technology demand more on a market basis than a particular segment of our booking in our portfolio. But we are concerned about markets like San Francisco and Seattle and about what it means on long-term demand trends as technology has shifted to a more remote environment, and those firms seem like Salesforce.com, more and more committed to not being in those kind of cities. And then we think about whether the – that’s obviously the negative. We also think about, how do we play that in the positive. So for instance, you mentioned our – we have a 42-acre resort in Sausalito. And as people don’t want to get together and are fully remote like Salesforce.com that used to be together, they need to get folks together, they’ve delegated down to the managers to figure out how to best do that for their departments. And so what we’ve seen there in Lodge at Sonoma is actually kind of the positive benefit of those trends were a lot of midweek group is occurring. The Alpha team at Salesforce.com that’s going to launch a product or needs to do training will come in and take our slowest Tuesday, Wednesday, Thursday, at that hotel. And we’re seeing that actually strengthen. And that’s kind of the other side of that, that we’re trying to lean into and leverage for better results.

Got it. Thanks. And maybe one more, I guess coming it’s here. I was concerned that you would see a bit more demand shift from domestic to international travel as things opened up. We did see some pretty big travel numbers to Europe, but it hasn’t really impacted the leisure hotel demand at your property. So, I guess, looking forward, do you see any incremental risk from more people traveling internationally and maybe why hasn’t there been more of an impact so far?

It’s – I was just looking at some STR data on that earlier this week. It seems like, yes, everyone went to Italy or France last summer. But it really hasn’t impacted leisure demand. I mean it’s hard to believe more people would go to Europe next summer that went last summer. But really, we didn’t see any impact. And frankly, the international has not returned to markets like the U.S. and obviously, the dollar denomination doesn’t help, but there’s been no influx from Asia with their travel restrictions, and there was very little international inbound this year from Europe. So that’s probably, at some point, will flip and be more of a positive than a negative, the kind of ratio of international inbound versus outbound. So it’s probably as bad as it could be last summer, we still had great leisure demand. And so probably at some point over the next couple of years, that flips and will continue – that will turn into a positive, but really it was not impactful at all last summer.

Thank you.

Thank you. And one moment for our last question. And our last question comes from the line of Bill Crow with Raymond James. Your line is open. Please go ahead.

Hey good morning. A couple of questions for you. Mark, given what you see in the economy out there and what you read and everything else, do you think kind of a Four Diamond Resort stands up better than say, a 5-star Ritz-Carlton, Four Seasons sort of resort if we were to go into a recession over the next six months?

I think it depends. I mean some of the larger resorts that you look at are the group houses, too. It’s important for them to do the group sell that depending how that segment, you’re really leaning that as much as you are the high-end customer. I really like the experiential 4-star or 5-star that’s unique because I think what we’ll be able to do is even if things soften a little on those patterns is we’ll be able to do this midweek group. And I think that, that demand is probably going to be at historically high levels as we move forward with this hybrid work environment. And so as we – if things did soften a little bit, you have the ability at the smaller resorts to put in this midweek group and incentive travel training to offset that and change your revenue mix strategy to keep profitability and revenues up. So I think that’s a safer place to be versus just to kind of extinguish between 5-star and 4-star. I think size of resort and your ability to produce smaller midweek group is probably the defense that posturing as you move into a softer economy, if you will.

Thanks. That’s helpful. The second question I had, really, I think you started early on in the discussion talking about January and maybe even the first week of January, if I recall correctly, and how strong it was it caused me to reflect back on last December. And I say the last week of December; we had really, really strong results. And I’m wondering if that’s going to be kind of a headwind that maybe we don’t see come in as we think about the fourth quarter of this year.

Yes. We’re seeing, Chris, this week be for strong. Actually, I think what’s more likely to happen is we’re going to see the peak demand periods in leisure continue to have a lot of pricing power. People that go to Vail are going to go to Vail or Aspen kind of regardless of whether it’s $950 a night, $975 or $1,050, they’re going to come. I think that where we’ll start seeing more hesitancy and change patterns would be kind of the Tuesday, Wednesday that we were getting over the last two years and having to supplement that, that’s probably – that’s the one that we’re more focused on and more what we think peak demand will continue to be able to really have the upper hand on pushing price in those periods.

Okay, appreciate the comments. Thanks.

Thank you. And I’m showing no further questions at this time. And I’d like to turn the conference back over to Mark Brugger for any further remarks.

Thanks for today’s – earnings call. We look forward to updating you on our next quarterly call. Have a great day and a great weekend.

This concludes today’s program. Thank you for participating. You may now disconnect.