DiamondRock Hospitality pany(DRH) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - DiamondRock's third quarter adjusted FFO was $55.3 million, with adjusted FFO per share at $0.27, in line with expectations [9] - Third quarter adjusted EBITDA was $67.5 million, towards the high end of guidance [9] - Comparable hotel adjusted EBITDA margins contracted by 58 basis points, but only 15 basis points when excluding Hurricane Dorian's disruption and a one-time benefit from business interruption insurance [26] Business Line Data and Key Metrics Changes - The portfolio reported a 1.6% increase in comparable RevPAR, exceeding competitive sets by over 400 basis points [8] - Comparable total RevPAR increased by 3.1%, driven by growth in outside room spend by groups and other revenue sources [8] - Group and business transient demand increased by 2% and 3.5% respectively, contributing to revenue growth [10] Market Data and Key Metrics Changes - RevPAR growth in the U.S. was up 0.7% in the third quarter, with the top 25 markets declining by 0.4% [7] - Demand in major markets increased by 2.3%, while all other markets registered 1.3% growth [7] - Over 60% of sub-markets reported positive RevPAR growth, with two-thirds of hotels outperforming their sub-markets [20] Company Strategy and Development Direction - The company plans to increase its portfolio allocation to destination resorts, capitalizing on a secular trend towards experiential travel [15] - DiamondRock has identified $90 million in ROI projects expected to generate an incremental $17 million to $19 million in EBITDA [38] - The company is exploring the opportunistic sale of one or two assets to lock in attractive private market pricing [40] Management's Comments on Operating Environment and Future Outlook - The current economic expansion is tempered by uncertainty in the political landscape and trade environment, affecting near-term growth outlook [6] - The company expects supply pressures in urban markets to persist, while destination resort markets will have low or no supply [7] - Booking pace for 2020 is strong, currently up over 17%, with significant growth in key group hotels [11] Other Important Information - The company announced a dividend of $0.125 per share, paid on October 11 [30] - DiamondRock repurchased 300,000 shares at an average price of $9.96 per share during the third quarter [29] - The balance sheet remains strong, with $26.7 million in unrestricted cash and $1.1 billion in total debt at a weighted average interest rate of 3.9% [27] Q&A Session Summary Question: What is the strongest segment right now, leisure or corporate? - Management indicated that destination resorts are outperforming due to strong consumer sentiment, and they expect this trend to continue [44] Question: How is the buyout program impacting RevPAR? - Management is encouraged by changes made by Marriott, which are expected to help gain market share going into 2020 [46] Question: What are the expected cost increases for 2020? - Management anticipates wage pressure and expects total expenses to come in at around 3% for the full year, with potential increases in 2020 [55] Question: What is the strategy regarding asset sales and resort exposure? - Management is looking to sell some urban assets to redeploy capital into resort acquisitions, maintaining a balanced market exposure [51] Question: How does Google promoting its own travel content impact revenue strategy? - Management believes that while Google is another intermediary, they retain control over customer experience, which is crucial for driving revenue [71]