Diamondrock Hospitality Co Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Dori Kesten - Wells Fargo Securities, LLC - Analyst : As you look forward at your list of ROI projects slated over the next three years, are there others where changes are likely just given your rerun of return expectations? And should we somehow shift how we're thinking of your total spend? I think you mentioned kind of high single digits versus double digits as a percentage of revenue.

Question: Dori Kesten - Wells Fargo Securities, LLC - Analyst : Okay. And I know the situation is a bit fluid, but if you could take a crack at where labor costs may be over the next year versus the current year and just what some initial thoughts may be?

Question: Dori Kesten - Wells Fargo Securities, LLC - Analyst : Okay. And just last, if you can kind of walk through your major convention markets for next year, just where there may be initial signs of strength or weakness, for '25?

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : Jeff, you had highlighted in your prepared remarks the optimism about resorts, but kind of referenced the strategic focus on booking group business at some of the smaller assets to build the base as well as I think you guys had highlighted some weakness and weekend demand. So I guess how does this continued mix shift and any change in trend line for some of the transient side of the business impact kind of the outlook as you think about next year and really what trend line that business is on here, maybe more in the near term?

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : No, that's all helpful commentary. So with the focus on kind of maximizing cash flow growth and recognizing there's things you can and can't control from a business cycle perspective, does the focus change any portfolio allocation goals so that you're not overleveraged in any specific market or segment?

Question: Austin Wurschmidt - KeyBanc Capital Markets Inc. - Analyst : And then just last one. I don't believe you gave anything on group pace, recognizing it's a little bit of a more challenging year, but can you just kind of give us where you're at from a pace perspective on group for next year? And maybe what percent of that is on the books versus where you were at this time?

Question: Smedes Rose - Citigroup Global Markets Inc. - Analyst : I just wanted to go back a little bit where you talked about you're seeing a little bit of slowdown in the transient trends thus far in the fourth quarter? And is there any more color you can provide maybe as to what's causing that? Is it maybe more of an election impact than you were expecting? Or is there something else kind of going on? And I guess how long would you expect this to lead into next year?

Question: Smedes Rose - Citigroup Global Markets Inc. - Analyst : Okay. And then I just wanted to ask, in New York, I think they've passed like it's called the SAFE Hotels Act or something. But since your hotels in New York are already union, I guess this would have no impact on you? Or is there anything that we should be thinking about there?

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Any more color on the booking curve? I guess, to say that first half group pace is up meaningfully, but you're down a little bit over 3%. Can you just comment on the booking curve year-over-year? Is it changing? Is it getting more close in relative to last year? And what would be the drivers of that?

Question: Duane Pfennigwerth - Evercore ISI - Analyst : That's helpful. And then just on the CapEx, it feels like this is maybe the second time you've revised it lower. Can you just give some insight into what that evaluation looks like? What are the specific projects that you're either canceling or pushing? And clearly, there's more focus on capital discipline. But if you could just help us understand the evaluation process a little bit and what's changed?

Question: Chris Woronka - Deutsche Bank Securities Inc. - Analyst : Jeff, I think I generally agree with your thesis, there's a little bit more return to office coming in some of the non-Northeastern markets. But I guess the question, by definition, someone can only be one place at once. And I guess if they replace a four-day weekend at a resort with a business trip, are your rates in urban markets? Do you think there's kind of this almost negative swap effect, right? I mean are your BT -- if you look at your BT rates versus your resort rates, would that actually kind of be dilutive to RevPAR all else equal?

Question: Chris Woronka - Deutsche Bank Securities Inc. - Analyst : Okay. Okay. Got you. That's good to hear. And then kind of on the CapEx commentary, it certainly directionally encouraging that you're taking a hard scrub on everything and finding some opportunities to reduce a little bit. I guess along those lines, though, are those same analyses being REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 08, 2024 / 2:00PM, DRH.N - Q3 2024 Diamondrock Hospitality Co Earnings Call done? I'm thinking maybe you're talking a little bit more about your independence. Can you do that same level of analysis or negotiation with the branded product? Or is that an area that's kind of off limits in terms of maybe scaling back on renovations?

Question: Chris Woronka - Deutsche Bank Securities Inc. - Analyst : Okay. Just final one for me is, I think this year, you had a pretty good outcome on, if I recall, on insurance renewal I guess, early to think about next year, but with the storms that have come through, and I think there's probably an expectation in the industry that it may be a headwind again next year. Can you just remind us when you renew? And if you have any thoughts based on what maybe happened in '22, which I think was also a bigger storm year. Just some early high-level thoughts, not looking for a specific number.

Question: Michael Bellisario - Robert W. Baird & Co., Inc. - Analyst : Jeff, just on this smaller deal that you referenced, maybe bigger picture in relation to this deal, can you just talk about -- remind us of sort of underwriting parameters, return expectations and then how you internally think about doing a deal with a potentially lower initial yield and ramp up on a good per key basis?

Question: Michael Bellisario - Robert W. Baird & Co., Inc. - Analyst : Understood. And then on a similar note, but related to buybacks, it doesn't look like you bought any stock back post August earnings, even though the stock was lower than where you had repurchased it. I guess was this pending acquisition in the works then, and that's why maybe you had a slightly higher hurdle to buy back stock and you didn't? Anything to read into there?

Question: Chris Darling - Green Street Advisors, LLC - Analyst : Touching on the Orchard Inn repositioning, can you walk through the anticipated EBITDA disruption for next year, assuming that you think it will be a headwind? And then taking a step back, the ADR gap between the Orchards Inn and the L'Auberge, it's pretty sizable today. Just curious if you could frame how much do you need that gap to close that ADR gap in order to achieve your underwriting there?

Question: Chris Darling - Green Street Advisors, LLC - Analyst : Okay. That's helpful to frame it. And it sounds like just to follow up there that because the bulk of construction activity would take place in the fourth quarter that this may even be a tailwind to performance going into next year?

Question: Chris Darling - Green Street Advisors, LLC - Analyst : Okay. Understood. And then just one more for me. You've talked a little bit about this, but just as you've been active in the transaction market, just broadly, curious if you could speak to current conditions, any observed changes in pricing that you've seen across the types of assets that you own?