Good day ladies and gentlemen, and welcome to DiamondRock Hospitality's Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. I would now like to introduce your host for today’s conference, Briony Quinn, Senior Vice President and Treasurer. Briony, you may begin.

Thank you. Good morning, everyone. Welcome to DiamondRock’s second quarter 2020 earnings call. Before we begin, I’d like to remind everyone that many of the comments made today are considered 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 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 am pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.

Good morning and thank you for your interest in DiamondRock. We made excellent progress in the quarter, reducing our cash burn rate, improving our total liquidity, and reopening hotels for the eventual recovery. The second quarter, however, was unlike any in the history of the hotel industry. When we last spoke in May, we were in the midst of the largest contraction in GDP ever experienced in the U.S., as government restrictions were imposed to curtail the spread of COVID-19 in order to protect the general public. While some communities were able to reduce the spread of the virus, other locations experienced sudden increases in the transmission of this terrible virus. Contemporaneously, the concerns over systematic bias in our society led to demonstrations across the United States, involving an estimated 15 million to 25 million people. The overall environment experienced in 2020 is the very definition of unprecedented. Before going any further, I want to recognize the hard work of our hotel operating teams and their dedication to the health and safety of our guests. Also, I recognize our corporate employees for their agility, creativity, and perseverance to ensure that DiamondRock is secure and well positioned for a profitable future. Many of the observations we made on the first quarter conference call still resonate with us today. Let me recap those for you. One, the second quarter is expected to be the worst period in the year. Two, the demand recovery will come in stages with leisure demand from drive-to resorts coming back first, followed slowly by emerging business transient customers, and finally by the return of large group meetings likely in 2021. Three, supply is going to be constrained going forward as new construction starts evaporate and obsolete hotels shut their doors for good. According to FW Dodge, rolling three-month hotel construction starts were down to 56% in June as compared to the prior year. Moreover, last quarter, we suggested as much as 10% of the existing supply in Midtown East New York may not reopen. There is reason to believe that our early estimate may be conservative. Fourth, and finally, this is an opportunity to reinvent the operating model by identifying lasting opportunities to increase efficiencies through new best practices, promoting technology adoption like digital check-in, and supporting emerging customer priorities such as the green room initiative. We are optimistic that this could lead to increased profit margins once we return to pre-COVID-19 levels of demand. All right, let's talk specifically about the second quarter. In response to travel demand declining by over 90%, we suspended operations at 20 of our 30 operating hotels, leaving just 10 hotels open at one point in April. The quick action taken by the team allowed us to realize a 72% reduction in hotel level expenses, excluding wage and benefit accruals. Impressively, compared to the prior year, second quarter man hours decreased 83% at open hotels, and 99% at hotels with suspended operations. The decision to reopen hotels has been and continues to be dynamic and data driven. As we articulated in the past, our plan is to reopen hotels if we can lose less money doing so. Accordingly, starting in May, we prioritized our drive-to resorts based on returning demand visible through various channels and ultimately, we reopened a total of 12 additional hotels in the second quarter. The 22 hotels we had opened at the end of the quarter represent 58% of our hotel rooms. But since the openings were staggered, the math works such that just 43% of our rooms were available in the quarter. Demand got a little better as the quarter progressed. Weekly occupancy for operating hotels, which had bottomed at 6.8% at the end of March, rose steadily to 27.8% by the last week in June. This trend has continued beyond Q2 with occupancy for operating hotels in July over 200 basis points higher than the full month of June. Over the course of the quarter, we saw a growing number of hotels achieve breakeven profitability, and we expect that this trend continued in July. In April, five hotels achieved breakeven profitability on a GOP basis and this figure grew to seven hotels in May and 10 hotels in June. On a hotel EBITDA basis, two hotels generated profits in April, and the count increased to four hotels in May and six hotels in June. The consistent theme is that nearly every one of these hotels is among our collection of drive-to resorts. Leisure was clearly the brightest segment during the quarter and certainly source of strength in DiamondRock's portfolio. As highlighted in our most recent investor presentation, weekly occupancy in our opened resorts increased from just 8% in early May to over 42% by the last week of June, and ADR was higher year-over-year throughout June and much of May. As you might have guessed, weekends were the strongest. From early May to the end of June, weekend occupancy at our resorts increased from 11% to nearly 56% with healthy gains in ADR for the majority of the weeks. For the second quarter, leisure transient ADR was 1.6% higher than in the second quarter of 2019. The resilience of rate in the leisure category tells us that price is not a gating issue for those customers. Trends at our resorts in July were encouraging. The Shorebreak Surf City Huntington Beach averaged nearly 50% occupancy in July. Our L'Auberge de Sedona and Havana Cabana in Key West each ran occupancy over 60%. L’Auberge actually had an average rate in July of $553, which was a 14% increase over the prior year. But our little star of the month was the landing in Lake Tahoe, which had 80% occupancy in July with average rate up nearly $100 a night to over $519. As for business transient, we are not expecting a significant recovery after the summer. In fact, we do not expect a true recovery of business transient demand until folks return to the office, which appears to be drifting towards early 2021 for many major employers. Nevertheless, there are individuals traveling for business, and we did see a gradual improvement in our room and total revenue activity each month over the course of the quarter. In April, the weakest month of the quarter, we saw less than $400,000 of revenue from business transient channels. But this grew to $1 million in May and $2.5 million in June. These are meager beginnings, but longer term we are optimistic that as a consequence of more office personnel working from home, there may be an increase in hotel meeting activity to plan strategy, conduct training, and foster corporate culture. The Group segment has certainly experienced an enormous deferral of business globally, with nearly $2 billion RFPs passing through their system in the second quarter of 2020 as compared to $6 billion in the second quarter of 2019. There is no question; Group trends were challenging, and we expect the segment will be the final one to recover. While DiamondRock does not have the depth of exposure to the group, particularly large group, as some of our peers, we thought that the limited data points we were seeing could be a value. Since the start of the COVID impact and through the second quarter, our portfolio experienced approximately $117 million of canceled group revenue. Over 80% of these cancellations occurred in March and April. The pace of cancellations was initially as high as $20 million per week in March but has since slowed to just $2 million to $3 million per week. We expect cancellations will persist as we move throughout the year. However, it was encouraging to see 250,000 to 350,000 room nights of group leads generated each month during the second quarter. Some of the early lead volume was rebooking activity. Short-term, group bookings are increasingly weighted towards SMERF, association, and wedding events. We're seeing larger pieces of group business, which are typically corporate looking at dates in 2021 and 2022. Overall, rate expectations are consistent with pre-COVID levels. While there have been short-term opportunistic groups booked in 2020, rate parameters for the 2021 and 2022 periods have been normal. Instead, the main request is around terms for cancellations and rebookings, highlighting that groups do want to meet but desire flexibility until there is greater visibility. I'll now turn the call over to our Chief Financial Officer, Jeff Donnelly, who will talk more about our balance sheet strength and liquidity.

Thanks Mark. I want to touch on a few financial items in Q2, address our capital markets activity in the quarter, and I'll conclude with an update on our liquidity and cash burn rate. Total revenue decreased 92.1% in the second quarter of 2020 as a result of a 92.8% decline in RevPAR. Total revenues were $3.3 million in April with 10 hotels open, $5.7 million in May, with 12 hotels open, and $10.9 million in June with 22 hotels open, excluding the Sonoma Renaissance, which opened July 1, the same 22 hotels were on pace for nearly $13 million of revenue in July. As Mark mentioned, we decreased hotel level operating expenses by 72% from $170 million to approximately $48 million, excluding nearly $3 million of accrued benefits for furloughed employees. We were able to slash variable expenses by 80%. It is critical to understand that we achieved this level of cost reduction despite over 70% of our hotels partially opened during the quarter. Hotel adjusted EBITDA in the quarter was negative $30.4 million; corporate adjusted EBITDA in the quarter was negative $37 million. Finally, the second quarter adjusted FFO per share was negative $0.20. For CapEx, we have canceled or delayed over 65% of our original capital expenditure plans. In the second quarter, we restricted CapEx spending to only $20.7 million including $8.5 million for Frenchman's Reef to put the project in a position where we could pause work. Our primary focus remains conserving capital. So we are prioritizing only those expenditures where we have high confidence that they can produce a near-term earnings benefit and high return on investment at minimal cost and complexity. In this regard, we spent $4.5 million to complete the F&B repositioning initiatives at our Renaissance hotels and at Sonoma, Worthington, and Charleston, as well as the JW Marriott, Cherry Creek. We expect these investments will be earnings contributors in 2021 and the average IRR is forecast to be over 30%. We remain in a strong liquidity position. At the end of the quarter, we had $364 million of total liquidity between corporate and hotel level cash and undrawn revolver availability. I'm also pleased to report that through hard work, we were able to beat our initial expectations for our overall cash burn rate. At the hotel operating level, we averaged a $10.1 million monthly loss in the quarter, surpassing our initial forecast by 16%. Including corporate G&A, the average monthly loss was approximately $12 million or 12% ahead of our expectation. Finally, our total burn rate including debt service was approximately $17 million. Compared to our average pace in the second quarter of 2020, we expect our burn rate will improve slightly in July, mainly because we had 58% of our rooms open at the end of June as compared to only 43% during the quarter. Our preliminary estimate for our hotel level cash burn in July is approximately $9 million to $10 million, which is potentially $1 million or 10% lower than the average monthly pace seen in the second quarter. Including cash G&A and debt service, this works out to an overall burn rate of $16 million to $17 million and provides a runway before CapEx of up to 23 months based upon our total liquidity of $364 million at the end of the quarter. I want to make a few additional comments on the balance sheet. The erosion in EBITDA obscures the strong balance sheet DiamondRock had before going into the pandemic. For example, net debt to undepreciated book value as of the second quarter of 2020 was just 26%. We ended the second quarter with net debt of only $106,000 per key on a portfolio with a replacement cost in the range of $450,000 per key. This implies a net debt to replacement costs of less than 24%. Importantly, DiamondRock’s debt is well structured and is diversified between non-recourse CMBS, bank mortgage debt, and unsecured bank debt. At the end of the quarter, we had $605 million of non-recourse mortgage debt at a weighted average interest rate of 4.1%. We had $550 million of bank debt comprised of $400 million in unsecured term loans and just under $149 million on our unsecured revolving credit facility. We finalized an amendment to our credit facility in the quarter. We had several objectives in this process, but there are three I'd like to highlight. First secure waiver through the end of the first quarter of 2021 and relaxed covenants through year-end 2021. Covenant tests restart in the second quarter of 2021 using annualized results to washout 2020 from our financial results. Second, flexibility for investment, collectively we have $110 million for capital investment, which has proved to be one of the largest capital investment allowances relative to assets or pre-COVID EBITDA. Third, flexibility for acquisition, we have no limitation on our ability to pursue equity-funded unencumbered acquisitions and our $300 million limitation on encumbered acquisitions is proportionately larger than the limitations many peers have on total acquisitions. I think a key competitive advantage that will come into sharper focus in the next year is our maturity schedule. We have no debt maturities for the balance of 2020. We have no maturities in 2021 and we have only one loan for $48 million due in 2022 and even that can be extended to 2023 under certain conditions. Our first significant maturity is a revolver, which matures in 2023. But this too can be extended one year into 2024. The combination of a conservatively leveraged balance sheet, a diversified source of debt capital, and one of the best maturity schedules in the sector is a measurable competitive advantage for DiamondRock. In closing, I want to point out we've expanded our disclosure to provide monthly detail on hotels opened during the entire quarter, hotels partially opened, and hotels that remain closed. It is here that you can see how the hotels progressed as we moved through this most difficult period. Moreover, we provided the number of days each hotel was open to give you context on revenue, expense, and EBITDA that each hotel produced. And on that note, I'll hand the call back to Mark for final comments.

Thanks Jeff. I want to make a few comments about the future. Although we saw improvement in the second quarter, we expect uncertainty will persist until there is an effective vaccine, improved patient outcomes, broad acceptance of safety protocols, such as social distancing and wearing masks, or some combination of the above. Encouragingly, there are already 30 vaccines in human trials. Because of the wide array and variables related to the resolution of the healthcare crisis, we are not in a position today to provide you with company guidance. We do expect the balance of 2020 to be difficult, with drive-to resorts doing best, only very modest increases in business travel, and large group business not meaningfully returning until 2021. We did want to provide you with some of the ways in which we are positioning DiamondRock for the future. Let me highlight a few. One, we have a great portfolio that is increasingly weighted towards drive-to resorts. We have 13 of 31 hotels that are leisure-oriented. This has been a multiyear strategic initiative as seven of our last eight hotel acquisitions fit into this category. We were early to recognize the trend here and remain committed believers. Two, small hotels have been outperforming according to STR. Hotels under 300 rooms have shown the best relative performance. Due to our focus on boutiques and drive-to resorts, the median hotel in DiamondRock’s portfolio is just 265 rooms. Three, the portfolio has numerous ROI projects, many with 30% plus IRRs. These include the just completed rebranding of the Sheraton Key West to the Barbary Beach House resort, as well as the upcoming luxury upgrade of our Vail resort. Four, while we pause the reconstruction of Frenchman's Reef, we remain excited about its long-term prospects. Essentially, this is a nugget of future value for our shareholders. And finally, we have a solid balance sheet to allow us to withstand a substantial downturn and then position us to be offensive at the right time. We are already seeing some interesting opportunities in the market. In wrapping up the prepared remarks, let me just say that these are undoubtedly challenging times, but we are prepared to meet them and we are determined to prosper on the other side. We have great assets, a solid balance sheet, strong industry relationships, and an experienced management team that has weathered numerous prior downturns over the last 30 years. On that note, we'll now open up the call and take your questions.

Our first question comes from Austin Wurschmidt with KeyBanc Capital Markets. Your line is now open.

Appreciate some of the monthly detail you guys provided in the supplemental and Mark, I think you mentioned that July occupancies were 200 basis points above June's average. So was that in reference to the 13% for the overall portfolio and should we take away from that that you're running around 15% in July?

Yes, that's a fair way to look at it. So I think what we're trying to convey is that in July, July 4, obviously helped with the leisure demand, but we saw a continuation of the positive trends that we saw in June, particularly at the drive-to resorts. Now we'll see how August plays out, but we anticipate that August will be another good leisure month for us. And then potentially, September being elevated as many school districts have gone online, you may see September perform a little better on the leisure than in a normal year.

Yes, that certainly makes sense. Appreciate the thoughts there. And then, as it relates to Frenchman's, that hotel redevelopment there being on pause. You mentioned, I think 23 months of runway at the current cash burn. You had about $100 million and $120 million of remaining spend there, if I recall correctly. So how should we be thinking about the timing of recommencing that redevelopment and when you would expect that to come back online?

That's a great question. So it's still a project we're excited about. We're working closely with the governor and the government to get it going again. I think at this moment, we want to preserve liquidity and understand where we're going and reaching bottom and coming out of the same before we start reconstruction of the Frenchman's Reef, so the runway does not include recommencement of that. And we would envision restarting that when we have a little bit more clarity on the future.

Our next question comes from Smedes Rose with Citi. Your line is now open.

This is Stefan for Smedes. In your opening remarks, you mentioned that 10% of New York may not be reopening in the town that may be a conservative estimate. Can you just talk about how you view the New York market in the near-term and long-term?

Sure, I mean, it's obviously the number one destination in the U.S. traditionally, but the cost structure, property taxes and labor structure there are very difficult. We've had a 50% increase in supply in the last 10 years, which the city is still absorbing until we went into this difficult structural sense. I think with the cost structure in New York, some hotels won't be able to survive it, which will mean potentially a net reduction in certain submarkets of supply. I think the optimistic case would be that supplies are essentially stunted in New York for the next five-plus years. And that we'll be able to work productively with the unions to a cost structure that helps us get these hotels, some of the hotels reopened and making sense again functionally. So I think the supply picture is brightened in New York. I think it's traditionally been one of the highest demand markets in the country. And if we can get supply and the cost structure figured out, we think that there will be brighter days ahead.

Our next question comes from Chris Woronka with Deutsche Bank. Your line is now open.

Mark, I know, there's been a lot of talk in the industry about redefining the operating model for full service when we come out of this. From your perspective, how flexible do you think the brands will be at the end of the day, and how much do you think the customer will bear in terms of keeping the upper upscale kind of rate structure intact?

Sure, great question. So we are optimistic that there will be a lot of enhancements to the business. On the other side, there'll be some offsets. But the brands are incentivized collectively to figure out an efficient cost structure because the viability of their business model is on adding additional units and if it's not cost-effective, their pipeline slows down. So they have every incentive in the world to preserve good customer experience, but they want to get some models as efficient as possible so they can continue to grow their pipelines. Technology is going to be a big piece of it. I think we've accelerated the adoption of things like mobile check-in probably by five to seven years. And those things definitely enhance our ability to deliver good customer experience while potentially creating more efficiencies at the hotel. And then we are going to do a lot of things that we've never done before at the hotels. So I think through trial during this downturn and trying to justify getting these hotels open with more efficient models, I think we'll learn things and we'll be able to take those lessons and have some permanent savings as we'll be able to implement those long-term. So I'm totally optimistic on those, I'm sure we'll have enhanced cleaning standards that will be here to stay. So that will be a little bit of an offset. But listen, we're all incentivized to get these hotels profitable as soon as possible. We're all incentivized for cost efficiencies. I think we are all incentivized at the moment to find innovative ways to incorporate technology. And I think the customers are, I think they're willing to adopt technology certainly for a touch-less experience. I think that they're becoming more environmentally conscious. And the green room initiatives, I think people probably want less intrusion in their room during their stay. Some of that will be a permanent shift. So I think there is a lot of favorable things that will occur on the business model side as we move forward.

And then just curious as to whether you have an opinion on how this idea of densification might work in the urban markets as far as it relates to hotels. I know it's very, very early and very theoretical at this point, but is there anything you look at to guide how that might impact you?

I think there are a lot of consequences of the pandemic that we will need to think through and some are going to be good for hotels and some are going to be bad for hotels. I think the potential work from home phenomenon will ultimately be beneficial to our space. I think the fact that people aren't in their offices much probably means a need to do more training, more meetings, and more get-togethers. So I think that trend is very favorable for hotels overall. But listen, it's always hard when you're in the midst of a crisis to fully appreciate what the long-term ramifications are. I am generally a return-to-the-mean person in travel. The basic reasons people travel will persist. The desirability of the hotels, high-quality hotels, and good meeting space and good rooms will persist. Infrastructure, airlines, trains, all the basics, those will remain true for the foreseeable future.

Our next question comes from Anthony Powell with Barclays. Your line is now open.

Just a question on your drive-to resorts. When you look historically, a lot of them tend to do better in the fourth quarter than the third quarter. Should I continue this year or the mix of those quarters shift to make it a bit tougher for those hotels to continue to have that pattern this year?

Yes, this is Mark. Interesting question. Hard to know how consumer behavior will play out this fall. Certainly, we're seeing that there is pent-up demand on the leisure side and that people are willing to travel for leisure, probably in a way that they're not willing to do for business yet. In markets like Tahoe, the rate was up in July, up $100 versus the comparable period last year. And, you know, people drive from the San Francisco and Sacramento area up to Lake Tahoe. So it's a great drive-to market. I think you'll see increased demand, I think, to the extent people don't return to the office in 2020 this fall, that'll create some incremental ability for those customers to travel. But I think we're going to see consumer behavior play out in ways that are difficult to forecast as we sit here today. So I'm not sure we know the answer. We are certainly trying to be prepared. We're looking at our demand channels every day to ensure that we have the right staffing and the right product and can accommodate demand when it comes at those resorts in the fall. So I think we're cautiously optimistic that we'll see some incremental demand from the flexibility that those customers have. But it's hard to accurately predict at this moment.

Right. And if I may ask you this way. So in the fourth quarter of last year at some of these resorts, like let's say the Fort Lauderdale Western, what was the leisure business mix in that kind of hotel last year?

It makes roughly 50-50 as we get into peak season. We had a fair amount of group in Fort Lauderdale because the meeting space, which the incremental value of that is certainly strong because the rate and the incremental spend in many ways group at the right time in those softer moving into peak months is more valuable than a transient room. If the premises now if the group is going to come back this fourth quarter and probably first quarter. We feel positive based on some of the trends we've seen that the transient should be able to backfill that group. It will take 100% of it. No, but with the transient demand has been pretty solid. Our peak demand from a transient standpoint was around June 15, when we saw about 5,000 room nights picked up for our resorts and about 1,700 for non-resorts. And, then obviously the news slowed things down, but we continue to see positive demand for certainly our leisure and resort locations. An example of that is the bears and landing were both RevPAR was up both there 13% at both of those locations in July. So it's there, the question is, when is it going to come? How is it going to come? And certainly, what rate is it going to come at? Because the market behavior affects us.

So I guess in hotels like L’Auberge, like Cavallo or Key West there's minimal, I guess, business or group in those hotels in the fourth quarter of last year. Is that fair?

Yes, this is true.

Got it. And just maybe one more on the market status back as you mentioned in your preannouncement that you're looking at some deals in June in the quarter. What are you seeing out there and what's your kind of willingness to transact in this environment?

So I'll try to comment a little bit on what we're seeing in the pipeline. But there are some interesting small deals percolating up. But our stock price is, we're pre-market at 4.90, it's hard to imagine that we're going to be able to do a deal that makes sense at this price. As early as the first or second week of June, we were 60% higher in stock price, and the relative trade of a discounted hotel probably made more mathematical sense. So while we have the flexibility under our amended facility with the banks and with the balance sheet, I think it's unlikely until we start seeing some rally in the stock price that we will pursue it. But there are some interesting deals and we've been approached on a number of things that I think, certainly people have interest. And Troy, do you want to comment on some of the things you see in the marketplace?

Yes sure Anthony. I think as Mark was saying that the volume of available properties is certainly picking up in Q3 versus the first two quarters. Pricing, kind of touching on your resort comments, pricing for resorts and drive-to markets is definitely holding up better than urban. Those are the properties that are continuing to hold up well. I think at this point, as Mark said, given our current cost of capital, even though we track these and underwrite some and are kind of studying values, it's unlikely you'll see us pursuing things at our current cost of capital.

Our next question comes from Danny Asad with Bank of America. Your line is now open.

So my question is a little bit on just the recovery in the back half. So the sequential improvement in the state I think has been really encouraging and all the data, Jeff and Mark, you guys provide has been really helpful. But how should we think about the balance of the year as we move into a period that has a little bit more corporate activity? Appreciate that, obviously like your booking lead times or the booking windows are really short. And everything you're seeing is very real time, but any thoughts you have there would be really helpful?

Hey Dan, this is Mark, so I think leisure is going to be better in the summer than it will be in the fall. But I think leisure will still have a fair amount of demand as we move into the third and fourth quarter. So, I think we still hold some level of optimism that leisure will hang in there and be good although some of the resorts are less attractive in the fall. I think business transient, there are still some people that need to get out and travel. Certainly, it's difficult in markets like New York City to get to at the moment, but there's going to be reasons that people need to get on the road. And I think after Labor Day, you'll see a modest increase in business transient, but at very, very low levels. I wouldn't be surprised to see some sequential improvement. But big companies and major employers just aren't they're under very tight travel restrictions. And we don't anticipate that changing for the balance of 2020. And then large group will surprise you and some small group. We've seen some state association, we've seen some small groups. But by and large, I can't imagine there's going to be a big city-wide until there's a vaccine or healthcare remedy of some sort. So as we go through, we've basically washed out any large group for the balance of this year. So I think that in short, leisure should hang in there, not quite strong due to seasonality, but we still think leisure demand will be there in the fall, business transient will be a tiny bit better, but these will be the reasons for people to be on the road. But by and large business transient is going to be at dramatically low levels. And then you'll see some small group, weddings and some of those kinds of events as we move through the fall, but virtually no large group meetings in the United States for the balance of 2020 until we see it.

Got it? And then just from my follow-up, the properties that you have that are still closed, you guys were pretty clear about what it takes to reopen in terms of losing less money by being open and staying closed. But can you maybe give us a sense of how close we are and maybe something like New York, Boston, Chicago? How close are we to, when you look at your data in front of you, to reopening some of these properties?

Yes, we're looking every day at the demand channels and government policies, the restriction of self-quarantine in New York City and some other markets certainly hampers the ability to reopen the hotels. So we're looking every week. The tricky part is going to get, as we move into the fall if you can't justify opening it in the fall. It's traditionally weak anyway in December, January, February and some of these Northeast markets. Then you kind of get caught, and it doesn’t make sense to lose less to keep them closed a little longer. But it's a week-by-week evaluation. We haven't made any firm calls as yet because really the demand channels we're looking at every day. Summer will depend on what our neighbors do. To the extent other large hotels decided to stay closed, it may actually justify us opening. If 50% of the large boxes are closed for the balance of the year, there might be enough demand to justify opening our hotel. So it's fluid, and we are constantly looking at the data, and we really want to be data-driven. So we're looking, I mean, obviously, we've had good success in reopening 12 hotels from the lowest point here, and we're optimistic we're going to be able to get hotels. We certainly want to get them open and get people back to work. But we've got to look at where the demand channels are and make sure it makes sense for our shareholders.

Our next question comes from Thomas Allen with Morgan Stanley. Your line is now open.

Two related questions, can you just talk about your use of OTAs in the current environment and how you anticipate change in the future? And then the second part of the question is, can you just talk about your current perception of the value of being branded versus independent for hotels?

So I'll take the second question first and then I’ll turn the OTA question over to Tom. So, I think every asset is different. We think the brands will generate, as we recover, there will be a lot of value in the brands and their ability to drive customers into the properties through their honored guests programs, which we think will be powerful for getting people back on the road, as well as the assurance of cleanliness and standardization. Certainly, with corporate America, staying at a Hilton or Marriott, I think there'll be a level of confidence you won't get at an independent hotel on that side. Probably it's different for resorts; for resorts, it probably depends more on how you're constructed. If you're a bungalow-style resort spread over a property like Sedona, that's probably a more important factor than the brand. But we remain, I think we remain agnostic on the general thesis, and we think every asset should be thought about individually. So I think on the resorts, it's probably less important. And on the urban markets, we think that the brands initially will recover faster.

So Mark, your view hasn't really changed from pre-COVID is the first statement?

Yes, I think that's right. I think that the thing that's different, or that we kind of have put into the calculus now, is we do think in particularly the urban markets, the assurance of cleanliness that the brands will offer will be a competitive advantage initially as a lot of people are still concerned about the virus.

On the OTA question, all of our channels are open at this point. The hotels are running, the demand was not available; you weren't going to be playing in those channels. Those are retail channels, those are channels that lead your customers to use. And we have been on those channels and we have to be marketing on those channels. We've shut down all that marketing and have monitored, and now as we see demand come back, we have started to jump back in and make sure that we are active and people can find us. Once again, those are our retail customers; that's how the customer shops. They go through the brand, but they are also certainly going through the OTAs. And we have to certainly be there.

And then just on the New York City assets, all three are still closed. Is there a chance to bid higher and better use for those assets?

I think, in New York City as a general proposition, there is a lot of evaluation of conversion of assets. Lots of ours may have that potential. I think that ours are likely to remain hotels based on the information we're seeing today.

Thank you. Our next question comes from Michael Bellisario with Baird. Your line is now open.

Just one question from me, maybe for Jeff, but could you walk us through the different buckets of capital that you have available to yourself today? And then how do those fit into what you can and can't do within the confines of your credit facility amendments?

Sure, that's a good question. The different buckets of capital are somewhat fungible, quite honestly. But when we worked with our bank group, we specified that we wanted to have $50 million for traditional ROI projects at the hotel, an additional $25 million that could be used for pursuing buyouts of management or franchise agreements or ground leases. I think an additional $30 million would be used for projects at Frenchman's Reef, whether that just be the winding down of construction there or maintaining some base level of construction. Then there's a small one beyond that for just emergency investments in the properties for repairs and maintenance and whatnot. I think I would say as a general comment that the bank groups are fairly flexible with where those funds end up, but collectively it was about $110 million that we were permitted to spend.

Our next question comes from Lukas Hartwich with Green Street Advisor. Your line is now open.

And Mark, I thought your New York comments were pretty interesting about the 10% potential supply reduction being conservative even or at least I guess the Midtown East. Do you expect supply to come down to be converted into things other than hotels outside of New York?

I mean, New York is probably the one where there are alternative uses that make sense. You may see some in some of the other urban markets, but we're not hearing anecdotal cases. New York's really where we put the most discussion about conversion of hotels into other uses. Inevitably, you'll see some conversions other places, but I think you won't see the same numbers you might see in New York City.

It’s helpful. And then I'm curious about the competitive dynamics with short-term rentals right now, especially for your leisure properties. We're reading reports that Airbnb resorts type locations are actually doing quite well. So I'm curious that competitive setup, what it looks like for your resorts?

Yes, a lot of our resorts don't have Airbnb competitors just given the nature of where they're located. But listen, there is a ton of leisure demand right now. You know people can't fly to Hawaii or get to some of these other markets or are uncomfortable. I think as people want to get out of their house and are tired of working from home, that's pushing demand for weekly rentals. So I think that demand channel is probably fairly healthy for everyone at this moment. It doesn’t surprise me that we're not losing much. A lot of those are houses and other things that people want to be in, which are different customers than what we're appealing to. But we're pleased with the leisure demand we're seeing right now. It is always hard to measure if Airbnb is impacting you in those markets, but Sedona or Sonoma, we don't think has much Airbnb market.

And then last one for me just obviously, I think you highlight that the leisure resorts that you own are doing quite well. I'm curious, are there any properties or types of hotels in the portfolio or maybe not in the portfolio that you've looked at in the past that you are less interested in now, given the experience we're going through? I'm thinking big box hotels, lots of group space, business transient focus anything along those lines have changed, given the experience we're going through right now?

Lukas, I think we're committed, as we same as we were a year ago, to try and get to 50% resorts and some of that's going to be through subtraction as well as addition. Probably what's changed the most is that we constantly reevaluate our assets. As we looked at the five-year forecast to figure out how much we think each of our assets is worth, it's clearly changed more on some assets than others. So that's probably the biggest difference; what we would be willing to dispose of some of these assets. Those prices have shifted, as we think about how we want to position our portfolio in the next couple of years, so that's a material difference.

Our next question comes from Dori Kesten with Wells Fargo. Your line is now open.

Similar question to Lukas. Can you update us on your thoughts on dispositions over the next few quarters, if you're receiving inbound at this point and where you think values could settle out once the market is more open?

So I'll try jumping here too. But I think until there is really a healthy functioning debt market for hotels, it's harder to get a kind of a handle on where values are. We think they're probably down 15% to 25% as a general rule across the industry, obviously, there are exceptions probably both ways. But as a general rule, that's kind of what we're seeing in the marketplace for high-quality assets, non-broken hotels in desirable locations. Hard to know where it settles out. I mean, I think right now, the shape of the recovery and the future of near-term hospitality is determined by the resolution of the healthcare crisis. So if you think we're going to have widespread vaccine distributions by January, you have one view. If you think it's going to take 18 months before we get wide distribution of vaccines to healthcare resolution, private values of the hotels are different, right? The near-term cash flow scenario is very different. Probably the debt markets are very different. So we can tell you what we're seeing today, which is generally 15% to 25% on assets that we're looking at, but it's hard to know where to go so that because you're really trying to make a prognostication of when you think the healthcare crisis will get resolved.

Yes, Dori, I would just add, we get a considerable amount of inbound inquiries about all of our assets. I think the market and investors generally like our portfolio a lot and are always curious if we would transact. So I think that's more of a statement about the portfolio.

And our next question comes from Bill Crow with Raymond James. Your line is now open.

Three quick questions for you this morning. Mark, anything in the labor agreements that might prompt you to open a hotel sooner than you would otherwise?

No, I mean, obviously if we can justify opening a hotel and get people back to work and meet some level of demand we want to do that. We're looking into this to ensure we're making good decisions. We are in constant communication with the unions in all union markets, which include New York and Boston. So in both those markets, we continue to try to have an active and productive dialogue on trying to figure out strategies to get the hotels open and get people back to work. But there is nothing particular. I mean, there are consequences if you keep your hotel closed longer, and certainly things like how long does the healthcare subsidy last and there are issues there undoubtedly, but there is nothing that would force us to reopen the hotels.

Okay. As we think about the period beyond September, is it possible, is it maybe likely that ADR declines even more than it did in June-July given the mix shift that we typically see full price business transient and travel and we're replacing that with discounted leisure business?

Yes, it's possible. I think it's going to be the industry versus individual markets. There'll be probably more disparity depending on what happened in the fall. So yes, there'll be less leisure, and there'll be more business transient. I'm hopeful that post-Labor Day we start seeing an increase in demand from business transient. It’s not going to be anything to be very excited about, but it's helpful. Until then, in some of our markets, with a couple of exceptions, we hope that things get a little better on the business transient side and that helps on the overall rate.

And then finally from me, the PSA data including that just came out this morning shows about a 5% increase in activity during the past week, and that's the first increase since July 4. As you look at your bookings real-time, are you seeing recovery in leisure demand coming in August?

It's been so short-term, Bill, I hate to give you numbers. I think they could be misleading. We can sometimes have 10% or 15% of the rooms show up and book within the 24-hour period in some of these hotels. So even the data that we have today, I'm not sure it would be indicative of how the whole month plays out. I do know anecdotally a number of our resorts are seeing increased call volume. We are seeing increased inquiries. I think there is generally in our society, more people are feeling cooped up and want to get on the road. So I think that gives us some level of optimism about how all this is going to play out, but because of the short-term nature of these bookings, I think the things that we're seeing now, I can't give you an assurance of how the month is going to play out.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mark Brugger for closing remarks.

Thank you, everyone. We appreciate your interest in DiamondRock, and we look forward to updating you on the next quarterly call. Take care and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.