Thank you. Good morning, everyone. Welcome to DiamondRock Hospitality Company's Second Quarter Earnings Conference Call and Webcast. Before we begin, please note that many of the comments made on today's call 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 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.

Good morning and welcome to our earnings call. Second quarter financial results were very strong and significantly surpassed our internal expectations. The DiamondRock portfolio benefited from several positive attributes, including, one, the portfolio's over-weighting toward experiential properties and resort locations; two, our best-in-class asset management; and three, our ability to control costs by having the highest percentage third-party operated portfolio of any full-service lodging REIT. This powerful combination enabled DiamondRock to generate $19.8 million of adjusted EBITDA and $0.05 per share of positive adjusted FFO in the quarter. Demand increased in all travel segments. Leisure remained the strongest performance segment. Both group and business transient are now showing meaningful gains. Business transient room revenues increased 173% from Q1 in the second quarter on a 24% sequential increase in ADR to $195. The clearest indication that business travel is increasing can be seen in the dramatic uptick in midweek occupancy, which doubled at our urban hotels during the quarter from 25% in April to 50% in June. We expect an accelerating trend line of business demand in the fall and into next year. The outlook for group is equally positive. Incremental lead generation accelerated sharply in the second quarter, with over 11,000 leads for 1.7 million room nights. That's a dramatic increase from the 7,000 leads for 1.2 million room nights in the first quarter. The 50% plus increase in leads is the strongest we've seen since the start of the pandemic, and lead generation is now at 95% of pre-COVID first quarter 2020 levels. The group setup for 2022 is good for our geographic footprint. In the quarter, we converted 63% more definite group room nights, with most of the activity for 2022 and beyond, a positive sign of meeting planner confidence is returning. We are excited to see that group rates are 8% higher in 2022 than they were in 2019. Our 2022 is being boosted by the fact that many of DiamondRock's key group markets have strong convention calendars next year, like Boston, Chicago, San Diego, and Washington DC. In addition to strong operating performance, which Jeff will discuss more of in a moment, DiamondRock made great progress on internal and external growth initiatives that we are confident will drive outsized cash flow growth in 2022, an increase in net asset value. I'll touch on just a few internal projects. The Lodge at Sonoma was reimagined into a luxury Autograph Collection resort over the last year with a new Michael Mina restaurant. We expect our $10 million investment here will generate a 25% internal rate of return. This resort has been a home run for us with NAV increasing well north of $100 million over our total investment. The major repositioning of our Vail Resort is underway and will be complete in time for the upcoming ski season. It will reemerge as a Luxury Collection hotel and will be named The Hythe Vail Resort and Spa. We expect the resort will command a materially higher rate in the peak season and generate several million dollars of incremental EBITDA starting in 2022. The JW Marriott Denver will also be converted into a Luxury Collection Hotel and will be named the Clio. The conversion is expected to take place at the end of this year, so we can start benefiting in 2022. Additionally, this fall we will convert our beachfront resort in Key West to the only Margaritaville Resort in the Florida Keys. Collectively, our investment in these four repositioned hotels is expected to have an IRR of well over 30%. Turning to capital recycling. In the quarter, we successfully sold two hotels, the Lexington and Frenchman's Reef, for total proceeds of $220 million for a 5% cap rate on combined 2019 actual NOI. We are recycling a portion of these proceeds into two great new acquisitions, both of which were off market and have the strategic characteristics that we are looking for. They are fee simple real estate. They are unencumbered by both brand and management. They're experiential and leisure-oriented. Both have significant ROI potential, and they are accretive conservatively underwritten yields. First off, the Bourbon Orleans is located at the best street corner in the historic French Quarter. The number of hotels in the French Quarter that are large, fee simple and unencumbered can be counted on one hand and they rarely become available. The moratorium on new construction means there will not be another hotel built in the French Quarter. The Bourbon was purchased at a little over a 7% NOI cap rate on 2019 results, and we expect it will have a robust growth in 2022 with the return of Mardi Gras, Jazz Fest, and the NCAA Final Four. New Orleans will also benefit by being the host of the Super Bowl in 2025. Moreover, we see enormous upside from professional management as it was owner-operated, and there are numerous ROI opportunities at this property. We expect that the Bourbon will stabilize at an 8% NOI yield. Our second acquisition is the Henderson Park Inn, a luxury boutique resort in Destin that sits on one of the most desirable beaches in Florida. This resort is rated the number 1 hotel in Destin on TripAdvisor because it provides guests such a great experience. The resort was purchased at a nearly 7% cap rate on trailing 12-month NOI, and the combination of bringing in professional management and enhanced revenue management strategies provides a clear path to at least an 8% NOI yield, which is terrific for such exceptionally high-quality real estate. This is our fourth oceanfront resort in Florida and our eighth waterfront hotel. I'll now turn the call over to Jeff for more details on our results and balance sheet.

Thanks, Mark. I'll start by highlighting DiamondRock's excellent liquidity. We finished the quarter with $639 million of total liquidity, comprised of $193 million of corporate cash, $46 million of hotel-level cash, and $400 million of capacity on our revolver. Leverage is conservative with only $1 billion of total debt outstanding against roughly $3.5 billion of hotels and resorts. Overall, the balance sheet remains very strong. Let's talk about investment capacity. We've been active on the acquisition front. And we expect to remain a disciplined acquirer of on-strategy properties like those Mark discussed earlier. With the strength of our balance sheet and high liquidity, we estimate we have over $300 million of investment capacity today while still operating within our long-term leverage targets. Looking at profit margins, we remain confident we will have stronger stabilized profit margins when we fully emerge from the pandemic. To illustrate this point, let's look at the math on our resort portfolio. Total revenue in our resort hotel portfolio in the second quarter was $70 million. While this was $2 million better than the same period in 2019, hotel EBITDA was nearly $7 million higher. This exceptional profit flow-through resulted in a 39.3% resort portfolio margin in the second quarter as compared to a pre-pandemic margin of 30.5%. My intent is not to suggest that the margin opportunity is as large as 880 basis points described here, but to highlight that our asset managers and their partners at the hotels have thoughtfully reconsidered the operating model from top to bottom to grow revenues and enhance profits without detracting from the guest experience. Importantly, despite these tight cost controls, our overall TripAdvisor score once again showed sequential improvement. So, why do we believe DiamondRock can stabilize operations at higher margins? I want to emphasize that DiamondRock has distinguished itself from its peers, in that all but two of our hotels are subject to short-term management agreements. This means we have greater control over operations and are already seeing the benefit of that flexibility in our results. Also, don't forget, we converted six hotels in 2020 from brand-managed to franchise, and that alone is projected to lead to 50 basis points of better portfolio-wide margins. And finally, adding reduced above-property charges, new labor models, and increased use of technology, we believe we have the ingredients to outperform on stabilized margins. Let me share a few success stories. The Lodge at Sonoma repositioning that Mark touched on earlier has been a big success. The project was completed on time and on budget, and the resort increased RevPAR market share by over 20 points year-to-date versus 2019. The Landing Resort, Lake Tahoe is having a record year with RevPAR up 44% year-to-date compared to 2019. Our asset management team designed a new labor model for this boutique resort that has reduced labor hours per occupied room by 40% compared to 2019, while increasing room revenue 83%. Our Barbary Beach House Key West Resort is also having a record year and saw a 22-point rise in the market share this quarter compared to 2019 on a 91% increase in room revenue. While we are on Key West, in case you missed it, our Havana Cabana Resort was named by TripAdvisor as the number one most saved resort in both the US and the world. Of course, all of this success is due to the combined hard work of our best-in-class asset managers working with hand-selected operators. As a result, our portfolio RevPAR share was up nearly 4 points in the quarter over 2019. This market share gain is even more remarkable when you consider the tight cost controls. Overall, rooms department cost per occupied room was reduced to under $55 per night or a 4.5% improvement from 2019. This was driven by a 7.2% decline in total labor per occupied room in our open hotels. As you can imagine, we are very proud of what we have achieved in the second quarter. Looking ahead, DiamondRock is well positioned to continue our leading pace of growth. Group revenue on the books for the second half of 2021 increased 10% in the quarter and is now 2.5 times greater than the first half of the year. Group revenue on the books for 2022 increased 8% in the quarter and is 44% higher than the forecast for 2021. Group rates on the books for 2022 are nearly $250 as compared to $220 in the back half of 2021. Citywide room nights on the books for 2022 are up 5% compared to 2019 in our six largest urban markets. Boston, Chicago, Fort Worth, Salt Lake, San Diego, and DC have seen an 8% increase since the start of the year. 2023 is already on pace to match 2019, with the strongest growth in Boston, Salt Lake City, San Diego, and Phoenix. We are also benefiting because of our very low exposure, less than 1%, to probably the worst urban market in the US, which is Downtown San Francisco, where return to office is low and convention room nights aren't expected to approach 2019 levels until sometime after 2023. Looking forward, we expect to continue to generate significant positive quarterly EBITDA and AFFO per share for the rest of the year. Cash burn is just so 2020. The positive momentum in the portfolio can be seen in the change in quarterly revenues compared to 2019, which are rapidly improving on a sequential basis. Revenues were 64% lower in Q1 and improved to 50% lower by Q2. Encouragingly, during the second quarter, monthly revenues compared to the same period in 2019 improved from down 58% in April to down 50% in May to down only 41% in June. July was amazingly strong for the DiamondRock portfolio with RevPAR down only 11.8%. Looking to the third quarter, we expect quarterly revenues to get even better. We are projecting revenues to be about 20% to 25% greater than the second quarter. G&A and total financing costs, that is preferred dividends and interest expense, will be roughly similar to the second quarter. We recognize there is increased focus on the Delta variant and some areas of the country have reinstated mask mandates. But we have yet to see an impact on our business. As we have in the past, we will stay close to these trends. Nevertheless, we remain cautiously optimistic on the pace of the recovery. With that, I will turn the call back over to Mark.

Thanks, Jeff. Before we take your questions, I want to touch on our recent transactions and our outlook. The two announced transactions strongly demonstrate that we are strategically repositioning the portfolio to lean into our long-held thesis that experiential and drive-to resorts will outperform over the next decade. While the acquisition market remains competitive, we intend to target more opportunities consistent with our experiential drive-to resort and urban lifestyle focus. We are particularly focused on targeting hotels that are synergistic with our existing hotels in markets like Sonoma, Vail, Lake Tahoe, and Sedona. Let's talk a little more about the outlook. Overall, we feel very good about the setup for DiamondRock. Our portfolio is well positioned to capture the continuing robust leisure demand as well as the coming rebounding group and business transient activity. We think DiamondRock has three major competitive advantages versus many of our peers. First, our portfolio market exposure is favorable, with our numerous resorts benefiting from the boom in leisure demand and our well-located urban properties poised to expand on the group business transient trends as the second leg of the recovery kicks in. Also, the convention calendars in our most important group markets look very strong in 2022. Second, our best-in-class asset management is benefiting us in gaining market share through creative revenue management strategies, execution of ROI projects, and enhanced profit improvement implementations. Third and finally, our high-weighting of third-party terminable operating agreements gives us more control and ability to be creative at running the hotels. The conversion of the multiple Marriott brand-managed hotels last year will add rocket fuel to our margin growth over the next few years. This concludes our prepared remarks. We are excited about our future and see things improving more rapidly than on our last call. We have a great portfolio, a great balance sheet, and a great team to be able to deliver shareholder value. Thank you for your continued interest, and we are happy to take your questions.

Our first question comes from the line of Dori Kesten from Wells Fargo. Your line is now open.

Thanks. Good morning, everyone. Can you walk through the asset management opportunities that you see at Bourbon Orleans and Henderson Park with new management in place?

As Mark mentioned, at Henderson, really, we'll do our rate efficiency model. It's kind of what we did in Sedona and all the other resorts, looking at room types, lead times, and basically trying to price it appropriately. So, there's just a lot of little opportunities in Henderson with rate. We think we can do that. That's pretty easy lifting. And then, there is a fair amount of opportunities, there's a lot of demand in that market, and we think there's opportunities to enhance the food and beverage experience and drive more incremental value from not only at the property, but off property and on the beach. So, that'll be the focal points there. And then at Bourbon, it's very similar. Its rate strategies, putting technology in place where you can monitor behavior, taking advantage of demand when there are citywides. And then, we're looking at all of the other opportunities in and around the space. There's an amazing historic ballroom with a history that we could certainly enhance and try to create more awareness. I think with all the website designed to be more nimble, with the website user-generated content on the website, things that we can't do with branded hotels, with the independent hotels, we can do. So, it gives us a lot of flexibility to enhance pictures, generate user-generated content, which makes it more relevant. So, at Bourbon, there's a host of things that we think there's opportunity at. And then, we have some retail spaces down on Bourbon Street and in and around there. There are some unused spaces that are amazing spaces, and we're still trying to evaluate what to do with them because they're that good. At Bourbon, there's a small little house with an outdoor patio, and they use it right now for offices and there's not a whole lot of use to it. So, we're trying to see how do we monetize that. We have a bar that sits on Bourbon Street that basically does minimize revenue, and we think we could open that up and kind of do what we did in Ft. Lauderdale with Lona, create and energize that whole space and drive revenue through. So, there's a lot of things. So, that's it, Dori. But I think that covers it, right?

Is there the ability to expand or increase room count at Henderson Park?

Yes. Well, it's interesting you say that. The site is zoned for a five-story building and you could build 150 rooms on the site. That's not in our underwriting and certainly not our immediate plan, but you could dramatically increase the size of this property by rebuilding it.

Okay. And if you separate your urban and resort hotels, where are you on demand versus '19 if you can compare April to July?

From April to July, particularly mid-week, we've been seeing business transient bookings double on Tuesdays and Wednesdays at urban properties. Currently, we're at around 50% occupancy for those days. We're observing a rise in business transient demand, while group bookings are still lagging, and leisure travel is exceeding 2019 levels. Looking at our July performance, although we're down, urban demand has improved significantly; we're down just 30%, which is a 20-point improvement compared to a few months ago. Resorts are performing better than in 2019. For specific urban markets in July, our two Boston hotels achieved an occupancy of 89%, and the Boston Westin at the convention center reached over 64%. In Chicago, another urban market, we recorded 73% occupancy, while the large 1,200-room Marriott was at 58%. Overall, urban markets are showing strong improvement as we progress through the summer and head into the third quarter.

Thanks.

Thank you. Our next question comes from the line of Smedes Rose from Citi. Your line is now open.

Hi, thank you. I wanted to ask, you mentioned that in the third quarter, you're looking for a 20% to 25% increase sequentially in revenue. Could you talk about maybe your margin expectations as well? Would you expect it to be the same as what you put up in the second quarter? Or are you continuing to kind of re-staff or having to pay higher? What are kind of the puts around what we should look for operating margin?

Yes. Hi Smedes, this is Jeff. Yes, I would say, when we look out to the third quarter, generally speaking, I think our margin opportunity in the third quarter compared to the second quarter is going to be the same to slightly better, maybe upwards of 200 basis points better sequentially. I think we're just trying to be realistic, given that we're going into a period of time where you're going to see some transition between leisure and business transient. But we're optimistic we're going to get a little margin improvement on a sequential basis.

Mark, I wanted to ask you a couple of more questions on your transactions. It sounds like there's kind of a second lag potentially to the Destin acquisition. But I just wanted to understand a little bit more behind making an acquisition of a hotel with 30-something rooms. It doesn't really move the needle a lot for you. I guess, it looks like a good investment, but relative to your overall portfolio, it's certainly very small. But then, bigger picture, we've seen more activity from the public REITs in the transaction market. I'm just wondering, is there anything in general that you think is bringing more attractive assets to market?

Sure. Let me address your two-part question. Regarding the Destin acquisition, it is a relatively small deal for us. However, when compared to our overall enterprise value, it aligns with similar deals seen in the market. We see this as an off-market opportunity that gives us a foothold in a strong market, particularly in the Rosemary Beach area, which has excellent fundamentals and high barriers to entry, especially for new developments along that beach stretch. While this asset won't significantly change our revenue management approach due to its low asset management intensity, it possesses all the favorable characteristics we usually look for. We believe it allows us to leverage nearby assets and potentially expand in the future, though that isn't our primary plan. If we were to develop 150 units there, essentially, we could obtain a hotel at the land value, making the hotel effectively free. It's a solid opportunity that enhances our portfolio and provides a foothold already contributing value to us. Now, in response to your second question, the hotel environment remains highly competitive. We've found it difficult to win auctions because competition is fierce, often with 15 to 20 offers on the table. Many buyers, including private equity firms and international investors, are actively pursuing hotel properties. Recently, there has been an increase in available properties in the market, likely spurred by stronger per-key valuations, especially for resort assets. The elimination of mask mandates in June and the resulting improvement in fundamentals have contributed to a more favorable sentiment for sellers. As a result, I believe we are witnessing increased buyer activity, which is currently influencing the market dynamics.

Thank you.

Thank you. Our next question comes from the line of Rich Hightower from Evercore. Your line is now open.

Hey, good morning, guys. So Mark, I want to go back to one of your prepared comments. I just want to confirm, the 1.7 million room night leads achieved during the second quarter, is that a same-store metric or is that not the same-store metric? And then also typically what portion of leads get translated into actual stays and do you expect any changes in that ratio as things are maybe still a little bit choppy out there over the next few quarters?

Yes. So, it is same-store for clarification. And then you could see, I mentioned in the prepared remarks that we're our close rate of 63% on the business we're fetching. I think the broader message is just to see the sequential improvement in the lead generation. So, things are really taking off from a group lead standpoint. Others are for future periods, so some of that's probably the bulk of its 2022 and even some 2023 booking activity makes up the bulk of what we're seeing. But if you look at the Cvent and the major channels, we are seeing increases in group demand, meeting planners. There's a lot of pent-up demand. So, I think all of that directionally is very encouraging. And then, I think our footprint for convention center calendars next year is also adding to the volume a little bit because Chicago and Boston and some of these markets have calendars that are as good or better on room nights than they were in 2019. So, that's going to get booked into our hotels.

Okay, great. Thanks for the clarification. And then, just another question on a lot of the CapEx. The DiamondRock is undergoing or completing in the various assets in the portfolio. I guess, as we think about the landscape of hotels that you're competing with that are probably heavily under CapEx'ed at this point, given what's happened over the last year-and-a-half, at what point do you sort of start to see those, the benefits from all that spend showing up in your index scores, your Trip scores? How long of a time period would that normally take? What are your expectations?

Yes. Looking back to last year, we made a strategic decision to focus on high ROI capital expenditure projects and to position our balance sheet accordingly. This work is being completed this summer and into the fall. The goal was to start seeing results in 2022. The Sonoma project was completed in June, Vail will be finished in November, the conversion to Margaritaville in Key West will happen by November, and we hope to finish the Luxury Collection conversion in Denver by the end of this year. We expect to begin seeing cash flow and returns soon, especially from Sonoma, where we are already noticing market share gains. You can anticipate seeing these benefits start in the first quarter, and next year we expect to see significant returns from these capital investments.

Great. Thanks, Mark.

Thanks, Rich.

Thank you. Our next question comes from the line of Chris Woronka from Deutsche Bank. Your line is now open.

Hey, good morning guys. Mark, it sounds like the strategy is really kind of a focus on leisure, and we might take that to mean resorts. It sounds like you're open to leisure-centric hotels in traditionally urban markets, so that could still keep pretty much every most markets out there on the map, is that correct?

It is. We're not going to add, we have sufficient in New York, Chicago, Boston. So, we're not going to be additive in those markets. San Francisco is redlined in our opinion for the next several years. And markets that we're likely to expand in that are not resorts are going to be more markets like Charleston. That's a market that has some business and some, having a fairly large presence in that market, but also lends itself to be predominantly leisure. We think that those markets are going to outperform New Orleans. French Quarter, particularly, it's an experiential market while it benefits from strong convention calendars. We think that travel trends that are going to outperform are going to tend to be more experiential, whether that's urban or pure resorts.

Okay, helpful. And second question is, you guys have obviously restored a lot of liquidity. But as we think about acquisitions going forward, can you remind us where you are on ATM? And is there a thought toward just kind of over-equitizing acquisitions, even if you theoretically could bring on property debt or use cash or something like that?

Yes. Hey Chris, it's Jeff. As we said at the end of the last quarter, at that time, we said we had $112 million remaining on our ATM and that ATM program actually expires in August. So, we said at that time, you'll see us replace that ATM program. So, that will be recharged effectively, but I think, technically, today it's $112 million and you'll see that go back up to a higher amount. We do have the ability to acquire assets using debt. But right now, we've been looking at recycling the proceeds from the dispositions that we've made, and so effectively using cash on hand. They've been funded all cash or effectively all the equity.

Okay, very helpful. Thanks, guys.

Thank you. Our next question comes from the line of Patrick Scholes from Truist Securities. Your line is now open.

Hi. Good morning, everyone.

Good morning.

Good morning.

So far this year, you've been running room margins in the mid-70%. It sounds like 3Q might not be so different. From a high level, and I think this is true for most of the hotel REITs, how long can that last? I think that's something that's surprised many of us how you're pretty much back there on room margins. Is that sustainable? Or as we get into the lower leisure season post Labor Day, does that start to slip back? And then, the whole issue of rising labor costs. Interested in your thoughts around that. Thank you.

Sure, Patrick. I'll take a shot. So, I guess, certainly into the third quarter and for the balance of the year, we see maintaining profit margins with a continued recovery. And we think that margins, we've just gone through. Let's talk about why margins are good and why they may currently be better on prior peaks. The labor model is the most for the industry, the labor model has fundamentally changed. We've never had to go through something like this where we zero-based every single hotel and we've gotten rid of positions, we permanently changed positions, FTE counts as an industry. So, that benefits us, technology is benefiting us. Mobile key, less people at the front desk, other sophisticated tools to monitor productivity, above-property charges from the brands at the branded hotels have been reduced. So, all of those are helping margins. I think what's going to be unique to us and what is already helping us is the conversion in the comp to the brand-managed hotels, the six of which we had last year. So, given the example of one change at Salt Lake City, we've been able to reduce the managers from 18 to 11, and we think we can maintain it roughly at that level. So, that's 39% less managers at that hotel. So, you can imagine how that runs through in profitability and margins not only now, but as we kind of return to prior peak too. So, we're relatively optimistic on the margin front. There clearly is a nationwide shortage of labor and we are dealing with that like everyone else. But I think there's a lot of reasons to be optimistic on the flow through and maintaining margins.

Okay, thank you. Good to hear your thoughts on the topic.

Thanks, Patrick.

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

Thanks. Good morning, everyone.

Good morning.

Mark, I just want to go back to the acquisitions, kind of high level, looks like you're assuming roughly a 7% cap or 7% caps that go to 8% caps, not that much growth though. So, maybe two parts, why is the stabilized 8% cap the right number to target? And then, I know you gave some details about what's not in your underwriting, but how should we think about maybe to stretch yields that you guys think you could get to over time on these deals?

Yes, you never want to overpromise. So, I think stabilized 8% is accretive to the growth NAV of the assets. It creates value for our shareholders. I think if you can get to an 8% on high-quality real estate, it's additive in the public company format. I think Henderson is a fairly straightforward deal. It's irreplaceable real estate. While it's small, it is beachfront, impossible to build in. And I think by the time we're done with it, it will be worth a lot more than we paid for it. Bourbon too, it's got more creative aspects. We can employ to grow NAV. We haven't built in when we talk about that 8% yield; we haven't built in a lot of things Tom was talking about. So, the change in the retail, reconfiguring the F&B, taking advantage of the separate buildings that come with the acquisition and turning those into unique banquet and wedding spots all that would be incremental ROI to that 8%. And so, hopefully, we're going to do better. Take Barbary Beach, we're looking at the Key West, yes, that's an asset that is 35% or more above our underwriting. We put a 6% cap on that. I think I was looking at total investment. Our yield on that this year will be something like 11.5% on our total investment and that doesn't include being used for the conversion to the Margaritaville. So, put a 6% cap on that number on $30.5 million this year, that's like $225 million for an asset we have a $117 million basis in. So, hopefully, it will be successful like that asset, but I think we don't want to build in the ROI stuff when we talk to investors on the initial underwriting. We'd rather communicate to you what we think is probably the straightforward clear path to stabilized yield. And then, as we approve and finalize ROI projects, we'll communicate that to the investment community.

Got it. So, it sounds like 8% kind of a baseline and you'll work higher from there, hopefully, right?

That would be our hope, yes.

Got it. And then, just switching gears, maybe one for Tom. Can you help us get our arms around what you've seen for BT in the fall, where this special corporate booking is occurring and are you seeing the booking window extended out at this point?

I've got to tell you, Mike, we've seen a little bit of growth in BT. We went from like 5%, we grew about 1 point a month in the second quarter, up to about 7%. The portfolio as a whole, across all the hotels, runs about 15%. And then, obviously, in the urban, we're doing as much as 30% to 40% mid-week when things are good. So, we're seeing a little bit of movement. There is nothing in the future, there's no future pace that shows anything that shows that there is no significant change at this point. I think we're still too far out. And I think a lot of its going to really come around to how do the kids go back to school, how do things play out in the fourth quarter. But there are no indicators that things are dramatically improving or going backwards. Right? So, I think we're just monitoring.

Yes, Mike, this is Mark. I would like to add a couple of points. We have seen mid-week increases in both leisure and business travel, as mentioned earlier. Looking at our July results in key markets like Chicago, New York, and Boston, many hotels are achieving occupancy rates between 70% and 90% midweek, which is promising. Additionally, over the past 45 days, various companies, including PwC and some consulting firms, have lifted travel restrictions, which bodes well for business travel as we move into fall. The easing of travel restrictions is a positive sign. According to Delta Airlines’ CEO, they have access to more accurate data than we do. A trend is emerging where more people are booking outside of traditional corporate travel patterns, making it tougher for us to track business travelers. Delta noted their business travel was at 20% earlier this year but has now risen to about 40% compared to 2019 levels. They anticipate it may reach over 60% after Labor Day based on their forecasts. The overall trend looks promising, and we are using this data from airlines as they have clearer visibility due to the booking patterns, although we cannot provide definitive numbers right now, as business travel for December is not being booked just yet. However, the trend appears to be moving in a positive direction.

Thanks for all that.

Thank you. Our next question comes from the line of Anthony Powell from Barclays. Your line is now open.

Hi, good morning. We've seen a lot of transactions in the space, but very few on the big box group side. What's your view on the values there and investment demand for those types of assets kind of look?

Yes, this is Mark. So, I'd say there just aren't any for sale. We just were at recently, just looking at what's in the market. I can't think of one big box that any broker has listed at the moment. So, I think the general attitude, if you own big boxes, is that it's not the right time to market. Group will come back. I think people are pretty optimistic on the group front. But it doesn't feel like it's the time to market that asset. So, with no trades in the market, it's hard to give you a perspective on exactly where value is on the big boxes. I suspect that, this time next year, we'll see group recover, maybe a little bit better than people expected, and that will bring buyers and sellers together next year on those kinds of assets.

Got it. And you talked about maybe marketing one of those at some point. I'm guessing by your commentary, next year is when you could consider that maybe, and is that correct?

If you were going to market a big box, next year would certainly be a much better time than right now. I think there's just more certainty. And I think we're fairly optimistic on the group recovery scenario. So, I think we wouldn't want to be premature in bringing any large hotel to the market right now.

Got it. And just on the acquisition side, what's the total opportunity set for you with kind of smaller resorts and maybe more leisure-focused urban hotels? Could you do maybe 10 of those deals over the next couple of years? It takes a lot of them to replace a Lexington or a big box resort, I'm just curious what you see kind of the velocity of deals over the next few years?

Yes, there are many hotels in the range of $50 million to $100 million that fit this category. Our real advantage lies in our team; Troy and his investment group have focused on this for over five years. We've developed a substantial database of around 50 smaller markets, including places like Sedona, Vail, Park City, and Jackson Hole, where we know every hotel. We've been in contact with numerous owners for years, which helps us uncover off-market deals. Our internal pipeline includes many of those opportunities. Are we capable of completing 10 transactions over the next couple of years? Yes, there are plenty available, and we have unique insights into this market. We aim to concentrate on acquiring off-market, distinctive deals. Recently, we missed out on an auction deal by $15 million, which indicates the competitive landscape. Our goal is to create value through our acquisitions, and I believe that focusing on this strategy is how DiamondRock will generate value, while others may need to overpay in auction situations.

Got it. Maybe just one more quick one, how are distribution costs for the small independent resorts? The margins seem to be very strong. So, it seems like you're able to overcome any OTA fees at these properties. I'm curious how you're sourcing customers at a Sedona or a Havana Cabana.

Tom, you want to take that?

Sure. All the tools are in place for us to access customers, especially with a brand like Sedona where there is brand equity and people, it's relevant. But we use all the tools; we use the OTAs, we use a layered approach with regards to luxury travel agents. We have a luxury travel agent strategy, Virtuoso, Signature, Fine Hotels on those types of resorts. And then, we don't have the brand fees. Think about an independent hotel; we're not paying 10% for the brand. We're not paying all the brand marketing fees. And so, we can allocate a portion of that and attack the customers directly, right? We're not, we focus, we try to keep our portfolio focused on nothing in the aggregate but only specifically to our assets. And so, when we allocate dollars, we're targeting our specific asset, not a grouping of hotels, like the brands do. And so, that gives us a lot of nimbleness. You'll see in like Havana Cabana, we're number one website in the nation, right. Most saved website in the world. And it's kind of funny, you say how does Havana Cabana and Key West become the number one saved website in the world? And it's because we have the ability to take the user-generated content and retarget the customers, and so people save it and they use it and they share it with their friends, and it's very powerful. Independent hotels and our sales and marketing team, we have all the resources on our team at DiamondRock and we do it for ourselves versus relying on the brands. And I think that's a very powerful tool. It gives speed to market and it reduces our costs, which is why we like the independent hotels so much.

Thank you.

Thank you. Our next question comes from the line of Floris van Dijkum from Compass Point. Your line is now open.

Thanks. Good morning, guys. Wanted to get your thoughts. It's intriguing to as competitors have bought assets near your assets at high prices, and Mark, maybe get your thoughts on, first of all, the value of your assets and also put that in perspective. How has that value of your net worth the company's net worth, I should say or NAV changed since December when you issued some a small amount of equity on your ATM? Maybe if you can give some more thoughts on that would be great.

Sure. So, let's take both parts. So, we did issue a little bit on the ATM last fall, but that was to position for the ROI projects. So, that funded the Vail repositioning, that funded the Sonoma repositioning, that funded the Margaritaville conversion, that's funding the Luxury Collection conversion in Denver. So, that capital has been spent or being completed right now and will position us for outsized growth in 2022. So, it wasn't really steaming on NAV as much as we had a very high use, 20%, and 30% IRRs on those projects, and we thought that relative, they made a lot of sense. As we look forward on acquisitions now and the use of capital and NAV, as far as our current state of value, so I think the NAVs are going up. I think if you look at our assets in markets like Key West and you look at our markets in like Sonoma and Sedona where we've seen other trades, those assets now are breaking through the probably record pricing. Our Barbary Beach is worth more than $1 million a key. Sonoma is probably worth more than $1 million plus a key now. And that compares to basis. That is, our basis in Sonoma is roughly $270,000 a key. It's probably worth $1 million plus a key now. Barbary Beach, we're probably up 70% from our basis. So, with these numbers that are getting paid up by others in the marketplace, it's increasing our NAV. So, we're always reevaluating. It's hard to, it's always hard to know exactly where it is, but the private markets are paying a lot more than the public valuations, and there is a big disconnect right now between these valuations.

Thanks. I appreciate that. And I was actually pretty intrigued. You made the comment that your returns on your Key West assets are in the double digits. Obviously, there is more to come on the rebranding to the Margaritaville. If you were to back solve from your original acquisition costs, how much value has been created and how much has the value per key improved over your whole period?

So, let's take Barbary Beach or Havana Cabana. They're both double-digit returns on our investments. So, if you put a 6% cap on those, kind of where things what they're trading down there, that puts Barbary Beach on this year's numbers, it's something like $225 million versus a basis of $117 million. So, I can't do the math in my head, but a 90% increase in value and about $1.2 million a key. Havana Cabana, if you put a 6% cap on what we think it will do this year that puts it about $90 million. I think our basis is $55 million, so that's up 60%. So, again, I think what we're seeing is a lot of our thesis that we've been trying to articulate to investors over the last five to seven years playing out. Right? The trend lines and high barriers to entry, there's no new supply, and what do customers want, the assets we've been buying, particularly over the last five to seven years, those two are really playing out, and we're seeing massive increases in NAV of those assets.

Thanks, Mark. I appreciate it.

Absolutely.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Mark Brugger for closing remarks.

Thank you, everyone, for joining us today on our earnings call. And we look forward to updating you next quarter. Take care and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.