Good day and thank you for standing by. Welcome to the DiamondRock Hospitality Company Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn, Chief Financial Officer.

Good morning, everyone, and welcome to DiamondRock's Second Quarter 2025 Earnings Call and Webcast. Joining me today is Jeff Donnelly, our Chief Executive Officer, and Justin Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discuss 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. Comparable RevPAR growth in the second quarter was 0.1%, driven by a 1.1% increase in rate and an 80 basis point decline in occupancy. RevPAR was negatively impacted by approximately 50 basis points due to our ongoing conversion of the Orchards Inn in Sedona to the Cliffs at L'Auberge. Total RevPAR growth was 1.1% as a result of a 4.2% increase in out-of-room revenues per occupied room, a notable acceleration from the first quarter and exceeding our expectations. In fact, out-of-room spend reached a new quarterly high of $160 per occupied room. During the quarter, the portfolio's group room revenue increased 0.8%, business transient revenue increased 4.2%, and leisure transient revenue declined 1.6%. Food and beverage was a bright spot in the quarter, both on the top and bottom line. F&B revenues increased 3.1% with gains in both banquets and catering and outlets. While we were pleased with top line performance, we are even more proud of the flow-through. F&B profit increased over 6% or twice that of the revenue growth and margins increased 105 basis points. Our asset management team has worked hard to reengineer menu pricing, reconsider portion sizes, and refine outlet operating hours to maximize productivity. Turning to overall expenses, we are incredibly proud of how our operators manage costs this quarter. Excluding a larger-than-expected property tax increase in Chicago, our operating expenses increased only 0.7% on 1.1% revenue growth, with wages and benefits increasing 3.1%. Factoring in the portfolio's full 2.6% expense growth, hotel EBITDA margins contracted 97 basis points. However, excluding the Chicago tax increase, margins would have increased 30 basis points. Corporate adjusted EBITDA was $90.5 million and adjusted FFO per share was $0.35. Finally, free cash flow per share for the trailing 12 months calculated as adjusted FFO less CapEx increased approximately 4.5% to $0.63 per share. I'll now highlight the results of our urban hotels and our resorts for the quarter. Our urban portfolio, which accounts for just over 60% of our EBITDA, achieved 3% RevPAR growth in the quarter. April was the strongest month with 4.6% growth. However, with increased uncertainty stemming from dogecoin and tariff announcements, we saw the pace of RevPAR gains slow to 1.6% by June. Nevertheless, rate growth held steady at approximately 2.5% over the quarter. The strongest RevPAR growth in the quarter was achieved by our hotels in San Francisco, San Diego, New York, Boston, and Chicago. Total RevPAR growth at our urban hotels was 100 basis points stronger than RevPAR growth with food and beverage revenues up over 5%. Total expenses in our urban portfolio increased 5.7%. However, excluding the property tax increase in Chicago, total expense growth was just 2.5%, implying margin growth of approximately 95 basis points versus the 104 basis point decline reported. In our resort portfolio, comparable RevPAR declined 6.3% and total RevPAR declined 3.9%. The opening of the redeveloped Orchards in Sedona, now known as the Cliffs at L'Auberge, was delayed by 12 weeks while we waited for the city to issue a certificate of occupancy and thus weighed on the resort portfolio performance. Excluding the Cliffs, our resorts comparable RevPAR and total RevPAR declined 4.7% and 2.7%, respectively. Similar to the urban portfolio, we saw softer performance in our resorts subsequent to April. However, out-of-room spend was less impacted than RevPAR in each month of the quarter. Our resorts in Florida experienced a 4.1% RevPAR decline, an improvement from the decline reported in Q1. Out-of-room spend per occupied room increased an impressive 6.7%, resulting in a total RevPAR decline of just 0.6%. Tight cost controls translated to nearly flat hotel EBITDA margins for these resorts. As a reminder, our Florida resorts experienced an early demand recovery coming out of the pandemic and therefore, experienced larger labor cost gains at that time before settling into the lower, more stable increases experienced today. Outside of Florida, resort RevPAR performance varied. Chico and Sonoma were up in the mid-single digits. However, The Hythe in Vail was down 23% as it benefited from a large in-house group last year. Looking into the third quarter, we expect our total portfolio RevPAR to decline in the low single digits and that expense growth will remain low. Group room revenues across the portfolio increased 0.8% with rates up 3.3% and room nights down 2.5%. When we entered the year, our group pace for 2025 was up approximately 1%, coming off the strongest group revenue in our company's history. We have been highlighting for several quarters now that our success in the second half of 2024 would present difficult comparisons for the same period in 2025. As of August 1, our group revenue pace for 2025 is still up approximately 1%, but what you can't see is the reacceleration we have delivered from a 20 basis point deficit just 1 month ago, created by post-Liberation Day pressures. Our group lead volumes improved throughout Q2, an encouraging statement about underlying demand. However, our conversion rate has yet to reaccelerate, highlighting the continued reticence to commit in an uncertain environment. We are pleased that our hotels have a strong setup for 2026 with group revenue pace currently up 12%. As a reminder, group typically accounts for approximately 30% of our portfolio's revenue. Turning to the balance sheet, in July, we successfully refinanced, upsized, and extended the maturities under our senior unsecured credit facility, increasing its size to $1.5 billion from $1.2 billion with our pricing grid unchanged. Following the repayment of mortgages on the Worthington Renaissance and Hotel Clio in May and July, respectively, we have one remaining mortgage on the Westin Boston Seaport, which we intend to prepay in early September with the incremental proceeds from our new credit facility. At that time, we will have no assets encumbered by secured debt, no debt maturities until 2029, including our extension options, and all of our debt will be prepayable at any time without cost or penalty. We greatly appreciate the unwavering support of our lending partners throughout this process. We have declared or paid a quarterly common dividend of $0.08 per share to date this year and depending on our 2025 taxable income, may declare an additional sub-dividend for the fourth quarter. Once again, this quarter, we took advantage of the disconnect in our share price and repurchased just under 1.7 million common shares at an average price of $7.46. Since the end of the quarter, we have continued to repurchase shares, resulting in 3.6 million shares repurchased year-to-date for $27.3 million at a cap rate of just under 10%. We have $146.8 million of capacity remaining on our share repurchase authorization and continue to view repurchases as one of our best uses of capital in this environment. With that, I'll turn the call over to Jeff.

Thanks, Briony, and thank you all for joining us this morning. Before I begin today, I want to take a moment to congratulate our team and our Founder and Chairman, Bill McCarten, on DiamondRock's 20th anniversary, which we celebrated in June. I am grateful for the energy and passion our people bring to DiamondRock, and I'm genuinely honored to work with this best-in-class team. I want to focus my comments today on how we intend to drive outsized free cash flow per share growth over the medium term, the current transaction environment, our ROI projects, near-term value creation opportunities and lastly, the building blocks of our 2025 outlook. We believe REITs that drive among the strongest earnings and free cash flow per share growth should be rewarded with leading total shareholder returns. Yes, lodging is more volatile than other property sectors that benefit from long-term leases that can mask their underlying volatility, but that does not mean we cannot strive for competitive per share growth on average over time. To achieve this end, the following is what you should expect from DiamondRock: recycling out of low free cash flow yield hotels into higher-yielding investments; capitalizing on opportunities to dispose of assets where buyers see greater value than we do; reinvesting in our assets when and where outsized ROIs exist, not just outsized RevPAR growth; thoughtfully stretching the renovation life cycle, especially when asset quality and operating performance do not warrant refreshment; and reinvesting in ourselves through share repurchases when a valuation disconnect exists. As you'll remember, historically, we have spent 20% less per key on capital expenditures. The age and condition of our portfolio has and should continue to benefit our CapEx decision, giving us a relative advantage. In office or retail properties, outsized tenant allowances can be employed to drive premium rents, but that does not mean it is always a sensible use of capital to do so. Similarly, RevPAR and EBITDA too can be arguably bought through excess capital investment. Earlier, Briony shared our free cash flow per share results. I encourage folks to incorporate after CapEx metrics into your valuation framework to understand whether stewards are earning an appropriate return on your capital. With respect to the transaction environment, not much has changed since our last call. There continue to be interesting acquisition opportunities. However, sellers generally remain unpressured and patient. Over the last few months, our underwriting is leaned toward group and leisure-oriented resorts as well as distressed urban properties. Asking cap rates on these resorts range from 7% to 9%, but after upfront capital and property tax resets are realistically 100 to 150 basis points tighter. Higher-end irreplaceable resorts are often marketed with 5% to 6% asking cap rates. In urban markets, newer, high-performing assets are asking 7% cap rates, whereas older assets requiring capital are asking 9% cap rates. Again, after initial CapEx, the going-in yields can be 100 to 150 basis points lower. In all of these cases, pricing is at a premium to where we currently trade. Accordingly, our best use of capital has been and continues to be repurchasing our shares at just under a 10% cap rate and funding our ROI project in Sedona, which we expect to achieve a greater than 10% stabilized yield. We continue to work on asset dispositions. Our time line was negatively impacted by repercussions of recent federal policy changes. Nevertheless, we remain focused on accretive recycling opportunities. While we do not typically put a time frame on such transactions, we expect to be more active over the next 12 to 24 months than we have been historically. Turning to our internal investment projects. Last year, we had six hotels with staggered renovations throughout the year. And this year, we have four, again, staggered to minimize renovation disruption. The hotels under renovation last year provided solid revenue and EBITDA tailwinds for our portfolio this year, and we again look forward to a tailwind in 2026 from this year's renovations. The largest tailwind and most meaningful with respect to the value of the hotel is the roughly $25 million renovation and integration of the Orchards Inn, now known as the Cliffs into L'Auberge de Sedona with stunning views of the Red Rocks. The renovated rooms have been exceptionally well received by guests. The two resorts will be fully integrated in late Q3 with the new hillside pool, bar area, and event space completed at that time. Despite the elevated revenue disruption from waiting for a certificate of occupancy, transient and group bookings are now accelerating. Wedding revenues at the Cliffs in this partial year are expected to more than double the full year of 2024. The Cliffs alone should drive a 25 to 50 basis point tailwind to RevPAR growth in 2026. We remain quite comfortable this ROI project will achieve a 10% yield on cost upon stabilization. It is our view that renovations and repositionings with a compact scope and timeline, such as Sedona or the Dagny in Boston, are the most suitable for a public company. You should not expect us to undertake large multiyear repositionings. As for future value creation opportunities in the portfolio, our single largest opportunity to add rooms is on our more than 700 acres at Chico Hot Springs in Montana. Down the road, there are potential oceanfront residential development opportunities in Destin as well as Fort Lauderdale. Moreover, three of our franchise agreements expire between 2025 and 2027. This rare occurrence represents an opportunity to create shareholder value with little-to-no material capital expenditure, either through a reflagging, deflagging, or even sale. The largest among the three is the nearly 800-room Westin Boston Seaport District with an agreement set to expire in December 2026. We look forward to updating you as that process unfolds. Before wrapping up with our 2025 guidance, I'd like to provide some context around our portfolio as we sit in an operating environment that has been and is expected to continue to benefit higher-end portfolios. When compared to our full-service peers, we have the second highest annual occupancy, the second highest percentage of rooms with ADRs over $300 per night, the second highest hotel EBITDA margin with the highest rooms and F&B margins this quarter, a year-to-date RevPAR index of 115, and 40% of our hotels enjoy top 5 TripAdvisor ranking. Now these results were achieved with the lowest G&A per hotel, almost 40% below average, while spending 20% less per key on CapEx than our peers. Expense and capital efficiency are just as critical as top line performance. Now to our outlook. In broad strokes, our crystal ball is by no means clear, but it does feel incrementally less cloudy than it did just 3 months ago. The pace of federal policy shifts over the last several months have likely peaked and should moderate into mid-term elections. While these shifts have been highly disruptive and we've experienced their incremental impact on performance thus far, they have had relatively less impact on our corporate and more affluent leisure customers. We have seen this in the improving group lead volumes throughout Q2 in our higher-end portfolio, an acceleration in our 2025 and 2026 group pace in the last month, continued strength in out-of-room spend for both transient and group guests, and flat demand in July after several months of downward pressure. I'll emphasize it is early, but our operating results and forward bookings indicate we are possibly entering a more stable operating environment than we were experiencing just 3 months ago. We are maintaining our full year outlook for RevPAR growth of negative 1% to plus 1%, but we are encouraged by the increased out-of-room spending trends we experienced in Q2 and early Q3. We now expect total RevPAR growth to outperform RevPAR growth by 50 basis points in 2025, an increase from our prior assumption of in-line performance. For the third quarter, we expect RevPAR to be down in the low single digits with the toughest comparisons in August. We expect our 2025 corporate adjusted EBITDA to be in the range of $275 million to $295 million, up $2.5 million at the midpoint, and FFO per share to be in the range of $0.96 to $1.06, up $0.01 at the midpoint. Our projected capital expenditures are unchanged at $85 million to $95 million. Our 2025 guidance does not assume we redeem our 8.25% preferred shares, which can be redeemed on or after August 31. Our guidance does not assume the repurchase of additional common shares, which are currently at an implied 9.7% cap rate, although our upsized credit facility has provided us with the liquidity to do so should we so choose. So thank you for your time this morning, and we'll be happy to answer your questions.

Jeff, I wanted to ask you about something you mentioned in your opening remarks and the release regarding stabilization at the higher end of the portfolio. Could you elaborate on whether you were referring to specific properties or to guests within your overall portfolio that you consider higher end and are spending more?

Sure, sure. And sorry for any confusion. Yes, the quote I had in the release was really referring to our portfolio as a whole. And we were speaking to demand no longer being as soft as we were seeing in recent months. So effectively, we are moving towards stabilization. So bottom line, it was meant to be a comment speaking about fundamentals improving from sort of a softer point in time.

Okay. And then I wanted to ask you, you just mentioned for the third quarter, low single-digit RevPAR declines. I think that's kind of a theme we've seen across the industry as we kind of wrap up second quarter. But just for you guys specifically, are you seeing it across the board? Or is there particular weakness in leisure? Or could you just talk about what's sort of driving the decline?

Sure, Smedes, it's Justin. I think we've been pretty consistent about Q3 weakness from the beginning of the year. We had an outstanding Q3 last year, especially with the DNC in Chicago, which was a one-time event that makes for a tough comparison for the company. So I believe that's what's driving our Q3 weakness. It's not really a change in trend line. Specifically in August, we have a bit of a group pace deficiency due to some unusual events that occurred last year that are not repeating.

Okay. Looking at the results from last year for the Chicago Marriott, it seems to be pretty much in line with 2023. I'm just wondering if this is a more challenging comparison for both years or if there's something else going on.

I think Boston also has a bit of a difficult comp. But just to give you an example, I mean, in August, I think the Chicago Marriott did over 50% group last year. That's just not a typical group component in a month like August for that hotel at a rate that was significantly in excess of what we typically achieve in August, just attributable to the Democratic National Convention. So I think that, in particular, is the one thing that proves a difficult comp for us.

I appreciate your earlier comments on share buybacks, and it seems like you still got some room left within your leverage target. But curious how to think about the continued buybacks with respect to addressing the preferred after it becomes redeemable later this month.

Yes. I mean, certainly, share buybacks are an attractive use of capital. It's something that at this point, where we're trading today, I think it's still sort of a high 9% cap rate, close to a 10% cap rate. It is very appealing. We certainly look at the opportunity to repurchase the preferred. That's not in our guidance for the rest of the year. It's something that we'll continue to weigh as we frankly move through the quarter and the year-end as to what the best use of capital is. But I think we have a lot of flexibility to pursue attractive options across the board.

Great. And then just as a quick follow-up, could you provide an update on the Sedona repositioning? Curious if you can provide any update on expected performance at the hotel and how rates on forward bookings there are trending for Q4?

Yes. It's still early. I mean the hotel has really kind of gotten to a point where it's really just begun marketing itself. And when you think about Q4, it's not traditionally like what I will call in season for Sedona. Typically, it's more of a spring and fall season. But the booking pace that I was looking at yesterday was actually pretty encouraging that when you look at just the Cliffs building, we're getting group business in Q4, which is historically a period of time that we would not be getting that type of business. I think a lot of that has to do with this renovation. But also when you look at the rates year-over-year, they were up $150 to $200 over the prior year. So it does seem like it's very early days, but it's working out as we were expecting.

You had referenced that you'd started to see kind of the group pace pick up here over the last month and sort of closing the gap from the negative 20 bps to plus 1 over the back half of the year. Which segments of the business are really driving that? Is it urban, resort? Is it a little bit due to the opening in Sedona? And then I was wondering if you typically see lead volume improve before kind of the conversions to booked business increase in kind of these types of periods and just that shorter booking window overall?

I mean, this is Jeff. I will say on the first part of your question, a lot of the improvement in the group booking pace revenue for the year is really going to be in the urban side. I mean some of our resorts, they might have a small group component, but maybe not so much that it's going to carry the weight for the entire portfolio. I think it's just the success we've had on some of the short-term group, which candidly still has been more difficult to get some conversions. I don't know, Justin, do you have any thoughts on...

I think from a short-term perspective, too, we're a little bit more optimistic about Q4, just given that we don't have an election on a year-over-year basis. There's a couple more weeks of availability that were kind of off the table last year just from a group booking perspective that we have the ability to sell into in the short term.

Got it. And then could you just frame up how much of a drag group has been on portfolio RevPAR growth this year? And while I know the group pace for '26 doesn't necessarily equate to what you'll actualize, but is there any way to frame up what the magnitude of that swing could be? And then which markets in '26 are really driving the uplift?

Yes. I don't believe the group segment is necessarily a negative factor. Business transient has certainly been one of the positives in the most recent quarter. However, looking at the second half of the year, our group performance is relatively flat compared to last year. So far, it hasn't been a significant issue, but that's largely due to the DNC convention anniversary happening in the third quarter. This situation poses challenges for the group segment in the latter part of the year, but it's not unexpected as we have been aware of this for about a year, ever since we achieved strong results last year.

And then just with respect to '26, what are the big drivers of that?

For our pace in '26?

I mean, I think Boston is probably our best market from a year-over-year growth perspective. If they've got a phenomenal citywide calendar in '26. I think it's really the biggest driver from a portfolio-wide perspective.

Yes. Our group revenue pace continues to be pretty strong for next year. I think it's low double digits.

So on the leisure side, I think you mentioned a little while ago in the prepared comments, Jeff, that resorts were one area where you're focusing on potential acquisitions at the right price. Have you guys studied the impact of cruise? I think there's some concern out there that the hotel industry is particularly resorts is kind of in this secular trend of losing some business to the cruise line industry. And I'm curious as to whether you guys believe that or if you've done any work on that and if that would potentially shape your decision?

It's a good question. It's always challenging to determine because we don't receive direct feedback from cruise line passengers about their travel choices. Some factors to consider include the pricing of hotels and the regional aspects that may attract cruise line customers. We do consider whether cruises are gaining market share, but it's difficult to pinpoint the impact to a single factor as it varies by property type. For instance, Lake Austin, which offers a premium spa experience, may not directly compete with cruise line customers, but it relates to the target market. We do take this into account, and in the Keys, the competition with cruises may be more evident.

Yes, yes. Okay. Makes sense. And then as a follow-up on costs, I think we're hearing certainly from you guys and from others, there appears to be a little bit of let up in the pressure, especially on wages. And I know there's always going to be a little nuances or maybe big nuances with property taxes and insurance. But overall, would you say you're more or less encouraged than you were 3 or 6 months ago on kind of the direction of pressure on especially wages?

Yes, I believe in this most recent quarter, excluding the Chicago property tax, our expenses increased by about 70 basis points, with labor costs growing by approximately 3%. If I recall correctly, our wages rose about 2%. Overall, this has been slightly better than we anticipated. While I can’t comment on what our peers are experiencing, I think one advantage we have is that our portfolio has more exposure to leisure markets, which tended to recover earlier during the pandemic. Consequently, we were able to bring back staff and increase wages to attract employees back to the hotels. In contrast, some urban markets, like those on the West Coast, may still be seeing delays in the recovery of group demand, meaning they are still in the process of ramping up staffing and assessing their actual labor costs. That could explain why our labor cost exposure is performing relatively better than average.

Jeff, you have really good perspective on the lodging industry and industry macro and certainly wouldn't be asking you for guidance at this point. But as you look further out, what would you view as the kind of key drivers of acceleration in industry RevPAR? Or is your base case we are still kind of chopping around at these flattish levels next year?

I hope that's not the case. I'd like to think that some of the uncertainty surrounding the economy has been holding back private fixed investment, which is usually a major contributor to RevPAR over time. I believe companies are being motivated to reinvest domestically. Additionally, if we experience less political turmoil, it may boost companies' confidence, leading to an improved situation next year with potentially more fixed investment. Meanwhile, the lodging sector currently has no supply in the pipeline, which isn't a concern. So I’m optimistic that we will see RevPAR accelerate next year.

And then specifically to this big refi you just did, which will unencumber some properties from mortgage debt. Can you talk a little bit about what kind of flexibility this provides? Is it operational flexibility or transactional flexibility or something else?

Yes, Duane, I would say it's a little bit of both, right? It does provide us having our properties unencumbered by secured debt allows us a lot of operational flexibility and to make decisions at the property that don't get bogged down by needing a lender's consent. And I guess on the transaction front, right now, all of our debt is completely prepayable at our option with no penalty. So that's another advantage.

Yes. And one last point I would make, Duane, too, is that effectively, all of our debt now is really at market. So there's no, I'll call it, headwind to our FFO and cash flow around debt resetting, and rolling up to where market is to the extent you had sort of pre-pandemic or pandemic level debt.

Is the current growth in out-of-room spending sustainable through 2026? Do you have any reasons to feel confident about that? Additionally, could you discuss the pricing power related to out-of-room spending, particularly the breakdown between price and volume contributing to this growth?

It's still early to make predictions for 2026 as we are just starting our budgeting process. The outcome will depend on how the group situation develops for next year, which will influence banquet and catering performance. Groups have performed well recently, and while I wouldn't conclude that this trend won't continue, it is affected by the mix of groups and the performance of leisure customers. I'm hopeful we can maintain this momentum, but I don't have enough certainty to provide a definitive view. Regarding the balance of price versus volume, I don't have a clear answer. It seems to lean more towards price because there is significant spending in food and beverage, where we might reconsider our menus in terms of pricing and portion sizes. Additionally, there are non-food and beverage expenses, such as parking and amenity fees. While I can't give a definitive breakdown, I suspect the focus is slightly more on price.

Okay. And then following up then, do you have any info on the growth just for the out-of-room spend on F&B, non-F&B, banquet and catering, parking, is the growth being just driven across the board or just, I guess, year-over-year growth metrics?

Yes. I believe that this quarter, the growth we have experienced has been quite widespread, affecting both group business and leisure transient business. This indicates that we are observing growth in both urban hotels and traditional resort hotels.

Jeff, you mentioned an intention to more actively pursue asset sales over the next, call it, 1 to 2 years. Can you talk about how you balance the arbitrage opportunity on the one hand, relative to the reality of being a smaller cap REIT and some of the efficiency concerns that might come with that? Is that in any way a governor on your willingness to shrink relative to alternatives, recycling capital into new acquisitions, anything like that?

Yes, that's a good question. I mean I think we occasionally get that question of how do you balance that? I guess I would say there certainly are other companies in our sector that are smaller than us. And ironically, some of them have better valuations than us, which is a bit of a head scratcher for me. So ultimately, I think if there's a disconnect, meaning that we get too small, there are other forces that can solve that for you. But it's something we consider, but I would say it's not something we lose sleep over in trying to do the right thing at the end of the day.

So Jeff, I wanted to get your perspective on a broader scale. When the market evaluates DiamondRock, should it focus on the growth in adjusted EBITDA, or should investors prioritize the growth in FFO per share? What key aspects do you believe people should concentrate on, and what are some misconceptions about the company?

I think it's just more of a comment that I make about the sector, and that's why I referenced some of the other property types, Floris, is that I think at the end of the day, if any one of the people on this call owned this company entirely or any company entirely, you'd be more focused on how much you personally bring to the bottom line rather than some sort of the top of the income statement metric. So I understand that the industry uses EBITDA, both public and private for valuing assets. But I think if you were a private investor, you are much more cognizant of the capital you're spending to drive that. I think the way that Wall Street sometimes just focuses more on RevPAR and EBITDA, unfortunately, ignores some of the capital that goes in to drive those results, and it is a balance. I think you want to be sort of investing appropriately rather than just necessarily overspending. So I'm not saying it's necessarily one metric versus the other, but I think you have to keep an eye on that CapEx. So whether it's an EBITDA after CapEx or it's an FFO after CapEx, like a free cash flow per share, I think it has merit to look at as part of a valuation framework.

And maybe my follow-up question, maybe if you guys could talk a little bit about the Chico opportunity. What do you think you can do? How much capital could you spend there? And what are sort of prospective returns? Or is it still too early at this point?

It's still too early to determine specific plans for the land we have there. We have a significant amount of land that could potentially be used for residential developments. While we may not pursue that directly, there are opportunities to sell portions of the land for such purposes or consider adding more units on-site. The land is considerable, and there are possibilities to expand and integrate new rooms into the existing property, or even create something completely different. I want to clarify that we don't aim to become hotel developers, but we see potential for options like glamping or modular setups. We are contemplating these opportunities, but I cannot provide specific figures or expected returns at this stage. However, it's definitely an intriguing possibility since building in that area could be relatively straightforward.

I wanted to ask a question on...

We lost you.

Can you hear me?

No, sorry, I lost you there for a second.

Great. So my question is just on group with being 30% of revenue, and I would expect competition in the industry going after group and trying to get it to accelerate for them is going to be high. So can you talk about how like an unbranded portfolio versus branded maybe have rewards? Like how do you market? And how are you guys going after and grabbing that group business in what would likely be a more competitive environment?

I guess it just sort of depends on the asset. For example, like Cavallo Point in Sausalito, like that's an example where the type of customer going after during the week, they can be sort of small group meetings looking for like an off-site it's a 30- to 50- to 70-person meeting that's maybe for sort of tech companies, and they're not inclined to want to go into downtown San Francisco right now. So I guess I would say it really depends on the situation because at the other end of the spectrum, you have a 1,200-room Chicago Marriott where you're hosting more of an association business. And Marriott is excellent at that type of marketing and sales.

I think the reality of our portfolio is our large hotels are predominantly brand encumbered. And so we do rely to some extent on kind of that brand led channel for a large amount of our group business. But I think as Jeff mentioned, on the smaller side, especially as you sort of tilt into the luxury segment, I think customers are looking for a differentiated experience and don't necessarily want to have a high dollar event at something that carries a brand tagline. So I think that's where we've definitely seen some success in places like Cavallo, Sedona, Henderson Beach where people are looking for a differentiated experience, whereas, as Jeff mentioned, 1,200 rooms in Chicago or 800 rooms in Boston, those are more traditional convention type experiences, and we do have kind of a brand umbrella that sit on top of those assets.

I would now like to turn the call back over to Jeff Donnelly for any closing remarks.

No closing remarks. I hope everyone has a good summer.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.