Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Third Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Briony Quinn. Please go ahead.

Good morning, everyone, and welcome to DiamondRock's Third 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. Turning to our results. Corporate adjusted EBITDA in the third quarter was $79.1 million and adjusted FFO per share was $0.29, each ahead of our expectations. Free cash flow per share for the trailing 12 months, defined as adjusted FFO less CapEx, increased approximately 4% to $0.66 per share. Comparable RevPAR declined 0.3%, exceeding our expectation of a low single-digit decline with each month of the quarter performing slightly better than expected. RevPAR outpaced both our weighted average STR class and our comp sets in the quarter. Occupancy was flat year-over-year and ADR declined 0.4%, both again slightly better than expected. Looking at our revenue segments, business transient led the way this quarter with almost 2% growth, while leisure transient declined 1.5% and group room revenue declined 3.5%. All year long, we had been highlighting the difficult group comparisons our portfolio would face in the third quarter, largely due to last year's Democratic National Convention in Chicago in August as well as fewer city-wide conventions in Boston. Despite this headwind, both of our hotels in Chicago were able to drive RevPAR growth in the quarter. Despite the slight decline in RevPAR, our out-of-room revenues increased 5.1%, resulting in total RevPAR growth of 1.5%. Total RevPAR grew in both our urban and resort portfolios. Food and beverage was once again a bright spot, both on the top and bottom line. F&B revenues increased 4%, with banquets and catering up almost 8%, while outlets were down modestly. Last quarter, we highlighted that our food and beverage margins expanded by 105 basis points. This quarter was even stronger with F&B margins expanding by 180 basis points, aided by our continued efforts in reengineering menus and focused staffing. Other contributors to the increase in out-of-room revenues in the quarter included spa, parking, and destination fees, which were each up over 10%. Total hotel operating expenses increased 1.6%, resulting in only a 3 basis point EBITDA margin contraction and hotel adjusted EBITDA growth of 1.4%, which to date is an industry-leading result. Wages and benefits, which represent almost half of our total expenses, increased to just 1.1%. Now to highlight the resorts of our urban hotels and our resorts for the quarter. Our urban portfolio, which accounts for over 60% of our annual EBITDA, achieved RevPAR growth of 0.6% in the quarter. Total RevPAR growth was 150 basis points stronger at 2.1%. As expected, August was our softest month and September was our strongest with 6.1% RevPAR growth, showing gains in both occupancy and rate. The strongest RevPAR growth in the quarter was achieved by our hotels in Salt Lake City, New York, Atlanta, and Chicago, which helped to offset some of the renovation disruption at the Palomar in Phoenix. Turning to our resorts. RevPAR declined 2.5%, but total RevPAR increased 0.4% on 4% growth in out-of-room revenues. Excluding our Sedona hotel under renovation and Havana Cabana, where we made the decision to accelerate a capital project during a lower occupancy period, resort RevPAR declined just 0.4% and total RevPAR increased an even stronger 1.7%. We continue to see a bifurcation in resort performance with the higher ADR resorts outperforming those with lower ADRs. We expect that performance variance will continue to benefit our luxury resorts for the foreseeable future. Although the top-line trends of resorts have received elevated focus, we believe it is most important to focus on bottom-line results. Despite a 2.5% decline in RevPAR at our resorts this quarter, EBITDA margins expanded by over 150 basis points with wages and benefits flat and total expenses down 1.5%. Said differently, our resorts made more money in Q3 '25 than they did in Q3 '24 on roughly the same amount of revenue. Before turning to the balance sheet, I'll make a few additional comments on our group segment. Group room revenues across the portfolio declined 3.5% in the quarter, with room nights down 4.5% and rates up over 1%. We faced tough comparisons, particularly in August. However, our hotels were quite successful in converting short-term leads to in-house groups. During the quarter, we booked 38% more groups for the balance of the year than we did the same time last year. Looking to 2026, our group pace is up in the mid to high single digits, and we entered the fourth quarter with almost 60% of our 2026 group revenue on the books, on pace towards the 70% we typically start with each year. Moving on to the balance sheet. Early in the quarter, we successfully refinanced, upsized and extended the maturities under our senior unsecured credit facility, the proceeds of which were used to pay off our last two mortgage loans. Our portfolio is now fully unencumbered by secured debt. All of our debt is fully prepayable without fees or penalties and with extension options, our earliest maturity is in 2029. Importantly, we have recast all of our debt to market rates, thus eliminating the overhang of below-market maturities on our FFO per share growth for the next several years. Inclusive of interest rate swaps, 30% of our debt is fixed rate and 70% is floating rate, a notable advantage in this declining interest rate environment. We have paid a quarterly common dividend of $0.08 per share to date this year and expect to declare an additional stub dividend for the fourth quarter. At the midpoint of our updated guidance, our current dividend to FFO per share payout is approximately 30% as compared to just under 50% in 2019 as we continue to utilize a portion of our net operating losses to offset our taxable income. During the third quarter, we utilized our free cash flow to repurchase 1.5 million common shares at an implied cap rate of approximately 9.7%. Year-to-date, we have repurchased 4.8 million common shares for $37 million or $7.72 per share on average. We anticipate ending the year with over $150 million of cash on hand and continue to view the repurchase of our common shares and/or the redemption of our 8.25% Series A preferred shares to be highly attractive uses of capital in this environment. Before turning the call over to Jeff, I'll wrap up my comments with our updated 2025 guidance. We are maintaining the midpoint of our RevPAR and total RevPAR guidance while tightening the ranges. This revision implies a slight decline at the midpoint in the fourth quarter. However, in light of the continued success our team is having controlling expenses, we have raised the midpoint of our adjusted EBITDA guidance by $6 million to $287 million to $295 million and raised the midpoint of our adjusted FFO per share guidance by $0.03 to $1.02 to $1.06. With that, I'll turn the call over to Jeff.

Thank you, Briony, and thank you all for joining us this morning. I want to start by congratulating our hotels and our team at DiamondRock for their hard work and ingenuity to deliver another quarter of results that exceeded expectations. In the last month, our portfolio has been awarded several prestigious honors, a handful I'd like to share here. Cavallo Point was recognized with two Michelin keys, The Gwen was honored with one, and Lake Austin Spa Resort was again named the #1 destination spa in the United States by Conde Nast. Well earned, and congratulations to the teams for these rare achievements. While we have unwavering pride for every Diamond Star TripAdvisor rank and top meeting hotel honor and the demanding work that goes into delivering the service to earn those awards, our North Star at DiamondRock remains driving outsized free cash flow per share. To us, it is simple. We are in the business of making money for our investors, and driving outsized free cash flow per share growth has, over time, historically resulted in outsized total shareholder returns. The accolades are not the end game, but they are an aspect of delivering on our promise to shareholders. At DiamondRock, we strongly believe in the alignment of interests. So 100% of our officers' performance-based long-term equity incentive awards are tied to relative total shareholder returns, and common equity is a component of every employee's compensation. We believe in being efficient with our shareholders' money. And in that regard, our G&A per owned hotel is nearly 45% below our peer average. It's one of the many ways we work to preserve capital. I'm going to focus my comments today on the strategy behind our differentiated CapEx program, the current transaction environment and how we intend to participate in it, our view on the remainder of 2025. And lastly, I will provide some context around our outlook for 2026. The strategy behind our CapEx program has become a key discussion point with investors and analysts as they lean into what differentiates DiamondRock versus our peers. Between 2018 and 2024, we executed four strategic upbrandings, two unbrandings and nine life cycle renovations, yet spent approximately 9% of revenues on CapEx. In the last three years, we have spent just 7% of revenue on CapEx, while peers have spent 10.5%, an over 300 basis point spread. In dollar terms, that difference is over $100 million or almost $0.50 per share on our stock. We are often asked how we can target annual CapEx spending at 7% to 9% of revenue when our peers repeatedly choose to spend 10.5% to 11% of revenue and some even up to 14%. First off, with only 5% of our hotels brand managed, we have a competitive advantage of exerting more control over the scope and timing of renovations. As the owner, we are in the best position to determine the balance between operating performance, value creation and capital expenditure, not the brand manager. We are making capital decisions that will drive our outperformance and maximize our total shareholder return. They are playing a different game. They're paid off the top line, understandably focused on brand standards, but less concerned with an owner's ROI. So how is it we keep our CapEx spending so efficient? It's important to mention that hotel brands typically mandate room renovations every seven years. We work hard to elongate that cycle and reduce the cost of renovations when undertaken. How do we elongate the cycle? Strong RevPAR index and bottom-line profits evidence your product remains competitive. Performance matters. With it, we can justify a lighter and less frequent renovation. An extra two years on our renovation cycle is a 28% reduction in our average annual expenditures. How do we reduce the cost of a renovation? Our hotels on average are newer, so they're more code compliant with fewer surprises behind the walls. Our internal design and construction team plans our renovations at least two years in advance to target precise timing to minimize profit disruption. The longer planning window gives us time to fine-tune and negotiate the scope. Supply chain is monitored. We analyze how improvements can increase labor productivity and boost profitability. Every single fixture, surface covering and piece of furniture is reviewed for their cost design and durability. We assess what components can be kept and what can be refined. Our Kimpton Palomar in Phoenix is a prime example. This is the #1 hotel in the downtown market, and we recently completed the hotel's first room renovation since opening in 2016 at a cost of just $21,000 per key, and it looks terrific. In our view, if the asset still looks fresh, competes effectively and is operating efficiently, then we do not need to renovate every seven years. It's simply not a prudent use of our shareholders' capital to play a role in someone else's design war. To be clear, we are not anti-brand. Branding is a choice. And in the right circumstances, brands deliver exemplary performance. Instead, I would say we are pro flexibility. The way we have chosen to invest in our portfolio preserves capital for investment and has translated to FFO per share and free cash flow per share outperformance. Based on the midpoint of our raised guidance, our 2025 free cash flow per share would be 2% above our 2018 level, while peers averaged 30% below. Now this isn't to say that we don't like a strong ROI project. We do. They can provide a great risk-adjusted return. Take our recently completed The Cliffs at L'Auberge, which is now fully integrated into our adjacent property, L'Auberge de Sedona. In the first full quarter post renovation, The Cliffs realized a 65% ADR increase. As we look more broadly at the market, we are incredibly pleased to see that The Cliffs' RevPAR Index increased to over 130 from a level of 108 last year. Importantly, over that same period, L'Auberge de Sedona maintained its RevPAR index at over 160 within its own luxury comp set. Meaning one hotel is not taking from the other, but together have become one stronger integrated resort. The group sales team at L'Auberge has been busy. The group revenue pace is up approximately 25% in the fourth quarter and up 55% in 2026. Standardizing product quality and combining the hotels has created a stronger group channel than either hotel enjoyed on its own. As a reminder, we spent $25 million on this renovation and remain quite comfortable this ROI project will achieve a 10% yield on cost at stabilization. We are hosting a tour of the integrated L'Auberge ahead of Dallas REIT World, and we look forward to showing those in attendance what a DiamondRock ROI project looks like while experiencing the unparalleled hospitality of L'Auberge. With respect to the transaction environment, we continue to underwrite acquisition opportunities, mostly group-oriented hotels, urban select service hotels and resorts. While we had our eye on a few potential candidates this past quarter, we did not feel the ultimate pricing was defendable after considering realistic CapEx needs versus where our shares are trading. In general, we see upper upscale resorts with asking cap rates in the 7% to 9% range, but inclusive of near-term CapEx needs, the all-in cap rate was closer to 5% to 7%. Similarly, the ask for luxury hotels remains in the 5% to 7% range or about 4% to 6% all in. At that pricing, our strong preference is to reinvest in the luxury and upper upscale hotels DiamondRock already owns through share repurchases. On the disposition side, we continue to have active conversations around the disposition of a handful of our assets, and we expect to remain active in the market in the coming year. We have nothing to share at this time, but we believe we will see elevated capital recycling in the next 12 to 18 months compared to our history. Now to our outlook for 2025, as Briony noted, we are raising the midpoint of our adjusted EBITDA guidance range by 2% and raising the midpoint of our FFO per share guidance by 3%. Our new guidance reflects our better-than-expected results in the third quarter and a slightly moderated expectation for the fourth quarter, predominantly due to the impact of the federal government shutdown. To look forward, it helps to look back at how we got here. We knew about a year ago that our third quarter comp would be difficult, and we aggressively worked to chip away at that deficit. Heading into the third quarter, our group revenue pace was down 9.6% from the prior year, yet we exited the quarter around 600 basis points better. Our operators pushed hard to drive profitable short-term group business. On the transient side, our revenues were essentially flat and in line with our expectations. Making our way to the bottom line this past quarter, I was incredibly pleased with the results our operators and asset managers delivered. Our team is driven to be innovative in their efficiency and productivity efforts, and we were successful in that execution once again. When you look back at our fourth quarter last year, you will note our RevPAR and total RevPAR were up in the mid-5% range, making the fourth quarter our toughest revenue comparison of this year. Our playbook for Q4 remains the same as it was in the third quarter, identifying new strategies to drive revenues and grinding away to realize expense efficiencies. It's our team's tenacity from DiamondRock asset managers to our hotel teams that results in exceeding expectations and driving free cash flow per share. The federal government shutdown has increased uncertainty with respect to short-term group pickup, attrition and on-time transient guest arrivals. In this regard, we have seen our group revenue pace for the fourth quarter take a small step backward from October to November. As I mentioned earlier, we have slightly moderated our fourth quarter forecast and our 2025 guidance to recognize that the impact of the shutdown is building. Our guidance assumes the shutdown is resolved in short order and travel resumes its normal cadence. Looking ahead to 2026, it is difficult not to be excited about the trajectory of the lodging industry and specifically for DiamondRock. The industry's tailwinds are well known at this point with easier comparisons created by Liberation Day, the country's longest federal government shutdown, the holiday calendar, the United States' 250th anniversary and an improvement in net inbound, outbound international visitation. I'd like to take a few moments to focus specifically on tailwinds unique to DiamondRock. First, our renovations this year are expected to negatively impact our 2025 RevPAR growth by approximately 75 basis points, creating a built-in tailwind to start 2026. We have previously highlighted our expectation that the ROI project at The Cliffs at L'Auberge should drive an incremental 25 to 50 basis point RevPAR tailwind in 2026 on its way to a 10% yield on cost. Second, we have the highest exposure to FIFA World Cup games based upon the importance of games per our recent analyst report. We expect compression around these games to be material and create a compelling rate story for DiamondRock next summer. Third, in 2026, we have a solid base of group and contract business, which typically accounts for 35% of our total demand, with group pace up in the mid to high single digits. We expect to be able to tell you our hotels achieved new highs for group revenue sequentially in 2024, 2025 and 2026. Top line growth does not mean much unless it makes its way to the bottom line as free cash flow. We are among the very few full-service lodging REITs to achieve free cash flow per share growth since 2018, and we expect to widen that disparity versus our peers next year. 2026 is around the corner, but there's still much work left to do in 2025. We look forward to seeing many of you at conferences and tours over the next few months to update you on our progress. Thank you for your time this morning, and we are happy to answer your questions.

Our first question today will be coming from the line of Cooper Clark of Wells Fargo.

It seems like you continue to make really strong progress on the expense side as cost controls continue to be a major focus for the sector. Could you speak to how much of this is driven by headcount reduction? And if we should expect continued momentum on the expense control side into '26?

Sure, Cooper. It's not necessarily headcount reduction per se, although we have made some success on the contract labor side. It's really just been a persistent company-wide focus on finding additional productivity throughout the portfolio and finding ways where we can get our existing employees to be more efficient, which translates to less hours worked. So there's not one silver bullet there. It's, frankly, just a lot of blocking and tackling from the asset management team and from our operators. But simple things like just reducing front desk staffing during a three-day group event when we have no check-ins and check-outs even though the hotel is full, those little things can cut hours worked by a point or two, and it really goes a long way to mitigating year-over-year wage increases.

Okay. Great. And then I guess as we think about some of the further value creation within the portfolio, how are you thinking about some of the recent or upcoming franchise expirations? And what are some of the options you're considering to maximize value there?

This is Jeff. There's a few options. I'll let Justin refer to the Westin Boston. But there's a couple of situations that we have where our Kimpton Shorebreak in Huntington Beach, technically, that contract has expired. We have options to terminate upon sale in Phoenix. And I think in about two years, our Courtyard, which in Denver, which is really kind of a lovely building, it's in, there will be flexibility there as well. So we look at all situations, Cooper, I mean, I think there will be some where there could be upbranding scenarios. There's some where maybe it's just better as an independent or sticking with the flag that we have. So we're really looking at what drives the best return for us over time. But I don't know, Justin, do you want to kind of talk about.

I mean I think in Boston, specifically where our franchise agreement is up at the end of next year, we're in the middle of running a brand RFP process with most of the major brands. I think we've been very positively impressed with the amount of interest. It's just very difficult for brands to get that kind of distribution in a major Northeast city attached to the convention center. So we're going to continue to evaluate the best option for shareholders going forward and whether that's a significant amount of inducements upfront or trading that in exchange for kind of lower run rate fees over the duration of an extended franchise agreement.

And our next questions come from the line of Michael Bellisario of Baird.

Just want to stick with your CapEx theme. Just what projects looking out to next year on the docket, anything that would be disruptive or offset the 75 basis points of tailwind that you expect to recapture from this year's projects?

No, nothing that stands out. Frankly, we always have projects going on. And I think pretty consistently, we've had about $2 million to $4 million a year of EBITDA disruption. And I think going forward, looking at 2026, I think it's going to be a very similar number. For example, our Courtyard Midtown East will have some renovation work done in the first quarter, but that's going to be comping against renovation work we did also in the first quarter at the Hilton Garden Inn in New York. So I don't think there's going to be any unique noise or cadence change to renovation impact in 2026. I think it will be a pretty clean year.

Okay. Understood. Helpful. And then just on your disposition comments, it sounds like you're going to be highly likely a net seller. So as you sit here today, do you take those proceeds? Do you lean into share repurchases? All else equal, do you build cash? Just kind of help us think about the earnings power and per share impacts looking out 12 to 24 months.

Yes. It's a great question. I mean share repurchases are very compelling at this level. I think it's reasonable to assume that some component of it will go there. It's hard for me to forecast in the future what opportunities may be out there. But I think it's likely that share repurchases will be a beneficiary. I think it's possible that some could go into other assets if we can find situations where we see better growth and better yields because it's potentially a lot of capital that could be recycled down the road. It's hard to predict the timing and magnitude of dispositions. But again, we're always trying to find a way to maximize our earnings growth going forward and make sure that we're not sitting on too much cash for too long. I think that doesn't serve our shareholders well.

I have one follow-up regarding the candidates for disposition. Do you see this as more of an opportunity for asset sales, or will it involve older properties with lower RevPAR that require CapEx? That's all from me.

Yes, it's a good question. It's a mix. We've had some unsolicited interest in assets that if it's at a compelling price, we would certainly consider it. And there's others that we're targeting for disposition that we just don't think are a good fit for us going forward. So it's honestly kind of a mix of assets that we're looking at.

And our next question will be coming from the line of Smedes Rose of Citi.

As you emphasize your ability to drive margin in a relatively flat RevPAR environment is impressive. And I just wanted to ask you, just in general, how are you thinking about just the pace of labor costs for 2026? What's kind of built-in and presumably, you can continue to find efficiencies? But what do you think just wages and benefits could pace at that?

I think we are unlikely to achieve the same 1% year-over-year growth as we start to compare ourselves against the efficiency gains realized this year. However, outside of New York, where adjustments happen mid-year, we aren’t overly concerned about significant union-related labor increases. Our focus is shifting from line-level labor to administrative and sales labor, which has become a priority for many companies. As we adopt more efficiency tools like AI, we aim to streamline processes, potentially reducing the labor needed to manage our assets. Our hope is that this will help mitigate what would normally be a 2.5% to 3% growth in costs, allowing for continued efficiency in the middle of the profit and loss statement while keeping wage growth in check.

And then, Jeff, you mentioned that you have a solid exposure to FIFA next year. How are you guys, I guess, positioning yourself into that? Are you selling room blocks into FIFA games? Or how are you sort of looking to take advantage of that?

I think it really depends on the market. We're being very cautious until we see which teams drop for the particular locations. We're aware that a matchup like Cote d'Ivoire versus Qatar is unlikely to generate demand comparable to a match between Germany and Argentina. In the short term, we're in some of the blocks but haven't included them significantly in our pace numbers. If they are included, they are adjusted quite heavily. Once we see the team groupings develop, we'll have a better understanding of what the actual demand will be.

Our next question will be coming from the line of Austin Wurschmidt of KeyBanc Capital Markets.

Just going back to your comment, Jeff, on elevated capital recycling. I guess, can you provide a range for the number of hotels or maybe a dollar amount that you're considering? And then given the comments or the cap rates that you cited, do you think that you can effectuate the capital recycling in a neutral or accretive manner? Or is this something you'd be willing to kind of sacrifice near-term earnings dilution maybe for a better growth profile?

That's a good question. I don't have a precise answer for you because we have both smaller assets and some that are significantly larger. It's challenging to provide a number that would be helpful. In the past, we've mentioned considering two to four assets. Additionally, there is some unsolicited interest in what I would call our core assets. It ultimately depends on whether we can achieve pricing that works for us. While I can't provide a specific number, we are looking to be opportunistic in our approach. Regarding recycling, our goal is to do this in a way that benefits our shareholders, particularly when you consider the capital costs of what we're selling versus what we're acquiring with new assets. We aim for this to be additive to our earnings rather than dilutive in terms of quality.

That's helpful. And then, I mean, would you expect kind of this recycling to change the profile of the company in any way by either business segment or exposure? Is that the intent?

It could be related to that, but I wouldn't consider it significant. We've previously mentioned the Chicago Marriott as a potential sale. Since it's our largest asset, successfully selling it would change our geographic focus and some of our risks. However, it all depends on whether that sale actually happens, which is why it's difficult to say definitively.

Got it. And then just last one. I mean, within the resort portfolio, I was curious, what percent of the EBITDA would you characterize as kind of high ADR that you said is performing much better? And how wide is the performance variation between kind of those two buckets of high ADR versus low ADR assets? That's all for me.

Thank you. We conducted an analysis comparing properties with RevPAR or ADR above $300 to those below $300. The difference between these two groups was approximately 500 basis points, indicating a significant disparity. Specifically, in the third quarter, our luxury resorts accounted for about 60% of the total EBITDA across all resorts.

The next question we have is coming from the line of Chris Woronka of Deutsche Bank.

I believe, Jeff, that your team has had a slightly better experience this year compared to many of your competitors in terms of resources. A lot of this success can be attributed to your operations team and initial site selection. My question is whether you think there are specific characteristics of your resorts—such as size, market, or segmentation—that are contributing to their strong performance. Additionally, have you noticed any changes in booking windows, sourcing, pricing, or anything similar at those resorts?

Yes, I'll take a stab. And if Justin wants to chime in, he can as well. I guess one of the observations I would make is that in a lot of cases, we are sort of the best game in town. Whether you think about sort of Sedona or Destin or Tahoe or Sausalito or what have you, some of these markets that are candidly don't fit the bill of being in Orlando or more sort of top 10, top 20 market. I think it's beneficial to be not only sort of maybe the only game in town or the best game in town, but it's really sort of a unique destination and it's not as competitive, I would say, that's one thing. I don't know.

I think it's important to note that while we often discuss the uniqueness of our resorts, our average daily rate across the year is around $400. We don't have significant exposure to lower-end resorts. Seasonally, our mid-price customer base tends to be more present in August and South Florida, but that doesn’t mean those hotels are strictly mid-priced. It’s just a period where we serve a different segment of the population. Overall, we have a higher-end resort focus, which has performed well in light of the economic differentiation we've observed.

Okay. Fair enough. As a follow-up, I know you have three assets in New York City, and I believe two of them are performing well this year. I'm unsure if there's a renovation planned for the third one next year. My question is, given the recent election results, does that make you feel more or less optimistic about New York? Additionally, do you have any contingency plans should the situation in New York become less stable? I'm not suggesting that I expect that, but I assume it's something you consider from a planning perspective.

That's a good question. My initial reaction is that I'm unsure how much it will affect things. I recognize that there are many campaign promises made, but not all can be fulfilled. We'll see what happens. Hopefully, it will bring more energy to New York City moving forward. However, I doubt it will change its status as a financial capital for the world. A lot of what is being discussed may not impact us directly. Fortunately, we are in a position to be very flexible. These are mainly third-party managed franchised hotels, allowing us to pivot effectively. Additionally, our focus on select service provides us with some advantages.

Our next question will be coming from the line of Duane Pfennigwerth of Evercore.

Just on your group commentary, maybe you could remind us if your target mix has changed at all, if the target for next year is different maybe than it has been in years past? And then the profile of your groups, corporates versus social, average group size, any industries that might stick out from a recovery perspective? Obviously, it's a little bit more complicated at the moment with the shutdown. But clearly, given the change that you kind of came into 3Q with, with your commentary about pacing on 2026, any industries or types of groups that stick out in terms of that recovery that you were seeing?

Facetiously, I want to say those that pay the most. But no, I would say like from a mix standpoint, I mean, I don't expect any dramatic changes as we go into next year. I mean, oftentimes, hotels are always well served by having as much group on the books as possible, generally speaking. But I don't expect there will be a dramatic change. I'm trying to think about it as industry groups. I mean we don't have a lot of government, for example. I think we've always kind of estimated that it's about 2% of our overall business and within our group segment. So I don't think that's going to change. And if it does, it probably goes lower. But I'm trying to think other industries, it's pretty broad-based. I mean we're not just social group that we have, but in the corporate side, it's across different industries. We do financial services off-sites in Sedona. We do sort of tech sector off-sites in Sausalito. And certainly, in Boston, we participate in all the citywides that come to that convention center. That's a big chunk of that demand. Yes, it's all sorts of things. Like Western Fort Lauderdale, there's a boat show. So I don't see a lot of those types of businesses or the pieces of business changing year-to-year at this point, so.

Okay. For my follow-up, you mentioned some industry tailwinds based on comparisons and some portfolio-specific advantages. Can you provide an estimate of how these factors might contribute to an initial projection for 2026 RevPAR?

No. We're actually just early in the process of doing budgets truthfully. So I appreciate the ask, but I don't want to hazard a guess at this point.

Our question will be coming from the line of Kenneth Billingsley of Compass Point Research.

So a question is, I know you talked about RevPAR growth doesn't matter if you can't get it to the bottom line. And just looking at this quarter versus last, F&B and other revenues as a percentage of total revenues was up about 120 basis points. Is there an expectation that you can continue to increase revenues from them? And part 2 of that is, are you able to control the expenses? Are the margins better on that, so we'd actually see an increased flow to the bottom line?

It's a good question. I think earlier in the year, we really began an initiative to be constantly reworking menus, staying on top of menu pricing just given the volatility of what was going on in food costs. So I think that's one of the reasons why we've continued to benefit this year through better F&B production, whether it's outlets and banquets. I'm not going to say that it goes on forever that you can always be growing your F&B better than your room revenue for years and years and years. But near-term, it's something that we're working on, and it's something that you can adapt very quickly. So I'm optimistic that we'll continue to have some success there.

In particular, this quarter, the reason why you see the uptick in the percentage of F&B was really just the function of us having a lot more in-house group this quarter as compared to last quarter when it was more citywide based. So there's a lot more group contribution this quarter in our F&B.

I mean I think 'other' for us is predominantly parking. We have a fairly significant spa business at 3 to 4 hotels. And so we saw a nice uptick double-digit in our spa revenue, and then the other that falls in there are just resort and destination fees. So I think the nice thing about all of those revenue streams is they tend to also be non-commissionable. So the costs associated with them are pretty much fixed. So if we can move parking $5, for instance, or we can move the cost of a spa treatment up $10, most of that does flow to the bottom line. It doesn't really change the cost model of providing the service.

And our next question will be coming from the line of Chris Darling of Green Street.

Just hoping to get your bigger picture thoughts around the steep NAV discounts at which lodging REITs trade, you and your peers, potential privatizations. Do you think there's an appetite for large-scale portfolio transactions today? And if not, do you think that might change going into next year as some of the tailwinds you mentioned ultimately come to fruition?

Yes, it's a good one. I think there is an appetite. I think for a while there earlier this year, it probably had a little bit of a pause. I think it's coming back because I think there's an expectation that RevPAR growth is going to be stronger next year. Interest rates are coming lower. So it feels like probably a better environment where they could sort of strike and get the growth that they need to sort of drive the returns that private equity would need if you were looking for those types of situations. The only thing I would just caution, and I say this to everybody is that ultimately, a lot of that math works where you can drive financing on assets. And for financing, you need cash flow. Effectively, it's very hard for people to kind of underwrite assets in markets where cash flow is not recovered. It's one of the struggles even we have when we look at some of the markets. For example, like on the West Coast, where you can have RevPAR recovering but assets still losing money. That's very hard from a pricing standpoint. And I would say that applies to public companies too. So it's just something to note, I guess, I would say.

At this time, I'm not showing any more questions in the queue. And I would like to turn the call back to Jeff for closing remarks. Please go ahead.

Well, I appreciate everybody joining us today, and I look forward to seeing all of you at Nareit. Thank you.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.