Diamondrock Hospitality Co (DRH) 2007 Q2 法說會逐字稿

Welcome to the DiamondRock Hospitality Second Quarter 2007 Conference Call. This Company is hosting a live webcast of today's call which you can access on the Company's website at www.drhc.com in the Investor Relations section.

Many of the comments made today are considered to be forward-looking statements under Federal securities laws. As described in the Company's SEC filings, these statements are subject to numerous risks and uncertainties which could cause future results from those expressed in or implied by our comments.

The Company is not obligated to publicly update or revise these forward-looking statements.

In this call, the Company will discuss non-GAAP financial information such as adjusted FFO and adjusted EBITDA, which it believes is useful to investors. You can find a reconciliation of this information in today's earnings press release, which is available on the Company's website and in the Company's Form 8-K filed with the SEC.

I would now like to welcome management. With us today are Bill McCarten, Chief Executive Officer; John Williams, Chief Operating Officer and Mark Brugger, Chief Financial Officer. At this time, I would like to turn the call over to Bill McCarten for opening remarks.

Thanks, Angelique. Good afternoon everyone and welcome to DiamondRock Hospitality's Second Quarter 2007 Earnings Conference Call.

Let me start by providing a brief overview of our second quarter highlights and our outlook. Mark and John will then provide additional color and discuss guidance.

We are obviously very pleased with the performance of our hotel portfolio during the first half of 2007 and the second half also looks very solid. Here are the highlights.

DiamondRock again reported strong operating results in the second quarter which compared favorably to our prior guidance.

Same-store RevPAR increased a strong 8.6%. Same-store hotel level EBITDA margins expanded 96 basis points or 183 basis points excluding yield support in both years. Adjusted EBITDA was $54.6 million and adjusted FFO per share was $0.42.

The strong results in the quarter were led by particular strength at our hotels in New York, Chicago, and at Torrance, which more than offset slower demand in Atlanta, LAX and Sonoma. Our outlook for the year is positive and we are maintaining our 2007 guidance. More on that in a few minutes.

Based on continued economic strength, increasing corporate profits and a very good travel environment generally, we continue to forecast very strong growth in 2007 with RevPAR up an impressive 8% to 10%.

As we mentioned in our last call, there is significant strength at many of our hotels in the second half of the year, particularly in the fourth quarter.

Renovations also remain a positive story with only limited exceptions, our projects are on budget and on time. Consequently, overall disruption is roughly in line with our original expectations.

Based on our experience and review of relevant data, our management team continues to believe that barring a general economic downturn, lodging industry fundamentals will remain solid for several years.

Supply growth, although slightly increased from recent historic lows, remains constrained in our urban markets.

Additionally, the distinctive qualities of our hotel portfolio will allow us to perform particularly well going forward for several reasons. It's concentrated in high barrier to entry gateway cities and destination resorts. We are benefiting from more than $100 million recently invested in renovating our portfolio.

And our hotels are primarily in the upper upscale category, which tends to perform relatively better in this part of the cycle.

Chicago, our largest concentration of hotels by EBITDA, is expected to have its best hotel year ever, with record bookings in 2009 at the expanded McCormick Place, the largest convention center in the country.

The Westin Boston at Seaport will enjoy years of outsized growth from the combination of a ramping new hotel, a ramping and potentially expanding new convention center and the massive redevelopment of Boston's seaport district by industry leaders such as Granado, Cowen Companies, and [Mezreth].

In summary, we believe that we have an extremely high quality hotel portfolio that is uniquely positioned to capitalize on several more years of solid growth in the lodging cycle.

Lastly, I want to touch on the acquisition environment. Bottom line, it remains very challenging. We continue to look at a number of opportunities through our industry network as well as our [married] relationship.

However, in the current market it is very difficult for public companies to compete with private equity firms that are more aggressive and have the inclination to use greater leverage.

With that said, we will continue to work hard in this heated acquisition environment to augment our internal growth with additional high quality acquisitions.

Now, I'll turn the call over to Mark Brugger, who will cover our financial results in detail and discuss our third quarter guidance. Mark?

Thank you, Bill. As Bill touched on, DiamondRock had a great quarter. Now let's jump into the numbers.

For the second quarter, the Company reported total revenue of $179.5 million, adjusted EBITDA was $54.6 million, which was above the high end of our prior guidance, and adjusted FFO was $39.6 million, also above the high end of our prior guidance, which led to adjusted FFO per diluted share of $0.42.

For our period of ownership for our comparable portfolio of 20 hotels, which excludes the newly built Westin Boston Waterfront, since it was not opened until after the second quarter of '06, same store RevPAR for second quarter was $137.10, an 8.6% increase over the same period of 2006, driven by a 7.3% increase in the average daily rate and just under 1 percentage point increase in occupancy.

Same-store hotel adjusted EBITDA margins for our hotels increased to 31.8%, a 96 basis point increase over the same period in the prior year.

As we mentioned on the last call, there was a catch up in recording yield support at Oak Brook Hills last year that distorts the margin growth number.

Excluding yield support from the calculation, same-store hotel adjusted EBITDA margins for our hotels increased to 183 basis points over the same period in the prior year.

Now turning to the balance sheet. Our balance sheet is in great shape and is among the best in the industry.

As of the end of the quarter, the Company had $2.2 billion in assets and total debt of approximately $170 million. We have taken advantage of historically low interest rates to lock in inexpensive debt for an extended period of time.

As of the end of the quarter, the Company's debt was comprised almost entirely of fixed rate property-specific mortgages with a weighted average interest rate of 5.7% and a weighted average maturity of over eight years.

Moreover, nine of the Company's 21 hotels were unencumbered by mortgage debt and can be readily leveraged, providing flexibility for future financing.

The Company's overall capital structure continues to be very straightforward and transparent. We have 100% ownership in all of our hotels; in other words, no JV interest. We have not issued any operating partnership units and we have not issued any preferred stock.

We believe that our capital structure is a competitive advantage as it makes it easy for investors to understand our operating results and provides us maximum flexibility going forward.

Our balance sheet today provides us the flexibility to acquire another $300 million of hotels. Note that our net debt to enterprise value was 32% at the end of the quarter. Even after deploying our investment capacity of $300 million, our net debt to enterprise value will only be 39%.

Turning to dividends. During the second quarter, the Company paid a dividend of $0.24 per share. The annualized dividend of $0.96 per share provides a very competitive yield of over 5%.

[That's] well covered and represents a payout of only 70% of our 2007 cash available for distribution or CAD.

The Company is introducing the following specific guidance for the third quarter 2007 and is reaffirming full year guidance.

So, for the third quarter, we expect another good quarter led by strong year-over-year performance at the Westin Boston, Conrad Chicago, and our New York properties.

We do forecast some softer than previously expected results in our Atlanta hotels for the third quarter. Based on the combined portfolio's performance, RevPAR is expected to increase 9% to 10% and hotel adjusted EBITDA margins to increase 150 to 200 basis points.

We expect adjusted EBITDA to be between $43.5 million and $45.5 million, adjusted FFO to be between $30.9 million and $32.9 million and adjusted FFO per diluted share of $0.32 to $0.34.

Now turning to full year 2007 guidance -- we have not changed our full year 2007 guidance as our performance in the second quarter will be partially offset by third quarter softness in Atlanta. We continue to expect some of the strongest RevPAR growth in the lodging industry at 8% to 10%.

Hotel adjusted EBITDA margins are expected to increase 150 to 200 basis points for the full year, which will result in adjusted EBITDA in the range of $204 million to $208 million, adjusted FFO of $148.6 million to $152.6 million, and adjusted FFO per diluted share in the range of $1.58 to $1.62.

Lastly, total capital expenditures remain on track at approximately $70 million to $80 million for the full year 2007. John will spend some more time discussing this in a minute.

To sum up, we had a very good second quarter and the outlook for the remainder of 2007 is solid with accelerating year-over-year RevPAR growth in the second half of the year as some comparisons become more favorable. With that, I'd like to turn it over to John Williams, our Chief Operating Officer.

Thanks, Mark. I will focus my remarks on some of the underlying operating fundamentals that drove our strong second quarter results and support our guidance. I will also update you on our planned capital projects and our pipeline of acquisition opportunities.

Seven of our hotels enjoyed double digit RevPAR increases over Q2 2006, led by the Courtyards in Manhattan, the Conrad in Chicago, the Austin Renaissance and the Vail, Oak Brook Hills and Chicago Downtown Marriotts.

The overall 8.6% portfolio RevPAR increase was particularly gratifying as it comes on top of a very strong Q2 2006 RevPAR increase of 11.6%.

Average daily rates at the New York City Courtyards were over $290, with occupancies over 90% in the quarter and we are seeing very little price resistance.

The Atlanta market and our Buckhead and Waverly properties in particular underperformed in the quarter, partially because of the tough comps created by Katrina displacement throughout the first half of 2006.

The comps will begin to ease in the second half and the Q4 booking pace is strong at Waverly.

Fourth quarter definite group revenue at Waverly, which is a major group house, is up 30% versus the same time last year as of period six.

Frenchman's Reef in St. Thomas has seen a significant shortfall in group room nights in the second quarter because of tough comps due to last year's Mexican hurricane displacement and the Mexican resorts reopening and aggressive group pricing this year.

The resort has very effectively replaced the lost group with transient room nights, but banquet revenue was off over $1 million for the quarter and EBITDA was down $675,000.

Our Sonoma, LAX and, Worthington properties also faced relatively difficult comps, were flat in RevPAR for the quarter compared to last year. The Conrad hotel in Chicago continued its dramatic growth in Q2.

RevPAR at the Conrad was up 21.6% with EBITDA margins up an astounding 1,162 basis points compared to the second quarter of 2006.

As I guided last quarter, our Boston Westin property had a soft Q2 compared to budget as a result of 2007 city-wide demand in Boston being weighted 70% in the second half.

However, as of June, our Q3 and Q4 room night booking pace in Boston are ahead 59% and 28% respectively with double digit rate increases in each quarter.

While portfolio group room nights were down 3.5% in Q2, although group revenue was up slightly, the group booking pace for our portfolio is very positive in the second half.

Definite group revenue on the books versus the same time last year is up approximately 14% and 11% in the third and fourth quarters respectively for the portfolio.

I would also mention that 90% of forecasted Q3 group room nights are on the books with signed contracts as of June and 78% of Q4 forecasted room nights are on the books.

So a significant percentage of our second half forecasted group revenue, which represents about 35% of our total rooms revenue, is already under contract, giving us confidence that our group forecasts are readily achievable.

And we continue to make progress in our strategy of shifting demand from lower rated market segments to higher rated ones.

Business transient rooms revenue was up 10.4% in Q2. Leisure rooms revenue was up over 20% in the quarter, and other rooms revenue, which is mainly contract, our lowest rated segment by far, was down 9.5%.

Food and beverage sales were up only 2.9% in the quarter because of lower catering contributions from the room night shortfall -- group room night shortfall.

Food and beverage margins declined 10 basis points on a comparable basis in the quarter, reflecting the catering shortfall.

For the quarter, wages increased 3.8% across our comparable hotels, benefits increased 7.4%. As a result, wage and benefit costs as a percent of total sales dropped from 31% to 30.7% for the quarter among comparable hotels.

Other expenses among comp hotels in the second quarter, property taxes decreased 3.8% primarily due to a property tax rebate at our Worthington hotel.

For the full year, we are projecting an 11% increase. Property insurance was up 10% in the second quarter. For the full year, we anticipate an increase of approximately 14.3%.

Incentive management fees were up approximately $400,000 in the quarter, a 14.4% increase over Q2 2006.

For the full year, we anticipate incentive fees will increase approximately $2.1 million or 22.9% to $11.2 million. Energy costs rose about 11% for the quarter and we now anticipate an increase of approximately 6.6% for the full year.

As we've discussed previously, our 2007 capital projects will total approximately $70 million to $80 million, significantly less than 2006 relative to the size of the portfolio.

In Boston, we've completed the design for the additional 37,000 square feet of meeting space in the adjacent Shell retail building we own. We also have begun feasibility work for the potential 350-room expansion of the hotel.

The additional meeting space should be online by the end of the first quarter next year and it will enable the hotel to be self-sufficient in housing group business when the convention center is dark. Insufficient hotel meeting space has resulted in significant missed revenue opportunities in the first half of this year.

Our other major capital project, the addition of new meeting space and renovation of the ballrooms, lobby and public space at the Chicago Marriott, is proceeding well.

Planning and design are complete and the project has been through a number of costing reviews. The project remains on budget and on schedule for completion in the first half of 2008.

Our other significant 2007 capital projects include a rooms redo at the Atlanta Westin, which is underway, and a redo of suites and breakout meeting rooms at LAX in the fourth quarter.

Total budgeted disruption in 2007 is approximately $1 million of EBITDA across the entire portfolio.

We have been very happy with our overall capital program over the past three years. Solid planning and close supervision by our project managers have resulted in the extensive capital undertakings being accomplished on time and on budget with limited disruption. In 2006, our actual disruption was 50% under budget.

I also wanted to touch on our pipeline of acquisition opportunities.

In 2006, we acquired approximately $730 million of hotel assets. We also completed the acquisition of the Westin Boston Waterfront hotel as scheduled on January 31st of this year.

We continue to see many opportunities through our network of contacts, in our personal relationship with Marriott and the hotel broker community, but pricing remains rich. We remain disciplined in our underwriting parameters and we will continue to do so.

So we are very excited about the balance of the year. Our portfolio continues to perform very well, I anticipate a continuation of the trends we have seen over the past two years. We anticipate a continuing migration into higher rate categories in business transient and leisure segments.

Revenue in the business transient and leisure segments are forecast to increase approximately 15% and 10% respectively in 2007.

Special corporate rates are up approximately 9% this year across the portfolio. Group revenue is forecast to increase almost 7% in 2007 despite the first half softness.

And I want to stress that the strong second half bookings are definite bookings with signed contracts and minimal risk of in the year or for the year shortfalls.

In summary, our portfolio performed very well in the second quarter and we continue to feel confident in our full year guidance.

We continue to benefit from our concentration in major markets like New York, Chicago, Boston and LA and we'll continue to work to maximize asset values through thoughtful and aggressive asset management. With that, I will turn things back to our chairman.

Thanks, John. Angelique, I think we are ready to open the line up for questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Jeff Donnelly of Wachovia Bank. Please proceed.

Yes, good afternoon guys.

Hi Jeff.

A couple of questions, if I could start with maybe one that is two part. A general comment, I love your general views, I guess, on the hotel industry in that just a rapidly growing view that whether it is the privatization trend in real estate or also just the demand for product might be waning just because financing is not affordable or is unavailable.

But in Bill's opening remarks, I think you talked about how competitive the private equity firms are for hotel product. And I guess -- I got two questions.

If the ability to obtain leverage is becoming more difficult, particularly at high levels of leverage, going forward, John, do you think that means that a private equity bid for hotel assets or companies disappears, perhaps Savin Rock can become more competitive?

And I guess the follow-up, Mark, can you maybe talk about what has been the most notable change in hotel financing terms or all-in costs in the past 60, 90 days? Is it as marketive as a change, as the market seems to frankly perceive?

Jeff, this is Mark. Why don't I take the second part first? On the debt marketing center, well, we've seen -- I think it's similar to what our peers are saying as well, is there has really been a fundamental shift in the riskier -- the price of the riskier pieces of debt.

We saw a little bit of widening in the CMBS market for the -- to secure the lower leverage in the 50% or 60% loan to value, but not dramatically different than it was 30 or 60 days ago.

Where we have really seen the big pricing, clearly it doesn't affect us except in competing, but the 80%, the 90% leverage, that last 10% 15% of that debt has widened out considerably or disappeared altogether from various people.

So that -- you would think that would translate into a change in pricing from some -- from that last bid, the guy who is trying to buy an asset with 95% leverage and really take the option value. But John can chime in on the marketplace. But it still seems pretty aggressive out there when we are talking to these brokers today.

So I am not sure that is translated as you might think it is, maybe offset by the kind of wall of liquidity that still exists from these private funds.

Yes, Jeff, to address -- to kind of restate your question, our cap rates are going to begin to get a little more favorable from a buyer's standpoint.

We have sort of been expecting that as interest rates have -- well, now they have receded a little bit, but as debt has gotten more difficult and even today, it has become even more difficult and it seems to be an accelerating trend. But as Mark says, we've not seen it in the marketplace yet.

Now there is a fair amount of product on the market right now and I think this could be a cycle of offerings that maybe could result in cap rates moving. But at this point, they have not.

This is Bill, Jeff. I mean, if we step back, there is still a lot of private money out there looking for a home. The CMBS markets are still intact.

The lodging fundamentals are intact, are strong. We are moving through the cycle but they do remain strong. So it's hard to predict where this is going. I mean, well actually you would think cap rates will start moving up at some point.

But we haven't seen evidence of that and more specifically, even though we haven't seen cap rates declining versus where they were a year ago, I think it is more difficult to find the unique kinds of properties that we have found thus far, where we've been very comfortable paying a relatively low cap rate because of our confidence in the specific growth story there. I think those are more difficult to find today.

And John, I was curious for your thoughts on RevPAR in 2008, not necessarily for DiamondRock per se, but given that fundamentals generally remain pretty strong in most urban markets, the major urban markets, and yet you still had weakness from Katrina in the first half of this year.

I guess what is the possibility that RevPAR in '08 could actually meet or exceed where we saw it in '07? And I guess maybe specific to DiamondRock, is that even a possibility?

Can I jump in on that? Jeff, we are not going to give guidance on '08. So putting that as a caveat, if you look at our particular portfolio, we've invested a lot of money as we have a renovated portfolio.

We have also got several assets that I think has some unique growth opportunities, the Boston Westin because it is new and attached to a ramping convention center in a redeveloping area; the Conrad, which has been rebranded.

So we have several properties that I think should generate outsized growth on a relative basis. So I would certainly think there is a possibility for continued strong RevPAR growth.

And just last question then is just for Mark. I think you had earlier said that you expected incentive management fees for this year to be around $12 million and change, I think?

I apologize if I missed it in your remarks, but are you able to give us a sense of where that is now again for I guess '07 and what are you guys thinking about for next year, at least on that line item?

This year, it is about $11.2 million, which is I think up about $2.1 million or 22.9%.

As -- since we are not giving guidance on '08, we really have not focused on that particular number. But it obviously depends on which hotels within the portfolio are crossing over that owner priority line.

Okay, thank you guys.

Sure.

Your next question comes from the line of Amanda Bryant with Merrill Lynch. Please proceed.

Great, thank you. Good afternoon.

Hi, Amanda.

Hi there. We know that you are in the process of adding meeting space to your property in Boston, but what if anything can you tell us about group booking trends in that market?

Well, as I pointed out for this year, the balance of this year, they are really outstanding compared with what was on the books same time last year. 2008, we see a less dramatic increase but a continuing pronounced growth in group room nights.

And the property has only just begun selling this incremental meeting space, the exhibit hall on the first level and the junior ballroom in the breakout meeting space on the upper level.

So that really wasn't released to them until just a month or so ago when we finally had the schedule buttoned down. So we really haven't seen the results of that yet.

But in general, the convention center is ramping up, is essentially at peak room nights and events for the prime seasons. And of course the winter is a difficult season to fill, but they are working on it.

So the real key to the growth in Boston as the convention center stabilizes is the in-house group, which we'll be in a much better position to accommodate once we finish this space at the end of the first quarter next year.

Okay, thank you.

Your next question comes from the line of Will Marks of JMP Securities. Please proceed.

Hello, Bill and John and Mark. I had a couple of quick questions. One is related to the last question on Boston. Have you mentioned if you are generally on the budget that you projected when you bought the asset?

In the first half of this year we were behind budget on EBITDA, but the -- and in fairness, we were asking -- that was the hotel level budget, which we hedged somewhat at a corporate level.

We were asking the hotel to fill some very difficult need periods in that first half. For the second half, it looks like they are going to be on budget. So on a hedged basis, we are pretty close to the underwriting pro forma in the first year.

Okay. And then one other question, just in Chicago. I may have missed this too. But I heard in your opening comments, you mentioned '09 looks to be a great year. Any thoughts on '08 in the overall Chicago market?

It is a strong year. '09 is notable because it is literally a record year. '08 compares very favorably to this year. '06 was very strong without the expanded McCormick Place, so this year is probably a little less strong and has less kind of a favorable pattern than '06 did. '08 looks a lot like this year.

Great, and actually I do have one final question. What is going on with LA? And I know it is a big wide market, but is there some good upside to the LA market or your asset in particular in the next couple of years? I know you have done some renovations.

Well, yes, we think there is, Will. I mean, the strategy at LAX and Torrance, to a large extent, is to move out contract business, move in group business. We had great luck with that in LAX last year. We are having real progress with that strategy in Torrance this year.

LAX has taken a step back. Now part of that is the entire union activity out there and the living wage issue with the City Council. There has been an active campaign to keep people out of the LAX corridor and I think that has had an impact on the whole corridor.

So we are feeling that. We are down from probably about 15,000 group room nights, it looks like for the year. So we've had to revert to some contract business.

I fully expect that will turn around and we will get back on track to get up to 90,000 group room nights, which is our target at LAX.

Torrance looks to be accelerating as we speak. The work was done in the first quarter and it's on stride to hit actually acquisition and ROI pro forma next year.

Great, thanks John.

And your next question comes from the line of Michael Salinsky of RBC Capital Markets. Please proceed.

Good afternoon, guys.

Hey, Mike.

I know you talked about LA, Chicago, and Boston. You also mentioned that Atlanta is looking a little weaker than you thought for the third quarter. When do you expect that market to turn around and what kind of group bookings are we looking at for 2008 at this point?

Well, the only place where we had -- in Atlanta, the only place where we have good visibility on '08 is Waverly, because it is about a 65% group house.

And '08 looks strong in relation to '07, I would have to pull out my notes to say exactly what percentage they are up in '08 over '07 same time last year -- same time this year. But it's a -- that looks good.

The Atlanta market in general and you hear so much about this hurricane comp business, but it really was impactful in Atlanta in the first half of last year.

So as comps get easier beginning really in the third and fourth quarter this year and obviously next year, I think we will see some good growth in Atlanta. There is no reason for it not to grow at a good pace.

Mike, this is Mark. Just Atlanta, it looks relatively flat on RevPAR in Q3. We have some renovations going on in our Westin Atlanta perimeter. But Q4 looks strong and particularly Waverly looks, the group bookings look incredibly strong.

So at least on the group side, we see the fourth quarter as a turning point for this year.

Okay. Then the second question, you have got the renovations that will extend into the first quarter at the Chicago Marriott and you've got also the Boston Westin you are working on as well heading into the first half of '08 there.

What additional projects are you looking at for 2008 at this point and can you -- do you expect spending to be up versus this current year, down? Is there any kind -- do you have any kind of sense at this point where that's going to pan out at this point?

We are right in the middle of that process right now, capital budgeting. There is one or two hotels are scheduled for rooms redo next year.

We are really through the peak point of our capital program, which I would characterize as a three-year capital program. There is more to do, more maintenance CapEx and we see some ROI projects on the horizon.

But from a portfolio standpoint, I won't give you a percentage but we fundamentally have a renovated portfolio at this stage.

Michael, much of the actual capital expenditures for both the large Boston and Chicago projects will occur in '08 in the first quarter.

Okay. Thanks guys, that is helpful.

Your next question comes from the line of William Truelove of UBS. Please proceed.

Hey guys, good quarter.

Hi.

Just following up on the Atlanta situation, obviously the transient business was impacted by Katrina whatnot. But can you comment a little bit about the Atlanta convention market?

I'm continuing to hear issues about a weak convention calendar for several years now out of Atlanta. Is there a fundamental issue going on in Atlanta? Is it just not being more passed over by large conventions or is it just sort of one-offs and that is going to change?

We don't focus on the Atlanta citywide so much because we are not impacted so much by them unless there are sellouts of up to 40,000 room nights -- peak room nights. So we are not the best ones to answer that question.

I think having said that, there is a lot of strength in Boston and Washington from a convention standpoint. It is probably newer and kind of new to Atlanta from a competitive standpoint.

So it is probably inevitable that they would feel some impact from the new centers in Boston and Washington and to some extent, the expanded capability in Orlando.

So I think that that is probably part of a trend. But we are not the best people to ask that. I think once the Marriott Marquis gets renovated and comes back online, maybe that will give a stimulus for Atlanta. But clearly the guys who are impacted by that the most are the ones with the big convention hotels downtown.

Yes, they are a little hesitant to answer that question though. But thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Dennis Forst. Please proceed.

Good afternoon, hi. I had a question about the pro formas from last year. Given you've made a number of acquisitions and you usually on a quarterly basis compare your current same-store numbers with last year's, can you give us third quarter '06 pro formas so we can know what you are up against?

Third quarter -- I am not sure I understand the question. Is it on new acquisitions and how we are performing against our acquisitions pro forma--?

No, just the whole portfolio of 21 properties, what was its ADR and occupancy last year in the third quarter?

We probably can, if you just give us a second.

Sure.

Your next question comes from the line --

We should finish that one first. Third quarter historical pro forma, which is not a period of ownership, but pro forma, occupancy was 74.3, ADR was 157.74, RevPAR 117.23.

Dennis, does that answer your question?

Okay, next question.

Appreciate it. And then, my other question totally different, has to do with stock compensation. I noticed in the flow of funds statement that you break it out there. But that is a non cash number and I am wondering if that is drawn from various different expense line items?

Essentially that is just the generally accepted accounting handling of restricted stock grants as a part of our overall compensation program.

Right, and it was about $1.1 million in the second quarter and it --?

It runs about $3 million, $3.5 million a year.

Yes. Now that doesn't all come out of corporate overhead, does it?

Yes, it does.

Oh, so that is all part of corporate overhead?

It is.

Okay, that answers that. I thought maybe some of it was in third line items.

Nope.

Very good. So we could basically take your corporate overhead number and say that something over $3 million of that is non cash if we wanted to --

Absolutely, for the full year.

Yes. And wouldn't that be fair to increase your EBITDA by that amount?

Some might. I mean, it is a claim against the equity. It is not a cash expense. I think for the most part, the industry treats it as a cash expense in their EBITDA reporting.

Okay. But the share count is also increased by that amount too, isn't it?

It is a pretty complicated calculation.

All right, well, thanks. I'll deal with it maybe offline. Thanks for the help.

Okay, great.

Your next question comes from the line of Jeff Donnelly, Wachovia Securities.

Yes, John, just had a follow-up question on two of your markets, Torrance and Vail. How much of a benefit do you think there is there, just because I guess one of your competing properties, El Cascade, is about to undergo a pretty significant 18 month renovation, I believe, and the Hilton in Torrance was recently converted to a DoubleTree. Do you guys see an opportunity to pick up share there?

Starting with Torrance, we actually lost a contract to that DoubleTree, formerly Hilton, property. So it kind of depends. They have always been very sporadic on their rate policies.

So it's not a solid competitor from a predictability standpoint. To the extent they become more predictable, I think they will be easier to compete with.

But from a product standpoint, clearly we are far and away the best product in the marketplace including the Crowne Plaza in downtown. So yes, I think we do fully anticipate picking up share in the market, whether it comes specifically from the DoubleTree, I don't know. But logically, it would.

And then in Vail, yes, Cascades, the good news is on a short term basis, one of our major competitors is going to be out. I think the primary season that is going to impact us is going to be in the summer next year.

Having said that, they are going to come out of it with some additional meeting space and so long term, it is going to be a really a more effective competitor.

But as you probably know in that market, both the Park Hyatt and the Ritz Carlton have shrunk their inventories, so two primary competitors have actually reduced inventory, making it a little bit more favorable. So net net, I think the Cascades will be an effective competitor and in the short term, it will help us.

And last question, Bill, I would just like your thoughts on share repurchases at this level.

This is, in my opinion it strikes me that DiamondRock is trading probably at 20% to 25% below net asset value at this time and it seems like it is a pretty attractive opportunity vis-a-vis maybe some of the other options you might have?

That is certainly a fair insight and I am not going to get into what we think our NAV is. But it is clearly a meaningful discount -- we are trading at a meaningful discount. And that changes -- it seems like with us recently, it changes every week with the volatility that we've seen in our stock recently.

So it is something that we have given thought to in the past and it is something we are give some thought to. Particularly with today's acquisition environment, probably even more relevant.

Okay, thank you.

Sure.

That was your final question. There are no further questions in the queue, gentlemen.

All right. Well, thank you very much. Well, thank you for joining us and we look forward to talking to you again soon. Bye.

Ladies and gentlemen, this concludes the presentation. Thank you for your attending today's conference. You may now disconnect.