Diamondrock Hospitality Co (DRH) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 DiamondRock Hospitality Company earnings conference call. My name is Larry, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Mark Brugger. Please proceed.

Thanks, Larry. Good afternoon, everyone, and welcome to DiamondRock's first-quarter 2012 earnings conference call. Today I am joined by John Williams, our President and Chief Operating Officer, as well as Sean Mahoney, our Chief Financial Officer. As usual, before we begin, I'd like to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under Federal Securities law. They may not be updated in the future. These statements are subject to risks and uncertainties as described in our SEC filings.

Moreover, as we discuss certain non-GAAP financial measures, it may be helpful to review the reconciliation to GAAP in our earnings press release. I am pleased to report that our first-quarter results exceeded both guidance and consensus estimates as a result of the strengthening of the US Lodging Fundamentals and the favorable market concentration of our hotels.

In the first quarter, our portfolio delivered 8.8% RevPAR growth. Our RevPAR growth outperformed first-quarter industry RevPAR growth by almost 100 basis points. Top-line growth contributed to a 119 basis point expansion in hotel adjusted EBITDA margins, as high profit flowed through from both rooms and food and beverage departments. Our margin expansion is especially impressive since more than half of the RevPAR growth was derived from growth in occupancy as opposed to rates.

It is our outperformance during the quarter and improved conviction in the lodging recovery that enabled us to significantly increase our 2012 guidance, which I will discuss in a few minutes. Finally, the portfolio gained more than a full point of market share during the quarter. The outperformance was broad throughout the portfolio, with 18 of our 23 hotels exceeding budget. As expected, the Boston market continues to benefit from a favorable 2012 convention calendar. The Westin Boston Waterfront achieved RevPAR growth of over 22%.

Additionally, our four New York City hotels exceeded expectations and achieved even better RevPAR growth than the overall New York City MSA. Our recent acquisition, the Lexington Hotel in New York City, led the group, delivering RevPAR growth of over 13%. Our two Courtyards in Midtown also delivered combined double-digit RevPAR growth. The strength of the New York market was one of the catalysts in raising 2012 guidance. Salt Lake City, as we discussed in our prior call, is really taking off as a result of the opening of the over $1 billion City Creek Center by Taubman. Our Salt Lake City Marriott now enjoys a Main and [Main] location as a result of the City Creek development. First-quarter RevPAR increased at this hotel an amazing 35%.

The Chicago market benefited from strong convention volume. The Chicago Marriott downtown increased RevPAR 9.4%. The Oak Brook Hills Chicago Marriott appears to have turned the quarter, with first-quarter RevPAR growth well into the double digits as a result of the strengthening of the Chicago submarkets. Bethesda, a small hotel for us, underperformed as DC continues to be challenging, and the Worthington Renaissance actually had a solid quarter taking into consideration the tough Super Bowl comp.

Overall, we remain bullish on the growth potential of our portfolio. To put our upside in perspective, if our portfolio of 23 hotels only reaches prior peak levels of 2007, and we project much greater growth, that will mean that we will see $80 million in additional hotel EBITDA growth from last year's results, equivalent to 48% growth over 2011. The first-quarter results certainly show us on the right trajectory.

Before discussing the balance sheet strength and revised guidance, we did want to provide investors with a few updates. First, construction has begun on the future Hilton Garden Inn Hotel in Times Square that we have under agreement. At approximately $450,000 per key, we think that this deal will deliver a great return for our shareholders. Delivery is expected within 24 months. This hotel will be our fifth hotel in New York City. Second, the Allerton Hotel, which is a distressed debt opportunity we took advantage of, continues to play out as we discussed on our last call. We anticipate that this will get wrapped up later this year and expect to either end up with ownership of the hotel or a new note with a par value at a substantial premium to our cost basis.

Third, I'm happy to report some exciting developments with the 712-room Lexington Hotel in New York City. We completed $170 million financing on the hotel that allowed us to repay our corporate revolver and build our cash war chest. Additionally, we signed a franchise agreement during the quarter to convert the hotel to a Marriott Autograph Collection brand after completing a transformational $30 million renovation scheduled for early 2013. Our team sees significant rate upside for this hotel from both the renovations and the brand conversion.

Fourth, we completed the sale of three non-core hotels for total consideration of about $273 million. Note that there was roughly a $10 million gain recorded in the quarter related to this transaction, which we have adjusted out of our reported numbers. The sale of these hotels, located in Lexington, Kentucky, Northwest Atlanta, and Arboretum, Austin, improved our portfolio quality and, we believe, our growth prospects going forward. After this transaction, 95% of our hotel EBITDA is now derived from hotels located in gateway cities and destination resort locations. The completion of both these important transactions bolsters DiamondRock's already best-in-class balance sheet.

DiamondRock enjoys one of the lowest leverage levels of all lodging REITs, with pro-forma debt to 2012 EBITDA of 4.2 times, and somewhat uniquely, no corporate debt. Additionally, we comfortably have approximately $0.25 billion of investment capacity, consisting of undrawn $200 million line of credit, over $125 million of corporate cash, and 12 unencumbered hotels. In short, we are in terrific position to take advantage of acquisition opportunities that we may uncover this year.

The other advantage of our low leverage, combined with strong earnings, is that it allows DiamondRock to pay a competitive dividend yield of 3%. We remain committed to being an income Company and believe that having a substantial dividend is an important component in delivering excellent shareholder returns over an extended period of time. We will continue to reassess our dividend as operating results improve and we further evaluate our alternative investment opportunities.

Now turning to guidance. We are pleased to significantly raise guidance. The new guidance reflects the stronger-than-expected lodging recovery that we experienced in the first quarter, as well as the positive trends continuing for the balance of the year. Additionally, there are some pleasant hotel-specific reasons. In particular, the G8 Summit being moved to Camp David from Chicago lessened the disruption in our forecast. Separately the renovation disruption from the facade repair at the Worthington Hotel has been much less than anticipated.

Aided by a backdrop of severely restricted additions to new hotel supply, our expectation for demand has increased, as we continue to monitor the most established corollaries of GDP, employment trends, and business investment spending. Our revised guidance is as follows, RevPAR growth of 6% to 8%, adjusted EBITDA of $177 million to $186 million, and adjusted FFO per share of $0.73 to $0.77. In addition, the Company's introducing the following second-quarter guidance, RevPAR growth of 5% to 7%, adjusted EBITDA of $47 million to $50 million, and adjusted FFO per share of $0.19 to $0.21. I'll now turn the call over to John to discuss our results in a little more detail, as well as touch on the acquisition market. John?

Thanks, Mark. Q1 continued the trend of improved performance in our portfolio, as increased demand in all segments led to occupancy up 4.3 percentage points and average rate up 2.3%. We believe that we're set up for a sustained recovery and an extended lodging upturn, because of the absence of new supply, the indications of continued recovery in the US economy, and increasing international travel activity. In describing our results, and to provide our investors with the clearest report on how our portfolio actually performed, I'll exclude the three hotels sold in Q1, and Frenchman's Reef because of last year's substantial renovation, unless I indicate otherwise.

In the first quarter, RevPAR for the DiamondRock portfolio increased 8.8%. First-quarter food and beverage revenue was up 4.2% and included a 3.6% increase in high-profit-margin banquet and AV departments and a 7.3% increase in revenue in our outlets. Demand was good in the first quarter, with all segments showing growth, more evidence of continued demand recovery. The room segmentation for the portfolio by revenue in Q1 was 29% group, 34% business transient, 30% leisure, and 7% contract and other, reflecting a very balanced revenue mix of our portfolio. We continue to see positive trends in the business transient segment, with premium and special corporate rates up 7% and 6%, respectively.

Our group booking pace continues to improve, and as of Q1, revenue pace for the balance of 2012 is up 13.4%, including Frenchman's Reef, and bookings in the quarter for the quarter were up 54% in Q1. Bookings in Q1 for the remainder of the year are up 16%. We were able to deliver a large part of the portfolio revenue increases to the bottom line. Our aggressive cost-containment efforts over the past several years led to continued strong flow-through of 70% in rooms, despite a significant increase in occupancy, and 40% in food and beverage. The portfolio house profit margin increased 185 basis points compared to Q1 2011.

We were encouraged by productivity gains and wage controls. Overall, productivity for the portfolio was good, with man hours per occupied room down 1.8%, and sales per man hour up 4% in the quarter. Travel agent commissions and credit card fees, which have been growing faster than revenues over the past several quarters, were up only about 1% and 2%, respectively, over Q1 last year. Support costs in the quarter were well controlled and were up only a total of 2.9%.

Sales and marketing and G&A costs were higher, partially from increased occupancy, up 7.6% and 3.1%, respectively. These costs were partially offset by modest increases in R&M and utilities, which were lower by about 6%, reflecting the $4 million we've invested in energy savings initiatives across the portfolio, energy contracts we've negotiated in the past year, and a mild winter.

In summary, the first quarter was a very good quarter for the Company, with significant increases in revenue and excellent flow-through in both rooms and food and beverage. Both group and transient pace continued to trend well. Food and beverage sales and margins continued to improve with increasing demand. We believe that these trends will continue as the recovery continues, and together with muted supply, will allow our portfolio to surpass prior peak revenue and profit levels in the next few years.

Turning to capital recycling, the disposition of the hotels Mark mentioned have improved our portfolio of quality, profit, and growth metrics. The proceeds from the sales and the reduction in mortgage debt have improved our low leverage capital structure and have substantially increased our investment capacity. We remain encouraged that 2012 will be a good year for acquisitions. We anticipate that there will be motivated sellers in 2012 because of backlog debt maturities, private-equity funds recycling assets, and a stronger demand from public companies to acquire assets as the market strengthens. Because we believe that we are still early in the cycle, we're optimistic that we can use our strong balance sheet to buy high-quality hotels that will create significant shareholder value.

2012 is setting up for a strong year. The fundamentals of our portfolio, including both group and transient pace; strong city-wide convention years in Boston and Chicago; the completion of the $1 billion City Creek project surrounding our Salt Lake City hotel; the renovated Frenchman's Reef resort; and limited supply increases in most markets give us confidence that the balance of the year will continue the outperformance of Q1. We will continue to manage costs, segmentation, and pricing to ensure that our managers strive for peak profit performance. Mark?

Thanks, John. With that, we would now like to open up the call for any questions that you might have.

(Operator Instructions)

Sule Sauvigne.

I'm wondering, you mentioned that New York City was part of the reason you were raising guidance given the strong performance there. And wondering what kind of RevPAR growth are you assuming for your hotels in that market?

I can tell you that the RevPAR growth in the first quarter was about 10.7%. The market is up 8.3%, the total market, and that includes supply up at about 1.9% and demand up at about 9.3%. The first quarter is typically the softest quarter in New York, so, that makes us feel pretty good about the balance of the year.

Okay. I think last quarter you had said you were expecting your New York City hotels to be up 5% to 7% this year. Is it fair to assume maybe now you're expecting somewhat higher than that?

Sule, this is Sean. Yes, in our release year-end, we said 5% to 7%. Our expectations now for New York City are 6% to 8% for the year.

Okay. Thank you.

Eli Hackel.

Thanks. Just have two questions. First, on Frenchman's, can you give us a little bit better perspective in terms of when the property should really start to ramp? It was up a lot in the quarter. It was down a lot in last year's quarter, but net-net the past two years, it's about -- the RevPAR was where it was. Should it really start to ramp through the year, and then that's where you really get your return?

And then also just a quick question on New York. Can you give any commentary in terms of what you're seeing on two fronts -- one from the financial services industry; and two, do you guys track international travelers to your hotels? And have you really been seeing an increase on the international travel side?

And the other thing on New York, your current thoughts about the supply? And also specifically supply in the Times Square area, which is seeing an increase over the next year or so? Those questions would be great. Thank you.

Okay, Eli, this is John. On Frenchman's, we're seeing dramatic increases in revenue and group revenue beginning in the second quarter. If you remember, the renovation started in the third quarter, so, the first two quarters are somewhat comparable. But for the balance of the year, we're seeing revenue group pace up 104%, and that's about 95% rooms and 5% ADR. Yes, I think we expect the hotel to come out at or above pro forma this year. And then the big question is -- can we continue to ramp it in years two and three, which we project in our pro forma.

As far as New York, international travel, we don't specifically track that except at the Lexington Hotel, and at the Lexington Hotel we are not seeing a dramatic fall-off in international business. As a matter of fact, Lexington sort of surprised us on the upside in the first quarter, as did the two Courtyards. Chelsea is a little bit more challenged because of supply in the Chelsea area.

As far as supply at Times Square, we are much less concerned, being that our development project is at 42nd and Broadway, the heart of Times Square. I think that demand emanates from 42nd and Broadway, so, we are not concerned about it at this point in Times Square. We're a little bit concerned about it in the balance of the City, although as I just said, supply is down to about 1.9% this year, and demand is up over 8%. So, it appears that demand is keeping up, and even staying ahead of supply.

That's great. Thank you so much.

Will Marks.

Thank you. Hello, John and Sean and Mark. I wanted to ask you, first, tied to the last question -- you mentioned about not tracking the international travel, but I think in your prepared comments, you talked about that's a key driver of growth. I think I misunderstood you, though.

Well, I said that's one of the components that leads us to believe that there's a bright future in this cycle of lodging -- international travel to New York and other gateway cities. The Courtyards aren't that big a player in the international market, except as it creates compression in the city; the Lexington, however, is. About 35% of its business comes primarily from Europe, and that's where I said we've not really seen a fall-off.

Got it. Okay, thank you for clarifying that.

Second question, just on some general comments on what you're seeing with group travel. From some of the other companies, it sounds like -- we're hearing that mid-group is picking up.

Yes, we're feeling very good about group. For the balance of the year, we have about a 13.4% increase over last year's pace; that's with Frenchman's Reef. Within the year, we're seeing a dramatic pick-up in the quarter for the quarter, and in the quarter for the balance of the year, and those numbers are very encouraging as well.

Do you have the figures without Frenchman's Reef? Is there a way to separate it out?

I do. Excluding Frenchman's Reef, the portfolio for the balance of the year is up about 10.7%. That's about 6% in room nights, and about 4% in ADR.

Okay, great. And that's basically bookings for the last nine months of the year versus the same time last year?

That's right.

Okay. Final question on -- tied to Allerton. It sounds like there could be a pretty favorable result here. Are you looking at any other debt deals, or do you think we'll see all equity going forward?

The Allerton's financing process is certainly a learning process for us. We think we'll have a favorable outcome there. Currently, we're evaluating, and John can touch a little bit more on the pipeline, we're evaluating some hotel opportunities. We are not currently evaluating other distressed-debt opportunities. We don't see any that are interesting in the market currently.

Okay, great. That's all for me. Thanks, guys.

Jeff Donnelly, Wells Fargo.

Good afternoon, guys. Mark, I think I asked you the question last quarter about whether or not you guys thought you had the balance sheet to participate in any industry consolidation, should that come to pass. I'm curious to see if your view on the industry landscape has changed, and what odds you see for much potential for consolidation in the industry over the next 12 months to 18 months?

I do think we have the -- one of the comments we made last quarter was that we have a balance sheet among the lowest levered in the industry. There's potential to be a consolidator, and get some size and reduce the cost of capital. That was something that the Company would be interested in. There's obviously the public-to-public. There are also some interesting portfolios opportunities out there that we could take advantage of, given our balance sheet. So, those are things that we strategically think about over the next 12 months to 24 months, as potential.

I apologize if I missed some of your comments in the beginning, but I caught it in John's, where you mentioned that you're seeing more transactions. I think in late January at [Alice], everyone thought it was a desert out there for deals. What sort of buyer or maybe portfolio -- or I should say seller, or maybe portfolio seller, has come to market in the last few months? Is it the brands coming out? And do you find them more, call it, more willing? Their expectations are coming down on pricing?

No. Expectations for -- I think people are true believers in the cycle, both the sellers and the buyers, so, I don't see that pricing is coming in. The debt markets are better than they were six months ago. People have more confidence in the operating results for 2012, so, there's a lot of firming on what people think the revenue or profits are for the hotels, which is giving more certainty.

The portfolios, there's a lot of private-equity firms, which bought deals in 2005, 2006, 2007 during the high-volume years that will come up on their maturity, so, that's going to be one source. And there are a number of people with debt maturities coming up that are forcing, both on the portfolio and individual asset side. We are still not seeing a huge uptick on one-off deals, but we have talked about and explored more portfolio deals than one-off deals in the last several months.

And then, maybe this one is for John, but is there much color you can give us on the group business that you've seen thus far -- in the bookings, I should say? For instance, are there some industries or segments that are conspicuously absent in your bookings, or have group events been more chicken than steak, as they say? Just curious any kind of color you can give us.

We're looking for the steak, Jeff. I can tell you this -- the corporate group bookings in room nights are up the most of all of each of the segments, and they're up 24%. So, that's good news. Within the corporate segment, we're seeing a little less financial, a little more pharma and things like that technology. One area that we expect to see a decline would be government group, which doesn't really impact us that much, but it will be quasi-significant for the industry. But in general, it's encouraging that corporate room nights are coming back with gusto, and that rates are relatively flat right now, but I think that begs the potential for higher rates.

The last question is specific, but I think last year, or late last year, out in Vail, I think the Vail Resorts got approval from the US Forest Service to use the lands there year-round. I think it required some sort of motion in front of Congress. I was curious, has there been any kind of a coordinated push there to have more of a summer season in Vail, or do you think that's still years away?

No, I think the potential, though, is more in the arts festivals, music, art, et cetera, which we've been pushing them to do for years. They are at a little bit of a disadvantage because Aspen is so strong in that area, but they have seen an uptick with the Vilar Center in Beaver Creek, and some of the new developments in Lionshead in Vail. And I think they are getting some traction on those arts activities in the summertime.

Okay, great. Thanks.

Tim Wengerd, Deutsche Bank.

Good morning. You mentioned in your comments that you could receive another loan to replace the Allerton loan that is in place right now. Do you have any update on the process for the size of a new loan or how the size of a new loan would be determined?

Sure. We currently have a note that we purchased that had a face value of about $69 million, almost $70 million in value. The way the bankruptcy rules work is that they put a disclosure plan in, and we, as a secured debtor, wouldn't come out with something that had substantially similar value. There's some negotiations or some dispute about how much interest has been paid, and was it penalty interest or not, but I think the proposed note on the last disclosure statement they put in was about $66 million. We think that it should be a number that's substantially higher than that, but that's what the bankruptcy judge will decide over the next several months.

Okay, and then, you talked a little bit about the G8 Summit changing locations, and I think you had lost some State Farm business last quarter. And I'm wondering if you guys have been able to replace that, and if bookings for Q2 Chicago have improved substantially since February?

This is John. Yes, the revenue bookings have improved for the second quarter. They're up about 23%. Having said that, you don't replace a $1 million State Farm piece of business just with short-term groups. And in the first quarter, it was interesting -- we had two non-repeating groups that were there in 2011. Although Chicago is strong year-round in 2012, the first quarter, we actually had a very tough comp. We took the same approach there that we are taking for the G8 timeframe, which was to go after packages and transient business. That impacts food and beverage, but it's a good fill-in. May is a strong month in Chicago, so, we're hopeful that we are going to be able to fill that in to some extent.

Okay, so, revenues are up 23% in Q2 -- like, the pace?

The group booking pace in second quarter is up 23%.

Okay. That's all for me. Thanks.

Andrew Didora, Bank of America.

Operator, maybe we can move to the next question, and come back to Andrew.

Enrique Torres, Green Street Advisors.

You talked about the potential of doing portfolio deals. Some of your peers have started to access the unsecured market for financing. Is that something you would consider if you were to grow the Company through a large portfolio transaction?

Enrique, this is Sean. That's something that, as we think through the next three- to five-year time horizon for DiamondRock, that's clearly an option that we would look at. We currently really like our capital structure as it stands right now, with more than 50% our portfolio unencumbered by debt, and having no corporate debt, other than our line of credit, and 13 unencumbered assets, I'm sorry -- 12 unencumbered assets. So, we like where we stand right now relative to our size, but to the extent that we would grow in size, and the unsecured market would be more efficient, that's something we would definitely look at in the future.

Okay, that's helpful. Thank you. In terms of -- if I translate your RevPAR numbers, and walk down to your EBITDA like in your earnings numbers, can you give me an idea of what that looks for in terms of same-store margin growth -- how that fits into your guidance numbers?

Are you referring, Enrique, for the second quarter or for the full year?

For the full year.

For the full year, we don't give margin guidance. I can tell you what the back half of the year implied RevPAR would be, and then you can use your own judgment on how you think that's going to flow. But the back half mid-point to mid-point will be roughly 6.9% RevPAR for our portfolio, but we have not given margin guidance for the full year or for the quarters.

Okay. Thank you.

Josh Attie, Citi.

Thanks. Good afternoon. When you look at what's in your acquisition pipeline, and also what demand might be for some of your non-core hotels, do you think it's more likely you're a net buyer or a net seller for the remainder of the year, excluding what you've already sold?

This is Mark, Josh. We anticipate being a net buyer. Obviously, we've done over $0.25 billion of dispositions year-to-date, and we're sitting on cash. We think there will be interesting opportunities. There may be one or two hotels that we do bring to market, given that we do think it's a good time to transact. But we plan to be active. We still think we're early in the lodging cycle. We still think it's a good time to buy. We're going to continue to try to find high-growth opportunities, and deploy our capacity.

And how do you think about -- how should we think about the right level for the dividend? Is it a percentage of cash flow, or is there another metric that you look at? And as the earnings recover over the next few years, how should we think about what the growth in the dividend might be?

Sure. Every Board meeting we have a very active conversation about the dividend, and where to sit the dividend, and it's not a strict formula. Obviously, we look at what our taxable income will be in the year, and need to distribute that. But we also look at what alternative uses of capital we have, and what the competitive landscape looks like among our lodging peers to make sure that we have the competitive dividend. And then we also stress-test it to see -- in the event in a couple years if we have a downturn, what does the dividend look like, and is it sustainable.

So, we evaluate all those in trying to determine what the appropriate dividend is now. Our dividend is very well covered. This year, we anticipate it will meet our taxable income. But as earnings improve and if they exceed our expectations, clearly that's something that, at the Board level, we continue to evaluate.

Okay. Thank you.

Nikhil Bhalla, FBR & Company.

Hi, good afternoon. A question on your second-quarter RevPAR guidance that you've guided to in terms of 5% to 7%, 100 basis points below the full-year guidance. If you could just give us some sense of how you think about the year in terms of RevPAR rates for each quarter? Thank you.

Sure, this is Sean. We didn't give specific RevPAR guidance for the year, but you should expect, with some of the disruption that we're going to have, particularly in Worthington, that our third-quarter RevPAR will probably not be as strong as the fourth quarter. So, when you think through the balance of our year, that's the one outlier. And that's really going to be driven by Worthington in the third quarter, and the fact that there's going to be disruption from the facade repair.

Got it. Thank you.

Wes Golladay, RBC Capital Markets.

Good afternoon, guys. I think you guys mentioned moderating travel agent fees. Is there anything special driving this? Is it change in distribution at all, or --?

This is John. I don't think there's a big change in distribution. I just think that we've had several quarters of outsized increases, and I think the comps are getting easier.

Okay. So, going forward, is something that you believe will moderate for the balance of the year?

We would hope so.

Okay. And going back to your group business, how much of this was put on during the downturn, say, the 2009-2010 period for the balance of 2012?

Not much, except Boston, Chicago, and Minneapolis have some multi-year advanced bookings. I can't give you an exact percentage, but it's probably in the 20% to 25% range, if that.

Okay. Okay, thank you. And last one, going back to your RevPAR guidance, how much do you think -- what would the mix between occupancy gains and ADR growth be for the year?

This is Sean. For the full year, we're expecting the bulk of our RevPAR is going to be ADR. We expect maybe 1% to 1.5% is going to be occupancy, with the balance being rate-driven.

Okay. Thanks a lot, guys.

(Operator Instructions)

Smedes Rose, KBR.

I wanted to ask you what the timing is on the opening of the Hilton Garden Times Square? Also, I think there's still a big NATO meeting in Chicago, and I'm wondering if you expect any disruption from that, or is that smaller in scope or in terms of protests or whatever expected around that?

Yes, this is Mark, Smedes. Your first question, the construction is under way on 42nd Street. The current timeline, I believe, is another 22 months to 24 months. It could come inside that. It will be weather-dependent and a couple other things, but we're anticipating first or second quarter of 2014 at this point.

As to the Chicago question, the NATO was scheduled on the heels of the G8 Summit. It traditionally has been a less disruptive event. There traditionally aren't protesters anywhere close to what they have for the G8, although I know some people were quoted -- some of the traditional protesters saying they've already booked. They are coming to Chicago anyway. They already got tickets. But we're not anticipating that will have significant disruption to our properties in the city.

Great. Okay, and then I was wondering -- is there any color you can give or trends that you cite for 2013 on the group pace so far?

This is John. The group pace in 2013 is relatively flat. It's not a meaningful number at this point. It's improving. It was down actually about 3.5% last quarter. It's down a little bit now, but I think it becomes meaningful in the third and fourth quarter as it gets closer. So, we're not concerned at this point.

Okay. Okay, great. Thank you.

Dan Donlan, Janney Capital Markets.

Thank you. First question, Sean, on the corporate G&A ex-acquisition cost, can you give us any type of guidance there on what to expect for the full year?

Sure. You should expect roughly $20 million for the full year, which will be about $1.7 million -- or, sorry, $1.5 million less than 2011. And really the driver of that is going to be the fact that we recorded the LAX tip settlement last year through corporate G&A, which was $1.7 million. And then there's some increases in other overhead, which will net that down to the $1.4 million, $1.5 million for the year.

Okay, thank you. On these portfolio deals that you guys are talking about, could you maybe give us size potentially of these deals? And also, is it limited service, select full service, a mix of both? Or any type of color there would be appreciated.

Yes, this is Mark. I don't want to overstate it. We are a full-service Company, so, the portfolios we're interested in are full-service hotels, generally. The portfolios, we comb through -- you're always trying to generate off-market deals. We're looking at -- the portfolios would be -- go through the various people at [HONE] Real Estate, and they try to begin those conversations. The size is really amorphous, since people hold different amounts of hotels, and the ultimate portfolio may change depending on what they want to do. But there's a lot of real estate out there. We think that it's a good financing environment. We think it's an interesting time to be active in the marketplace.

Okay. As far as external growth, and some markets versus others, is there any particular market that you want to focus on and might get more aggressive with than others?

Well, we said on the last call we're still interested. We obviously like the markets that we're in, so, we look to the New Yorks and Chicagos, Boston. They're all good markets, and we think there's great long-term growth potential. We've also expressed that we're interested in San Diego, Miami, Seattle, West LA, San Francisco would all be growth markets that we're interested in growing. We try to be a little bit broader, and look at each opportunity in the major markets as they present themselves, and underwrite each deal individually, but certainly those market representations would be advantageous for DiamondRock.

Okay. Thank you very much.

With no further questions, I would like to turn the conference back over to Mr. Mark Brugger for closing remarks.

Thank you, Larry. To everyone on this call, we would just like to express our continued appreciation for your interest in DiamondRock, and we look forward to updating you next quarter.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a great day.