Diamondrock Hospitality Co (DRH) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to DiamondRock Hospitality's First Quarter 2022 Earnings Release.

(Operator Instructions)

Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker, Jeff Donnelly, Chief Financial Officer at DiamondRock. Please go ahead.

Thank you, Carmen, and good morning, everyone. This is Jeff Donnelly, Chief Financial Officer of DiamondRock Hospitality, and welcome to our first quarter 2022 earnings call. With me on the call today is Mark Brugger, our President and Chief Executive 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 those expressed or implied by our comments today. In addition, on today's call, we will discuss certain non-GAAP financial information.

A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. With that, I am pleased to turn the call over to Mark Brugger.

Thanks, Jeff. Thank you for joining us today for DiamondRock's earnings call. The recent rebound in travel demand has exceeded our expectations despite the Omicron pause in January. Americans are clearly getting back on the road after being locked down for the last 2 years. The culmination of our strategically crafted portfolio and operational excellence has allowed us to deliver first quarter hotel adjusted EBITDA higher than the comparable period in pre-pandemic 2019.

In fact, based on current demand trends, we expect the portfolio total revenue to exceed full year 2019 same-store total revenues for the full year 2022. Moreover, hotel adjusted EBITDA is projected to exceed 2019 levels for the next 12-month period. Let me highlight a few of our successes this year.

The portfolio took 280 basis points of market share from competitive hotels compared to 2019. Getting past Omicron impacted January, results for February and March collectively were terrific, with total revenues exceeding the comparable months in 2019 by 2.5% and hotel adjusted EBITDA was up an impressive 16.2% compared to 2019.

The April, total RevPAR continued this positive story and was up 4.2% versus comparable 2019. For the entire first quarter, comparable hotel adjusted EBITDA margins were 26%, an increase of 122 basis points over comparable 2019 despite the headwind in January. These robust results in the quarter, in that we complied with all our original unmodified loan covenants, and we expect to exit covenant waivers at the end of the second quarter. And to top it off, we acquired the synergistic Kimpton Fort Lauderdale Beach Resort on April 1 in an off-market transaction for only $368,000 per key.

In many ways, our portfolio of 34 hotels is uniquely balanced for a [1, 2] recovery that should put DiamondRock out front. We have the right kind of assets in the right kind of markets to set up for success in this cycle. Today's traveler is focused on experiential travel, especially in leisure. We believe that our portfolio of 14 resorts will continue to outperform for the foreseeable future because consumer demand for frequent leisure trips has accelerated.

The U.S. remains massively under resorted and new supply remains permanently constrained due to the scarcity of prime resort land parcels and regulatory restrictions that often lead to an outright prohibition against new development. Importantly, thus far at resorts, we have seen little pricing resistance from leisure customers. And encouragingly, the advanced bookings at our resorts, even as far out as next festive week and into 2023 and are at rates higher than this year. On the group side, we are well positioned with strong citywide demand in our key group markets this year and next. Meeting planners are actively booking and we expect to exceed our budgeted goals for 2022.

The pent-up group demand and the need to meet make it likely that group bookings will hit new highs over the next few years. The last segment to recover, business transient is coming back, and it has increased dramatically in just the last few weeks. While we are seeing big jumps in BT demand, we should point out that it is coming from very low levels. We still expect BT recovery to take some time to fully heal and it will vary significantly by city. With that said, overall, each demand segment is trending much stronger than we thought even as recently as our last earnings call.

Before getting into details on the numbers, let me just hit a few reasons why DiamondRock is so well set up. First, our footprint, which we spent the last cycle strategically repositioning, is just where you want to be for this entire upcoming growth cycle.

Second, we have several ROI repositionings that have just been completed and many more on the way. Third, we have restructured our management agreement such that over 90% of our hotels have short-term agreements, and that gives DiamondRock a unique advantage. And finally, we have a pipeline of deals populated with properties that have the kind of characteristics that continue powering our current outperformance.

Now jumping into the numbers. Let's turn to profit margins. Resort and leisure properties are going to be the big long-term winners in the profit margin gain this cycle. Our resorts expanded profit margins by 759 basis points in the first quarter compared to 2019 and are collectively at new highs. Conversely, despite outperforming their comp sets, urban hotel profit margins contracted by nearly 1,200 basis points in the first quarter from comparable 2019.

The urban hotels are now fully on the upswing. In January, during the Omicron wave, total revenue at our urban hotels was 47% below the same period in 2019. But by March, this dwindled to just 16% below. Actually for March, our urban hotels fished at 65% occupancy and ADR within 1% of 2019. In April, we saw comparable RevPAR move still higher at our urban hotels. Urban hotel profitability is a major opportunity for DiamondRock. Full year 2021 hotel adjusted EBITDA for our urban hotels was $164 million or 90% below comparable 2019. This year, we expect to see a surge of profit recovery which is projected to restore as much as 60% of this pre-pandemic urban profit in 2022.

Banquet business is the most lucrative component of the group demand found at many of our urban hotels and several of our resorts, too. As group activity returns and banquet business builds, we will see profit recovery accelerate. Looking ahead to 2023, our portfolio should get a multipronged benefit from the continued recovery of group, the return of high-margin banquet business and continued record restaurant sales.

Ultimately, we believe that the DiamondRock portfolio will stabilize at margins 200 to 300 basis points higher than the prior peak. While some of our peers have made promises about profit margin expansion in some unnamed future year, DiamondRock has already proven out half of that promise gain with just our resort profit -- with just our resort portfolio profit margin success as they are on track to increase profit margins by 400 to 450 basis points in 2022 over 2019. Note that resorts represent about 50% of our stabilized profits.

Before turning the call over to Jeff, I did want to talk about our internal growth initiatives and how they are benefiting results. Last year, we completed 3 repositionings. The Lodge at Sonoma, The Hythe of Vail Luxury Resort and the Margaritaville Key West. In the first quarter, those 3 hotels generated massive RevPAR growth exceeding monthly 2019 levels by 22.7%, 22.6% and 82.7%, respectively.

Putting it another way, the 3 repositioned hotels delivered an incremental $5 million of EBITDA in Q1 as compared to 2019 and are projected to produce over $15 million of incremental profit for the full year over comparable 2019. That's a heck of a return on our investment. Collectively, these 3 properties are forecasted to generate an amazing 13% NOI yield in 2022 on our total investment in those properties. The first quarter of 2021, we completed 2 more repositionings. The Hotel Clio Denver, a luxury collection hotel and Embassy Suites Bethesda, and we have several more opportunities on tap.

Collectively, we believe that we will have executed more value-creating manager and brand conversions than any other full-service lodging REIT, which positions us to outperform going forward. I'll now turn it over to Jeff to discuss the quarter in more detail. Jeff?

Thanks, Mark. First quarter results were sharply ahead of our original forecast. Total revenue and hotel adjusted EBITDA in the quarter were $197 million and $51 million, respectively, with comparable hotel adjusted EBITDA margins 122 basis points ahead of 2019. The momentum in the quarter was terrific. Excluding January, margins in the quarter were up 384 basis points compared to 2019. Room profits were strong and room profit margins were ahead of 2019. Not surprisingly, F&B revenues and F&B profitability lagged 2019 due to the Omicron impact in January and the reason Mark alluded to earlier, less high-margin banquet business typically associated with groups.

Turning to the balance sheet. We finished the quarter with over $350 million of total liquidity and $200 million of undrawn capacity on our revolver. Inclusive of the asset recycling capacity, we have a gross potential acquisition capacity of $650 million. As Mark mentioned, the strong portfolio performance led to compliance with all original unmodified covenants in our credit facility in Q1 2022 and we expect to emerge from covenant waivers at the end of the second quarter, since it is a 2-quarter test.

Let's talk about performance, starting with urban. Comparable urban hotel revenues were $82 million in Q1 '22, a $60 million improvement over 2021, which leaves a $34 million upside opportunity to get back to 2019 levels. The urban hotels had a strong recovery over the course of the quarter with occupancy gaining 30 points from January to March and concluding the quarter with ADR less than 1% from hitting 2019 rates. EBITDA margins on our urban hotels were 7% for the quarter, but the progression is really the important story and highlights the opportunity.

In January, EBITDA margins at our urban hotels were negative 32%, owing to the impact of Omicron. But by March, EBITDA margins were positive 24% and within just 350 basis points of 2019. Going forward, we expect that urban hotels will ultimately stabilize at profit margins better than our pre-pandemic performance.

DiamondRock has some special advantages including the restructuring and conversion of the majority of our Marriott management agreements. These modifications significantly reduced our exposure to incentive management fees, eliminating the profit flow-through drag others face as profitability is restored. For example, in 2022, we expect to pay $4 million or 80% less in incentive management fees compared to 2019. This is a distinct advantage for DiamondRock as the recovery matures as compared to a brand-managed portfolio.

Turning to business transient. Omicron improved a temporary setback by delaying the return to office. Nevertheless, we saw strong, steady improvement in business travel indicators over the course of the quarter. Midweek occupancy increased from 36% in January to 57% in February, 70% in March and 78% for April. Midweek occupancy on the books for the next 4 weeks is already surpassing in January and February. And given the short-term booking window, we expect significantly more demand will fill in as we move through the month and quarter.

Group activity really accelerated in the quarter. Cancellations are down, conversion is up, in-person meeting activities increasing and less desirable space-only meetings are trending down. In Q1, we had over 16,000 group leads for 2.8 million room nights of business. That is 36% more leads than we generated in the same prior -- same period prior to the pandemic and 40% sequential increase in room nights. The outlook is very encouraging, and we expect full year group room nights to recover to 85% of 2019 levels. Group rates on the books for the remainder of the year up 5.5% over 2019 and another 6% in 2023. Comparable resort revenues were $115 million in Q1 '22. Resort RevPAR was 31% ahead of 2019, driving hotel adjusted EBITDA margins up to nearly 40%. Our resorts showed strong and steady progress over the course of the quarter with total revenue up nearly 10% over 2019 in January despite Omicron, 31% in February, 35% in March, and this strength is continuing as we move into Q2.

Occupancy on the books at our resorts for the next 12 months is up 12% year-over-year at 19% higher rates. In just the next 90 days, occupancy on the books at our resorts is up 32% year-over-year at 15% higher rates. That is an acceleration in the ADR in the books as we move into the future. In fact, during festive week, in late December 2022, our rates on the books are currently up 36% over the prior year. So if you intend to plan a vacation at one of our resorts, I strongly encourage you to book early.

Let me give you a few specific property examples. Henderson Beach Resort summer season ADR is up 16% over 2021 and festive season revenues are up 50%. The Hythe, our newly upgraded luxury resort in Vail is seeing festive season rates up $200 over the prior year and Q1 2023 ADR pace is already up 38%. This summer, at the Lodge at Sonoma, another recently up-branded resort, we are seeing a 43% gain in ADR and 60% improvement in occupancy on the books.

Moreover, the revenue pace for fall is up 100% over 2021. And finally at L'Auberge de Sedona, we are seeing an incredible 2023 advanced booking activity with overall revenue pace up 52%. And in fact, L'Auberge de Sedona is expected to generate $195,000 of EBITDA per key, which translates into a 17% yield on 2022 NOI. NAV has more than doubled since we acquired this resort in an off-market transaction just 3 years ago.

We expect our recently acquired and upgraded resorts will continue to outperform against this backdrop of strong leisure demand. As Mark mentioned earlier, we expect total revenues for the entire portfolio for full year 2022 to meet or exceed full year 2019 same-store total revenues. The information is on Page 13 of our press release and is an excellent guide. Full year 2022 hotel adjusted EBITDA margins should ramp slightly behind that from the lag in group recovery, with associated banquet profitability. Given our strong performance, we project we will have taxable income for 2022.

Accordingly, we expect to recommence a quarterly dividend on our common shares beginning in the third quarter of 2022. With that, let me hand the floor back to Mark.

Thanks, Jeff. Our outlook is very constructive. As Jeff said, we do currently expect total hotel revenues to meet or exceed 2019 levels for the full year 2022. And for hotel adjusted EBITDA to exceed 2019 levels for the next 12-month period. Our resorts continue to push ahead at an accelerating pace, while group and business transient demand at our urban hotels is kicking in to provide a double benefit in recovery trajectory. Ultimately, we continue to believe that we will stabilize at higher portfolio profit margins based on the implementation of best practices from this downturn, the benefit from recent brand to independent management conversions add another 20% of the portfolio and the boost from ROI projects.

On that note, I should mention that we have several other high ROI projects underway or under evaluation. These include the potential repositioning of Orchards Sedona to be the Cliffs at L'Auberge, the upbranding of our Burlington hotel and the conversion of one of our branded urban properties to a lifestyle hotel. Collectively, the incremental stabilized EBITDA associated with those 3 projects is about $8 million a year. This doesn't even include the benefit from other smaller projects like adding 14 new keys at the Landing Lake Tahoe Resort, adding a new rooftop bar at The Gwen Chicago or reconcepting the rooftop pool experience at the Palomar Phoenix.

On the external growth front, we completed the acquisition of the Kimpton Fort Lauderdale Beach Resort in April. This is a synergistic deal with our Westin resort located only 2 blocks away. This newly built resort has the qualities we look for, lifestyle, fee simple, terminable at-will management agreement and amazing upside opportunities with the best rooftop bar in the market. We expect the resort to stabilize north of an 8% yield. Moreover, we have significant dry powder for future acquisitions and are currently close to one West Coast boutique resort with several more deals under various stages of evaluation.

To wrap up, we are still very early in an emerging travel recovery with significant pent-up demand. And with that backdrop, we are confident that DiamondRock has a unique portfolio with the right strategy and balance sheet to continue to distinguish itself in 2022 and going forward. At this time, we would like to open it up for your questions. Operator?

(Operator Instructions) Your first question comes from Dori Kesten with Wells Fargo.

If we can dig into the expectation that '22 revenue should meet or exceed '19, can you separate your portfolio by resorts and urban in this context?

Dori, yes, me a second, I'm just looking at that split and where we look for those numbers to be coming out, give me one second so I pull out the correct full year numbers. On a full year basis, we are expecting that our resorts in -- I'm just looking at it in dollars relative to where we were before Sorry, just give me a second while I do the math in my head here. I think our urban asset -- or I'm sorry, our resort assets will end up surpassing what we did in 2019 -- about -- they'll do probably about $200 million, give or take, and it -- probably that's about $100 million better than they did in 2019. And our urban assets would be probably about $160 million, give or take.

I'm sorry, I'm sorry, I was looking at the wrong -- I apologize. I have too many numbers in front of me, is that the resorts is probably going to be about $450 million, which would be about $100 million better, and that the urban assets would be about $480 million, which will be about $100 million below. Get that? Dori?

Yes. No, I got it. And there's been a waiting towards the REITs acquiring the Sun Belt, specifically Florida, but there's also a concern by investors that resorts could peak this year. So based on your resorts, specifically, do you think this concern is fair?

I'll jump in here, Jeff. So Dori, Jeff gave some good data points, but what we're seeing is -- we're actually seeing Q2 accelerate versus '19. So quarter-over-quarter, we're seeing Q2 improve. And at the data points that Jeff gave, and admittedly, they're -- we're booking now, but we're seeing a lot of the resorts, people have experienced getting blocked out over the last 6 months of resorts and vacations that they wanted to do.

So we're seeing people like Sedona and Sonoma, where people have been basic blocked-out, booking in advance and booking at higher rates to make sure they can lock in their vacations. So we feel very good about going in balance of this year and going into 2023 based on the data points that we're seeing right now.

Your next question is from Smedes Rose with Citi.

I wanted to just ask you a little bit more on the transaction market. You mentioned a couple of things in the pipeline. And I'm just wondering, first of all, if you could talk about maybe the kind of the scope or the size of the deals that you're interested in?

Is it -- do you lean towards these kind of -- maybe doing more of these kind of smaller under 100-rooms type assets? And are you seeing any changes in pricing, I guess, with the changing interest rate environment?

Yes. So to answer your first question, I think we look for unlevered yields as the kind of magnetic north, so is it strategic and can we deliver a good yield versus the size limitation. So generally, our pipeline is populated with deals that are between $50 million and $150 million. That's kind of our sweet spot. We think we know how to do these, we'll call small and medium-sized resorts a little better than other people.

And so I think we can underwrite them a little bit more efficiently. To your second question about are prices moving in relation to interest rates, we haven't seen that yet in the data points in the market and the deals that have crossed -- kind of crossed over and been reported. So far, the demand has been -- hasn't shown any softening. And the feedback we're getting from market makers, if you will, is that people are viewing hotels as an inflation hedge in the real estate world.

So there's some incremental capital that's flowing towards hotels as a more attractive asset class within real estate, and that's potentially offsetting the incremental cost of debt associated with those acquisitions.

Okay. Yes. Interesting. And then I guess the final thing I just wanted to ask you. I know it's relatively small, but I saw you took about a $500,000 severance charges in the quarter. As I said, it's just associated with position -- eliminating positions at some of your hotels. Do you feel like you're done now in terms of kind of restructuring the hotel operating model? Or is there more to go in order to reach your margin expectations?

Yes. So let me answer kind of both parts of the question. So I think the severance reversal you're referring to is the change in executive with Tom, our CEO departing and reversing his accrued stock. So that's not in our hotel [adjustments]. But what we're seeing at the property level is we've reduced -- substantially reduced permanently the manager count. So where we might have had an assistant F&B, assistant rooms director, those kind of positions, we learned a lot during this downturn and what we can operate with. And I think we just did a model ground-up of what we think the stabilized model is on managers, and we think that it's about a 10% permanent reduction in FTEs. And some were -- it's uneven. Some of our bigger hotels, it's a 40% reduction. So those are the kind of data points that make us really feel good about emerging on the other side of this with higher stabilized margins as travel fully recovers.

And your next question is from Chris Woronka with Deutsche Bank.

Appreciate all data points as always. I wanted to follow up a little bit on the comment about the 200 to 300 basis points of margin expansion. How much of that is kind of higher rates at a sustainably higher level versus how much of it is cost takeouts and operational efficiencies and things like that?

Yes. So for DiamondRock, it really breaks into a couple of different buckets. Obviously, having more resorts. That's -- people with more resorts are going to be able to cling on to greater long-term profit expansion in that segment than folks that don't have a greater weighting, just because so much rate has been gained in that space and we think a lot of that is permanent.

So that's just going to flow better. That's just the way the math works. So that's part of the -- part of it. For us, the -- there's a couple of other unique ingredients. Everyone's going to probably have more efficient labor models on the other side of this. So that's going to be universal, I think, within our space to how people get to better margins on the other side. And then a couple of the, I'll call it, secret sauce for us. We have those big repositionings which have been completed. They're going to have higher rates associated with those repositioned assets, which is going to flow better. So that's part of it. And then I think something people haven't focused on, but now as revenues are returning for folks is this -- the fact that we don't have -- 90% of our hotels don't have long-term management contracts on them.

So as IMF kicks in, we're not going to return to an IMF world at DiamondRock. So that's going to help us versus '19 levels as we move forward, getting higher stabilized margins in the portfolio. So there's a number of factors contributing to it. But they're kind of all working in our favor.

And your next question comes from Austin Wurschmidt with KeyBanc.

As far as the midweek occupancy figures that you provided, I think you said it reached 78% in April. Can you give us a sense how much upside kind of remains to get to a more stabilized level? And do you think as that's kind of ramped through 78%, do you think midweek ADR could strengthen like you've seen in the resort portfolio?

Yes. So let me without giving specific numbers, there's a couple of phenomenons which are, I think, going to be good for midweek. Obviously, the more group that we book in and the stronger group is, the better it is for mid-week, particularly for the urban-based assets. But I think the other thing that we're noticing and super encouraged is the small midweek group that's going into the resorts. So if you think about an asset like Cavallo, which is in Sausalito, as more hybrid work environments have emerged, particularly in tech-centric markets like San Francisco or Seattle.

There's more and more of this team leaders can organize and get their smaller groups together to launch products, culture building, training, whatever it may be, these kind of 25 to 100-person groups. And so we're seeing a surge in midweek business at places like Cavallo, the Lodge at Sonoma, where these team leaders and particularly tech-oriented companies are using that instead of getting people in the office 5 days a week.

And so we think that, that band of midweek push is going to stabilize at higher levels than we've ever seen. So we're leaning into that. And as we're thinking about external growth opportunities, that's clearly a thesis that we're willing to bet on as we move forward.

That's helpful. And then I'm just curious, could you quantify maybe the synergy you get from these sort of clustering of hotels like we saw you do here with the Kimpton in Fort Lauderdale?

Sure. I mean -- so I can let me give you numbers and kind of how it's working. So we brought in when we bought the Kimpton Fort Lauderdale, we brought in the switch managers and brought in the same management company that we have at the Westin Fort Lauderdale, which is AGI, which is doing a great job for us. And so we'll complex sales, engineering, we'll be able to have staff move between them. And on that acquisition, which is -- it's only 96 rooms, we'll probably have $200,000 to $300,000 of synergies and cost savings, which really made us the best buyer in the market for an asset like that, even though it was off market.

And so we're looking more and more in synergistic deals. I would say, in our pipeline, that's probably at the top of the list for us because we think it really gives us a unique advantage as we look at those kind of assets.

And your next question comes from Gregory Miller with Truist Securities.

I'd like to ask you about the Margaritaville conversion, how that's progressing so far, particularly outside the room spend and flow to margins?

Like we set up that question.

Yes. Have you seen the 2-story bar that was built down there, it's doing quite well.

I haven't been down there yet, but...

I mean, that deal -- it's a home run. So -- and far exceeding our expectations and having Jimmy Buffett go there earlier this year created a lot of social media and a lot of buzz at the property.

So just -- I mean, they're almost embarrassingly good numbers. Compared to 2019, RevPAR at that property is up over 80% and F&B revenues are up something similar. They're just off the charts and it's going to end up several million dollars ahead of our underwriting in 2022 versus what the benefit we thought we'd get from the conversion. So it's been a home run for us. Yes, I mean just to give you another kind of data point. We bought the hotel in 2019. It was about -- well, I was just looking at the NAV. It looks like we're up almost 100% NAV that one, we're about $80 million or $90 million in NAV versus our total investment. So it's clearly been one of our top deals.

Yes, actually -- and one other point I'd make, Greg, I think F&B revenues there are on pace to be about triple what they were at '19.

Great. My follow-up, going on a different topic and maybe I missed it a little bit in the prepared remarks. I was wondering if you could provide a little bit more detail on what you're seeing so far in the second quarter in terms of the business transient recovery in the urban markets. And are you seeing any major differences in the recovery between Sunbelt markets such as Worthington at Fort Worth or Alpharetta versus what you're seeing in Chicago or D.C. or San Francisco? Have you seen trends in business transient pretty similar across the country? Or are you seeing some differences depending on geography?

As you saw in my comments on the mid-week occupancy, it's been growing pretty steadily. And I think a lot of it ultimately comes down to who your demand generators are. We have some significant employers, for example, in an Alpharetta that are significantly -- significant contributors to that hotel, and it's been building nicely. And I would say pretty much across the board, our hotels have been performing well. I can't think of any off the top of my head that are real sort of standouts. But no, I would say broadly, they're performing quite well.

And I think we've seen occupancy just about all of our hotels grow. The contribution from BT has been growing pretty robustly as we move from January to February. And as I mentioned, what we saw in April and our next 4 weeks, it's been very encouraging.

I'm not sure we're a bellwether, but just a couple of added points. In April, New York was higher for April than it was in 2 prior -- [prior 3] back in that market was higher than it was in 2019. I would say in Boston, we've seen -- we're surprised on the uptick of group as much as transient, but really group short term in our Westin and Boston was ahead of expectations. So we had some really nice last-minute wins. Chicago has been more a story of group as well as we've kind of been able to book group into the big Marriott there. And then on The Gwen, it's really been good in Chicago on the high-end consultants. We're the first to return, and that's kind of the dominant hotel in the market for that kind of business. And then I would say the other markets, San Francisco, our hotels gained a lot of market share, but that's a market that clearly is lagging.

And D.C. was lagging earlier in the year, although the last 3 weeks have been surprisingly strong. So I think we'll have a lot more data points as we move forward. But as I look at our forecast for Q2, we are expecting the urban portfolio overall to accelerate versus '19 in gaining momentum. So things seem like they're coming together.

And your next question comes from Bill Crow with Raymond James.

Mark, in the positive commentary on urban group, does that change what I thought was a pretty clear strategy that you wanted to shrink your exposure, especially the larger group hotels and urban markets?

No. I mean we continue to have, I think, a pretty clear strategy of what I'll call midsize and smaller hotels, more leisure-oriented, more experiential. So that's going to continue to be the way we orient the company. But we do have good exposure with nice group hotels as well that I think are going to benefit us over the next year or 2. We may use that momentum to monetize some of those assets over the next 24 months. I think we have particular expertise in all segments, but the resorts and leisure are really up our power alley, and we've created a tremendous amount of value with those kind of assets.

So you'll see us continue to try to distinguish our story from others. But it's nice to have a diversified portfolio at this time as other segments are roaring back as well.

Okay. It sounds like a little bit of a deferment maybe of portfolio change. But Jeff, going back to Dori's question about the resort in the urban versus '19. Was it '18 or '19 that you all had all the hurricane disruption?

I believe it was actually late '17 that we had the disruption that went through for -- well, it was down in Frenchman's Reef.

Keys or South Florida as well.

Same storm. Same storm.

All right. I just want to make sure we're confident of good numbers. Terrific.

And your next question comes from Ernie (sic) [Anthony] Powell with Barclays.

Let me follow-up on that question. So obviously, the resorts have been very strong and you're very positive on group. What's your kind of long-term view in business [rap], business transient as a segment? It's coming back now, but do you expect that to be kind of a less profitable segment than it was pre-COVID? Longer term, what's your kind of view on short-term business rap or business transient demand?

Our view is that it's coming back. I mean, you've heard very positive commentary from the big brands on their confidence level and they obviously have a lot of data points. It's short term. So unlike resorts or group where we can kind of give you longer data points, BT is always -- it's a short-term game in booking windows.

There's clearly been an evolution in business travel. There's been some that's, I think, going to be displaced. There's going to be a lot of return to normal, and there's probably the evolution of some other business travel that we are probably having trouble imagining right now because it hasn't occurred before.

So our general baseline assumption is it gets back to where it was. I think the timing -- there are some people that are very bullish it gets there by this year. It could take another year. We have greater confidence in the leisure demand trend lines and the predictability of those and group, frankly, than the BT. But we're still constructive that ultimately, we get back there. I think it's just hard to figure out the exact time line on that.

And maybe one on Henderson Beach Resort. You had good growth there, but it was back like 44% was surprising, I guess. Is there something seasonal in that resort that makes it lower occupancy in the first quarter? Or is that just how it was done previously? I'm just curious, some more detail there would be great.

Yes. So it's Destin Beach is Northern Florida, so it's cooler in the winter, so it is seasonal. Looking at our 2 Destin properties that we acquired in the last 10 months, it's looking like we'll do about 8.5% NOI yield, our first full year of ownership in 2022 for fiscal year.

So they're tracking ahead of underwriting, but that seasonality even exactly what we expected. And the [hop] in the second quarter is going to be 80% to 90%.

(Operator Instructions)

Next question is from Michael Bellisario with Baird.

Just wanted to kind of drill in on your mix of business. Can you -- the high level, I'm not looking for exact numbers. But maybe in March, April, how much was BT? How much was leisure? How much was group? And then how you see those 3 segments progressing and shifting as the year unfolds?

We can circle back with you on the monthly breakdown, but I would tell you that on the quarterly breakdown, when I just think about the revenue production of our, I'll call it, our urban versus resort hotels. In Q1, I think resorts are about 60% of our revenues, urban the balance of 40%. But when you move into Q2, that flips, almost precisely flips in favor of urban. So you will see that shift.

And that -- a lot of that happens over that March, April time frame as you bridge the quarter. So I can circle back with you off-line and add some disclosure that we can put into our upcoming slide presentations as well as how our guest mix shifts as well.

Yes. That would be helpful. And I think as we've talked about before, everyone is focused on all the undercurrents of shifting customer mix and market mix and trying to figure out are nominal RevPARs higher? Are nominal rates higher or relative to 2019, and it's different for different customer segments? So just trying to understand how more urban demand and more group demand and maybe less leisure in 2Q and 3Q is going to impact the headline figures that you report. But any additional disclosures that would be helpful.

And then just one follow-up there. You mentioned next 12 months occupancy on the books. How much occupancy today is actually on the books? And then I don't think you mentioned where group room night pace was. So you mentioned where rate was, but not volume.

Let me get the -- Michael, let me ask Jeff for some of the numbers.

So on group, we expect despite the January Omicron impact, doing about 85% of room nights that we did in 2019. And that's how we're pacing right now. So that's well ahead of what our expectations were entering this year. So that's a great result. And then kind of referring back to your initial comment on momentum and mix shift. I can tell you based on our forecast, we continue versus '19 -- continue to build momentum quarter-over-quarter versus '19, both leisure -- both resorts and urban look like they're really accelerating. So we would expect on our next earnings call to tell you that sequentially versus '19, we saw an acceleration in really all segments, not a slowing in anything.

Yes. And I think on your question on booking pace for group revenues, I think this year, we're about 85% of what we did in 2019 is already on the books. And I think given what we typically pick up in a year, we're in very good position on that front.

And this concludes our Q&A session. I will turn the call back to Mark Brugger for final remarks.

Thank you, very much. I appreciate that. Let me just conclude by thanking the entire team at DiamondRock and all the people that are in the field for delivering what is a very strong quarter. It's I think for us a very strong year. I know it's the culmination of a lot of hours, a lot of hard work from really several thousand people.

So I just want to express my gratitude to them. And I appreciate everyone that tuned in for this call. We appreciate your support and your interest in our company and look forward to another quarter of good results for you. Take care.

And this concludes today's conference call. Thank you for participating, and you may now disconnect.