Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Mark W. Brugger J.D. – Chief Executive Officer

John Williams – President, Chief Operating Officer

Sean M. Mahoney – Chief Financial Officer

Analysts

William Truelove – USB

David Loeb - Robert W. Baird & Co.

Chris Woronka - Deutsche Bank

William Marks – JMP Securities

Smedes Rose – Keefe, Bruyette & Woods

[Ken Hoe] – KeyBanc

Michael Salinsky - RBC Capital Markets

DiamondRock Hospitality Company (DRH) F3Q08 Earnings Call October 15, 2008 10:00 AM ET

Operator

Welcome to the third quarter 2008 DiamondRock Hospitality Company earnings conference call. (Operator Instructions) I would now like to turn the call over to Mark Brugger, Chief Executive Officer.

Mark Brugger

Today I am joined by John Williams our President and Chief Operating Officer, as well as Sean Mahoney our Chief Finance Officer. Before we begin I would like to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under Federal securities laws and they may not be updated in the future.

These statements are subject to numerous risks and uncertainties described in our securities filings. Moreover as we discuss certain non-GAAP financial measures it may be helpful for you to review direct conciliation to GAAP in either our earnings press release or our most recent 8-K filing.

Let me start today by addressing the obvious. The general economy in the travel industry have weakened and the financial markets remain under stress. Although there has been some relief this week as government intervention is raising hopes for a better liquidity of the system.

DiamondRock, along with many of our peers has seen a significant decline in our stock price over the past few months. Our shares have been trading at a price that implies the value of our hotel portfolio equivalent to a CAP rate between 13% and 14% of trailing NOI, which is compelling by almost any historical measure.

Given the general headwinds in the industry we are pleased to report the third quarter results that are generally consistent with our prior expectation. Our hotels in Manhattan, LA, and the Caribbean showed strength, although more than half the hotels in our portfolio turned in negative RevPAR growth for the quarter. In total RevPAR in quarter by 3% driven by a slight decrease in average daily rate coupled with an almost 2% point in decline in occupancy.

Working closely with our operators we focused on revenue enhancement opportunities and cost containment measures. We were able to save approximately $1.8 million as a result of contingency plans during the quarter, and thus limit house profit margin contraction to approximately 200 basis points. As a result the company generated adjusted EBITDA of $40.5 million and FFO per share of $0.34.

Turning to the balance sheet, at the end of the third quarter the company had total debt of approximately $900 million. We recently drew in our revolver as we were concerned about some of the bank participants in the facility. Our current cash position is around $110 million including $35 million of restricted cash. We will likely pay down our revolver later this year as some of the prior concern has waned with the recent bank mergers and expect to have over $120 million available on our revolver at year end.

I should note that the company also eight unencumbered assets with a total cost basis of $850 million that can be leveraged to increase our liquidity. Our overall credit stats remain solid. The company’s net debt is currently less than five times our trailing four quarters adjusted EBITDA. And our fixed charge coverage is approximately three times.

As for the outlook, we are maintaining our guidance for the full year as we continue to expect RevPAR for our portfolio to track 1% to 3% for the full year, adjusted EBITDA to range from $175 million to $181 million and FFO per share to range from a $1.46 to $1.51. We currently expect to come in at the middle of the range.

The visibility for 2009 is very low given the level of uncertainty surrounding the general economy. In projecting lodging demand, we look at economic indicators such as trends in GDP growth, unemployment, business investment and gas prices. Except for gas prices, these economic indicators are trending negative and lead us to conclude that larger demand will decline to some degree for at least the next several quarters.

I’m not sure it would be productive to provide specific items for 2009 at this point. We are still in the process of receiving preliminary budgets from our operators. In this environment the company will keep its priorities of managing the balance sheet and maximizing profits at our owned hotels. We will also [inaudible] strategic ways to take advantage of the market dislocation.

Before turning the call over to John, I did want to touch on dividends. During the third quarter we paid a dividend of $0.25 per share which annualized represents the yield in excess of 22% based on yesterday’s closing price. In light of the current challenging operating conditions, we are evaluating the merits of reducing our future dividend amount in order to align our dividend payout with our reduced cash flow projection and to increase our ability to potentially acquire distressed assets in late 2009, or repurchase purchase stock at depressed prices.

We will continue to discuss the dividend payout with the board and will make a determination when we have better visibility on next year. And with that I’ll turn the call over to John.

John Williams

We’re certainly back in turbulent times. Each of these storms is different and this one is especially tough to read. Our objective is to react promptly what we know and prepare prudently for what we don’t know. Now I’ll spend just a minute on our third quarter property results and provide some additional perspective on our outlook.

There were only a few bright spots in the portfolio for the third quarter. As Mark mentioned our hotels in Manhattan, the Caribbean and Los Angeles were better performers. Unfortunately we experienced weak performance from a number of markets with particular challenges in Orlando, suburban Chicago and the perimeter sub-market of Atlanta.

Overall portfolio occupancy was down 190 basis points in Q3 from last year. Average rate was down 60 basis points. We saw weakening trends in all our major demand segments. Business, transient and group revenue were down about 8.5% and 6% respectively.

The short term group booking pays for the balance of the year has slowed and attrition has increased in spots, although fourth quarter group pays is still up 2.8% versus same time last year. The leisure and other discount segment revenue was up 6% in the quarter reflecting our operators attempt to replace lost premium transient and group business. Contract revenue was up 14% in the quarter.

As a result of the lower group mix, food and beverage, particularly banquet as well as AB sales were down, collectively about 4.5%. The real weakness in F&B was a significant drop off in local catering down to almost 14% in the quarter. Interestingly group contribution was up 5.9% per occupied room night, albeit on a lower number of group room nights.

With the decline in catering sales F&B margins declined 136 basis points in the quarter. On the cost front we expect support costs to go up around 4.1% for the year, including about 9.4% in utility expense. For a variety of reasons our utility cost in the quarter was unusually high at plus 23%. This hurt margins in the third quarter but is expected to moderate next quarter.

Salaries, wages and benefits increased less than 1%, which is a function of lower volume. Man hours per occupied room and sales per man hour were flat in the quarter. A reflection of cost controls at the hotels. We estimate the property taxes will be up 7% for the year. And we expect to save about $700,000 as a result of revising our priority insurance program and bidding the insurance out for our entire portfolio.

Each of our 20 properties has implemented varying levels of contingency plans to control costs in this uncertain economic environment. Along with our operators we are aggressively implementing strategies to maximize value during this period of declining fundamentals.

We have left open positions unfilled, utilized PTO to reduce payroll, reduced par levels of operating supplies, reduced man hours in food and beverage outlets and kitchens. Delayed R&M projects where feasible and reduced frequency of certain quality control practices, just to give some examples.

We’ve not instituted more draconian measures such as management layoffs, closure of food and beverage outlets and premium customer lounges or elimination of concierge services and rooms amenities, because these sorts of cuts are obvious to the customer and would cost market share unless competitors had instituted those same draconian measures.

We anticipate operating cost savings from our contingency plans currently in effect of over $5 million for the year, including almost $2 million in each of the third and fourth quarters. This is built into our guidance.

Additionally we’re seeing the benefits of an energy initiative we began implementing across the portfolio and labor systems we’ve implemented in Boston, Frenchman’s Reef and Vale resorts in the past six months and we see more opportunity on the energy front.

For 2009 the visibility we have on group which represents about 36% of our revenue looks decent. The group booking pace is up 5.6% by revenue with particularly strong growth at our Westin Boston which is up 41.5%. In fact across our portfolio we already have 60% of the group room revenue on the books for 2009 that we project to do in 2008.

Turning to capital reinvestment, we continue to find good value creation opportunities in our hotels. In 2008 we will spend between $70 and $80 million to improve our hotels.

Earlier this year we substantially completed on time and on or under budget the projects at our two largest hotels, the Chicago Marriott downtown and the Westin Boston Waterfront hotels. At the Chicago Marriott we spent $35 million to renovate all the meeting space, reinvent the lobby, change the food and beverage outlet, create an incremental 17,000 square feet of valuable meeting space and modernized the elevators.

At the Westin Boston Waterfront we spent $19 million to convert non revenue producing Shell retail space into 37,000 square feet of valuable meeting and exhibit hall space. We’ve also recently signed a restaurant tenant to lease 6,700 square feet.

We completed the rooms renovation at the Chicago Conrad in the first quarter and completed a ballroom renovation at the Atlanta Alpharetta Marriott during the third quarter and will complete a $7 million guest room renovation at the Salt Lake City Marriott early in the first quarter of 2009.

Of our 2008 CapEx over 50% was invested in ROI projects. In 2009 we’re currently planning to spend approximately $30 million on CapEx, $10 million of that will be out of pocket. We’ve identified potential reductions in the 2009 CapEx if economic conditions deteriorate further.

On the acquisition front we continue to review offerings in the market but delay the decision to preserve our [inaudible] for opportunities we feel confident will emerge next year as distressed assets come to market and credit markets find some footing.

With that I’ll turn it back over to Mark.

Mark Brugger

At this time we will be happy to entertain any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of William Trulove – USB.

William Truelove – USB

I know you said that you hadn't done draconian measures in operating yet because of the market share, totally understood. What kind of triggers are you looking for to do that and have you had preliminary talks with your major operators about what that would entail? I mean what kind of things are you looking for before you start instituting those kind of changes?

John Williams

You know I think, first of all we are talking to the operators about that and we’re kind of mutually setting milestones that we’re both looking for. I think everybody is a little foggy on 2009 right now. Our current preliminary budgets we think don’t sufficiently reflect what’s potentially going to happen in 2009. We have only very, very preliminary revenue numbers and so we’re scrubbing those with our operators.

We have not set specific milestones if you will, but if you get into the mid single digit negative RevPAR range I think we will certainly be of the opinion that it’s time to take some fairly significant action on the cost front, more significant than we already have.

Operator

Your next question comes from the line of David Loeb – Robert W. Baird & Co.

David Loeb – Robert W. Baird & Co.

First on the dividend, Mark, I heard what you said, I clearly read the press release. It sounds to me like it’s a foregone conclusion that you’re going to cut. And with several board members there I wonder if you could, if you could have some comment on that and also if you’re thinking of targeting a particular percentage of CAD or FFO as you think about where to reset the dividend?

Mark Brugger

Just to answer your question, the board hasn’t made a decision yet, obviously we need a little better visibility on 2009, because I think the range currently is very wide. So we want to understand that a little better. I think what we’ve said historically is that we would be willing to, the dividend is clearly an important component of the return to our shareholders. And in that borrowing a little bit of money next year, we didn’t want to do that but it looks like we would be borrowing a lot and it doesn’t seem like the prudent thing to do.

The other thing we’re wrestling with is there is currently a lot of market dislocation and we think there’s going to be tremendous opportunities next year, whether it’s buying stressed assets or possibly buying back our own shares at a depressed price. That, those options and alternatives, the capital need to be considered by the company as well, in order to maximize return to our shareholders.

So everything is on the table now, we’re doing, I think we’ll have better clarity in the, probably a month or two months on ’09. And then we’re going to have to go and have some conversation with the board and come to a final conclusion.

David Loeb – Robert W. Baird & Co.

Your coverage is clearly really excellent at this point. But how bad do fundamentals, how bad does RevPAR have to get for example, or EBITDA have to fall before you become concerned about covenant restrictions in your line of credit?

Mark Brugger

Well I think the most meaningful covenant is probably the one six coverage requirement. And we’re currently, if I look where we are now, we’re currently about three times so the cash flows would have to fall, you know, 40%.

David Loeb – Robert W. Baird & Co.

On that metrics?

Mark Brugger

It would have to be an enormous decline from where we are today.

David Loeb – Robert W. Baird & Co.

And if you did fall that much that would restrict your ability to draw on the line? And would it also restrict your ability to pay dividends beyond what’s required to retain REIT status?

Mark Brugger

I think in an end of the world scenario, probably what you do is, we have $850 million of assets that are unencumbered by debt. So we probably would look to a different avenue to fund the company if we thought we were actually getting close to our covenants.

Sean M. Mahoney

Under our underlying credit agreement we are allowed to pay dividends to the extent that we have to maintain REIT compliance.

David Loeb – Robert W. Baird & Co.

So worst case is the limit you adjust to the paying out minimum required.

Sean Mahoney

The minimum REIT level.

David Loeb – Robert W. Baird & Co.

Mark, I guess I would assume that under the end of the world scenario it would be pretty hard to get mortgage debt from anybody. So I guess that, not that I think we’re going to see the end of the world, because I don’t think that. But I’m a little surprised to hear you planning to pay back down your revolver rather than just carry more cash until things look at little more stable?

Mark Brugger

Well the revolver is available to us on three days’ notice. And so as long as you are confident that the participants in your line are solvent and will be solvent it’s really available to you and so it’s just a matter of interest savings by paying it back down because you can always draw on it..

Operator

Your next question comes from the line of Chris Woronka – Deutsche Bank.

Chris Woronka — Deutsche Bank

Could you share with us maybe how many cancellation or attrition fees you collected in third quarter and kind of what you might expect for fourth quarter and even maybe what you’re budgeting for ’09?

John Williams

If you look at our sales volume in the third quarter of north of $160 million, we collected cancellation fees of just over $700,000 and attrition fees of just over $350,000. So it’s pretty de minimus. We’re seeing small increases in both those categories, but we’re working with the operators pretty closely to make sure we collect those fees as promptly as possible and therefore the impact on the bottom line is minimized.

Both those numbers are up in double digits compared to last year, but they’re such small numbers that it’s, we don't read it as a meaningful metric at this point.

Chris Woronka — Deutsche Bank

Just kind of looking out to next year in terms of mix, I guess, this is the time of year when it becomes, you know, you start looking at where your bookings are. How do you see the mix right now shift, is there going to be a dramatic shift or are you going to do more contract and discount or are you trying to use rate the group up a little bit more just kind of your general thoughts on where mix is headed?

Mark Brugger

Well we’re seeing the trends already. Out of the premium rated business transient and higher rated group, higher rated group of course is that is the short lead time stuff, the corporate group. We anticipate that trend is going to continue. We’re trying to group up in certain properties, but there’s only, there’s only so much you can do in terms of grouping up at this stage of the game for next year.

We’ve got 60% of our group revenue for 2008 already on the books for 2009. So it becomes almost a quarterly decision on both lower rated groups which of course don’t have the same food and beverage contribution and contract business. Interestingly in some of our hotels particularly in LA the reduced airline activity has made the contract business a bit more problematic than it has been in the past.

That’s always been a safe fall back, that. That is not as safe a fall back at this point because of the reduced level of airline activity. We’re still able to hit what we want to, get what we want to get, but it is nothing that can be taken for granted next year.

So these are all very kind of fluid things that on a quarter-by-quarter basis we are looking at and trying to determine. So we anticipate a continuation in the trends that we have seen in the third quarter, in the fourth quarter and the first quarter of next year, beyond that it’s pretty hard to see.

Chris Woronka — Deutsche Bank

How do you think in general the pricing integrity is holding up across the board? I mean you’ve got a pretty small portfolio but just, in general, are you seeing any kind of irrational behaviors start to creep in yet or are we still trying to hold occupancy, or both?

Mark Brugger

Hold rate you mean?

Chris Woronka — Deutsche Bank

Yes.

Mark Brugger

Yes, we are seeing pretty good rate integrity. There are a couple of things at work here. I mean, yes, generally the sophisticated competition understands that once you give up rate it’s very hard to get it back. We have a couple markets where we have less sophisticated competition, but in general, I would say rate integrity is pretty good.

A lot of it depends on what’s going on in the marketplace. In other words, in Chicago for example, I don’t think it’s rate integrity we are worried about. I think it’s the fact that we all have to open up discount channels when the citywide market is softer. But you can budget that and opening up discount categories you are not dropping your benchmark rate, which is what’s hard to get back.

So I think in general we are seeing a holding rate understanding that some occupancy might be at risk but at the same time opening up discounts. One, I think, important factor, and this is yet to be proven, but in this go around in 2002 and 2003 there was very little discipline on the particularly opaque internet channels.

Since guaranteed rate policy has been implemented among all the brands really, but particularly Marriott, we are hoping that there is going to be much less of that undisciplined inventory distribution that the opaque channels are able to take advantage of where you completely lose control of your inventory and your pricing.

This time around because of guaranteed minimum pricing, you are not going to get a better price on the internet than you can get on the brand web site. And so we hope that the brands are able to control their inventory much better this time around.

Operator

Your next question comes from Will Marks – JMP Securities.

William Marks – JMP Securities

On one of your last answers you mentioned 60% of ’09 on the books of group business? What is group business’s percentage of the total and what kind of rate increase is, if so, are we looking at for ’09 on the group part?

John Williams

First of all it’s about 36% of our annual business. It tends to be a little bit more in the fourth quarter. I don’t have those rates statistics right in front of me but as I recall the average rate is relatively flat up a little bit and therefore room nights are correspondingly different. But 36% with 60% on the books, that doesn’t give you a real firm base of occupancy going into next year which doesn’t help visibility a lot, but particularly in Boston it’s very encouraging to see the patterns that we are seeing.

William Marks – JMP Securities.

Then, tying that into just corporate rate negotiation, what kind of leverage do you have to raise rates? Can you go to your customers and say we are in an inflationary environment or do they come back with this is a very bad economy you’ve got to cut your rates?

John Williams

We don’t have enough evidence yet to know how we are going to come out. We know that the targets are. The targets are to be flat to just up in rate kind of knowing that you’re going to have to give away some last room availability and perhaps some amenities but we really don’t know yet how it’s going to turn out.

Obviously many customers in many markets have significant cost pressures and therefore are going to bring those cost pressures to the table. But at the same time there is a recognition that hotels have increased costs as well. Frankly, the other business on the books and potentially available is not down to the point where we have no leverage at the time.

William Marks – JMP Securities

On ’09 CapEx spending, I am not sure if you touched on that. Could you mention projects in ’09?

John Williams

We currently are identifying about $30 million of ’09 CapEx, $10 million of which would be out of pocket, $20 million would be out of the escrow accounts or restricted cash held at the hotels. We’re reviewing those numbers, obviously, and preparing contingency plans if economic conditions worsen. There are really no major projects for next year that would cause a lot of disruption. We have a rooms redo at Waverly that would come towards the end of the year if we don’t postpone it into next year.

Mark Brugger

So currently with $30 million, about $10 million out of pocket is their preliminary estimate, but obviously the last 30 days the world looks a little darker. So, there are a lot of projects that may be on the table that we are going back to have a look at that depending on how the next year plays out we may revisit but there is a number that are underway where we have ordered materials such as the Salt Lake City rooms redo.

And, actually pricing is getting better as you can imagine that it’s not a great environment for a lot of those contractors and construction folks right now.

Mark Brugger

Just to add on that, so currently it would be $30 million, about $10 million out of pocket is our preliminary estimate but obviously the last 30 days the world looks a little darker, so but there's a lot of projects that may be on the table that we're going back to have a look at that, depending on how the next year plays out we may revisit, but there's a number that are underway. We've ordered materials, such as the Salt Lake City rooms redo.

And actually pricing's getting better as you can imagine that it's not a great environment for a lot of those contractors and construction folks right now. So things that we think make sense or are prudent to do we are doing. We don’t have any big projects like we did at Chicago or Boston this year coming up. So we are looking at – we are being prudent. We are trying to take advantage of what may be a good time to get some work done, but also trying to recognize the fact that we need to be responsive to the economic conditions out there.

Operator

Your next question comes from Smedes Rose KBW

Smedes Rose – Keefe, Bruyette & Woods

Hi, Good morning. You mentioned your group bookings at 60%. Where were you around this time a year ago in terms of what you ended up doing, what was on the books for '08.

John Williams

We are up a little bit versus the same time last year. Most of that is coming from Boston. I think we were at a similar place, not quite as strong last year. But offsetting that is we are seeing a clear trend, not a major trend, but a clear trend of reduced short term bookings. So, where we are today versus the same time last year could very well deteriorate by the end of the year. So I think net-net we are comfortable that we’ll be sort of equivalent to where we were last year at the end of the year but right now we are slightly ahead.

Smedes Rose – Keefe, Bruyette & Woods

And then at your hotels that do a little more airport or at airports, are you starting to see the fall out from the airline cutbacks looking at your Orlando results, is that more driven just by maybe a falloff in leisure business or because the Torrance property seems like it held up fairly well and I think that does a fair amount of airport business. So I was just wondering if you could maybe talk about trends in that area a little bit?

John Williams

At LAX, both our LAX Marriott and the Torrance property are definitely feeling the decrease in airline capacity at this point and that has to do with contract business. Both of those markets and Orlando are impacted as much by things going on in, for example, in LA in the defense industry, which is obviously was pretty strong in the first part of the year, and in Orlando by group activity and other just general commercial activity that goes on in the market.

In LA we had strength in the transient market in the first and second quarter, a little weakness in the third quarter. We anticipate weakness in the fourth quarter. So, that combined with the reduced airline activity or capacity, we think is going to impact the hotels. With respect to international activity, which impacts Torrance a lot on the contract side, we are seeing a reduction in capacity there as well.

In Orlando it’s more of a market wide problem. The resort corridor, if you will, has been soft and therefore groups have that option at a lower rate than they normally do and therefore, we are at a significant disadvantage in booking groups at the Orlando Airport Marriott. So we have seen that having a bigger impact than really airline activity in Orlando.

Operator

Your next question comes from the line of [Ken Hoe] – KeyBanc

[Ken Hoe] – KeyBanc

My question is just a follow up to the prior CapEx spending question. For the Salt Lake City Marriott how many rooms do you plan on being out of service while you renovate it?

John Williams

Well there's staggered, and this is John, they're staggered and you take out whatever the most efficient number of rooms per segment if you will, so that if you can demolish and efficiently clear out two floors of rooms, you might do that if you can only do – or if you could more you would do that.

But it really depends on the contractors sort of view of his capacity and how fast he can do the work. I am not sure the exact number on an average day that will be out of service in Salt Lake City at this point, but typically you are taking a couple or three floors out at one time.

Mark Brugger

This is Mark, just to add on that. We stagger this at a time when the occupancy is generally a little lower, or a lot lower at the hotel. So we’re not envisioning that we’ll have probably three floors out at a time too, and then the one buffer floor. We’re not anticipating a lot of disruption at the hotel as a result of the rooms redo.

[Ken Hoe] – KeyBanc

And do you have um an estimate for the available number of room nights for the fourth quarter?

Sean Mahoney

We do. This is Sean. The available number of room nights is about 1,130,000.

[Ken Hoe] – KeyBanc

A million one hundred thirty thousand. And that’s probably going to be running into next year the first quarter also, that rate?

Sean Mahoney

No because the first quarter of next year only has three periods versus our, our fourth quarter had four accounting periods in it.

Mark Brugger

We’ll be happy to follow-up with you after the call.

Operator

Your next call comes from Michael Salinsky – RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Following the Marriott calendar, your fourth quarter results will they have an extra week in them, because one of your competitors is actually backing a week out there for comparability. Will you guys follow the same format?

Sean Mahoney

Our fiscal year, this is Sean, our fiscal year is always 365 days for REIT purposes. Everything that we present from a statistics perspective includes through December 31, so we do adjust the hotel statistics as well as the hotel operating results to back out the incremental days in Marriott's fourth quarter because of the 53-week year.

Michael Salinsky - RBC Capital Markets

Secondly you touched upon opportunities for distressed assets. Are you seeing any distressed right now? And where do you expect the distress to come from, more so from the financing side or more so on the operating side?

Mark Brugger

This is Mark and John touched on this as well. You know the transaction volume has declined considerably. I think people are just holding off. So transaction lines slow I think the number of packages we’re seeing has declined so there’s not a lot of opportunities. I don’t think that we’re seeing a tremendous amount of distressed assets now.

I think our, our thought is a couple fold. One there will be some distresses. Cash flow turn negative next year. You’ll have some people get in trouble that did high leverage loans. You may also have some new hotels that are opening up. Construction loans where people are trying to look for perms. And that becomes unavailable and they open up soft cash flows. That may be another one that is available as well.

So we’re envisioning a number of opportunities that may emerge next year through a number of avenues. We also have our relationship with Barrett International. And in softer times the opportunities that come through that system are more, more fruitful for us if you will. John I don’t know if you have anything to add to that.

John Williams

No it’s just that some of the major houses that we’ve all heard about have significant real estate holding. And inevitably there going to go on the market. We’ve not seen it yet but we’ve certainly heard a lot of evidence that it’s coming.

Michael Salinsky - RBC Capital Markets

Would you guys consider joint ventures or fund investments or group investments possibly go after maybe some of the maybe some of the larger portfolios?

Mark Brugger

Yeah I mean, this is Mark. We pride ourselves on having very simple balance sheet, very easy to understand. We have no preferred stock no JVs currently. But in this environment obviously at the level our shares are trading it would be very difficult to issue any equity. So we’re exploring ways that we can take advantage of the market dislocation. That would be one way. To form a joint venture or some other structure where we can put in a smaller amount of capital and get a management fee and promote. And really try to exploit what may be great opportunities in 2009.

Michael Salinsky - RBC Capital Markets

John, you touched upon group bookings and you also touched upon how the Boston market has major renovations actually it’s in the Chicago market at well this year. And I was just wondering if you could provide some additional commentary on group booking pace specifically in Chicago and Atlanta your other two major markets?

John Williams

Okay the group booking page in Chicago is up slightly versus same time last year. It’s been up more in earlier quarters. So we’re seeing deterioration in the booking pace. We are hoping that we’ll wind up the year at our crossover goal of group room nights. As I say, we hope we will and we have no reason to believe we won’t.

The new meeting space is really geared, in Chicago, is geared towards smaller groups. We basically took a fourth floor at the hotel which was essentially out of service. And we created some really great small meeting rooms in it. Unfortunately that segment of the business, corporate meetings is what’s fallen off this year and presumably next and therefore is not providing us a great deal of help in the down market. Clearly we've put a lot of revenue into that space.

But it hasn’t provided the kind of upturn that we had hoped for. And will anticipate getting in the next up market. So it’s not great defensive space it’s great offensive space. And we’re in a defensive market right now.

In Boston on the other hand that hotel we knew when we bought was woefully under group meeting spaced. And so this space in Boston was actually critical to letting that hotel kind of fend for its self if you will when the BCEC is dark. And so that space has been directly incremental in the 40% increase versus same time last time in group revenue that we’re seeing in Boston. So that’s a very direct cause and effect.

And just to give you our overall booking days. We’re up room nights for the year for Boston are up 3% and ADR is up, you know, a little over 2% for next year. So those are, you know, Boston [inaudible] but those are relatively encouraging signs of the group booking rate.

Michael Salinsky - RBC Capital Markets

I agree. I was just trying to get an understanding of how other markets where playing out there into the portfolio. Then I only, I know it’s, you haven’t provided 2009 guidance. But 2008 you had a pretty large tax benefit. Do you expect that to reverse in 2009? Or to be meaningfully lower?

Sean Mahoney

We expect that number to be meaningfully lower. As some of our leases mature and we renegotiate them on current rate.

Operator

At this time there are no further questions so we’ll turn the conference back over to Mr. Mark Brugger.

Mark Brugger

Thank you everyone for your continued interest in support of DiamondRock.

Operator

Thank you for your participation in today’s conference. This concludes the presentation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: DiamondRock Hospitality Company F3Q08 (Qtr End 09/05/08) Earnings Call Transcript
This Transcript
All Transcripts