Diamondrock Hospitality Co

NYSE:DRH

Earnings Call Transcript 2019-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to DiamondRock Hospitality Company's First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Sean Kensil, Director of Finance. Sir, please begin.

[Sean Kensil, executive]

Thank you, Norma. Good morning, everyone, and welcome to DiamondRock's First Quarter 2019 Earnings Call and Webcast.

Before we begin, I would like to remind participants that many of our comments today are considered forward-looking statements under federal securities law and may not be historical facts. These statements are subject to risks and uncertainties as described in the company's SEC filings. In addition, as management discusses certain non-GAAP financial measures, it may be helpful to review the reconciliations to GAAP set forth in our earnings press release.

This morning, Mark Brugger, our President and Chief Executive Officer, will provide a brief overview of our first quarter results as well as discuss the company's 2019 outlook. Jay Johnson, our Chief Financial Officer, will then provide greater detail on our first quarter performance and discuss our balance sheet. Following remarks, we will open the line for questions.

With that, I'm pleased to turn the call over to Mark.

[Mark Brugger, executive]

Good morning, everyone. And thank you for joining us.

There are 4 key takeaways from our first quarter results. One, total revenues were modestly ahead of internal expectations, as the asset management team, in concert with operators, adjusted their market conditions and successfully traded a little average room rate for higher profit group business that led to 2% total RevPAR expansion with robust F&B growth of over 8%. Two, this strategy resulted in adjusted EBITDA and adjusted FFO coming in just ahead of our expectations for the quarter. Three, the company, as previously announced, repurchased 3.1 million shares in the quarter at an average price of $9.52 per share. That price represents a substantial discount to our current trading price and a 33% discount to the midpoint of our NAV estimates. And the fourth and final takeaway from today's release -- the company continues to execute on a number of exciting repositionings within the portfolio, including completing the Emblem Viceroy in San Francisco and ramping up Havana Cabana in Key West.

There are several other high ROI repositionings in the pipeline as well, like the repositioning of the Lodge at Sonoma and the Vail Ski Resort.

Let's look at little closer at first quarter results. Pro forma portfolio RevPAR contracted 80 basis points. But total RevPAR increased 2%. Results are even better if we take out our 2 renovation hotels in the quarter. Without the JW Marriott Denver and the Marriott Salt Lake City, portfolio RevPAR was up 1%, and total RevPAR increased a very strong 4.2%.

Profits margins. Profit margins were about 20 basis points better than our internal forecast, with adjusted EBITDA margins contracting 143 basis points. Again, if you take out the 2 under-renovation hotels, adjusted EBITDA margins in the quarter only contracted 53 basis points.

Now let's look at how we did in the various markets. Resorts were a bright spot. RevPAR increased 2%. But the real story is the success of our asset management team-led programs that drove other revenue streams at the resorts. These programs allowed our resorts to deliver total RevPAR growth of 4.4%. Within our resort portfolio, we saw particularly impressive results in Key West, Sausalito and Lake Tahoe.

Among urban markets, the San Francisco market was strongest among the major MSAs. While results were good for our hotels in the Bay Area, the Emblem Viceroy's results were held back because it opened in stages over the first 6 weeks of the year. The now fully opened Emblem is off to a great start and has a 5.0 rating on Trip Advisor. It has moved up an amazing 100 spots on Trip Advisor post-reinvention and is already ahead of 2 of the 3 other Viceroys in the market on Trip Advisor. We are extremely bullish on this hotel's future.

In Chicago. We are proud of the relative performance of our 2 hotels. They generated 60 basis points of RevPAR growth, beating the market by roughly 500 basis points. This is an off-cycle citywide year in Chicago, and it was great to see our proactive asset management strategies for our in-house group pay off. The Chicago Marriott's total RevPAR was up 25% due to strong self-contained group. The Gwen's RevPAR was flat but gained 7 points of share. The Gwen remains a repositioning success story for DiamondRock, with its increased profits, top-10 ranking on Trip Advisor and, this week, winning Marriott's distinctive Luxury Hotel of the Year.

In D.C., despite the federal government shutdown holding back growth, our 2 hotels collectively grew RevPAR 2.4%, largely from the renovation comparison at the Bethesda Suites Hotel.

Our hotels in Boston grew RevPAR 1.3%. The Boston Hilton was a star in the first quarter, with nearly 4% RevPAR growth. The Hilton brand continues to deliver for us in Boston and drove an impressive 75% contribution.

Our New York City hotels outperformed the market by 700 basis points in the quarter with essentially flat RevPAR change. While the Easter shift was particularly impactful to March results in New York, we are encouraged by the 5% RevPAR growth for our New York City hotels in April and still expect modestly positive RevPAR change for the full year.

In Atlanta, our Marriott grew total RevPAR by over 9%, as the Super Bowl benefitted that market. In Phoenix, our hotels substantially outperformed the market, with over 12% total RevPAR growth, as our asset management initiatives implemented shortly after last year's acquisition really took hold.

Denver. Denver was a good market overall, but it was our toughest major market, as the renovation at the JW Marriott Denver, as expected, displaced substantial business. And the Courtyard Denver had a tough comp to last year. Collectively, these hotels experienced double-digit RevPAR contraction.

Also as expected, Salt Lake City has a difficult citywide calendar in the first half of 2019. However, the back half of the year looks very solid. Our hotel underperformed the market because of its renovation in the first quarter. The combination of market conditions in Salt Lake and our renovation led to double-digit RevPAR contraction in the first quarter for our hotel. Again, the setup for the back half of the year is much stronger in Salt Lake.

On a very positive note, our 3 acquisitions in 2018 performed extremely well and bolstered first quarter results. Collectively, the Kimpton Palomar Phoenix, the Landing Lake Tahoe and Cavallo Point, Sausalito delivered RevPAR growth of over 7%.

Switching gears. We have received a number of questions about impacts from various Marriott initiatives on our hotels. We remain big believers in the power of Marriott brands and their ability to drive results. However, there's been a lot to digest with Marriott.

As you will recall from last year's quarterly updates, the Marriott Starwood merger integration was uneven among markets in its rollout for our hotels, most negatively at the Boston Westin. Things have stabilized. But in the first quarter of 19, we were still 1,400 basis points behind in market share as compared to the first quarter of 2017, which was before the integration.

I guess the positive is that this lower base should enable us to outperform going forward, given the high quality and excellent location of our hotel. Encouragingly, the Boston Westin's group pace is up 20% for 2020 and should beat the market next year.

We are also seeing the number of real positives from Marriott on the cost side. For example, we expect meaningful reductions in allocated costs under the new program services fee. This is projected to save us $700,000 in 2019 alone. We've also seen substantial savings in costs for the rewards program and continue to benefit from lower credit card commissions and other programs as the Starwood Hotels came onto the Marriott system.

Additionally, in some markets, we're actually benefitting on the revenue side from the Starwood merger. The Chicago Marriott is a good example, as it is clearly gaining share. As new initiatives are rolled out, like the changes to the redemption program or the new brand standard for free breakfast at resorts for elites, we are continuing active discussions with our partners at Marriott and know that they are committed to working with us to find positive and fair outcomes.

Turning to capital. We spent approximately $21 million on our hotels in the first quarter, and we have spent a total of $125 million this year. We are already seeing the benefits of completed projects, like the Emblem and Havana Cabana. During 2019, we will also complete a major ROI repositioning and re-concepting of our other Key West Resort and our Lodge at Sonoma, where we will add a Michael Mina restaurant, upgrade the spa and possibly up-brand the hotel.

We're also underway with Phase II of our Vail luxury upgrade plan. We are excited about all of these projects. Please note that for 2019, the renovation disruption is still expected to impact portfolio RevPAR growth by 60 basis points and adjusted hotel EBITDA by $3 million to $4 million.

Of course, our largest capital project remains the rebuilding and reimagining of the Frenchman's Reef Resort. Most of you are familiar with the story. Frenchman's is a spectacularly well-located resort in the U.S. Virgin Islands. It was significantly impacted and closed by sequential hurricanes in 2017. The company has comprehensive insurance and has commenced rebuilding the resort, with the projected reopening in 2020. Once complete, Frenchman's Reef will be the most important resort in the Virgin Islands. It is projected to generate stabilized EBITDA of more than $25 million.

The claim process has not been easy, as our excess insurance carrier has been difficult. We are doing everything possible to ensure that we receive the full amount we are appropriately entitled to under our insurance policy. We are currently in litigation with a court date in early 2020. The trial will be held in the U.S. Virgin Islands Superior Court.

With regard to business interruption insurance. We are entitled to all loss profits. Last year, we booked business interruption income of $16.1 million and believe we are entitled to at least that amount in 2019. The insurance company has agreed to $8.8 million through April 2019. But given the litigation, it is unlikely that they will pay us the balance of the more than $16.1 that we believe we are owed for this year until the overall claim is settled or adjudicated, potentially extending into early 2020.

I'll now turn the call over to Jay to delve into the quarter a little deeper and discuss the balance sheet.

[Jay Johnson, executive]

Thanks, Mark.

Before I discuss details of our first quarter results, I would like to remind everyone that comparable RevPAR, hotel adjusted EBITDA margins and other portfolio metrics are pro forma and include our recent acquisitions: Cavallo Point, The Landing and the Palomar Phoenix. Additionally, comparable results exclude Frenchman's Reef and Havana Cabana Key West.

First quarter results were in line to modestly ahead of our internal expectations from an adjusted EBITDA and adjusted FFO perspective. Total revenue growth of 2% for the portfolio was ahead of expectations. These results were positive despite being held back by performance at the JW Cherry Creek and the Salt Lake City Marriott, which both had ongoing renovation work.

Portfolio RevPAR contracted 80 basis points, partially as a result of displacing transient for higher-profit group with better total spend. Total revenue was bolstered by food and beverage results this quarter, with F&B revenues up 8.1% and F&B profits up an impressive 16%; while F&B margins were up almost 240 basis points. The Chicago Marriott and Bethesda Suites Marriott had impressive F&B results, with revenue up 83% and 47% respectively, as these hotels were under renovation in Q1 of last year.

Additionally, the Westin Fort Lauderdale's new restaurant, Lona, has been a huge success for us. And its halo effect continues to drive business at the hotel. F&B revenue at the Westin was up $1.5 million or 30% quarter-over-quarter. Lona currently ranks among the top 5 restaurants in Fort Lauderdale and is number one among Mexican-inspired restaurants.

Transformational concepts like Lona drive customer preference and have closed incremental group business with meeting planners. These types of initiatives are a core competency for us.

Hotel adjusted EBITDA results exceeded operative budgets by over $0.5 million despite the federal government shutdown and off-cycle citywide patterns in some of our markets. Please note, as expected, the company recognized $8.8 million of business interruption income from Frenchman's Reef.

Profit margins contracted 143 basis points during the quarter, over 20 basis points better than budget; and are forecasted to improve going forward. The midpoint of our guidance implies slightly negative EBITDA margins for the full year, and we anticipate margin expansion in the second and third quarters as RevPAR accelerates throughout the year. As always, Tom and our asset management team remain laser-focused on keeping costs contained.

The cost environment continues to be a difficult one at this point in the economic cycle. We do expect expenses to remain elevated this year. However, Tom and his team have a variety of initiatives they're deploying to mitigate rising expenses.

Now let me highlight one particular area of focus: food costs. Our food costs improved by 170 basis points in the first quarter. We expect these savings to continue as we complete the rollout of Tom's program across our portfolio. Most of our non-Marriott managed hotels have implemented the program, and we see enormous opportunity among our brand-managed hotels as well.

In addition, by the end of the second quarter, our new labor management system will be in place across our entire portfolio. We are excited about this initiative and continue to see improvement in productivity as our hotels adjust to the new system and new labor standards.

Now let me spend a couple of minutes discussing quarterly results and trends in our 3 significant segments. Please note all segmentation metrics exclude Havana Cabana Key West and the JW Marriott Cherry Creek.

Business transient was flat for the quarter. Boston was our strongest-performing market, up nearly 10% combined in business transient revenue. Meanwhile, our New York hotels were able to outperform the broader market, with business transient growth of 1%.

Salt Lake City's business transient revenue experienced a steep decline due to renovation and citywide weakness. Leisure, contract and other revenues were up 2.5% in the first quarter, excluding the JW Cherry Creek. Several markets saw double-digit RevPAR growth in the segment, including Alpharetta, the Palomar Phoenix and the Chicago Gwen. Our resorts continued to perform well for leisure with Vail, Shorebreak and The Landing having the strongest leisure growth in the first quarter.

Group revenue was down 2.8% for the quarter, which was in line with expectations. Citywide calendars in Boston, San Diego and Washington, D.D. are not as favorable in 2019 and impacted our hotels in those markets significantly. Notably, our group pace for 2019 improved 160 basis points since our last call and now is down in the low single digits year-over-year.

In the quarter, bookings for the balance of the year were very encouraging, as Mark mentioned. And 2020 is setting up well. Given a challenging citywide layoff for 2019 in many of our major markets, we're very encouraged by this improvement in pace.

The asset management team also has a good strategy to offset weakness in group by backfilling with BT and self-contained small group business. We saw this strategy pay off in hotels like the Chicago Marriott in the first quarter. Group pace in the quarter for the remainder of the year was up 21%, and we continued to improve our full year group pace as well.

As we look forward, we are optimistic about 2020. Our pace for 2020 remains strong and is up 15%. Notably, pace is up nearly 30% for our Chicago hotels, our combined Boston pace is up 20%, and D.C. is up nearly 30%. We are encouraged by the broad strength of our markets throughout 2020, as our renovated portfolio should be able to take advantage of a rebound in demand in many of these markets.

I will now transition to an overview of our balance sheet and capital structure for the quarter. We continue to have one of the strongest balance sheets among our lodging REIT peers. Net debt to EBITDA ticked up slightly this quarter to 3.8x but remains at the lower end of our peer group. Given the timing of cash flows and insurance proceeds received related to Frenchman's Reef, we expect our leverage to increase modestly but will remain within our stated range through 2019. We continue to have a significant unencumbered asset pool totaling 23 hotels, with a conservative leverage ratio of 29% and a well-lettered debt maturity schedule.

We plan to refinance our credit facility late in the second quarter to enhance our borrowing capacity as well as terms and financial flexibility. And we will likely have an update on the second quarter call regarding the proposed transaction.

With that, I will now turn the call back over to Mark.

[Mark Brugger, executive]

Thank you, Jay.

Let's turn to guidance and the outlook for the balance of the year. The company's guidance remains unchanged, with full year RevPAR growth of 0.5% to 2.5%, adjusted EBITDA of $256 million and $268 million, and adjusted FFO per share $1 to $1.04.

For the second quarter, we expect RevPAR to accelerate from strong performance within our resort portfolio and California hotels. We also expect to have much stronger group setup in the second quarter.

Group pace is up 2.7% for the second quarter as compared to down 4% in the first quarter. Group pace has also significantly improved by 360 basis points for the second through fourth quarter of 2019, as the result of good bookings in the first quarter for the balance of the year. Additionally, our hotel in Phoenix, the Palomar, which was acquired last year, is expected to deliver our strongest urban results, with a high single-digit RevPAR increase.

In the back half of the year, we will benefit from some easy comparisons, including a comparison to prior year renovation periods for the Vail Marriott and Westin Fort Lauderdale Beach Resort, as well as the union strike period at the Boston Westin.

As we look forward into 2020, we are very encouraged by our group revenue booking pace, which is up a healthy 15%, as our 2 most important group markets, Boston and Chicago, are pacing up double digits.

With that, we're now open for any questions you might have.

[Operator]

[Operator Instructions] Our first question comes from Michael Bellisario with Baird.

[Michael Bellisario, analyst]

Could you just a little bit about Cavallo Point and the 6% RevPAR during the quarter? I know it's just one quarter, and it's your first full quarter there. But how should we think about compression coming to that property, when there's strength in San Francisco like there was in the first quarter? And just kind of help us understand the general dynamic of that property, what's going on relative to the CBD in San Francisco?

[Mark Brugger, executive]

Yes, so I'll start, and then I'll turn it over to Tom. So this is Mark.

We closed in December on the property. The first quarter was really similar. I would do the analogy of the Palomar, where we took this hope that we get all of our systems, programs implemented. And now we're seeing enormous increases at the Palomar. Cavallo Point is going to be a little bit the same, where we've gone in there and we're working with the team to implement a lot of our best practices in the first quarter. We do expect Cavallo Point to experience compression from the city. It clearly did in the first quarter. Probably had we bought it 6 months earlier, you would've seen more dynamic RevPAR growth at the hotel. But we're really just at the very tip of putting in all of our best practices.

Tom, you want to add to that?

[Tom Healy, executive]

Hi, Mike. We're still in the evaluation period, on especially the revenue management piece, looking at the tools, adding different technology on to maximize premium room sales, and looking at rate pricing and rate gaps between room types, weekend and midweek price points. So we've identified a fair amount of opportunity, and we're pretty excited about it.

And then, this hotel is the benefactor of compression in San Francisco and certainly in Palo Alto. The Palo Alto market is very compressed, as obviously, I'm familiar with it from my previous life, having the Four Seasons and the Ritz in Half Moon Bay. And the benefit of Palo Alto being compressed with limited room nights on the group side, a lot of it gets pushed out, and it doesn't want to go into San Francisco.

And so what we've found at Cavallo Point is we're seeing a lot of midweek group into that market. And it really has to be evaluated, it has to be layered appropriately so you don't spike up one day. And I think the team, we've identified a host of opportunities to really improve group revenues, group rates, and certainly transient ADR.

The property, we're still looking at labor efficiencies and looking at laundry and a host of other cost initiatives as well. So this is going to be a slow process because just the nature of the property, the nature of the location, and certainly the tight labor market. So we have to be really thoughtful about this and do it methodically. But this asset is a home run for -- there's so much opportunity here, long time to come.

[Michael Bellisario, analyst]

And then, just sticking with revenue management, have you guys continued the rate tradeoff for higher rated group strategy into April and May? And any color you can provide there about recent trends?

[Mark Brugger, executive]

Sure. So as we mentioned, in New York, which is really a transient strategy there, RevPAR was up 5% in April. So that's not a group strategy, that's a transient strategy in April and benefitting from the Easter shift, really in that particular city.

In April, the real strength in our group, if you look month by month in the pace, is in May and June. So it really depends on what the citywide is. So Tom's team looks at each market in evaluating the strategy per quarter and evaluates it. We would expect good group results and good F&B results in the second quarter as well.

[Operator]

Our next question comes from Chris Woronka of Deutsche Bank.

[Chris Woronka, analyst]

Wanted to ask you, on the insurance with St. Thomas, is there a reason why they're combining the BI with the other proceeds? In other words, is that some kind of contractual situation where they're not going to negotiate on the usual BI until the whole thing is settled? Can you just maybe give us a little bit more color on how those are combined?

[Mark Brugger, executive]

Sure. So we have a big insurance policy with a $360 million limit. The way the syndicate works is that the first $100 million was held by a variety of different folks, mostly Lloyds of London participants. They pretty much have all paid out pretty readily. And then, primarily one excess carrier has the risk above the $100 million market, kind of between that $100 million and $360 million limit.

And frankly, they were only paid a couple hundred thousand dollars for that risk. And they're being very difficult in the process. We believe we're clearly entitled to all these monies under our insurance policy. And they're taking a difficult stance, and we'll do what we need to do to make sure we recover for our shareholders what they're entitled to.

There's nothing in the contact that says they shouldn't pay us. It's just they're taking an unreasonable position at the moment. And it's our job to get them to the right place.

[Chris Woronka, analyst]

And then, you mentioned potential repositionings of brandings in Sheraton Key West and Sonoma. Would those both stay within the Marriott brand family?

[Mark Brugger, executive]

So a little different situation. Sonoma, we have a long-term management agreement currently with the Renaissance Brand. So looking at that situation, if you compare the rate that we're getting versus the luxury comp set within that market, there's $145 delta. So we think if we can get into some of the luxury channels that we can close some of that $145, and it would be a very strong return for us.

So the conversations we're having with Marriott is, given that fact that we're putting in a Michael Mina restaurant and upgrading the spa, and it's a beautiful little resort, are there other brands within the Marriott brand family that may be more appropriate for the resort and also allow us to capture more of that luxury rate? So that's kind of the setup there. And we're in active conversations about trying to figure out what the right solution is with them.

The Sheraton is a franchise agreement which could be terminated. We at least have that option. But we're in discussions with them, too, about -- we think that given the quality and the size of those rooms, and the fact that it's on the beach in Key West, that it would be better either as a lifestyle brand within Marriott family or even potentially independent. We just see a lot of upside at that particular property. So we're trying to make sure we get the right brand or right strategy matched up with the quality of the asset.

[Operator]

Our next question comes from Stephen Grambling of Goldman Sachs.

[Stephen Grambling, analyst]

One broad one. I guess with the consolidation in the space, how do you assess any impact to the competitive environment from those actions? I guess if you can think about the benefits or lack thereof, and you think about your own positioning going forward?

[Mark Brugger, executive]

It's a complicated question. This is Mark. I'll take that one.

So we're a fan of activity within the space. We're a fan of people making statements about valuation. We believe that activity within the space adds interest. And in some ways, having one less similar-sized peer out there is probably advantageous to us. And frankly, if someone has a higher multiple, it adds value for shareholders; we think that that's the right thing to do. And people should be active on that front.

I think that there's probably -- investors are going to make distinctions about very big lodging REITs and then what I'll call midsize REITs. And there's pros and cons to both of those strategies. Bigger, clearly, is harder to move the needle but probably has some advantages on cost of capital on the debt side and liquidity. And then, the advantage we have at our size, being $3.5 million in assets, is much easier to move the needle.

So I think investors will have to make some decisions about which do they think will deliver better returns over the next several years. But I think stepping back, we like the activity. We think it's good for our valuation. Like to see more of it.

[Stephen Grambling, analyst]

And a follow-up to Chris's question -- do you find that the math in evaluating the benefits of being branded versus independent have evolved within your portfolio, whether that's at a distribution cost, capital requirements or otherwise?

[Mark Brugger, executive]

I think every one is its own business case. So we've seen a case where we bought an independent hotel in New York with the courier brand, and literally the rate went up $50 the next week. And then, other markets like Key West, where the market runs over 80% occupancy, and it's a resort destination, people are looking for a new experience; the brand proposition probably is not as strong.

So I'm not sure it's evolved or that it's just more focused on the individual market and the individual assets to make sure you're matching up with the right strategy.

[Stephen Grambling, analyst]

And maybe one last quick one, if I can sneak it in. I know you talked about the impact from Starwood and Marriott, the integration there. I don't think I caught anything on the Bonvoy launch specifically. Are you anticipating any revenue impact or other surprising changes, as that is being rolled out and marketed now?

[Mark Brugger, executive]

So they're rolling out a lot. I mean you would hope that your brand partners are being proactive in thinking about the future. But they're moving faster on, boy, probably a dozen different fronts.

So on the Bonvoy and rewards program, they've made some changes. Like you would expect, when they were all new programs, for some of our hotels, it's been really good, and some that we need to make adjustments with the new program. So I would say our rewards costs with Bonvoy are down across our system, which has been good. Some of the contributions at some of the hotels are up, and frankly some are down. And so we're working with them. And they're agreeable to make adjustments where it's fair to make adjustments.

I'd say that one that we have been a little bit focused on is, under Bonvoy, they've given elites, or their premium folks, free breakfast at resorts. And they compensate us, I think, $7 a breakfast. But that's one that in some markets makes sense and in some markets probably is too expensive. So that would be one that, under the Bonvoy program, we're working with them on solutions to be equitable.

[Operator]

Our next question comes from Lukas Hartwich of Green Street Advisors.

[Lukas Hartwich, analyst]

I just have one. It sounds like the booking pace looks pretty good. I'm just curious what the prospects are for translating that into EBITDA growth.

[Mark Brugger, executive]

Stepping back, I think we're very encouraged about the -- in the quarter for the balance of the year bookings. We've started giving our citywide footprint for this year, which flips next year. But we're still slightly negative on booking pace for the full year. So we're still implementing various strategies back to all the transient and really being careful about how we're thinking about laying the new group in there.

So it's up 2.7 in the second quarter, which is good, and pace has picked up. But next year is really the group story for DiamondRock in 2020.

[Lukas Hartwich, analyst]

Right. I guess maybe my question is more directed to 2020 in terms of the EBITDA growth potential there.

[Mark Brugger, executive]

So we'll have a very strong setup in 2020 on the group side. So I think from that side, we would expect substantial F&B flow-through with the banquet business that's associated with that. But that just represents a little over a third of our business. And it'll still depend on the general economy, and the transient outlook will still play into our 2020 results. And frankly, sitting here today, it's a little early to say what those trends will look like.

[Operator]

Our next question comes from Patrick Scholes of SunTrust.

[Patrick Scholes, analyst]

Mark and Jay, I got a couple questions for you. First is, percentage-wise, where do you stand at group as a percentage of your total business? And where would you ideally like to see that in the next 1 to 2 years?

[Mark Brugger, executive]

We're just over 30%, sort of between 30% and 33%, depending on how you measure it, in group. We kind of like where that is. We try to stay relatively balanced between business transient, group, and then leisure and other. We'll probably increase leisure and other as we move more into resorts.

But as you know, different segments perform differently, depending where you are in the cycle. So we want to be relatively balanced, just as kind of good capital allocators and making sure that we're not going to have uneven results throughout the cycle by it being overemphasized in one versus the other. I think if we had to pick, we'd pick a little bit more on leisure for the full cycle. But we like where our group is.

I think over time, we'll probably -- we're unlikely to do another convention center hotel. I think we'll continue to have a more diversified platform on that front.

[Patrick Scholes, analyst]

And then, perhaps a modeling question here. I'm curious why adjusted FFO per share isn't going up after you had some pretty significant share repurchases in 1Q but keeping the dollar amount of FFO unchanged.

[Jay Johnson, executive]

So on a full year basis, Pat, when you think about it, it's going to be the weighted average shares outstanding for the full year. So you'll see that impact a little more as we flow throughout the full year. And that's why you didn't see that significant impact that you're looking for.

[Operator]

[Operator Instructions] Our next question comes from Anthony Powell of Barclays.

[Anthony Powell, analyst]

The question on Frenchman's Reef. And sorry if you've gone over this already. Can you remind us what the total proceeds have gotten so far from insurer have been, what the current rebuild will cost? And let's say you get a negative outcome in the negotiations. How does that change your underwriting or the scope of the project, or your expectations there?

[Mark Brugger, executive]

So yes, there's a lot there. So let me try to unpack it a little bit. So Frenchman's Reef, we're fully committed to rebuilding the resort. It's underway. There's 100 people probably onsite this week, and we'll ramp up. By end of June, we'll have 300 people onsite rebuilding that resort. So we're going fast. We're very excited about the design, we're very excited about, I think, what that hotel -- the potential is for that resort. We continue to get good news on that front as we reposition to get the F&B, et cetera, set up. So that's going full bore.

We have probably received -- so the first $100 million to syndicate, we received almost all of that money. So $92, $93 million, at least, of that first $100 million.

Above the hundred is mostly one excess carrier. And they're the ones that we're currently in dispute with. The total rebuild cost of the resort, including the owner electives, will be over $0.25 billion, including the money we've already spent on it. And we anticipate that it'll reopen the middle of 2020.

We don't anticipate -- I mean, inevitably, these things get negotiated. If we settle, or if we go to jury, there'll be things that we dispute. But we feel fairly confident in our legal position and our interpretation of insurance policy.

[Anthony Powell, analyst]

And I think there was either some USVI guarantees and some, I guess, proposed brand investment. How much for those total?

[Mark Brugger, executive]

So we did an RFP process on the brand, and we got several proposals with more than $20 million of key money. So that's a reasonable anticipation by our investors. The expectation should be more than that.

And then, we're working with the USVI government, partly to rebuild the infrastructure to a hurricane-proof level and also to build on our site a hurricane shelter. And so they would help pay for the infrastructure and the shelter onsite, which we think is the right thing to do, not only for the resort but also for the people of the Virgin Islands. And that could be tens of millions of dollars. So that's being finalized now.

[Anthony Powell, analyst]

And what's your view on the Marriott Expedia deal? How did that turn out for owners? And I think there was some provision in that deal about transient bookings and short-term bookings? So if you talk about that opportunity, that'd be great.

[Mark Brugger, executive]

Yes, I think we're excited that they reached a deal because we think that as long as they have control of the deal and we have more ability to yield out the OTEs when we want to yield them out, which was really the problem we had before -- we think that's a win for owners.

Frankly, there's many details of the agreement that they've not yet shared. So obviously, lower commission. But the control of the data, we're still learning about exactly what that means. But clearly, having the ability to yield out the Expedia business when we don't want it is irrelevant for us.

[Operator]

At this time, I have no other questions in the queue. I'd like to turn the call back over to Mark Brugger for closing comments.

[Mark Brugger, executive]

Thank you, Norma.

Well, everyone on the call today, thank you very much for your interest and support of DiamondRock. And we look forward to updating you next quarter. Take care.

[Operator]

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect.