Diamondrock Hospitality Co

NYSE:DRH

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen thank you for standing by and welcome to DiamondRock Hospitality’s First Quarter 2022 Earnings Release. At this time all participants are in a listen-only mode. After the presentation there will be a question-and-answer session. [Operator Instructions]

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

[Jeff Donnelly, EVP and Chief Financial Officer]

Thank you Carmen and good morning everyone. This is Jeff Donnelly, Chief Financial Officer with 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’m pleased to turn the call over to Mark Brugger.

[Mark Brugger, President and CEO]

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 two 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 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 2018 by 2.5% and hotel adjusted EBITDA was up in impressive 16.2% compared 2019. April total RevPAR continued this positive story and was up 4.2% versus comparable 2019. For the entire first quarter, comparable hotel adjusted EBITDA were 26%, an increase of 122 basis points over comparable 2019 despite the headwind in January.

These robust results in the quarter meant 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 $360,000 per key. In many ways, our portfolio of 34 hotels is uniquely balanced for a one to recovery, that should put DiamondRock out front with the right kind of assets, and the right kind of markets to set up for success in the cycle.

Today’s travelers 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 due development. Importantly, thus far at resorts we have seen little pricing resistance from least lessor customer, and encouragingly the advance bookings at our resorts, even as far out as next festival weekend into 2023 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 players 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 thing that to recover 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 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 it’s just where you want to be for this entire upcoming growth cycle. Second, we have several ROI repositioning things that have just been completed and many more on the way. Third, we have restructured our management agreements 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 game 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 set urban hotel profit margins contracted by nearly 1200 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 finished at 65% occupancy and ADR within 1% of 2019. In April, we saw comparative RevPAR move still higher at our urban hotels. Urban hotel profitability is a major opportunity for DiamondRock. Full year 2021 hotel adjusted EBITDA for urban hotels were $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 multi pronged 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 and 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 resort portfolio profit margin success as they’re 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 three repositioning; The Lodge at Sonoma, The Hythe Vail Luxury Resort and the Margaretville Key West. In the first quarter, those three hotels generated massive RevPAR growth exceeding monthly 2019 levels by 22.7%, 22.6% and 82.7% respectively. Putting it another way, the three reposition 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 three properties are forecasted to generate an amazing 13% NOI yield in 2022 on our total investment in those properties.

In the first quarter of 2021, we completed two more repositions; 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?

[Jeff Donnelly, EVP and Chief Financial Officer]

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. Win profits were strong and win 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. During the balance sheet, we finished the quarter with over 350 million of total liquidity and 200 million of undrawn capacity on a 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 a two 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 in a $34 million upside opportunity to get back to 2019 levels. The urban hotels have 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 on 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 and flow through drag others says, as profitability is restored. For example, in 2022, we expect to pay $4 million or 80% less and incentive management fees compared to 2019. This is a distinct advantage for DiamondRock as the recovery matures as compared to a brand managed portfolio.

During the business transient Omicron proved 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 four weeks is already surpassing 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 generate in the same period prior to the pandemic, and 40% sequential increase in room nights. The outlook is very encouraging and we expect full year group from 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 results 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 acceleration in the ADR on 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 to $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 L’Auberge de Sedona we are seeing an incredible 2023 advance booking activity with overall revenue pace up 52%. 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 three years ago. We expect our recently acquired and upgrade 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 it’s an excellent guide. Full year 2022 hotel adjusted EBITDA margins should ramp slightly behind that from the lag and group recovery with associated banquet profitability. Given our strong performance we project we will have taxable income for 2022 and 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.

[Mark Brugger, President and CEO]

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 urban hotels is kicking in to provide a double benefit and 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 at 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 upgrading 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 three 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 Glen Chicago or re-concepting the rooftop pool experience at the Palomar Phoenix.

On extra growth front, we completed the acquisition of the Kimpton Fort Lauderdale Beach Resort in April. This is a synergistic deal with our Western resort, located only two 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’d like to open it up for your questions. Operator?

[Operator]

Thank you. [Operator Instructions] Your first question comes from Dori Kesten with Wells Fargo. Your line is open.

[Dori Kesten, Wells Fargo]

Thanks, good morning. If we can dig into the expectation that ‘22 revenues should meet or exceed 1’9. Can you separate your portfolio by resorts and urban in this context?

[Jeff Donnelly, EVP and Chief Financial Officer]

Hey, Dori, yes, give 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 up the correct flow your numbers. On a full year basis, we are expecting that our resorts 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 resort assets will end up surpassing what we did in 2019 about they’ll do probably about 200 million give or take it probably that’s about $100 million better than they did in 2019. In 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 resort I’m sorry, the about 450 million, which would be about $100 million better and that the urban assets would be about 480 million, which would be about $100 million below. Did you get that, sorry.

[Dori Kesten, Wells Fargo]

Yes. No, I got it. And there’s been a weighting towards the REITs acquiring the Sunbelt 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 concerns fair?

[Mark Brugger, President and CEO]

I’ll jump in here, Jeff. So Dori, good morning. So 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 the data points that Jeff gave, and admittedly we’re booking now, but we’re seeing a lot of resorts people have experienced getting blocked out over the last six months up resorts and vacations that they wanted to do. So we’re seeing people like Sedona and Sonoma, where people have been basically blocked out booking in advance and booking at higher rates to make sure they could lock in their vacations. So we feel very good about going in for the balance of this year and going into 2023 based on the data points that we’re seeing right now.

[Operator]

All right. Your next question is from Smedes Rose with Citi. Your line is open.

[Smedes Rose, Citi]

Hi, thank you. I want to 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, and if you do lean towards this kind of maybe doing more of these kind of smaller under 100 rooms type assets. And are you seeing any changes in pricing like that’s changing interest rate environment?

[Mark Brugger, President and CEO]

So to answer your first question, I think we look for unlevered yields as the kind of [Indiscernible], so is strategic and can we get delivered 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 low cost 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 our prices moving in relation to interest rates, we haven’t seen that yet. And the data points in the market and the fields that have crossed, kind of crossed over and been reported. So far the demand has been, hasn’t shown a softening. And the feedback we’re getting from some 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.

[Smedes Rose, Citi]

Okay, interesting. And then I guess the final thing I just wanted to ask I know it’s relatively small, but it took about a $5,000 severance charges in the quarter. And it’s just associated with the position that eliminating position for some of your hotels. Do you feel like you’re done now in terms of kind of restructuring in the hotel operating model? Or is there more to go in order to reach your margin expectations?

[Jeff Donnelly, EVP and Chief Financial Officer]

So let me I mean, it’s kind of both parts of the question. So I think the sevens reversal referring to is the change in executive with our CEO departing and reversing his crude stock. So that’s not in a hotel. But what we’re seeing at the property level is we’ve reduced substantially reduced permanently the manager account. So we might have to assist F&B, assistant rooms director, those kind of positions we learned a lot during this downturn and where we can operate with. And I think we just did a model ground up and we think the stabilized model is on managers. And we think that it’s about a 10% permanent reduction in FTE and somewhere, it’s uneven, some of our bigger hotels, it’s a 40% reduction. So those are kind of data points that make us really feel good about emerging another side of this with higher stabilized margins as travel fully recovers.

[Operator]

Your next question is from Chris Woronka with Deutsche Bank. Your line is open.

[Chris Woronka, Deutsche Bank]

Hey, good morning, guys. Appreciate all the all data points as always. I wanted to follow up a little bit on the comment about the 200 or 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 stakeouts and operational efficiencies and things like that?

[Mark Brugger, President and CEO]

Yes so for DiamondRock, it really breaks into a couple 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 waiting just because so much rates been gained in that space. And we think a lot of that’s permanent. So that’s just going to float better. That’s just the way the math works. So that’s part of the, part of it. For us there’s couple 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 help people get better margins on the other side. And then a couple of the secret sauce for us, we have those big repositions which have been completed.

They are going to have higher rates associated with those reposition assets which is going to flow better. So that’s part of it. And then I think something people have 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. 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, kind of all working in our favor.

[Operator]

And your next question comes from Austin Wurschmidt with KeyBanc. Your line is open.

[Austin Wurschmidt, KeyBanc]

Great, thanks, and good morning, everyone. 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 constraint and like you’ve seen in the resort portfolio?

[Mark Brugger, President and CEO]

Yes. So let me without giving specific numbers, there’s couple phenomenon 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 midweek 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 resort 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 just 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 that particularly tech oriented companies are using that instead of getting people in the office five days a week. And so we think that that band of midweek push it’s going to stabilize at higher levels than we’ve ever seen. So we’re leaning into that. And as we’re thinking about extra growth opportunities that’s clearly a thesis that we’re willing to bet on as we move forward.

[Austin Wurschmidt, KeyBanc]

That’s helpful and I am 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?

[Mark Brugger, President and CEO]

Right I mean so I can give you, let me give you a numbers and kind of how it’s working. So we had, 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 ATI, which is doing a great job for us. And so we will 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’s 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 unique advantage as we look at those kinds of assets.

[Operator]

And your next question comes from Gregory Miller with Truist Securities. Your line is open.

[GregoryMiller]

Thanks, good morning. I would like to ask you about the Margaretville conversion. How it’s progressing so far particularly outside the rooms panned and Florida margins?

[Mark Brugger, President and CEO]

You seen the two storey bar that was built down there? It’s doing quite well.

[Gregory Miller, Truist Securities]

I haven’t been down there yet.

[Jeff Donnelly, EVP and Chief Financial Officer]

I mean, that deal, it’s a home run. So and it far exceeded our expectations and having Jimmy Buffett go there earlier this year, create a lot of social media and a lot of was at property. So just I mean they’re almost embarrassing good numbers, compared to 2019 RevPAR at that property is up over 80% and F&B revenues are up something similar. They are just off the charts. And it’s, it’s going to end up several million dollars ahead of our underwriting in 2022 versus will 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, but the NAV, it looks like we’re up almost 100% NAV is that when we’re about $80 million or $90 million in NAV, first start total investment. So it’s clearly been one of our top deals.

[Mark Brugger, President and CEO]

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.

[Gregory Miller, Truist Securities]

Great, thanks. Thanks for much for all the color. My follow up going on a different topic, and yes, I missed it a little bit of a pair of remarks. Excuse me. 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 that business transient recovery in the urban markets. And are you seeing any major differences in the recovery between Sunbelt markets, such as Worthington and Fort Worth, or Alpharetta versus what you’re seeing in Chicago or DC or San Francisco or have ever seen trends and business transient pretty similar across the country or still are you seeing differences depending on geography?

[Jeff Donnelly, EVP and Chief Financial Officer]

As you saw in my comments the midweek occupancy has 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 significant contributors to that hotel.

And there 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 now, 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 on April and our next four weeks it’s been very encouraging.

[Gregory Miller, Truist Securities]

And I’m not sure we’re a bellwether, but just a couple data points in April in New York was higher for April than it was in three pack in that market was higher than it was in 2019. I would say in Boston, we’ve seen, we’re surprised on the uptake of group as much as transient but really group short term and our Weston and Boston was ahead of expectations. We had some really nice last minute wins.

Chicago’s been more story of group as well, as we’ve kind of been able to book group into the big Marriott there. And then on the Glen, it’s really been good. In Chicago on the high end consultants we were the first to return. And that’s kind of the dominant hotel in the market for that kind of business. And then I’d say the other markets San Francisco, our hotels gained a lot of market share. But that’s a market that clearly is lagging. And DC was lagging earlier in the year last three weeks have been surprisingly strong. So I think a lot more data points as we move forward. But if 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.

[Operator]

And your next question comes from Bill Crow with Raymond James. Your line is open.

[Bill Crow, Raymond James]

Good morning, Hey Mark, 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.

[Mark Brugger, President and CEO]

Now, we continue to have, I think, a pretty clear strategy of called 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 two. We may use that momentum to monetize some of these 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 ally. We’ve created tremendous amount of value with those kinds 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 worn back as well.

[Bill Crow, Raymond James]

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

[Jeff Donnelly, EVP and Chief Financial Officer]

I believe it was actually late ‘17 that we had the disruption through for what was then [Indiscernible]

[Bill Crow, Raymond James]

Okay. All right. I just want to make sure we’re competent, good numbers. Terrific. Thank you.

[Operator]

Thank you. And your next question comes from Anthony Powell with Barclays.

[Anthony Powell, Barclays]

Good morning. Follow up on that question so obviously, the results have been very strong, and you’re very positive on group. What’s your kind of long term view in business transient as a segment? It’s coming back now but decided to be kind of less profitable segment and it was pre-COVID. Longer term, what’s your kind of view on short term business strata or business transient?

[Mark Brugger, President and CEO]

Yes. Our view is 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. Its short term, so unlike resorts or group or we can kind of give you longer data points BT is always it’s a short term gain and booking windows. There is clearly been evolution in business travel. There’s been some that I think going to be displaced. There is 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 timeline on that.

[Anthony Powell, Barclays]

Got it. Thanks. And maybe one on Henderson Beach Resort. You had good growth there. But AUC was like 44%, which is surprising, I guess. Is there something seasonal in that resort that makes it lower occupancy in the first quarter? Or is that just the hours on previously? I’m just curious more detail there would be great.

[Jeff Donnelly, EVP and Chief Financial Officer]

Yes. So it’s destined Beach is northern Florida. So it’s cooler in the winter. So it is seasonal. Looking at our two destine 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 2022 first fiscal year. So they’re tracking ahead of underwriting. But that seasonality even is exactly what we expected. The AUC in the second quarter is going to be 80% to 90%.

[Operator]

[Operator Instructions] Next question is from Michael Bellisario with Baird.

[Michael Bellisario, Baird]

Thanks. Good morning, everyone. Just wanted to drill in on your mix of business, can you high level 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 three segments progressing and shifting the year unfolds?

[Mark Brugger, President and CEO]

We can circle back with you on the monthly breakdown. But I would tell you that on the quarterly breakdown, I just think about the revenue production of our, I’ll call it our urban versus resorts, 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 timeframe as you bridge the quarter. So I can circle back with you offline and that’s something some disclosure that we can put into our upcoming slide presentations as well as how our guess mix-shift as well.

[Michael Bellisario, Baird]

Yes, that would be helpful. And I think we’ve talked about before, everyone’s focused on all the undercurrents of shifting customer mix and market mix and trying to figure out a nominal RevPAR is higher, 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 and 2Q and 3Q is going to impact the headline figures that you report but any additional disclosures that would be helpful. 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 were group room night pace was, you mentioned rate was but not volume.

[Jeff Donnelly, EVP and Chief Financial Officer]

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 our expectations and we are 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 forecasts, we continue versus ‘19 continue to build momentum quarter-over-quarter versus ‘19. Both resorts and urban look like they’re really accelerating. So we would expect our next earnings call to tell you that sequentially versus ‘19 we saw an acceleration in really all segments out of slowing in anything.

[Mark Brugger, President and CEO]

Yes. And I think 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 we typically pick up in a year, we’re very good position on that front.

[Operator]

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

[Mark Brugger, President and CEO]

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 setting up for a very strong year. I know it’s the culmination of a lot of hours, a lot of hard work from really several 1000 people. So just want to express my gratitude to them. And 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.

[Operator]

And this concludes today’s conference call. Thank you for participating. And you may now disconnect.