DiamondRock Hospitality Company
Q4 2012 Earnings Call Transcript

Published: 1 Mar 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2012 DiamondRock Hospitality Company Earnings Conference Call. My name is Martine, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Mark Brugger, Chief Executive Officer. Please proceed sir.

[Mark W. Brugger:]

Thanks, Martine. Good morning, everyone, and welcome to DiamondRock's Fourth Quarter Earnings Conference Call. Today, I'm joined by Sean Mahoney, our Chief Financial Officer. As usual, 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 law. They may not be updated in the future. These statements are subject to risks and uncertainties as described in our SEC filings. Moreover, as we discuss certain non-GAAP financial measures, it may be helpful to review the reconciliation to GAAP set forth in our earnings press release. We would also invite you to review our new Investor Presentation posted on our website at www.drhc.com. Let me start today by expressing my sincere thanks to departing COO, John Williams, for his contributions to DiamondRock over the last decade. He played an integral role in founding and growing the company, and we wish him his best in his upcoming retirement. Before we review our results for the quarter, I want to take a minute to provide an overview of DiamondRock strategy and how we plan to drive value. We believe that the combination of a balanced portfolio of premier assets in top gateway assets and destination resorts and a conservative, clean balance sheet positions DiamondRock to deliver above average shareholder returns across the full lodging cycle. We take a long-term approach to investing in our properties and will tolerate short-term disruption when we uncover outside value creation opportunities. We seek to identify and acquire hotels with excellent locations and upside for either under-management, underinvestment or brand conversion opportunities. Moreover, we continually focus our precious CapEx dollars on the best opportunities to drive RevPAR and margin growth. We've assembled the portfolio with a balanced mix of the 3 major demand drivers

[Sean M. Mahoney:]

Thanks, Mark. Turning to the fourth quarter numbers, results exceeded our expectations. Total revenues increased 6.5% and RevPAR grew almost 4%. The flow-through was solid with house profit margin increasing 170 basis points and adjusted EBITDA margin increasing over 100 basis points. Our portfolio's fourth quarter sell-out nights increased over 20% from the same period of 2011. In total, the company generated $72.3 million of adjusted EBITDA in the fourth quarter. Our urban select-service hotels in New York City outperformed expectations post-Hurricane Sandy. Our Courtyard hotels in Midtown delivered fourth quarter RevPAR growth of 15.9% and 8.1%, respectively. Our Hilton Garden Inn in Chelsea delivered fourth quarter revenue growth of over 10%. Our resorts were another bright spot in the quarter, led by Vail with a 15.5% RevPAR increase and record rates during Christmas week. The Lodge at Sonoma also outperformed with increased RevPAR over 13% during the fourth quarter. Frenchman's Reef increased fourth quarter revenues by over $5 million, which represent greater than a 50% increase from the comparable period of 2011. Most importantly, $3.8 million of this incremental revenue flowed to EBITDA. As Mark mentioned, our most recent acquisition, the Hotel Rex San Francisco, delivered RevPAR growth in excess of 20%, among the highest in our portfolio. Another strong performer was the Salt Lake City Marriott, with both fourth quarter and full year RevPAR growth of 18%. The hotel will continue to benefit from our location within the newly-opened City Creek mixed-use project, which has been a tremendous demand driver. The Westin Boston Waterfront, supported by strong group bookings at the BCEC, delivered a RevPAR increase of over 8%. Like many peers, we experienced a softer D.C. market in the fourth quarter, which was dramatically impacted by Hurricane Sandy, as well as some last-minute cancellations of group -- of government group business. Moreover, as Mark mentioned, we transitioned the management at the Boston Hilton, which led to a temporary loss in market share during that period, as well as cost increases related to wage parity. Outperformance in the fourth quarter led us to exceed our full year expectations as well. Our 2012 pro forma revenue increased 7.2% and RevPAR grew 5.3%. The company was also pleased with our flow-through as we achieved hotel-adjusted EBITDA margin expansion of 86 basis points. In 2012, we invested $49 million into our portfolio. For 2013 and into 2014, we plan to invest approximately $140 million into the portfolio. We expect to fund the capital projects as follows

[Mark W. Brugger:]

Thanks, Sean. We are very excited about the future of DiamondRock. With 27 hotels concentrated in perennially strong gateway markets, as well as prime resort locations, the portfolio quality and long-term prospects have never been better. We believe our portfolio contains tremendous internal growth opportunities, and that our ability to realize this potential will lead to outperformance in coming years. Additionally, group for our portfolio is likely, based on convention calendars, to moderately increase in 2013. Our 2013 group pace is up 4% and 72% of our estimated 2013 group revenues are already on the books. More importantly, the convention calendars are dramatically better in several of our main markets in 2014. Boston alone will be a big driver of growth in 2014. Our 2014 group pace, which includes approximately 50% of 2012 group revenues, is up an impressive 15.6%. In conclusion, our team remains committed to delivering shareholder value and believes that internal growth opportunities will be the main driver of DiamondRock strong relative performance over the next few years. Before opening the call for questions, I'm thrilled to welcome Rob Tanenbaum as our next Chief Operating Officer and Head of Asset Management. He will start on April 1. Rob brings over 20 years of hospitality industry experience to the job, including over 15 years of asset management experience, most recently at Madison Hotel Advisors, the company he founded in 2004. Madison's portfolio consisted of more than 3,000 rooms for clients, including Goldman Sachs' Whitehall Funds and Sam Zell's Equity Group Investments. Prior to founding Madison, Rob worked as Vice President of Asset Management for Host Hotels & Resorts from 1996 to 2004. Before Host, Rob worked as Associate with PKF, as well as being on the opening management teams for the Four Seasons Resort Wailea in Maui. Rob is a well-known and respected leader in the hospitality industry, and we are very fortunate to have him join our team. We are greatly looking forward to introducing Rob to analysts and to investment communities over the coming months. With that, we would now like to open up the call for your questions.

[Operator:]

[Operator Instructions] And your first question comes from the line of Jordan Sadler with KeyBanc Capital Markets.

[Austin Wurschmidt:]

It's Austin Wurschmidt here with Jordan Sadler. Just had some question related to the dispositions. I know you guys have made some good progress of -- through selling assets you viewed as non-core. It sounds like you've still got some work you'd like to do. Could you just talk about that percent of the portfolio you view today as being non-core?

[Mark W. Brugger:]

Yes, Austin, this is Mark. That's a great question. As you know, last year, we sold 5 assets. They generally -- generally, when we look at our portfolio, we always focus on increasing portfolio quality, and one measure that it would be average RevPAR. So if you look at our portfolio of 27 hotels, by definition, the bottom 10%, 15% by RevPAR would be the ones that we're continually looking at, trying to monetize as a way of upgrading the portfolio. So I would say there are at least 3 assets in our portfolio, not the big ones, but there are 3 assets that we will be out of over the next couple of years.

[Austin Wurschmidt:]

And then any color on the timing of when you might be able to execute some of those sales this year, sort of first half of the year, second half of the year? And then how would you describe sort of demand overall in the acquisition market?

[Mark W. Brugger:]

Okay. On demand, demand has increased, particularly over the last 6 to 9 months for, what I would call non-core assets outside the main urban areas as the financing markets have continued to improve and as private equity's gotten more bullish on lodging. So I think the markets continue to improve for those kinds of non-core asset dispositions. And you've seen that with some of the sales, not only from our company last year but from some of our peers. As far as specific timing, we don't comment on pending transactions but I will say a number of our hotels, we want to -- we're not -- although we're motivated to sell them, we want to maximize the profitability. So several of them have some work to either be done on the capital front to maximize the value first or may be terminable with the current brand or manager but may not be terminable in the next 30 days. For instance, one of our hotels is terminable in August of this year so we would wait to monetize that asset until that event occurred.

[Operator:]

Your next question comes from the line of Josh Attie with Citi.

[Joshua Attie:]

Mark, your prepared remarks are very bullish on the portfolio, the recent acquisitions and the stock, which you mentioned was a large discount to NAV. Looking at the performance of the Blackstone and Lexington where the bulk of your capital's been invested, earnings have significantly missed underwriting. Blackstone did $31 million in 2012. Your estimates was $34 million, $35 million. That miss was all in the second half of last year. Lexington did $19 million. Your estimate was $25 million. I guess my question is, before you ask us to look forward and appreciate the upside in a company that might be on the come, can you explain to us exactly what caused these assets to miss? And can you give us some EBITDA targets for both Blackstone and Lexington for 2013 and 2014, given that you're starting from a much lower base?

[Mark W. Brugger:]

Sure. Those are excellent questions. Let me hit Lexington first. So Lexington, when we initially bought the asset, what we told our investors is that we were buying the Radisson and we were looking at potentially repositioning and rebranding that asset. So after we acquired it, we went through the brand selection process and figured out what the best long-term strategy was for the asset. That involved, in our opinion, removing Radisson, which occurred by contract last September, and repositioning and renovating the hotel to make it a Marriott Autograph. We saw tremendous upside in the rate differential between the closest Marriott and the Lexington Hotel. The current rate gap is almost $100. Obviously, there was a loss of market share when we went unbranded last September, which was part of the transition that we had to go through to make it a Marriott property. We do believe, based on the rate gap and upside of converting it, that we will see tremendous upside. The hotel, we project to do in the low 20s EBITDA next year and to stabilize at 30-plus EBITDA over the next several years as it continues to build traction as a Marriott-branded property. So that's our strategy. It's underperformed partly because it had to go unbranded to get to the other side of what we see as a great value creation opportunity and it should be completed this summer. And I think you'll be very pleased when you see the product and really start seeing the results starting in the back half of this year. On the 4 pack that we acquired last summer, we missed our -- we hit our underwriting on San Diego and Burlington. We missed our underwriting on -- by about $3 million collectively on D.C. and Boston. And that's really -- and we mentioned this on the last call. D.C., obviously, we had the Sandy and the fiscal cliff. We also lost some short-term group, the government group, in the quarter that we didn't anticipate when we underwrote the property. That was about $1.5 million of the miss. The other relates to the Boston Hilton. And as we kind of hurried to transition the property from LXR to Davidson and replace the leadership team, the transition caused about 11 points in lost market share and, obviously, that translated -- the timing of that exact management change was uncertain when we underwrote the asset. We think we'll recover that but that obviously led to us coming somewhat behind our underwriting for the fourth quarter in Boston. But if we look forward on the 4 pack, the reason we bought those assets and the reason we think they're great, not only do they diversify our brand and manager within the portfolio by adding more Westins and Hiltons and more third-party managers, but we bought them because we believe they're under-managed and under-invested in. That doesn't change in 3 months or 6 months, but we'll put the capital in this year. I think we'll realize tremendous upside from this capital investment and from improving the revenue strategies there. And we see the lost market share and we are confident that with the right strategies recovering that market share, with the capital investment and with the right strategies will really allow those properties to perform terrifically over the next several years, but it may not be in 2013.

[Joshua Attie:]

Can you tell us what you think the EBITDA for those 4 hotels -- what it could do this year and maybe next year?

[Mark W. Brugger:]

We haven't given out specifics for the portfolio. It's built -- obviously build into our guidance. We're expecting double-digit RevPAR growth in the first quarter from the 4 assets, but we do anticipate renovation disruption at the properties as we invest the capital into them.

[Joshua Attie:]

Has your ultimate underwriting changed at all as a result of the last 6 months?

[Mark W. Brugger:]

It has not. I think the outlook for D.C. is a little bit more hazy than we anticipated last July. But ultimately, we believe in the assets and where they're going to stabilize.

[Joshua Attie:]

Okay. And if I could just follow up on -- you mentioned the stock trades at a large discount. Based on the 2013 earnings, it trades about 13x EBITDA, which is about where the peer group trades. So when you say it trades at a large discount, it suggests that you think that there's a lot more future earnings upside then there might be elsewhere. And I guess, my question is, if that's the case, what was the rationale for putting long-term fixed rate debt on the Westin ahead of the repositioning? And also, why -- are you considering putting in a share repurchase program given how strong the balance sheet is?

[Mark W. Brugger:]

All right. So let me take the second question first. So the board has had, and continues to have, extensive conversations about the share repurchase program. We do think the stock is a good value at today's price. With that said, we're also very mindful and I think that our history has shown that we're very disciplined about keeping a conservative balance sheet. So I think the -- we are likely to do share repurchase, or more likely, in the event of asset dispositions and matching that up with a share repurchase. But obviously, the board wants to continually monitor what the stock price is, what the opportunity is, to maximize the returns for our shareholders. On the second question, I'll let Sean answer that.

[Sean M. Mahoney:]

Yes, Josh. This is Sean. The timing of the Westin D.C. loan was really dictated based on our overall long-range plan and capital structure for the company. We had an outstanding borrowing on our line of credit, which over the long term, we want to make sure that we keep as much of our line of credit, the dry powder, free of the line. So we viewed the CMBS market at the end of last year and currently, for that matter, is very attractive. So locking in long-term debt at sub-4% in lieu, in exchange for freeing up the line of credit we thought was the right decision for the company.

[Joshua Attie:]

And should we assume that the line of credit is what's used to fund the $125 million purchase of Times Square next year?

[Sean M. Mahoney:]

We are keeping our line free for that. That's right.

[Operator:]

Your next question comes from Eli Hackel of Goldman Sachs.

[Eli Hackel:]

I just had a question also just dealing with the renovations and the impact. Clearly, this year, you gave some guidance. It seems like it's about a 3% hit to '13 on the RevPAR side. Can you just help me think about that conceptually in '14 and beyond? Does that mean if the industry is 6%, your overall pre-renovation will be 6% and in '14, you would be 9% or maybe just how does that phase in over time as we think what should be an expected snapback from post-renovation? And then just the second question, just quickly. I know you're not a big D.C. player, but have you seen anything in terms of sequestration at all so far would be helpful.

[Mark W. Brugger:]

Okay, Eli. On D.C., we have not seen any evidence of sequester hurting the property specifically. Obviously, today is the first day that a lot of that goes into effect. In April, we'll actually see more of that. But the property has not reported seeing particular impacts from sequester. Obviously, last year, government group was already restrained. And government business at our hotel in D.C. is only about 4%, and for our portfolio, only represents about 2%, 2.5% of our total business. So it's not a huge demand driver.

[Sean M. Mahoney:]

On the -- Eli, this is Sean. On the disruption in the '14 question, I think when you look at our 2013 disruption of the $10 million to $12 million, the vast majority of that is going to be the Lexington Hotel. As I mentioned in my prepared remarks, the Lexington Hotel, we expect to get to plus $20 million next year. So I think your assumption of a bounceback for '14 is a fair one. The other item worth noting for 2014 for the portfolio is that we have got great citywide convention activity for 2014. Our group pace is up 15% plus in 2014, which should be another catalyst for the portfolio to outperform in 2014. So we really have the post-renovation bounce plus we've got great group exposure in 2014.

[Operator:]

Your next question comes from the line of Nikhil Bhalla with FBR.

[Nikhil Bhalla:]

Mark or Sean, this is for you. Will you just talk about -- you talked about your group pace being up so much in 2014. What percentage would that represent of the total number of groups you'd probably end up having in the year -- in 2014 at that point?

[Sean M. Mahoney:]

Sure. Our 2014 group revenues on the books today are about 50% of what was on the books for the entire 2012.

[Nikhil Bhalla:]

Okay. And then finally, you talked about New York City a little bit. As you look at the city this year, any thoughts on which quarters are a little bit, I suppose -- are likely to be a little bit weaker than the others?

[Sean M. Mahoney:]

Well, in our portfolio, the first and second quarter is going to be significantly impacted by their innovation disruption for New York City. So generally speaking, we would expect our portfolio to underperform. To put some numbers around it, New York City alone in January and for the first quarter is going to impact our consolidated RevPAR growth by 300 basis points.

[Nikhil Bhalla:]

Okay. No, I meant more as a city overall, not just your portfolio.

[Mark W. Brugger:]

Yes, it's obviously -- this is Mark. New York started off relatively strong. You would expect that Q1 is the weakest, so that would be the most affected by supply but it seems to be holding up very well. The fourth quarter, obviously, you had the Sandy impact, which was both good and bad, depending on where you were in the city. So that may lead to some interesting results as we kind of move through the year. And then obviously, you had the Jewish holidays in September, which had some impact and should be a little better in 2013.

[Operator:]

Your next question comes from the line of Jonathan Pong with Robert W. Baird.

[Jonathan Pong:]

Still on the topic of buybacks. I know you said a potential buyback program would likely be funded through asset sales. When you look at pricing in the preferred market these days, could you look towards maybe changing your stance on preferreds and issuing some buyback on it?

[Mark W. Brugger:]

This is Mark. That's a great question. The board has been through a number of different scenarios. Obviously, we have a terrific balance sheet. It's very low risk. We have a lot of arrows in our quiver that we could. We don't have any preferred in our capital stack today. So that is something that the company is evaluating, the board's evaluating, but we don't have any announcement to make on that today.

[Operator:]

Your next question comes from the line of Bill Crow with Raymond James & Associates.

[William A. Crow:]

Just a couple of questions. I want to follow up a little bit on Eli's question, which is looking forward to 2014. Obviously, we understand the disruptions this year. So just, again, I want to make -- I want to be comfortable that this year -- or this time next year we're not talking about how there's still 25% of that renovation spend to go and it's going to impact the first half of the year or that there's a longer ramp-up post-renovation in some of these assets. The Hilton Garden Inn opening midyear seems like that should be a bit of a drag on margins as it ramps up. It takes a while to ramp up and maybe a drag on FFO. Could you just kind of put us at ease that won't be the issue at this point next year that we'll be talking about this outperformance? And I understand the citywides which are going to benefit a lot of the peers that are down this year versus '14. So if you could tackle that one.

[Mark W. Brugger:]

Sure. Well, Bill, let me start with the beginning. So the majority of the disruption that we're going to experience this year relates to our New York City renovations, which are occurring in the first half. So it's -- as that market runs 90%, 96% in our hotels, that's where you're seeing the biggest amount of our disruption. And so that will be well done by the time we kind of move through this year and into 2014 and set up for that easy comp in the beginning half of the year. The other ones that we have, we have D.C. and San Diego which should start in the fall and be completed in the wintertime, which is obviously the lowest season. We have Minneapolis, which should be done in the wintertime. Those have traditionally, if you kind of look at our past history of -- at those hotels during the winter renovations, are very manageable because the occupancy levels and the rates are so low in kind of December, January, February. So when you think about the bulk of our $10 million to $12 million in disruption, most of that is related -- or the majority is related to the New York activity, which will be done in the first half of this year.

[William A. Crow:]

And then the opening of the HGI, midyear opening, and how much of a drag that could be?

[Sean M. Mahoney:]

Bill, this is Sean. We don't expect that to be a drag on margins at all. If it opens midyear based on that location and that product type, that's going to be margin-accretive for the company. It should ramp up very, very quickly because of the nature of that product. So we feel comfortable that, that should be a positive for our 2014, not a negative.

[William A. Crow:]

And positive on an FFO basis as well, I guess, if you put it on the line. That helps, right?

[Sean M. Mahoney:]

Correct.

[William A. Crow:]

Okay. And then I'm just -- I was just looking back here. We launched coverage in October of '09 and I know that's just a random date to use here. But since that time, I think your stock's up just under 8%. And I looked at the entire universe of lodging REITs and the next worst one was kind of 2x that or almost 3x that and we looked from a total return perspective. My question is, what is -- what are you telling the board is the reason that despite all of your good work that you've done in deleveraging and portfolio improvement, why has the Street just not gotten the story?

[Mark W. Brugger:]

Well, I think our strategy and a strategy that the board's endorsed is that we are fundamentally moving early in the cycle to reposition the portfolio by high-quality assets. There will be some disruptions in '13, particularly, as we reposition some of the lower performing assets off the books, buy higher performing assets and have to reposition those assets. And we'll really realize those values as we move into '14 and '15. So I think everyone's on board for that strategy. It makes a lot of sense. Obviously, last year, during our last earnings call, we had to lower the full year forecast, which I think has put pressure on where the stock is performing. So I think as we move through the year and perform well and as these renovations start paying off, we expect to outperform over the next 2 years.

[William A. Crow:]

Let me just follow up. Because it feels like we're at least 50% and maybe 60%, whatever the number is, into the cycle, right? We know that funding for new supply growth is starting to loosen up a little bit so as we look out, it seems like, okay, we're in the '15, '16 -- cycle's coming toward an end and maybe you've got a completely different perspective on that but it seems to me that investors make their money early in the cycle and I'm just -- I understand fundamentally outperforming as you get late in the cycle. But I'm just not sure that that's going to translate into out-return -- outperformance for the shares. I guess we're going to have to see. Where are we, do you think, in the cycle?

[Mark W. Brugger:]

Well -- we think that 2013 is a good year to invest in our portfolio because we think this will be an extended cycle. We do think '14, '15, '16 and '17 will be the peak profitability years. So we want to position the portfolio to maximize the profitability during those years, and that's what we're trying to implement in 2013. So we're really set up for the peak cash flow years. And doing the right long-term things for the assets and ultimately, doing the right long-term things to maximize the value of assets should translate into stock appreciation.

[Operator:]

[Operator Instructions] Your next question comes from the line of Wes Golladay with RBC Capital Markets.

[Wes Golladay:]

On your last call, you had mentioned that the second half of this year would be a little bit softer on the group front. How are you guys doing for that, I guess, in the group -- I guess, in the quarter for the quarter group bookings, as well as maybe for the next 6 months out?

[Sean M. Mahoney:]

Sure. This is Sean. Our group pace, compared to where it was last quarter, is up -- it's up 4% for 2013, which was approximately 3.5% last quarter. The trends have continued where the first 2 quarters of the year are very strong in the group pace in the back half of the year is weaker. But the negative pace that we had in the back half of the year has continued to get closer to positive as we progress. So we are making progress during those periods. The other thing worth noting for 2013 is that Boston has a significant impact on our 2013 group booking pace. Our Boston asset, which represents over 20% of our total group revenue, is down 10% in pace for '13. That alone impacts our pace over 300 basis points.

[Wes Golladay:]

Okay. So it's more maybe you won't, I guess, get a good group like you had last year but '14 will look much better again?

[Sean M. Mahoney:]

Correct. And our '14 pace is up over 15% and we have 1/2 of the revenues already on the books for 2014.

[Operator:]

Your next question comes from the line of with the Whitley Stephenson [ph] with JMP Securities.

[Unknown Analyst:]

Just going back to a previous question, if we could talk a little bit about the significant number of rooms you have coming online in New York post-renovation and maybe just sort of your thoughts on how you see the market differing at the point when those hotels come online versus what we're seeing now? A lot of your peers have had a really good fourth quarter based on New York results and sort of what you see, trends in that market specifically moving forward.

[Mark W. Brugger:]

Okay. So our outlook for New York, obviously, there is supply coming on particularly this year and next year. I think what the last couple of years have shown us is that New York is very resilient and continues to absorb -- the supply of this demand has been so strong and continues to exceed people's expectations, particularly for the very well-located hotels within the city. So we remain confident that New York will perform very well over the next several years. Obviously, we have the Lexington Hotel, which is in the filet of 48th and LAX. That's a wonderful location. We feel very confident in the long-term prospects. That submarket, Midtown East, has the lowest amount of supply coming into it. So we feel very good about that and the ability to reposition that asset as a full service hotel and do well in the market and outperform the market over the next several years. Our 2 other Courtyards, also in Midtown, one at 48th and Fifth and one at Third and 53rd. We think those locations are less susceptible to the new supply and should perform very well, particularly with the capital upgrades that we're putting into them this year. And then our 42nd Street Hotel, at 42nd and Broadway, we're convinced that 7-day a market kind of prime location will allow that hotel to be one of the best-performing hotels on a profit-per-key in New York City when it's done. So we feel pretty good about the prospects for New York City and I think what we've seen is that New York will continue to surprise on the upside.

[Unknown Analyst:]

Okay. So I guess for you guys, the whole story, it's just -- we should expect to see a continuation of supply-demand trends that we've seen and then well locations of your specific assets?

[Mark W. Brugger:]

Yes, obviously there is supply, which will put some pressure on rates. But I think we have unique demand generators, particularly at the Lexington and then the renovations in the Courtyards.

[Sean M. Mahoney:]

This is Sean. Put some numbers around it very quickly. New York City metro area is supposed have greater than 6% supply growth in '13 and '14 versus our market tracks within New York are 150 basis points lower in '13 and 300 basis points lower in '14. So when you look at the numbers provided by the experts, our markets do have lower supply. Now there's still 4.6% and over 3% is still significant supply but that's a much easier hurdle for increased demand to get over.

[Operator:]

And we have a follow-up question from Jordan Sadler with KeyBanc Capital Markets.

[Austin Wurschmidt:]

I just wanted to circle back to the recent hire on Rob Tanenbaum and how that may impact sort of what you're teeing up in terms of sales and portfolio positioning overall? Obviously, Rob's coming in and being appointed as COO and EVP of Asset Management. And that's -- as you discussed and outlined, he's got a lot of experience in that area. So you pointed to sort of the low-hanging fruit in terms of lower RevPAR hotels as being the ones that are ripe for pruning, most ripe for pruning in the portfolio, it seems. But will Rob's addition maybe change the character of what may ultimately come for sale and how the portfolio is positioned longer term?

[Mark W. Brugger:]

Great question. So let me say a little bit more on Rob. So as you know, the company engaged Ferguson Partners to conduct a nationwide search and our search instruction was to look for a high-impact and game-changing asset management executive. We interviewed a number of leaders in this industry. In that process, it really became obvious that Rob was the guy for the job and for DiamondRock. His reputation is tremendous. He's made an enormous difference at a variety of assets, and we're confident that he's going to make a big difference on the profitability of our hotels and the renovations of our hotels. So we feel great about that hire. With Rob, we will reevaluate the strategic direction of a number of our properties, to understand the maximum profits to that we can generate from them and the best time to do the dispositions. Rob will not be the -- unlike John, we're really splitting the roles of COO and asset management, as well as from a different role of head of dispositions and acquisitions. Kind of that CIO and COO will be separated going forward at the company. So Rob will have a major impact on the strategic direction of individual assets, but he will not lead our effort on dispositions and acquisitions and we may have a different take on some of the assets with Rob's voice in the room to make sure we're maximizing the value of each and every hotel.

[Operator:]

You have a follow-up question from Josh Attie with Citi.

[Joshua Attie:]

Following up on Bill's questions and comments on stock performance. I think the current management compensation structure does not have any element of relative stock price performance as a hurdle. And Mark, I know you said on the board, is the board considering any change to comp structure for 2013 and beyond to more closely align management and shareholder interests?

[Mark W. Brugger:]

Yes, that's a great question. So the board at the last board meeting is considering moving to 50% performance, relative performance-based stock. So we'll discuss that as -- obviously when we issue the proxy.

[Joshua Attie:]

Okay. And one -- just going back to the potential buybacks with asset sale proceeds. I know you mentioned that was a possibility. Should we expect you to put a stock repurchase program in place in the near term so that you have the ability to buy back stock when you execute on dispositions?

[Mark W. Brugger:]

Yes, our feeling is we can implement one very quickly within 2 weeks. We can put a plan in place. So we're probably more likely to match the implementation closer to an actual disposition if that's the strategy the board employs.

[Operator:]

I would now like to turn the call over back to Mark Brugger for any closing remarks.

[Mark W. Brugger:]

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

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.