Operator: Good day, and welcome to the DiamondRock Hospitality Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Briony Quinn, Chief Financial Officer. Please go ahead.

Briony Quinn: Good morning, everyone, and welcome to DiamondRock's First Quarter 2026 Earnings Call and Webcast. With me on the call today is Jeff Donnelly, our Chief Executive Officer; and Justin Leonard, our President and Chief Operating 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 what we discuss 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. We are pleased to report that first quarter results exceeded our expectations. This was a tough quarter as we comped over our strongest revenue growth from last year, particularly in the group segment and face disruptive weather challenges in several markets. Despite those headwinds, the portfolio performs better than anticipated. Comparable RevPAR increased 2% and total RevPAR increased 2.5% with total operating expense growth of less than 1%, we delivered corporate adjusted EBITDA of $60.6 million and adjusted FFO per share of $0.22. Our FFO margin increased an impressive 225 basis points this quarter. On a trailing 12-month basis, our free cash flow per share was $0.75, increasing 19% year-over-year. Starting with the top line. The comparable RevPAR growth of 2% exceeded our outlook of a flat quarter and improved sequentially in each month. Occupancy in the quarter declined 30 basis points, while ADR increased 2.6%. As expected, our resorts outperformed our urban hotels. However, the magnitude of that outperformance was wider than we had anticipated. By customer segment, transient outperformed with revenues up 2.1% on improving demand and rate. Group revenues were down 0.8%, driven by softer demands early in the quarter. For the fourth quarter in a row, our guests continue to spend once on property across our restaurants, spots and other retail outlets. Total RevPAR grew 2.5%, outpacing RevPAR growth by 50 basis points and out-of-room revenue per occupied room climbed 4%. And right in line with the trend we saw through most of 2025. That tells us 2 things. Our guests have the spending power and our out-of-room offerings are giving them good reasons to use it. And for further context, room spend per occupied room at our resorts averaged $320 per night, more than 3x what we saw across our urban portfolio. RevPAR at our resorts increased 3.6% with total RevPAR growth modestly higher, outperforming the urban portfolio on both measures. We've been saying that our resort portfolio was due for an inflection in 2026 after 3 years of trailing the urban portfolio accelerating growth. If you think back, our resorts were actually the first to bounce back from the pandemic, but then lost momentum as international outbound travel pick up and domestic leisure trends normalized through 2024 and 2025. Even though RevPAR at our comparable resorts is up more than 20% from 2019 levels compared to high single-digit growth at our urban hotels. We remain constructive on the trajectory of our resort portfolio this year. In sedoma, the completed renovation and full integration are translating to both top line and profit. The property was under renovation in the first quarter of last year. But if you compare the most recent quarter against first quarter of 2024, total RevPAR is up over 23% and hotel EBITDA is up 67%. The property generated a 37% EBITDA margin, the highest first quarter margin in its history, driven by diversified revenue streams, rates matching their views and the execution of creative cost efficiencies. In our urban portfolio, RevPAR increased 0.9%, and total RevPAR increased 1.6% in the first quarter. January and February were modestly negative or result in March meaningfully accelerated. The strongest urban RevPAR growth came from Hotel Adlon in San Francisco, the recently renovated Hilton Garden in Times Square, the Denver Coreguard and the Hotel Clio and Denver, all of which posted double-digit gains. We've been tracking how our hotels with average daily rates above $300, stack up against the rest of the portfolio over the last several quarters, and the story is pretty compelling. When you consider that our guest average total bill runs about $450 per night with several properties averaging over $1,500, it's clear we're serving a predominantly higher earning customer base. That strength at the higher end is showing up in the numbers. Over the past 3 quarters, our $300-plus hotels have outpaced the rest of the portfolio by 290 basis points in total RevPAR and 1,200 basis points in EBITDA growth. Simply put, robust spending from this segment and our ability to turn it into earnings has been a real engine for the company's growth. Turning to expenses. Rightsizing expenses for the demand environment remains a key focus for our team. During the quarter, total wholesale operating expenses increased 0.8% on total revenue growth of 2.5% resulting in a 127 basis point improvement in total EBITDA margins. This was our portfolio's largest quarterly margin improvement since the fourth quarter of 2024 and is 275 basis points higher than the margin achieved in 2019. Wages and benefits, which represent nearly half of our total expenses increased just 0.7% during the first quarter reflecting continued productivity and important. Looking back to 2025, total operating expenses on a per occupied room basis increased 2% during the year. This quarter, our expenses were up less than 1.5% on a per occupier room basis, a very disciplined start to the year. Before I turn to the balance sheet and capital allocation, A quick update on our group results in the first quarter and how our pace is shaping up for the rest of 2026. Group room revenues declined 0.8% in the quarter, with rates up 3.5%, but room nights down 4.2%. Winter storms in the Eastern U.S. and limited snow in our ski markets negatively impacted group travel in January and February. We are encouraged by our hotels group pickup for the remainder of 2026, particularly in Vale, Greater San Francisco, Chicago and Fort Lauderdale. Since our last call, our group revenue pace for the year has improved more than 100 basis points with pickup in each quarter. Following a hard-earned new peak in group revenues in 2025, we are trending toward another record year for the portfolio. Turning to the balance sheet. Our capital structure remains simple and conservative. We have no debt maturities until 2029. No secured or convertible debt, no preferred equity and no off-balance sheet encumbrances. All of our debt is fully prevailable. Our leverage sits on the lower end compared to peers, and that is by design. In a cyclical business, we think having the optionality and flexibility to pursue growth when the right opportunities come along is key. We paid a common dividend of $0.09 per share for the first quarter and expect to declare quarterly dividends of $0.09 per share for the remainder of the year, with the potential for our fourth quarter set dividend based on full year results. Our payout ratio remains below historical levels as we continue to utilize net operating losses to offset our taxable income. As those net operating losses are utilized over the next few years, we expect our payout ratio to increase. We are currently under contract to sell 1 Hotel and anticipate the closing to occur during the second quarter. Proceeds are expected to be used for general corporate purposes, which could include opportunistic share repurchases. Jeff will provide additional context on this transaction in his remarks. I'll conclude today with our updated outlook for 2026. We are raising our 2026 RevPAR guidance by 50 basis points to 1.5% to 3.5% with total RevPAR 25 basis points higher, which is unchanged from our prior outlook. Our adjusted EBITDA guidance is now $296 million to $308 million, a 2.5% increase at the midpoint, and our adjusted FFO per share guidance is now $1.12 to $1.18. The increase to our guidance reflects the stronger-than-expected first quarter operating performance as well as the benefit of a more favorable renewal of our insurance program on April 1 than we had anticipated. This is the third consecutive year we have achieved meaningful year-over-year reductions in our premiums. In aggregate over 3 years, we have reduced premiums by just under 40%. With anticipated capital expenditures of $80 million to $90 million this year, our rate guidance implies 7% growth in free cash flow per share. With that, I'll turn the call over to Jeff.

Jeffrey Donnelly: Thanks, Briony, and thank you for joining us this morning. Earlier this week, we celebrated Bill Marton as he retired from the Board and his role as Chairman after more than 2 decades of leadership. Bill's integrity and commitment to doing Lotus right will have an enduring impact on DiamondRock. We also welcomed Bruce Wardinski, to his first board meeting as our new Chairman. We look forward to the perspective and leadership he will bring as we execute our strategy. Nearly 2 years ago, we launched DiamondRock 2.0 and since that time, our shares have delivered the strongest returns in the lodging REIT sector outperforming peers by roughly 2,700 basis points and broad equity readies by more than 500 basis points. And we believe we are just getting started. DiamondRock's ability to drive the financial results behind our outperformance stems from deliberate and foundational decisions we have made in the past 2 years. First, culture. We've worked to build a culture of excellence where teams are encouraged to challenge assumptions and work collaboratively towards superior outcomes. We also strengthened the organization with added expertise across IT, legal, capital markets, design and construction and accounting. Second, we align compensation with total shareholder returns, not just at the executive level but across the entire organization. The goal is straightforward. Our team benefits only when the shareholders' benefit. This alignment and empowerment has a turnover and improved execution. Third, we invested in our infrastructure. We implemented new accounting and enterprise analytics platforms to amplify the strength of our asset management and accounting teams and to accelerate the use of AI-enabled tools across the organization. We took a comprehensive approach to simplifying the organization, modernizing corporate policies, shrinking the Board, relocating our offices and moving our listening to NASDAQ. The outcome of a leaner G&A structure with a headcount per hotel ratio that remains about 50% below the peer average. Taken together, these actions helped make DiamondRock more efficient, more disciplined and more focused on how we allocate capital. We're proud of the progress the team has made, and we're committed to earning your confidence through consistent execution. Last quarter, I walked through our 5-year capital expenditure plan and our intent to recycle capital within the portfolio. Today, I'll build on that discussion with an update on the Westin Boston Seaport District and then close with our outlook for 2026. The existing franchise agreement for the Western Seaport expires on December 31, 2026. We view this as a meaningful value creation opportunity. And beginning in 2025, we ran a comprehensive process to evaluate brand interest and representing Boston's premier invention hotel. We appreciated the level of interest and the creativity and flexibility we saw from brands throughout the process. After evaluating the proposals, we concluded that reinforcing the Weston Brands superior position in the Seaport would minimize disruption and create the greatest near, medium and long-term value for shareholders. While we can't disclose the specific economic terms, given the strength of our balance sheet, we elected not to pursue a Talon. The decision to avoid that expensive capital helped us stay focused on the fundamentals that matter most to shareholder value creation, the fee structure, the renovation scope and timing and contract duration assignments and terminability. Value creation begins with the commencement of the new agreement on January 1, 2027. And as with all major capital decisions, we approach this with a focus on cash flow, flexibility and risk-adjusted returns. With respect to the 5-year capital plan we shared last quarter, importantly, our guidance remains unchanged. We continue to forecast investing 7% to 9% of annual revenue across the portfolio or about $80 million to $100 million per year in each of the next 5 years. The renovation of the Winston Boston Seaport District was already contemplated in our prior guidance as an internally funded project. The key takeaway here is we are working to drive greater transparency and consistency. Generating attractive risk-adjusted returns is central to our capital allocation philosophy. We deployed capital across both ROI-driven initiatives and more traditional cycle renovations. Each plays an important role, but they sustain and create value in different ways. In that vein, I want to provide an update on 2 recent ROI projects. The first is the Dagna Boston, with a franchise agreement for the Hilton Boston Downtown Fanal Hall approaching expiration in 2022, we began evaluating long-term alternatives in 2020. We narrowed our options to remaining within Hilton or for an incremental $5 million deflag and reposition the hotel as an independent property. We chose independent positioning because we are confident that even if we initially seeded granted on the top line, we could still drive higher profits through operating cost savings. The underwrote EBITDA would exceed $16 million in 2027 versus the $10 million earned in 2023. -- how are we doing? We delivered $15.5 million in 2025, and we're not finished yet. So we are comfortable this ROI project will be ahead of underwriting. The icing on the cake as unencumbered hotels regularly achieve a 15% to 20% valuation premium to comparable brand encumbered product. So our repositioning has created value through earnings and asset value. The second example is Leber's to Sadara. In the third quarter of 2025, we completed the renovation of the Orchards Inn and fully integrated its operations within our adjacent luxury resort movers. While Orchards enjoyed some of the best views in Sedona, it was operating as a mid-scale product with a premium location in the luxury resort market. Our strategy was to unlock that untapped value. By upgrading the room product and creating more connectivity between the 2 hotels, we were able to transform the properties into a cohesive luxury destination in a supply-constrained highly rated market. We invested approximately $25 million and underwrote stabilization at a 10% EBITDA yield. Early results have exceeded our expectations. In the first 2 quarters following integration, revenues increased nearly 25% and EBITDA increased 55%. This project exemplifies our discipline -- we rightsized the investment, focused on operational excellence through the product throughout the project and conservatively underwrote its potential returns, with upside reserves for our shareholders. And let me remind you '26 was not underwritten as Lovers' year of stabilization. We prefer to consistently hit singles and doubles rather than hope for a home run on a complex, capital-intensive and disruptive multiyear project. That said, when we look back, I expect we'll call Lebers DiamondRock's version of a home run. Our ability to execute consistent cost efficient and impactful CapEx spending is a result of several unique portfolio treats, including a strong competitive position, unsecured capital structure, young portfolio age and a high percentage of independent and third-party managed hotels. This gives us control over scope and timing. While we highlight 4 or 5 larger projects each year, our in-house design and construction team is actually executing on more than 400 individual projects this year alone. From elevator modernizations that reduce service calls to reconfiguring outlets to add seating and drive revenue and room renovations to enhance guest appeal and housekeeper and productivity. The effectiveness of our capital spending will ultimately be reflected in our long-term free cash flow per share growth. We view our capital program as a core differentiator that originates from our portfolio construction and is a key reason DiamondRock is a free cash flow per share growth story. Turning to capital recycling. As we noted last quarter, we expect to be a net seller of hotels in 2026. We are under no pressure to sell, but we believe we can accretively recycle capital within the portfolio. Transaction markets are stronger than a year ago and the recent geopolitical events have slowed the pace of some discussions. Ongoing engagement has continued. We are currently under contract to sell 1 hotel. We have a nonrefundable deposit and expect the transaction to close in the second quarter. At that time, we will be able to discuss the factors that informed our wholesale decision. We continue to place more lines in the water than in past years. Not every process will result in a transaction. We will only sell assets when all else equal, recycling reduces risk or drives free cash flow per share growth over the medium to long term. ROI projects and share repurchases remain a compelling use of proceeds but we have underwritten a few external opportunities that could be nearly as additive. These range from modern urban hotels with brand availability to experiential assets and supply-constrained resort markets. We have nothing to announce today, but trust that our focus is on accelerating our free cash flow per share growth and reducing risks to long-term performance. Turning to our outlook for 2026. We entered the year knowing the first quarter would be our toughest comp of the year. Despite that hurdle, any incremental headwind created by poor weather conditions, the portfolio was able to rebound in the second half of the quarter and delivered stronger-than-expected revenue growth and expense efficiencies. As we look ahead to the remainder of the year, we benefit from easy comps created by Liberation Day and the longest federal government shutdown, a favorable holiday calendar outsized exposure to FIFA World Cup Post markets, American 250 celebrations and successful renovations. While it is early, we are not seeing a reticence for guests to take to the road this summer. For example, portfolio revenues on Memorial Day weekend are pacing up in the mid-single digits. Our FIFA World Cup post-market hotels have experienced increased demand at elevated rates but we don't expect to see activity accelerate until we're much closer to the event. As a reminder, our hotels have budgeted for 20 basis points of annual RevPAR growth from the means. We're seeing a similar booking pattern emerge around America 250 celebrations. Rates for early bookings have been strong, up double digits, but the pace at our urban hotels has been tepid. As citywide July 4 programming comes into focus, we expect the pace of bookings to improve. Our resorts, however, are currently seeing more activity than our urban hotels over the July 4 weekend. We are excited to reap the benefit from the hard work our team put into renovations last year. Among these renovations, the returns generated by Sedona are expected to be the most material, driving at least a 50 basis point tailwind to dive in our RevPAR growth rate in 2026. All in, we now expect our 2026 RevPAR to increase 1.5% to 3.5%, a 50 basis point improvement from last quarter with total RevPAR growth outpacing RevPAR growth by 25 basis points. By rightsizing expenses for demand and maintaining a disciplined capital expenditure program, that 2.5% RevPAR growth at the midpoint should again drive DiamondRock to a new peak FFO in 2026. We also expect to generate 7% in free cash flow per share growth for our shareholders this year. This will mark over a 30% cumulative increase in the past 3 years. We appreciate the trust you place in us, and we look forward to building on each successive peak. Thank you for your time this morning, and we are happy to answer your questions.

Operator: [Operator Instructions] Our first question will come from the line of Jack Armstrong from Wells Fargo.

Unknown Analyst: How are you thinking about the best uses of incremental capital at this stage given the recent performance of your shares? Are we nearing a point where you would shift away from repurchases and into more ROI projects or potentially some value-add acquisitions.

Jeffrey Donnelly: Shovel ready all the time. So I would say that share repurchases are really the most appealing use. I think at the margin, you're starting to see some acquisition opportunities get there, but I think you need a healthier spread to justify that. So I guess to reiterate, share repurchases would be the most appealing.

Unknown Analyst: It makes sense. And then on the expense side, can you take us through some of the building blocks for the full year across wages and benefits, insurance and utilities. And what's giving you confidence in your expense growth for labor significantly below where we're seeing national averages come in.

Justin Leonard: I think, Jack, we've had some very good recent history, I think, leaning into productivity. And candidly, we're not necessarily seeing it on the wage rate side, we've been able to keep our labor rates relatively low because we've been finding less hours worked throughout the portfolio through productivity gains. And that's been a myriad of different places both in housekeeping productivity, focusing on hours of operations within our food and beverage outlets. And then like every other company, some small administrative efficiencies that we found just through the implementation of AI tools.

Unknown Executive: And I'll add Jack, that we actually had some savings or unexpected savings on our insurance renewal that starts on April 1, and that will be about $1 million benefit to the full year. So that was 1 of the other areas that we had some cost savings.

Operator: Next question from the line of Smedes Rose from Citi.

Bennett Rose: I wanted to ask you a little more. You said you have an asset, I think, under contract for sale. Could you just sort of give some updated thoughts on the overall transaction market in terms of kind of pricing and maybe what you're seeing and still grow sort of level activity?

Jeffrey Donnelly: Yes. I think the transaction market today certainly feels a lot better than it did about a year ago. I would tell you that when you go back 12 months, I think people were -- remember, it was post Liberation Day. I think we ended up having several consecutive quarters of flat RevPAR. And shortly after Liberation Day interest rates for more of a PE buyer who tends to use leverage you're looking at interest rates that are all in interest rates that were sort of 7% to 8%. And now you look to today, I think RevPAR has certainly been much better this first quarter. I think there's a more positive outlook with more sort of demand drivers in 2026. And interest rates are maybe 150 basis points lower. So I think you have a better setup and there's -- it's definitely brought more interest to the market. You've seen many more assets come to market. There's sort of maybe 2 dozen assets out there in 2 large portfolios. And I would say each of them are probably 9 figure plus assets. But there's certainly properties beyond that. I think you're starting to see a little bit of loosening. Pricing is still robust. I would say that resorts continue to be sort of the priciest assets with urban maybe trading at a discount to that, largely because urban assets have I'm speaking of broad strokes haven't quite recovered as consistently as resorts have.

Bennett Rose: And then I just wanted to go back, Brian, you mentioned -- I think I just missed it that the dividend payout ratio will go up, and I think you said that's because the NOLs will be exhausted. Could you just sort of talk about that a little bit more timing and when you would expect the payout ratio to move up?

Briony Quinn: Sure, sure. Yes. So we generated significant NOL, obviously, during the pandemic that builds up over probably 2 to 3 years. I think we've got a significant balance left. We've worked through about 50% of it. So our intention is to sort of ratably use those over the next 2 years to sort of gradually increase our dividend.

Operator: Our next question will come from the line of Michael Bellisario from Baird.

Michael Bellisario: Can you give us an update just on sort of 2Q and how April performed and then taking a step back, how would you sort of broadly characterize the recent change in trajectory for each of the customer segments, group BT and leisure?

Jeffrey Donnelly: So far, I would say the trajectory that we saw in April continued to be healthy. Some of the acceleration we saw in March effectively continued into that month, I think more on the leisure side. I guess as you sort of think about the segments for the rest of the year, I mean, I guess, looking at Q1, I mean, BT was strong for us, like leisure or resort markets are pretty healthy. I feel like -- this will be the first year, I mean, it's still early, but I feel like this will be the first year where you have a very good probability that all 3 channels, sort of BT, leisure and group will be delivering positive growth for the industry, which has really been lacking for the last 5 years in the sector, and I think that's going to be pretty impactful for the lodging sector. It's great when you have 2 working, but it's difficult because it's a 7-day a week business, and it's -- you can't always get to where you want to get to when you only have 2 legs of the stool there. So I'm encouraged by the way that the year is setting up.

Michael Bellisario: Got it. That's helpful. And then just sort of a follow-up there. On the group side, the pace improvement that was mentioned in a few markets, anything you can point to in terms of reasons why customer types, industry types that experienced that group pickup in those 3 or 4 markets that you mentioned? Any color there would be helpful. And that's all for me.

Justin Leonard: I'm not -- Mike, I'm not sure there's necessarily a great read-through just in terms of customer base, but I think we continue to be optimistic about the group outlook for the remainder of the year. I think, particularly given where the calendar sits around a couple of the major holidays with things like June 1, July 4, all sort of shifting towards the weekend that really gives us a larger -- like a larger number of potential pattern weeks that we can sell group into where we have some availability. So I think that's been more, I think, indicative of our short-term pickup that we've just had a bit more availability given how the calendars shifted around, and we've been able to sell into that.

Operator: Our next question of the line of Austin Orchid from KeyBanc Capital.

Austin Wurschmidt: It's Josh on for Austin. you've discussed some additional group pickup you might need due to some tough comps in 3Q. I guess, how much additional business do you need to backfill at this point in time? And what are some of the different strategies you can implement to fill that demand if need be.

Justin Leonard: I think part of the -- part of our pace also has to do with we have World Cup exposure, I would say, World Cup availability in 1 of our biggest hotels in Boston. So we have sort of displaced some group, hoping that, that transient pickup is going to fill in some of those gaps. But I think generally speaking, as we get closer to Q3, we move out of the booking window. So we're really focused on transient strategies to drive incremental transient business. And I think we're optimistic that given some of the demand generators that are going on, particularly in July that we're going to be able to backfill a fair amount of that with transient business.

Jeffrey Donnelly: Josh, I'll add on just to give people some context, I mean, in some ways, this M&A back from the Democratic National Convention. Remember, we had a very good year out in Chicago at that time in third quarter. And then last year, in 2025, that was sort of the hole we thought we had to climb over and we successfully climbed over it. So in some ways, we were a victim of our own success. We continue to extend there. But the actual magnitude of the hole that we referred to is actually just -- it's a few million dollars on group business, just to give you a sense, it's not an insurmountable task, but it's a single-digit millions of dollars, I think, on the group side.

Austin Wurschmidt: I appreciate that additional color, Jeff. And then on the asset sale, should we view this as you guys testing the waters a little bit in the transaction market before you would bring additional and potentially larger assets to the market?

Jeffrey Donnelly: I wouldn't call it necessarily testing the waters in advance of larger assets. I mean I think we really kind of looked at this as you're always trying to find opportunities where you can monetize assets at attractive prices and you don't always hit it out of the park on that. So I think it's just more important to have more lines in the water and be exploring that. So in the last year or so, we've had a handful of properties that we've explored either sort of one-off or privately and some with listed situations. So it's not necessarily a precursor. And I think every asset kind of has its own unique setup in sort of buyers and market conditions. So yes, I wouldn't assume that it's like 1 has to proceed the other.

Operator: Our next question will come from Duane Fanning Ward from Evercore ISI.

Unknown Analyst: This is Peter on for Duane. Could you just unpack a little bit of your expectations for New York this year? I know you probably have a assumption on the upcoming contract renewal, but more curious on just how you see top line growth in that market following a few strong years.

Justin Leonard: I think we continue to be optimistic about New York. As you know, it has the FIFA final game. So I think, in particular, over the summer, we're expecting to see some compression in the market. But as you mentioned, there is going to be some margin pressure given the contract renewal, which we factored in. And I think accounts for some of the sort of forecasted uptick in our operating expenses as we progress through the year. But generally speaking, while maybe we saw a bit of a falloff in short-term booking pattern right at the beginning of the war. We've seen that level off and continue to see demand in New York as strong as it's been for the last 2 years.

Unknown Analyst: Okay. And then just on CapEx, Jeff, you mentioned $80 million to $100 million per year for the next 5 years is kind of a range. It seems like from your comments, maybe you're not considering or don't see another opportunity of something larger like labs. Is that correct? And then just on Laberge, when is peak season in that market and just remind us when the renovation finished last year. I appreciate the time.

Jeffrey Donnelly: Yes, I'll take the first one. Actually, no, that's actually already incorporated into that $80 million to $100 million a year to the extent that we see opportunities or ROI projects, that's effectively embedded within that figure. Yes. So it's not that we don't sort of see those opportunities down the road.

Justin Leonard: Yes. And Sedona is a bit of an interesting market and that like you really have a couple of different peak seasons that sort of shoulder in between the winter and the heat of the summer. So -- and part of, I think, the success of that asset is just given how hot it was in Phoenix, sort of, I think, record heat in Phoenix earlier in the year. We got a lot more of that drive to business earlier in the season. But typically, we sort of see peak season kind of March to May. And then again, on the back end of the summer, sort of September, October. But candidly, the market does quite well year-round.

Briony Quinn: And the hotel is under renovation sort of all of 2025 up until about September 1. So that's when the hotel reopened and launched as an integrated property.

Operator: And our next question will come from the line of Rich Hightower from Barclays.

Richard Hightower: I want to go back to -- I think it was Briony's comments earlier about how the over $300 hotels are outperforming pretty materially versus the rest of the portfolio. And so just thinking more broadly, how does the statistic like that inform things like portfolio construction or how you think about on certain hotels and obviously, the buy-sell hold decision. Just walk us through maybe how that informs that sort of framework.

Jeffrey Donnelly: Rich, this is Jeff. I actually missed the first part of your question. You're asking about how hotels over $300 inform our buy-sell-hold decisions.

Unknown Executive: Yes, just the outperformance, I guess, generally speaking, in the luxury space. Look, I don't think we're the only ones that are looking towards the very top end of the U.S. consumer base as being more resilient than perhaps the rest of the population. So that's a trend that we've seen over the course of the last 18 months, and it's definitely something that we feel -- we factor in an acquisition decisions. But candidly, -- this is not a renovation to the rest of the market participants don't also see. So the assets that cater to that particular part of the market are the ones that are being bid up to a pretty significant premium. So we're excited that we've got a number of those already in the existing portfolio and continue to look for ways that we can enhance those like a over type project where we can take more of our portfolio shifting it towards targeting that particular consumer and look at potential opportunities where we can add to the portfolio, but those are quite often very premiumly priced.

Richard Hightower: Yes. The middle I was going to say the middle part of my question cut out. It was also a follow-on about sort of CapEx within that same context, how do you think about the returns and you spend the same dollars on a given hotel, but if it carries a higher rate, arguably, the returns are higher simply because of that. So how does it inform the CapEx program as well. Sorry if that wasn't clear.

Jeffrey Donnelly: Yes. That's what I was going to add, Rich, is that unfortunately, you don't always spend the same amount of capital on the luxury hotel or something that is true luxury. I would say that some of the properties we have that are very high rated, I wouldn't necessarily describe them as 5-star hotels. I mean, in some ways, they're 4.5, and I know that's a subtle distinction, but I think it's an important 1 because you don't spend the same amount of CapEx on luxury hotels. I think some of the brands that folks are certainly familiar with out there, when you look at their operating margins and what their CapEx is, there's sort of very low return on investments historically. And so you're trying to find situations, and I think this is where being independent in some of those hotels is more critical because where you can drive the CapEx to where you think it is more critical to driving rate and profitability and trying to maintain someone else's standard. So I think when you look at the margins on our higher rated sort of more luxury resorts, they're quite high relative to maybe what you might see from some of our peers who have branded luxury hotels.

Richard Hightower: Makes a lot of sense. And if you don't mind, a second question, just to go back to the Westin Seaport franchise renewal -- and obviously, DiamondRock was in a position to get what sounds like a pretty good outcome maybe relative to some other competitors who would be going through a similar process. But if we were having the same conversation or the same situation 5 or 10 years ago, would the outcome have been equivalent to what you guys have achieved here? Or does something about it imply any sort of change in the balance of power between the brands and owners or more sophisticated owners. Just walk us through the evolution there.

Jeffrey Donnelly: Yes. I mean I guess I think maybe Justin and I can both chime in on this. I guess for my take, I think I guess I'd responded to the standpoint of I think today's management team probably thinks about that a little bit differently than the past. I think we tend to look about how we are creating those flexibility at the asset level and where we can ultimately sort of create value, whether -- whether that shows up in cash flows or whether that shows up and maybe a future value of that hotel. So necessarily having 1 particular structure and other like franchised or managed or accepting key money, what have you. I think maybe the -- our prior management teams might have thought about it differently than today. We were just looking, as I said, more for flexibility and really didn't see the need for key money.

Justin Leonard: Yes. But I think to get to your question, given, I think, as everyone on the line knows, the brand focus on net unit growth and the difficulty they're having in sort of prompting incremental development. I would say that it has definitely gotten a bit more friendlier on the owner side. We had a very large audience of potential brands that was interested in the hotel. And I think the inducement that they -- if you're comparing to 10 years ago, are definitely better than what you would have achieved. I mean it's not double, but is it 15% or 20% better from an owner perspective, I think that's probably a fair assessment.

Operator: And our next question come from the line of Chris Darling from Green Street.

Chris Darling: Circling back to the CapEx discussion and the remaining value creation opportunities across the portfolio, whether it be franchise expirations, ROI projects, -- is anything more actionable in the near term, assuming continued fundamental strength across the industry and your portfolio? Just wondering sort of in your mind how flexible you intend to be as it relates to the 5-year CapEx plan.

Jeffrey Donnelly: It's a great question, Chris. I would say that there are projects that are actionable. I mean, I'm not committing to it today, but we continue to look at timing and scope about whether or not Chico can work and pencil for us with the returns that we want. -- there's actually projects that are very small that we look at that are within properties, whether it could be back of house type work or energy savings type work that is not necessarily getting advertised so they can be sort of small projects with good returns. So there's a lot of it that's actually already embedded in our spending. But I would tell you that I not -- I guess, don't expect maybe that year angling is that you presume that, that CapEx number is going to swing around a lot. We've actually spent a lot of time diagraming out every potential product over the next 5 years for all of our hotels and trying to phase them in a way that we can make that sort of a consistent figure and have things done on time at a level that's sort of impactful to the property at the same time, too. So the intent there is to sort of derisk our future earnings volatility at the margin, and it's something that we're going to try hard to stick to.

Chris Darling: Okay. I can appreciate that. Helpful to hear. And then just as a follow-up to some of the discussion around the consumer. Just hoping you can elaborate on what you're seeing in out-of-room spend and how things have trended relative to expectations? Any other insights maybe just a double-click in terms of what you're seeing as it relates to the health of the consumer, whether it's broad-based or truly that high-end consumer strength relative to sort of mid or lower end?

Justin Leonard: Yes. I think we continue to see in first quarter, you can see from the release, out-of-room spend continues to accelerate at a faster rate than RevPAR we've seen in the hotel. So we continue to see the ability once we get the customer on property to get them to spend in different ways. And it's to a myriad of different things, whether that -- we have a number of spots throughout the portfolio that performed particularly well. I think 1 of the thing we were encouraged by is what we were able to do in food and beverage this quarter, given that it was a down group quarter. So I think both from a revenue perspective and particularly from a profitability perspective, -- we saw some nice lift in the outlet throughout the portfolio that was able to drive increased to beverage profit even when we had banqueting catering that was slightly down. So we do continue to see a customer. Once they're there, that continues to spend freely. And I would say, frankly, throughout the spectrum, not necessarily just at the high end. I think we saw that in all of the sort of ADR tiers throughout the portfolio.

Operator: And our next question will come from the line of Ben -- sorry, Ken Billingsley from Compass Point Research.

Kenneth Billingsley: I just wanted to follow up. World Cup, I believe you said it's 20 basis points that you have in RevPAR. Is that correct?

Jeffrey Donnelly: Yes, that's right.

Kenneth Billingsley: Given just kind of the shift that's going on there, are you seeing that this is becoming maybe less of an international event and shifting to more domestic? And then with that, -- it seems like it's also becoming more of a luxury event. And typically, in the past, have you seen last-minute booking being successful when there's an opportunity for people to go to these kind of experiences that are typically higher ticket cost?

Jeffrey Donnelly: I mean we'll probably all have views on this. I would say there's not much of a great precedent for this occurring in the U.S., I guess, -- but I do understand like the initial ticket prices have certainly been high. I personally wonder whether that has given some pause to people's desire to attend. Ultimately, I don't think we're going to be seeing empty stadiums out there. I do think they will get filled. So it leads me to believe that maybe folks who are speculating on the tickets early on will end up having to capitulate you'll find a market clearing price for folks to go to the games. As far as the demand, I don't know what the original expectation was, but I think just some of the anecdotes we've had from various cities that will kind of meet with hotel councils and sort of share with the data. I think it's been about 1/3, 1/3, 1/3 between international demand for the tickets, domestic demand and local demand. So my takeaway out of that is about 60-odd percent or 2/3 of the tickets are being consumed by people who will ultimately require a hotel room. But time will tell as we get closer.

Operator: [Operator Instructions] Our next question will come from the line of the floor is van Dick June from Ladenburg Filmon.

Unknown Analyst: This is Land on for Floris. Can you talk about how you reserve for potential bonus payments to third-party operators this year?

Jeffrey Donnelly: Like the payments to folks at the hotel level like to the extent that performance is better, yes. I think we -- generally, bonus thresholds are multi-tiered throughout our properties, although a lot of the actually have a gatekeeper around financial performance and financial performance relative to budget. So that is 1 of the upticks that we actually saw in labor cost in the first quarter because -- we have a number of properties that are exceeding their operating budget for the year and expect to exceed operating budget for the year. But it is something that we track on an active basis just to make sure that we're actively accruing appropriate amount of incentive compensation for the performers that we have that are outperforming expectations.

Unknown Executive: Yes. So it's an important distinction because I think accruing for it sort of, again, mitigates risk that compared to hotels that don't accrue for it, there can be a year-end lack of a better word, surprise on the labor expense side that there's a true-up on bonuses that are owned at year-end. So we accrue throughout the year.

Operator: I'm not showing any further questions in the queue. I'd like to turn it back over to Jeff for any closing remarks.

Jeffrey Donnelly: Thank you, folks, for dialing in. I know it's been a busy week for folks, but I look forward to seeing you soon, and have a good summer.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.