DiamondRock Hospitality Company (NYSE:DRH) Q3 2022 Earnings Conference Call November 4, 2022 9:00 AM ET
Company Participants
Mark Brugger – President, Chief Executive Officer
Jeff Donnelly – Executive Vice President and Chief Financial Officer
Justin Leonard – Executive Vice President and Chief Operating Officer
Conference Call Participants
Smedes Rose – Citi
Austin Wurschmidt – KeyBanc
Michael Bellisario – R.W. Baird
Duane Pfennigwerth – Evercore ISI
Anthony Powell – Barclays
Bill Crow – Raymond James
Operator
Good morning, everyone. Welcome to DiamondRock’s Third Quarter 2022 Earnings Call and Webcast. Before we get started, 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, our President and Chief Executive Officer. Mark?
Mark Brugger
Thank you for joining us today for DiamondRock’s third quarter earnings call. Our entire executive team joins me today to answer your questions. The third quarter was a record quarter for DiamondRock. Demand in leisure, business travel and group business all exceeded our expectations. Consumers continue to spend on experiences like travel, and we see this continuing into 2023.
We believe we are in a golden age of travel distinguished by a societal shift in the necessity of travel that has been created by the rapid adoption of hybrid work environments, changes in mobility, preferences for experience over things and the wonder lost of boomers and millennials alike. The future of travel is very bright.
The DiamondRock portfolio continues to separate itself from our peers with over 60% of our hotels falling into the luxury resort, lifestyle resort or urban lifestyle categories. Of our last nine acquisitions, over two-thirds are Waterfront resorts, all our lifestyle and all are unencumbered by long-term management agreements. In fact, among the full-service lodging REITs, we have the lowest exposure to long-term brand management and commences and among the lowest exposure to ground leases.
These qualities enhance operational control and increase exit value, a distinguishing factor that should drive a premium valuation. It is our strategy to curate a portfolio of experiential resorts in urban lifestyle hotels that deeply resonate with what today’s travelers want. DiamondRock’s experiential hotel focus is paying off. Our performance through the pandemic has been stronger than our peers. In fact, the portfolio took another 180 basis points of market share from the competitive set in the third quarter alone.
This focus does not mean we sacrifice diversification. We remain well balanced with corporate demand contributing over one-third of stabilized earnings and group demand exceeding 25%. Our focus puts us in the enviable position to capitalize on the strongest demand trends. And this translated into record performance for the third quarter for RevPAR, total revenues and hotel EBITDA. We soared past 2019 comparable revenues. Total revenues were up 11.7% versus 2019. Hotel adjusted EBITDA margins increased 125 basis points compared to 2019 on best-in-class asset management and tight cost controls.
Average daily rates for the portfolio increased 17.5% over 2019 and 12.5% over 2021. Importantly, there is still room to run on occupancy. Despite a 9.8% [ph] percentage point improvement over last year, occupancy is still behind 2019 levels by 6.1 percentage points. The ability to close that occupancy gap is a real opportunity in 2023.
Let’s take a closer look at our resort and lifestyle performance. We continue to see incredible demand at our resort and lifestyle hotels. Even as we moved beyond summer, RevPAR and total revenue growth at our resorts was actually up more in September versus 2019 than in August. Looking ahead to the fourth quarter, a seasonally slower leisure quarter, we still expect our resort and lifestyle hotels to deliver over 20% revenue growth compared to 2019.
Our urban gateway hotels also exceeded expectations for the third quarter. I’m proud to say that September marked the first month since the onset of the pandemic that revenues and profits for our urban gateway portfolio exceeded comparable 2019 results. There are some powerful trends in several of our urban markets that are worth highlighting. Our three New York City hotels saw robust demand and pricing power in the quarter, collectively increasing revenues by over 17% compared to 2019.
The Worthington in Dallas, Fort Worth, also beat 2019 revenues by nearly 17% and profit margins expanded over 600 basis points. Our Westin in Boston Seaport and Downtown San Diego both exceeded third quarter 2019 revenues and profits.
Year-to-date through September, EBITDA at our largest hotel, the Chicago Marriott Magnificent Mile is at 99% of year-to-date 2019 EBITDA, one of our most pleasant surprises of the year. Even our small representation in San Francisco, the Emblem by Viceroy, was a star in the quarter with 172% market share. The Emblem is ranked at Number 3 by travel – by travelers on TripAdvisor, the highest-ranked hotel owned by any public company in San Francisco. In short, we believe our carefully assembled and focused urban gateway portfolio remains a competitive advantage as our outperformance continues.
I did want to recognize the achievements of our stellar asset managers. Asset management has been delivering for us all year. Cost controls have been tight, but as exciting, we have been seeing big returns from the three game-changing repositionings that were completed last year. Year-to-date statistics tell a great story.
The Lodge at Sonoma converted to an autograph collection is up 62.3% in total RevPAR as compared to 2021. The Vail Hythe Resort converted to a luxury collection is up 78.9% in total RevPAR as compared to 2021. And the Margaritaville Key West is up 21.4% in total RevPAR as compared to 2021 and up a breathtaking 95.6% as compared to 2019 when the resort was flagged as a Sheraton. These numbers showcase and are a testament to the value creation capabilities of our talented asset management team.
On external growth, our recent acquisitions of Tranquility Bay, Henderson Park Inn, Henderson Beach Resort, Bourbon Orleans and Shorebreak Fort Lauderdale Beach are collectively performing more than $3 million ahead of underwriting for 2022. Total RevPAR this year for these hotels is projected to be up 39% over 2019, excluding non-comp Shorebreak. These hotels all have the key traits that we are looking for. These simple lifestyle hotels located in desirable high barrier entry markets with opportunities for our team to quickly grow NAV through asset management initiatives.
Going forward, while it’s hypercompetitive for broadly-marketed, leisure-oriented hotels out there. We have been able to find better opportunities by focusing on smaller, owner-operated properties. It is here where we have developed an early mover advantage by forging years long relationships with these potential sellers and becoming experts on highly desirable micro markets like Sausalito, Destin Beach and Sedona. We continue to track approximately 50 of these unique micro markets.
Before I turn the call over to Jeff to talk more about our results, I want to highlight the key attributes of DiamondRock’s fortress balance sheet. Our recent $1.2 billion financing addressed all near-term debt maturities, eliminated half of our mortgages and doubled our weighted average debt maturity. Today, we have over $600 million of total liquidity, a powerful figure for a company our size. Our liquidity and low financial leverage gave us the confidence and flexibility to commence a share repurchase program subsequent to quarter end at an average purchase price in the high 7s. While we are mindful to maintain that fortress balance sheet, measured share repurchases of our stock at deeply discounted values remains another arrow in our quiver for opportunistic capital allocation.
Let me now hand the call over to Jeff. Jeff?
Jeff Donnelly
Thanks, Mark. Let’s look at the results and note that throughout our prepared remarks when we give comparable stats to 2019, it excludes the Kimpton Fort Lauderdale because that hotel is new and was not open in 2019. You’ll find a detailed table of our quarterly comparable data on Page 15 of this morning’s press release. Okay.
Total comparable revenues for the company were $267 million in the quarter, an increase of $28 million over the comparable period in 2019. Comparable RevPAR for the portfolio in the third quarter was $211 or 8.7% higher than 2019. This growth was driven by room rates nearly 18% above 2019. Occupancy is down over 600 basis points to 2019 and closing this gap remains one of our several sources of future growth. Other revenue, which speaks directly to our asset management team’s creativity in identifying and expanding new income streams was up over 20% – 27% or $4.5 million over 2019.
F&B revenue was over $8 million above 2019, double the $4 million positive variance in the second quarter. Similarly, total banquet and group contribution was up nearly $3 million, an increase of over 9% versus 2019 despite group room nights being down over 7% to 2019. With fewer groups in-house, we’re generating more ancillary revenue by up-selling the groups through creative strategies.
Outlet performance was the strongest of any third quarter in the company history as many of the celebrity chef venues we created and opened just prior to or during the pandemic drove dramatically more business to many of our hotels. And there is more to come. We will share with you soon several new or upgraded outlets we are working on for 2023 and beyond that will continue to drive profits to new levels.
Hotel adjusted EBITDA was $84.2 million, which beats third quarter 2019 by nearly $12 million. Comparable hotel adjusted EBITDA margins were 31.6%, exceeding 2019 by 125 basis points. Adjusted EBITDA was $76.3 million or $8.8 million over third quarter 2019. And finally, FFO per share was $0.28 or nearly 4% above third quarter 2019.
Let me talk a little about performance in our major segments and provide some insights to what we’re seeing in the remainder of the year. Each of the three major segments performed well for us in the third quarter. Of course resorts was our most robust portfolio segment with many resorts setting new highs. Rates for our luxury and lifestyle resorts were up 36% over 2019. Leaders in the quarter included Tranquility Bay and Margaritaville in the Florida Keys, and the landing in Lake Tahoe, each of these hotels delivered rate growth up over 70% from 2019.
Occupancy in the resort portfolio was 5 percentage points behind 2019 and remains a real opportunity for us going forward. Urban hotels extended the strengths that emerged last quarter. Average rates were up 5.2% over 2019 in the quarter, a sequential improvement over the 0.2% growth seen in the second quarter. Occupancy increased to 76.9%. This is 6.6 percentage points behind 2019, which was a sequential improvement as compared to a 9 percentage point deficit in the second quarter.
Mid-week occupancy, a key indicator of the return of the business traveler increased sequentially to 79.1% in the third quarter as compared to 77.4% in the second quarter. In fact, mid-week occupancy at our urban hotels ramped steadily from 77.7% in July to over 81% in September. The snapback in business travel this quarter exceeded our expectations. As a testament to the strength of our urban footprint, most of our urban hotels had total RevPAR that exceeded 2019 levels, including all three of our hotels in New York City, our two hotels in Denver, the Westin Boston Seaport, the Westin San Diego, the Worthington and our Luxury Collection Hotel in Chicago, two big hotels, the Chicago Marriott and Hilton Boston were over 96% of 2019 total RevPAR.
Group demand has been robust. The booking window remains short, but we have seen significant pieces of business booked on short notice. For example, group rooms revenue in the third quarter was $45.5 million as compared to $40.7 million on the books at the end of the second quarter. The $5 million upside was doubled our expectation for in the quarter pickup. I also want to highlight the $45 million of group rooms revenue exceeded third quarter 2019 by 3.5% on nearly 12% higher rates. We expect group room’s revenue in the fourth quarter to also hedge past 2019.
On a full year basis, group room’s revenue should surpass 90% of the 2019 production. Looking ahead group room revenue on the books for 2023 increased 34% from the second quarter to over $90 million at rates that are nearly 13% ahead of 2019. In our largest convention markets, Boston, Chicago, San Diego, Washington, D.C. and Phoenix, there are 3.1 million room nights on the books for 2023 and 3.2 million room nights in 2024. The next two years surpassed the 2.9 million room nights in 2019, and there is still time to extend the game. Concerning Hurricane Ian, we had no material damage to our buildings and only minor damage to landscaping. Business interruption was a little more than $500,000 in September.
Turning to the balance sheet. As Mark mentioned, we recast and expanded our credit facility during the third quarter. The $1.2 billion facility includes $800 million of term loans and a $400 million revolver. As detailed in the press release announcing the transaction, proceeds from the facility were or will be utilized to pay off the $750 million facility, a $50 million term loan, four mortgages totaling approximately $180 million that were scheduled to mature in 2023 and are eligible for repayment without penalty in 2022 and pay off our revolving credit facility.
As of this call, our $400 million revolver is fully available and undrawn, and we have unencumbered Sonoma, the Western D.C. and the Salt Lake City Marriott. The fourth and last mortgage on the Westin San Diego will be paid off before year-end. We have $225 million of fixed rate swaps against the $800 million of term loans and including our remaining fixed rate mortgages, approximately 52% of our total debt is fixed rate. We have over $600 million of liquidity for continued opportunistic share repurchases or external investment. We will opportunistically allocate capital to take advantage of any market dislocation, but we are committed to maintaining a conservative balance sheet.
Before turning the call back to Mark, I did want to address the common dividend. Recall, we instated – we reinstated a $0.03 per share quarterly dividend last quarter. Based upon our current internal forecast for taxable income, we expect our total common dividends paid in the fourth quarter will exceed $0.03. We are finalizing our taxable income forecast and will make a declaration prior to year-end.
Okay. Now, I’ll turn it back to Mark to discuss our outlook.
Mark Brugger
Thanks, Jeff. Our outlook remains positive for travel. Obviously, it was a successful quarter, and we expect the fourth quarter will be good as well. Our hotels have raised their full year forecast since our last call. Accordingly, our outlook for 2022 has increased based on continued robust to travel demand. We expect full year total hotel revenues and hotel adjusted EBITDA will both exceed 2019.
To help you model our expected results, let me provide a few more pieces of information. In the fourth quarter of 2019, our resort lifestyle hotel segment contributed 45% of comparable total hotel revenues, which is shown in the table on Page 15 of our press release. We expect total hotel revenues in the fourth quarter of 2022 from this segment will increase better than 20% compared to 2019, with hotel adjusted EBITDA margins better than the 25% achieved in 2019.
Our urban gateway hotels contributed the remaining 55% of the fourth quarter 2019 comparable total hotel revenues. We currently expect fourth quarter 2022 total hotel revenues from our urban gateway hotels to be about 85% of fourth quarter 2019, owing in part to the seasonal patterns and differences in the spread of citywide events over the two time periods.
A few other data points. We now expect full year G&A to be in the range of $30 million to $31 million, below our marginal guidance of $31 million to $33 million. Income tax expense is now forecasted to be $1.5 million to $2 million, up modestly from a prior estimate of $0.5 million to $1.5 million, but for the best kind of reason, increased hotel earnings. Interest expense, including the benefit of swaps is expected to be approximately $52 million to $53 million.
As we look out to 2023, we are encouraged that the positive demand trends will continue and that we can push through a moderating economy. The first quarter will benefit from easy comparisons to the Omicron impacted first quarter 2022. And throughout the year, we expect to see group and business travel continue to heal from its pandemic suppressed levels. Remember, GDP is $4 trillion larger now than in pre-pandemic 2019 and RevPAR is still behind trend line as traveler covers from a health care crisis.
Leisure looks solid. And we expect to start the New Year strong with record rates the first week of 2023 at many of our resorts like the Vail Hythe currently up 18.6% over 2022. And the Margaritaville Key West, which is on pace to set a record for rate at $590 during that first week. In short, we continued to be constructive on the outlook for 2023.
I’ll just wrap up by saying that we are confident that DiamondRock’s unique portfolio and fortress balance sheet will allow us to continue to distinguish DiamondRock going forward.
At this time, we would like to open up the call for your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And our first question comes from the line of Smedes Rose with Citi. Your line is open. Please go ahead.
Smedes Rose
Hi. good morning. I wanted to ask you a little bit more – you mentioned a few times in your opening remarks about closing the occupancy gap going forward. So, as we think about 2023, would it be your expectation that occupancy would grow as a bigger piece of overall RevPAR growth and rate growth might moderate? Or how are you kind of thinking about, I guess, the cadence of RevPAR growth as we go through 2023?
Mark Brugger
Yes. But we’re still behind in occupancy really at all three segments on a full year basis. So, I think we closed the gap on those. We’ll probably see more midweek group in our resort properties in particular. And that’s probably an opportunity to keep pushing the occupancy up at those properties.
And then group is going to heal, right, as Q1 comps to Omircron impacted Q1 of 2022, you should see more occupancy, because we should do better, particularly in the group and the business transient in the first quarter. So that will help close that gap as well. So it’s a combination, but I think the Q1 comparison is going to push occupancy certainly in the business in group transient on a full year basis.
Smedes Rose
Okay. I mean, as you just – I mean, do you think there’s a lot of just rate growth overall still available? Or do you feel like it’s more sort of sustainable at this point?
Mark Brugger
No, it’s both. I mean, October, we saw a huge rate growth. I mean if you just looked at our resorts just in October, they were up 46% in rate, and our urban gateway hotels were up mid-single digits. So rates still growing. And I feel like we’re entering the New Year with pricing power, particularly on popular dates, whether it’s midweek and urban markets or the more desirable resort weeks, I think we’re going to have the pricing power to continue to push that pretty hard.
Smedes Rose
Okay. And then I just wanted to – you mentioned that it remains hypercompetitive for the kinds of leisure hotels that you want to buy. I guess it’s a little surprising because we’ve just seen an overall kind of fall off in transaction activity barring following pretty high-profile deals. But – what – could you maybe just talk a little bit more about buyers and availability of financing and kind of just what you’re seeing for these kinds of properties you’re looking at?
Mark Brugger
Sure. So, I mean just kind of said in the table in the overall market right now, it looks like urban markets, there’s very few on the market. It’s not a terrific time to sell those. These leverage is a key to that. And I think people are having trouble handicapping where business transient ultimately settles out on kind of their underwriting pro formas. People still like leisure. They still believe in resorts. There is a wall of capital still available for real estate acquisitions out there from a variety of sources. And so those – there are some of those properties on the market, and they are getting lots of bids when they do bring those to market.
So it’s still the place where the investment community has been most level of confidence and belief in the future. So it’s still a pretty active market for those. And so for us, our experience over the last, I’ll say particularly three months to five months as rates have gone up is that the broadly marketed deals, particularly the larger ones, seem to be getting a lot of attention and pricing places, pricing at levels that aren’t attractive for us. And so we continue to try to focus our efforts on these owner operators assets between really $50 million and $150 million, where we think we have an advantage by dealing mostly off-market with these relationships and buying probably 100 basis points to 200 basis points better yields than the broadly marketed luxury resorts.
Smedes Rose
Okay, thank you. Appreciated.
Operator
Thank you. And one moment for our next question. Our next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open. Please go ahead.
Austin Wurschmidt
Yes. I just wanted to piggyback on the last question there. You guys having focused on more off-market relationship deals that you’ve kind of followed over a multiyear period. Is there anything you can share in terms of sort of the locations and size of deals that you’re evaluating? And Mark, is there anything that gives you pause today with moving forward with a new acquisition? And how you’re thinking about sort of underwriting those?
Mark Brugger
Great question. So continue to look at leisure-oriented assets with super high barrier to entry markets. The size is generally between $50 million and $150 million. That’s kind of a sweet spot for us. And as far as pause listen, I think stocks are trading at deeply discounted value so that always gives you were, I think, a higher bar to pursue acquisitions. So, I think the way we think about it is we wouldn’t do a single or double right now or need to be a triple or a home run. But it’s going to be of similar characteristics. It’s going to be in the markets like Sedona or Sausalito or Destin Beach. One of our peers just did [ph] deal in Jackson Hole, we like that market a lot. That would fit our criteria, but the kind of asset, the long-term brand management and the size did not and doesn’t fit what we’re trying to do here.
Austin Wurschmidt
That’s helpful. And then I just wanted to hit on – you kind of provided a comparison of the group room night versus 2019. If I recall correctly, 2019 was sort of an off year for your portfolio. And I’m curious if you could kind of give us a sense of what the 2018 group room nights look like versus what you’re seeing for 2023 and 2024?
Jeff Donnelly
We can always circle back to you with specific numbers, Austin, follow up after the call. I don’t have the 2018 numbers here, unless.
Justin Leonard
I don’t think – this is Justin. I don’t think 2019 was significantly off. I think 2020 was shaping up to be the best year of the portfolio was ever going to have in terms of pace going into 2020. And so a lot of the numbers that we talk about pace for next year, we’re really comparing. This year versus 2019 for 2020, which is not actually a year that actualized, but 2020 was expected to be, I think going into it, we were up 15% versus 2018 or 2019. So something they take into account when we talk about numbers relative to 2019.
Austin Wurschmidt
Got it. No, that’s helpful. And then just this last one, just curious how the leads look for future additional bookings, and when do you think sort of you see that booking window extend versus what you saw this quarter within the quarter for the quarter?
Mark Brugger
Yes. So in group, as Jeff mentioned in the prepared comments, the in the quarter, for the quarter and into quarter for next year were very strong at very healthy rates – we don’t have as many large hotels as some of the other folks in the space. So our booking window is shorter, just by the nature of our assets. But the velocity of those leads continues to be good. The rates we’re achieving is good. And as we talked about for Q3, our ability to up-sell folks, particularly at the kind of more experiential hotels that we have, where we can offer other things has been remarkable and exceeded our expectations.
So, we continue to focus on the center programs for our sales folks and providing other experiences to up-sell groups when they do come. So we’re optimistic that even on less room nights, we’ll be able to drive revenues because we think we have more ways to sell them stuff when they arrive.
Austin Wurschmidt
That’s helpful. Thanks, Mark.
Operator
Thank you. And one moment for our next question. Our next question comes from the line of Michael Bellisario with R.W. Baird. Your line is open. Please go ahead.
Michael Bellisario
Thanks. Good morning, everyone.
Mark Brugger
Hi, Mike.
Michael Bellisario
I want to go back to the occupancy topic and just kind of follow up on that first question. Just across the portfolio occupancy, you’ve been down 500 basis points to 600 basis points the last handful of months, and I would think presumably group and BT have been pretty normal or kind of getting back to normal levels in those recent months. I guess two-part question. One, where is the occupancy still down in the portfolio more so segment wise? And then I guess, two, is that intentional on your part? Or do you think maybe a bit structural with where elevated ADRs are today? And maybe that impacting certain segments of demand fully recovering?
Mark Brugger
It’s a great question. I mean, obviously, we’re trying to maximize profitability and rate is more profitable than occupancy. So, if we have to make the trade, we’re always going to lean towards the rate. Again, on a full year basis, as we move into 2023, Q1, you should see – you should really see a lot of occupancy gain on a quarter-over-quarter basis because of the Omicron impact, so that will help.
On resorts, our experience has been it’s better to try to push the rate and the push occupancy. I suspect as we move into next year, we’ll do more midweek group bookings, which will help on some of the occupancies that were sold out almost every weekend. So that’s how we hope to close some of that gap.
On BT, it’s going to be the continued return of business transient. It wasn’t very strong in the first half of the year. Hopefully, we’ll gain momentum as we go into 2023 on that segment. And then full year group, we continue to hope those trends continue. Certainly, the velocity we saw in Q3 was encouraging.
Michael Bellisario
So it doesn’t sound structural. I mean it’s a bit intentional on your part with rate, but it sounds like you’re optimistic that the occupancies gap will continue to close just as the broader recovery and some of the still impacted segments improved, right?
Mark Brugger
Yes. I mean I think if I had to go segment by segment, the groups obviously the easier one to see the visibility and to close the gap, particularly with the, we’ll call the abnormal Q1. On the leisure, we think the kind of mid-week strategy is the way we help close that gap and where the opportunity is. And I think BT is a little bit of a wildcard of where that stabilizes, right? Do we get back to 90%, 95%, 100%, that’s a very short-term booking and that’s the one that’s probably hardest to underwrite at this moment.
Michael Bellisario
Got it. That’s helpful. And then sort of related on the group front Jeff, I think you mentioned 3.1 million room nights next year on the books. And I think I heard you right 3.2 million in 2024. I guess why do you have more rooms on the books further out? And why do you think that dynamic is playing out with that?
Jeff Donnelly
Yes. And to be clear, I mean, that’s not for our portfolio. That’s just what we get from this convention of visitor bureaus in each respective markets. So, we are just trying to track and get directionally, what we’re seeing in the markets that we operate in, where we have sort of larger sort of convention-oriented hotels. So, I think some of that actually has to do with a lot of the events that were originally planned back in 2020, 2021, pushing out a few years into those markets. And it’s frankly, a favorable footprint for us in terms of where convention activity has been going.
Michael Bellisario
And I guess maybe specific to your portfolio, how does 2023 compared to 2024 at this point?
Mark Brugger
It’s hard because the 2024 bookings are a small percentage. So it looks good, but it’s a small percentage of would be misleading the kind of thrust stats out there.
Michael Bellisario
That’s all from me. Thank you.
Mark Brugger
Thanks, Mike.
Operator
Thank you. One moment for our next question. And our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open. Please go ahead.
Duane Pfennigwerth
Hey, good morning. Thank you for the time. I wondered if you could – within the category of things you control, could you frame out for us the top two or three EBITDA improvement potential ROI projects, rebranding projects on the horizon into next year. And I don’t know if you’ve put numbers to how meaningful those could be, I would appreciate any thoughts you have.
Mark Brugger
Sure. Well, we’ll continue to ramp up on ones that we’ve completed. So last year, we completed the three, I spoke about in the prepared comments, The Lodge at Sonoma, The Vail Luxury Collection and the Margaritaville in Key West. We expect those all to continue to ramp up. They’re not done yet, particularly Vail, which converted in November, which now we had the bookings for prime season already booked as a Marriott, not as a luxury hotel. So, we’ll see continued ramp-up with the 2023 from those projects. And Q1 of this year, we did other conversions, including the Clio in Cherry Creek, Denver, which we converted to a luxury collection. So that we’ll really see the benefits as we move into 2023, more than 2022.
And then in first half of next year, we hope to complete a couple of other conversions, including converting the Hilton Burlington to a Curio and put in a Celebrity Chef restaurant in there. And then we’re working on the repositioning of our Boston property as well, our Hilton Boston to a more lifestyle hotel in the middle of next year. So that will occur as well. So there’s a lot of things going on within the portfolio, but I think to continue to ramp from repositionings we’ve done, and we’ve probably done more as a percentage or portfolio than anyone else in the public markets. But those aren’t won and done. Those are multiyear beneficial projects for us.
Duane Pfennigwerth
That’s great. Thank you. And then I think you touched on it in your remarks as well, but out of the room spend, food and beverage events, are you doing anything different on that front? Is this pent-up demand? Would you characterize this as sort of structural shift in spending? Any thoughts you have there would be great.
Mark Brugger
Yes. I mean, what’s happening if you kind of step back and say, why is that occurring? Partly, we have the kind of hotels that people want to get as they’re kind of getting their folks back together, right? They’re hitting the go button and having to pull people together. They want to make it a work while experience. And they want to – it’s a tight employment environment. They want to treat their employees right. They want to do culture-building activities they want to make those employees feel good. And that means they want to do other things. They want to do the nicer dinner, the buffets, the happy hours, the rooftop reception.
Sometimes we do [Audio Gap] offsite experiential trips for them. That is the trend. If you kind of think about if you’re kind of make people get together and you really want it to be a special occasion because they’re not in the office much or they haven’t been in the office for a year. You’re going to spend more when they’re together and you want to treat them all is you want them to love your company or your association as it may be.
And that’s what we’re seeing, and we’re trying very hard to provide this kind of experiences for them. And we’re obviously being compensated for that, but we’re always trying to think of creative ideas of how we can make it more meaningful to go to Cavallo or to go to [indiscernible] to your incentive travel or you get together. And so that’s what we’re seeing. And it’s been successful, as you can see from here outside the room revenue and even our banquet revenues, which were several million dollars ahead of where they were in 2019, even on lower room nights. These people are spending.
Duane Pfennigwerth
Thanks. And maybe I’ll sneak one last one in. Just on the citywide which were great. Are you observing any change in seasonality with respect to citywides? And on 2023, specifically, when does that really start to reaccelerate? And thank you for taking the questions and sorry for any background noise here at the airport.
Mark Brugger
No problem. I’ll let Jeff jump in here. But I would say on the citywides, yes, it’s more short term. We’ve seen more big groups book in hotels and citywides on shorter notice than we’ve ever seen before in our careers really. Earlier this year, not very many months ago, kind of we got the all clear from a healthcare crisis perspective. And I think a lot of companies were desperate looking for that signal to get their folks back together, which hadn’t been together. So, we see big group patterns happening in shorter time periods. And that’s created different calendar events, if you will, because you had the pent-up demand. And so it is causing some anomalies on what we would think would be normal spreads. And Chicago and Boston both in Q3 benefit from some of those at our hotels. So that’s a pattern we’re certainly seeing. I know Jeff or Justin, if you have additional comments.
Jeff Donnelly
Yes. The one thing I would add to that, Duane, is that it’s a good question. I think you’ve seen it broaden out a little bit because in some of the cities, it’s going to vary city-by-city, but the number of citywide events will be up in 2023 versus 2022 is the expectation and when you think about the availability in the convention center, it’s got to broaden out a little bit to accommodate some of that demand, but that’s going to vary market-by-market. So it’s a little choppy. I’ll look across the markets that we have the data for and circle back to you. I’ve seen any change in the quarterly seasonality of it. But I think it’s generally pretty consistent. But as you’ve seen the activity pick up, it probably broadens out a little bit across – outside of the typical summer months and maybe in more shorter periods.
Duane Pfennigwerth
Thank you very much for the thoughts.
Operator
Thank you. And one moment for our next question. Our next question comes from the line of Anthony Powell with Barclays. Your line is open. Please go ahead.
Anthony Powell
Hi, good morning. I guess a follow-up question on the out-of-room spend in the corporate group. What percent of your corporate group is, you think technology? And do you think a split out in spending in markets like – or hotels like Cavallo Point, Lake Tahoe that may be a headwind for those properties next year, given what’s going on with some of the tech companies that we follow and hear about?
Mark Brugger
Yes. I mean we do as a higher end; we do have a little bit of technology. I don’t have a particular breakout, but it’s really about what’s happening in those particular cities. So San Francisco obviously, it’s been the most impacted by technology. I suspect Seattle would be another one that’s impacted.
So yes, those have some impacts, but it’s more about what’s occurring in those markets because we can always substitute out pharma, financials or others for the small technology, but you’re not going to be able to outrun if it’s impacting the overall market. So, I think we think about technology demand more on a market basis than a particular segment of our booking in our portfolio.
But we are concerned about markets like San Francisco and Seattle and about what it means on long-term demand trends as technology has shifted to a more remote environment, and those firms seem like Salesforce.com, more and more committed to not being in those kind of cities. And then we think about whether the – that’s obviously the negative. We also think about, how do we play that in the positive. So for instance, you mentioned our – we have a 42-acre resort in Sausalito. And as people don’t want to get together and are fully remote like Salesforce.com that used to be together, they need to get folks together, they’ve delegated down to the managers to figure out how to best do that for their departments. And so what we’ve seen there in Lodge at Sonoma is actually kind of the positive benefit of those trends were a lot of midweek group is occurring.
The Alpha team at Salesforce.com that’s going to launch a product or needs to do training will come in and take our slowest Tuesday, Wednesday, Thursday, at that hotel. And we’re seeing that actually strengthen. And that’s kind of the other side of that, that we’re trying to lean into and leverage for better results.
Anthony Powell
Got it. Thanks. And maybe one more, I guess coming it’s here. I was concerned that you would see a bit more demand shift from domestic to international travel as things opened up. We did see some pretty big travel numbers to Europe, but it hasn’t really impacted the leisure hotel demand at your property. So, I guess, looking forward, do you see any incremental risk from more people traveling internationally and maybe why hasn’t there been more of an impact so far?
Mark Brugger
It’s – I was just looking at some STR data on that earlier this week. It seems like, yes, everyone went to Italy or France last summer. But it really hasn’t impacted leisure demand. I mean it’s hard to believe more people would go to Europe next summer that went last summer. But really, we didn’t see any impact. And frankly, the international has not returned to markets like the U.S. and obviously, the dollar denomination doesn’t help, but there’s been no influx from Asia with their travel restrictions, and there was very little international inbound this year from Europe. So that’s probably, at some point, will flip and be more of a positive than a negative, the kind of ratio of international inbound versus outbound.
So it’s probably as bad as it could be last summer, we still had great leisure demand. And so probably at some point over the next couple of years, that flips and will continue – that will turn into a positive, but really it was not impactful at all last summer.
Anthony Powell
Thank you.
Operator
Thank you. And one moment for our last question. And our last question comes from the line of Bill Crow with Raymond James. Your line is open. Please go ahead.
Bill Crow
Hey good morning. A couple of questions for you. Mark, given what you see in the economy out there and what you read and everything else, do you think kind of a Four Diamond Resort stands up better than say, a 5-star Ritz-Carlton, Four Seasons sort of resort if we were to go into a recession over the next six months?
Mark Brugger
I think it depends. I mean some of the larger resorts that you look at are the group houses, too. It’s important for them to do the group sell that depending how that segment, you’re really leaning that as much as you are the high-end customer. I really like the experiential 4-star or 5-star that’s unique because I think what we’ll be able to do is even if things soften a little on those patterns is we’ll be able to do this midweek group.
And I think that, that demand is probably going to be at historically high levels as we move forward with this hybrid work environment. And so as we – if things did soften a little bit, you have the ability at the smaller resorts to put in this midweek group and incentive travel training to offset that and change your revenue mix strategy to keep profitability and revenues up. So I think that’s a safer place to be versus just to kind of extinguish between 5-star and 4-star. I think size of resort and your ability to produce smaller midweek group is probably the defense that posturing as you move into a softer economy, if you will.
Bill Crow
Thanks. That’s helpful. The second question I had, really, I think you started early on in the discussion talking about January and maybe even the first week of January, if I recall correctly, and how strong it was it caused me to reflect back on last December. And I say the last week of December; we had really, really strong results. And I’m wondering if that’s going to be kind of a headwind that maybe we don’t see come in as we think about the fourth quarter of this year.
Mark Brugger
Yes. We’re seeing, Chris, this week be for strong. Actually, I think what’s more likely to happen is we’re going to see the peak demand periods in leisure continue to have a lot of pricing power. People that go to Vail are going to go to Vail or Aspen kind of regardless of whether it’s $950 a night, $975 or $1,050, they’re going to come. I think that where we’ll start seeing more hesitancy and change patterns would be kind of the Tuesday, Wednesday that we were getting over the last two years and having to supplement that, that’s probably – that’s the one that we’re more focused on and more what we think peak demand will continue to be able to really have the upper hand on pushing price in those periods.
Bill Crow
Okay, appreciate the comments. Thanks.
Operator
Thank you. And I’m showing no further questions at this time. And I’d like to turn the conference back over to Mark Brugger for any further remarks.
Mark Brugger
Thanks for today’s – earnings call. We look forward to updating you on our next quarterly call. Have a great day and a great weekend.
Operator
This concludes today’s program. Thank you for participating. You may now disconnect.
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