Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Q2 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one, one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony Quinn. Please go ahead.
Thanks, Michelle. Good morning, everyone. Welcome to DiamondRock's Q2 2022 Earnings Call and Webcast. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from those expressed or implied by our comments today. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. With that, I'm pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.
Thank you, and welcome again to DiamondRock's earnings call. I'm joined by our executive team today, including Justin Leonard, our recently appointed Chief Operating Officer and Head of Asset Management. I'm confident that Justin's intelligence and extensive background in private equity will advance DiamondRock's strong track record of capital allocation and continue its history of delivering best-in-class results for shareholders. We are in a golden age of travel. Consumer expenditures are turning away from durable goods briefly popular during the pandemic. Today, consumers are seeking out cherished shared experiences such as travel and dining out together. Travelers are clearly back on the road. We expect DiamondRock will benefit not only from this pent-up demand but from the resumption and acceleration of the robust secular growth that began before the pandemic. The secular growth going forward is likely driven by several factors.
Unprecedented consumer savings, a preference for experiences over things, multi-generational travel, the wanderlust of the millennial generation, and not to be underappreciated, the baby boomers, and a dispersed hybrid workforce that gives rise to both bleisure trips and more small group meetings. Each of these are tectonic shifts for travel. DiamondRock was an early mover to reposition our portfolio towards lifestyle and resort hotels to maximize the benefit from these trends, and we expect to have outperformance over the next several years from our unique portfolio of destination resorts and urban hotels. We are very happy to report today that DiamondRock has set new records for performance in the second quarter. We set records for RevPAR, total revenues, and most importantly, hotel EBITDA and funds from operations. I am most proud of the fact that we have recovered over 94% of 2019 year-to-date FFO per share.
In the second quarter, FFO per share was more than 12% higher than Q2 2019. Importantly, we saw a broad acceleration of demand over the quarter, with total revenues increasing over 10% in June as compared to 2019. Based on current demand trends, we are increasing our expectation for the company's performance. We now project FY 2022 total revenue to exceed comparable 2019 results and exceed comparable 2019 hotel-level EBITDA. That is an extraordinary result and sets us up well for 2023. The DiamondRock portfolio is firing on all cylinders. Let me highlight a few of the successes. In the trailing 12 months, the portfolio took 340 basis points of RevPAR market share from competitive hotels compared to 2019.
Total RevPAR in the quarter increased 7.2% over 2019 and 89.3% over the comparable period last year. Comparable hotel Adjusted EBITDA margins were 36.1%, a record for DiamondRock in the second quarter and shows the success of our best-in-class asset management team and unique strategy. Comparable hotel Adjusted EBITDA was $11.7 million higher than in the same period in 2019. To top it off, we acquired the Kimpton Fort Lauderdale Beach Resort on April 1 in an off-market transaction. This recently rebuilt iconic art deco resort is both strategic and synergistic for us. We have the right assets in the right locations to set us up for success over this entire cycle.
In many ways, our portfolio is uniquely positioned to deliver a one-two punch that will put DiamondRock out in front in this recovery. We lead with destination resort portfolio. Today's traveler is focused on experiential travel, especially in leisure. We believe that our portfolio of 14 resorts is benefiting from a permanently higher level of leisure demand in a post-COVID world. The increased demand for shared experiences and generational travel was already a powerful force, but the pandemic has intensified and pulled forward the secular demand step up for leisure travel. We believe that our resorts are well-positioned going forward from the permanently higher level of demand for leisure travel. The urban hotels follow for the knockout.
Our urban hotels, which comprise over 60% of our portfolio as measured by 2019 EBITDA, saw a dramatic recovery in the Q2 , with these hotels achieving over 90% of their 2019 levels of revenue, with room rates 2.4% ahead of 2019. The sequential quarterly change was astonishing, with occupancy increasing 24 percentage points to 75.3% and rate up 35% to almost $250. Importantly, we saw the momentum build during the quarter, with total RevPAR for our urban hotels in June 2022 at over 97% of June 2019 levels. July was just as strong. Moreover, there is significant room for revenues and profitability to run as demand builds. Here are a few facts. Group demand is recovering fast.
Group revenue on the books for the FY 2022 is over $140 million. That's an increase of over $22 million from the end of the Q1 and 85% of that increment was booked into Q3 and Q4. Our group revenue in the second half of 2022 is on par with 2019. With the earlier impact of Omicron, our full year group revenues are still behind 2019 by approximately $30 million. Recouping the impact from Omicron, plus the restoration of our highly profitable banquet business should power 2023 to new levels of portfolio profitability. Business transient. We saw business transient revenue roar back in Q2 with rate that was higher than 2019 by $18.
BT revenues were 88% of 2019 in the Q2 as compared to 70% in Q1 2022. While this is a powerful trend, year to date, BT revenues are still nearly $20 million behind 2019. That tells you that there's a lot of upside to capture in 2023 as more employers get their folks back on the road. This does not even include the embedded benefits from the more than $100 million of ROI projects we recently completed or have underway. Now, let's spend a little time delving into profit margins and the success of our asset management initiatives to gain market share and bring those dollars to the bottom line through tight cost controls and finding other innovative fee streams.
The record 36.1% Hotel Adjusted EBITDA margin in the second quarter beat comparable 2019 margins by a whopping 182 basis points. This was a result of several factors. Profit margins at resorts are going to be the big long-term winners as permanently higher demand levels will allow for higher rates with strong profit flow through. Our resorts expanded Hotel Adjusted EBITDA margins by 636 basis points in the second quarter compared to 2019. Hotel Adjusted EBITDA margins at our urban hotels increased by nearly 2,900 basis points from the first quarter to 35.9%, and we still have upside to reach 2019 levels.
To describe the upside opportunity at the urban hotels another way, for the FY 2022, we project to be below 2019 total revenues by around $80 million and about $45 million in Hotel Adjusted EBITDA. We believe that we can close that gap and more over the next 24 to 36 months from multiple catalysts, including the continued recovery of business transient and group, the return of high margin banquet business, and continued record restaurant sales. I want to take a minute to brag about our terrific asset management team. These professionals work closely with our operators to implement sales strategies to gain market share, identify new income streams, implement new labor models and cost containment programs, and most importantly, recruit, retain leaders at the hotels to deliver superior results.
Our high concentration of short-term management agreements, the best of any full service lodging REIT, is the very foundation upon which we leverage our asset management expertise to deliver the excellent results you are seeing us report today. Based on the strength of our portfolio, our team, and the favorable trends, we believe that the DiamondRock portfolio will stabilize at profit margins more than 200 basis points higher than prior peak. Just year to date, comparable margins are at 184 basis points ahead of 2019. While some of our peers have made promises about profit margin expansion in some unnamed future year, DiamondRock is already setting new profit margin records with its portfolio. Before turning the call over to Jeff, I wanna talk about another DiamondRock advantage, our internal growth initiatives.
Last year, we completed three major repositionings, the Lodge at Sonoma, The Hythe, a Luxury Collection Resort, Vail, and the Margaritaville Beach House Key West. Year to date, those three hotels have generated tremendous RevPAR growth and delivered $9.2 million of incremental Adjusted EBITDA compared to 2019. These three properties are forecasted to deliver over $15 million of incremental EBITDA for the full year 2022 over 2019, which means they are tracking to collectively generate a 13% cash on cash yield in 2022 on our total investment in the hotels. Earlier this year, we completed two more repositionings, Hotel Clio, a Luxury Collection Hotel, Denver Cherry Creek, and Embassy Suites by Hilton Bethesda, and we have several more opportunities on tap.
Collectively, we will have executed more value-creating manager and brand conversions than any other full-service lodging REIT, which positions us to outperform going forward. This is a little bit of our secret sauce. I'll now turn it over to Jeff to discuss the quarter in more detail. Jeff?
Thanks, Mark. It was a terrific quarter for the company. 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 Resort because that hotel is new and was not open in 2019. Okay, the total comparable revenues for the company were $279 million in the quarter, an increase of $132 million over the comparable period in the prior year. Comparable RevPAR for the portfolio in the second quarter was $223, or 6.9% higher than 2019. This growth was driven by room rates nearly 18% above 2019. Occupancy is still down 750 basis points to 2019, but momentum was strong with significant improvement over the 1,600 basis point gap in the first quarter.
Closing this gap is one of several sources of future upside to revenues and profits. Same-store Adjusted EBITDA margins were 36.1%, beating 2019 by 182 basis points. Other revenue, which speaks directly to our asset management team's creativity in identifying and expanding new income streams, was up nearly 17% or $3 million over 2019. I also want to point out that F&B revenue is nearly $4 million above 2019, despite the fact occupancy was 750 basis points below 2019. This is almost exclusively due to the higher restaurant and bar outlet sales from venues we created and opened with well-known chefs like Michael Mina, Richard Sandoval, and Vivian Howard just prior to or during the pandemic that are driving dramatically more restaurant business to the hotels.
Hotel Adjusted EBITDA was $101 million, which beat Q2 2019 by nearly $12 million. Adjusted EBITDA was $92 million, a double-digit increase over 2019. The stat I am most proud of is that our FFO per share was $0.36 or 12.5% above Q2 2019. Let me talk a little bit 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 second quarter. Of course, resorts were our most robust portfolio segment, with many resorts setting new highs. Rates for our resorts were up 9.3% over 2021 and almost 50% over 2019. Occupancy is still 3.2 percentage points behind 2019 and remains a real opportunity for us going forward.
Our three recent resort acquisitions in Florida, the two in Destin Beach and one in the Florida Key of Marathon, have been exceptional performers. Comparable rate growth has ranged from 42% at the Henderson Park Inn to 84% growth at Henderson Beach Resort. I must also give a shout-out to the Margaritaville, which delivered 95% total revenue growth over 2019. The conversion has been a terrific success, and it is the highest-rated Margaritaville in the United States. Urban hotels came on strong in the second quarter. Average rate at our urban hotels was 2.4% higher than 2019 or a nearly 500 basis point sequential improvement from the first quarter. On a quarter-to-quarter basis, urban hotels saw occupancy increase 24 percentage points to 75.3%.
Midweek occupancy, a key indicator of the return of the business traveler, was a high 81% in June. We are pleased to see this snap back in business travel, which exceeded our expectations for the quarter. Business transient occupancy continues to show steady recovery, with the occupancy contribution increasing from 25% of pre-pandemic levels to roughly 50% of normal in the second quarter. As a testament to the strength of our urban footprint, a number of our urban hotels had RevPAR that actually exceeded 2019 levels, such as all three of our hotels in New York City, our two hotels in Denver, and our Luxury Collection hotel in Chicago. While the booking window for BT remains short, we are encouraged for the outlook for fall.
Our optimism stems from the strong sequential performance in BT occupancy during the second quarter, combined with the growth in BT occupancy on the books in the next 90 days compared to the first quarter. Group demand has been robust. As Mark mentioned, our full year 2022 outlook for group room revenue increased $22 million since the end of the Q1 and over 85% of these incremental revenues were booked into Q3 and Q4, which are now on par with 2019 group room revenues. The booking window remains short. For example, we have seen seven-figure pieces of business book on a 30-day notice, but we are also seeing longer lead business return to our larger hotels.
Among the 15,000 leads in the quarter, 25% were for Q2, 49% were for the second half of 2022, and the remainder, 26%, for 2023 or later. Average group sizes are about 15%-20% smaller than pre-pandemic levels, which works well for the hotels we own. We are ahead of the curve and have adjusted our sales programs to meet the change in booking patterns. We generated 3.1 million room nights of group leads in the second quarter, a 10% sequential increase from the first quarter to a new record for the portfolio. As a testament to capturing the recovering demand, even despite the Omicron impact earlier this year, the portfolio was tracking to reach almost 90% of 2019 levels of group revenue.
This is an encouraging group trend and sets us up for a successful 2023 and beyond. Looking ahead to the remainder of 2022, RevPAR pace on the books for the portfolio compared to 2019 is currently in the mid to high single digits for the third and fourth quarters. ADR growth on the books is in the low teens compared to 2021. In the next 12 months, RevPAR on the books is up 21% over the prior year, divided equally between rate and occupancy gains, with the resorts maintaining very strong ADR premiums over 2019. As Mark mentioned earlier, we are raising our outlook for the year. We expect total revenues for full year 2022 to exceed full year 2019 on a comparable basis. Moreover, we now believe Hotel Adjusted EBITDA will exceed 2019 on a comparable basis.
The information on page 14 of our release is an excellent guide to current trends. Let me also add, we expect full year G&A expense to be in the range of $31 million to $33 million, and income tax expense will be in the range of $0.5 million to $1.5 million. Let me touch on our balance sheet strength. We have exited all covenant restrictions this month. This change will result in approximately a 100 basis point savings on term loans and revolver balances. For FY 2022, I expect interest expense, including the benefit of swaps, to be approximately $51 million to $52 million. Based on our strong liquidity and balance sheet, we estimate that we have over $300 million of dry powder for acquisitions.
We will be judicious in capital allocation and focus on taking advantage of any market dislocation created by the current debt market changes. Let's conclude with dividends. Given our strong performance, the board has reinstituted the company's dividend. We will begin by paying a quarterly dividend of $0.03 per share, and based on the current forecast for taxable income in 2022, we will pay a special dividend for 2022 as well. With that, let me hand the floor back to Mark.
Thanks, Jeff. Our outlook remains highly constructive for travel. In fact, we have increased our expectation from our last earnings call and now project comparable total hotel revenues to exceed 2019 levels of $936 million for the full year of 2022, and for comparable Hotel Adjusted EBITDA to exceed 2019 levels of $278 million for this calendar year, with the potential for a new high-water mark for profit margins. Our resorts continue to push ahead with record demand, while group and business transient demand at our urban hotels is kicking in to provide a double benefit in the portfolio's recovery trajectory.
Ultimately, we continue to believe that we will stabilize at higher portfolio profit margins based on the portfolio's strategic positionings for new travel trends, the implementation of best practices from this downturn, and the boost from ROI projects. Our record profit margins in the second quarter certainly put us in good stead to achieve this goal. On that note, I should mention that we have several other high ROI projects underway or under evaluation at our hotels in Sedona, Burlington, and Boston. Collectively, the incremental stabilized EBITDA associated with those three projects is about $8 million. This doesn't even include the benefit from numerous other smaller projects in progress throughout many of our properties. Our asset management team is quite relentless in finding value add opportunities at our hotels. On the external growth front, we completed the acquisition of the Kimpton Shorebreak Fort Lauderdale Beach Resort in April.
This deal capped off approximately $330 million in new acquisitions over the last year. All five of the recent acquisitions have the qualities we are seeking. They are independent lifestyle hotels located in high barrier-to-entry markets with terminable level management agreements and operations that could benefit from superior asset management. While we have significant dry powder for future acquisitions, we will remain very disciplined. In fact, during the quarter, we carefully evaluated a West Coast boutique resort, but terminated it based on valuation after completing intensive due diligence. To wrap up, we are still early in an emerging travel recovery with significant pent-up demand. With that backdrop, we are confident that DiamondRock has a unique portfolio with the right strategy and balance sheet to continue to distinguish itself in 2022 and going forward.
At this time, we would like to open up the call for any questions.
Thank you. To ask a question at this time, you will need to press star one, one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Dori Kesten with Wells Fargo. Your line is open. Please go ahead.
Thanks. Good afternoon. As you look out for the remainder of the year, would you expect to be able to maintain the elevated levels of margin gains, versus 2019 at your resorts?
Dori, this is Mark. The margins are gonna vary a little bit depending on what the higher rated seasons are, so it'll vary by month to month. In the higher rated seasons, we would expect similar margin gains, and in the lower rated season, it'll be, you know, it'll be harder to push the margins. Collectively, we would anticipate that our resorts are gonna end this year at about 30% higher EBITDA than they did in 2019.
Okay, Jeff, can you give more detail on the range of special dividends you may pay out in Q4?
I don't wanna give the guidance on full year dividends at this point, but we will have taxable income this year that won't be covered by our preferred dividends. The $0.03 that we're paying in the quarter, I think it's quite possible that our Q4 obligation, whether that's a quarterly dividend or quarterly plus a special, will exceed the $0.03 that we're paying out in Q3.
Okay. Can you just repeat what you said regarding swaps for interest for this year?
Sure. Just to clarify for folks, just to be sure that I didn't misspeak, is the $51 million to $52 million of interest expense guidance for FY 2022 purely cash interest, and that does not include the mark-to-market adjustment of our interest rate swaps, which year to date reduced our interest expense by about $10 million. We exclude the mark-to-market adjustment from the calculation of Adjusted FFO. For example, in Q2, our cash interest expense was $9.7 million, which you'll see on the income statement, that includes the benefit of $2.7 million of the mark-to-market adjustment from the swaps, which you can find on the EBITDA to FFO reconciliation. Eliminating that benefit, our cash interest in Q2 was about $12.5 million.
Again, if you annualize that, it's about $50 million. Thus, the guidance of $51 million to $52 million is because we're expecting interest rates will just be a little bit higher in the back half of the year than the front half of the year. Hopefully that helps out.
Okay, thanks.
Thank you. Our next question comes from the line of Michael Bellisario with Baird. Your line is open. Please go ahead.
Good afternoon, everyone.
Mark, I know you didn't give formal guidance, but kind of relative to the 2019 metrics that you did provide, just sort of big picture, kind of what risks, whether macro or industry specific, are you focused on in the back half of the year that would either let you exceed or potentially end up short of those kind of qualitative guidance ranges you've provided so far?
Yeah, I mean, let's take it by the three segments. Group looks pretty solid. The outside the room spend has kind of exceeded our expectations every week for the last certainly 16 weeks. That feels kind of like a low risk, excuse me, a low risk proposition for the balance of the year. Business transient has been coming on strong. I think it'll continue to come on strong where it occurs. I mean, if you just read The Wall Street Journal this morning about the capital investments of Pepsi and GM and some of the stats you're hearing in the earnings calls, which are usually good corollaries to that, they seem good. I think we'll have to see exactly how the resorts play out in September and October. You know, we've had extended shoulder seasons.
We believe that a lot of that will kind of continue. We have good leisure bookings into September, October, but we'll see at the end of the day, make sure all that materializes, as we have to fill up the rest of the hotels.
It sounds like for you, leisure is the risk. Is that on the demand side or on the rate side?
Yeah, I think, you know, if you kind of did it by segment, it's probably group BT leisure rate.
Got it. Helpful. Just, maybe for you and/or Justin, just, maybe a little bit more background, just on kind of your expertise, your skill set, and kind of what opportunities you see within the DiamondRock portfolio today.
Sure, Mike. Ha ha, happy to take that. You know, look, I think I hopefully bring a bit of a different approach. You know, I come into this post via a little different path than a lot of people who hold this seat in the industry, you know, really through the real estate side as opposed to through the operations side. Hopefully, I bring a bit of a different perspective that I think could be helpful to the team overall. You know, when I sort of think about what my job is here at DiamondRock, I really don't think it's too dissimilar to what my job was over the last 23 years of private equity. I've got a collection of 34 hotels.
I need to come up with a business plan over, you know, how to make them worth more three, four, five years down the road than they're currently worth. That's really the way that I intend to approach, you know, this new role within the organization. I think that could be, you know, it can also be helpful in portfolio allocation and, you know, how we do capital allocation. I think my primary goal is really to look at these.
Individual real estate assets and figure out how to make them more valuable. That's what I've been successful at doing in my, you know, my previous career, and hopefully what I can do here.
Yeah, Mike, I would just add, we're a pretty well-oiled machine when it comes to the operations and the value add design, all those aspects. We're gonna take what is pretty well-oiled machine, and then I think the thought with Justin is it's another very smart real estate mind providing a different perspective that can layer on top of that and hopefully really produce outsized NAV growth at the assets over the next three to five years as we kind of come up with ultimate business plans. Justin's whole focus of private equity is always how do you increase NAV, right? We're taking what works very well from operations to profit margins quarter- to- quarter and looking out, but adding another focus on long-term NAV accretion at these hotels.
We're very optimistic and Justin's track record is just absolutely excellent. We really think it's just another ingredient to add to the success of the future of DiamondRock.
Understood. Thanks for that.
Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open. Please go ahead.
Great, thanks. Just, Mark, going back to your comments about hotel revenue and EBITDA exceeding 2019, the first half of the year, you were up 8% versus the comparable period in 2019. I'm just curious, you know, if you were to, you know, put, you know, ring fence a little bit around what you think the back half of the year, do you think it could be, you know, similar, a little bit better or a little bit softer? Just curious, you know, about your thoughts there.
Yeah. I mean, July, we reported today was, you know, that was ahead of our expectations. It's remaining strong. RevPAR is up 11%. I think what's interesting in July too is the total RevPAR was up better than 11%. It was up 12.6 as outside the room spend in urban really started kicking in and contributing profitability. I've never in my career seen so much short-term, big group booking, and such quick kind of turnaround of a lot of the business that we're getting. So it's hard to put parameters. I'm confident it's probably gonna turn out better than our current forecast is. That's why we have a lot of confidence in telling you and communicating to the street that we think it's better than 19% on a full year basis.
It could be a little better, or it could be a lot better. You know, based on the trends we've had, certainly in the last 16 weeks, I'll say, every week seems to be getting better. Even I was looking at, you know, last week's adjustment on forecast for the balance of the year. We saw it increase again for the back half of the year. I think, you know, we don't wanna give too much guidance because there is so much short-term booking. Certainly the trend in July was encouraging, and the setup looks pretty good for the balance of the year. We're feeling very positive here.
I appreciate the comments. BT revenue, you said kind of taking the first and second quarter averages, I wanna say was right around roughly 80% of 2019 levels in the first half. I mean, where do you think we can finish the year on the BT revenue side? You know, when do you think, I guess, we can get back to that 2019 level, either on a quarterly or monthly basis?
Yeah, I mean, there's always guesswork in what's going on in some of the macro trends, but, you know, we could in 2023 be back to 100% of BT, but I think we're all trying to figure out where it settles. There's some give and take about. On the positives, I think there's more need for people to get on the road, especially as they're a little bit more disconnected in the hybrid environment from clients, et cetera, but then there's the offset of their, you know, you got to make sure your person you're visiting is in their office. So I think we're all kind of waiting to see where that settles out, but it was ahead of our expectations in Q2.
I think post Labor Day, we're fairly optimistic that we're gonna start really getting back to more normal business travel. I would hate to overpromise exactly when that, you know, when we'll get fully back up there. We're confident that business travel is always evolving, and it'll be a little bit different, but it'll settle out somewhere in the neighborhood of where it used to be. Then I think things like small group will have to accelerate and be higher than they've ever been historically, as a consequence of having hybrid work environments and still needing to advance culture, launch products, all the reasons that it's good to get your people together and move your companies forward in America.
All right. That's helpful. Thanks for the time.
Our next question comes from the line of Anthony Powell with Barclays. Your line is open. Please go ahead.
Hi. Good afternoon. Mark, a question on your comment about the West Coast boutique hotel and the valuation concerns there. Is that a bid you would have hit maybe a few months ago, or are you changing your underwriting, or is that just something that didn't work out?
No, that's a great question. It was a hotel we really liked. It was an irreplaceable location, independent, fee simple. We thought there were some value add things to enhance. One of the major components for the value of the deal had to do with the ability to expand the boutique and add about, you know, about 30% more units. Based on some, I'll say, land use restrictions after our due diligence, we thought that ability was more limited than we would have hoped, and we weren't willing to pay for it, essentially. That was really the value gap.
It's an asset had it not been for that and had our due diligence kind of flesh that out in a positive way, it would have been a hotel that we would have done because it would have been very additive to the direction of the company, and we saw a significant amount of upside in the asset.
You're not getting more conservative on the resorts. That was just a pure, you know, asset-specific issue, it sounds like.
Yeah. It was more of a land use issue than a valuation issue on cap rates. I still think that resorts, as I mentioned in the prepared remarks, are the long-term winner versus pre-COVID. They're the ones that are gonna stabilize with higher margins. I think we are under-resorted as a country. It doesn't mean, like, every quarter they're gonna continue to go up forever. I think resorts, if you think about where the profitability will be and where the incremental demand kind of on a macro basis or secular change has occurred, I think resorts are still an excellent risk-adjusted place to be investing your capital.
All right. Kind of related, like, I mean, you're seeing some good recovery in Chicago and Boston, even that kind of the group hotel. I know you talked about maybe selling some of those down the road, but does it make sense to hold on to a group hotel in those markets given stronger group and the recovery you're seeing?
We're actively having that conversation right now. It's a good point. I think we think the optimal balance for a public lodging REIT is probably somewhere around 50% resort, 50% urban properties, kind of the, on a risk-adjusted basis, how do you think about the whole 10-year cycle and maximizing returns for shareholders. We would monetize urban assets to kind of continue doing some of the lifestyle things we've been doing. I think the question right now for disposition activity is, can you maximize the value given some of the dislocation happening in the debt markets? We're actively having that conversation.
I think if the debt markets get more cooperative as we move into the fall and early next year, you know, we would certainly consider monetizing at least one asset.
All right. Thank you.
Yep.
Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Your line is open. Please go ahead.
Hey, good afternoon, guys. Mark, yeah, I've heard all your comments on the resorts, generally agree with you on the demand front. Do you see any risk of costs going up more materially in some of these markets? I know that could come in a lot of different ways, whether it's taxes or labor, other things. I mean, is that actually the bigger risk than demand suddenly, you know, going away?
I mean, there's different cost categories. I mean, I think the most ferocious tax collectors are in the major cities. I think it's less of a risk. Now, as asset values are increased, obviously, you're gonna pay more real estate tax over time in most of these markets. But it's probably less of a risk than it would be as asset appreciations in some of the other, maybe I'll call the top ten MSA or CBDs. But I don't think the labor market. Choose my words here. I think the labor markets, while it's still difficult to get labor everywhere in the U.S., it's getting a little bit better.
I think the resort markets, often there's a diversified employment pool there that is more flexible, and so we don't see that as a disadvantage for the resorts. One of the others, you know, one of the other big features on the resorts that I think helps with flow through and profitability over time is there's just other revenue streams to tap. You know, if you have a Hyatt Place in a market, there's just no other levers to pull at that. If you have a Margaritaville in Key West, well, we could add a second bar. We add in a retail shop. There's other ways to market other things in there. We can offer more amenities and charge amenity fees. We can rent bikes.
There's just, you know, there's a lot more ways to increase margins in a resort just because you have all these different revenue stream potentials. You know, that's something we're particularly good at and something that I think will allow the resorts to continue to run and find more opportunities that frankly just don't exist in some of the, I'll call the simple urban boxes.
Okay. Fair enough. Thanks. Thanks, Mark. Yeah, I guess circling back to kinda performance versus where you might do acquisitions. I mean, obviously your urban markets are, you know, finally starting to really pop. But it sounds like you're still going down the road of resorts on acquisitions just to get that balance you discussed. Does that preclude you from doing something urban-wise, especially if you might sell, right? If you might sell one of your more urban hotels, would you replace it with urban or are you pretty much strictly focused on resorts for buys?
If you looked at our internal pipeline, it's about half urban, half resort now. I mean, you have to price it right for both of those. No, we're not precluded at all from doing it. You know, I think probably the typical urban asset in our pipeline's about 200 rooms, has a good restaurant in it, has management available. Probably half of those are soft branded, and half are independent. No, it's something that we think is very viable. Different urban markets have different risk profiles. No, it's definitely on our radar screen and something we'll continue to pursue when the price is right.
Okay. Very helpful. Thanks, Mark.
Sure.
Our next question comes from the line of Bill Crow with Raymond James. Your line is open. Please go ahead.
Hey, good afternoon. Mark, I've got two for you, two hopefully quick ones for you and one for Jeff. The two for you, Mark, are on resorts and leisure again. We heard earlier today that as business travel is normalizing, as weekday demand is normalizing, that we're also seeing some normalization on the shoulder days and that there are fewer consumers, leisure travelers taking long weekends. Is that something consistent with what you're seeing as well?
Yeah. I mean, we have a portfolio of 34 hotels, so I'm not sure it's a read-through for the entire industry. We saw incredible demand, leisure demand, in our urban markets, kind of the extended three-day weekend in markets like Chicago was terrific in both June and we're seeing in July and even kicking off August. That trend seems to be good. I was looking at our. You know, all resorts aren't created equal, so you'll have a very different result maybe in Vail versus the Florida Keys versus Sedona. You know, they all seem to be continuing to be strong. I think we'll know more post-Labor Day. That's when you may see more seasonality impacted. The advanced bookings look pretty good, but it's, you know, they're not 100% sold out.
We'll see how it plays out this fall. We're relatively optimistic. You know, we'll see when it actually gets to this month exactly how dynamic it is. It'll certainly be significantly over 2019 levels. You know, how dynamic it turns out to be, again, I hate to overpromise.
Yeah. No, that's okay. That gives me a good transition when you talk about 2019 because it seems like next year when we're looking at 2023 numbers, the better comp is really the 2022. I think people are gonna kinda give up on the 2023 comparison. How do you think your resort portfolio does in that comparison to 2022? Can you have positive RevPAR growth from that portfolio next year?
Sure. I mean, we could. I think we'll have to see how the macro trends. I think we'll have a better sense on our next earnings call in November of how it's playing out in a more normalized world. A lot of our resorts also, remember for DiamondRock, we repositioned several of our resorts. We would expect outsized growth in hotels, even like Margaritaville and Vail, et cetera, that haven't really had a chance to get the full benefit of the repositions that we've done. That may help our overall resort stats as well. We have big macro trends going in the United States. I believe that we are permanently at higher levels of leisure demand. I fundamentally believe, as I stated, that we're under-resorted.
Year-over-year comparisons, we'll have to see exactly how they play out, but we'll certainly benefit and should outperform how resorts do in the U.S. based on our repositionings.
Okay, thanks. Jeff, we've got less than six months left to go the balance of the year. You didn't give guidance. Some peers did, some peers didn't. I wondered if you had anything to add, you know, maybe on the FFO per share, you know, line as we think about the year overall.
Yeah, we obviously didn't give FFO per share guidance, but I think the building blocks are there. I guess, I won't do the math in public, but I would tell you that, you know, if you look in our press release where we provide, this is just a good way to think about it. We provide and there are the schedules for, say, comparable 2019 Hotel Adjusted EBITDA, which Mark in his comments said that we would, in 2022 likely achieve that EBITDA. If you back out that, the cash interest expense number I gave of $51 million to $52 million, the G&A and the income tax expense, you know, I think that's a good way of sort of backing into an FFO number.
Okay. Appreciate it. Thanks. Thanks, both.
Thank you.
Our next question comes from the line of Chris Darling with Green Street. Your line is open. Please go ahead.
Thanks. Good afternoon. It looks like 2Q operating expenses for the comparable portfolio were about 4% higher than in 2Q 2019, despite occupancy still being about 9% lower. A couple questions. First, just hoping you can drill into some of the different expense buckets and give us a sense of where things stand relative to 2019. It also would be helpful to understand how some of those buckets might move as occupancy continues to grow.
Sure. Happy to try to delve into that. Some mix is a big shift on what goes on with margin. Leisure came on more, it was more an occupancy. I would say the other big thing to look at in the portfolio, and we talked about some of the individual expense categories, but on mix, is that our restaurants are at record levels, and restaurants generally run, you know, 25% margin. Banquet's still well below where it was in 2019, and that probably runs a 50% margin. When you kinda think about the mix on particularly the F&B side with little less group and less banquet, which is highly profitable, it's gonna make the expense numbers look a little different quarter- to- quarter, depending what's stronger in the mix in that quarter.
In the individual categories, if you look at kind of wages, they're up mid-single digits. If you look at food costs, we're doing more restaurants. They're up kind of 15% to 19%, again, because it's more restaurant, but we're seeing some costs there. Overall for the year, kind of try to normalize the quarters, we think our total expense growth will be 3.5%, which I think is a pretty terrific result and really a testament to what our asset management are doing in cooperation with our operators. So that's. I think you're gonna be pleased on how the total expense growth is for the full year.
Okay, that's helpful. That's it for me, so thank you.
Thanks, Chris.
Thank you. Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Your line is open. Please go ahead.
Hey, good afternoon. Thanks for taking the question. Maybe a longer-term one for Mark. You alluded a couple times on the call about structurally higher leisure spend. Could you just expand on that? How are you thinking about kind of changing leisure travel patterns longer term?
Sure. It's well, I think that the things that we're focused on, just as what is secular trends, is shoulder seasons are no longer shoulder seasons. You know, Vail in September, which used to be empty and almost close the hotel, now can run, you know, 70%. So you're seeing those. Destin Beach in Florida, you know, what used to be shoulder seasons now are still, they're actually prime seasons in many ways. So we're seeing an elongation of the period at the what I call core resort markets. Then within the urban but desirable markets, and this is one of the reasons we're skewing more and more to lifestyle even in the urban markets, is I think people wanna stay in interesting places, and they have flexibility. So instead of arriving Monday, maybe they come in Saturday.
Instead of leaving, maybe they stay an extra day. Maybe their partner can come in and work remote for a while they're there and stay over for the weekend. People just have a lot more options, and we think that blended travel is important. Actually, as we're looking even at our urban hotels, how do we appeal to that customer? Do we need to change our offerings slightly? Do we need to kind of pitch our hotels a little differently? Frankly, should we skew more and more towards experiential and lifestyle because that's gonna capture more of that secular trend in incremental leisure.
Going back on a more macro basis on leisure, if you kind of think about the big numbers, and this is kind of our internal conversations, but, you know, there's 83 million families in the United States. A fair half of those are people that travel to hotels like ours. Incremental, if you kind of think about how the world's different today, there's probably one incremental night per family that they can be on the road, work remote, like arrive a day early, stay an extra day. So that's 41 million incremental rooms jammed into, what is a, you know, resorts 12% of the total stock. So it's a lot of incremental nights that have been kind of permanently increased into the funnel. Resorts are hard to build.
I mean, these, a lot of the markets we're in, you know, there'll never be another hotel built. We think that that's a really good place to be. We're trying to, both on the resort side, shoulder seasons and core resort markets we think are much longer. Within the urban markets, I think you need to think about how you appeal to the bleisure traveler, and have those hotels that are gonna capture that trend line and to outperform going forward.
Appreciate the thoughts.
Thank you.
Thank you. Our last question comes from the line of Floris van Dijkum with Compass Point. Your line is open. Please go ahead.
Hey, thanks, guys. Just curious, Mark, you touched upon, you know, your urban exposure and how you might change that over time. If I look at your largest, you know, EBITDA contributors in the past quarter, it was the Chicago Marriott Magnificent Mile in Chicago. It was the Westin Boston Seaport District. It was The Westin Fort Lauderdale Beach Resort. It was The Gwen. The branded, they don't necessarily fit what you've been, you know, trying to, although The Gwen is a soft brand, I guess that's, you know, maybe not quite like the other ones. As you're thinking about pivoting, those theoretically could be candidates for sale, but yet, you know, The Westin Fort Lauderdale Beach Resort is right next to your Kimpton Shorebreak Fort Lauderdale Beach Resort. It's not a necessarily urban market.
How do you think about Fort Lauderdale as a, is that an urban market or is that a resort market? Would you consider deploying some of the proceeds of any potential asset sale into, you know, more exposure into markets like Miami or Fort Lauderdale or San Diego, those kinds that are sort of both urban as well as resorts?
Boy, there's a lot there, Floris. Yes, I would say, you know, talking about a couple of those hotels to kind of provide some distinction, The Gwen is exactly on strategy. In a market like Chicago or New York, we wanna have, we like that, you know, that Luxury Collection hotel. That hotel is really doing terrific. If you're a consultant, a premium consultant, that is the hotel in the Marriott system you wanna be in the city of Chicago. I think that's exactly testament to the success and the trend lines that are going on there. A hotel like The Westin Fort Lauderdale Beach Resort, which I believe you've been to, but we have Pablo Salas. We have a restaurant there that will probably do $16 million in revenues this year.
What we try to do is, even in those kind of what I'll call hard brand resorts, is create a differentiated experience, and I think that's number one. The Quinto Restaurant's number one on Tripadvisor, and I think we're always top three on the, on the Lona, the evening restaurant. We try to create a differentiated experience that people really enjoy and do things, special things around the pool and the beach experience that really make it a unique resort experience. Those are, you know, those are kind of things that we'll continue to do. The big, you know, Chicago Marriott's probably an outlier for our strategy and our portfolio. It's a very successful hotel.
It's, you know, it's probably the best located big box in the city of Chicago with, I think, the best brand you'd want on a big box in the city of Chicago. It doesn't mean it necessarily fits with our long-term strategy, but it's an asset that, you know, we think will be very successful. We'll think about, you know, as we kind of monetize assets. I do think markets like San Diego, Miami, Austin, those kind of markets that are, you know, seven-day-a-week markets and have a lot of the characteristics where they can have leisure and probably will be more beneficiaries of the bleisure trends. I think those are higher on our interest level scale.
Thanks, Mark. That's it.
Great.
Thank you. This does conclude our question and answer session, and I would like to turn the conference back over to Mark Brugger for any further remarks.
Thank you to everyone on the call. We appreciate your interest in DiamondRock, and we look forward to updating you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.