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Text: 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 implied by our comments today.
The third quarter was a strong one for DiamondRock.
Hotel profits hit their highest levels since the inception of the pandemic.
In fact, hotel RevPAR was within 20% of the comparable quarter in 2019 with 12 of our 31 hotels actually exceeding the comparable quarter results in 2019, and five hotels setting all-time highs.
The strength of these results exceeded our internal expectations.
Our portfolio benefited from its geographic footprint and a concerted effort by our team to maximize the benefits from the resurgence in travel demand.
Our portfolio took nearly 1,300 basis points of RevPAR index from our competitors in the third quarter.
Moreover, having the industry's highest percentage of full service hotels, with short-term management agreements, also play to our advantage in managing cost and driving profit flow-through.
In total, this powerful combination enabled DiamondRock to generate a healthy $38.9 million of adjusted EBITDA and $0.10 of positive adjusted FFO per share.
In the quarter, we saw travel demand increase in all travel segments with leisure leading the way.
Additionally, group and business transient also showed meaningful acceleration.
There were some real positives for business travel trends in the quarter.
We saw BT revenue jumped to 84% of the comparable 2019 levels with occupancy up 26 percentage points over the second quarter.
Encouragingly, business transient ADR was just 1% below Q3 2019 levels.
The outlook for group is equally encouraging.
Lead generation in the third quarter grew to over 12,400 leads, representing over 2.1 million future room nights.
July was the best month for lead volume with over 750,000 room nights.
Wile the Delta variant that emerged late summer led to a drop off in activity in August, meeting plans appear to have shrugged off the headlines as production snapped back close to July pace by September.
In addition to strong operating trends, which Jeff will discuss in a moment, DiamondRock continues to make tremendous progress on internal and external growth initiatives to drive outsized cash flow growth in 2022.
Let me highlight a few of the bigger ROI projects.
Our Vail Resort accessioned $40 million repositioning.
By the end of this month, the resort will be relaunched as The Hythe Vail Resort and Spa, a Luxury Collection Hotel.
The repositioned resort is expected to generate several million dollars of incremental EBITDA.
Our Barbary Beach Key West Resort will also complete its conversion in November.
It will be relaunched as the only Margaritaville Resort in the Florida Keys.
We expect the repositioning to allow us to push average rate by $15 and to generate several million dollars of incremental retail and bar sales.
The last ROI project I'll highlight is in Denver, where we are underway with the upbranding of the JW Marriott to a Luxury Collection Hotel to be named The Clio.
This one should be completed in the first quarter of 2022.
These ROI repositionings are expected to deliver IRRs north of 30%.
As you might have guessed, we are big believers in these type of projects, and our past success gives us great confidence.
As a testament to DiamondRock's track record, I'm proud to announce that The Gwen was named in Conde Nast Travelers 2021 Readers Choice Awards as the number 1 hotel in Chicago, and number 8 in the world.
The highest ranking of any REIT owned hotel.
In addition to The Gwen, Conde Nast also recognized several of our other outstanding hotels, including Cavallo Point in Sausalito, both of our hotels in Key West and L'Auberge's Resort in Sedona, Arizona.
As a final comment on ROI repositionings, I'll just mention that we are working on several other upbranding opportunities within the portfolio.
We hope to share those with you in coming months.
Let's turn to acquisitions and dispositions.
We have been active in upgrading and focusing the portfolio.
In the third quarter, we successfully recycled proceeds from our second quarter dispositions.
Our two new acquisitions are the Bourbon Hotel in the French Quarter of New Orleans and the Henderson Park Inn, a beach front resort in Destin, Florida.
These acquisitions align with our strategy to focus on hotels that resonate with today's traveler as they are experiential and leisure-oriented lifestyle hotels.
I am pleased to announce that both hotels are forecasted to exceed our underwriting for 2021.
In fact, the Destin Beach Resort, that deal is now tracking to be an 8.8% cap rate on 2021 NOI.
While this is great, we are not resting on our success.
We are actively pursuing several unique hotel investment opportunities that are located in attractive lifestyle markets.
I'll start by highlighting DiamondRock's excellent liquidity, we finished the quarter with $538 million of total liquidity, comprised of $67 million of corporate cash, $71 million of hotel-level cash and $400 million of capacity on our revolver.
Leverage is conservative with only $1 billion of total debt outstanding against roughly $3.5 billion in hotels and resorts.
Overall, the balance sheet remains very strong.
As Mark mentioned, we expect to remain an active but disciplined acquirer of on-strategy properties.
We have over $300 million of investment capacity today while operating within our long-term leverage targets.
Let me share a few success stories in our portfolio this quarter.
Midweek occupancy at our urban hotels was up 26 percentage points over the second quarter.
The upbranding of The Lodge at Sonoma to the Autograph Collection has been very well received.
Since completion early in the third quarter, total RevPAR is nearly $460 a night with ADR up over $100 a night from the second quarter.
Third quarter ADR is 22% higher than 2019, whereas prior to renovation, ADR was 4% below 2019.
Performance has exceeded our expectation and The Lodge is expected to meaningfully exceed our budget for 2021.
The Hilton Burlington generated one of the three biggest upsides to budget during the quarter on strong RevPAR and margin gains.
Average daily rate was over $300 per night and among the 10 best in the portfolio.
For those who have never been, Burlington is a terrific college town that has quietly evolved into a foody destination anchored by some of the highest-rated craft breweries in the United States.
Our pair hotels in Key West continued to deliver strong performance with third quarter EBITDA margins 3,000 basis points above 2019 levels.
I must recognize the Henderson Park Inn, our newest acquisition for beating our underwriting with the third highest total RevPAR in the quarter, $777 a night, $777s.
Third quarter would have been even better, if not for the impact of wildfires in Northern California, which forced a six-week closure at The Landing at Lake Tahoe and resulted in $1.8 million of lost profit.
The resort is fine and back open now.
We filed an insurance claim and hope to collect lost profits in coming months.
As for our Bourbon Hotel, I should note that while Hurricane Ida did impact New Orleans, we were fortunate not to have any material damage.
In fact, our team quickly restored power to the Bourbon Hotel, one of the first hotels back online in New Orleans, allowing us to opportunistically book first responders.
We expect to beat original underwriting here for 2021.
Let's talk about profit flow-through and labor costs.
Third quarter wages and benefits were 30.4% of revenue, just 50 basis points higher than 2019 owing to a 2% improvement in man hours per occupied room.
Despite slightly higher overall labor costs, our asset management team and operators were able to develop several creative offsets to maximize overall profitability by optimizing revenue management for the labor environment.
This is how we held gross operating profit flow-through at a constant 45% in the third quarter versus the second quarter and why comparable third quarter hotel EBITDA margins were up over 300 basis points from the second quarter.
We think this is a great result in this environment.
Turning to Group, our geographic footprint is a real advantage for Group trends in 2022 and beyond.
Group revenue on the books for 2022 increased 14% from the second quarter, an acceleration from 8% in Q2.
Group revenue on the books for 2022 is now nearly 50% above the forecast for 2021.
Group rates for 2022 are $50 a night higher than 2021 year-to-date, owing to the fact many of DiamondRock's key group markets like Boston, Chicago, San Diego and Phoenix have strong convention calendars next year.
Across the entire portfolio, citywide room nights for 2022 increased 7% from the second quarter.
And compared to 2019, citywide room nights for Boston, Chicago and San Diego collectively are up 3% in 2022 and up 5% in 2023.
With that, let me turn the floor back to Mark for concluding remarks.
Recently, DiamondRock was again named the hotel sector leader by GRESB and number one among all lodging repeers.
Being a good corporate citizen and aligning these objectives with our business is a high priority for DiamondRock.
Let's turn to DiamondRock's setup for 2022 and beyond.
We think DiamondRock has four major competitive advantages over many of the peers.
First, our portfolio market exposure is uniquely favorable in three ways.
We have numerous resorts, benefiting from the boom in leisure travel, our well-located urban properties are poised to expand on group and business transient trends as the second leg of the recovery kicks in, and our Group recovery should be above industry average because of our geographic footprint with the convention calendars in our most important group markets all very strong through 2023.
The second advantage we have is the multiyear benefit from our hotels that have recently completed repositionings, such as The Lodge at Sonoma, The Hythe Vail, Margaritaville Key West and The Clio, Denver.
The third advantage is our industry-leading percentage of third-party terminable operating agreements.
This gives us more control and ability to manage costs in many of our peers.
This benefit is amplified by last year's conversion of nearly 20% of our portfolio from Marriott brand management, which should add over 50 basis points of portfolio margin expansion alone.
The last advantage I'll point out is our best-in-class asset management team's ability to implement strategies to gain market share.
There is no better evidence than stealing nearly 1300 basis points of share last quarter.

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compname reports q3 adj ffo per share of $0.10.
q3 adjusted ffo per share $0.10.

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