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Diamondrock Hospitality Co (NYSE:DRH)
Q4 2019 Earnings Call
Feb 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth quarter DiamondRock Hospitality Company Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Briony Quinn, Senior Vice President. Please go ahead, ma'am.

Briony Quinn -- Senior Vice President

Thank you, Catherine. Good morning, everyone. Welcome to DiamondRock's fourth quarter 2019 earnings call. Before we begin, I'd like to remind everyone that many of the comments made today are considered 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 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 am pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Good morning, and thank you for your interest in DiamondRock. We are pleased to report solid operating and financial results for the fourth quarter. Before I get into our 2019 review and 2020 outlook, I'd like to first provide an overview of the current operating environment. After which, I'll turn the call over to our Chief Financial Officer, Jeff Donnelly, who will provide additional color on our portfolio's performance as well as the balance sheet review. Finally, I'll conclude our prepared remarks with commentary on several areas of focus that will drive value for DiamondRock shareholders going forward.

Looking back at the fourth quarter, the economy extended its record expansion, but there were signs that the ongoing trade war with China and commencement of future proceedings were taking their toll on several key drivers of corporate demand, including business fixed investment and corporate profits.

The consumer, however, remained a source of strength. Employment rates edged to a 50-year high, fueling continued growth in disposable income, personal consumption and a resurgence in residential investment. In short, the leisure destination resort customer is doing better than the corporate traveler. This supports DiamondRock's strategic pivot over the last few years to grow its portfolio of unique destination resort hotels, which continue to drive our portfolio performance until the corporate demand reaccelerates.

Lodging industry fundamentals overall remained muted in the fourth quarter. According to STR, overall U.S. RevPAR growth in the quarter was up 0.7%. So once again, outpaced the Top 25 markets. Demand continues to be healthy in the major markets, increasing 3.2% versus 1.4% growth in all other markets. While demand was superior in the Top 25 markets, RevPAR growth was not. RevPAR growth in Top 25 markets was just 0.3% in the fourth quarter, as compared to 0.8% in all other markets.

The culprit remains supply growth, which increased 2.6% in the major markets last quarter, which is 50 basis points greater than increase in the U.S. overall. We expect that these supply pressures will persist into this year for many urban markets, but many destination resort markets will have very low or no supply growth. For DiamondRock, the supply in our resort markets overall remains under 1% for 2020.

Turning to DiamondRock's fourth quarter results. We are well ahead of the top-end of guidance, a result made possible by the persistent focus of our asset managers and operators to deliver good performance in the face of a challenging operating environment. The relative performance of DiamondRock's portfolio was very strong in the quarter. We gained RevPAR market share at two-thirds of our hotels. The portfolio had a 1.5% increase in comparable RevPAR. Impressively, this exceeded our aggregate competitive set by over 400 basis points. For the full-year 2019, comparable RevPAR for our portfolio increased around 1% and total RevPAR increased over 2.5%. Both results surpassed the top-end of our guidance range.

Food and beverage was a real bright spot for us. F&B revenues grew an impressive 6.2% for the year. These great results were driven by solid banquet activity at our larger group boxes combined with the pay-off from our recent repositionings of bars and restaurants at hotels like the Gwen and the Westin Fort Lauderdale Beach Resort. Additionally, our team was relentless in finding other streams of revenue to drive total revenue, despite anemic room rate growth. Other revenue increased 9.1% for the year.

Profits, profits also exceeded internal expectations. Fourth quarter adjusted FFO was $54.7 million, which is 9% ahead of the midpoint of our implied guidance. Adjusted FFO per share was $0.27, which is $0.03 ahead of the midpoint of implied guidance and $0.02 above the top end. Fourth quarter adjusted EBITDA was $62.7 million, surpassing the high-end of our implied guidance. This is even more impressive taking into consideration the $600,000 of EBITDA disruption caused by the unscheduled PG&E power outages in October.

For the full year, adjusted FFO was $217 million, which is 2.1% ahead of the midpoint of guidance. Adjusted FFO per share was $1.07, which is $0.03 ahead of the midpoint of guidance. And Adjusted EBITDA was $260.4 million, which is $2.4 million ahead of the midpoint of guidance. Comparable hotel adjusted EBITDA margins contracted just 59 basis points in 2019.

I want to personally recognize the focus and creativity of our asset management team in finding efficiencies and controlling cost in order to generate EBITDA growth in this low RevPAR growth environment. Remarkably, DiamondRock, unlike many peers, actually grew same-store profits. Our comparable hotel adjusted EBITDA increased by 0.7% in 2019. A fantastic result on less than 1% RevPAR growth.

We want to provide an update on Frenchman's Reef. In December 2019, we agreed to settle our Hurricane Irma claim with our insurers for approximately $247 million. We believe this was an excellent outcome for our shareholders. We have now received all monies due under the settlement. And in January, we used part of the settlement to pay off 100% of outstandings under our credit facility. The rebuild is now in full swing. However, the rebuild is very complicated and construction in the Caribbean is never easy.

Our construction schedule has the resort reopening at the end of this year. While the cost won't be final until the project is complete, as we still have to bid out the final elements of the job and potentially increase our beach restoration scope. We still expect our total incremental investment will yield a return on investment in the mid-to-high teens. Moreover, much of this incremental investment may be recoverable under recently passed legislation in the Virgin Islands. The entire team remains excited about how this resort will turn out, and we continue to expect that the resort will ramp to $25 million of EBITDA around 2023, the third year after scheduled reopening.

Turning to our outlook. Based on current trends, we expect the U.S. lodging industry will experience 2020 RevPAR change of negative 50 basis points to plus 1% growth. Importantly, we have not adjusted our industry outlook or Company guidance for the impact of coronavirus. Against this backdrop, we think our strong group pace, up 14.1%, and favorable resort footprint will allow the portfolio's total RevPAR to substantially exceed the industry average.

Accordingly, DiamondRock's full-year 2020 guidance is as follows. RevPAR growth in the range of the U.S. average, so from negative 50 basis points to plus 1%. However, total RevPAR is expected to outperform, an increase from plus 50 basis points to a strong plus 3%. Adjusted EBITDA is expected to be in the range of $245 million to $255 million and adjusted FFO per share in the range of $1.00 to $1.04.

We believe DiamondRock is well positioned to deliver relatively strong performance in what is broadly expected to be a challenging year to maintain EBITDA. In addition to our robust group pace and the benefit of our resort collection, we expect our total RevPAR to benefit from our numerous recent hotel and restaurant ROI investments. The higher-end of our guidance assumes that we can repeat the successful short-term group pick-up for difficult periods that we enjoyed last year. Thus, boosting outside the room group spend. Conversely, the lower-end of guidance is based on softer group pick-up and the concomitant impact on non-room revenue. Another favorable attribute of our guidance is that the midpoint of our 2020 guidance assumes adjusted EBITDA and adjusted FFO per share that are essentially flat year-over-year, adjusting for non-repeating business interruption insurance at Frenchman's Reef, which contributed about $9 million to our 2019 EBITDA and about $0.045 per share to our 2019 adjusted FFO.

There is no incremental business interruption allocated as part of the recent insurance settlement. And thus, we do not expect for instance to contribute materially to our 2020 financial performance. Also, as I mentioned, our guidance makes no specific assumptions for the potential impact from coronavirus, but we are closely monitoring that situation.

I'll now turn the call over to Jeff for additional detail on our financial results and market commentary. Jeff?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Thanks, Mark. Before I walk through our fourth quarter results, I want to remind everyone that comparable RevPAR hotel adjusted EBITDA margins and other portfolio metrics are pro forma to include our 2018 acquisitions for all periods. Due to the renovation activity, comparable results exclude Frenchman's Reef for the entire year, Havana Cabana for the first quarter, and Hotel Emblem for the period of September 1st to December 31st.

Fourth quarter financial results were ahead of 2018 on strong total revenue growth. On a comparable basis, RevPAR increased 1.5% in the fourth quarter, driven by a 1.1% percent increase in average daily rate and a 0.4% increase in occupancy. The PG&E power outages impacted Cavallo Point and the Renaissance Sonoma for six days and reduced total RevPAR growth by approximately 35 basis points. Despite this headwind, fourth quarter comparable 2019 room revenue was $167 million. This was $2.7 million ahead of 2018 on stronger-than-expected group pick-up in the quarter. Non-room revenue was $1.3 million ahead of 2018 as a result of the additional activity and the implementation of new revenue streams at the hotel.

Our customer segments performed quite differently during the quarter, with leisure increasing a healthy 7.5%, while business transient increased only 1.3%. While several of our major markets had off citywide convention calendars, in the quarter, group pick-up was stronger than in the previous years and helped to offset some of the forecasted weakness in group.

A standout in the portfolio in this regard was our Chicago Marriott Downtown hotel. As a result of the operating team's hard work and focus, the Chicago Marriott ranked Number 6 among all of Marriott's convention resort hotel network for intent to recommend, outpacing most of the major hotels in the Gaylord Marriott and Sheraton system.

For 2020, group is a great story for DiamondRock. As of late January, our 2020 group booking pace is up 14.1% from the prior year. Collectively, our hotels in Boston and Chicago are up 30% and 20% respectively, and Worthington's group pace has climbed to 15%. We started 2020 with over 72% of our group business needed to hit budget already under contract.

The leisure segment in our resort portfolio excelled in the quarter. According to FTR, the resort segment was the strongest performing segment in the fourth quarter, with RevPAR up 4.4%, crushing the 30 basis point decline at STR's urban hotels. Better still, our destination resorts outperformed this positive trend.

Collectively, DiamondRock's destination resort portfolio generated 7.6% RevPAR growth and increased RevPAR penetration by 450 basis points. The star performer in the quarter was the Renaissance Charleston and I want to recognize their remarkable outperformance this year. The Renaissance Charleston Historic District Hotel increased RevPAR 3.9% for the year compared to a 2.3% decline in the market. This success was fueled in large part by a 12.7% RevPAR increase in the fourth quarter as a result of the team's effort in securing strong group bookings in early December and strong leisure transient pick-up during the holiday period. The RevPAR index for the hotel was 133, a full 18-point gain over the prior year.

We just announced that celebrity chef and PBS host Vivian Howard will open two exciting new restaurants at our hotel this year that have captured the attention of local media as well as her 250,000 followers on social media. Overall, we have strong conviction that our resort portfolio is a competitive advantage, and over time, we will increase our portfolio allocation to destination resorts in order to capitalize upon what we see as a secular trend toward experiential travel. We believe this niche will outperform the national average for the lodging sector for many years to come.

Cost control remains a priority. Total expenses grew 3.1% in the fourth quarter. The slowest pace of any quarter in 2019 as a result of proactive steps to respond to softer Q4 revenue growth and successful initiatives to increase efficiencies in labor and F&B outlets. For the year, total expenses were held to an increase of 3.4% on a 2.7% increase in total revenue.

Comparable hotel adjusted EBITDA was $68.8 million, or $1.1 million below fourth quarter 2018, but ahead of internal expectations. Stronger-than-expected group and leisure transient pick-up generated $2 million of higher departmental profit in the quarter, which was offset by $1.2 million of higher property tax and insurance expense, and $1.6 million of increased sales and marketing costs. Comparable hotel adjusted EBITDA profit margin was 29.25%, a 98 basis point contraction from 2018. However, EBITDA profit margins declined only 48 basis points, excluding the 15 basis point impact from the PG&E power outages and the 35 basis point drag from the Sheraton Key West renovation.

Fourth quarter corporate adjusted EBITDA was $62.7 million and adjusted FFO was $54.7 million or $0.27 a share, which was ahead of 2018 by $0.01. On a full-year basis, corporate adjusted EBITDA was $260.4 million, surpassing 2018 by $6.3 million. Full-year adjusted FFO [Technical Issues] 2018 by $7 million and adjusted FFO was $1.07, $0.05 ahead of 2018 and above the top-end of our guidance. We are very proud of these results.

DiamondRock's balance sheet remains in great shape. At December 31st, DiamondRock had $122.5 million of unrestricted cash on hand, with $1.1 billion of total debt outstanding at a weighted average interest rate of 3.8% and a weighted average maturity of 4.4 years. Net debt to EBITDA concluded the year at 3.7 times, which is below our previous forecast due to the resolution of the Frenchman's Reef claim. For 2020, we have only one maturity, a $53 million mortgage on the Salt Lake City Marriott that bears interest at 4.25% that we expect to refinance by year-end.

In summary, we have the balance sheet to be opportunistic on capital allocation, as the environment evolves. Finally, DiamondRock announced the dividend of $0.125 per share that was paid on January 13th to shareholders of record as of January 2nd. This dividend was regular in the accounting sense, but it was special to us at DiamondRock because it marked our 50th regular common dividend.

Bottom line, it was a great fourth quarter and we're very optimistic about our positioning in 2020. In that regard, I am happy to share that DiamondRock had a strong January with total RevPAR increasing nearly 14%. First quarter is expected to be our strongest quarter, and we expect total RevPAR will be in the mid-single digits.

With that I will turn the floor back to Mark.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Thanks, Jeff. Last quarter, we highlighted initiatives that we are undertaking to drive value for our shareholders. I want to provide an update on these five focus areas. One, resort focus. Our performance continues to support our research that there are strong secular demand for experiential travel. We believe that destination resorts, particularly in geographically constrained areas, faced lower supply growth and lower expense pressures than in the Top 25 urban markets and overall lodge industry.

Seven of our last eight acquisitions have been in this space, and we are working on avenues to increase our portfolio concentration in the lifestyle and resort segment in the years to come. The repositioning of the Key West Resort announced today is a prime example. There are likely to be more announcements later this year for other hotels within our portfolio.

Two, ROI projects. We have identified, and are pursuing $87 million of value-add ROI projects that we believe will generate an incremental $16 million to $18 million of EBITDA. In total, that's about $0.74 per share of incremental value over the next few years. For instance, in 2020, we will begin work on converting underutilized meeting space at the Hilton Boston to an additional 29 guest rooms. Moreover, we are optimistic that our pipeline of ROI projects will continue to grow as we unearth new opportunities.

Three, relaunching Frenchman's. We will reopen Frenchman's Reef as two distinct resorts, Frenchman's Reef Marriott Resort & Spa and the Noni Beach Autograph Collection lifestyle resort. Reconstruction is well under way, with the reopening targeted at the end of 2020. Reopening the Frenchman's resort complex will be a strong and differentiating driver to our earnings growth starting in 2021. We believe this connected resorts will grow from almost nothing in 2020 to over $25 million in EBITDA stabilization in 2023, which will boost portfolio profit growth over multiple years for us.

Four, opportunistic recycling. We continue to evaluate the sale of a few select assets to lock in attractive private market pricing. Proceeds would be recycled for debt reduction, share repurchases or reinvestment depending upon market conditions at the time. It is our policy to not discuss sales until they are closed, given the uncertain nature inherent in these processes.

And finally five, asset repositionings. To improve the profits and increase NAV at our hotels, we are pursuing several opportunities to change managers and continue our strategic transformation of the portfolio to be comprised of mainly short-term operating agreements. In January, we made a major advance in this effort with the conversion of the Westin Boston to a franchise contract. This change is expected to create $2 million of incremental EBITDA in 2020, with over 65% of our hotels subject to short-term or terminable agreements. We believe this distinguishing feature translates into higher NAVs at higher valuation multiples for our hotels.

To wrap-up the prepared remarks, we had a good fourth quarter, we are happy with our relative prospects, and we are confident that our five focus areas will continue to differentiate DiamondRock and position us favorably compared to many of our peers.

We'll now open up the call to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Anthony Powell with Barclays. Your line is open.

Anthony Powell -- Barclays -- Analyst

Hello, good morning, everyone.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Good morning.

Anthony Powell -- Barclays -- Analyst

Good morning. Question on leisure trends. There was some commentary from the cruise industry yesterday that domestic customers in the U.S. were avoiding travel in some sort of situations. Have you seen any of that impact your domestic resort bookings in February and March in places like Key West or Vail or Sedona?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So, our destination resort customer we sell, it was very strong in December. Appears to be very strong in January. And if I look at a market like Vail, continues to be strong. So, we have not yet seen any weakness in that segment.

Anthony Powell -- Barclays -- Analyst

Got it. Thanks. And just on supply growth in resorts. Obviously, there are structural issues in getting new resorts built in some of your markets, but given the strong kind of performance that you and others have seen, are you worried that more supply may be coming online in resorts over the next several years?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Not in the kind of markets that we are in generally. Sedona, Sonoma, Key West and these are markets that are virtually impossible to build in either some markets, it's actually a legal to add more rooms like U.S., and then some like Sedona are just geographically constrained. So, while there may be more golf resorts or something like that built, the kind of resorts that we have, we're unlikely to see a meaningful increase in supply.

Anthony Powell -- Barclays -- Analyst

And have you seen cap rates decline in the small resort markets where you've been pretty successful in buying at attractive cap rates?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

I think that we're not alone in seeing the trends. So, the desirability of resorts in these type of markets continues to increase. So, cap rates are probably holding steady. And there's probably more buyers today for these assets than they were two years ago. So, we believe firmly based on the research and the trends that we're seeing that these kind of properties will outperform the industry average over the next several years. So, we would expect that there will be continued focus in increasing buyer demand for these assets, which will keep cap rates relatively competitive.

Anthony Powell -- Barclays -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Austin Wurschmidt with KeyBanc Capital. Your line is open.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Hi. Good morning. Thank you. Certainly, group is off to a strong start this year. I'm curious where you think that ultimately settles out or what you've assumed in your guidance for group for the year, and then what does that imply for leisure and transient segments with respect to the overall guidance.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Sure, Austin Wurschmidt. So, we're at about 14.1% group pace, as we entered the year. Always, as you progress through the year, the numbers kind of come in as you book and realize some of that business and the tougher periods are harder to book [Phonetic]. So, we would imagine ending the year in the mid-to-high-single digits in total group pace. We also expect that our destination resorts will be above the -- the national average. And then I think it's -- every market -- every Top 25 market is a little bit different. That's where we see more of the risk.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Understood. And then, also touching on the resort segment, I mean, you've definitely highlighted the benefits for some time now, lower supply growth, you think lower expense growth in these smaller resort markets. But I guess, given we're in the thick of the elevated supply in urban markets and wage growth, it's certainly -- it's still a fairly big issue in these markets. How do you accelerate the expansion into the resort segment, given you are seeing more buyers today and expect that could continue to increase?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

I'll recognize Troy Furbay has done a a terrific job of establishing a wealthy pipeline and being ahead of the curve in building a database of literally more than 100 of these type of resorts that we're monitoring and talking to owners and trying to secure and grow that. So, as you see us think about dispositions, there are unlikely to be resorts. And so as you think about acquisitions, we have a team of very talented people that literally they're spending 10 hours a day doing focused on these relationships and uncovering these opportunities.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Can you give us a sense of the number of opportunities or the depth of opportunities as it relates to resorts? And is it just a reluctance of sellers to let go of these assets that's limiting the ability for you to continue to move in that direction?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

I think there's a couple of things going on here. If you look at just the volume of hotels for sale, they fell about 20% -- 21% last year in the U.S.. So, there is less hotels for sale. The financing markets for existing owners has never been better. So, the reason to sell versus refinance is less compelling in that kind of environment. [Indecipherable] these, we have more unique type of owners in these resort markets with different kind of motivations for selling. It's not like we can go out and buy 100 of these in the next 30 days. Frankly, I think the bigger limited -- limiter on us right now is our cost of capital and our discount to NAV, which makes it more difficult to do external growth, unless you're trying really extraordinary opportunities, which we may. But a single isn't going to do it, it's going to have to be a double or triple certainly to overcome the cost of capital hurdle.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

And then, as far as the depth of the pool that you're looking at today?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

There's dozens of these kind of -- dozens and dozens of these kind of micro-market resorts. There is not dozens and dozens on the market, but we've been very successful over the last three to four years of uncovering off-market opportunities when they do come available. And that's what's so important about having a very high quality investment platform and group within your company that's monitoring these kind of opportunities because you need to be ahead of the curve and be there first and build these relationships, if you want to do these kind of deals.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

That's helpful. Thanks, Mark.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Sure.

Operator

Thank you. Our next question comes from Smedes Rose with Citi. Your line is open.

Smedes Rose -- Citi -- Analyst

Hi. I just wanted to ask you a little bit on the wage and benefits front, sort of specifically what you see those increasing this year at, and do you sort of agree with another company that said 2020 should be the peak in wages and benefits?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

I'll give you some of our numbers. So, we are seeing wages -- they're very different at different hotels. Overall, we saw our portfolio wages and the budgets are up 5% [Phonetic]. But at hotels, they range from up 1% to up 6%. So, there is a wide range in increases. But clearly, it's a challenging environment and benefits are probably up 5% to 6% in 2020, whether that's peak or not as a percentage year-over-year.

Tom, do you have an opinion on that?

Thomas Healy -- Chief Operating Officer and Executive Vice President of Asset Management

I don't, Mark. I think that we have to look at it is, when you look at the wage growth, we have to look at the mix of business. We project to do a significant increase in food and beverage. 50% of that increase is coming from outlets in our investment, in outlets from Lona to Michael Mina to Kostali and some of the outlets that we're doing. So, we're seeing growth there. And then, the other 50%, roughly $9 million of increase is from banquet revenues. And then on the banquet side, there is a larger payout with regards to service charges and gratuity that get paid out to the staff, which inflates your wage growth. So I think, we look at it case-by-case, property-by-property. And I think the big driver, when you look at our percentage this year, is just the amount of food and beverage growth.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So, I guess to answer your question, the mix will make -- will play a large role in it. I need to predict what future increases are going to be. I think we're extremely profitable. We're proud that we were able to grow same-store profits and that's really our focus at the end of the day. Can you grow same-store profits? And that will be our focus. We did it last year. We have to do it again this year.

Thomas Healy -- Chief Operating Officer and Executive Vice President of Asset Management

Okay, thanks. That's it from me. Thank you.

Operator

Thank you. Our next question comes from Chris Woronka with Deutsche Bank. Your line is open.

Chris Woronka -- Deutsche Bank -- Analyst

Hey, good morning, guys. Maybe you could talk a little bit about how '19 unfold in terms of group performance versus contracts or your expectations. It seems like there is some pretty big pick-up both in terms of kind of attendance and also out-of-room spend. How much of that kind of flows through to your 2020 guidance?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So, I'd say 2019, just a couple of observation. The outside the room spend was ahead of our expectations and very healthy. We did go into 2019 with a weaker footprint, which is now reversed and it is a stronger footprint going in 2020. In the quarter -- for the quarter -- group pick-up in the fourth quarter was better than our expectation.

Now, in fairness, we had a lot of rooms to sell because it wasn't strong citywide and couple of our markets, but the quarter for the quarter was ahead of our expectations. December overall, pretty much in all fronts, was ahead of our expectations and January is off to a very strong start. They're not always the most indicative bonds, but both of those months were very encouraging from that perspective.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. That's helpful. And then just on the share repurchase front, you guys were very opportunistic I think both in December 2018 and then earlier in '19, I think you're buying a kind of $9.65 [Phonetic] was the blended average. How do you look at things now? The stock closer to $11. Is it just a number that's out there that you where you buy stock, or is there something else that goes into it?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Yeah, a couple of comments on share repurchases. We're believers in share repurchases. And you had right, since December of '18, we purchased 7.8 million shares at an average price of about $9.58. So we look at -- we do our internal NAV on a regular basis. We continue to believe that we're trading that at 25% plus discount to NAV. I think today, the trading price implies something like an 8.2% to 8.3% NOI cap rate, which is totally out of step with recent private market cap rates for quality hotels like ours. We still have about $170 million -- $175 million left under our share repurchase plan approved by the Board of Directors. We're going to be opportunistic. I think that's the bottom line. And it would be reasonable to assume that, if we have any asset sales that are successful, that would substantially increase our appetite for share repurchases going forward.

Chris Woronka -- Deutsche Bank -- Analyst

Okay, very good. Thanks, Mark.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Sure.

Operator

Thank you. Our next question comes from Michael Bellisario with Baird. Your line is open.

Michael Bellisario -- Baird -- Analyst

Good morning, everyone. And just on Frenchman's, what's the remaining out-of-pocket spend that you guys are going to incur in 2020?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Michael, I think in our last disclosure that we had given, we thought our owner's out-of-pocket cost would be in the range of about $50 million. And we think that those costs could increase slightly from here, but we don't have a specific estimate that we can give you today. That's why we are saying in our remarks that we thought our incremental return could still be in the mid-to-high teens when we're all set and done on our owner's investment.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Yeah, Michael, if you're trying to get the dollars out, there is probably about $150 million left on construction, and then some of that's going to be offset. We have key money coming in from the brand that will be due when we open the resort, and we still have a pending application with FEMA for some money as well.

Michael Bellisario -- Baird -- Analyst

Got it. Yeah. That's the number I was looking for. And then, if you fast forward to the end of the year assuming you're at the midpoint of your guidance, what does the 3.7 times net leverage at 12/31/19 look like versus 12/31/2020?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

This is Jeff. I think if we continue to spend on Frenchman's, at that point, I think we're going to finish the year closer to about 4 times net debt to EBITDA.

Michael Bellisario -- Baird -- Analyst

Okay.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

It's kind of an elevated number. So if you think about it, because at that point, we will spend all the money for Frenchman's, but we won't have any of the benefit of the EBITDA in the trailing 12 [Phonetic].

Michael Bellisario -- Baird -- Analyst

Understood. Thank you.

Operator

Thank you. And our next question comes from Rich Hightower with Evercore. Your line is open.

Rich Hightower -- Evercore -- Analyst

Hey. Good morning, guys. Quickly on Frenchman's again. Just -- you guys have maintained a $25 million stabilized EBITDA target I think for some time now. So, just help us understand the margin of safety or the cushion that exist around that $25 million?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Listen, the Caribbean comps that we're looking at, and we reevaluate this on a regular basis, continue to do well. So nothing in the trend lines or the comps of the hotels that we think are the most competitive to this has changed. We still think it will be one of the top redemption hotels within the Marriott system. So, we still have confidence around all of those basic assumptions in our underwriting.

Rich Hightower -- Evercore -- Analyst

Okay. That's helpful. And then, Mark, maybe on a separate topic. If you care to riff on the relationship nowadays between brands and owners, and I'm sort of taking into context the decision to turn the Boston Westin into a franchise, and also thinking back to Alice and some of the conversations that we had around just the impact of supply on existing owners. And maybe for the first time in a while, I think in some of those conversations, the gloves came off, so to speak in certain pockets. And just tell us kind of where we are in that evolution from DiamondRock's perspective?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So I think every -- first of all, on the gloves coming off. So, I think there are clearly -- the brands are our partners. We believe in the value of brand and the power that they deliver at certain properties absolutely. Some properties in some markets, they probably don't deliver as much value as they do in other markets. So I think, we think about every hotel as its own individual business case. The Sheraton Key West being an example of that. That market just runs at such high RevPAR and delivers so much demand just pumped in the market, the cost of the brand versus independent. Probably, doesn't make as much sense as some other ones.

Clearly, in convention center hotel, the brands deliver a ton of value. But again, we look at each one individually. The brands are our partners. We do value that, but there are times when there are points of conflicts, just given the nature of our business models. And we have to sit down and have conversations about the best way forward with their objectives and our objectives and come to some conclusions.

Rich Hightower -- Evercore -- Analyst

Okay, great.

Operator

Thank you. And our next question comes from Patrick Scholes with SunTrust. Your line is open.

Patrick Scholes -- SunTrust -- Analyst

Hi. Excuse me. Good morning. I just want to follow-up on a previous question. I don't think the second part was answered. Concerning the math, what your expectations are for the transient customer? When I kind of do the math, you talked about mid-to-high-single digits for group, let's say that's 7% group, probably a third of your business. That sort of implies that the rest of business is doing negative 3%. Is that the right way to think about it?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Hey, Patrick. This is Jeff. I would say, Mark is correct, and number for group is mid-to-high-single digits. There's a couple of other categories. I would say, the outlook for transient overall is slightly positive, and we actually do have some growth in other areas too, contract for example. But I think you're correct. The outlook for transient in our budgeted expectations is very low-single digits, but not negative, I think.

Patrick Scholes -- SunTrust -- Analyst

Okay. Thank you. And then, how do you think about, given sort of the trajectory of RevPAR growth this year and next about the sustainability of your dividend?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

We feel great about our balance sheet. I mean, I think we are committed to our dividend. We believe our coverage is excellent on dividend. So, we don't see -- I think [Indecipherable] we don't see any risk to our dividend going forward.

Patrick Scholes -- SunTrust -- Analyst

Okay. Good to hear. Thank you very much.

Operator

Thank you. Our next question comes from Dori Kesten with Wells Fargo. Your line is open.

Dori Kesten -- Wells Fargo -- Analyst

Thanks, guys. Recognizing that total RevPAR growth is expected to be relatively strong this year, what leads you to assume that RevPAR alone will be in line with the industry? Is that conservatism, or is that concern for certain markets?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Hey, Dori, this is Jeff. I think it's a combination of factors. You're correct that we said that our room RevPAR would be increasing in line with the U.S. overall. We expect the major markets, the Top 25 markets, will actually lag the U.S. overall. So on that basis, we do believe that our room revenue or, I would say, our RevPAR growth is going to lead the Top 25 markets. But I would say, that there is some conservatism in there around our outlook for 2020, just as Mark mentioned in his remarks about assumptions around group pick-up later in the year.

Dori Kesten -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is open.

Lukas Hartwich -- Green Street Advisors -- Analyst

Thanks. Just one for me. The performance gap between your two hotels in Sedona continues to widen. Can you comment on the underlying trends there?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Sure. So, L'Auberge continues to beat all of our expectations. The other hotel we have is the Orchards Inn, which is on the main drag. In Sedona, they're doing a big upgrade to the road and they're building a big circle right in front of our hotel, which will be great when it's done. It's just wrapping up now, but it was very disruptive, both to F&B and to the transient guests. And so, it impacted our rate in the last couple of quarters there.

Lukas Hartwich -- Green Street Advisors -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Bill Crow with Raymond James. Your line is open.

Bill Crow -- Raymond James -- Analyst

Hi. Good morning. Thanks. Just curious, looking at the total RevPAR growth which looks good certainly to us for this year, what percentage of your portfolio's receiving amenity resort fees at this point?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

About a third.

Bill Crow -- Raymond James -- Analyst

And how do you think that trends over the next year? A little bit higher?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So, we have five hotels that we've identified that we would like to add that don't currently have and we would like to add guest amenity fees to. So, we're in discussions with the brands on each of those five hotels now. We may or may not be able to roll that depending on negotiation.

Bill Crow -- Raymond James -- Analyst

Is that built into your forecast?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

That is not built and that would be upside to our current forecast.

Bill Crow -- Raymond James -- Analyst

Got you. And then, what sort of exposure do you have to the airline crew business? We've seen some real weakness there and certainly, anything coming in from Asia Pacific is getting hit pretty hard.

Thomas Healy -- Chief Operating Officer and Executive Vice President of Asset Management

Bill, this is Tom. We do a fair amount of crew rooms in New York and the different major markets, most of our inbound or most of our crews are domestic. So, we don't anticipate any significant impact from that.

Bill Crow -- Raymond James -- Analyst

And then -- thanks, Tom. One final question from me. Any impact either currently or as you look out to FF&E coming in from Asia and kind of the disruption to the supply chain?

Thomas Healy -- Chief Operating Officer and Executive Vice President of Asset Management

That's a great question. We've asked at each of our projects. So, we've advanced book that we have everything that we have is either here that we need to complete the projects in the next six to nine months or is on a boat on its way, including Frenchman's Reef and some others. So, we don't anticipate for us it's going to be a challenge. Will there be some lighting fixtures or something that we may have to order from Vietnam versus China? Yes. But we double checked everything in our current pipeline. And at the moment, we don't see any hiccups.

Bill Crow -- Raymond James -- Analyst

Perfect. Thanks for the time.

Operator

Thank you. Our next question comes from Austin Wurschmidt from KeyBanc Capital. Your line is open.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Thanks, guys. Just one quick follow up here. You mentioned the cost of capital is being a limiting factor as far as acceleration into the resort segment. Have you explored using OP units maybe for owners with tax basis issues that you could price at a more attractive price than where your shares are trading today?

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

So, we used some OP units when we did Cavallo Point transaction. We have had discussions and we are in discussions over a year ago -- about a year ago, with that kind of exact same thought of telling them where our NAV was and having them take the OP units essentially at a higher mark that was commensurate with our NAV. Is there early sense of negotiations? Yes, but we've had some of those conversations, but they're complicated.

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Okay, thank you.

Operator

Thank you. And I'm showing no further questions at this time. I would like to turn the call back to Mr. Mark Brugger for any closing remarks.

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Thank you. To everyone in the call, we appreciate your interest in DiamondRock, and we look forward to updating you on our next earnings call. Take care.

Duration: 49 minutes

Call participants:

Briony Quinn -- Senior Vice President

Mark W. Brugger -- Co-Founder, President, Chief Executive Officer and Director

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Thomas Healy -- Chief Operating Officer and Executive Vice President of Asset Management

Anthony Powell -- Barclays -- Analyst

Austin Wurschmidt -- KeyBanc Capital -- Analyst

Smedes Rose -- Citi -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Michael Bellisario -- Baird -- Analyst

Rich Hightower -- Evercore -- Analyst

Patrick Scholes -- SunTrust -- Analyst

Dori Kesten -- Wells Fargo -- Analyst

Lukas Hartwich -- Green Street Advisors -- Analyst

Bill Crow -- Raymond James -- Analyst

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