DiamondRock Hospitality Company (DRH) Q3 2021 Earnings Call Transcript

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DiamondRock Hospitality Company (DRH -0.33%)
Q3 2021 Earnings Call
Nov 5, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Briony R. Quinn -- Senior Vice President and Treasurer

Good morning, everyone, and welcome to DiamondRock Hospitality's Third Quarter Earnings Conference Call.

Before we begin, please note that many of the comments made on today's call 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 implied by our comments today.

In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release.

With that, I'm pleased to turn the call over to Mark Brugger, our President and Chief Executive Officer.

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

Good morning and welcome to our earnings call. 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 now turn the call over to Jeff for more details on our results and balance sheet. Jeff?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Thanks, Mark. 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.

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

Thanks, Jeff. Before we take your questions, I want to touch on our ESG performance and discuss our outlook. 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. I want to thank everyone on our team whose dedication made this achievement possible.

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.

I'll conclude the prepared remarks by saying that we are excited about our future and see things improving more rapidly than on our last call.

At this time, we're happy to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Rich Hightower with Evercore. Your line is open. Please go ahead.

Rich Hightower -- Evercore ISI -- Analyst

Hi. Good morning, everybody.

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

Good morning, Rich.

Rich Hightower -- Evercore ISI -- Analyst

Good morning. So, I'd like to go back to the sort of acquisitions environment for DiamondRock and you did make some references to this in the prepared comments. But just in terms of the deals you're looking at currently, the ones that you've transacted on, the ones that you've may be passed on or it didn't quite make it to the final round. I mean, just give us a little more color on some of the differences within that pool of assets at this point?

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

Sure. It's Mark. So, we said in the prepared remarks, we're comfortable with about $300 million of balance sheet capacity toward acquisitions. I think currently to build the history this year, I think we've lost every bid in a broker deal this year as there is a ton of capital chasing hotels. So it is a highly competitive environment. Every private equity firm is chasing hotels. They like the recovery story and some other REITs have stretched much more than we would have on certain acquisitions, which is different assumptions than outlook. Currently, we have, I think, five written offers out. Most of those are off-market deals to pick up of those five, four resorts, one is not a resort, so they kind of a unique lifestyle market, but we're spending most of our time on the off-market deal. This is a very competitive marketplace and trying to use our relationships and sometimes different visions for the properties repositioning to try to do deals that make sense for our shareholders.

Rich Hightower -- Evercore ISI -- Analyst

Okay. I appreciate the color there. And then maybe, Jeff, just to go back to the comments on Group, I was sort of furiously typing and I think I missed a couple of points. But are you able to kind of tell us where group booking pace for 2022 is at this point as compared to same point in 2019?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yeah. In 2020 -- our pace for 2022 compared to 2019 is down about 25% from where it was at that time. Is that useful?

Rich Hightower -- Evercore ISI -- Analyst

That it useful. Thank you.

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

Yeah, Rich, I'd...

Operator

Thank you.

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

I'm sorry, let me tag on before we take the next caller just on the group. The convention calendars for our properties that want to register [Phonetic] relatively constructive next year is Chicago and Boston are two most important markets. Chicago has 1.25 million citywide room nights scheduled for 2022, which is actually 100,000 more than 2019 and Boston has, obviously, exactly the same number of room nights for next year as it did in 2019. Phoenix is ahead of 2019, San Diego is within 5% of 2019, DC is above, that's all like city solid. So, we see things really picking up, particularly after the first quarter of 2022, and we think our footprint is going to be an advantage for DiamondRock next year.

So with that, I'm happy to take the next caller.

Rich Hightower -- Evercore ISI -- Analyst

Okay. Thank you.

Operator

And our next question comes from the line is Smedes Rose with Citi. Your line is open. Please go ahead.

Smedes Rose -- Citi -- Analyst

Hi. Thanks. Mark, I wanted to just ask you, obviously, we have seen this year rebound in leisure and leisure resort property is doing better -- significantly better than what they saw in 2019. How much -- I mean, do you think that can continue over the next couple of years? Do you think operators just sort of realize we can have better pricing power here and we're not going back and even if it means maybe slightly lower occupancies? Or do you think it kind of settles down and reverts back to kind of the pre-COVID world?

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

No. It's a great question, Smedes. Our view, I guess, is multi-layered, but we think a lot of it is the key -- some inevitably as the world opens up, particularly at the very high-end, people paying over $1,000 a night can clearly go anywhere. And so, as Amalfi Coast in Italy opens up in the South France, inevitably some of that's going to leak out. But I think people have permanently valued leisure higher. I think there has been some retraining on what the rates are at a lot of these properties. And I think the work from anywhere environment, particularly is going to create that Thursday through Sunday, they'll arrive Thursday and leave Monday and it will create periods of travel. It just didn't exist before. People can fly in from the East Coast to go to Sedona for a four-day stay, they couldn't have done that if they had to leave Friday night and come back Sunday night. So, I think a lot of it stays. I think you got to be careful because I think different levels will be stickier than others, but I do think there is a retraining of what the acceptable prices for resort and I do think that there will be changes in the kind of the paradigm that will allow us to remain.

Smedes Rose -- Citi -- Analyst

Okay. And then, Jeff, I just wanted to go back to your comments on labor and we can kind of maybe parse that out a little bit, but you just -- I mean, just -- could you maybe just talk about increases, I guess, in hourly worker wages that have been mentioned on some other calls? And it sounds like there has definitely been some upward movement, but maybe you guys haven't seen that or could you just kind of speak to that a little bit?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yeah, there is a -- thanks, Smedes. There is a few factors going on. I think there have been some small increases in wage rates around the country and we've been trying to be creative in managing that either by providing some incentives to employees in terms of attracting new labor such as benefits that you'll get bonuses if you recruit your friends things like that, but also providing incentives that are more tied to revenue production. For example, on a restaurant, if restaurants achieve certain levels of revenue production in a week or a month, there is sort of like a tip pool, if you will, to get split among employees, so that we can better modulate our labor costs relative to the revenues.

Yeah. So, I would say, there's a couple of factors going on. Another one actually somewhat the mix of labor. I would tell you that as you've paired back headcount in last year, in some situations, you're going to have your less experienced employees that maybe were furloughed or laid-off and that left you with some of the your more experienced employees who had higher wage rates. So, when you think about the mix in labor costs year-over-year, it's going to optically look like you're wage rates are rising, but that's not necessarily the sole driver there.

I don't know, Tom, if you have any other comments or...

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

No.

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

No?

Smedes Rose -- Citi -- Analyst

Okay. Thank you, guys.

Operator

Thank you. And our next question comes from the line of Dori Kesten with Wells Fargo. Your line is open. Please go ahead.

Dori Kesten -- Wells Fargo Securities -- Analyst

Thanks, good morning. When you look at the improvement in midweek demand in your urban markets, can you call out markets that are leading and lagging? And then just how it incorporates trends July to October?

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

Hi, Dori, this is Tom. The markets are very -- it's still a little bit anemic on that side, but Chicago really is a standout, The Gwen -- 18% of our rooms at The Gwen in the quarter were BT, that was a really significant growth compared to The Set [Phonetic] which is about 6.5% and we've seen production out of -- I mean, producers in the quarter have been the usual suspects, Deloitte, PricewaterhouseCoopers, Ernst & Young, Boston Consulting, so the consulting groups are coming back and that's very positive. And the question is, how fast did they come back? We certainly believe, once we get into Q1 of 2022, and we get through that and all the vaccines get done, we believe that we should see a real big spike up in business activity -- business transient activity.

We are also seeing a lot of short-term pharmaceutical group, and if you think about that back in the '90s, the pharmaceutical drove the hospitality business trading, pharmaceutical trading for pharmaceutical business and we are seeing across the portfolio a lot of activity on the pharmaceutical side, which is very positive. And I think that's just the nature of what's going on in the world, right, with all the drugs and the training and the rollout. So it's really a positive story.

Dori Kesten -- Wells Fargo Securities -- Analyst

Thanks.

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

Dori, let me just add on to that a little bit, if I could. I mean, we saw the biggest gains in market share in our portfolio in Boston, Chicago, and New York in the third quarter, which are clearly more business transient-driven. And then if we just look at current trends, I'm just looking at our October results, our Boston Hotels ran 89% and 84% occupancy in October and then the Chicago Gwen, which Thomas noting did 78% in October and the New York hotels ran, a couple of them ran with [Phonetic] 90% occupancy. So we're seeing some pickup, rates are challenging in some of the business that we're picking up but clearly there are signs of life in the BT. I don't think it's going to be off-roaring until we're into 2022 but it was more encouraging in Q3 than Q2.

Dori Kesten -- Wells Fargo Securities -- Analyst

Okay. And when you noted the two recent acquisitions that they're exceeding initial underwriting, what were your initial expectations for the year and where are they now? And is that upside is on the top line or to the cost savings?

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

It's different, the two different properties, so Henderson Park wildly outperformed our October expectations, the leisure was better, the rate was $100 higher than our underwriting for October and that's making the difference. I mean, my only regret is I wish that hotel is bigger, but it's been a home run for us so far, may have been a 8 [Phonetic] kind of cap rate for a super high-quality resort.

New Orleans was different, obviously, there was a hurricane with Hurricane Ida that blew through there. We were fortunate that we were the one first hotels to get power back and our team, I think, they did just exceptional job of securing the first responders and kind of sucking up that business. And then as we kind of move through the year, that's obviously gone now but the experiential aspects and it's still challenging that market but it's kind of tracking as we expected. So I think we got a little bump from the first responders and they were kind of tracking in Q4 versus our underwriting expectations.

Dori Kesten -- Wells Fargo Securities -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Good morning, everybody. Mark, given kind of your view on the stickiness of the leisure traveler and some of these ADR trends, are you underwriting the current paradigm for these five acquisitions or what level of conservatism, I guess, are you assuming?

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

It's different in different markets. It's a great question. It's when we talk a lot about. I think as a general rule, we're looking at 2019, we're seeing how much it's increased since 2019 and then generally we're seeing it's peaking in 2021 and we'll give back some of the, what I call, the peakiness right now from the COVID but it will maintain substantially higher than 2019. That's our typical resort underwriting. Some of the markets depending where they're coming to -- coming from and how affluent the travelers are, we think it's the gear. Clearly, the super high-end ones, that traveler just has a lot more options, they were the ones who were going to Europe last year. And that's probably going to face some -- the very change of price domestically. That's probably face a little more pressure than the Key West resorts, for instance. So we're trying to be thoughtful market by market, customer, what kind of customers coming to that particular resort. But we certainly think it's substantially higher than where these resorts leveled off in 2019.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Very helpful. And then to the extent you hit on one or more of these deals, presumably you want to spend the entire $300 million without maybe having something else lined up. So what sort of the most attractive source of funding today or OP unit to consideration any assets that you've got kind of teed up and waiting to the extent that it looks like you're going to move forward with one or more of these deals?

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

Yeah. So, nothing is enormous. I mean, so we have five are in bids out. I think the totality of those five is $350 million but nothing is giant within these in the pipeline. We're sitting also substantial cash and we have the revolver. Although we have talked to you about OP units, but you were trading, we believe below NAV. So we have to figure that out and adjust purchase price accordingly, but the tax advantages can be substantial for a seller. So we have had some of those conversations.

Jeff, do you want to talk a little bit more about sources?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yeah. No. I think you hit the nail on the head. I think immediately, we would probably using that cash on hand that we have and as Mark said, we have pretty abundant capacity to fund the acquisitions, even though one's that we're looking at assuming we hit on every single one. Beyond that. I think, I guess, all options are open, but we're pretty stingy about equity issuance at prices that are below NAV.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

That's helpful. Thanks for the time.

Operator

Thank you. And our next question comes from the line of Dany Asad with Bank of America. Your line is open. Please go ahead.

Dany Asad -- Bank of America -- Analyst

Hey. Good morning, everybody. My question is on the -- so your non-room revenues, right? So like specifically like the other revenue component that's not F&B, it's approaching 2019 levels pretty rapidly at this point. Well, like much quicker than like your RevPAR. And so, I guess, my question is, can you just help us understand some of the bigger drivers of that component and it's sustainability into the coming months and quarters?

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

I'll let Tom handle this question to throw a testament to all the things he has been doing, particularly on the -- it's resort focus and the resorts have a lot of ancillary income. So, successful implementation of resort fees and really the F&B programs have been a large contributor one of, I think, Tom's true skills is finding every lever to find ways to create revenue sources at hotels. But Tom, do you -- I'll turn it over to you, really, you are testament to what you've been do?

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

Yeah. Once again, it's how do we maximize the revenue per square foot in hotel, once we have been captured, the mix is different, certainly, with heavy occupancy in usage on the leisure side. They are there and when they're there we -- how we maximize the spend and target them. So resort fees, other incremental fees, services, partnering with vendors packaging are all things that we're thinking about. When we look at revenue, a lot of -- we look at RevPAR and how do we maximize our ADR, our RevPAR. We also look at if we're 120% of rate while every one of our other price categories in the hotel 120%. Everything in the property needs to be yielded. So, food and beverage, the parking, services, and spa, everything should be yielded based on demand. So a Saturday spot pricing should be different than a Tuesday. And so, when we take that approach and you yield everything, those incremental revenue streams actually add up. And then we've been the benefactor of cancellation fees and focusing on other revenue streams as well, room rental and where we can get it. So I think it's just the team effort and we're happy with the results.

Dany Asad -- Bank of America -- Analyst

Awesome. And just as a -- my follow-up is actually on something that Jeff was talking about earlier. Jeff, your comment about group pace in 2022 being down 25% versus 2019. Do you know off the top of your head what that number would have been, call it, 90 days ago?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

I don't have it with me. I'm looking at Tom if he might have it.

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

We had about 300,000 group rooms on the books 90 days ago and now we have about 350,000 group rooms on the books for 2022. So we had some very positive movement. We had really strong prospects. Our prospects -- our lead in our prospects for the quarter were as strong as we've seen in the last probably eight quarters. So we're really -- we're feeling pretty good about that. And then -- and we -- when you compare that to -- for 2019 because that's we're comparing against, in 2019 we're around 400,000 rooms and we jumped up about -- we picked up about 70,000 rooms quarter-over-quarter in 2019. So our gap is, we're close, we picked up roughly 50,000 versus 70,000. So we're in the ballpark and yeah.

Dany Asad -- Bank of America -- Analyst

Got it. Okay. Thank you.

Operator

Thank you. And our next question...

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

That's OK, continue.

Operator

Our next question comes from the line of Michael Bellisario with Baird. Your line is open. Please go ahead.

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Thanks. Good morning, everyone.

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

Good morning.

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

I have another, Tom, a question for you. Just as your hotels are signing new group business and new BT contracts today, what are you seeing in terms of changes that might be being made to those contracts? And what are or aren't meeting in travel planners asking for today?

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

It's -- that's an interesting one. We've been a lot more aggressive in how we look forward at washing the contracts. So historically speaking, we washed a contract by 20%. We're seeing, as we look forward into 2022, let's wash it by 50% to be more conservative. Certainly, the management companies have their terms and their standard contracts and that's what they use. We, obviously, want to make sure that those clauses and contracts stay consistent. We have seen a lot of shifts over the last couple of years, right? When you start moving contracts one year and then move it again another year because it does -- COVID doesn't break, the contracts we have to be cognizant of the fact that they get -- they are getting a little bit looser on attrition clauses. And we actually do -- we actually -- the team does contract audits. We actually go out to all of our properties and start to look forward at group contracts and do contract audits to make sure that the contracts aren't toothless and that we are protecting -- certainly, protecting shareholders and protecting future pace. So that's a priority for us. We are monitoring it.

And then certainly it's market by market. If a big company, if AT&T comes in, says, this is our terms, take or leave it. You really have to make a decision. It's a business decision at that point and the contract -- the terms of the contract, do you want the business or you not want? Or you not want the business? So it's an ebb and flow. And I think we're -- the good news is, we're paying attention to it and we're aware of it and we're trying to make sure that we minimize our risk going forward.

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Got it. That's helpful. And then just in terms of group cancellations that might have occurred during the third quarter, what was the total there and then for what periods where those groups cancelled or maybe even rebooked for?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yeah, Mike, this is Jeff. We had about $7 million of group revenue that was canceled, really in the third quarter related to Delta variant. I think more than half of that I think was rebooked into 2022 in different periods. I think there was a small amount of cancellation and attrition income that was collected, half the cover [Phonetic] I think was about $1 million or $2 million, $2 million that was collected during the quarter. So, yeah, I think we've done a very good job at making sure that we can reschedule those bookings that we're seeking cancellations and trying to push that revenue off into 2022.

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

We had about 35,000 group rooms canceled and we moved about 15,000. So about 50% of those rooms we shifted into the future, which is great. And then we collected about $2.6 million of cancellation fees. So it's -- once again, it's a priority, the nature of the business and so we have to pay attention to it.

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Helpful. Thank you.

Operator

Thank you. And our next question comes from the line of Chris Darling with Green Street. Your line is open. Please go ahead.

Chris Darling -- Green Street Advisors -- Analyst

Thanks. Good morning, everyone. I want to go back to the favorable citywide calendar that you mentioned in your Boston, Chicago and several other markets. First, I'd be curious to understand how you're thinking about those markets on a longer-term basis.

And then secondly, just given the favorable backdrop next year, does that maybe provide you with sort of the window of opportunity to sell into that strength and redeploy capital elsewhere?

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

It's a great question. I think short-term we're pretty constructive on all of those markets. I think we're particularly constructive on markets like Phoenix and Salt Lake City. Boston, we really like our two hotels in that market, we like our locations. The quality of those assets. Chicago is the market that probably over time we would look to shrink our exposure to, given that it's always had supply challenges and it's much more rate sensitive than a market like Boston. So, yeah, it could provide us an opportunity when cash flows are returning to potentially reduce some of that exposure. And as we articulated in the prepared remarks, we continue our strategy that we've had for the last seven or eight years of moving more into these lifestyle experiential properties and sub-markets like Sedonas and Huntington Beaches and Vails. And so, selling something like a Chicago asset would certainly be consistent with executing on that long-term strategy.

Chris Darling -- Green Street Advisors -- Analyst

I appreciate the thoughts.

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

Thanks for the question.

Operator

Thank you. And our next question comes from the line of Bill Crow with Raymond James. Your line is open. Please go ahead.

Bill Crow -- Raymond James -- Analys

Yeah. Thanks. Good morning. Mid-term for you talking about the strength of BT travel in Chicago and Boston, there is still seasonal factors at work, right? So we're now in November and I'm just -- 90 days from now we're going to be talking about the lack of business travel in those markets because of seasonal factors and just how do we think about kind of the fourth quarter and early into the first quarter?

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

Yeah. It's going to be consistent and flat. We're -- as you said, Bill, it's -- we're getting into seasonality. So we certainly see the slowdown in Q4 and Q1. That's why I said earlier in my comments, that I think Q2 and Q3 2020 really expected to spike up and we're still going through that negotiation process now with the big brands, right, Marriott Hilton and all our managers are actually looking for -- at 2022 rates and how we're going to be. So it's hard to know, but my point out earlier was more of a micro market on Chicago and that we saw positive movement and positive activity versus the market. So if you provide the service, and you have the quality, you could get -- we believe we can get outsized performance for that. It doesn't mean that it's coming back at significant levels but we are outperforming our peers and that was the point I was making.

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

Hey, Bill, this is Mark. I'll just pile on that. I think we see the recovery in business transient really to -- it's not a Q4 story. It's a 2022 story. I think we're optimistic -- frankly, and there is some good things going on. This morning's announcement about [Indecipherable] Pfizer pill, that's a real positive. And I think even more importantly, this week's announcement about the January 4 date for the OSHA requirements for -- to cover two-thirds of the workers United States. It could potentially provide the -- what we call, the magic date for C-suites to tell their employees it's safe to get back on the road, it's safe to get back to your office. This is kind of the magic politically acceptable date, I think corporate America and that could be the real pivot point for business transient travel. And so, this January 4 date could -- when we kind of look back six months from now, what are we going to say was important fulcrum points in the recovery. I think January 4 could be the one for BT that really starts the shift in mentality and activity in the United States.

Bill Crow -- Raymond James -- Analys

I hope so. I hope so. Hey, Jeff, just quick modeling question, the tax line created a little bit of noise this quarter. I'm wondering what you're thinking going forward?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yeah. The short answer is, there was a little bit of a switch there, as you know, we effectively are trying to accrue for income taxes on an annual year target, if you will, based upon how our outlook is changing and we switched from an income tax benefit in Q2 to an income tax expense in Q3. On a full-year basis, I think we're looking for income tax in the fourth quarter to be about $500,000, $1 million expense in the fourth quarter. So, a little less than we saw in the third quarter. It's a volatile figure, but I think that's how we should be thinking about it in the fourth quarter line.

Bill Crow -- Raymond James -- Analys

Great. Thank you.

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Yes. Year-to-date, I think it's about $1 million to $1.5 million of cash. That's cash -- of cash income taxes, sorry.

Operator

Thank you. And our next question comes from the line of Stephen Grambling with Goldman Sachs. Your line is open. Please go ahead.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi, thanks. I know you referenced trading below NAV. I'm curious if you've actually kind of set the bar on where you asked the NAV is and how that's evolved over the past quarter. And then as you referenced private equity has been very active, I'm curious to hear what themes you are seeing and where they're focused. And how that may even influence NAV going forward?

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

Sure. I'll take the second question first. So interesting, there is a ton of private equity chasing hotels, and I think the -- it's the traditional players whether that's [Indecipherable] or Blackstone. But I think the interesting dynamic that -- and they're getting finance. I know we bid against one of the largest PE firms on a resort, but they were getting financing, I think, 65% LTV at L plus 180. So that's pushing our pricing as well. I mean, the debt markets for cash flow in hotels is really robust and the PE firms can take advantage of that.

But I think the permanent pricing change, I think one interesting dynamics is, these REITs at Blackstone and Starwood and others have created that racing, I think we're just between the two of those. Those are $2.5 billion to $3 billion a month, and they're putting away -- so they're putting away kind of on a permanent basis, right, $5 billion to $10 billion of real estate. And as things go into that, we'll call that lockbox, there's just less product on the market, which makes everything more valuable that's still out there. So -- and you look at the reference points of hotels versus multifamily, industrial and other choices in the real estate, food group, and hotels simply haven't compressed like the other sectors.

So I think there -- our view is, NAV is increasing for hotels and that there is potential for it to increase more both on an absolute basis, availability and on a relative basis versus the other asset classes out there. So, we continue to -- our NAV every quarter was consistently for a number of quarters now has gone up pretty substantially. We think our NAV has increased in the last three to six months. We do spend a lot of time thinking about the NAV is. You never really know till you go to market. But every time we lose one of these bids, we realize our NAV internally is too low. But we haven't published NAV. We haven't in a long time since the onset of the pandemic and continue to look at that and we'll think about publishing that, but we will be very thoughtful before sharing them.

Stephen Grambling -- Goldman Sachs -- Analyst

Fair enough. And then maybe an unrelated question, as you move the mix to more independent lifestyle hotels and change a lot of the terms in terms of the management contracts. Does that change, I guess, how you would maybe think about M&A for more of like portfolio properties and/or thinking about consolidation within the broader REIT space?

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

Yeah. I mean, I think we've worked really hard to build something that's very unique in the public markets, right? There is no other public company you buy in the full service sector that has many short-term terminable management agreements. We think that on exit that's probably worth 10% more on NAV, right, 50 basis points to 100 basis points in exit cap rate. So we think that there is a story to articulate about why we should have a higher valuation multiple there. And so, I think we -- and it -- frankly, it's just -- it's more enticing for a lot of reasons to have control -- more control over the independent operators.

I think as we think about M&A opportunities, we think the -- this model is a more liquid higher value model. But it's something you could price as you look at other companies, right? And it is something that you could think about and put into the pricing. But we really like where we've got until we've spent a lot of time getting here, but nothing is off the table.

Stephen Grambling -- Goldman Sachs -- Analyst

Awesome. Thanks so much.

Operator

Thank you. And our next question comes from the line of Chris Woronka with Deutsche Bank. Your line is open. Please go ahead.

Chris Woronka -- Deutsche Bank -- Analyst

Yeah. Hey. Good morning, guys. I guess, question for Mark. And it's kind of bolt on to that last question, but maybe take it in a slightly different direction, which is, Mark, you're seeing the public REITs get a little bit more active, I think, overall buying hotels and you just talked about private equity pricing and how much capital they're raising and disconnect between public and private pricing. So, the question is, from a high-level industry standpoint, do you think this makes public M&A more -- is there more of a -- more compelling reason to do that? And again just thinking at very high-level.

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

Listen, we're not scared of private equity or fiduciaries for our shareholders, we'll always do what's right and if that means we get a big offering from the company at a premium, certainly something, we always do the right thing to do for shareholders. The merge to avoid that would not be a strategy we would employ. I mean, we're fine doing what's right for shareholders and would probably want to get full value. Certainly, for the Company if we went down that road. I think mergers in the public to public makes sense if you can articulate a clear strategy after the merger. And you clearly articulate that you didn't pay too much and that it's savings from the G&A, we should probably wipe out 85% of the G&A of the target company, you put a multiple on that and you say, OK, on the other side that's between G&A savings and other synergies, I think it's a clear strategy and the stock price should be higher. That's fine. But we're in a space that bigger hasn't proven by itself to create value. So we don't buy into that thesis. But certainly, if you could do something where the math works, you could come out the other side from the combined something with a clearly articulated strategy, that's something we should look hard at.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. Very good. And then, I guess, the other question would be, DiamondRock has always been a pretty -- like to keep the structure pretty simple, right? You guys have been one of the easier companies to follow and analyze and understand. We have seen some of your peers go a little bit more down the JV route and is that something you guys would consider if there was just hypothetically a larger -- if it's public or private some kind of portfolio, are you willing to kind of step outside of those bounds a little bit and do something a little bit non-traditional for DiamondRock?

Jeff Donnelly -- Executive Vice President and Chief Financial Officer

Hey, Chris, it's Jeff. I mean, I don't think you can never rule that out, but I do think we like the simplicity and the control that comes from holding, owning our assets. I think having joint venture can be complicating from a balance sheet standpoint and from an underwriting standpoint, from your perspective or from investors perspective. So, I would never preclude us from entering into an attractive investment if a joint venture was necessitated. But I think our preference is to wholly own our assets and really kind of keep a clean balance sheet and control.

Chris Woronka -- Deutsche Bank -- Analyst

Okay. Very good. Appreciate the thoughts. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Anthony Powell with Barclays. Your line is open. Please go ahead.

Anthony Powell -- Barclays -- Analyst

Hi. Good morning. First, a question on pricing, we've seen obviously very strong pricing on the leisure and resorts. Does that change how you approach pricing next year for business transient and group? Is there more of an opportunity to tick up pricing in those segments or are you more interested in kind of filling the hotels with those customers?

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

A great question. I think let's take the three segments. So, leisure, like this festive week coming up, almost that we can't charge enough. I mean, there is a lack of ability and there's tremendous demand for those. So I think we should push even harder than we have been pushing on pricing.

When we look at business transient. I think it's really encouraging in the third quarter, we were within 1% of business transient rate from Q3 in 2019. It's really not a rate game. It's -- is the company comfortable getting people on the road or aren't they? It's not like we'll put them on the road if it's $10 cheaper. So I think we have adopted the philosophy and instructed our hotels that this is a safety issue, if you will, for them, not a pricing issue and discounting doesn't get you anymore rooms. So hold rate. And I think generally that's the pervasive kind of viewpoint of philosophy of the hotel industry. So, I'm relatively optimistic on pricing for BT now. We're going to have some mix shift next year. We do want to put heads in beds. So, what we take more of the lower-rated BT mix to fill it, that ultimately leads to a more profitable, yeah, and then as demand returns we'll start yielding that stuff out. So we're not trying to discount to get BT and we will have to have some mix shift. So you'll see some great deterioration. But again, I think it's a safety issue, not a pricing issue.

And then on group, our group right now, I think we're looking at 2022, even though we're down on room nights, we're actually up almost 2% of rate. Again, with the same philosophy that these groups are meeting. It's not -- they're not going to meet me if it's $10 cheaper to meet at your hotel, they like the space, they haven't met in two years, sometimes three years and they need to get together. And after you think about, especially from the corporate side, everyone's at record profitability in the United States. It's not like the CFOs are sitting there at Pfizer, Procter & Gamble and saying oh no, things -- these are tough times, we really need to cut the travel budget, training budgets. They're saying we need to grow our revenue. We're at terrific profitability. We need to get training. We need to hire people. We need to take care of our associates. We need to get them together. So I think all those things play pretty favorable into rate integrity next year, but I do want to indicate there will be mix. We are going to have to layer in some of that lower-rated BT and then yield to back out as things get stronger and stronger. So you will see that phenomenon in 2022.

Anthony Powell -- Barclays -- Analyst

Got it. Thanks. And going back to the NAV question, do you have more clarity on the value of, let's say, kind of urban business transient-focused hotels and urban group hotels? And there have been fewer transactions in those types. I'm curious what you're seeing in value for those properties.

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

Yeah. I'd say, it varies by market. It can be -- it depends what you call it urban market to like Austin is up right in the NAV versus whereas in 2019 in a market like Chicago is probably down 10% plus. But these urban markets, I think, it's a little wait and see from the buyer's perspective. There is clearly appetite and people that want to play that thesis. But you need better trailing cash flows so that the private equity folks can get better debt and then you'll see NAVs recover more rapidly in the urban markets. So we anticipate that the gap starts shrinking over the next 12 months as you start seeing cash flows really return in the urban markets because the financing just gets better which makes the acquisition work from a larger pool of buyers.

Anthony Powell -- Barclays -- Analyst

Okay. Thank you.

Operator

Thank you. And I am showing no further questions at this time. And I would like to turn the conference back over to Mark Brugger for any further remarks.

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

Great. Thank you. Thank you, everyone, on this call for your interest in DiamondRock and we look forward to updating you on our next quarterly call. Have a great day.

Duration: 55 minutes

Call participants:

Briony R. Quinn -- Senior Vice President and Treasurer

Mark W. Brugger -- 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

Rich Hightower -- Evercore ISI -- Analyst

Smedes Rose -- Citi -- Analyst

Dori Kesten -- Wells Fargo Securities -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Dany Asad -- Bank of America -- Analyst

Michael Bellisario -- Robert W. Baird & Co. -- Analyst

Chris Darling -- Green Street Advisors -- Analyst

Bill Crow -- Raymond James -- Analys

Stephen Grambling -- Goldman Sachs -- Analyst

Chris Woronka -- Deutsche Bank -- Analyst

Anthony Powell -- Barclays -- Analyst

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