Good day, and thank you for standing by. Welcome to DiamondRock Hospitality First Quarter 2021 Earnings Release. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now hand the conference over to your speaker today, Briony Quinn. Please go ahead.

Good morning, everyone. Welcome to DiamondRock's First Quarter 2021 Earnings 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.

Good morning, and welcome to our earnings call. One year ago, almost to the day, we hosted our first earnings call near the inception of the pandemic. And here we are now rapidly returning to profitability. What a difference a year makes. With over 55% of adults in the U.S. having received at least one vaccine shot, we fully expect a strong return of travel demand throughout the balance of the year and setting up for a major increase in all segments of hotel demand in 2022. For DiamondRock, let me highlight 3 areas where we have made significant progress since our last call: One, hotel profits are up. In fact, portfolio GOP was positive every month in the quarter. Hotel NOI and EBITDA were nearly breakeven in February and clearly profitable in March. In April, RevPAR for our open hotels increased an amazing 1,113%. Two, reduced burn rate was impressive. Our low monthly AFFO burn rate was 44% lower than our closest peers at only $914 per key. And three, we executed on strategic dispositions. We transacted on Frenchman's Reef and we signed a contract to sell The Lexington. Collectively, these dispositions will accelerate our transition towards a predominantly experiential drive-to resort and urban lifestyle hotel portfolio. In looking at the first quarter, DiamondRock had total revenues of $72.9 million. Total portfolio occupancy for the quarter, including closed hotels, jumped 5 percentage points compared to the prior quarter to 26.9%. Due to a favorable portfolio mix and strong asset management, hotel adjusted EBITDA loss was held to only $2.6 million, which was a 65.8% improvement over the prior quarter. Adjusted EBITDA for the company contracted only $9.6 million, a 35% improvement over the prior quarter. In March, we experienced RevPAR growth of 11% and generated positive hotel adjusted EBITDA…

Thanks, Mark. Let me begin by focusing on one of our great strengths, the balance sheet. The balance sheet is in great shape. We finished the quarter with $437 million of total liquidity, comprised of $100 million in corporate cash on hand, $300 million of capacity on our revolver and $37 million in working capital at the property level. Our debt is strategically split between mortgage and corporate debt. We have $594 million of nonrecourse mortgage debt at a weighted average rate of 4.2% and $500 million of bank debt, comprised of $400 million on unsecured term loans and $100 million on the unsecured revolving credit facility, bearing interest in a blended 3.5% rate. Additionally, our debt is well laddered, just 4% of our total debt matures before the end of 2022, that is the mortgage on the Salt Lake City Marriott. While we're on Salt Lake City, after several attempts, we were successful in obtaining a long-term extension of the ground lease for the Salt Lake City Marriott. We extended the ground lease by 50 years from the 35 years remaining, for a new total term of 85 years. This will substantially enhance the value of the hotel while giving us the flexibility to obtain new financing or sell a hotel if the timing were right. We have $112 million of capacity under our ATM, unchanged from the fourth quarter. To preserve the availability of the program, we will renew our ATM before it expires in the third quarter. Let me turn to our cash burn rate, a point of pride for DiamondRock given the current challenges. We beat our internal expectations. During the quarter, our monthly cash burn for hotel NOI and corporate G&A combined averaged $3.7 million per month, blowing past the prior loss estimate of $8…

Thanks, Jeff. Before we take your questions, I want to touch on our recent transactions and our outlook. The 2 announced transactions strongly demonstrate that we are strategically repositioning the portfolio to lean in to our long-held thesis, the experiential hotels and drive to resorts will outperform over the next decade. First, the pending sale of The Lexington Hotel will reduce our overall urban exposure. Specifically, it will reduce our New York City exposure by more than 50%. The hotel is under contract for $185 million, which represents a 6.3% cap rate on 2019 NOI and a 5.8% cap rate on 2018 NOI. We received a nonrefundable $5 million deposit, and the transaction is expected to close before the end of the third quarter. In short, this sale allows us to rightsize our New York City exposure at an attractive price. The second transaction involves the Frenchman's Reef development in the USVI. On April 30, we successfully completed a transaction in which we received $35 million in cash plus a contingent participation in the hotel's future profits. This profit participation has the potential to be worth tens of millions of dollars if things go right. As many of you know, Frenchman's has been a long saga. The hotel was essentially destroyed by sequential hurricanes in 2017. And after a long battle with the insurance company, we received nearly $240 million in insurance proceeds. This transaction does a number of positive things for us: One, it eliminates all future funding obligations, thus freeing up more than $200 million of investment capacity for acquisitions with more immediate returns. Two, it allows us to receive cash now as well as part of the upside. And three, it eliminates the company's Caribbean hurricane risk, thereby making DiamondRock an even better risk-adjusted investment option. These…

[Operator Instructions] Our first question is from Smedes Rose with Citi.

I just wanted to ask you a little bit about, sort of, 2 things as you think about the pace of the recovery. And the first was, maybe what are you seeing on the labor cost side and on the ability to refill jobs and get people to come back? And then second is, as you're booking more on the corporate side, and I guess, particularly corporate groups, do you hear or get sort of feedback that corporates are looking to reduce overall expenditures or having enjoyed, sort of, potentially no travel budgets? What's your sense of their willingness to kind of start ramping those back up?

Sure. Smedes, it's Mark. So those are both excellent questions. On the labor front, yes, I think what we're seeing across -- if you look at job's report even this morning, the bulk of the pickup was in hospitality and leisure-oriented jobs. So yes, there's a rush on for rehiring folks. There is a big pool of people out there that were unfortunately laid off in this, but some have found other jobs and other works. Somehow people have issues where they need to stay home and care for children and other issues in the pandemic as we emerge out of it. So we're having different experiences in different markets. We pride ourselves that generally we are excellent employers. But it's a -- I would say it's a mixed bag, depending on the market and how tight the labor markets are there. We are having to incentivize in some markets to get employees to come back. But we have a good handle on it. And remember, a lot of our markets were doing very good jobs. If you take New York City, for instance, where hotel is having the overall package for a housekeeper, something like $80,000, with all the benefits. So if you compare that versus the alternatives, it's still a very attractive job. But we're clearly, like our other folks in the industry and markets like Florida, it's very challenging to get workers. But we're on it, and we think we have a good action plan. To your second question on corporate rates. So far, with the, we'll call it, the frequent travelers to consultants and banks stuff, the rates for going into next year, I think, are going to hold relatively steady. It's still very early. So far it's been a mantra of kind of holding to…

Our next question comes from Rich Hightower with Evercore.

Mark, it may have been on my side, but I think you cut out a little bit earlier when you were describing the portfolio concentration in urban upon sale of The Lex. And maybe if you don't mind, just carry that through to what the shape of the entire portfolio might be, what the splits are across the different segments, I guess, pro forma for both the Lex and Frenchman's, if you don't mind.

Sure. So post those 2 transactions, were about 40%, I'll call it, true drive-to resorts and lifestyle-type markets. And our goal -- strategic goal, as we've stated for the last several years, is to get over 50% and probably drive closer to 60%, ultimately. So freeing up the Frenchman's capital, although that's -- certainly that location and that market has a lot of merit, we think freeing up that $200 million and another $105 million in work will really help accelerate our ability to distinguish ourselves and execute on that strategy.

Okay. Yes. And then just to kind of pick up on that idea. It seems like in certain leisure-heavy markets even today, and I'm thinking maybe if Key West is a good example, you're running at or above pre-COVID run rates in many cases. And so as you are underwriting some of those future deals along those lines and in that particular segment, what are DiamondRock's underwriting expectations generally in terms of the progression back to peak, above, prior peak, over what time? And then how would you estimate that the market is similarly underwriting?

So I guess it's a nuanced answer because every market and every resort is a little bit different. So to kind of give you 2 different ways we're looking at the world. So I guess, overall, we believe that we are on the cusp of continued leisure outperformance, right? If you look at the personal savings rate and the desire of people to get out there and the sharing of experiences over social media, we just think it all adds up to, kind of, new record levels of leisure travel for the next several years. So we subscribe to that overarching trend, and we believe the data backs it up. In different hotels, it's going to perform differently. If you look at our Fort Lauderdale Westin, for instance, terrific on the beach, terrific hotel, 4 in the rooms, but it's got a great group platform as well. So that one, we would expect it's below prior peak numbers. We expect as group kind of layers in there to boost the transient that we'll see that really accelerate. We would underwrite an asset, assuming that the group comes back in there. Therefore, we could push the transient rate because we could squeeze those rooms down. In a, let's say, 150-room hotel in Key West, we think it's pretty durable there. We would expect that to continue. So we wouldn't expect that to pull back. Now we wouldn't expect the same kind of year-over-year growth that we've experienced in the last 24 months. But we think those markets are very durable. And that the leisure trend, the overall kind of wave, if you will, based on the data will continue. So we'd be pretty encouraged. Clearly, the market is valuing durable income and leisure assets more, right? They've proven through the last -- the last 2 cycles to be the most durable investment option. So when you think about discount rates, they should bear a lower discount rate. So we remain kind of optimistic. And I think the overall market, we all have a lot of similar data. We probably have a little bit more conviction than some. But it's shown that those are more valuable assets and the market's pricing them accordingly.

Our next question comes from Dori Kesten with Wells Fargo.

Can you walk us through the process you went through on Frenchman's? What the level of interest was to partner with you versus acquiring the asset? And just how you were thinking about valuation?

Sure. Great question. So we engaged a global brokerage firm to go out and canvas to a global marketing campaign. We received a, I'll tell you, a higher level of interest than we expected. We had 10 offers. We went out and said we would -- we're flexible. We want to get the resort rebuilt. We believe it's a great asset. We'd like to stay in for some of the upside, but eliminate the funding obligations. It's kind of the criteria. We received 10 -- I believe, 10 written offers from various groups, from developers, to household name, private equity firms. There's a high level of interest. We did a series of rounds of bids. And the credibility and enthusiasm of the -- ultimately, the winning bidder stood out. They shared our vision for the asset. They were committed to getting it restarted very quickly. We believe they have the ability to execute well in the relationships with the local government to get it done. So based on certainty, execution and alignment, it made the most sense to go with this particular offer. We think it's going to be a good deal for them. For us, we think it's a good deal. Basically, if you kind of think about the math, basically with the $240 million of insurance proceeds and the $35 million we received on April 30, we get close to -- back to the value that we had in 2017. And then the profit participation is all upside from there. And that's likely -- if things go right, that's likely to be worth substantial amount of money. So we think the result is good. We think it's a good deal for a buyer. We think it's a very good deal strategically for us, in freeing up that capital to reinvest now, we think we'll really pay off for our shareholders.

Our next question comes from Chris Woronka with Deutsche Bank.

Mark, sounds like you're definitely pivoting more into more acquisitions of leisure-oriented stuff and give you credit for kind of being early on that many years ago. But the question is, obviously, there's a lot of capital out there, right, looking for similar stuff and not all that is necessarily as smart or as disciplined as you all are. So how are you going to find these acquisitions? Is it something that just has to have a value-add asset management opportunity on the back end or something else?

Yes. I mean I think we have 3 advantages in the marketplace. So it's relationships, expertise and synergies. So on relationships, as you know, quarter-after-quarter, we've been talking about this thesis for several years. And so our investment -- internal investment team and really our whole management team has relationships with many, many owners of these kind of assets we've been talking to for years. So we've built relationships. We've built contacts. We've built trust. So we think we probably have broader, deeper relationships in these kind of assets than any other public lodging REIT. So relationships are important, especially since we're starting to do off-market transactions. And then we have expertise. So we've been doing more of these. Our team and our asset managers are very adept at finding other revenue streams and understanding the revenue upside in these kind of assets. And so I think that gives us a real edge in our ability to underwrite them and ultimately execute on that once we buy them. I'd say the third advantage we have is synergies, because we are in many of these micro markets, whether that's Vail or Sedona -- Sonoma or Lake Tahoe, the ability to have relationships with other markets, but also when we can find an asset to buy, hopefully, off-market and there we have synergies, right? We can have 1 GM over both properties. We can cut out 1 Director of Revenue on sales, but there's just a lot of synergies, especially when you're talking about smaller assets, those synergies can be very powerful on kind of the return profile. So we think those relationships, expertise and synergies give DiamondRock an edge as we execute over the next couple of years.

Our next question comes from Michael Bellisario with Baird.

Good morning, everyone. Mark, just back to The Lex, what are the risks to closing this deal or bidding across the finish line? It seems like a longer than normal closing period you guys have lined up.

Sure. So it's a well-known and well-financed buyer. The -- it's a $5 million nonrefundable deposit. They actually posted a second deposit in the coming weeks to increase that amount. And the timing -- the timing is due to the way their endowment funds are coming in. So they're all set. It's just we had a line up to closing sequentially with the way their funding works. So I have high confidence they're going to close. There's -- nothing in life is guaranteed, but we have the substantial deposit. They're enthusiastic about the deal. They have a -- they've raised money around a New York thesis. They're enthusiastic and big believers in the rebound in New York City. That's kind of what they're investing for. So we think this asset lines up very well with what their vision thesis is. So we feel good about it, but the only contingency, they have a nonrefundable deposit. That's kind of the confidence builder. And we know it's consistent with how they've raised their money, and we know it's a very credible buyer.

Got it. And then just the timing of the sale? I know you've been pursuing it for a while. But how much of your motivation here is asset-specific versus any change you might have in your broader view of New York City going forward over the next 3 to 5 years?

Yes. I mean, New York City is still the -- it's the #1 city in the United States. It's got a lot going for. We just think there's a lack of visibility right now. You could certainly argue the bull-and-bear case in New York City, we believe. There are about 20,000 hotel rooms under construction in the market right now. There is -- it's top 2 supply market in the U.S. but there's a number of reasons, particularly in Midtown, it used to be encouraged and excited. So we think that just this opportunity allowed us to reduce our New York exposure. We remain 3 select service hotels, which we think is a smart place to play in that market. And allows us to accelerate our overall strategic goals of getting into more drive-to resorts. So it just seemed like the right time to pivot in the marketplace. Given that clarity, we are maintaining an allocation to New York, it's just a lower allocation as we move forward.

Got it. And then just one more quick one for me on Frenchman's. Maybe could you provide any details on what needs to occur there for you to be in the money on the earn-out in terms of hurdles? And then what's your base case for timing of this potential payout?

Yes. I mean, there's a lot of factors that go into it. So there's -- the construction cost and the basis in the asset. There will be the ramp-up time line. I think we have the similar underwriting as the -- as our partner on this or the person who bought it. So probably, if I had to guess, and this would be a guess, it would be about 4 or 5 years until they move to kind of realize all their equity value on the asset. And the way the accounting works is we revalue it every quarter. And the more we think it's certain, the more -- more like we are recognizing the gain as we move forward. There's hurdle rates, and it's an IRR hurdle rate to them. And there's a very complicated waterfall where we get 100% at one level, and then we get 20% after a certain other threshold. But we have a series of confidentiality agreements around the particulars of that.

Our next question comes from the line of Anthony Powell with Barclays.

So the resort performance was great, but the urban hotels continue to burn cash. I guess, as you look forward to the summer and the fall, what's the prospect for those hotels to get back to breakeven? Can they get back to breakeven with this leisure demand as cities reopen? Or do you really need that BT and group to come back for them just to get to breakeven?

Anthony, this is Jeff. It's going to vary a little bit by hotel and by market. But I would tell you that we are seeing increasing occupancy on the weekends in our urban hotels throughout first quarter, and it looks like that's continuing in the second quarter. I do think, ultimately, to drive meaningfully profitable in the back half of the year, you are going to need to see some level of BT and group come back in the third and fourth quarter is really what our expectation is.

Got it. And maybe shifting gears to, I guess, acquisitions. You've talked more about buying other hotels in your current leisure markets, which is a bit new. Just curious more disclosure on that. And would you consider getting into different, I guess, micro resort markets or direct-to resort markets in the future?

Yes, this is Mark. So on the acquisition, it's -- obviously, we have a leg up in the existing markets where -- and we like them, that's why we bought hotels in those particular micro markets. We think we have a leg up of synergies, and we have deeper relationships in those markets. What we've targeted overall, I was just going back and looking at our strategy that go next to strong growth, we have about 50 micro markets targeted throughout the U.S. And so it's other markets like Jackson Hole and things that you would think have similar characteristics to the markets we're in now. So we're not wedded only to the markets we're in. We are actively working on other opportunities. We are concentrated. If you look at kind of our deal sheet, it is primarily off-market deals. We do think the pricing has gotten ahead of itself on some of these fully marketed deals. So we're spending the bulk, 80% of our energy on off-market deals. Not that we couldn't do a marketed deal and maybe have a different twist. But primarily, our energies are dedicated to off-market transactions. Jeff, do you have anything to add to that?

Yes. No, I agree with that, Mark. We do have some advantages in markets we're already in, but they're -- we're always scouring for sort of the next growth market that we think has maybe some built-in barriers for development and that we're seeing characteristics of increased demand. So I don't like to talk too much publicly about markets we're looking at, but I think those are the characteristics.

And what are the seller motivations in these markets for -- especially for off-market transactions, I mean, theoretically, they can market and get higher pricing. So just -- why are these transactions being held off-market?

Yes. Sometimes, they've been held in families for a long time. They look at possibly kind of tax consequences of holding longer. Every one of these deals sort of has different types of characteristics, diverse partnerships, things of that nature.

Yes. I'm trying to think the -- right now, Anthony, the 2 of the deals that pop up that we're looking at, it's partnerships where you have, the sensitivity between one partner who probably is more inclined to sell and another who is not where there's complication. So doing a tailored deal that meets their needs very quietly is often better for them to execute than to do something that may fail. If they do a full marketed deal and may create more noise, if you will, that they don't want.

Our next question comes from Floris Van Dijkum with Compass Point.

I wanted to talk about, obviously, the sale of The Lex is going to increase your resort exposure. It sounds like the acquisitions you're contemplating are going to increase your resort exposure. Do you have a percentage of your portfolio that you want to be? Will you be a pure-play? I mean, are you considering potentially exiting out of your remaining urban hotels as well?

Yes. Good question. We've -- we're currently at 40% of resort and lifestyle drive-to markets, and we'd like to get that certainly to 50%, which I think we could do relatively easy with the capacity we have now. And ultimately, we probably end up between 50 and 60. We think that will distinguish us among all the other investment choices. But we do like the 3 legs of the lodging stool. We do like having BT and some group and various things. Over an extended cycle, things do move at different times. So we would never want to be, I think, vulnerable to some of those movements. So we'll keep a diversified portfolio. But clearly, when investors are thinking about their options. We want to distinguish ourselves, but having more of these drive-to and leisure markets. And then the other factor that we're really focused on is having an unencumbered by management portfolio. So today, with the exception of 2 hotels, basically, we have terminal agreements at all of our properties for management. That gives us the ability to execute better on asset management. We think it gives us higher exit value or lower cap rates. And I think some of the results on the success -- our asset managers are very talented, but they have more control over the properties where they can -- they've terminal management agreements as managers will do, what we think is in the best interest of the property. And we have great alignment. Also with the brand management, they do what they think is best. Sometimes we agree and sometimes we don't, but it's certainly harder to get them to do everything that you think is the right thing to do for the property.

Thanks, Mark. Maybe one follow-up. In terms of your sort of -- your stabilized EBITDA. I know you're not -- nobody is giving guidance right now for this year or for next year. But the cost reductions that everybody talked about and that you alluded to, are you thinking somewhere between 1% and 2% of your cost base should be eliminated once everything settles down?

Floris, this is Jeff. I think the way we've been thinking about it is the transaction we did with Marriott that converted our hotels from managed to franchise is unique to us of about 50 basis points improvement in our EBITDA margins on a 2019 pro forma basis. And then beyond that, I think, as Mark made a comment in his remarks that when we look at our open hotels, or I believe our resort hotels in this quarter versus 2019, on lower revenue, we had about 80 basis points better margin. So I think we look at those as indications about where cost reductions and margin improvement can go in the future. And like I said, it's sort of 50 basis points on top of whatever the industry can generate at the hotel level. One point I would make is that I recognized on our call and other calls, people have asked about labor, I actually think there's an opportunity to the extent there are in some markets or in some situations, shortages of labor, it does give rise to the opportunity to redo the labor model in those situations, whether it's increased usage of digital check-in or, again, changing customer behavior around room cleaning and things of that nature. So I think we're encouraged on that front.

Our next question comes from Chris Darling with Green Street.

I just want to go back to New York for a minute. And I'm wondering if you have a view on the city's proposed zoning amendment that would require special permits to construct a new hotel in the city? And were that to pass, I'm wondering if that changes sort of your long-term thinking about your remaining hotels in the market?

Yes, it's a great question. So let's look at the facts. So the M1 zones were rezoned with a similar special permit requirement. And I think since that passed 2 years ago, there's been virtually no new building permits pooled within those zones. So if they adopt something similar for the entire city, which is the proposal and legislation that's moving through right now, we would expect that it would have a significant impact on supply after all the stuff that's permitted, it gets done. So you're talking about 20,000 rooms under construction, plus there's a lot of other permits that could be pulled before the new law would go in. So I think it means that the long-term prospects for New York look brighter because of the kind of supply constraint from new legislation. But that's not going to impact the supply over the next 36 months. So they'll still need to pull through that. But I think it's very easy to build a more bullish case for New York over the 5 to 10-year horizon, certainly the 10-year horizon. But they'll have to work through the existing supply that's under construction now.

Our next question comes from Austin Wurschmidt with Keybanc.

I'm curious how deep the pool of qualified bidders for The Lexington was maybe versus other periods that you've shopped the hotel. And are you able to move forward with an acquisition today? Or would you have to wait until The Lexington closed just based on what's in your amendment to your credit agreement?

So Jeff, maybe -- Jeff, maybe you want to answer the capacity question. And then Troy we'll shift over to you to talk about the marketing process and what you think about the level of interest in New York assets at the moment.

Sure. Yes, Austin, to answer your question, I mean, we do have capacity. Obviously, it's a function of the asset size that you'd be -- we would be considering, but we do have the capacity to move ahead with an acquisition before the Lexington were to close. Troy?

Yes. So we -- like with Frenchman's, we engaged an international broker and did a full marketing on Lexington back in the fall and early winter this year, and we had some good interest. I'd say there was a half dozen sort of qualified bids that we worked our way through to get to this one. I mean, there's not -- there was not sort of an oversubscription to New York acquisitions in the middle of the pandemic. But we were pretty pleased with the number of interest in this particular property. So I think it was a good execution.

Got it. Appreciate that. And then just on ADR. So I'm curious how you think ADR trends over the next several quarters as these additional hotels reopen? Because you guys did see a modest increase in ADR versus last year in 2019 for the overall portfolio. Even though when you kind of look at the individual buckets of the 26 open hotels and the 4 that were closed or partially opened for the period, were down versus those 2 periods on a stand-alone basis. So I guess there's a little bit of a mix factor that's going on right now. So how do we think about that trend over the next few quarters?

Tom, you want to talk about rate trends that you're seeing at properties?

Sure. I think the -- when we look at -- obviously, the big driver over the next several quarters will be group and corporate BT as that comes back. Our group pace for 2022, our ADR is up to prior year and to -- we're actually measuring off of 2019, where we were in '19 going into '20, just like where we are now in '21 going into '22. The citywide pace is very strong across our major markets. In Boston, once again, we're -- it's almost in line with where we were in '19 going into '20, which was a record year, at about almost 380,000 rooms. And at that point, in '19, we had 400,000 in. So we're close. Chicago is flat to what it was in '21 compared to '19 going into '20. So those are 2 really good indicators. And that will help -- those conventions actualize, that will help the demand and lift up transit in those markets. It's really going to be a function of the corporate business coming back and then -- and maintaining those rates, which we believe we can. And right now, our rate is up for 2022. And then really the leisure stuff, the transient leisure stuff will -- it's going to be case by case, market by market. We have some unique tools and pricing strategies. And the way we do look at rate efficiency in those markets by room type, by lead time, by category, by segment, we understand the buying behavior, and then we actively target markets that are looking based on the data. So it's -- I think the leisure side is going to continue to do well. And even if it pulls back a little bit, we're confident that to maintain rates -- we'll maintain rates. So I think we're in a good position to see rate growth. The one thing that we can't really understand is the corporate business transient in the urban markets. Once again, the technology, the trip bands of the world as rates go down in those markets, the computer obviously can just switch rates. And so all it takes is a few bad apples in the market to start dragging those rates down on the big accounts. So that will be -- what we'll be monitoring and looking at how to defend against that, just make sure we're focused on static rates versus dynamic rates in markets that are oversupplied and maybe are softer so that we can maintain our base on rate. And then everything else, it's there's no advantage to discounting rates. So I think we're paying attention to it. We have some really good tools that we use. And I think -- and we provide a lot of guidance. So that -- we're confident we can maintain rates.

Thanks, Tom. A couple of other comments. So I think we're seeing good rate integrity with our corporate accounts. There is going to be some mix issues as we get back to high occupancy levels where we can really control the mix shift within the properties. And so you'll see that as the mix gets better, as we move through the next 12 months, that will help the rates. In the short term, though, I would note, we're all -- we are focused primarily on profit here. So we'll be reopening some of our closed hotels, which we've done over the last couple of weeks. So that will lower ADR because of the mix in reopened hotels. But this still means more profit, and that's -- we're all about profit and getting to -- getting higher levels of dollars coming to the bottom line.

Our next question comes from Patrick Scholes with Truist Securities.

Earlier, you had mentioned an action plan to hire employees. Does that action plan include raising wages? And then I have another question.

Yes, Patrick, this is Mark. And yes, in some markets, it's going to be some wage adjustments. There's only so much we can afford in our model. So we think the labor pool in many markets is still good. In some markets, it's very tight. Some markets, we've had to provide incentives to get people to come back. I would imagine this fall as the unemployment, called super enhancements burn off after September, that's when our demand should really be surging. So there'll be some overlap in, kind of, improving incentives for people to get back to work, just while we're going to really keep them in the fall. Yes. But we pulled out -- we're being creative. We're pulling out all the stops. But there is some wage pressure in certain markets.

Okay. And then, I guess, since COVID began last March, what would you say is your accumulated deferred CapEx to date to this point?

Yes, Patrick. So the good news for DiamondRock is we in with a mostly renovated portfolio. So if you look at our percentage of revenue over the prior 3 and 5-year periods versus the peer set, it was running between 12% to 14%. So we invested heavily in our portfolio. We had very, very little, we'll call it, deferred maintenance going into this. And then we continue to invest in the repositioning of our properties. Some rooms redos that would have happened got pushed a year or 2. But for better or worse, there wasn't a lot of wear and tear on some of our urban hotels over the last 12 months. So that makes sense and really isn't -- didn't lead to any accumulation of deferred maintenance. And then if you look at our 5-year CapEx plan going forward, it's pretty normal levels. There's not a deferred as these properties were in good shape going into this event.

And our last question comes from Bill Crow with Raymond James.

If I go back to the labor question, and Jeff, your discussion about the ability to kind of redefine what labor is needed in hotels. Isn't there a caveat to this discussion that you can do that as long as the guests don't start to complain? And we heard yesterday on another call that the guest satisfaction scores are starting to reflect some of the labor shortages in the hotels. How do you think about balancing the staffing model with what guests are used to?

Yes. So Bill, I -- we're super focused on guest satisfaction. And if you look at our TripAdvisor scores for our overall portfolio, they've actually increased despite tight cost controls, year-to-date. So we're encouraged by that. I think it depends a little bit on the kind of hotel and kind of business that you have, about your ability to satisfy your customers even with more restrained labor models. But we're very focused on that. I think it's more problematic for different assets than we generally own. But we're feeling good that our operators worked with our asset management teams, have been able to raise TripAdvisor scores despite very tight labor models. Tom, do you have additional color you'd like to add?

Bill, I would say that the heavy focus really -- look, we're going to -- we have to -- the people that actually are doing the work, we have to adjust and adapt and create incentives. The goal is to create incentives that reward behavior and not just elevate everyone's wage, right? Try to create incentives for when the business is good. And when the business gets a little soft, that comes down. So we're looking at basically incentives across -- in all those markets. And then I think the bigger thing that we've seen is FTE creep fixed, FTE creep, we've established baselines for the portfolio at occupancy levels, right? So we looked at every type of fixed position. If it's a greeter, a supervisor or a manager, back of the house, accounting, administrative, where those are all, in my mind, fixed FTEs, in our mind, fixed FTEs. So we've created benchmarks for all of our hotels. And then we're tracking those every month. And we're making sure that the positions that add value and improve customer experience and touch the customer, those ones are the ones that go back first and drive revenue. And the ones that maybe aren't as necessary, and they were just kind of FTE creeps over the last 4 or 5 years, those are the ones that we're going to really pull back on. And that's the focal point. That's a big part of it. Truthfully, the people that do the work, that we can't -- we have to -- there's no way to around getting rid of those people. They're critical to our success and to the guest experience.

And this concludes our Q&A session for today. I will turn the call back to Mark Brugger for his final remarks.

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

Thank you. And this concludes today's conference call. Thank you for your participation, and you may now disconnect. Good day.