Brett Stewart - Vice President, Finance Mark Brugger - President and Chief Executive Officer Sean Mahoney - Chief Financial Officer Robert Tanenbaum - Chief Operating Officer Troy Furbay - Chief Investment Officer.

Jeff Donnelly - Wells Fargo Ryan Meliker - Canaccord Genuity Anthony Powell - Barclays Austin Wurschmidt - KeyBanc Capital Markets Smedes Rose - Citi David Loeb - Robert Baird Chris Morocco - Deutsche Bank Bill Crow - Raymond James Thomas Allen - Morgan Stanley Shaun Kelley - Bank of America Lukas Hartwich - Green Street Advisors Jeff Donnelly - Wells Fargo.

Good day, ladies and gentlemen, and welcome to the DiamondRock Hospitality Company's Second Quarter 2015 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to your host for today, Mr. Brett Stewart, Vice President, Finance. Sir, you may begin..

Thank you, Ben. Good morning, everyone, and welcome to DiamondRock's second quarter 2015 earnings call and webcast. Before we begin, I would like to remind participants that many of our comments today are considered forward-looking statements under federal securities law and may not be historical fact. They may not be updated in the future.

These statements are subject to risk and uncertainties as described in the company's SEC filings. In addition, as management discusses certain non-GAAP financial measures, it may be helpful to review the reconciliations to GAAP set forth in our earnings press release.

With me on today's call is Mark Brugger, our President and Chief Executive Officer; Sean Mahoney, our Chief Financial Officer; Rob Tanenbaum, our Chief Operating Officer; and Troy Furbay, our Chief Investment Officer.

This morning, Mark will provide a brief overview of our second quarter results and transactions as well as provide an update on the company's outlook for the rest of 2015. Sean will then provide greater detail on our second quarter performance and discuss our recent capital markets activities.

Following their remarks, we will open the line for questions. With that, I will now turn the call over to Mark..

Thanks, Brett. Let me start by saying that we are very pleased with our results this quarter and are encouraged by the continued strength of underlying lodging fundamentals. Demand grew at 2.7% in the quarter and continue to significantly outpace new lodging supply.

With continued strength in both transient and group demand, Industry RevPAR growth was primarily driven by ADR increases as operators are able to raise rates and improve profitability. We expect these trends to continue throughout this year and next. Turning now to our portfolio.

Our solid results for the second quarter were in line with our expectations. DiamondRock's second quarter RevPAR of a $184.50 set a new company record for reported quarterly RevPAR. Our pro forma portfolio RevPAR grew 6% and was driven by a 5.6% increase in average daily rate.

Occupancy levels at our hotels were also at company record levels, averaging nearly 84%. Importantly, the portfolio delivered strong bottom-line results as well.

Same property hotel adjusted EBITDA margins, which excludes the newly built Hilton Garden Inn Times Square grew 166 basis points during the quarter, leading to over 11% EBITDA growth versus last year. Including the Hilton Garden Inn Times Square, our year-over-year same property adjusted EBITDA grew by more than 15%.

The strong results were broad-based during the quarter with 13 hotels growing adjusted EBITDA margins by more than 200 basis points. Our asset management efforts were particularly effective in our food and beverage program as the hotels achieved over 300 basis points of margin expansion in that department.

Although still a challenging environment, our New York City hotels met our expectations and enjoyed exceptional occupancies of 92%, 94%, 95%, 96% and 98%.

These hotels, excluding the non-comp Hilton Garden Inn Times Square finished the quarter with positive RevPAR growth of almost 1%, which marks the second consecutive quarter that our New York City hotels have outperformed in the Manhattan market by more than 300 basis points on an absolute basis.

Importantly, the Lexington achieved a RevPAR growth of approximately 4% during the second quarter and the New Hilton Garden Inn Times Square is still on track to generate a healthy 9% EBITDA yield this year. The market and our outperformance are consistent with our expectations going into the year and into the second quarter.

And we expect that trend to continue for the balance of 2015. Excluding our New York City hotels, our portfolio pro forma RevPAR growth was 7.2% for the quarter, which gives us great confidence in the continued strength of lodging fundamentals nationally.

Similarly, our pro forma hotel adjusted EBITDA margins grew 227 basis points excluding our New York City hotels. Turning to our recent acquisitions. Over last year, we have bought five hotels. The acquisitions are playing up better than originally expected and delivering solid returns. The Inn at Key West is generating an NOI yield of over 8%.

The Hilton Garden Inn Times Square is also interacted to deliver an over 8% NOI yield in our first calendar year of ownership, which is a really remarkable return for our hotel in this location. But the real home run has been our Westin Fort Lauderdale Resort. We've implemented our best practices at this hotel and it is yielding some stunning results.

We now expect to increase NOI this year by over 50%, and are forecasting to take out $3 million dollars of operating costs. This should led to over 1,000 basis points of profit margin expansion this year. Our NOI yield in this deal is now well over 8% and the purchase price represents less than 11 times 2015 EBITDA multiple.

Our fourth acquisition completed earlier this year, expanded our West Coast footprint with the addition of the Shorebreak. The hotel is off to a good start in the second quarter with 7.5% RevPAR growth and almost 500 basis points of margin expansion. And last month, we announced that we acquired the Sheraton Suites Key West.

The all-suites hotel is directly to access and has some of the largest rooms in Key West, one of our favorite markets. Our $94 million or 511,000 per key purchase price represents a solid 12.8 times EBITDA multiple on 2015 forecast.

We are very optimistic about its growth trajectory as its RevPAR grew a robust 14.2%, and profit margins expanded by more than 450 basis points in the quarter. This acquisition also has a great value creation opportunity to convert the hotel from a Sheraton brand into an independent lifestyle hotel, which would likely occur in late 2016.

This conversion will allow us to eliminate more than $1.5 million of brand fees, implement a fee for parking, and re-concept the food and beverage outlets. As a result, we underwrote the hotel to generate between $9.5 million and $10 million of EBITDA upon stabilization with potential upside.

I should note that this acquisition also marked a strategic milestone for DiamondRock as now more than 50% of our portfolio is managed by third-party operators versus only one 10 years ago and only two five years ago. During the quarter, we also made progress on several strategic initiatives.

On last quarter's call, we announced that we will convert the brand managed Chicago Conrad hotel to an independently operated luxury hotel affiliated with Starwood's Luxury Collection. As expected, the transition this year led to underperformance in the quarter as a result of pending brand and management change.

The official transition will occur in early September, and we expect to realize the full potential of this great hotel over the next three years. With no other luxury hotel offerings within the Starwood system in Chicago, we believe that this is a compelling opportunity for us.

To briefly quantify the upside associated with the strategic brand change, we believe that there is approximately 17 points of RevPAR market share upside and at least $35 of rate potential from where we sit today.

Now before I turn the call over to Sean for a more detailed update on our second quarter results and on our capital markets activities, I would like to provide you with an update on our expansion option at the Boston Westin.

When the company acquired the 793 room Boston Westin in 2007, the deal included an option to lease land and build a 350 room expansion on a parcel adjacent to the hotel. With that option set to expire in mid-2016, we've spent considerable time carefully evaluating this opportunity.

As part of our comprehensive analysis, we conducted an RFP, engaged feasibility consultants, consulted a preeminent Boston developer and formulate the operating projections with Starwood. After carefully consideration of the pros and cons of the opportunity, we've decided not to proceed with the expansion for a few reasons.

One, the opening date in 2019 and funding for the expansion has a high risk of coinciding with the wrong part of the lodging cycle. And two, the risk associated with the development warranted a higher return threshold than what we view as achievable.

In the end, the company concluded that the investment capacity that would be used for this development is better allocated towards near-term acquisitions or future stock buybacks.

Sean?.

Thanks Mark.

Before discussing our second quarter results, please note that our reported RevPAR and margin data are presented on a pro forma basis to include the Shorebreak Hotel and Sheraton Suites Key West as if they were owned for all periods presented, and exclude the Hilton Garden Inn Times Square Central since it was not open during the comparable period of 2014.

Let me start by reiterating Mark's comments that we were pleased with our second quarter results. Our pro forma RevPAR grew 6%, exceeding industry upper upscale RevPAR growth of by 5.4%.

The top line outperformance was primarily driven by our ability to drive an average rate increase of 5.6%, supplemented by a 0.4 percentage point increase in occupancy. Our RevPAR growth also helped drive the bottom line with over 70% profit flow-through and 166 basis points of hotel adjusted EBITDA margin expansion.

For the year-to-date period ended June 30, the company reported pro forma of RevPAR growth of 6.8% which was the result of a 5% in the average rate and a 1.4 percentage point increase in occupancy. Year-to-date hotel adjusted EBITDA margins have expanded by 154 basis points.

During the quarter, the company reported adjusted EBITDA of $81.1 million and adjusted FFO per share of $0.31. I would also note that we recorded a $9.6 million non-cash impairment charge during the second quarter as a result of our decision to not exercise the development option at the Boston Westin. This charge was added back to our adjusted EBITDA.

Second quarter results benefited from strength in both the business and leisure transient segments, with combined revenues from these segments, growing 8.8%. Our group business also performed well this quarter with revenue growth of 6.7%, driven by a 6.1% increase in rate and a 0.5 percentage point increase in rooms sold.

Our group segment was led by Frenchman's Reef, the Chicago Marriot and the San Diego Westin. The recent positive trend of robust short-term group booking activity continued this quarter.

Our portfolio booked $17.8 million, up in the quarter for the year revenues during the second quarter, which was an increase of approximately 24% compared to the amount booked during the second quarter of 2014. Strength in short-term bookings was most notable at the Boston Westin and Fort Lauderdale Westin.

In addition, group spend on food and beverage and [ph] AV increased over 20% during the quarter, which we believe is a corollary to group confidence.

Finally, food and beverage results exceeded our expectations this quarter achieving 6.1% top line growth that coupled with tight cost controls resulted in over 300 basis points of margin expansion and 87% profit flow-through.

Group outperformance was a primary driver in F&B where banquet and catering revenues increased over 12% and margins grew a 190 basis points during the quarter. Now, let me highlight several individual hotel results. The Washington DC Western continue to gain traction in all segments during the quarter achieving over 25% RevPAR growth.

We expect the hotel to continue gaining market share and outperforming the Washington DC market, which has exceeded our expectations this year.

The 41 new rooms created at the Boston Helton contributed to a 22% increase in quarterly adjusted - hotel adjusted EBITDA that 93 renovated rooms commanded over $110 rate premium from May through July, which exceeded our expectations. The Chicago Marriott delivered 12% RevPAR growth and 288 basis points of margin expansion.

These results benefited from several factors including a strong convention calendar, several special events taking place in Chicago, including the NFL draft, outsized rate growth from the recently renovated rooms, incremental demand during the Blackhawks' run to the Stanley Cup and the recent amendment to the management agreement.

Similar to the Boston Hilton, the hotel is able to charge a rate premium from the renovated rooms, which was approximately $50 during the quarter and ahead of our expectation. The San Diego Westin had another outstanding quarter, achieving 12.3% RevPAR growth. The hotel continues to benefit from its recent renovation and repositioning.

Year-to-date RevPAR is up 12.8% and margins have expanded 272 basis points. We expect the hotel to continue to outperform for the balance of 2015, where we expect the hotel to generate double-digit RevPAR growth.

Finally, the Hotel Rex in San Francisco had another great quarter with RevPAR growth of 18% and hotel adjusted EBDITA margin expansion of 330 basis points. We continue to be very bullish on the future of this hotel, which is expected to generate an attractive NOI yield over 9% during 2015.

Partially offsetting the positive trends in the quarter was the challenging operating environment in New York City. We remain confident in the positioning of our New York portfolio, which represents approximately 16% of our pro forma hotel adjusted EBITDA.

Some specific data points that support our confidence include; second quarter RevPAR growth for our New York portfolio was 0.8%, which outperformed the market RevPAR growth by approximately 300 basis points. We expect our New York portfolio to outpace the market and generate RevPAR growth of 3.5% to 5.5% during the second half of the year.

The Lexington Hotel, which represents close to half of our New York portfolio, continues to gain traction. Over the last 12 months, the hotel has gained over a 19 percentage points of market share.

Finally, the Hilton Garden Inn Times Square, which represents over a quarter of our New York portfolio is continuing to ramp up and is currently tracking ahead of our underwriting.

In addition, the Chicago Conrad is currently transitioning from Hilton's sales engines and to Starwood's Luxury Collection, which is expected to be noisy through the end of the third quarter. The transition caused a 7.4% decline in the hotel's second quarter RevPAR.

Although, we expect the transition to negatively impact the hotel's third quarter, we are very bullish on the prospects for the hotel after rebranding the Starwood's Luxury Collection. Before discussing the balance sheet, we wanted to provide some color on our group outlook for the balance of the year.

As a reminder, we still expect 2015 group revenue to increase 4%, almost exclusively driven by the rate growth. However, we expect both industry and DiamondRock group business to be soft during the third quarter. Our guidance implies the group revenue will decline in the high single digits during the third quarter.

The soft third quarter group segment, which was factored into our prior guidance is the result of holiday timing and weak citywide activity in our large group markets including Chicago, Minneapolis and Boston. We expect the business transient segment, which commands a $50 rate premium to group to significantly mitigate the group's softness.

We expect group to reaccelerate in the fourth quarter where group revenues are expected to increase in the mid-single digits. In addition, please note that we've raised guidance for hotel-adjusted EBITDA margin expansion.

Our new guidance is for 125 basis points to 175 basis points of expansion, which is up from our previous guidance range of 100 basis points to 150 basis points provided last quarter. Before turning the call back over to Mark, I would like to touch on our balance sheet, which we believe is among the best in the industry.

Being prudent towards of our investor's capital has been a cornerstone of DiamondRock's strategy, since we founded the company. We have over a decade long track record of consistently maintaining a straight forward and low-risk balance sheet.

This discipline has allowed us to return close to $600 million in cash dividends to our shareholders since our IPO. We have made great progress towards achieving our initiative to reduce annual interest cost by several million dollars through proactively refinancing our near-term debt maturities.

We have a focused plan to efficiently reduce borrowing costs, extend and stagger our maturity schedule and expand our pool of unencumbered hotels. Recent financing successes, include refinancing the Renaissance Worthington with a new $85 million 10 year mortgage, bearing interest at a fixed rate of 3.66%.

Refinancing with JW Marriot at Cherry Creek with a new $65 million 10 year mortgage, bearing interest at a fixed rate of 4.33%. Pre-paying the Frenchman's Reef Marriott mortgage with excess proceeds from Worthington and Cherry Creek.

And in total, we have refinanced approximately $150 million of 5.7% interest rate debt with new 10 year fixed rate debt bearing interest at approximately 3.95%, resulting in annual interest rate savings of approximately $2.7 million. We are pleased with the success of our refinancing initiatives.

We will continue to execute on our action plan to refinance our remaining near-term debt maturities. Specifically, we intend to raise between $200 million to $250 million through encumbering one or more hotels during the balance of the year.

These proceeds will be used to repay the $203 million loan, secured by the Chicago Marriott, which is pre-payable without penalty in early 2016. In total, we expect our 2016 interest expense to be approximately $8 million lower than this year, which represents $0.04 of incremental FFO per share.

After executing on our financing strategy for the balance of the year, we expect to end 2015 with over $250 million of unrestricted cash, over half of our hotels unencumbered with an aggregate cost basis of $1.6 billion. And undrawn corporate revolver and over a $100 million of investment capacity. I will now turn the call back over to Mark..

Thanks, Sean. As Sean mentioned, we are encouraged by our second quarter results and by the continued strength of underlying lodging fundamentals. Our recent acquisitions continue to exceed expectations. Our asset management initiatives, including our ROI projects continue to drive profitability.

And our refinancing activities have strengthened our already attractive leverage profile. Today, we updated our full-year guidance raising some components. We reaffirm our RevPAR growth expectation of 6% to 7% for the full-year.

We raised our adjusted corporate EBITDA guidance to $266.5 million to $276.5 million, increased $2.5 million for acquisition of the Sheraton Suites Key West. And similarly, we increased our adjusted FFO per share guidance to a range of $1 to $1.03.

We've raised our full year hotel adjusted EBITDA margin growth guidance to be in the range of 125 basis points to a 175 basis points, with the midpoint now 50 basis points higher than when we first introduced 2015 guidance, and ahead of the increased margin guidance range provided on the first quarter earnings call.

As Sean mentioned, for the third quarter we expect pro forma RevPAR growth to be in the range of 3% to 5% reflecting a tough comparison to last year's third-quarter growth of 18.6%, as well as the shift in holidays and the spread of [indiscernible] calendars.

Importantly, we want to highlight that we expect RevPAR growth to reaccelerate in the fourth quarter, which should be strong group quarter for us. Our expectations are for the full year remains unchanged at 6% to 7% RevPAR growth. Further, we expect our New York City assets to continue to gain momentum as we move into the back half of the year.

We expect our New York City portfolio RevPAR growth to be in the range of 3.5% to 5.5% for the second half of the year. Lastly, before I open up for questions, let me provide a quick update on our investment pipeline. We remain sensitive to our cost of capital, which has become more expensive since January.

As I noted earlier in the call, the acquisitions over the last year have generally exceeded our expectations and enhanced the growth prospects of DiamondRock. We will continue to actively evaluate opportunities that meet our criteria and create shareholder value. But we'll remain disciplined when it comes to price, size and complexity.

We are fully cognizant that our cost of capital has increased, while we currently have more than a $100 million of investment capacity. We've already made two great advice this year and we considered a successful year, even if we don't do another deal.

With that, I would like to sum up the prepared remarks by saying that we feel very good about the industry, our portfolio, our capital allocation discipline execution and the momentum from our asset management initiatives. We are confident that all of these will allow us to continue to create value for our shareholders throughout the lodging cycle.

We would now be happy to answer any questions that you might have..

[Operator Instructions] And our first question comes from the line of Jeff Donnelly of Wells Fargo. Your line is open. Please go ahead..

Good morning, guys. Just a few questions and first, Mark I want to compliment you on the decision process for the Boston expansion..

Thank you..

Hey, just I guess, concerning the Conrad in Chicago can that's being converted over the Luxury Collection.

Can you just talk about who you think in the most direct comps in that market for that hotel going forward?.

Sure, Jeff, it's Rob Tanenbaum, good morning. The comps for that would be the JW Marriott and the Loop, the Park Hyatt, and [ph] W and the Loop as well..

And I missed this, I think Mark was going through it.

How you - how do you guys think that this hotel will ultimately position out versus those peers, and how long do you think it will take to achieve those levels in terms of like RevPAR index for example?.

So, Jeff, so in the prepared remarks we said, we think there is about 17 points of market share opportunity versus where the hotel fits today. And that would translate into about $35 - in today's dollars about $35 or a little more than in $35 in [ph] REIT.

And as far as timing, we would expect to gain traction fairly quickly but usually in the brand conversion of - to fully reap the benefits takes about two or three years..

Okay. And just to switch gears, I just wanted to clarify.

Do you anticipate any, say labor related issues at your Kimpton property that which your peers experienced up in San Francisco?.

We did not - we do not have any reasonably, we would have any activity out of the norm, at that hotel..

And then, at Bethesda, I know it's not a significant asset for you, but there has been some talk about Marriott relocating its corporate headquarters long into the future from now.

Do you know how much the business that hotel stems from Marriott's headquarters proximity and I guess how does that shape your wholesale analysis on that property?.

It's a demand generator certainly for the hotel Lockheed Martin is still in that same office park. There is about 5 million square feet total of office surrounding the hotel. Marriott's lease is not up for another six or seven years, so it's still quite a ways out there.

But that asset, I think based on its average RevPAR, if you kind of call what's non-core and what will it be on our disposition target list. I think for a variety of reasons that one is certainly on that list..

And Jeff, this is Sean. Marriot, as a demand generator is under 10% of the special corporate demand at the hotel mostly mid-week..

Okay. And just one last question, concerning the Vail asset, I recognized it maybe a little early for this, but that hotel actually had a pretty good revenue growth in the quarter. I'd say largely outside of the ski season, actually at the rollout schedule, but I know Vail Resorts has been looking to build its summer business.

I was curious if that sort of an early indication of that success or do you feel that driver so largely ahead of you guys that hotel..

Sure. Jeff, this is Rob again. The summer business has been growing also due in part two, one our Group business of the hotel as well as due to the developments going on at Vail Mountain..

Hey, Jeff, I would just add that Vail's been one of our best buys and we're sitting here on 2015 numbers about 14% unlevered NOI yield on that asset. So it's enjoyed the benefit of the epic past the investment that Vail's made in the summer and the continued evolution of the large area of Vail..

Okay. Thanks, guys..

Thank you. Our next question comes from the line of Ryan Meliker of Canaccord Genuity. Your line is open. Please go ahead..

Hey, guys. I appreciate the lot of the color that you gave us on the Boston development and decisions not move forward with the option. I'm wondering, how did you factor in the possibility of somebody else taking over the plan - our development plan that might directly compete with your Westin there. Thanks..

Sure. Good morning, Ryan. This is Mark. So we obviously spend a lot of time evaluating the opportunity, the economics to us. The reason the economics and again that we didn't think that we're enough to offset the kind of the negatives of the timing and the development risk.

It works really well as expansion for our existing hotel because, you can leverage all that infrastructure, to say actually it sits behind our hotel off the main street. So, it will be a less desirable site for any other hotel developer. So, it have to go out for RFP get a building permit.

Our expectation was, if it does become a hotel, it's unlikely to happen this cycle, it could happen. But there is so much demand in what's evolving in the Seaport, even if it did, we don't think that it would have an impact on our, a negative impact on our hotel..

All right. Thanks. That's helpful. And then Rob, I guess a question for you the new Hilton Garden Inn Times Square ran at almost to 100% occupancy.

I think 98.5%, do you feel like you left some rate on the table in the quarter?.

Ryan, we're continuing to work with our operators on bringing up our non - our discounted business and we believe there is opportunity to further to drive rate..

Yeah. Okay. I've just looked at that and I was tend to think when we're running that higher occupancy, we're leaving some rate on the table, but I guess the market was challenged in the quarter two.

And then Rob, I guess, as we think about the margins, you guys obviously put up really good margin numbers, this quarter, you've got good guidance for this year, I guess how much juice is left in the margin expansion story beyond simply the cycle play?.

We feel there is quite a bit of margin expansion available to us Ryan. In particular, as we continue to focusing on our food and beverage margin, our rooms revenue drive as well. And just overall labor containment as we go through all of our properties..

All right. That's it from me. Thanks guys..

Thank you, Ryan..

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

Hi, good morning. Going back to New York.

How do the supply growth outlook look for the rest of the year, and also into the next year for your marketing and also for your submarkets?.

Anthony, this is Mark. So supply this year looks like it's going to be less than what it was originally anticipated as a number of developments we got pushed off. We think it's going to be - it's going to be marginally higher next year, although in our particular markets the bulk of our investments are in Midtown East.

Midtown East actually has some of the lowest supply numbers in the Manhattan market. Additionally, they're talking about taking the 1,000 keys out at the Waldorf Astoria over the next couple of years to residential conversion that would obviously be an enormously positive impact to the East side and to the supply picture there.

So we actually feel pretty good about where our investments are and what's happening in the city..

Got it. And just further on New York, it's good to see the Chelsea asset do a lot better this quarter.

How much more do you have there to improve the performance relative to these trends?.

Yeah. If we look at the recent times, and obviously we've made a manager change just in June. We continue to - that's a revenue management game there. So, we now have the right players in place.

We've lost about eight points of market share that we don't think we should have lost at that property over the last year, so we would certainly anticipate gaining at least that much back..

Anthony, this is Rob. For July alone, we had a 13.3% increase in RevPAR. Our index was over 100% for July, which is the first time in 16 months, so we feel very confident in our new approach of this asset..

Got it. And just one final on Boston.

What's the exact process for, I guess, that opportunity to go back out to [indiscernible] and how - what's the timeline for that?.

Sure, so we have a - our current option it goes through to the early 2016, but the way the option works is, we would probably - we want to be good partners with the MCCA who owns the land there. We'll probably allow them to terminate the lease early, if we don't put up deposit at end of this month, we would terminate the lease.

And then they would have to go through a whole new process. It still needs to get a building permit and design and there's - there's a lot of pieces that would have to fall in place for them to bring it back out to RFP..

All right, great, thank you..

Thank you. Our next question comes from the line of Austin Wurschmidt of KeyBanc Capital Markets. Your line is open. Please go ahead..

Hey, good morning, guys. Just a question, you mentioned stock buybacks being on the table, and I was just curious if you had and how large of a program you have in place to the extent that you would move forward with buying back some stock.

Would you guys consider or look to balance that with dispositions in order to maintain your dry powder today?.

Good morning, Austin, its Mark. That's a great question. So, we do believe that our stock is trading well below NAV today. Frankly we're trading - we were trading over 30% higher at the beginning of the year. On buyback - buyback program, excuse me, we currently have in place a $200 million program, that's fully available to us.

It's obviously a serious topic with the board, but ultimately we're trying to balance out our capital allocation options, leverage and timing. As far as funding it with dispositions, that would certainly be on the table.

As we mentioned earlier, we do have investment capacity, but we are looking at some other opportunities that we'll continue to balance those out over time..

Great, thanks.

And then, separately on the third party achieving kind of your longer-term target in terms of exposure to third party hotel operators, would you guys look to continue to drive that lower or are you comfortable where you are today?.

Yeah. I'd say we're opportunistic, we currently have 15. The three deals in our pipeline, that I mentioned earlier, none of which may come to fruition but all three of those are third-party operated. I would say we're opportunistic. Clearly, one of our strategic goals is to be 50-50.

So I think it will depend on where we can get the best returns for our shareholders..

And then lastly just a clarification. You guys in the release had mentioned the first phase at the Chicago Marriott Downtown included 200 rooms, it was revised to a 140 it looked like.

Did anything changed there or..?.

No, Austin This is Sean. It was the top five floors then it was 140 rooms there as well as 25 suites..

Okay. Thank you..

Thank you. Our next question comes from Smedes Rose of Citi. Your line is open. Please go ahead..

Hi. Thanks. I just wanted to ask you, you mentioned better results with your Chicago Marriott in part due to the amended management agreement.

I was just wondering, can you sort of quantify on an annual basis how much you think that will help the EBITDA at that property?.

Sure, Smedes. We think on a continuing basis, it's anywhere from $1.5 million to a little over $2 million in annual fee savings at the hotel..

Okay, thanks. And then, Mark, I'd be interested to hear your perspective.

Obviously this has been a very choppy second quarter for lodging companies and there's been a wide range of same-store RevPAR and a wide range of commentary about where we are and I'm just curious, maybe you could talk about what you guys are seeing for 2016, maybe on the group side that gives you some confidence that this cycle is maybe not ending faster than might have initially been expected?.

Sure, Smedes. So, I guess there's a couple of things going on that make us continue to feel good about where we are in the lodging cycle. Obviously, it's the supply picture, which we have pretty good clarity is good. But the - in the quarter, for the quarter group bookings continue to be very strong.

So the - if we look at the funnel, the funnel looks good. The realization of the opportunities in the last quarter were very good. On special corporate transient, transients led this recovery. It continues to be very strong where we saw obviously good strength in the second quarter.

It's too early to give you good feedback on special corporate negotiations for 2016. But clearly, the occupancy levels are at record levels. In a number of these markets, we feel like we have leverage going into those conversations.

And then the group, the group is really a market-by-market story, you've seen better F&B contribution this year, better AV outside the room spend, that's increased. But we really think group on a national basis it's improving, but it really depends what market you're in, what the citywide calendar looks like, what availability is there.

So that one, I think you're going to see some great results in some markets and some not great results, but it's really going to be specific to what's going on within those markets. So those are the trend lines we're seeing today..

Okay. And then just finally Sean, you - during the quarter you guys mentioned there were attacks I think at Frenchman's Reef that wasn't extended.

Has that been resolved at this point or could you maybe just update us on that?.

Yeah, we're still going through the process down there in St. Thomas and we'll be able to provide an update of that when we get it - when we - assuming we get it. We feel confident that we should get it, but we just have to continue and going through the process, and hopefully our expectation is that, that will happen in the third quarter..

All right. Thanks. Thanks, guys..

Thank you. Our next question comes from the line of David Loeb of Robert Baird. Your line is open. Please go ahead..

Good morning. I'd like to circle back to Boston and kind of take Ryan's question and turn it around.

Can you just talk a little bit about how you see those other opportunities, what kind of returns you see from those other uses of your capacity? And what - how that weighs relative to the potential return for - basically creating new rooms at discount where rooms in that marketer are valued..

Sure, David. Probably the best way to answer that question is to kind of recap some of the deals we have done in the last 12 months. Number of those deals, majority are over a caps on first year numbers - first calendar year numbers. Those are pretty compelling, I think particularly the efforts lead by Troy Furbay have been better than we expected.

But Fort Lauderdale, which we bought in December of last year not that long ago, that will be below and 11 times multiple of the EBITDA on this year's numbers. So if we can find special situations like that, that's certainly is compelling use or our allocation of our capital.

For the Boston Westin opportunity, we think it's a very interesting opportunity, it was not an easy call, but we think you need more than 200 basis points of above our baseline or our projections to do a deal like that. And that's now where the returns are penciling in right now..

Okay. Thank you..

Thank you. Our next question comes from the line of Chris Morocco of Deutsche Bank. Your line is open. Please go ahead..

Hey, good morning guys.

I wanted to ask you on the Key West Sheraton, if there, you've talked about repositioning that independent, is there a possibility that Starwood stays involved with their with the new soft brand, if the numbers workout or you pretty much set on going totally independent?.

Chris, this is Mark. That's a great question. I'd say we are open-minded right now. We will talk to Starwood about other options for the property. I think we're committed to move away from the Sheraton brand, as we think there is ability to reposition the asset and gain higher rates. But, certainly we'll be opened to any efforts that they have on that.

We do think the independent makes a lot of sense that's obviously that one of the highest occupancy markets in the U.S. and this is a great product with the suites. So, we'll continue to keep an open mind and have a dialogue with Starwood, but our base case for buying the asset is that we will convert it to an independent at the end of next year..

Okay. Got you.

And then you have a piece of debt coming due in January property mortgage, should we - I think it's a property that some folks might consider non-core, is there anything I mean, you guys would normally kind of think about doing something on that, that pretty soon or disposing of the property, any update on kind of what any update there?.

Yeah. Chris, we're evaluating our options there.

I think at a minimum, I think our view there is that we could take that debt and prepaid it early and save interest rates just by putting that on our line of credit at a minimum, but we're also evaluating what the best long-term plan for that asset is and that could include refinancing, disposition or just encumbering and keeping an unencumbered pool..

Okay. Great. And then, just to go back to Frenchman's. I think you guys have done pretty well operationally there over the years, but it from time-to-time creates a little bit of noise and just friction because of the location.

How do you view that longer-term in the context of those that fit and are the - is the amount of noise, is it always justified by the returns? Just your thoughts there, thanks..

Sure, this Mark. So for instance actually we've had a lot of success since we invested capital in it on the top line. We still think that there is opportunity at the -the asset and certainly we would like the best position before we monetize the asset.

I would say it's not on the top of our disposition list, but over time it may be an asset that we consider disposing of..

Okay. Fair enough. Thanks guys..

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

Hey, good morning, guys.

Let's start with the - with Boston and maybe the last question on Boston, but given all the work you did, I'm sure you have a pretty good idea what the cost per key would have been to complete the project, and I think that would be a valuable number for us as we think about replacement cost?.

We think - depending how you value the land, a hotel - to build a hotel there's about 500,000 key all-in but the land is obviously a little bit of a moving target. We had the advantage of having a fixed option on the ground lease..

Right.

But 500 would be what represent a fair market value of land? Is that a good way to think about it?.

Yeah, that's fair..

Okay. Okay. Great. You talked about the....

One of the data point, yeah, one of the data point, I want to add, in Seaport, there is a - there is this operated hotel that's on the market now that we understand is going to trade for 700K, a little better transient location, but that - there'll be some trades we think in the Seaport area that will give people better hand on where evaluations are as well..

That's helpful. You talked about the rooms at Waldorf potentially coming up, you also have the at rooms at the Intercon that are going to come back online.

What's the timing for that and how do you think that impacts your side market when that comes back?.

Rob, why don't you address that?.

Sure. Bill, good morning. Those rooms are expected to come back on in March of 2016. And the hotels receiving $175 million renovation top to bottom adding a too large ballrooms with it. And actually increasing its room count. But we think that hotel is going to be repositioned in a much higher pay, at much higher rate than was previously positioned.

And so we have the opportunity to draft underneath that..

Okay. Two more quick questions if I may. First is the - you're converting the Conrad obviously to lesser collection, you're also taking the share in the brand. It looks like of the key West asset. Obviously you're in discussions with the Starwood there almost single mindedly focused on unit growth at this point, I'm trying to if I catch up.

And maybe doing it uneconomically which would be to your benefit, I guess.

Any change in negotiations, discussions, their stance, their aggressiveness that you've seen over the last six months or whatever?.

Sure. So I think we can - we can give you a pretty upside - a pretty good insight on the luxury collection opportunity. I think it's too early to comment on the Key West opportunity since we - we just started engaging with them on that.

On the - on the opportunity Chicago for years before there was a change in their CEO, they said that opportunity would not be available for that hotel. When Adam came in, we approached them again. They had one - we understand they have kind of one bullet left under a territorial restriction that exist for them.

And Adam was actually very aggressive in walking the property, engaging with us and using that one bullet on our property - so I think we both recognized it could be a real win-win for both of us. So I would say that there was a significant change in the willingness and engagement level with Starwood on that opportunity.

Again on the Key West opportunity, we just acquired it, we just announced that we'll kind of have to let that one play out a little bit to give you a better gauge..

Yeah, fair enough. I appreciate it. Finally from me, just about the third quarter and guidance of 3 to 5 is kind of in line with what we've seen in the peers, maybe even a little better than some of the peers. We just got the STR preliminary data for July showed RevPAR up 7 and 9 for the industry.

Maybe you could help us think about how tough September is going to be in order to offset what was a pretty good start to the quarter?.

Sure. I think it's market exposure as much as it is June to July. I think different markets are behaving very differently. And so while the national numbers - I just think you're going to see a lot of variation between what the companies report and what these national averages are on the RevPAR growth.

So we're actually - I can tell you at our hotel and in our markets, there are wild deviations between the strength in June and July both ways. So I'm not sure we can draw any particular conclusions about July strength nationally versus what we're seeing in our individual markets..

But do you think September, given the calendar changes, should we expect negative RevPAR growth for the month as we think about it playing out?.

Yeah, Bill this is Sean. We would not expect negative RevPAR at least, certainly not in our portfolio for - for September. I mean our third quarter is really going to be dictated by group which we expect to- to be down in the high single-digits.

We expect a lot of that to be offset by strength in the transient, but group which is about 30% of our total book of business is going to be challenging, and a lot of that is going to be citywide driven, timing of the holiday driven, as well as some specific market stop particularly within Minneapolis where there are a couple of huge citywide that were in last year that are not going to repeat their one-time events.

And Minneapolis is a big group hotel for us..

Listen guys, I appreciate the time. Thanks..

Thank you, Bill. Operator Thank you. Our next question comes from the line of Thomas Allen of Morgan Stanley. Your line is open. Please go ahead..

Hey, good morning. Can you give any commentary around international visitation trends at your properties? Thanks..

Sure, this is Mark. So, international is not a very big segment for us, the only market where it really has any impact at all is New York, and even in New York we're seeing - we're seeing the international demand relatively stable at our hotels.

But again, running in most of our hotels 8% or 10%, I'm not sure that's indicative of what's going on with the international demand generally..

Okay, helpful. Thanks. And then just a clarification, on your 2015 RevPAR guidance you reiterated the - you reiterated the six to seven. Did Key West influence that at all or not? Thanks..

Thomas, This is Sean. It's not really because it's only a 184 rooms, so just the waiting of it does not dramatically impact it, although we expect good things out of that hotel this year of second quarter and that hotel was very strong with double-digit RevPAR, but it's not large enough to move our consolidated RevPAR numbers..

Okay. Great. Thank you..

Thank you Toms..

Thank you. Our next question comes from the line of Shaun Kelley of Bank of America. Your line is open. Please go ahead..

Hey guys, good morning. You covered a lot of ground, but I think last quarter, it was probably a bigger topic talking about the Conrad rebrand, but I'm just curious now that we can quantify the RevPAR decline you guys saw in Q2, how do you think about the ramp back up of that property sort of rebuilding through luxury collection.

Is it going to stay this type of GAAP for a quarter or do you think it's going to ramp pretty steadily in the next couple of quarters?.

Hi Shaun, Rob Tanenbaum, we believe for the third quarter there will be some additional impact with the transition. However, the ramp up is going to be definitely a steady ramp up as we go into it.

Our results certainly were in line with expectation and in reviewing our opportunities, we're extremely encouraged by the pre-conversion sales and marketing efforts, both on the transient group channels and we remain very positive on the incremental strength in the hotel as it benefits from the Starwood system.

The opportunity within special corporate is unbelievable and we're excited about that. Especially now that we brought our in-house group sales office into back into the property from a - previously it was complex operation. We're seeing some great strides of that..

Thanks for that Rob. And just to be clear, then if you say additional disruption, does that mean that do you think at least the GAAP to the market and I understand you know it's going to be vary based on what Chicago more broadly is doing.

But does that mean the gap to the market is probably going to actually get wider in 3Q before it stabilizes and starts to move back in the direction?.

No, Shaun, that gap will shrink..

It'll start shrinking as quickly as the end of the third quarter?.

Yes..

Okay. Great. And then, maybe just a bigger one, a bigger picture one probably for Mark, but just broadly at this point you outlined and talked about stock buyback potential.

But, if you're going to help us prioritize - if M&A were back on the table for you in terms of acquisition markets right now, you did Key West, you've done a couple now either resort or beach type location in your recent deals.

What are you kind of looking for right now, just what markets specifically which you would be most intrigued by at this point in the cycle?.

Sure. So our acquisition focus has been on adding market diversity and really been emphasizing on expanding our West Coast footprint. If I looked at our current pipeline report, they are three deals under intensive evaluation. Two of them are urban CBD locations in the Pacific Northwest and one is in Southern California.

But with that said, I need to mention that we're highly sensitive to our cost of capital. So most of these opportunities we're looking at, there's usually some kind of value enhancement opportunities to make them pass on and to be able to create value for our shareholders.

But as far as markets, we're looking to expand our West Coast footprint that would probably be the emphasis of our efforts. And the three priority deals that we have right now all which are relatively small are in - are on the West Coast..

And is - does that both limited service and full service Mark?.

One of the three has limited service..

Great. Thank you very much..

Thank you. Our next question comes from the line of Lukas Hartwich of Green Street Advisors. Your line is open. Please go ahead..

Thank you. Hey, guys. Just a quick one for me.

Can you talk about cap rate trend?.

Sure. This is Mark. Lukas, I would say, we in the last year, we have lost 90% of the assets that we've chased, because the cap rates continued to stay very aggressive and actually in a number of markets we've seen slight contraction this year.

Now, obviously we need to pullback a lot recently and they've been - they buy a lot of these assets, but we've seen strategic switching international money leasing some new entries into the market. So it is still a very competitive environment out there and certainly, we haven't seen any pullback in where cap rates have been on high-quality deals..

Great. That's it for me. Thanks..

Thank you. And our final question will be a follow-up from the line of Jeff Donnelly of Wells Fargo. Your line is open. Please go ahead..

Thanks, guys for letting me book in. I just had one question, actually, I know it's early on and maybe this one is for Rob.

But do you have a sense of what the opening of the Envoy, which I think is an autograph collection asset in Boston, does the transient rates that the Westin that's nearby as well as your health in it, it's proximate to both and kind of bridges those two markets.

I'm just curious, if you think that will maybe helpful to you guys in terms or maybe setting a new sort of high rate in the market or is it going to be a little disruptive?.

Sorry Jeff, this is Rob. Yes, we do believe it'll be - it'll help the market and again opportunistic to allow us to draft similar to the Lexington in New York off the Barclays..

I know, they don't have much operating data you had, but do you have a sense of how well that hotel has been fairing just from what you guys can see?.

No..

No. And it's only a $100 million..

Yeah. We don't have anything at this point..

Okay. Thanks..

Thank you. And it does conclude our question-and-answer period. I would like to turn the conference back over to Mr. Mark Brugger for any closing remarks..

Thank you. Everyone on this call, we appreciate your continued interest in DiamondRock and look forward to updating you in next quarter. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may all disconnect. Have a great rest of your day..