DiamondRock Hospitality’s Earnings Call: Achievements and Challenges

Diamondrock Hospitality ((DRH)) has held its Q2 earnings call. Read on for the main highlights of the call.

DiamondRock Hospitality’s latest earnings call presented a balanced sentiment, highlighting both achievements and challenges. The company celebrated positive financial milestones, such as share repurchases and successful refinancing, while also addressing hurdles in resort portfolio performance, occupancy, and RevPAR growth. Despite these challenges, DiamondRock remains optimistic about future opportunities.

Urban Hotels Performance

The urban hotel portfolio showed resilience with a 3% RevPAR growth in the quarter, marking April as the strongest month. Rate growth remained steady at approximately 2.5%, and total RevPAR growth at urban hotels outpaced RevPAR growth by 100 basis points. Additionally, food and beverage revenues saw an impressive increase of over 5%.

Financial Achievements

DiamondRock reported a corporate adjusted EBITDA of $90.5 million, with an adjusted FFO per share of $0.35. The company also noted a 4.5% increase in free cash flow per share over the trailing 12 months, reaching $0.63 per share.

Share Repurchases

The company has been proactive in its share repurchase strategy, buying back 3.6 million shares year-to-date for $27.3 million at a cap rate just under 10%. There remains $146.8 million of capacity for further share repurchases.

Successful Refinancing

DiamondRock successfully refinanced and upsized its senior unsecured credit facility, increasing its size to $1.5 billion from $1.2 billion, with the pricing grid remaining unchanged. This move extends the maturities and enhances financial flexibility.

Food and Beverage Performance

The food and beverage segment delivered solid results, with revenues increasing by 3.1%. Profits in this area rose by over 6%, and margins expanded by 105 basis points, reflecting efficient operations and strong demand.

Resort Portfolio Decline

Challenges were noted in the resort portfolio, where comparable RevPAR declined by 6.3% and total RevPAR by 3.9%. The delay in opening the redeveloped Orchards in Sedona was a significant factor impacting performance.

Occupancy and Revenue Challenges

The company faced occupancy and revenue challenges, with comparable RevPAR growth in the second quarter at a mere 0.1%. While there was a 1.1% increase in rate, occupancy declined by 80 basis points, and leisure transient revenue fell by 1.6%.

Property Tax Impact

A larger-than-expected property tax increase in Chicago led to a contraction in hotel EBITDA margins by 97 basis points, posing an additional challenge to financial performance.

Forward-Looking Guidance

Looking ahead, DiamondRock expects a low single-digit decline in total portfolio RevPAR for the third quarter of 2025. The company projects corporate adjusted EBITDA to range between $275 million to $295 million for the full year. The share repurchase program continues, with significant capacity remaining for further buybacks.

In summary, DiamondRock Hospitality’s earnings call reflected a mix of optimism and caution. While the company achieved notable financial successes and strategic initiatives, it also faces operational challenges, particularly in its resort portfolio. The forward-looking guidance suggests a cautious approach, with expectations of a slight decline in RevPAR but continued focus on financial stability and growth opportunities.