管理層發言
Good day, and thank you for standing by. Welcome to DiamondRock's Second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. As a reminder, today's conference is being recorded. I will now hand the conference over to your first speaker, Briony R. Quinn, Chief Financial Officer.
Good morning, everyone, and welcome to DiamondRock's Second Quarter 26 Earnings Call and Webcast. Joining me today is Jeffrey John Donnelly, our Chief Executive Officer, and Justin L. Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and 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 what we discuss 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. We are pleased to report another quarter of strong operating performance. Our business model demonstrated its earnings power as RevPAR grew 7% supported by improving trends across all customer segments, while expenses, excluding the benefit of favorable property tax appeals, increased just 1.8% due to our relentless focus on efficiency. The significant operating leverage drove our 240 basis-point margin expansion and led to strong profit growth. We delivered corporate adjusted EBITDA of $108 million and adjusted FFO per share of $0.44 during the quarter. Our results benefited from the settlement of multiyear property tax appeals on our two Chicago hotels, which totaled $6.9 million or $0.03 per share. Excluding this benefit, our FFO margin expanded by an impressive 303 basis points and our trailing 12 months free cash flow per diluted share, defined as adjusted FFO less capital expenditures, increased 27% year-over-year to $0.80. Starting with the top-line performance, comparable RevPAR increased 7% during the quarter, with April and May each growing approximately 5.5%, followed by 10.1% growth in June reflecting broad-based strength across all customer segments. While the World Cup benefited several of our markets, most notably Boston and Greater San Francisco, it was not the primary driver of our performance. We estimate the World Cup contributed approximately 90 basis points to our second-quarter RevPAR growth, and we now expect it to contribute approximately 30 basis points for the full year, which is modestly above our initial estimate of 20 basis points. Group and transient revenue growth were fairly similar during the quarter, each increasing more than 6%. Group demand remained consistently strong throughout the quarter while transient demand accelerated as the quarter progressed. Looking across the last three major holiday weekends, RevPAR growth ranged from approximately 9% to 12%, providing further evidence of healthy leisure demand. Guest spending while on property also remains healthy. Food and beverage, spa, and parking revenues each increased in the low single digits, leading to total RevPAR growth of 5.6%. We continue to benefit from the relative strength of higher-income consumers and their preference to spend their time and money on unique experiences. At checkout, the average guest bill exceeded $475 per day this quarter, with hotels above that level accounting for approximately two-thirds of our EBITDA. At our top five ADR hotels, the average bill exceeded $1.2 thousand per night. Over the last year, our hotels generating ADRs above $300 have outperformed lower-rated hotels by almost 300 basis points on total RevPAR growth. We expect that trend to continue through the remainder of the year and into 2027. Strong demand is only a part of the story. Maintaining operating discipline below the top line remains a core competency for DiamondRock. During the quarter, total hotel operating expenses increased just 1.8% compared to total revenue growth of 5.5%, resulting in 240 basis points of hotel adjusted EBITDA margin expansion, without the one-time property tax benefit. Year to date, operating expenses have increased only 1.3% while total revenue grew 4.2%, driving nearly 200 basis points of margin gains. Wages and benefits, which represent nearly half of our total expenses, increased 2.2% during the quarter, reflecting continued productivity gains as labor hours worked declined despite the increased occupancy. Our focus remains simple: control costs without compromising the guest experience. RevPAR at our resorts increased 7.9% led by L'Auberge de Sedona, Cavallo Point, two of our resorts, and The Landing Lake Tahoe, all of which delivered double-digit growth. We expected that our resorts would outperform our urban hotels in 2026, and that thesis continues to play out. We view our resort portfolio favorably given its strong cash flow generation, supply constraints, and embedded ROI opportunities. Before turning to our urban portfolio, I want to provide an update on L'Auberge de Sedona, our most recent ROI project. The property continues to outperform expectations. In its first three quarters as an integrated resort, revenues increased 17%, hotel adjusted EBITDA increased 40%, and margins expanded 670 basis points each compared to two years ago when the hotels operated separately. We have increased our estimate of the hotel's contribution to 2026 RevPAR growth from 50 basis points to at least 75 basis points. Importantly, the property has not yet stabilized. Its 2027 group pace has more than doubled this year's level, and we continue to expect meaningful earnings tailwinds from L'Auberge into 2027. RevPAR at our urban hotels increased 6.6% led by The Dagny, our two Chicago hotels, Bourbon Orleans, the Kimpton Palomar Phoenix, and Hotel Emblem. Urban performance accelerated steadily throughout the quarter, reaching nearly 10% RevPAR growth in June. Importantly, this performance reflects broad-based strength across the portfolio rather than a single market recovery story. By year end, pro forma urban revenues are expected to exceed 2019 levels by double digits. Group revenue increased 6.6% during the quarter, driven by rate growth of more than 3.5% and 2.5% in higher room nights. Strength was broad-based across the portfolio with particularly strong contributions from our Boston hotels, Cavallo Point, Sonoma, and L'Auberge de Sedona. One notable characteristic of our group business this year has been the consistency of rate growth, which we view as an encouraging indicator of underlying pricing power and the quality of demand our hotels are attracting. Looking ahead, pace for the second half of the year is currently up approximately 1%, led by strength in the fourth quarter, as the third quarter is expected to be essentially flat. Despite the exceptionally strong group year we achieved in 2025, we again expect to report a record group year in 2026. Turning to the balance sheet, our capital structure remains simple and conservative. We have no debt maturities until 2029, no secured or convertible debt, no preferred equity, and no off-balance-sheet encumbrances. Our debt remains fully prepayable and leverage remains at the lower end of our peer group. We believe maintaining a conservative balance sheet provides optionality, allowing us to pursue external growth, fund internal investments, and return capital to shareholders as opportunities arise. For perspective, one additional turn of leverage would provide approximately $500 million of incremental investment capacity while remaining within our target leverage range. The strength of our operating performance continued momentum entering the second half of the year and our confidence in the earnings outlook supported both our dividend increase and our updated 2026 guidance. We announced today a 22% increase in our quarterly common dividend to $0.11 per share and continue to expect our payout ratio to increase over time as our net operating losses are utilized. We are also raising our 2026 outlook. We now expect RevPAR growth of 2.5% to 4%, up 75 basis points at the midpoint. We expect that RevPAR growth in the fourth quarter will be stronger than the third quarter. Adjusted EBITDA is now expected to be in the range of $310 million to $320 million and adjusted FFO per share between $1.18 and $1.23 with anticipated capital expenditures of $75 million to $85 million this year. Our raised guidance implies an 18% growth in free cash flow per share. With that, I will turn the call over to Jeffrey John.
Thanks, Briony, and thank you all for joining us this morning. Over the past two years, DiamondRock 2.0 has been focused on one objective: growing free cash flow per share. Every major decision we have made has been in the service of that goal because free cash flow per share growth restarts the flywheel and ultimately drives shareholder returns. On a trailing 12-month basis, free cash flow per share has increased approximately 30% reflecting disciplined execution across capital investment, asset management, oversight of hotel operations, and capital allocation. Last quarter, I highlighted three topics: stability and intent of our five-year capital investment program, the value and optionality created through our renegotiated franchise agreement for the Westin Boston Seaport, and the execution of our capital allocation philosophy. Today, I want to focus on three new topics. First, the improving transaction market. Second, the optionality embedded in our business strategy. And third, why we remain constructive on our earnings growth into 2027. The transaction market feels healthier than it has been in several years. We are seeing more opportunities to buy, sell, and create value, so we have been actively underwriting potential acquisitions. While competition is intense, we remain focused on opportunities where we see a clear path to higher cash flow and long-term value creation that others do not. We believe lodging REITs create the most value when they can internally fund their external growth. That philosophy underpins our focus on free cash flow per share. Our strong earnings growth is creating additional balance sheet capacity, allowing us to pursue attractive opportunities while remaining comfortably within our conservative target leverage. Historically, our most successful acquisitions have come through our long-standing relationships with other owners. Those opportunities typically involve exceptional hotels in supply-constrained markets with a combination of the right real estate, manager, capital investment, and asset management that can unlock meaningful value. That formula has served us extremely well. Over the last five years, acquisitions sourced through those relationships have generated nearly 10% compounded annual growth in EBITDA from pre-pandemic levels. That type of risk-adjusted earnings growth is what we continue to seek. We have been close to several attractive investment opportunities this year. If successful, we expect to fund them through a combination of accretive capital recycling, cash on hand, and selective incremental leverage. On the disposition side, we are more active today than at any point in recent years and the breadth of interest is encouraging. In fact, one property we are marketing received well over a dozen bids. While there is no assurance we will complete any transaction, our pipeline is more active than it has been in recent years. As we look ahead, I expect DiamondRock to be active on both acquisitions and dispositions over the next six to 12 months. Our objective remains simple: enhance earnings growth, reduce risk, and create shareholder value. The second topic I want to discuss is optionality. One of DiamondRock's greatest strengths is not just the number of avenues we have to create value, but the fact we control more of our own outcomes than most lodging REITs. It begins with the balance sheet. We have maintained a conservative leverage profile that provides flexibility to act when opportunities emerge, whether those opportunities are dispositions, share repurchases, or acquisitions. It also extends to how our hotels are managed. Nearly 90% of our portfolio operates under third-party management agreements that can be terminated at will. That structure creates strong alignment with our managers while preserving our ability to make ownership decisions that maximize value. Moreover, when we ultimately sell an asset, that flexibility translates into higher value because buyers are often willing to pay more for hotels where they control their own operating destiny. The same principle applies to our independent hotels. Their positioning, pricing, marketing, and capital investment strategies are designed specifically to maximize our return on investment rather than support the objectives of a brand system. Historically, EBITDA per key at our independent hotels has been 50% higher than our branded hotels. As the benefits of AI are fully integrated into travel, we do believe that spread will continue to expand. Branding is a choice, and a brand can create value; we have the option to move in that direction. The reverse is far more difficult. We have two upcoming brand versus independent decisions. At the Kimpton Shorebreak Huntington, our brand agreement has expired and is now month to month. At the Courtyard Denver Downtown, our franchise agreement expires in 2027. The Courtyard is a powerhouse. It could remain a Courtyard, be repositioned to a higher-rated brand, be expanded on adjacent land, be converted to independent, or even be sold. We will choose the path that creates the greatest long-term value. Ownership requires the ability to make decisions solely in the best interest of each hotel, and we have deliberately structured DiamondRock to preserve that freedom. I will close with our outlook. While the World Cup helped a handful of markets, it was never the primary reason to be excited about DiamondRock in 2026. The more important story is the breadth of demand across the portfolio. Leisure remained healthy, business transient continued to improve, and group demand was strong. Historically, the industry's strongest RevPAR growth occurs when we see all demand channels growing; that is exactly what we saw during the quarter in our portfolio and continue to see as we enter the second half of the year. L'Auberge de Sedona is outperforming our expectations. What began as a project expected to generate a low double-digit EBITDA yield for nearly $3 million of incremental EBITDA on $25 million investment is now on track to produce a 20% yield on invested capital. Given the strength of the second quarter and encouraging momentum in the back half of the year, we have increased 2026 guidance and raised our common dividend. What gives us incremental confidence is that performance has not been driven by one event or one market. It reflects the broader strength throughout the portfolio. Looking ahead to 2027, we see five drivers of earnings growth. First, continued strength among higher-income travelers. Second, a lack of new supply in most of our markets — we estimate replacement costs for our portfolio exceed $700 thousand per key versus a trading value today of $350 thousand per key. Third, a tailwind of strong citywide calendars, notably in our major markets of Boston, Chicago, and San Diego. Fourth, additional upside from $80 million spent on guest-facing renovations at hotels that comprise nearly one quarter of our EBITDA that have not yet stabilized. And finally, improved flow through with the Westin Boston Seaport following our successful negotiation of the franchise agreement. Over the last two years, we have demonstrated what a sound strategy and disciplined execution can accomplish. Shareholder returns have responded. Today, DiamondRock has a stronger portfolio, a better balance sheet, and more opportunities to create shareholder value than we have had in many years. As we look ahead, we believe DiamondRock is exceptionally well positioned and we remain confident in the opportunities ahead. Thank you for your continued trust and support. We are happy to answer your questions.
分析師問答
Thank you. And wait for your name to be announced. To withdraw your question, simply press *11 again. As a reminder, please limit yourself to one question and one follow-up. If you have additional questions, you may reenter the queue as time permits. One moment for our first question. Our first question is coming from the line of Chris Jon Woronka with Deutsche Bank. Your line is now open.
Hey, good morning, everyone. Thanks for taking the questions. I think you guys mentioned in the prepared comments about labor costs being down in the quarter despite higher occupancy, and I'm curious how that breaks down between perhaps your independent hotels and your branded hotels or your independently managed hotels? Or is there also any benefit coming through from the brands possibly working with you a little bit more on brand standards in terms of amenities and things like that? And then I have a follow-up. Thanks.
Sure, Chris. I don't think we said that labor was actually down for the quarter. I think we said it was generally flat on a per-occupied-room basis. But that echoes the continued success we have had finding productivity improvements throughout the portfolio. It is not necessarily driven by one type of hotel or one sector of hotel. I don't think it is driven by brand implementation of any kind of specific cost-saving move; it is really just our focus on finding productivity and efficient ways to deliver guest service throughout our portfolio of hotels.
Okay. Thanks, Justin. And Jeff, I know you mentioned that you are seeing more activity in your pipeline on both potential acquisitions and dispositions. On the acquisition front, I'm curious as to whether you guys are thought of as being a little bit more resort heavy than a lot of your peers. Should we think that you are leaning more in that direction, or is it more market-specific or customer-segment-specific kinds of hotels that you are looking at? Thanks.
Yeah. Thanks, Chris. I wouldn't say market-specific. All else equal, I think the long-term secular drivers for resorts are particularly attractive, but pricing on resorts has been very competitive and has tightened substantially this year. So while we do look at a lot of them, many get bid beyond what we are willing to pay. We do look at urban markets as well. So I would tell you all else equal, yes, I would like to tilt towards resorts, but we look at everything — both urban markets and resorts. Thank you.
Our next question in queue is coming from the line of Nick Joseph with Citi. Your line is now open.
Thanks. You touched on the improving transaction market and the intense competition. I was hoping you could give some more color on the buyer pool and new entrants and what you are seeing in terms of that competition today?
You know, Justin can chime in here too, but I think you have seen high-net-worth buyers depending on the type of property. We're seeing a lot of high-net-worth capital and some private equity capital showing up for those types of assets. I think some owner-operators remain active as well. Over the preceding 12 to 24 months it was probably skewed more toward high-net-worth capital, but private equity has definitely become significantly more active, which is responsible for a lot of the increased transaction activity and deeper bidder pools we see. On how close we've been on deals, some properties where I thought we'd be competitive, we proved to be 10% to 15% off with many bidders. That has been surprising: the gap between a first-round bid and a subsequent bid has widened substantially on some properties, with buyers going harder in later rounds. So it has become much more aggressive for certain properties.
Our next question in queue is coming from the line of Austin Wurschmidt with Wells Fargo. Your line is now open.
Hey. Good morning, and thanks for taking the question. Could you touch on some of the trends you are seeing in Q3 by demand segment and how you are working to fill some of the group holes that you have in that quarter from a comparison perspective?
Sure, Austin. We've been pleased with the uptick in short-term transient pickup, and that has given us a bit more optimism for Q3, where we had been vocal about a group pace deficit coming into the year. That short-term transient pickup is helping fill that group deficit, and that's a major reason for our improved view of the back half of the year. On 2027 group pace, it's pretty early: we only have roughly 5% to 6% of total revenues in group pace today, which ultimately may account for about 20% of our actual production that year, so results are volatile by hotel. Some hotels, like Chicago, are up low-double digits year over year, while some other group boxes are down single digits year over year. That disparity is concentrated in Q4 2027, so it's still early to make broad pronouncements.
Our next question in queue is coming from the line of Richard Hightower with Barclays. Your line is now open.
Hey, guys. Good morning. Obviously, the resort segment broadly is seeing a lot of strength, as you described, but remind us what's going on in Key West at the moment? We just had a couple of relatively softer quarters.
Yeah. I would say when you think about leisure demand, the most exceptional strength is at the higher price-point hotels. In Florida, we have two assets in Florida that have done very well this quarter and year to date. Conversely, the Keys tend to be below a luxury price point and summer is not necessarily the Keys' strongest time, particularly when demand is drawing a higher-end consumer. So what you're seeing in the Keys reflects that seasonal softness and pricing dynamics rather than a broad-based weakness across all resort markets.
Okay. That makes sense. And then sticking to the upper end of that distribution, Jeffrey, if you had an index of higher-end consumer spending — people spending on property — where would you say that index is relative to history? There have been episodes like 2007 and 2021. Where are we on that index and when might that consumer break in terms of willingness to spend higher and higher prices on rooms and out-of-room spend?
I don't have a formal index, but within our portfolio we view it as a supply-and-demand imbalance. The country has produced more high-net-worth individuals while resort supply hasn't grown in line. So it isn't so much that consumers are spending 'stupidly' — they are spending on the options available to them. That supply constraint and concentration of wealth is a major driver of strength at higher-end properties.
Our next question in queue is coming from the line of Michael Bellisario with Baird. Your line is now open.
Thanks. Good morning, everyone. Jeffrey, you guys were one of the groups that signed the letter to Marriott. Can you maybe give us an update on the conversations you have had with them and other owners since that letter was made public? Also, how are you thinking about potential outcomes and remedies with your largest franchisor?
I think Mike, we continue to have conversations with our brand partners. It's not something we want to publicly comment on at this point.
Fair enough. And switching over to Chicago, can you help us understand the implications and benefits for the Chicago property tax refund and how you think about valuation and liquidity of the big Marriott asset that you have been trying to sell for a while?
Sure, Mike. We're pleased with the outcome on the Chicago Marriott. We settled the entire triennial. Chicago's appraisal market has been difficult with a lot of valuation movement, so settling that triennial gives us certainty on the tax number for the foreseeable future and provides a clearer path for potential execution of a transaction. That doesn't guarantee we will find a buyer, but it makes underwriting the asset easier because buyers can now underwrite against an actual assessment going forward rather than speculating on a reduced tax bill.
Our next question is coming from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is now open.
Thanks. Good morning. Jeffrey, appreciate your commentary around capital allocation priorities. You mentioned the ability to internally fund external growth. How much internal investment capacity do you have today to fund external growth without taking leverage outside of your target range? And where are you deploying capital that you believe creates value that other underwriters are not seeing, beyond just market RevPAR growth forecasts?
That's a good question. In rough numbers, if we do nothing from this point forward, our leverage could end the year close to 3x net debt to EBITDA. If we stay within a 3 to 4x net debt-to-EBITDA range, we have about $500 million of borrowing capacity while still staying in our target range, assuming recycling capital at today's market pricing. It depends on the asset. Some opportunities come from replacing managers and changing revenue-management strategies, some from cost efficiencies, and some from expansion. For example, Chico Hot Springs in Montana sits on a large parcel of land where we see potential to expand accretively, similar to how we combined adjacent properties in Sedona.
And pivoting to guidance in the back half: what are you assuming for hotel EBITDA margins for the back half of the year and what might that imply for cost per occupied room growth? On the RevPAR side, you discussed Q4 being better than Q3. It seems like July should be coming in well. Beyond the group fill you discussed in August, is there anything else skewing your view on the cadence of RevPAR growth in Q3 versus Q4?
One thing we've discussed throughout the year is that August was a bit of a hole in our group calendar. We're seeing transient pickup that gives us more confidence we'll be able to plug some of that gap. We are a bit more confident in Q3, but we do anticipate our expense growth rate to elevate a bit in the back half.
We've had items like the New York hotel union renewal that will elevate labor cost somewhat on a year-over-year basis, and we're also seeing higher bonus accruals given performance versus the same time last year. We do anticipate some of the margin growth year to date will abate. We're hopeful margins remain slightly elevated versus last year, but not to the same degree as our year-to-date performance. For guidance, our expense growth is assumed to be around 2.5% for the back half of the year in our guidance.
Thank you.
Our next question in queue is coming from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.
Hey. Good morning. I wanted to follow up on Chris' question on cost execution. It has been very strong, especially in light of stronger RevPAR this year. You did a great job last year when demand was muted, but I would assume it is harder to hold the line when demand is this strong. Can you dig a little deeper on what you are doing and the sustainability of that into 2027 and beyond?
You are right that expenses are tied to occupancy, so outsized occupancy growth will inevitably require adjustments in staffing. A lot of it comes down to our asset managers staying on top of staffing levels and finding ways to be productive and efficient across departments — whether in food and beverage or rooms — to serve guests effectively without unnecessary labor increases.
Yes. We've kept labor growth at a fairly low run rate because we've been able to reduce hours worked in the portfolio every quarter for the last four to five quarters. We can't do that indefinitely, but we are using AI and other tools to find labor efficiencies and make existing team members more productive. As occupancy and rates continue to grow, there will be some uptick in labor costs, but we are able to service that at a lower marginal rate thanks to these productivity gains.
Thanks for those thoughts. Jeff, in your prepared comments you referenced a few properties that have optionality in terms of management agreements. Can you expand a little on what those conversations look like today versus prior periods and how your experience with The Dagny has influenced your thinking as you approach these decisions?
Great question. The two I mentioned specifically are the Kimpton Shorebreak Huntington Beach, where the brand agreement has expired and is month-to-month, and the Courtyard Denver Downtown, where the franchise agreement expires in 2027. Brands are focused on unit growth, and these assets have strong locations and potential options — for example, oceanfront positioning in Southern California or adjacent parking lots that could support expansion in Denver. Those features create opportunities for us to evaluate multiple paths: retain the brand, reposition, expand, convert to independent, or sell. We engage with brands but are also running internal scenarios. The Dagny experience reinforced that having flexibility around management and positioning can materially increase value and create more strategic optionality.
Our next question in queue is coming from the line of Flores van Dijkum with Ladenburg Thalmann. Your line is now open.
Hey, thanks. I have two questions. First, on expense growth: your comp occupancy increased by around 180 basis points and hotel expenses actually declined. You mentioned you're among the lowest in expense growth versus peers. Can you talk about the key initiatives driving that outperformance on the expense side? Second, on capital allocation, you mentioned you'll be active buying and selling over the next 12 to 18 months. Should we expect you to be a net buyer or net seller, and how would that change if the share price continues to move up?
That's our so-called 'secret sauce' — relentless focus on efficiency and staying on top of staffing relative to demand. It's easy for organizations to get comfortable; our job is to ensure we have the right staffing for the demand we see week to week so we are not caught on the wrong side of it. On capital allocation, shareholders want us to redeploy capital accretively or return it if we can't. Currently, it's plausible we will be a net seller this calendar year, which I said earlier in the year, but as we see more transactions come to market, I am optimistic we'll find acquisitions we like. So we may be both a buyer and seller — there's nothing imminent on acquisitions at this very moment.
Our next question in queue is coming from the line of Chris Darling with Green Street. Your line is now open.
Thank you. Good morning. Jeffrey, in the prepared remarks you spoke about strong performance at The Landing in Lake Tahoe. What are your latest thoughts regarding a key-count expansion at that asset? And given other opportunities throughout the portfolio, how sensitive are you to starting multiple overlapping projects?
On the second point, we are always conscious of rooms taken out of service for capital projects. One of the reasons we provided five-year CapEx guidance was to be deliberate and provide predictability to free cash flow per share. Projects don't always align perfectly because of local zoning, seasonality, and timing. If I could do them all at once I would, but we intentionally ladder projects. Regarding The Landing, expansion is an option down the road, but it is not something we want to pursue today. Local municipality requirements and cost didn't make it sensible at this time, but it could be revisited.
Okay. That is helpful. Also, a clarifying question from the prepared remarks: you mentioned pace for the second half of the year being up 1% — was that a group pace figure or a total revenue pace figure?
That was a group pace figure.
There are no further questions in the queue at this time. I will now turn the call back over to Mr. Jeffrey John Donnelly for any closing comments.
Thanks for joining us today, and we look forward to seeing you soon.
This concludes today's conference call. Thank you for your participation and you may now disconnect.