Core Viewpoint - DiamondRock Hospitality Company will report its financial results for the first quarter of 2025 on May 1, 2025, and will hold a conference call to discuss these results on May 2, 2025 [1]. Company Overview - DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that owns a diversified portfolio of hotels, primarily located in leisure destinations and major gateway markets [4]. - The company currently owns 36 premium quality hotels and resorts, totaling approximately 9,600 rooms [4]. - The portfolio includes properties operated under leading global brand families as well as independent boutique hotels in the lifestyle segment [4].

Core Viewpoint - The article compares two companies, DiamondRock Hospitality (DRH) and Omega Healthcare Investors (OHI), to determine which is a better option for investors seeking undervalued stocks. Group 1: Company Rankings and Performance - DiamondRock Hospitality currently holds a Zacks Rank of 2 (Buy), indicating a stronger earnings outlook compared to Omega Healthcare Investors, which has a Zacks Rank of 3 (Hold) [3] - DRH has likely experienced a more significant improvement in its earnings outlook than OHI recently, making it more appealing to value investors [3] Group 2: Valuation Metrics - DRH has a forward P/E ratio of 7.70, while OHI has a forward P/E of 12.61, suggesting that DRH may be undervalued relative to OHI [5] - The PEG ratio for DRH is 1.90, compared to OHI's PEG ratio of 2.10, indicating that DRH offers better value when considering expected earnings growth [5] - DRH's P/B ratio is 1.04, while OHI's P/B ratio is 2.16, further supporting the notion that DRH is undervalued [6] - These metrics contribute to DRH's Value grade of A and OHI's Value grade of C, reinforcing the view that DRH is the better investment option at this time [6]

Core Viewpoint - The article compares DiamondRock Hospitality (DRH) and Sunstone Hotel Investors (SHO) to determine which stock is more attractive to value investors [1] Group 1: Zacks Rank and Earnings Outlook - DiamondRock Hospitality has a Zacks Rank of 2 (Buy), indicating a positive earnings outlook, while Sunstone Hotel Investors has a Zacks Rank of 3 (Hold) [3] - The Zacks Rank system emphasizes companies with positive earnings estimate revisions, suggesting that DRH is likely experiencing a more favorable earnings outlook [3][7] Group 2: Valuation Metrics - DRH has a forward P/E ratio of 7.88, significantly lower than SHO's forward P/E of 10.95, indicating that DRH may be undervalued [5] - The PEG ratio for DRH is 1.95, while SHO's PEG ratio is 2.15, suggesting that DRH has a better valuation relative to its expected earnings growth [5] - DRH's P/B ratio is 1.07 compared to SHO's P/B of 1.15, further supporting the notion that DRH is more attractively valued [6] - Based on these metrics, DRH earns a Value grade of A, while SHO receives a Value grade of C, highlighting DRH's superior valuation profile [6]

Core Viewpoint - Value investing remains a preferred strategy for identifying strong stocks across various market conditions, utilizing established valuation metrics to uncover potential opportunities [2]. Company Summary: DiamondRock Hospitality (DRH) - DRH currently holds a Zacks Rank of 2 (Buy) and an A for Value, indicating strong potential for value investors [4]. - The stock has a P/E ratio of 7.96, significantly lower than the industry average of 15.52, suggesting it may be undervalued [4]. - DRH's Forward P/E has fluctuated between 7.69 and 10.15 over the past 12 months, with a median of 8.65 [4]. - The PEG ratio for DRH is 1.96, compared to the industry average of 2.33, indicating favorable growth expectations relative to its valuation [5]. - The P/B ratio stands at 1.07, which is lower than the industry average of 1.67, further supporting the notion of undervaluation [6]. - DRH's P/S ratio is 1.52, significantly below the industry average of 4.02, reinforcing its attractiveness as a value stock [7]. - The P/CF ratio is 10.57, compared to the industry average of 15.58, highlighting DRH's strong cash flow outlook [8]. - Overall, these metrics suggest that DRH is likely undervalued and presents an impressive value opportunity at this time [9].

Financial Data and Key Metrics Changes - Comparable total RevPAR increased by 5.5% over 2023, exceeding expectations and showing a growth of over 250 basis points compared to the previous quarter [4][12] - Hotel adjusted EBITDA for Q4 was $75.9 million, reflecting a 16.4% growth over 2023, with a margin increase of 250 basis points [12] - Corporate adjusted EBITDA was $68.7 million, representing nearly 20% growth over 2023 [12] - Adjusted funds from operations (AFFO) was $0.24 per share, a 33% increase over 2023 [12] Business Line Data and Key Metrics Changes - Urban hotels saw RevPAR increase by 8.2%, driven by a 5.4% increase in average daily rate [5] - Resort hotels experienced mixed results, with RevPAR declining by 150 basis points, while out-of-room spending helped maintain total revenue with only a 10 basis point decline [8] - Group room revenues increased by 8.1% over 2023, with urban hotels seeing a 10.2% increase [10] Market Data and Key Metrics Changes - Florida resorts faced a 5.8% decline in RevPAR, attributed to post-pandemic headwinds [9] - Urban markets, particularly in December, showed exceptional growth with RevPAR up 13.2% [7] Company Strategy and Development Direction - The company aims to focus on increasing earnings per share and free cash flow per share, which will allow for share repurchases and dividends [42][43] - Capital expenditures were rationalized to minimize costs and maximize impact, with ongoing renovations and repositioning projects [22][26] - The company is actively looking for opportunities to prune hotels from its portfolio to realize attractive pricing [35] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the Florida market, expecting it to stabilize in the latter half of 2025 [60] - The company anticipates RevPAR growth of 1% to 3% for 2025, with group revenue expected to improve [37][41] - There is recognition of economic uncertainties, including inflation and job market pressures, which may impact leisure travel [62] Other Important Information - The company announced a $0.20 per share stub dividend in addition to the regular $0.03 per share quarterly dividend for 2024, with plans for a regular quarterly dividend of $0.08 per share in 2025 [13][15] - The company is reviewing refinancing options for maturing loans, with expectations of slightly lower overall interest expenses in 2025 [16][17] Q&A Session Summary Question: Can you provide insights on leisure group revenue growth expectations? - Management noted that leisure weakness is primarily in Florida, where their portfolio is more broadly appealing compared to luxury properties elsewhere [46][47] Question: What is the current state of the transaction market? - The transaction volume is down significantly, about 75% compared to pre-COVID levels, with few transactions closing [50][52] Question: Are further hotel-level operating efficiencies expected in 2025? - Management expects a slowing of expense growth due to reduced labor growth as group pace slows, while focusing on productivity improvements [55][56] Question: What are the expectations for labor and wage growth in 2025? - Wages and benefits are expected to grow around 4% in 2025, with a noted slowdown in labor growth [73][74] Question: Will a stub dividend be paid in 2025? - Management expects to pay a stub dividend in the fourth quarter, despite a loss on the sale of the Westin [79] Question: How is the company managing capital expenditures? - The company is being disciplined about capital expenditures, focusing on projects with better ROI and potentially delaying others [85][88]

Portfolio and Operations - As of December 31, 2024, DiamondRock Hospitality Company owned a portfolio of 37 premium hotels and resorts with a total of 10,004 guest rooms located in 26 markets across the United States[26]. - Over 97% of revenues for the year ended December 31, 2024, were derived from core urban and resort destination hotels[36]. - The company has completed rebrandings at six hotels since 2021 and is currently rebranding one additional hotel[39]. - As of December 31, 2024, 34 of the 37 hotels were unencumbered by mortgage debt, indicating a conservative capital structure[42]. - The company’s strategy includes aggressive asset management and disciplined capital allocation to high-quality lodging properties[32]. - The company evaluates each hotel to assess optimal brand and management strategies, leveraging global hotel brands for increased revenue[38]. - 36 hotels are currently operated, with 19 under franchise agreements with Marriott, Hilton, or IHG[113]. - The company holds leasehold interests in 8 hotels, which may complicate financing and limit growth potential[121]. Financial Performance and Strategy - The company aims to deliver long-term stockholder returns that exceed those generated by peers through dividends and capital appreciation[28]. - The company maintains a conservative debt profile with a focus on balance sheet flexibility and low leverage[43]. - The company plans to pursue strategic acquisitions that create value in the near term and evaluate opportunities to dispose of non-core hotels[40]. - The company carries comprehensive property and liability insurance, including coverage for business interruption and natural disasters, but may incur losses from uninsured risks[63]. - The company has significant exposure to natural disasters, with 72% of total revenues in 2024 coming from hotels in metropolitan areas prone to such risks[101]. - The company expects to qualify as a REIT for the taxable year ended December 31, 2024, but cannot assure continued qualification due to complex requirements and potential changes in laws[156]. - To maintain REIT status, the company must distribute at least 90% of its REIT taxable income, which may require borrowing or selling assets if cash flow does not meet distribution needs[160]. Market and Economic Risks - The lodging industry is highly cyclical and linked to macroeconomic indicators such as U.S. GDP growth and consumer confidence, which can adversely affect the company's revenues and profitability[76]. - The company faces significant competition in the hotel market, with risks of over-building leading to decreased RevPAR and profitability[77]. - The increased use of third-party internet travel intermediaries and alternative lodging channels like Airbnb could negatively impact the company's profitability[79]. - Economic recessions could result in declines in average daily room rates, occupancy, and RevPAR, adversely affecting operational results[135]. - Inflation has negatively impacted operating expenses, including labor and utility costs, affecting overall profitability[125]. Regulatory and Compliance Issues - The company is subject to various governmental regulations that can materially impact capital expenditures and earnings[60]. - The company believes it is in substantial compliance with the Americans with Disabilities Act (ADA), but ongoing assessments and modifications may impact financial condition and distributions to stockholders[154]. - Environmental regulations may impose significant costs for compliance and cleanup, affecting financial condition and operational results[149]. - Climate change regulations may necessitate capital investments in energy efficiency and sustainable practices, impacting operational costs[153]. Cybersecurity and Operational Risks - Cybersecurity incidents pose risks to operations and could result in significant costs and reputational damage[106]. - The company engages a managed services provider for cybersecurity, which includes a virtual chief information security officer (vCISO) and a virtual chief information officer (vCIO)[202]. - The Audit Committee oversees the company's cybersecurity program and receives quarterly updates on incidents and developments[203]. - The company has implemented a cyber risk management program for third-party property managers to assess their cybersecurity maturity[200]. - The company faces various cybersecurity risks but has not experienced material impacts on its business strategy or financial condition to date[201]. Labor and Employment Considerations - The company employed 34 full-time employees, with no part-time employees, and none are union members[61]. - The company prioritizes employee well-being to attract and retain talent, focusing on competitive pay, benefits, and a discrimination-free work environment[62]. - Labor union activities may increase operational costs and reduce profitability, impacting financial results[128]. - Labor shortages may slow growth and increase operational costs due to the need for higher wages to attract qualified employees[130]. - Local jurisdictions in the U.S. are considering legislation to increase minimum wage, which could significantly raise hotel operating costs[131]. Legal and Litigation Risks - The company may face litigation that could materially impact its financial condition and results of operations[186]. - The company anticipates that the aggregate liabilities from ongoing legal proceedings will not materially impact its financial condition or results of operations[222]. Debt and Financial Obligations - Approximately $575.0 million of unhedged variable rate debt as of December 31, 2024, exposing the company to interest rate fluctuations[125]. - Existing debt agreements contain financial covenants that may limit operational flexibility and distributions to stockholders[137]. - Future debt service obligations may require liquidation of properties and jeopardize the ability to maintain REIT tax status[144]. - Increased interest rates could elevate interest expenses and reduce cash available for distributions to stockholders[146]. - Property tax increases due to rate changes or reassessments could negatively impact cash flow and financial condition[168]. Management and Franchise Agreements - The company has hotel management agreements that generally renew automatically for negotiated consecutive periods upon expiration unless the manager opts not to renew[208]. - The franchise agreements for 20 franchised hotels include fees of 5% to 7% of gross room sales, with some agreements also including a percentage of food and beverage sales[215][216]. - The company faces risks associated with maintaining franchise licenses, including potential termination and associated costs[114]. - The company has a cap on total management fees at 3.5% of total operating revenue, ensuring a limit on management costs relative to revenue[212]. Shareholder Considerations - The company has issued 4,760,000 shares of Series A Preferred Stock with an aggregate liquidation preference of approximately $119.0 million and annual dividends of about $9.8 million[191]. - The company intends to pay quarterly dividends representing at least 90% of its REIT taxable income, but future distributions may be adversely affected by various risks and uncertainties[182]. - The market price of the company's common stock and Series A Preferred Stock may decline due to increased market interest rates, which could make the returns on investment less attractive[185]. - Future issuances of common stock or Series A Preferred Stock may depress the market price and dilute existing stockholders' equity interests[189]. - The company has the authority to issue up to 400,000,000 shares of common stock and 10,000,000 shares of preferred stock, which could delay or prevent a change in control[174].

Core Insights - DiamondRock Hospitality (DRH) reported revenue of $279.05 million for the quarter ended December 2024, marking a year-over-year increase of 5.9% and exceeding the Zacks Consensus Estimate of $273.69 million by 1.96% [1] - The company achieved an EPS of $0.24, significantly higher than the $0.04 reported a year ago, and surpassed the consensus EPS estimate of $0.21 by 14.29% [1] Revenue Breakdown - Other Revenues reached $26.49 million, exceeding the average estimate of $24.45 million by analysts, representing a year-over-year increase of 12.5% [4] - Food and Beverage Revenues totaled $69.40 million, slightly above the average estimate of $68.85 million, with a year-over-year growth of 3.8% [4] - Room Revenues amounted to $183.16 million, surpassing the estimated $178.65 million, reflecting a year-over-year increase of 5.8% [4] Stock Performance - Over the past month, shares of DiamondRock Hospitality have returned -7%, compared to a -2.2% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Financial Performance - DiamondRock Hospitality (DRH) reported quarterly funds from operations (FFO) of $0.24 per share, exceeding the Zacks Consensus Estimate of $0.21 per share, and up from $0.18 per share a year ago, representing a 14.29% surprise [1] - The company posted revenues of $279.05 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 1.96%, compared to $263.55 million in the same quarter last year [2] Market Performance - DiamondRock Hospitality shares have declined approximately 9.3% since the beginning of the year, while the S&P 500 has gained 1.3% [3] - The current consensus FFO estimate for the upcoming quarter is $0.19 on revenues of $263.16 million, and for the current fiscal year, it is $1.03 on revenues of $1.15 billion [7] Industry Outlook - The REIT and Equity Trust - Other industry, to which DiamondRock Hospitality belongs, is currently ranked in the bottom 47% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in estimate revisions, which could impact DiamondRock's stock performance [5][6]

Financial Performance - Net loss attributable to common stockholders for Q4 2024 was $13.7 million, or ($0.07) per diluted share, compared to a net income of $8.5 million in Q4 2023, impacted by a $32.6 million impairment loss on the Westin Washington D.C. City Center[5] - Net loss attributable to common stockholders for the year ended December 31, 2024, was $38,230,000, compared to a net income of $76,523,000 in 2023[29] - Net income for Q4 2024 was $(11,296) thousand, compared to $10,983 thousand in Q4 2023, with a full year net income of $48,250 thousand in 2024 versus $86,635 thousand in 2023[40] - FFO for Q4 2024 was $50,323 thousand, up from $39,290 thousand in Q4 2023, with full year FFO at $196,007 thousand compared to $198,878 thousand in 2023[42] Revenue Growth - Comparable revenues for Q4 2024 were $280.5 million, an increase of 5.7% compared to Q4 2023, while full year comparable revenues reached $1.1 billion, up 4.3% from 2023[5] - Total revenues for the year ended December 31, 2024, increased to $1,129,883,000, up from $1,074,867,000 in 2023, representing a growth of approximately 5.1%[29] - Total revenues for the fourth quarter of 2024 reached $279,051 million, with an adjusted EBITDA of $75,453 million[58] - The total comparable revenue for the year to date 2023 was $1,092,452,000, with an adjusted EBITDA of $305,224,000, indicating consistent performance[64] Adjusted EBITDA - Adjusted EBITDA for Q4 2024 was $68.7 million, a 19.9% increase from Q4 2023, and for the full year, it was $290.4 million, up 6.9% from 2023[9] - Adjusted EBITDA for Q4 2024 was $68,697 thousand, compared to $57,291 thousand in Q4 2023, with full year Adjusted EBITDA reaching $290,402 thousand versus $271,669 thousand in 2023[40] - Hotel Adjusted EBITDA for Q4 2024 was $75,453 thousand, an increase from $64,818 thousand in Q4 2023, with full year Hotel Adjusted EBITDA at $318,614 thousand compared to $301,156 thousand in 2023[44] - The total adjusted EBITDA for the year to date 2024 was $301,156,000, showing a significant increase compared to prior periods[64] Capital Expenditures and Investments - The company expects to invest approximately $85 to $95 million in capital improvements at its hotels in 2025[14] - The company repurchased 3.1 million shares of its common stock at an average price of $8.33 per share for a total of approximately $26.0 million during 2024[16] - The company declared a quarterly cash dividend of $0.08 per share on its common stock, payable on April 11, 2025[19] Guidance and Projections - The company provided guidance for 2025, expecting Adjusted EBITDA between $275 million and $300 million and Adjusted FFO between $199 million and $224 million[21] - Full year 2025 guidance for net income is projected between $79,117 thousand and $105,117 thousand[40] - Full year 2025 guidance for Adjusted EBITDA is estimated between $275,000 thousand and $300,000 thousand[40] - Full year 2025 guidance for FFO is expected to be between $195,117 thousand and $220,117 thousand[42] Asset and Liability Management - Total assets as of December 31, 2024, were $3,172,251,000, a decrease from $3,238,687,000 in 2023[27] - Total liabilities decreased to $1,573,319,000 as of December 31, 2024, from $1,589,704,000 in 2023[27] - Consolidated debt amounts to $1,095.8 million, with a weighted-average interest rate of 5.21%[50] Hotel Performance Metrics - Comparable RevPAR for Q4 2024 was $200.46, a 5.4% increase from Q4 2023, and for the full year, it was $205.15, up 2.6% compared to 2023[5] - The company has a total of 10,004 comparable rooms, achieving an average daily rate (ADR) of $290.02 and occupancy of 69.1% in Q4 2024[52] - The overall occupancy rate for YTD 2024 is 72.6%, up from 71.6% in the same period of 2023, reflecting a 1.0% increase[54] - The overall performance of the comparable hotels indicates a positive trend in revenue growth and occupancy rates across various locations[54] Acquisitions and Rebranding - The company completed the rebranding of the Hilton Burlington Lake Champlain to Hotel Champlain Burlington, Curio Collection by Hilton, in July 2024, enhancing its portfolio[17] - The company acquired the AC Hotel Minneapolis Downtown on November 12, 2024, contributing to the operating results for the period[52] - The hotel portfolio includes acquisitions such as the AC Minneapolis Downtown and Chico Hot Springs Resort & Day Spa, contributing to the overall performance metrics[56]

Group 1 - The article highlights DiamondRock Hospitality Company (NYSE: DRH) as a safe choice for Hotel REIT investments [1] - The investing group Trade With Beta offers features such as frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, IPO previews, hedging strategies, and an actively managed portfolio [1] - The analyst has a beneficial long position in the shares of DRH, indicating confidence in the company's performance [1]