DiamondRock Hospitality pany(DRH) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Comparable RevPAR growth in Q2 2025 was 0.1%, driven by a 1.1% increase in rate and an 80 basis point decline in occupancy [4] - Total RevPAR growth was 1.1%, attributed to a 4.2% increase in out of room revenues per occupied room, reaching a new quarterly high of $160 per occupied room [4] - Corporate adjusted EBITDA was $90.5 million, and adjusted FFO per share was $0.35, with free cash flow per share increasing approximately 4.5% to $0.63 [7] Business Line Data and Key Metrics Changes - Group room revenue increased by 0.8%, business transient revenue rose by 4.2%, while leisure transient revenue declined by 1.6% [5] - Food and beverage revenues increased by 3.1%, with F&B profit rising over 6%, leading to a margin increase of 105 basis points [5][6] - Urban portfolio achieved 3% RevPAR growth, with April being the strongest month at 4.6% growth [7][8] - Resort portfolio saw comparable RevPAR decline of 6.3%, impacted by the delayed opening of The Cliffs at La Verge [9] Market Data and Key Metrics Changes - Urban hotels experienced total RevPAR growth that was 100 basis points stronger than RevPAR growth, with food and beverage revenues up over 5% [8] - Resort RevPAR performance varied, with Florida resorts experiencing a 4.1% decline, but out of room spend per occupied room increased by 6.7% [11] - Group room revenues across the portfolio increased by 0.8%, with rates up 3.3% and room nights down 2.5% [12] Company Strategy and Development Direction - The company aims to drive outsized free cash flow per share growth and is focused on recycling low free cash flow yield hotels into higher yielding investments [18][19] - The company plans to continue share repurchases as a key use of capital, especially when trading at a favorable cap rate [15][23] - Future value creation opportunities include potential developments at Chico Hot Springs and residential opportunities in Destin and Fort Lauderdale [26] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment is expected to stabilize, with improving group lead volumes and out of room spending trends [30] - The company maintains a full-year outlook for RevPAR growth of negative 1% to positive 1%, with total RevPAR growth expected to outperform RevPAR growth by 50 basis points in 2025 [31] - Management expressed optimism about the potential for RevPAR acceleration in the coming year, contingent on reduced political turmoil and increased domestic investment [70] Other Important Information - The company successfully refinanced its senior unsecured credit facility, increasing its size to $1.5 billion, providing operational and transactional flexibility [14][71] - The company has declared or paid a quarterly common dividend of $0.08 per share and may declare an additional sub-dividend for Q4 based on taxable income [15] Q&A Session Summary Question: Can you elaborate on the stabilization at the higher end of the portfolio? - Management clarified that the comment referred to overall portfolio demand improving from a previously softer point [34] Question: What is driving the low single-digit RevPAR declines in Q3? - Management indicated that the decline is primarily due to difficult comparisons from last year's exceptional performance, particularly related to the DNC in Chicago [36][38] Question: How do you view share buybacks in relation to addressing preferred shares? - Management stated that share buybacks remain an attractive use of capital, but they will weigh options regarding preferred shares as the year progresses [41][42] Question: What segments are driving the improvement in group booking pace? - Management noted that the urban side is seeing significant improvement, with short-term group bookings contributing positively [48] Question: How does the company plan to pursue asset sales? - Management acknowledged that recent market volatility and property tax increases have impacted their disposition plans, but they remain focused on accretive recycling opportunities [80][100]