DiamondRock Hospitality pany(DRH) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2025, the company reported corporate Adjusted EBITDA of $297.6 million and Adjusted FFO per share of $1.08, with free cash flow per share increasing by 6% over 2024 and 22% since 2023 [4] - In the fourth quarter, corporate Adjusted EBITDA was $71.9 million, and Adjusted FFO per share was $0.27, with comparable RevPAR declining by 30 basis points [4][5] - Full year comparable total RevPAR grew by 1.2%, while comparable hotel Adjusted EBITDA grew by 1.1% [4] Business Line Data and Key Metrics Changes - Business transient revenue grew by 2.5%, while group revenue declined by 1% and leisure transient revenue declined by 2.5% [5] - Out-of-room revenue per occupied room at resorts increased nearly 7%, marking the strongest quarterly growth of the year [6] - Food and beverage revenues increased by 1.4%, with margins expanding by 120 basis points [6][9] Market Data and Key Metrics Changes - The urban portfolio, which accounts for 62% of annual EBITDA, delivered 0.3% RevPAR growth in the fourth quarter [7] - The strongest RevPAR growth among urban hotels was achieved by specific properties, including Hotel Emblem San Francisco and Denver Courtyard, which posted double-digit gains [7] - Resort RevPAR declined by 1.8%, while total RevPAR increased by 1.1% [7] Company Strategy and Development Direction - The company aims to drive outsized free cash flow per share growth, with a disciplined capital allocation strategy [18][19] - A five-year capital expenditure program is planned, equating to 7%-9% of total revenues, which is lower than the peer average [20] - The company is focusing on renovations that enhance competitive positioning while maintaining earnings disruptions to about $2 million-$4 million per year [22] Management's Comments on Operating Environment and Future Outlook - The company expects 2026 RevPAR growth of 1%-3% and total RevPAR growth 25 basis points higher [14] - Management is optimistic about the trajectory of resorts and anticipates benefits from upcoming events like the FIFA World Cup and the 250th anniversary of the United States [28][30] - The company believes that affluent consumers will continue to spend, despite economic headwinds [99] Other Important Information - The company redeemed its Series A redeemable preferred shares, which will generate a $0.03 tailwind to FFO per share in 2026 [10][11] - The company plans to declare quarterly dividends of $0.09 per share in 2026, with potential for a fourth quarter sub-dividend [12] Q&A Session Summary Question: Thoughts on labor and benefits pace in 2026 - Management expects labor costs to increase around 3% in 2026, influenced by contract renewals in New York [38] Question: Insights on first quarter RevPAR - The first quarter is expected to be the toughest, with group pace weighted towards growth in the second and fourth quarters [42] Question: Impact of Westin Seaport franchise expiration - Management is pleased with interest from multiple brands and is working towards finalizing a deal [46] Question: RevPAR lift from World Cup demand - About 20 basis points of RevPAR growth is embedded in the guidance from World Cup demand [48] Question: Out-of-room spend performance - Management is cautiously optimistic about continuing to improve out-of-room spend, with a focus on group bookings [52] Question: CapEx plans for 2026 - Management is focused on smarter CapEx and operational improvements, with specific projects planned for 2026 [59] Question: Transaction market outlook - The company is more inclined to be sellers at this time, as shares appear to be a better investment than current acquisition options [66] Question: Preferred shares payoff impact - The payoff of preferred shares is expected to clean up the balance sheet and provide a $0.03 tailwind to FFO per share [71]