DiamondRock Hospitality NYSE: DRH reported first-quarter 2026 results that exceeded management’s expectations despite difficult year-over-year comparisons and weather-related disruptions in several markets, executives said on the company’s earnings call.
Chief Financial Officer Briony Quinn said the company delivered comparable RevPAR growth of 2% and total RevPAR growth of 2.5% in the quarter, above its prior outlook for a flat quarter. Corporate adjusted EBITDA totaled $60.6 million and adjusted funds from operations (FFO) were $0.22 per share. Quinn also highlighted a 225-basis-point increase in FFO margin and said trailing 12-month free cash flow per share rose to $0.75, up 19% year-over-year.
Resorts outpaced urban hotels as out-of-room spending remained strong
Quinn said occupancy declined 30 basis points in the quarter while average daily rate (ADR) increased 2.6%. Resorts outperformed the company’s urban hotels by a wider margin than management had anticipated, she said.
By customer segment, Quinn said transient revenue increased 2.1% on improving demand and rate, while group revenues declined 0.8% due to softer demand early in the quarter. She added that guests continued to spend on property for a fourth consecutive quarter, driving total RevPAR to outpace RevPAR by 50 basis points. Out-of-room revenue per occupied room rose 4%, consistent with trends seen through most of 2025.
“Our guests have the spending power,” Quinn said, adding that the company’s food, beverage, spa, and retail offerings are “giving them good reasons to use it.” At resorts, out-of-room spend per occupied room averaged $320 per night, more than three times the urban portfolio, she said.
Comparable resort RevPAR increased 3.6% in the quarter, with total RevPAR “modestly higher,” Quinn said. In the urban portfolio, RevPAR rose 0.9% and total RevPAR grew 1.6%, with January and February “modestly negative” and March “meaningfully” stronger, she said. Quinn cited double-digit RevPAR gains at Hotel Emblem in San Francisco, the recently renovated Hilton Garden Inn Times Square, the Denver Courtyard, and Hotel Clio in Denver.
Quinn also pointed to performance at higher-rated properties, noting that hotels with ADRs above $300 have outpaced the rest of the portfolio over the last three quarters by 290 basis points in total RevPAR and 1,200 basis points in EBITDA growth.
Expense discipline and insurance renewal supported margin expansion
On costs, Quinn said total hotel operating expenses increased 0.8% on total revenue growth of 2.5%, contributing to a 127-basis-point improvement in hotel EBITDA margins. Wages and benefits, which she said represent nearly half of total expenses, rose 0.7% as the company focused on productivity gains.
President and Chief Operating Officer Justin Leonard said the company’s labor performance is being driven more by fewer hours worked than by wage-rate reductions, citing productivity improvements in housekeeping, hours of operation in food and beverage outlets, and “small administrative efficiencies” linked to the implementation of AI tools.
Chief Executive Officer Jeff Donnelly added that a more favorable insurance renewal beginning April 1 will provide an unexpected benefit. “That will be about a $1 million benefit to the full year,” he said.
Group pace improves despite weather impacts; company targets another record year
Quinn said first-quarter group room revenues declined 0.8%, with group rates up 3.5% but room nights down 4.2%. She attributed part of the decline to winter storms in the Eastern U.S. and limited snow in ski markets that affected January and February.
However, Quinn said group revenue pace for the year has improved by more than 100 basis points since the company’s last call, with pickup across each quarter and particular encouragement in Vail, Greater San Francisco, Chicago, and Fort Lauderdale. After achieving a new peak in group revenues in 2025, Quinn said the company is “trending toward another record year” for the portfolio.
Leonard attributed some near-term group pickup to calendar shifts around holidays such as Juneteenth and July Fourth, which he said created more “pattern weeks” where the company has availability to sell group business.
When asked about second-quarter trends, Donnelly said momentum seen in March “effectively continued” into April, “more on the leisure side.” He also said business transient (BT) was strong in the first quarter and added that, while it remains early, 2026 could be a year when BT, leisure, and group all show positive growth—something he said has been “lacking for the last five years” across the sector.
Capital allocation: conservative balance sheet, Westin Seaport renewal, and potential asset sale
Quinn said the company’s capital structure remains “simple and conservative,” with no debt maturities until 2029, no secured or convertible debt, no preferred equity, and no off-balance-sheet encumbrances. She noted that all debt is fully prepayable and that leverage is on the lower end versus peers “by design.”
Quinn said DiamondRock paid a common dividend of $0.09 per share for the first quarter and expects to declare quarterly dividends of $0.09 per share for the remainder of 2026, with “the potential for a fourth quarter step dividend based on full-year results.” She said the payout ratio remains below historical levels because the company is using net operating losses (NOLs) to offset taxable income; on the call, management said it has worked through about 50% of its NOL balance and intends to use the remainder “over the next few years” while gradually increasing dividends.
Donnelly discussed the Westin Boston Seaport District franchise renewal, noting the existing agreement expires Dec. 31, 2026. After evaluating proposals from multiple brands, he said DiamondRock concluded that “reinforcing the Westin brand’s superior position in the Seaport” would minimize disruption and maximize shareholder value. Donnelly said the company chose not to pursue a key money loan, focusing instead on items such as fee structure, renovation scope and timing, and contract duration and terms. Value creation from the new agreement begins Jan. 1, 2027, he said.
On capital spending, Donnelly said the company’s five-year plan remains unchanged, targeting 7% to 9% of annual revenue, or roughly $80 million to $100 million per year, across the portfolio. He highlighted ROI-focused initiatives at The Dagny in Boston and at L’Auberge de Sedona, including the integration of Orchards Inn operations with L’Auberge following a renovation completed in the third quarter of 2025.
The company also expects to be a net seller of hotels in 2026. Quinn said DiamondRock is under contract to sell one hotel and anticipates closing in the second quarter, with proceeds to be used for general corporate purposes, potentially including opportunistic share repurchases. Donnelly said the company has a non-refundable deposit and expects to provide more detail after closing. He told Wells Fargo’s Jack Armstrong that share repurchases remain “the most appealing use” of capital, although he said some acquisition opportunities are beginning to look more attractive “at the margin.”
Discussing broader transactions, Donnelly told Citi’s Smedes Rose that the market “certainly feels a lot better” than a year ago, citing improved RevPAR performance, a more positive 2026 demand outlook, and interest rates that he said are roughly 150 basis points lower. He added that pricing remains robust, with resorts “the priciest assets” and urban hotels generally trading at a discount.
Guidance raised on stronger quarter and insurance savings; tailwinds include World Cup and renovations
Quinn said DiamondRock raised its full-year 2026 RevPAR guidance by 50 basis points to 1.5% to 3.5%. Total RevPAR is expected to run 25 basis points higher than RevPAR growth, unchanged from prior guidance, she said. The company also increased adjusted EBITDA guidance to $296 million to $308 million and adjusted FFO per share guidance to $1.12 to $1.18. Quinn attributed the increase to stronger-than-expected first-quarter performance and the more favorable insurance renewal.
Donnelly said the company expects easier comparisons later in the year and cited several demand drivers, including a favorable holiday calendar, exposure to FIFA World Cup host markets, America 250 celebrations, and benefits from renovations. He said Memorial Day weekend revenues are pacing up in the mid-single digits and that FIFA demand is rising at elevated rates, though the company does not expect activity to accelerate until closer to the event. Donnelly said DiamondRock has budgeted for 20 basis points of annual RevPAR growth from the World Cup.
Donnelly also said returns from L’Auberge de Sedona are expected to be the most material renovation benefit, contributing at least a 50-basis-point tailwind to the company’s RevPAR growth rate in 2026. At the midpoint of guidance, management expects the company to reach a new peak FFO in 2026 and generate 7% free cash flow per share growth for the year, Donnelly said.
About DiamondRock Hospitality NYSE: DRH
DiamondRock Hospitality Company is a real estate investment trust (REIT) that acquires, owns and manages a diversified portfolio of upscale, full-service hotels in urban gateway markets across the United States. Established in 2004 and headquartered in Bethesda, Maryland, the company focuses on investing in high-quality lodging properties that cater to both business and leisure travelers. Its assets are positioned in key metropolitan areas, enabling DiamondRock to benefit from strong demand drivers such as corporate travel, group conventions and resort leisure stays.
The company's portfolio includes full-service hotels offering a broad range of amenities, including guest rooms, on-site food and beverage outlets, meeting and event space, fitness centers and spa services.
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