DiamondRock Hospitality NYSE: DRH reported second-quarter 2026 operating results marked by higher revenue per available room, expanded hotel margins and an increase to its full-year outlook, as strength across group, transient and leisure demand supported results.
Chief Financial Officer Briony Quinn said comparable RevPAR increased 7% from a year earlier, with growth accelerating from roughly 5.5% in April and May to 10.1% in June. Group and transient revenue each rose more than 6% during the quarter, while Total RevPAR increased 5.6%.
The company reported corporate Adjusted EBITDA of $107.9 million and Adjusted FFO per share of $0.44. Results included a $6.9 million benefit, or $0.03 per share, from settling multiyear property-tax appeals involving its two Chicago hotels. Excluding that benefit, the company said FFO margin expanded 303 basis points.
DiamondRock’s trailing-12-month free cash flow per diluted share, defined by the company as Adjusted FFO less capital expenditures, rose 27% year over year to $0.80. CEO Jeff Donnelly said free cash flow per share has increased approximately 30% over the past 12 months as the company pursued its “DiamondRock 2.0” strategy.
Operating Leverage and Demand Trends
Quinn said hotel operating expenses increased 1.8% during the quarter, excluding the favorable property-tax appeals, compared with total revenue growth of 5.5%. That produced 240 basis points of Hotel Adjusted EBITDA margin expansion. Wages and benefits increased 2.2%, while labor hours declined despite higher occupancy, according to the company.
During the question-and-answer session, President and Chief Operating Officer Justin Leonard clarified that labor costs were not down overall, but were “slightly down or generally flat on a per occupied room basis.” He attributed the performance to productivity improvements across the portfolio rather than cost actions by hotel brands.
Management said the company expects expense growth of about 2.5% for the second half of 2026. Leonard said some of the margin gains seen in the first half are expected to moderate because of factors including the New York hotel union renewal and higher bonus accruals tied to performance.
The company said the World Cup contributed an estimated 90 basis points to second-quarter RevPAR growth, particularly in Boston and Greater San Francisco, but was not the main driver of the quarter. DiamondRock now expects the event to contribute about 30 basis points to full-year RevPAR growth, modestly above its prior 20-basis-point estimate.
Management pointed to continued demand from higher-income travelers. The average guest bill at checkout exceeded $475 per day during the quarter, while the company’s five highest-average-daily-rate hotels generated average guest bills above $1,200 per night. Hotels with ADRs above $300 outperformed lower-rate hotels by almost 300 basis points on Total RevPAR growth over the past year, Quinn said.
Resorts, Urban Hotels and Group Business
Resort RevPAR increased 7.9%, led by L’Auberge de Sedona, Cavallo Point, DiamondRock’s two Destin properties and The Landing Lake Tahoe, all of which posted double-digit growth. Urban hotel RevPAR rose 6.6%, with leading contributions from The Dagny, the company’s Chicago hotels, Bourbon Orleans, Kimpton Hotel Palomar Phoenix and Hotel Emblem.
L’Auberge de Sedona continued to exceed management’s expectations following the integration of two previously separate hotels. In its first three quarters as an integrated resort, revenue increased 17%, Hotel Adjusted EBITDA rose 40% and margins expanded 670 basis points compared with two years earlier, Quinn said. The company increased its estimate of the property’s contribution to 2026 RevPAR growth to at least 75 basis points from 50 basis points.
Donnelly said the company now expects the Sedona investment to produce a 20% yield on invested capital, compared with an original expectation for a low-double-digit EBITDA yield. He also said the property’s 2027 group pace is more than double its level for 2026.
Group revenue increased 6.6% in the quarter, supported by rate growth of more than 3.5% and a 2.5% increase in room nights. Group pace for the second half was up approximately 1%, led by fourth-quarter strength, while third-quarter pace was expected to be essentially flat. Management said it expects another record group year in 2026 following a strong 2025.
For the third quarter, Leonard said a group pace deficit—particularly in August—has been partially offset by stronger short-term transient booking activity. Management said it expects fourth-quarter RevPAR growth to exceed third-quarter growth.
Capital Allocation and Outlook
DiamondRock raised its quarterly common dividend 22% to $0.11 per share and increased its 2026 guidance. The company now expects:
- RevPAR growth of 2.5% to 4% for 2026, an increase of 75 basis points at the midpoint.
- Adjusted EBITDA of $310 million to $320 million.
- Adjusted FFO per share of $1.18 to $1.23.
- Capital expenditures of $75 million to $85 million, with guidance implying 18% free-cash-flow-per-share growth.
The company said it has no debt maturities until 2029 and has no secured debt, convertible debt, preferred equity or off-balance-sheet encumbrances. Quinn said one additional turn of leverage would provide about $500 million of investment capacity while remaining in the company’s target leverage range. Donnelly said leverage could finish the year near 3 times net debt to EBITDA if the company takes no further actions.
Management said transaction activity has improved and that DiamondRock has been evaluating acquisition and disposition opportunities. Donnelly said the company is more active on dispositions than it has been in recent years, with one marketed property receiving more than a dozen bids. However, he said competition for acquisitions has intensified, with the company sometimes finding itself 10% to 15% below winning bids.
Donnelly said DiamondRock could be a net seller during the current calendar year, though the company expects to pursue both acquisitions and dispositions over the next six to 12 months. He said the company remains interested in resort properties given their long-term characteristics, but will also evaluate urban opportunities and other assets where it sees potential to increase cash flow through management changes, cost efficiencies, expansions or capital projects.
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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