DiamondRock Hospitality Company (DRH) Earnings

Management highlights

- Culture: Built culture of excellence, strengthened organization with added expertise. - Compensation: Aligned with total shareholder returns. - Infrastructure: Invested in infrastructure, implemented new platforms, used AI-enabled tools, simplified organization. - Westin Boston Seaport District: Evaluated brand interest, concluded reinforcing Westin brand for value creation. - ROI projects: The Dagny in Boston repositioned as independent property with EBITDA exceeding underwriting; L’Auberge de Sedona renovated and integrated, exceeding expectations. - Capital recycling: Expect to be net seller of hotels in 2026, under contract to sell one hotel, proceeds for general corporate purposes. - Outlook for 2026: Benefiting from easy comps, favorable holiday calendar, FIFA World Cup host markets, America 250 celebrations, and successful renovations.

Guidance

- Raised 2026 RevPAR guidance by 50 basis points to 1.5% to 3.5%, total RevPAR 25 basis points higher. - Adjusted EBITDA guidance now $296 million to $308 million, 2.5% increase at midpoint. - Adjusted FFO per share guidance now $1.12 to $1.18. - Anticipated capital expenditures $80 million to $90 million this year, raised guidance implies 7% growth in free cash flow per share.

Segment performance

Comparable RevPAR increased 2% and total RevPAR increased 2.5%. Occupancy in the quarter declined 30 basis points while ADR increased 2.6%. Resorts outperformed urban hotels; transient outperformed with revenues up 2.1% on improving demand and rate; group revenues were down 0.8% driven by softer demand early in the quarter. Out-of-room revenue per occupied room climbed 4%. Resorts had RevPAR increase 3.6%, with out-of-room spend per occupied room averaging $320 per night, more than three times urban portfolio. Urban RevPAR increased 0.9%, total RevPAR increased 1.6% in first quarter. $300-plus hotels have outpaced the rest of the portfolio by 290 basis points in total RevPAR and 1.2 thousand basis points in EBITDA growth over past three quarters.

Analyst Q&A

• Q: How are you thinking about the best uses of incremental capital at this stage given the recent performance of your shares? Are we nearing a point where you should shift away from repurchases and into more ROI projects or potentially some value-add acquisitions?

  A: Jeffrey John Donnelly said share repurchases are most appealing, at margin some acquisition opportunities getting there but need healthier spread.

• Q: On the expense side, can you take us through some of the building blocks for the full year across wages and benefits, insurance, and utilities, and what is giving you confidence in your expense growth, particularly for labor, significantly below where we are seeing national averages come in?

  A: Justin L. Leonard said had good history leaning into productivity, keeping labor rates low through productivity in various areas; Briony R. Quinn added savings on insurance renewal starting April 1 about $1 million benefit.

• Q: You said you have a contract for sale. Could you give some updated thoughts on the overall transaction market in terms of pricing and the overall level of activity?

  A: Jeffrey John Donnelly said transaction market better than a year ago, RevPAR better this first quarter, more positive outlook, pricing robust, resorts priciest, urban at discount.

• Q: You mentioned the dividend payout ratio will go up, and I think you said that is because the NOLs will be exhausted. Could you talk about that a little bit more, the timing and when you would expect the payout ratio to move up?

  A: Briony R. Quinn said generated significant NOLs during pandemic, have significant balance left, worked through about 50%, intention to use ratably over next few years to increase payout ratio.

• Q: Jeff, can you give us an update on 2Q and how April performed? And then taking a step back, how would you broadly characterize the recent change in trajectory for each of the customer segments: group, BT, and leisure?

  A: Jeffrey John Donnelly said momentum into April continued healthy, BT strong, leisure or resort markets healthy, first year all three channels likely positive growth.

• Q: You discussed some additional group pickup you might need due to some tough comps in 3Q. How much additional business do you need to backfill at this point in time? And what are some of the different strategies you can implement to fill that demand if need be?

  A: Jeffrey John Donnelly said part of pace due to World Cup exposure, displaced some group, focused on transient strategy, optimistic to backfill with transient business.

• Q: Could you unpack a little bit of your expectations for New York this year? I know you probably have assumptions on the upcoming contract renewal, but more curious how you see top-line growth in that market following a few strong years?

  A: Justin L. Leonard said optimistic about New York, expecting compression over summer, factoring in contract renewal, demand strong as last two years.

• Q: You mentioned $80 million to $100 million per year for the next five years as a range. It seems like from your comments, maybe you are not considering or do not see another opportunity of something larger like L’Auberge. Is that correct? And then on L’Auberge, when is peak season in that market, and just remind us when the renovation finished last year?

  A: Jeffrey John Donnelly said L’Auberge-type projects incorporated into $80 million to $100 million; Justin L. Leonard said Sedona peak seasons March to May and September to October; Briony R. Quinn said hotel under renovation all of 2025 until September 1.

• Q: I want to go back to Briony’s comment earlier about how the over-$300 ADR hotels are outperforming pretty materially versus the rest of the portfolio. Thinking more broadly, how does a statistic like that inform things like portfolio construction or how you think about CapEx on certain hotels and the buy/sell/hold decision? Walk us through how that informs the framework.

  A: Jeffrey John Donnelly said factors into acquisition decisions, assets catering to top end bid up, look to enhance existing portfolio, add to portfolio but premiumly priced.

• Q: Back to the Westin Seaport franchise renewal. If we were having the same situation five or ten years ago, would the outcome have been equivalent to what you achieved here, or does something imply a change in the balance of power between the brands and owners or more sophisticated owners? Walk us through the evolution.

  A: Jeffrey John Donnelly said today's management team thinks differently, looks for flexibility; Justin L. Leonard said brands' focus on net unit growth and difficulty with incremental development make it friendlier for owners now.

• Q: Circling back to the CapEx discussion and the remaining value-creation opportunity across the portfolio—whether it be franchise expirations or ROI projects—is anything more actionable in the near term, assuming continued fundamental strength? How flexible do you intend to be as it relates to the five-year CapEx plan?

  A: Jeffrey John Donnelly said there are actionable projects, projects phased to make CapEx figure consistent, intent to de-risk future earnings volatility.

• Q: As a follow-up to the discussion around the consumer, can you elaborate on what you are seeing in out-of-room spend and how things have trended relative to expectations? Any other insights on the health of the consumer—broad-based or high-end strength relative to mid or lower end?

  A: Justin L. Leonard said out-of-room spend continued to accelerate faster than hotel RevPAR, ability to get customers to spend in different ways, saw lift in food and beverage profit even with down group quarter, customer spending freely across ADR tiers.

• Q: I just wanted to follow up on the World Cup. I believe you said it was 20 basis points that you have in RevPAR. Is that correct? Given the shift going on, are you seeing this becoming less of an international event and shifting to more domestic? It also seems like it is becoming more of a luxury event. In the past, have you seen last-minute booking being successful when there is an opportunity for people to go to these kinds of higher-ticket experiences?

  A: Jeffrey John Donnelly said not much precedent in U.S., initial ticket prices high, unsure on demand, anecdotes show thirds of tickets for international, domestic, local demand.

• Q: Can you talk about how you reserve for potential bonus payments to third-party operators this year?

  A: Justin L. Leonard said bonus thresholds multi-tiered, properties exceeding operating budget, track actively to accrue appropriate incentive compensation; Jeffrey John Donnelly said accruing mitigates risk compared to not accruing.