DiamondRock Hospitality Co Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Q4 Results: Fourth quarter results were better than expected with comparable total RevPAR up 5.5% vs 2023, stronger in urban footprint with 8.2% RevPAR growth in urban hotels.
• Capital Expenditures: 2024 included room renovations at several hotels, repositioning of The Dagney (EBITDA up 40% to $14M), and work ongoing on Orchards Inn repositioning and Landing Resort renovation.
• Asset Sale: Closed 410-room Westin in Washington DC for $92M, avoiding costly renovations.
• Operational Efficiency: Board reduced G&A costs, asset managers exceeded performance, finance team implemented new systems, and Anika Fisher strengthened governance.

Segment Performance

• Urban Hotels: Comparable total RevPAR increased 8.2% with a 5.4% increase in average daily rate. November was less affected by the US election than expected, and December saw exceptional growth with RevPAR up 13.2% led by hotels in Chicago, Salt Lake, San Diego, and Boston. The AC Minneapolis generated 17% RevPAR and 28% total RevPAR growth in its first full calendar month of ownership. Revenue contribution from urban hotels was significant due to strong performance.
• Resort Hotels: Mixed results. RevPAR declined 150 basis points, but out-of-room spending limited total revenue decline to 10 basis points. Florida resorts saw a 5.8% decline in RevPAR due to pandemic hangover, while other resorts (excluding Orchards Inn under renovation) grew RevPAR 4.5%. Chico Hot Springs had nearly 18% RevPAR growth. Vail and Sonoma had strong revenue and EBITDA growth. Group room revenues were the strongest segment, up 8.1% in Q4 with 5.9% increase in room nights, driving food and beverage revenue growth at urban hotels.

Guidance

• RevPAR: Expected to grow 1% to 3% in 2025.
• Corporate Adjusted EBITDA: Projected in the range of $275 million to $300 million.
• Adjusted FFO: Expected to be in the range of $199 million to $224 million, with adjusted FFO per share in the range of $0.94 to $1.06.
• Financing: Assumes maturing loans replaced at 6% rate, but expects overall interest expense to be slightly lower in 2025 due to interest rate swaps.

Risks

• Mortgage Maturities: Three mortgage loans totaling nearly $300M mature in 2025, and a $300B term limit maturity in early 2026.
• Market Uncertainty: Washington DC market uncertainty and leisure market headwinds in Florida.
• Interest Rate Risks: Dependence on interest rate swaps and potential challenges in refinancing at favorable rates.

Q: How does DiamondRock's leisure BT group revenue growth expectations align with the 1% to 3% RevPAR guide and why the portfolio may not align with peers?

A: Jeff Donnelly states it relates to footprint; leisure weakness in Florida where portfolio is more popular priced, while non-Florida properties are luxury with less headwind. Budgeting by hotel location rather than segment.

Q: What's the transaction front and competitiveness for the Westin DC sale?

A: Jeff Donnelly says transaction volume is down 75% vs pre-COVID, few deals closing, still quiet market with significant ask.

Q: What's the increase in labor property level labor and wage and benefits for 2024 and expectations for 2025?

A: Jeff Donnelly says wages up about 7% in 2024, expecting 4% growth in 2025 with slowing labor growth due to more applicants and less wage pressure.

Q: Thoughts on RevPAR growth by quarter and expense initiatives?

A: Jeff Donnelly says first quarter RevPAR softer, remaining quarters likely 2%-3% growth. Expense growth combated by focus on productivity and labor management tools to offset wage inflation.

Q: Are there better opportunities than buying back stock and where are attractive returns?

A: Jeff Donnelly says share repurchases are attractive, but external growth opportunities are limited; ROI projects within portfolio are considered with better understanding of risks.