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    DRH
    Earnings call· Jun 2026(Q2 FY26)

    DiamondRock Hospitality Q2 FY26 earnings call DRH

    Jul 31, 2026 Source

    Executive summary

    DiamondRock Q2 FY26 — Strong Operating Performance and Raised Outlook

    DiamondRock reported a strong second quarter, exceeding expectations with robust RevPAR growth and significant margin expansion driven by disciplined cost control. The company raised its full-year guidance, reflecting confidence in continued demand across all segments and an active transaction market. Management emphasized its focus on free cash flow per share growth and strategic capital allocation to enhance shareholder value.

    Highlights

    5

    • Comparable RevPAR increased 7% during the quarter, with June growing 10.1%.

    • Corporate adjusted EBITDA reached $107.9 million, driven by significant operating leverage.

    • Adjusted FFO per share was $0.44, benefiting from property tax appeals.

    • Hotel operating expenses increased just 1.8% compared to total revenue growth of 5.5%, leading to 240 basis points of margin expansion.

    • Trailing 12 months free cash flow per diluted share increased 27% year-over-year to $0.80.

    Concerns

    2

    • Q3 group pace is expected to be essentially flat, presenting a group hole for the quarter.

    • Key West properties experienced relatively softer performance due to lower price point and off-season months.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2026 RevPAR growth
    2.5% to 4%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA
    $310 million to $320 million
    high materiality
    High
    Full-year 2026 Adjusted FFO per share
    $1.18 to $1.23
    high materiality
    High
    Full-year 2026 Capital expenditures
    $75 million to $85 million
    medium materiality
    High
    Full-year 2026 Free cash flow per share growth
    18%
    medium materiality
    High
    World Cup contribution to full-year RevPAR growth
    approximately 30 basis points
    low materiality
    Medium
    Laberge Dacodona contribution to 2026 RevPAR growth
    at least 75 basis points
    medium materiality
    High
    Q4 RevPAR growth vs Q3
    stronger than the third quarter
    low materiality
    Medium
    Payout ratio
    increase over time
    low materiality
    Medium
    Urban revenues vs 2019 levels
    exceed 2019 levels by double digits
    low materiality
    High
    Group pace for H2 2026
    up approximately 1%
    medium materiality
    Medium
    Leverage target
    3 to 4 net debt-to-EBITDA range
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Resorts
    Led by Liberis DeSadona, Caballo Point, two Destin resorts, and the Landing Lake Tahoe, all delivering double-digit growth. Resorts are outperforming urban hotels as expected in 2026.
    		—7.9%——
    Urban Hotels
    Led by Bedagne, two Chicago hotels, Bourbon Orleans, Kimpton Palomar Phoenix, and Hotel Emblem. Performance accelerated steadily throughout the quarter, reaching nearly 10% RevPAR growth in June. Broad-based strength across the portfolio.
    		—6.6%——

    Operational metrics

    24
    Corporate Adjusted EBITDA
    $107.9 million
    Q2 FY26

    Reported for the quarter.

    Property tax appeals benefit
    $6.9 million
    Q2 FY26

    Settlement of multiyear property tax appeals, contributing $0.03 per share to FFO.

    FFO margin expansion (excluding tax benefit)
    303 basis points
    Q2 FY26

    Impressive margin expansion even without the one-time tax benefit.

    Total RevPAR growth
    5.6%
    Q2 FY26

    Driven by low single-digit increases in F&B, spa, and parking revenues.

    Average guest bill
    $475 per day
    Q2 FY26

    Hotels above this level account for approximately two-thirds of EBITDA.

    Average guest bill at top 5 ADR hotels
    $1,200 per night
    Q2 FY26

    Indicates strong performance at high-end properties.

    ADR hotels performance vs lower-rated hotels
    outperformed by almost 300 basis points
    Last year

    Outperformance on total RevPAR growth.

    Total hotel operating expenses growth
    1.8%
    Q2 FY26

    Compared to total revenue growth of 5.5%.

    Year-to-date operating expenses growth
    1.3%
    YTD FY26

    While total revenue grew 4.2%, driving nearly 200 basis points of margin gains.

    Wages and benefits growth
    2.2%
    Q2 FY26

    Represents nearly half of total expenses, reflecting continued productivity gains.

    Laberge Dacodona revenue growth
    17%compared to 2 years ago
    First 3 quarters as integrated resort

    Property continues to outperform expectations.

    Laberge Dacodona hotel adjusted EBITDA growth
    40%compared to 2 years ago
    First 3 quarters as integrated resort

    Property continues to outperform expectations.

    Laberge Dacodona margin expansion
    670 basis pointscompared to 2 years ago
    First 3 quarters as integrated resort

    Property continues to outperform expectations.

    Laberge Dacodona 2027 group pace
    more than double this year's levelvs 2026
    2027

    Property has not yet stabilized, indicating future earnings tailwinds.

    Group revenue growth
    6.6%
    Q2 FY26

    Driven by rate growth and higher room rates.

    Leverage
    lower end of our peer group
    Current

    Conservative balance sheet provides optionality.

    Incremental investment capacity from leverage
    $500 million
    Ongoing

    One additional turn of leverage would provide this capacity while remaining within target range.

    Quarterly common dividend increase
    22%
    Q2 FY26

    Increased to $0.11 per share.

    EBITDA per key at independent hotels vs branded hotels
    50% higher
    Historical

    Expected to continue expanding with AI integration.

    Laberge Dacodona EBITDA yield on invested capital
    20%expected low double-digit
    Ongoing

    Outperforming initial expectations.

    Replacement cost for portfolio per key
    $700,000vs trading value of $350,000 per key
    Current

    Indicates a lack of new supply in most markets.

    Renovations on guest-facing hotels
    $80 million
    Last 2 years

    Expected to provide additional upside as they stabilize.

    Group pace for 2027
    —
    2027

    Too early to make big prognostications; only 5-6% of total revenues in group pace. Results are negative and volatile by hotel, with some up low double digits (Chicago) and others down single digits, particularly in Q4 2027.

    Hotel operating expense growth assumption for H2 2026
    around 2.5%
    H2 FY26

    Assumed in guidance, with potential elevation due to New York Hotel Union renewal and higher bonus accruals.

    Industry KPIs

    7
    MetricValueDetails
    Occupancy rate—
    Revenue growth7%%
    Disposition volume—
    Investment volume closed—
    Net debt adjusted EBITDA—x
    Leasing bookings volume signedup approximately 1%%
    Ffo core ffo normalized ffo per share$0.44USD

    Deals & partnerships

    3
    MarriottRenegotiated franchise agreement for Westin Boston Seaport

    Successful renegotiation of the franchise agreement is expected to contribute to 2027 earnings growth.

    KimptonBrand agreement for Kimpton Shorebreak Huntingtonmonth-to-month

    Brand agreement has expired and is now month-to-month, presenting an upcoming brand versus independent decision.

    MarriottFranchise agreement for Courtyard Denver Downtown

    Franchise agreement expires in 2027, presenting an upcoming brand versus independent decision with options for repositioning, expansion, or sale.

    Capital programs

    2
    Laberge Dacodona integration and repositioningunderway
    Spent to date: $25 million

    Benefit: nearly $3 million incremental EBITDA

    Project expected to generate a 20% yield on invested capital, outperforming initial expectations. Not yet stabilized, with meaningful earnings tailwinds expected into 2027.

    Guest-facing renovationsunderway$80 million

    Benefit: additional upside from hotels comprising nearly 1/4 of EBITDA

    Renovations completed over the last two years at hotels that have not yet stabilized, expected to drive future earnings growth.

    Risks & headwinds

    3
    Group pace deficit in Q3Q3 FY26

    Q3 is expected to be essentially flat

    Mitigation: Uptick in short-term transient pickup is helping to fill the group hole.

    Elevated expense growth in H2 2026H2 FY26

    expense growth rate to elevate a little bit

    Mitigation: Anticipated due to New York Hotel Union renewal and higher bonus accruals, but company expects to continue generating margin growth.

    Key West softer performanceQ2 FY26

    relatively softer quarters

    Mitigation: Attributed to lower price point and off-season months, not a broad K-shaped economy issue.

    What to watch in Q3 FY26

    5

    Q3 Group Pace Fill-in

    next quarter
    Currentexpected to be essentially flat
    TargetImproved performance due to transient pickup

    Why it matters

    Verifying the effectiveness of short-term transient📎 demand in offsetting the group hole is crucial for Q3 performance and full-year guidance achievement.

    Looking ahead, pace for the second half of the year is currently up approximately 1%, led by strength in the fourth quarter as the third quarter is expected to be essentially flat.

    Q&A highlights

    6

    How are labor costs being controlled despite higher occupancy, and does this differ between independent and branded hotels or involve brand standard changes?

    Labor costs were not down, but generally flat on a per occupied room basis, reflecting continued productivity improvements across the portfolio. This is not driven by specific hotel types or brand implementations, but by a focus on efficiency and finding productivity gains, including leveraging AI.

    “It's not necessarily driven by 1 type of hotel or 1 sector of hotel. I don't think it's driven by brand implementation of any kind of cost saving over it's really just our focus on finding productivity and finding efficient ways to deliver debt service throughout our portfolio of hotels.”

    asked by Chris Woronka · answered by Justin Leonard

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Operating Performance and Margin Expansion

    DiamondRock delivered a strong Q2 FY26, with comparable RevPAR increasing 7% and total revenue growing 5.5%. This performance was driven by broad-based strength across all customer segments, with June showing 10.1% growth. The company achieved significant operating leverage, expanding hotel adjusted EBITDA margin by 240 basis points, excluding a one-time📎 property tax benefit. This was supported by disciplined cost control, as total hotel operating expenses increased only 1.8%.

    02

    Focus on Free Cash Flow Per Share and Capital Allocation

    The company's strategic objective is to grow free cash flow per share, which has increased approximately 30% on a trailing 12-month basis. This focus underpins capital allocation decisions, including internal investments and potential external growth. Management highlighted the strength of its balance sheet, with no debt maturities until 2029 and conservative leverage, providing $500 million of incremental investment capacity within its target range of 3x to 4x net debt-to-EBITDA.

    03

    Improving Transaction Market and Strategic Optionality

    DiamondRock is observing a healthier transaction market with increased opportunities for acquisitions and dispositions. The company is actively underwriting potential acquisitions, focusing on opportunities with clear paths to higher cash flow. On the disposition side, activity is higher than in recent years, with one property receiving over a dozen bids. The company aims to be active on both sides over the next 6-12 months, with an objective to enhance earnings, reduce risk, and create shareholder value.

    04

    Portfolio Optionality and Brand Decisions

    A key strength is the company's operational flexibility, with nearly 90% of its portfolio under third-party management agreements terminable at will. This structure allows for ownership decisions that maximize value and translates to higher value upon asset sale. The company also benefits from independent hotels, which historically have 50% higher EBITDA per key than branded hotels. Upcoming brand vs. independent decisions for Kimpton Shorebreak Huntington and Courtyard Denver Downtown will prioritize long-term value creation.

    05

    Drivers for 2027 Earnings Growth

    Management outlined five key drivers for earnings growth into 2027: continued strength among higher-income travelers, a lack of new supply in most markets, strong citywide calendars in major markets (Boston, Chicago, San Diego), additional upside from recently renovated hotels (nearly $80 million spent on guest-facing renovations), and improved flow-through from the Westin Boston Seaport following franchise agreement renegotiation. The Laberge Dacodona project is also expected to provide meaningful earnings tailwinds into 2027.

    AI-generated summary of the company’s earnings call. Not investment advice.