After a year in which DiamondRock Hospitality Company reported record revenues, margins and profits, executives for the Bethesda, Maryland-based company are bullish for the future and actively seeking growth opportunities.
During the company’s fourth-quarter and full-year 2022 earnings call, President, CEO and Director Mark Brugger said DiamondRock has $600 million in liquidity that will be in play for external growth.
He said the company is “ready to pounce on opportunities that emerge” and will have an advantage in acquisitions compared to other real estate investment trusts. That's because debt markets remain a hurdle for private equity firms and other private buyers this year, he said.
“We’re having active conversations about off-market deals right now,” he said. “One of the advantages of having only 35 assets and being our size is if we could do a few deals this year, it can really move the needle for us.”
In 2022, DiamondRock acquired three resort properties for a total of $174 million, including the Lake Austin Spa Resort in Austin, Texas, for $75.8 million in the fourth quarter. Brugger said the Texas property was “a spectacular acquisition.”
“We bought a high-end resort at a trailing [net operating income] cap rate of nearly 9%, an almost unheard of yield for a luxury property, one which will generate our highest total [revenue per available room] and [earnings before interest, taxes, depreciation and amortization] per key,” he said.
Brugger said the deal for the Texas hotel came after the previous lender walked and the debt markets froze up.
“There’s a low volume of deals currently on the market,” he said. “A core skill of our team remains in finding off-market deals and unique opportunities. Our most recent acquisition just a few months ago illustrates that point.”
Looking Ahead
DiamondRock didn’t provide guidance for 2023 because of “the significant variability of the overall U.S. economy,” but Brugger said the company expects challenges with profit growth, margins and employee wages just like the rest of the industry.
He said the company has some advantages, though, due to a balanced portfolio across the leisure, group and business demand segments.
Travel demand remains strong, too, and Brugger is bullish on leisure demand in particular moving forward. The strength in this segment will lead to further growth in the company’s resort portfolio, he said.
“Experiences are one of the most highly valued and sought-after assets in the world, and travel is unique for its ability to satisfy that consumer need,” he said. “Leisure was a long-term outperformance trend line well before the onset of the pandemic, and we believe that this positive trend will only continue in the years to come.”
Fourth-Quarter and Full-Year Performance
DiamondRock reported net income of $18.4 million in the fourth quarter of 2022, according to the company’s earnings release. Comparable total revenue was $256.9 million, a 22.6% increase over the fourth quarter of 2021 and 9.5% over the fourth quarter of 2019.
Its comparable hotel adjusted earnings before interest, taxes, depreciation and amortization was $77 million, a 61.8% increase over 2021 levels. Comparable RevPAR was $195.99 in the quarter, an 18.4% increase over 2021.
Average daily rate was $291.05, up 7.7% over 2021. Hotel occupancy was 67.3%, a 10% increase compared to 2021 but a 10.4% decrease compared to 2019.
For the full year, DiamondRock's net income was $109.7 million, up from a net loss of $195.4 million in 2021. Comparable total revenue hit $1 billion, a 54.8% increase over 2021 and a 7% increase over 2019 levels.
Comparable hotel adjusted EBITDA was $319.8 million in 2022, a 121.9% increase over 2021 and a 13.6% increase over 2019. Comparable RevPAR was $198.37, a 50.6% increase over 2021.
Its average daily rate in 2022 was $290.21, an increase of 13.6% and an increase of 19.9% compared to 2021 and 2019, respectively. Hotel occupancy reached 68.4%, up 32.6% year over year and down 12% compared to 2019.
As of press time, DiamondRock's stock was trading at $8.82, up 7.7% year to date. The New York Stock Exchange Composite was up 2.7% over the same period.