Major events and affluent travelers are among the key reasons executives at DiamondRock Hospitality Co. are optimistic about 2026.
During the hotel real estate investment trust's fourth-quarter and full-year 2025 earnings call, DiamondRock CEO and Director Jeff Donnelly said there are multiple forces aligning in DiamondRock’s favor. It should benefit from easier year-over-year comparisons following Liberation Day and the 43-day federal government shutdown as well as a holiday calendar that will allow for better business and leisure travel demand.
The REIT's portfolio is well-positioned in markets that are expected to be part of the country’s 250th anniversary celebrations, and it aligns closely with the FIFA World Cup matches, Donnelly said. It will also enjoy the tailwinds from recently completed renovations in its hotel portfolio.
The company's higher-end hotel portfolio continues to benefit from the resilient spending patterns of affluent travelers who have experienced disproportionate wealth gains in recent years, he said. Spring break demand is developing favorably, supported by solid rate growth across a broad range of its urban and resort hotels.
For the World Cup specifically, DiamondRock is seeing impressive rate growth in host markets but it’s still early, Donnelly said, adding he expects more clarity by the next earnings call. Most transient bookings for World Cup demand will come in 30 to 60 days out, he added.
For the America 250 event markets, rates for the Fourth of July holiday weekend are 20% higher than last year, he said. While major urban markets are typically top of mind for these celebrations, it’s DiamondRock’s resorts that are seeing stronger demand.
The REIT expects revenue per available room to increase 2% this year while its funds from operations in free cash flow per share will increase about 4%, he said.
Performance update
The fourth quarter was DiamondRock’s most difficult year-over-year comparison, with RevPAR dipping 0.3% compared to the year before, said Briony Quinn, executive vice president and chief financial officer. Occupancy fell by 130 basis points while average daily rate grew by 1.6%.
Transient demand revenue led the quarter with 2.5% growth while group revenue declined by 1% and leisure transient revenue fell by 2.5%, she said.
Along with its newly renovated properties, DiamondRock’s hotels in Destin, the greater San Francisco area, New York City and Denver delivered standout results, she said.
Out-of-room spend was more resilient that expected, with total RevPAR increasing 0.6%, representing a 90-basis-point outperformance relative to RevPAR, Quinn said.
“This strength was concentrated in our resort portfolio, where out-of-room revenue per occupied room increased nearly 7%, the strongest quarterly growth of the year,” she said. “Notably out-of-room revenue per occupied room at our resorts accelerated sequentially throughout 2025 from 4% growth in the first quarter to nearly 7% growth in the fourth quarter.”
Food and beverage was a bright spot for the third consecutive quarter, she said. Food-and-beverage revenue grew 1.4%, with banquets and catering up over 2% and outlets up 0.5%. Food-and-beverage margins expanded by 120 basis points.
Additional contributors to out-of-room revenue growth included spa, parking and destination fees, each of which increased in the mid- to high single digits, partially offset by slightly lower attrition and cancellation fees, Quinn said.
DiamondRock’s urban portfolio — which accounts for 62% of annual earnings before interest, taxes depreciation and amortization — delivered 0.3% RevPAR growth and TrevPAR growth in the quarter, Quinn said. November was the softest month in the quarter, when the impact of the government shutdown was most pronounced. At its resorts, RevPAR declined 1.8% while TRevPAR increased 1.1%, she said.
“We remain optimistic about the trajectory of our resorts in aggregate, as the fourth quarter experienced the lowest year-over-year RevPAR decline among all the quarters,” she said, adding it would have been positive were it not for the renovation displacement at the Havana Cabana Key West and the below-average snowfall in Vail.
Capital expenditure plan
DiamondRock's five-year capital expenditure program provides a clear distinction and is a critical reason the company's story is more about free cash flow per share and not about short-term RevPAR, Donnelly said.
Over the next five years, the program’s spending will equate annually to 7% to 9% of total revenue instead of the peer average of 10% to 11%, he said. That equates to about $80 million to $100 million per year for the next five years. In total dollars, the difference in the investment DiamondRock is making compared to the peer average is more than $100 million or 50 cents per share.
“That is not an amount we are underinvesting,” he said. “Rather, that is the increment we do not believe will provide an appropriate risk-adjusted return and therefore will be redirected to where we see superior returns.”
DiamondRock expects to undertake four to five meaningful renovation projects each year, he said. The remainder of the portfolio will benefit from these more focused improvements. The overall portfolio is improved steadily and thoughtfully each year to support or enhance its competitive positioning. The company has managed to maintain earnings disruptions from these projects to $2 million to $4 million each year.
As owners, DiamondRock is best positioned to determine the optimal balance among operating performance, capital expenditure magnitude, timing and value creation, he said.
“Through the experience and integrated work of our in-house design and construction team and asset managers, we've determined that our hotels, on average, do not require full renovations on the rigid seven-year cycle,” he said.
A hotel’s value, age, relative performance, profitability, prior renovation quality and care from operating partners all factor into the renovation decisions, he said.
The Kimpton Hotel Palomar Phoenix was 9 years old when DiamondRock started its first renovation last year, Donnelly said. It was well-built and well-maintained, and the team determined the correct amount of investment was just over $20,000 per key. The project was complete by the third quarter last year, and by the fourth quarter, the hotel’s earnings before interest, taxes, depreciation and amortization increased nearly 20% alongside a 15-point gain in RevPAR index by December.
Return-on-investment projects can be among the best risk-adjusted uses of capital to drive long-term earnings growth so long as returns are conservatively underwritten and the time to stabilization is defendable, he said.
“Our projects are appropriately scaled,” he said. “We prefer to hit singles and doubles because, as in baseball, getting on base is far more important to winning than striking out chasing the occasional home run on a riskier, large, complicated, multi-year project.”
The recent ROI project at the L’Auberge de Sedona is a reflection of that, he said. The company spent $25 million to reposition the former Orchards Inn as The Cliffs at L’Auberge and integrated it into the L’Auberge de Sedona to operate them as one property. In the first quarter following the completion of the project, the resort delivered 15% RevPAR growth and over 25% EBITDA growth.
As for transactions, the market is showing signs of improvement, and DiamondRock is looking for situations that it has the fundamental backdrop and asset-level flexibility to deliver on all its goals, Donnelly said. It prefers supply-constrained markets, to avoid ground leases and to partner with independent operators.
“We have nothing to report at this time, but we remain active underwriters as our team is always cultivating opportunities through our extensive network of independent owners,” he said. “That said, it is increasingly likely that DiamondRock will be a net seller of hotels in 2026.”
By the numbers
For the fourth quarter, DiamondRock reported total revenue of $274.5 million, down from $279 million the year before, according to its earnings release. For the full year, it reported total revenue of $1.12 billion, down slightly from $1.13 billion the year before.
It reported net income of $26.3 million for the quarter, up from a net loss of $11.3 million in 2024. For the full year, it reported net income of $101.4 million, up from $48 million the year prior.
For the quarter, it achieved adjusted EBITDA of $71.9 million, a year-over-year increase of 3.3%. It achieved adjusted EBITDA of $297.6 million for the full year, a year-over-year decrease of 0.1%.
As of Dec 31, 2025, DiamondRock had approximately $68.1 million of unrestricted cash on hand and $400 million available through its undrawn revolving credit facility. It had total outstanding debt of $1.1 billion, comprising three unsecured term loans bearing a weighted average interest rate of 5%.
During the fourth quarter, it repurchased 200,000 shares of its common stock at an average price of $7.93 per share for a total of $1.6 million. For the full year, it repurchased 4.8 million shares of its common stock at an average price of $7.72 for a total of $37.1 million. It currently has $137 million of remaining capacity under its $200 million share repurchase program.
As of press time, DiamondRock’s stock was trading at $10.04, up 22.9% year over year. The Nasdaq Composite was up 22.2% for the same period.