DiamondRock Hospitality Company is taking steps to mitigate the potential for recessionary risk or demand declines, but so far the effects of U.S. government spending cuts, persistent inflation and unpopular tariffs have been minimal.
During a first-quarter earnings conference call, DiamondRock CEO and Director Jeff Donnelly admitted it's a little difficult to project too far out, calling the outlook "cloudy" due to some headwinds and U.S. macroeconomic uncertainty in President Donald Trump's first 100 days back in office.
"Underlying trends were obscured rather than illuminated by the short-lived DOGE Days of spring coinciding with holiday shifts, only to be immediately followed by the somewhat ironically named Liberation Day," Donnelly said. "It is my personal view that the Trump administration will continue to soften their policies to settle the economy and improve the reelection potential of congressional Republicans in 2026. For this reason, I'm cautiously optimistic we'll see economic anxiety settle as we move through 2025."
The Bethesda, Maryland-based hotel real estate investment trust repurchased 2.1 million shares of common stock for approximately $15.9 million during the first quarter. Share repurchases are a wise move at this stage of the cycle, Donnelly said, but he reiterated his position that a downturn isn't just around the corner.
"Maintaining liquidity and flexibility is critical in moments like this. I personally don't think we're on the verge of another global financial crisis or pandemic-like outcome, where you really are sort of hoarding cash, almost to the extreme, but it is something we're mindful of," he said. "And that's why, candidly, when you look at the proceeds that came out of [a hotel sale in] Washington, D.C., some portion of it went to repurchases. But some of it's used, really, to kind of manage the timing around repayment of debt this year as we sort of bridge towards the period of putting more permanent debt on."
In mid-February, DiamondRock sold for $92 million the 410-room Westin Washington, D.C. City Center. The company last bought a hotel in December, when it acquired the 245-room AC Hotel Minneapolis Downtown for $30 million. DiamondRock has a portfolio of 36 hotels and resorts with more than 9,000 total rooms throughout the U.S.
"On the transaction front, there are a good number of high-dollar resorts on the market, with prices ranging from $500,000 to as much as $2 million per key. All-in pricing after CapEx is in the range of 5.5% to about a 7% cap rate," Donnelly said. "Given our source of funds, our common shares, preferred equity and even our debt are among the most accretive reinvestment options today. But we are always actively looking for a creative recycling opportunities."
In the first quarter, DiamondRock invested $25.6 million in its portfolio via capital improvements and renovations. The REIT anticipates a full-year CapEx spend of between $85 million and $95 million. When asked whether U.S. tariff policy would lead to higher renovation costs for DiamondRock's hotels, President and Chief Operating Officer Justin Leonard said the tariff impact depends on the type of renovation project. But in the short term, the company is moving quickly to get ahead of any tariff headwinds that could affect procurement later in the year.
"I'll give you an example: We were renovating our hotel in Phoenix. We went very quickly from trying to understand what storage options were for a large order of [furniture, fixtures and equipment] that was being made in Vietnam, to getting it on a boat as fast as possible when the tariffs were pushed back for 90 days so that we could get that FF&E in before the tariffs were reinstituted," Leonard said. "We're trying to be pragmatic without understanding exactly what the future is going to look like. I think for the summer window, the stuff that we have on order is likely all going to come in before the tariffs are imposed again. But for the stuff that we have slated to start in November, we're in a bit of a pause trying to understand what the landscape is going to look like."
Groups slow booking pace
All told, general uncertainty in the U.S. hasn't led to significant pullback in leisure or group demand at DiamondRock's hotels and resorts so far, executives said. First-quarter group room revenue rose 10.4% year over year and group demand increased 5.2%. DiamondRock's urban hotels saw group room revenue increase by 14.4% and group demand rose 5.9%. But executives noted meeting planners have delayed finalizing event bookings later in the year.
"Although group lead generation remains strong, the closure rates have been softer recently, as event planners have been slow to make a final decision due to the unsettled macroeconomic environment," said Briony Quinn, DiamondRock's executive vice president and chief financial officer.
Donnelly expressed confidence that group demand hasn't gone away despite the slowdown in converting leads to bookings.
"The optimistic view is that group demand is there, and a little more confidence in an unsettled economy will convert business leads to revenue. Considering we've seen capitulation on many aspects of the unpopular trade policies, one could argue we're already moving toward a calmer environment," he said. "The cautious view is confidence arrives too late for the industry to fully recapture its prior potential. Typically, group-dependent hotels in the market grow anxious and start discounting, which leads to lower revenue creation than may have otherwise occurred.
"Our decision to reframe our 2025 guidance was driven by healthy group lead volume and business transient demand, on the one hand, and the acknowledgement that a continuing pause in group pickup may make it more challenging for us to replicate the very strong group production we had in the back half of 2024."
DiamondRock revised its full-year 2025 RevPAR outlook to between a 1% decline and 1% growth, down from a prior range of 1% to 3% growth. Its outlook for adjusted earnings before interest, taxes, depreciation and amortization for the full year is between $270 million and $295 million, down $5 million at the midpoint from its prior forecast.
By the numbers
In the first quarter, DiamondRock reported a net income of $9.4 million, a 59.3% year-over-year increase, according to its earnings release. Comparable total revenues were $251.8 million, which was a 0.5% increase year over year. Comparable RevPAR in the first quarter was $186.20, a 2% increase year over year. Comparable hotel adjusted EBITDA during the first quarter was $61.3 million, a 2.2% increase year over year.
As of publication time, DiamondRock’s stock was trading at $7.59 per share, down 16% year to date. The NYSE Composite Index was up 1.49% for the same time period.