Pivoting the real estate investment trust’s strategy to focus on resorts and lifestyle hotels continues to pay off for DiamondRock Hospitality, according to Chairman and CEO Mark Brugger.

“Positive fourth quarter and full year results were fueled by DiamondRock’s extensive portfolio of drive-through resorts,” he said Friday on a fourth quarter earnings conference call and of the full year with analysts. “Several stations hit record highs in 2021, and we see that trend continuing.”

In total, a dozen of the REIT’s resort and lifestyle hotels beat 2019 revenue per available room in the fourth quarter, led by properties such as Henderson Beach Resort in Destin, Florida.

DiamondRock made the decision seven years ago to strategically focus on resorts in destination markets, which have benefited significantly from strong leisure demand, he said.

“Since that pivot, we have completed over $1 billion in transactions to build a portfolio that defines DiamondRock today.

“We remain true to our thesis that superior earnings growth can be achieved from experiential resorts and lifestyle hotels. Going forward, we intend to focus our investments exclusively on similar assets,” he said.

To accelerate and fund this strategic direction, DiamondRock will recycle non-essential branded city hotels as opportunities arise, he said.

DiamondRock sold $220 million worth of hotels in 2021, then reinvested that proceeds into four independent, experiential properties.

Company executives expect the REIT’s acquisitions and divestitures in 2021 will add more than $20 million in additional earnings before interest, taxes, depreciation and amortization to 2022 results.

Hotel acquisitions completed in 2021 and early 2022 have already shifted the REIT’s portfolio to nearly two-thirds leisure-oriented hotels and resorts.

The most recent acquisitions include the 220-room Bourbon Orleans Hotel in New Orleans for $89.9 million in July 2021; the 37-room Henderson Park Inn in Destin, Florida, for $27.5 million in July 2021; the 170-room Henderson Beach Resort in Destin for $112.5 million in December 2021; and the 103-unit Tranquility Bay Beachfront Resort in Marathon, Florida, for $63 million in January 2022.

Uncovering these offerings in a competitive market is largely the result of building longstanding relationships with the owners of these “micromarkets” instead of relying on brokers, Brugger said.

“We are optimistic that we will close a similar volume of deals in 2022. In fact, we are actively working on four deals right now at some stage of valuation,” he said, noting that half of these transactions are off-market.

Not only is DiamondRock growing in size, but it is also internally improving asset value through repositionings, spending $44.5 million throughout 2021.

The REIT repositioned its Lodge at Sonoma to Sonoma, California; The Hythe Vail, a Luxury Collection Resort in Vail, Colorado; and the Margaritaville Beach House Key West in Key West, Florida.

“Returns on these investments should be a significant catalyst for our 2022 earnings,” Brugger said, noting that hotels are budgeted this year to collectively increase earnings by $12 million from 2019, an increase of more than by 50%.

He said two more hotels would be repositioned in the first quarter of 2022.

DiamondRock plans to spend approximately $100 million in 2022 on capital improvements at hotels including the JW Marriott Denver Cherry Creek, Hilton Boston Downtown/Faneuil Hall, Orchards Inn Sedona and Hilton Burlington Lake Champlain.

Speaking on the earnings call, DiamondRock’s chief financial officer, Jeff Donnelly, said fourth-quarter results were “a distinct advance” over initial guidance.

“The earnings stream was excellent. The hotel’s adjusted EBITDA profit margins were 22.5% and more than 40 basis points above our guidance,” he said.

The 12% rise in room revenue was driven by a higher-than-expected average daily rate, he said, partially offset by lower-than-expected occupancy due to last-minute cancellations during the emergence of the omicron COVID-19 variant.

“The rate-driven rise pushed room profit margins more than 200 basis points above forecasts,” he said.

For the full year 2021, resort revenue was $286 million, in line with 2019. While city hotels improved over the year, the segment remained well below pre-pandemic levels with revenue of $105 million in the fourth quarter.

In terms of book activity, Donnelly said 135,000 definite room nights were booked in the fourth quarter, up 8% from the previous quarter. Of the nights booked, 85% are for 2022. In total, 53% of travelers booked their room in December, he added.

DiamondRock reported a net loss of $2.9 million in the fourth quarter and a full year of $195.4 million, according to the company. Press release.

Comparable revenue for the quarter totaled $196.8 million, down 13.3% from the same period in 2019. The full year total was $611.7 million, a decrease of 33.5% for the same period.

During the quarter, comparable RevPAR fell 12.5% ​​from the same period in 2019 to $158.53. On a full-year basis, comparable RevPAR fell 32.6% to $124.74.

The REIT ended 2021 with 9,349 rooms in 32 hotels. To date, the portfolio includes 33 hotels.

At press time, DiamondRock’s stock price was trading at $9.74 per share, up 1.4% year-to-date. The New York Stock Exchange composite fell 2.5% for the same period.

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