DiamondRock Hospitality (NYSE:DRH) raised its 2026 outlook after reporting third-quarter growth in hotel revenue and earnings, helped by stronger business travel, resort demand and higher room rates.
Comparable revenue per available room, or RevPAR, rose 6.6% from a year earlier, while total RevPAR increased 6.5%, Chief Financial Officer Briony Quinn said on the company’s earnings call. Hotel Adjusted EBITDA grew 12.5%, and the hotel margin expanded 166 basis points, marking the third consecutive quarter of expansion exceeding 100 basis points.
Travel demand broadens
Transient revenue increased 8.3%, including nearly 12% growth in business transient revenue. Group revenue rose 1%, outperforming the company’s pace entering the quarter by about 200 basis points. A 2.8% increase in group rates more than offset a modest decline in group room nights, Quinn said.
About 30% of the company’s RevPAR outperformance relative to expectations came from short-term group bookings, with transient demand accounting for the remainder. Chief Executive Officer Jeff Donnelly said some business travelers benefited from room availability created by gaps in the group calendar.
Resorts outpaced urban hotels for the third consecutive quarter. Resort RevPAR rose 8.4% and resort Hotel Adjusted EBITDA increased 19%, while urban RevPAR grew 5.8%.
Food and beverage revenue increased 7.1%, and departmental profit rose approximately 15%, Quinn said. Total expenses increased 3.9%, more than the company expected in absolute dollars, largely because of stronger business volume. Food and beverage revenue also exceeded expectations but carries a lower incremental margin than room revenue.
Higher guidance and acquisition
DiamondRock now expects full-year 2026 RevPAR growth of 4.75% to 5.25%, raising the midpoint of its prior forecast by 175 basis points. It expects total RevPAR growth in the same range, adjusted EBITDA of $322 million to $327 million and adjusted FFO per share of $1.24 to $1.26.
With capital expenditures projected at $75 million to $80 million, the revised guidance implies 25% growth in free cash flow per share, Quinn said. During the question-and-answer session, Donnelly said October results came in slightly better than expected after the company developed its guidance.
On Oct. 1, DiamondRock acquired The Bellmoor Inn & Spa in Rehoboth Beach, Delaware, for $31 million using cash on hand. Donnelly said the company expects the independent resort to reach a 9.5% stabilized yield following planned off-season improvements and asset management initiatives. He cited potential changes to room pricing and common areas, as well as operating efficiencies.
Quinn said DiamondRock ended the third quarter with net debt at three times EBITDA and no debt maturities before 2029. The company also increased its quarterly common dividend to $0.11 per share from $0.09.
Looking toward 2027
Management identified several potential earnings drivers for 2027, including additional income from recently renovated hotels, demand from sporting and entertainment events, a full year of Bellmoor ownership and savings under a renegotiated franchise agreement at the Westin Boston Seaport. Donnelly said the agreement takes effect Jan. 1 and will produce significant franchise-fee savings, though he did not disclose the contract terms.
Group booking pace for the next four quarters is approximately in line with the prior year, Quinn said, with the first quarter of 2027 representing the largest opportunity for additional bookings. Donnelly said second- and third-quarter 2027 group pace was growing at a mid-single-digit rate, with Chicago and San Diego among the contributors.
Management also noted cost pressures. President and Chief Operating Officer Justin Leonard said employee benefits and utilities were among areas facing higher-than-inflation increases, and that some productivity improvements would be harder to achieve after the company captured easier gains. Donnelly said the rate of margin improvement may not match that of the past 12 to 24 months.
DiamondRock is testing artificial intelligence in reservations, group leads, suite upselling and guest requests. Leonard said the company was seeing more AI-related penetration at resorts and viewed direct bookings as a particular opportunity for independent hotels.
About DiamondRock Hospitality (NYSE:DRH)
DiamondRock Hospitality Company (NYSE: DRH) is a self-advised real estate investment trust that owns a portfolio of hotels and resort properties in the United States. The company focuses on lodging real estate in leisure destinations and gateway markets, with properties serving business travelers, vacationers, and group customers.
DiamondRock’s portfolio includes hotels operated under nationally recognized brands as well as independent and boutique properties. Its business activities include acquiring, owning, leasing, and strategically managing hospitality real estate, while day-to-day hotel operations are generally carried out by third-party management companies and brand operators.
The company was formed in 2004 through a spin-off from Marriott International and is headquartered in Bethesda, Maryland.
