The first glimpse of a pullback in leisure demand might be at hand.
Executives at hospitality real estate investment trust DiamondRock Hospitality Company said its Florida portfolio underperformed in the fourth quarter. DiamondRock has seven properties and 1,229 hotel rooms in Florida, which accounts for almost 13% of its approximately 9,600 rooms across its 36-hotel portfolio.
Jeff Donnelly, DiamondRock's CEO and director, said on an earnings conference call Friday that the softness in performance in Florida is a concern but hasn't hit its other markets or hotel segments.
"Where a lot of the weakness that we've seen in leisure that we reference really has been in Florida," Donnelly said. "It's where, frankly, our portfolio tends to be a little more what I would say is 'popular-priced,' or more, you know, sort of appeals to a broader consumer side. Whereas outside of Florida, a lot of our properties tend to be in sort of the luxury end where we haven't seen as much of a headwind."
In the fourth quarter, DiamondRock's Florida resorts reported a 5.8% decline in revenue per available room, said Briony Quinn, DiamondRock's executive vice president and chief financial officer. Meanwhile, all other resorts in the REIT's portfolio — excluding Orchards Inn in Sedona, Arizona, which is undergoing a renovation — grew RevPAR by 4.5% in the fourth quarter.
"Florida continues to see headwinds owing to what can best be characterized as a hangover from the pandemic, heavy visitation, price inflation, Florida fans relocating to Florida, etc.," Quinn said.
A number of factors could be contributing to the drop-off in Florida, Donnelly said, but he's hopeful the market will have a much better 2025.
"In the back half of the year, as we begin to comp over, what we saw in the back half of '24 is that Florida in particular will begin to find its footing a little bit," Donnelly said. "We're not expecting it to be clear like a hockey stick recovery. It's just that the year-over-year declines will begin to subside."
Of course, there are plenty of unknowns that could affect the travel and hospitality industry in 2025, and those can't be ignored either, Donnelly said.
"I think there's just a lot of uncertainty right there now in the economy, and then inflation seems to be something that's being difficult to get tamed," Donnelly said. "And unemployment's up a little bit, so we recognize that consumers are continuing to be under a bit of pressure, and I think that's why we're a little more cautious on the outlook for some of those as I describe it as more popular-priced resorts."
Donnelly added that ranking DiamondRock's hotel demand segments would put group demand first, followed by business-transient demand and finally leisure demand.
A quiet transactions market
In November, DiamondRock acquired the 245-room AC Hotel Minneapolis Downtown for $30 million. In mid-February, DiamondRock sold the 410-room Westin Washington, D.C. City Center for $92 million.
Justin Leonard, DiamondRock's president and chief operating officer, said U.S. hotel transaction volume is still down "about 75% versus pre-COVID transaction volume." Plus, larger hotel transactions are what's driving the current volume of deals.
"There are very few transactions that are getting done. I think if you really back out some of the very large transactions — which are driving a lot of that volume — I mean, we have not seen a lot of stuff get across the finish line, and there's still a pretty significant bid-ask," Leonard said. "So while we're actively out there and sort of soliciting bids, I wouldn't say that we're soliciting bids that a number that people particularly like, and we haven't seen a lot of forced selling in the market.
"So it's a pretty quiet transaction market, and I think that really is similar to what we saw six months ago. I think people were optimistic we'd see a drop-off in rates, and that might drive some incremental volume, but given what's happened to interest rates, I think the market still seems to be sort of stuck in a holding pattern."
DiamondRock ended 2024 with $584.3 million of liquidity. The REIT also had $1.1 billion of total debt outstanding, comprising $800 million of unsecured term loans and $295.8 million of property-specific, mortgage loans.
Performance highlights
In the fourth quarter, DiamondRock reported a net loss of $13.7 million, according to its earnings release. Comparable total revenues were $280.5 million, which was a 5.7% increase year over year. Comparable RevPAR in the fourth quarter was $200.46, a 5.4% increase year over year. Comparable hotel adjusted earnings before interest, taxes, depreciation and amortization during the fourth quarter was $75.9 million, a 16.4% increase year over year.
For the full year, DiamondRock's net income was $38.2 million. Comparable revenue reached $1.1 billion, which was up 4.3% over 2023. Comparable full-year RevPAR was $205.15 in 2024, up 2.6% year over year. Comparable hotel adjusted EBITDA was $321.4 million, up 5.3% from 2023.
In its full-year 2025 outlook, DiamondRock anticipates comparable RevPAR growth between 1% and 3%. The REIT's projections for 2025 adjusted EBITDA are between $275 million and $300 million.
As of publication time, DiamondRock’s stock was trading at $8.19 per share, down 12.6% year over year. The NYSE Composite Index was up 13.1% for the same time period.