Executives at Bethesda, Maryland-based DiamondRock Hospitality Company are very optimistic about the recovery of group business and are upbeat about what 2023 holds.
DiamondRock didn't release an official outlook for full-year 2022 or provide guidance for 2023 in its earnings statement. However, President, CEO and Director Mark Brugger said 2022 total hotel revenue and hotel adjusted earnings before interest, taxes, depreciation and amortization should outpace full-year 2019 levels.
Brugger also predicted a positive first quarter of 2023 based on a strong year-over-year comparison to the first three months of 2022, when the omicron variant of COVID-19 was rampant.
"As we look out to 2023, we are encouraged that the positive demand trends will continue and that we can push through a moderating economy. The first quarter will benefit from easy comparisons to the omicron-impacted first-quarter 2022, and throughout the year, we expect to see group and business travel continue to heal from its pandemic-suppressed levels," Brugger said.
"Remember, GDP is $4 trillion larger now than in pre-pandemic 2019, and [revenue per available room] is still behind the trend line as travel recovers from a healthcare crisis. Leisure looks solid, and we expect to start the new year strong with record rates the first week of 2023 at many of our resorts," he added.
Brugger said there's room for DiamondRock's portfolio to grow occupancy with more groups booking midweek, though he acknowledged that driving room rates is more important than driving occupancy.
"On the resorts, our experience has been it's better to try to push rates than to push occupancy," he said. "I suspect as we move into next year, we'll do more midweek group bookings which will help help on some of that occupancy since we're sold out almost every weekend. That's how we hope to close some of that gap."
The booking window for group business remains short, but Brugger said that's not a big concern since the groups that are booking are spending big once they're on property, specifically outside the room on food and beverage, including catering.
"Our booking window is shorter just by the nature of our assets, but the velocity of the leads continues to be good. The rates we're achieving are good," Brugger said. "And as we talked about for [the third quarter], our ability to upsell folks particularly at the more experiential hotels we have where we can offer other things has been remarkable and exceeded our expectations. ... We're optimistic that even with less group room nights we'll be able to drive revenues because we think we have more ways to sell them stuff when they arrive."
Sticking to a Transaction Strategy
In the past week, other real estate investment trusts have been active in acquiring portfolio-anchoring resorts. Host Hotels & Resorts announced it had acquired the 125-room Four Seasons Resort & Residences in Jackson Hole, Wyoming, for $315 million in an all-cash deal. Earlier last week, Braemar Hotels & Resorts entered into a definitive agreement to purchase the 210-room Four Seasons Resort Scottsdale at Troon North in Arizona for $267.8 million.
Brugger said that investors still have "the most level of confidence and belief in the future" in resort properties, but the two Four Seasons properties acquired by Braemar and Host weren't at attractive pricing levels for DiamondRock.
"Our experience over the last ... three to five months as rates have gone up, is that the broadly marketed deals, particularly the larger ones, seem to be getting a lot of attention and pricing at levels that aren't attractive for us," Brugger said. "We continue to try to focus on these owner/operators with assets between $50 million and $150 million, where we think we have an advantage by dealing mostly off-market with these relationships and buying at probably a 100- to 200-basis-point better yield than the broadly marketed luxury resorts."
He added that DiamondRock is focused on acquisition opportunities in several "micromarkets," such as Sedona, Arizona; Sausalito, California; and Destin Beach, Florida.
"Now, one of our peers just did a deal in Jackson Hole. We like that market a lot, that would fit our criteria, but the kind of asset, the long-term brand management and the size doesn't fit what we're trying to do here," Brugger said.
Third-Quarter Performance
DiamondRock reported net income of $28.6 million during the quarter, according to the company’s earnings release. Its comparable total revenue was $266.9 million, an 11.7% increase over the third quarter of 2019.
Comparable hotel adjusted earnings before interest, taxes, depreciation and amortization was $84.2 million, a 16.3% increase over 2019 levels.
Comparable RevPAR for DiamondRock's portfolio during the third quarter was $211.40, a 8.7% increase from the third quarter of 2019. Average daily rate was $281.36, which was up 17.5% from 2019. Hotel occupancy reached 75.1%, which outpaced the third quarter of 2021 by 14.8%, but trailed the third quarter of 2019 by 7.5%.
As of press time, DiamondRock’s stock was trading at $8.57 per share, down 10.8% year to date. The Nasdaq Composite Index was down 33.9% for the same time period.