DiamondRock Hospitality Raises 2026 Outlook, Increases Dividend by 22%

Second Quarter Results

DiamondRock Hospitality Co. (NYSE: DRH) reported strong second-quarter results, with comparable revenue per available room (RevPAR) growing 7% year-over-year. Total hotel revenue increased 5.5%, while hotel operating expenses rose only 1.8%, leading to 240 basis points of hotel adjusted EBITDA margin expansion, excluding a one-time tax benefit. Adjusted EBITDA for the quarter was $107.9 million, and adjusted funds from operations (FFO) was $0.44 per share. Results included a $6.9 million settlement of multiyear property tax appeals for two Chicago hotels, contributing approximately $0.03 per share.

Resort properties posted RevPAR growth of 7.9%, while urban hotels increased 6.6%, with urban performance accelerating throughout the quarter and approaching 10% growth in June. Wage and benefit costs increased just 2.2%, reflecting productivity improvements despite higher occupancy levels.

Raised 2026 Guidance and Dividend Increase

DiamondRock raised its full-year 2026 outlook. The company now expects comparable RevPAR growth of 2.5% to 4%, up from its previous forecast of 1.5% to 3.5%. Adjusted FFO guidance was increased to $1.18 to $1.23 per share, compared with prior guidance of $1.12 to $1.18. Adjusted EBITDA is now projected to range from $310 million to $320 million.

The company also announced a 22% increase in its quarterly common dividend to $0.11 per share, reflecting growing free cash flow and confidence in the outlook.

Strategic Outlook and Market Activity

Management said hotel transaction activity has become considerably more active after several slow years. DiamondRock expects to pursue both acquisitions and asset sales over the next six to 12 months. The company has approximately $500 million of borrowing capacity to support potential acquisitions.

Competition for hotel acquisitions has intensified, with private equity firms and high-net-worth investors becoming increasingly aggressive. Bid spreads of roughly 10% to 15% have prevented the company from completing some transactions.

DiamondRock is evaluating strategic decisions for two properties: whether the Kimpton Shorebreak Huntington Beach should remain branded after its management agreement expired and shifted to month-to-month status, and whether to renew the franchise agreement for the Courtyard Denver Downtown, which expires in 2027.

Management expects labor and operating expenses to increase modestly in the second half of the year due to the New York hotel union contract renewal and higher performance-based compensation. However, they anticipate stronger RevPAR growth in the fourth quarter than in the third, with expense growth of approximately 2.5% in the second half.

What it means for income investors

The dividend increase and raised guidance signal improved cash flow and confidence in the company's operations. The higher dividend provides a modest yield, and the company's focus on free cash flow per share may support future increases.

Reporting based on: citybiz. Figures verified against market data where available.