DiamondRock Hospitality's Q2 2025: Navigating Contradictions in Group Bookings, Cruise Competition, and Labor Costs

Group booking trends and pace, impact of cruises on resort business, RevPAR growth and Florida market performance, and labor cost growth projections are the key contradictions discussed in DiamondRock Hospitality's latest 2025Q2 earnings call.



RevPAR and Revenue Trends:
- DiamondRock Hospitality reported a comparable RevPAR growth of 0.1% for Q2 2025, driven by a 1.1% increase in rate and an 80 basis point decline in occupancy.
- The company experienced a 4.2% increase in out-of-room revenues per occupied room, contributing to a 1.1% total RevPAR growth.
- The decline in occupancy was partly due to the ongoing conversion of the Orchards Inn to the Cliffs at L'Auberge, impacting RevPAR by 50 basis points.

Resort and Urban Performance:
- RevPAR in the resort portfolio declined 6.3% and total RevPAR by 3.9%. This was due to the delayed opening of the redeveloped Orchards Inn in Sedona.
- The urban portfolio achieved 3% RevPAR growth, with April being the strongest month at 4.6%, decaying to 1.6% by June due to increased uncertainty from political announcements.
- Urban hotels saw stronger RevPAR growth than the resort portfolio, driven by rate growth in San Francisco, San Diego, New York, Boston, and Chicago.

Cost Management and Labor Trends:
- Excluding a larger-than-expected property tax increase in Chicago, operating expenses increased only 0.7% on 1.1% revenue growth, with wages and benefits up 3.1%.
- The company's corporate adjusted EBITDA was $90.5 million, and adjusted FFO per share was $0.35.
- Effective labor cost management and controlled expenses contributed to hotel EBITDA margins contracting by only 97 basis points, excluding the Chicago tax increase.

Share Repurchase and Capital Allocation:
- DiamondRock repurchased nearly 1.7 million shares at an average price of $7.46 in Q2, representing approximately 10% of shares outstanding.
- The company successfully refinanced and extended its senior unsecured credit facility, increasing its size to $1.5 billion.
- The focus on share purchases and debt management reflects the company's strategy to recycle capital into higher-yielding investments and maintain a strong balance sheet.