Kenneth Billingsley

Kenneth Billingsley questioned how much of the expressed conservatism and the impact of fewer hotels in the comparable set are influencing the lower EBITDA guidance for 2026. He also asked about the expected opportunities for improved returns and increased marketability from the Marriott franchise transitions.

Answer

CFO Liz Perkins indicated that the EBITDA guidance is primarily revenue-driven and top-line driven, with some puts and takes from sold and newly added hotels. CEO Justin Knight stated that the Marriott franchise transitions make the assets "infinitely more marketable" by being unencumbered by management. He identified primary drivers for incremental profitability as consolidating management within markets for cost savings, meaningful reductions in overhead allocations from Marriott, and increased focus from managers to drive top-line results.

Kenneth Billingsley with Compass Point questioned how much conservatism and fewer hotels in the comparable set impact the lower EBITDA guidance for 2026. He also asked about the opportunity for improved returns and increased marketability from the 13 Marriott franchise transitions.

Answer

CFO Liz Perkins attributed the EBITDA impact mostly to revenue and top-line drivers, with some puts and takes from asset sales and new properties. CEO Justin Knight confirmed that the Marriott transitions make assets infinitely more marketable, increasing the buyer pool. He anticipates incremental profitability from consolidating management within markets (cost savings, shared expenses) and significant reductions in overhead allocations, expecting new managers to drive top-line results.

Kenneth Billingsley from Compass Point Research & Trading LLC inquired about the ability to accelerate group business bookings and why the rates were considered attractive. He also sought clarification on the specific market share opportunity anticipated for November.

Answer

CFO Liz Perkins explained that the company's group business is typically shorter-term (e.g., sports teams, family reunions), allowing for quick booking adjustments. The rates are 'attractive' because group ADR has grown year-over-year, contributing positively to RevPAR. Regarding November, she clarified the 'market share opportunity' refers to lapping the 2024 election week, a period when the company's business-transient-focused portfolio historically underperforms the broader industry, creating a favorable comparison.

Kenneth Billingsley from Compass Point, on behalf of Floris Van Dijkum, questioned the high implied Q4 CapEx spend, the expected CapEx budget for 2025, and the drivers behind the 20% reduction in property insurance costs.

Answer

CFO Liz Perkins explained that the Q4 CapEx spend is seasonally high as most renovations begin then, and they anticipate meeting their full-year guidance. She noted that the 2025 CapEx budget is still being formulated but is expected to follow a typical run rate. Regarding insurance, Perkins attributed the 20% cost reduction to a favorable program restructuring in April, combined with a good loss experience and an easier year-over-year comparison on uninsured loss expense.

Kenneth Billingsley of Compass Point Research & Trading LLC asked for more detail on the drivers of food and beverage (F&B) revenue growth, questioning whether it was due to customer spending or pricing, and if urban hotel F&B performance differed from other locations.

Answer

COO Tom Bardenett attributed the F&B growth to a combination of factors, including optimizing hours, redesigning menus, and adding new concepts to drive volume. CEO Leslie Hale added that a key strategy is attracting non-hotel guests to these reimagined spaces. Bardenett confirmed that urban hotels are performing very well in F&B, as they are situated near major events and attractions, which drives spending from both guests and locals.

Kenneth Billingsley of Compass Point asked how DiamondRock competes for group business across its branded and unbranded hotels and sought clarification on the regulatory issues that impacted disposition plans.

Answer

President & COO Justin Leonard explained that large, branded hotels like the Chicago Marriott rely on brand lead channels for convention business, while smaller, independent luxury properties target high-rated, differentiated experiences for smaller corporate groups. CEO Jeffrey Donnelly clarified that disposition plans were impacted by credit market volatility, property tax changes, and uncertainty around potential tax changes for foreign investors.

Kenneth Billingsley of Compass Point Research & Trading LLC inquired about DiamondRock's strategy for capturing group business, comparing its branded versus unbranded assets. He also asked for clarification on the regulatory issues that impacted disposition plans.

Answer

President & COO Justin Leonard explained their large hotels are brand-encumbered and leverage brand lead channels for convention business, while smaller, independent luxury properties target differentiated, high-dollar corporate off-sites. CEO Jeff Donnelly clarified that disposition plans were impacted by credit market volatility, property tax changes in Chicago, and uncertainty around potential taxes on foreign investment, which collectively created a challenging negotiating environment.

Kenneth Billingsley asked about out-of-room visitor spending trends, noting that total RevPAR growth appeared stronger than room RevPAR, and specifically questioned the softer out-of-room spend trends in urban markets.

Answer

CFO Sean Dell'Orto confirmed strength in out-of-room spend, highlighting a 5% increase in catering contribution, a 1.5% rise in outlet revenue driven by resorts like Casa Marina, and a 9% increase in parking revenue. He noted that ancillary fees were also up 6% in June. Regarding the specific softness in urban market out-of-room spend, Dell'Orto stated he did not have the data immediately available and would have to follow up.

Kenneth Billingsley of Compass Point Research & Trading, LLC sought clarification on the new anchor cash lease spread, asking about the spreads on the portion of anchor signings not included in the 36% figure. He also asked about the high expiring ABR for the remainder of the year.

Answer

CFO Heath Fear clarified that the lease spreads on the other anchor deals were close to 25%. He explained that the higher expiring ABR for the rest of the year is due to the mix of leases being more heavily weighted toward small shops, rather than anything unique about the remaining anchor tenants.

Kenneth Billingsley of Compass Point Research & Trading asked for the cash lease spread on the anchor deals not included in the reported 36% figure and questioned the reason for a high expiring ABR in the remainder of the year.

Answer

CFO Heath Fear estimated the cash lease spread on the other anchor signings was close to 25%. He clarified that the high expiring ABR for the rest of the year is not due to unique anchor tenants but is a function of the lease pool's mix, which is more heavily weighted toward higher-rent small shop spaces.

Kenneth Billingsley of Compass Point Research & Trading sought clarification on anchor leasing spreads, asking about the spread on the portion of new anchor leases not included in the reported 36% figure. He also asked about the high expiring average base rent for the remainder of the year.

Answer

CFO Heath Fear clarified that the cash lease spread on the other portion of new anchor leases was close to 25%. He explained that the high expiring ABR for the rest of 2025 is due to the expiring lease pool being more heavily weighted toward higher-rent small shop spaces, not because of anything unusual with the remaining anchor tenants.

Kenneth Billingsley of Compass Point followed up on Paradise Point, asking if recent work was part of the Margaritaville plan, and also inquired about the key negative indicators being tracked that could threaten the positive 2026 outlook.

Answer

Chairman & CEO Jon Bortz confirmed the completed renovations are consistent with the Margaritaville plan but are also suitable for the property as-is. For the 2026 outlook, he identified three key negative indicators they monitor: an increase in group cancellations, a slowdown in booking pace, and a reduction in ancillary spend by groups. He noted that, currently, they have not seen an increase in cancellations.

Kenneth Billingsley from Compass Point asked for clarification on the G&A guidance, seeking to reconcile the lowered full-year forecast with the G&A expense line item being up year-over-year in the second quarter.

Answer

EVP & CFO Mark Langer clarified that the year-over-year increase in reported G&A for Q2 was driven by non-recurring items, specifically $2 million in severance expense and $1 million in transaction costs. He explained that the company's lowered full-year guidance is based on the recurring G&A run rate, which excludes these one-time charges.

Kenneth Billingsley from Compass Point noted the difference in lease terms between new leases (longer) and renewals (shorter) and asked if this was a result of actively swapping out local tenants for national ones in acquired properties.

Answer

CFO Conor Fennerty clarified that the difference in lease terms is standard, with new national tenant leases typically being 10 years and renewals often being 5-year options. He emphasized that while they prioritize credit and would choose a national over a local tenant, the core strategy is not to upgrade the tenant roster. He stated that by acquiring high-quality real estate, the national tenants are generally already in place, and the focus remains on driving rent growth with that existing base.

Kenneth Billingsley asked for a granular explanation of why rent spreads on option leases were higher in Q2 and requested the specific year-to-date cap rate on acquisitions.

Answer

CFO John Caulfield clarified that the quarterly variance in option lease spreads is simply due to the specific mix of tenants exercising options during that period. Chairman & CEO Jeffrey Edison provided the specific figure, stating the year-to-date acquisition cap rate was 6.3%.