Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony R. Quinn, Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning, everyone, and welcome to DiamondRock Hospitality Company's fourth quarter 2025 earnings call and webcast. Joining me today is Jeffrey John Donnelly, our Chief Executive, and Justin L. Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discussed today. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. We are pleased to report that we finished 2025 ahead of our most recent guidance estimates. For the full year 2025, we delivered corporate adjusted EBITDA of $297,600,000 and adjusted FFO per share of $1.08. Our free cash flow per share, defined as adjusted FFO less CapEx, was $0.69, a 6% increase over 2024 and a 22% increase since 2023. Full-year comparable total RevPAR grew 1.2% and comparable hotel adjusted EBITDA grew 1.1%. Turning to the fourth quarter, corporate adjusted EBITDA was $71,900,000 and adjusted FFO per share was $0.27. Comparable RevPAR declined 30 basis points in the quarter, slightly exceeding our expectations. The fourth quarter represented our most difficult comparison of the year, with RevPAR growth of 5.4% in 2024. Against that backdrop and the impact of the federal government shutdown in the quarter, we are certainly pleased with the portfolio's performance. Occupancy declined 130 basis points year-over-year while ADR increased 1.6%. By segment, business transient revenue led the quarter with 2.5% growth while group revenue declined 1% and leisure transient revenue…

Thanks, Briony, and thank you all for joining us this morning. On Wednesday, the company announced that our chairman, Bill McCarten, will not be standing for reelection and will retire from the board in late April at the conclusion of his term. Bill founded DiamondRock Hospitality Company almost 22 years ago, served as our first Chief Executive Officer, and has provided the steady, thoughtful leadership this company needed throughout its evolution. His judgment, perspective, and commitment to doing what is right for shareholders have left an enduring mark on DiamondRock Hospitality Company, and he will be deeply missed by all of us. With Bill's retirement, the board has selected Bruce Wardinski to serve as DiamondRock Hospitality Company's next chairman. Bruce has been a member of our board since 2013, and for most of his tenure, he has served as our lead independent director. He has a deep understanding of the lodging industry and brings a history of creating value for shareholders across the numerous companies he has led and later sold. I worked closely with Bruce for many years and look forward to partnering with him as we continue to execute our strategy and create long-term value for our shareholders. 2025 is an exciting year for DiamondRock Hospitality Company. We celebrated our twentieth year as a publicly traded REIT, we achieved a company record FFO per share of $1.08, and our shares outperformed the peer average by over 1,300 basis points. Those results reflect the hard work and discipline of the DiamondRock Hospitality Company team and our partners, and I am proud of what we have all accomplished together. Less than two years ago, we introduced DiamondRock 2.0 with a simple but deliberate strategy: drive outsized free cash flow per share growth, and total shareholder returns will follow. That playbook…

Our first question comes from Smedes Rose with Citi. Your line is open. Good morning, Smedes.

Hi, thanks. Good morning. Morning. Thanks for those opening remarks. That is helpful. I wanted to ask you maybe a little bit more about your thoughts around pace of labor and benefits, just overall wages in 2026 at the property level. And then I do not know if you can share anything about how you are thinking specifically about your New York exposure given the upcoming contracts in midyear?

Yep. Good morning, Smedes. The midpoint of our guidance implies that labor costs will be up around 3% next year, and that is inclusive of, as you noted, the contract renewal in New York. We have three limited-service hotels in New York, and that represents about 7% of our overall labor cost. So that will provide a little bit of pressure in the back half of the year. As a reminder, this year, our labor costs were up a little over 1%, essentially flat in our resorts and up about 2.5% in our urban portfolio.

And a lot of the success in labor for us is really around productivity. So I think while we are continuing to try to find incremental ways where we can get less hours worked throughout the portfolio, I think we found a lot, probably some of the lowest hanging fruit, so that is why we think our guide in terms of total labor cost is probably going to increase this year.

Okay. Thank you. And then I just wanted to ask you, Briony, I guess, your remarks about first quarter RevPAR, sounds like that might be the weakest for the year, kind of in line with what we are hearing from a lot of other companies. But anything you can provide on sort of the cadence of earnings through second through fourth quarters?

Yeah. You are right. First quarter will be our toughest for the reasons I mentioned in my remarks. I think when we think through the remainder of the quarters, our group pace is sort of weighted between the growth in second and fourth quarter. We have a little bit of a headwind in the third quarter with respect to our group pace, but we think, obviously, transient should more than offset that in the third quarter given the special events that are happening.

Alright. Thank you, guys. I appreciate it.

Thanks, Smedes.

Our next question comes from Cooper R. Clark with Wells Fargo. Your line is open.

Great. Thanks for taking the question. And I appreciate that Western Seaport earnings impact may be more of a 2027 event, but just curious how we should be thinking about that franchise expiration this year within the context of some of your prepared remarks and what possible outcomes are on the table that we should be considering?

Sure, Cooper. I think, you know, we still have not come to a finalized contractual deal on that, but we have been pleased with the level of interest that we have gotten from multiple brands and, frankly, the flexibility around both contract term, stabilized fees, and termination clauses. So I think as we continue to work through that, we will keep everybody apprised. But we think we have a pretty interesting option on the table that we are sort of working on finalizing.

Okay, great. And I appreciate the color on the World Cup and recognize it remains early with respect to the 30 to 60 day window you spoke to in the prepared remarks. Just curious if you could provide some additional color on the RevPAR lift currently embedded in guide from World Cup demand and what you are seeing kind of quarter-to-date on the World Cup as it relates to some of the rate strength you spoke to, group booking trends, or maybe markets or specific assets where you are already seeing an outsized impact?

Yeah. I would say the amount that has been embedded in our guide is about 20 basis points when we look at how we structured our 2026 guidance. I would say that what we are seeing at the market level is there is decent strength in the rates; you are just not seeing the volume of room nights come into play yet. It is still early, and that is why we think that you begin to see some acceleration when you are about 30 to 60 days out from the event. So I would love to give you more color, but at this point in time, that is what we are seeing through our hotels.

Great. Thank you. Appreciate it.

Our next question comes from Michael Bellisario with Baird. Your line is open.

Hi. Thanks. Good morning, everyone. Could you dig into the out-of-room spend outperformance a little bit more? I guess sort of two parts: just, one, why should you not be able to do more than 25 basis points on total RevPAR above RevPAR? And then, sort of related to that, any update on whether you are still in a group-up strategy, and if you are seeing any change in booking windows for either group and transient? Thank you.

I mean, I think, Mike, we are cautiously optimistic we can move the needle, but I think it is also just partly run rate. Right? I mean, we look at sort of what the run rate of out-of-room spend has been. And so, you know, it is not that we are saying that is necessarily going to decelerate, but if the underlying RevPAR accelerates relative to what we saw last year, if that stays stable, then the margin contracts.

Anything on group-up and booking window?

Oh, in terms of the booking window for groups? I mean, I think last year, frankly, was a bit of a struggle. Given Liberation Day, you did not see as much conversion of leads into firm contracts. I am optimistic that as we move through this year, we will see a little bit of a recovery there, because when you look at our leads and tentatives for this year versus last year, we are up about 10%. So I am encouraged that we will continue to see good growth on the group side.

I think that is right, because we really saw, as you might imagine, a pretty significant drop off in leads when we got to April. So as we progress through the year, we think those stats will continue to get better just in terms of the margin of lead volume over same time last year.

Our next question comes from Chris Jon Woronka with Deutsche Bank. Your line is open.

Hey, good morning, guys. Thanks for taking the questions. First of all, Jeff, you have talked about some, I guess, DiamondRock-specific wins on kind of CapEx, and part of that is working with your brand partners. I am curious as to whether you have kind of any—what you might have on the agenda for '26 in that sense and whether it continues to skew a little bit more towards some smarter CapEx, or whether maybe there could be some operational things that you are hoping to accomplish with them as well? Thanks.

I mean, it is a couple of fronts, Chris. I would say that, as Justin mentioned, as it relates to the Western Seaport, for example, I think there is a situation that you will not see the results of that in 2026, but I think in '27, we are optimistic that if we are able to bring that deal to conclusion, I think it will be beneficial to that hotel, and I think it could be felt by DiamondRock Hospitality Company overall next year. So I think those wins certainly are out there, but they do not happen necessarily as frequently. We have a lot of control over our hotels at the operating level, just because they are largely third-party managed. So I think that is throughout the year. I would say on the CapEx side is probably where we have that sort of larger success because the brands, whether they are franchised or managed, do have standards for what they want their hotels to be like. And I think that is where we really distinguish ourselves versus the marketplace in just really value engineering those and making sure that the expenditures that we make are appropriate for each hotel and not necessarily the same for all hotels, if that makes sense. Does that help?

Yeah, that is super helpful. Thanks, Jeff. As a follow-up, is there any—can you maybe share with us what might be embedded in your guidance for kind of ramp up of recently completed renovations? So I guess Sedona, I think Phoenix, maybe even Havana Cabana. Is there any lift, you know, much less expected this year? And then as we think to '27, do you think the potential lift from the things you are finishing in '26 is more or less than the lift you get in this year in '26?

Yeah. I mean, really the one that we have called out is Sedona. It is about 25 to 50 basis points in the year for RevPAR growth. There will be some benefit—I do not have a specific number for you—but for Havana Cabana, fourth quarter, because we ended up accelerating some work at that property that we had in future years and just taking advantage of the opportunity of the softness that we were seeing in Florida during the summer to do some of that work in third quarter and fourth quarter. You can see it in the disruption of the property's EBITDA. We had probably 60% of the rooms out of service in that period of time, so there will be some recovery of that EBITDA as we get into the back half of this year. I apologize. I do not have a specific percentage for you, but I think it will be $1,000,000 or $2,000,000, I guess.

I think that is right. And we set our '26 renovation projects to kind of align up with the timing of the projects we did in 2025. So if you think about sort of the year-over-year, some of that disruption that we will have in '26 might sort of offset some of the gains that we have from headwinds from '25.

Okay. Very good. Makes sense. Thanks. Thanks, Jeff. Thanks, Briony.

Our next question comes from Duane Thomas Pfennigwerth with Evercore ISI. Your line is open.

Hey, good morning. Thank you. Your commentary on the transaction markets is encouraging. It sounds like you are maybe more optimistic on the sell side, but maybe neutral on the buy side. Correct me if that premise is wrong. And I just wondered, in terms of acquisitions, is that a function of the quality of what is on the market or pricing?

It is a good question. I think that is a fair characterization. I think we are more inclined to be sellers at this time. And I just think the reason for the neutrality on acquisitions is that right now our shares look to be a better investment than the options that we see out there. I think a lot of the deals that are coming to the market—and this is very early on in the last, say, two to three weeks—they tend to skew towards very large luxury assets. So from a ticket price and size and pricing, it just does not necessarily align with what we chase, but I think it is the type of asset that is going to end up setting some favorable comparisons in the marketplace and I think begin to provide the market with some visibility in where asset prices are.

That is helpful. And then just maybe you could play back just the payoff of the preferreds. What are the net impacts to the P&L and cash flow? And as you look at your capital structure, it feels pretty clean at this point. Is there anything left to kind of, you know, higher cost to pay down that would compete favorably with buyback? Thank you.

No big pieces of capital out there that are competing with buyback. I would say one of the reasons that we looked at it—and Briony can give you some of the pieces that drive the earnings impact that we see from this—but one of the reasons that we looked at that is that was an opportunity to invest almost $120,000,000 at effectively an 8.25% yield. You know, share repurchases were certainly competitive with that, but the ability to get that much stock in such a short period of time would be difficult. So this was one where we thought it cleaned up our balance sheet a little bit more, and it was an efficient use of just removing a costly piece of capital.

Yeah. When you offset the—You know, we obviously had some significant cash balances that we held for a portion of the year last year. So when you offset through the lower interest income in '26 with the benefit of paying off our preferred, it provides about a $0.03 tailwind to FFO per share this year.

Thank you.

Thanks, Duane.

Our next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is open.

Thanks. Good morning, everybody. Jeff, just going back to your comments specifically about the improving kind of debt capital availability and cost, I thought that was particularly interesting given sort of the varying size of hotels you have discussed selling on prior calls. I guess, does that comment really open the door for potential larger sales this year? And just given the maturity profile—I think you said nothing coming due until 2029 or so—what is sort of the intended use of proceeds, and how much do you really think you can do from a share repurchase perspective?

Yeah. That is a thoughtful question. I would say that I think it is beneficial that you are getting some declines in rates, but I also think lenders are—early days—but beginning to get a little more aggressive on proceeds. And that is what I think is going to be beneficial, because if you look in the year or two when interest rates were more volatile and, frankly, a little bit higher, it was hard to get some spread between your borrowing cost and the ultimate price someone was purchasing at. So now that you are getting some of that spread, I think it is providing some positive leverage to investors out there. And that is what I think is going to be helpful, provided there are not any other unforeseen macroeconomic events, to maybe facilitating some dispositions. As I mentioned, I think our shares are appealing right now. It depends on the size of the disposition. I think if something was very large—again, it depends on pricing and what have you—but I think our inclination is to lean into share repurchases, but it is something that you have to make a determination on at that time.

I appreciate the thoughts there. And then just going back to The Cliffs at L’Auberge, you have talked about this 25 to 50 basis points tailwind this year. Can you just remind us, is that just getting back the disruption that you saw at that hotel last year and then, in the spirit of flow-through being more impactful, what does that imply from a hotel EBITDA perspective in terms of what was lost last year but what you anticipate to get back in 2026? Thanks.

Yeah. I was going to say we look at that as an investment that will ultimately provide north of a 10% unlevered yield on our investment. So the idea is that when it stabilizes, call it two to three years from completion, we will earn more EBITDA than we were earning before. It was not just an investment to disrupt and then recoup what we had just lost.

I do not have off the top of my head the precise number. I think, round numbers, we went about $1,000,000 in EBITDA backwards last year, and I think from an independent resort perspective, it usually is a multiyear stabilization process. So my guess is we get $2,000,000 to $3,000,000 of that back this year. So we will see $1,000,000 to $2,000,000 of incremental and then kind of continued progression along that trend line for a few years.

And then just following back, if I can squeeze in one more related, that hotel had a pretty material outperformance, I think it was in 2022, certainly a unique period of time. But is it possible from a stretch goal perspective that you could get back to that level with some of the efficiency gains as well as ADR upside that you have highlighted?

Yeah. I think that is certainly possible. It is hard to appreciate unless you are standing there, but I think because those two hotels were adjacent but fairly different in their quality level that I think now unifying them really opens up the opportunity for that hotel down the road to bring in more group events and different types of guests than it had before, because of its increased scale.

Thanks for the time.

Thanks.

As a reminder, to ask a question, please press *11. Our next question comes from Rich Hightower with Barclays. Your line is open.

Hey, Jeff. I got a little nervous thinking ahead and star one. So, Jeff, I want to go back to your thoughtful ruminations on CapEx and where it sort of fits into the longer-term plans for DiamondRock Hospitality Company. And I think, even going back prior to COVID, when you think about why hotel REIT stocks generally never went up over long periods of time, I think CapEx is a big part of that. So now that you have sort of re-sought what that strategy should be for the company, what do you think a sustainable—absent major macro disruption—sort of return on equity profile should be for a hotel REIT? And how do you expect to get there?

You mean like a levered return on equity?

A levered return on equity, yeah. Cash flow return to equity owners in the company.

The way we framed it to our board—and maybe I am not precisely answering your question—but I think the responsibility that we have in order to outperform is that we need to be effectively surpassing what I was calling sort of the growth and the yield, like FFO growth and dividend yield combined, as sort of a loose proxy of total return. We have to be beating the broader equity REIT average probably by about 200 basis points as a sector, in order for people to feel that there is a reason to be looking at lodging vis-à-vis other sectors. And I think if you look over periods of time, probably at any of the comp sheets out there, a lot of the equity REITs historically are providing sort of a 6% to 9% combination of FFO growth and dividend yield. And I think we have to be above that range as an industry, and for us within it, leading that in order to be attracting capital.

I think that is helpful. I guess maybe just to follow up on one element there. Briony, you mentioned you still have some NOLs to burn off before increasing the dividend payout. So what does that schedule look like? And when do you sort of revert to, I guess, a more normalized payout ratio?

Yeah. I mean, the goal is for us to sort of spread those NOLs out as long as we possibly can. So that is sort of the trajectory of being able to steadily increase our dividend over time, maximizing our NOLs over the next year or two and then not having to have this big spike in a dividend payout. So I would anticipate, given our strategy, that it will probably take another three to four years before we fully burn off those NOLs.

Alright. Great. Thank you.

Thanks, Rich.

Our next question comes from Christopher Darling with Green Street. Your line is open.

Thanks. Good morning. Jeff, you spoke about the bifurcation in consumer trends, how that has been benefiting DiamondRock Hospitality Company as well as other high-end owners. What is your forward-looking view as it relates to this dynamic? Do you think that relative strength at the high end will persist for the foreseeable future, or do you envision more of a broad-based recovery unfolding throughout the industry?

Yeah. I would say it is—you know, I think when you look at it, it is hard to base upon just our portfolio because, in the grand scheme of things, we have 35 assets. We are not representing a huge swath of the economy. But I do feel like that affluent consumer is going to continue to be a spender. My sense is that, despite the volatility in the stock market, there has been a lot of wealth created, and I do not see that disappearing very quickly. I think there have been some other headwinds on the economy in terms of international inbound travel that necessarily will not change on a dime. But I think if you think over the next two to three years, I am hard pressed to see how it continues to erode. So I would like to think that that more well-heeled traveler will continue to improve. The lower level we do not have as great visibility on, candidly. I think there is certainly a lot of pressure on consumers. But I think that is where politicians certainly seem to be more intently focused. It is a little outside my pay grade to predict easily, but I would like to believe that there are some tailwinds there down the road.

Okay. That is helpful thoughts. And then maybe just more broadly, can you speak on the state of business transient travel, how that segment has sort of progressed, and your expectations for the coming year? And maybe within that answer, you could touch on government travel specifically, whether you see that segment as a tailwind or a headwind this year.

Yeah. BT, I think late last year we were seeing sort of mid-single-digit growth. I think our expectation for BT is somewhere around that level. So it feels like it is holding in fairly well and delivering sort of consistent growth. On the government side, we do not do a tremendous amount of government business. It is a very, very low single-digit contribution. I do not know, Justin, if you have anything else to add on those two.

Yeah. I mean, I think the two, in some cases depending on the market, are somewhat intertwined. And so we actually see, if you go to like a San Diego, you will see a drop off in BT during the government shutdown period because a lot of that business is government contract related. So we are hopeful with a little bit more normal kind of, you know, a little bit more stability in our government and kind of government budget process that some of the BT falloff we saw last year that sort of averaged us down to that mid-single digits will abate, and we will be able to continue that trend line or better.

Alright. I appreciate the time. That is it for me.

Thanks, Chris.

Our next question comes from Patrick Scholes with Truist. Your line is open.

Great. Good morning, everyone.

Hey. How are you doing?

I am doing well. Thank you. Jeff, regarding your five-year plan for lower CapEx, I am curious—I assume you have probably run it by your property managers or franchisors—and if so, any difference in the type of feedback that you are getting or pushback, say, versus the major brands versus the independents in your portfolio for that lower level of CapEx? Thank you.

Yeah. I guess I would say that when you think about the hotels that are independent, we do not really have to run it by anybody. That is what we want. And it does not matter. Now, that said, we do have folks managing those hotels, and we always want their feedback on whether or not we are spending appropriately. And as it relates to franchised or managed—Justin, if you want to chime in—but we do look at brand standards, but you see those are guidelines effectively, and you are trying to manage the timing of the expenditure and the magnitude. And as I talked about in my remarks, emulating the design standard, but you do not have to do it precisely with the exact nightstand or the exact lamp that they want. There are ways that you can value engineer that and deliver the refined experience that they were looking for, but do it more cost effectively rather than just strictly following their literal blueprint, if you will.

Okay. I am just curious if any of the major brands gave you a—you do not have to list them by name—but a particularly difficult time, you know, sometimes in this industry, we know there are different interests of different parties. So I am just curious about that. Thank you.

No. I would just say they are always happy when you are offering to spend more. I think we are just focused on being treated equitably amongst the entire spectrum of owners. I think in today’s world, especially as transaction volume has fallen off and there are a lot fewer change-of-control bids being executed, historically, given the public companies are not single-asset levered typically and have a lot of capital, there often is more focus or reliance upon them to maybe renovate in a greater amount or in quicker succession than what the private owners do. And I think we are just focused on being a franchisee like everyone else in the universe, doing things on a similar cadence to the overall hotel investment market.

Okay. And then maybe a little more granular, just a follow-up question. Maybe just a specific, real hotel example of if you were investing 6% versus 10% or 11% previously, what might be a real example of, “Hey, this is something that if we were at that prior level of CapEx, we would have done today. We do not think we need to do it.” Something specific. Thank you.

Trying to think if Palomar in Phoenix would be an example.

Yeah. I think it really goes down into the minutiae of, as opposed to coming in and saying we are doing a rooms renovation, we are essentially going to start over and replace everything. I think Phoenix is a good example where we kind of looked at corridor carpet as an example and said, we do not really feel like this needs to come out. Existing wall vinyl in the rooms, aesthetically, works with what we are doing. I think maybe one piece of furniture we kept. It is not really carte blanche throughout the portfolio, but I think it is really just assessing the utility of the existing stock and making sure that we are only touching the things that need to be touched, as opposed to just holistically changing everything every time we go in and do a renovation.

Great. I think what you are doing here is great as far as being really on top of cost and everything. Thank you.

Thank you.

I am showing no further questions at this time. I would now like to turn it back to Jeffrey John Donnelly for closing remarks.

Thanks, folks, and we look forward to seeing you all on the road, and we will be certainly meeting with many of you at the Citigroup real estate conference next week.

Safe travels. This concludes today's conference call. Thank you for participating. You may now disconnect.