In the 20 years since its nearly $300 million IPO, DiamondRock Hospitality Co. (NYSE: DRH) has maintained a relatively small but mighty presence in the hospitality industry. The REIT has evolved from a seven-property, Marriott-focused REIT to a geographically diverse portfolio of 36 branded and independent properties, in urban and resort markets, with a market capitalization of approximately $2 billion.
In the company’s latest annual report, CEO Jeff Donnelly underscored the REIT’s philosophy when it comes to scale: “We are not collectors of hotels and bigger isn’t better. Better is better and if we can be better, then perhaps we can be bigger.”
DiamondRock’s 2024 revenue totaled $1.13 billion, up 5.1% from the previous year. In an interview with REIT.com, Donnelly said that adding to the portfolio hinges on growth in funds from operations per share, which rose 8.6% in 2024. If DiamondRock can boost its earnings, Donnelly said, “we’ll be able to get our valuation up to a level where we can begin to more attractively raise money to buy more assets.”
Donnelly added that DiamondRock isn’t fixated on owning a certain number of properties. The REIT will consider a measured expansion to achieve economies of scale and attract more large institutional investors.
Recycling Opportunities
In the near to medium term, Donnelly would expect DiamondRock to be more active in recycling capital, utilizing the disposition proceeds of lower free cash flow yielding properties to in turn invest in higher yielding properties, fund renovation projects, and/or repurchase its undervalued shares.
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