Hotel real estate investment trust (REIT) DiamondRock Hospitality (DRH)
is riding the hotel rebound as travelers begin to spend more. The hotel chain is logging higher revenues and better margins.
DiamondRock owns 20 premium U.S. hotels and resorts with 10,743 rooms. Properties include brand-names like Marriott, Starwood Hotels & Resorts and Hilton. They’re in key gateway cities such as New York, Los Angles, Chicago, Boston and Atlanta.
For the first three quarters of 2011, DiamondRock reported revenue per available room (revpar) of $115.5 million, up 6 percent from $109 million in 2010. Funds from operations (FFO) for the period were 38 cents per share, down from 40 cents. Revpar in 2011 has accelerated, though, rising to 7.2 percent in the third-quarter.
The company has strong lodging fundamentals, said DiamondRock CEO Mark Brugger. He added that the “group booking pace for 2012 is excellent.”
For full-year 2011, Wall Street’s consensus earnings estimate has risen to 64 cents per share. The 2012 earnings estimate is 75 cents.
DiamondRock has been reworking its portfolio, too. The REIT is selling three hotels for $262.5 million and using the proceeds to pay down mortgage debt and finance future acquisitions.
On the downside, DiamondRock’s dividend is unpredictable. Currently it’s 3 percent, but pay-outs peaked in 2008 and they’re still rebounding.
Lately, DiamondRock’s high valuation concerns analysts. Of the 17 analysts followed by Thomson/First Call, three have strong buy recommendations and one has a buy, with a whopping 12 holds and one sell.
UBS analysts recently downgraded DiamondRock to neutral, citing valuation. Nevertheless, they have a $14 price target on the stock.
The company next reports on Feb. 29.
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