Bethesda hotel chain thriving

Bethesda hotel owner DiamondRock Hospitality Co. rode nationwide increases in leisure and travel business to strong third-quarter earnings.

Revenue per available room, an important indicator of growth in the hotel industry, rose nearly 15 percent during the quarter for DiamondRock, which owns 17 hotels across the country, including Bethesda Marriott Suites.

As hotel demand grew — with the best showings coming from Chicago, New York and Atlanta — the company was able to raise daily rates across the chain 12.3 percent, management said yesterday in a conference call with investors.

But one of the sore points was the company’s Bethesda hotel, where sales were flat, management said, citing slow convention business in the city.

“The whole Washington market has been soft this year,” Chief Executive Officer Bill McCarten said.

The announcement echoed one Marriott International Inc. made in July. It said 2005 set records for convention business in the city, but noted that 2006 hasn’t matched up.

But the rest of the company’s chain — minus an Orlando, Fla., and Oak Brook, Ill., hotel — beat expectations for the year.

DiamondRock reported yesterday that third-quarter net income nearly tripled to $6.5 million (9 cents per share) from $2.2 million (4 cents) a year ago, when many of its hotels were undergoing renovation.

Revenue per available room rose 14.6 percent to $118.06 from $103.02 a year ago. Half of the company’s hotels experienced double-digit growth in revenue per available room.

Management attributed the quarter’s growth to a rise in business and leisure travel, fewer disruptions from scheduled renovations than expected and higher room and catering margins.

“They’re firing on a whole lot of cylinders,” said Robert W. Baird & Co. Inc. senior real estate research analyst David Loeb, citing the company’s careful acquisition choices and asset management.

Mr. Loeb does not own stock in the company, but Baird has an investment banking relationship with DiamondRock.

The Bethesda company beat Mr. Loeb’s revenue per available room estimate by 4 percent. Across the industry, DiamondRock is beating Baird’s estimates for other chains by about 5 percent to 6 percent.

Wachovia Capital Markets LLC analyst Jeffrey J. Donnelly expects the company to be one of the industry’s best performers over the next two years, he said in a note to investors yesterday.

The company, just 2 years old, has $300 million on hand to acquire new properties, possibly including a Marriott hotel in a Southeastern U.S. city and a hotel in an urban submarket in the Mid-Atlantic. The company would not be more specific.

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