DiamondRock Hospitality Company Reports Fourth Quarter And Full Year 2015 Results

BETHESDA, Md., Feb. 23, 2016 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 29 premium hotels in the United States, today announced results of operations for the quarter and year ended December 31, 2015.

2015 Operating Highlights

• Pro Forma RevPAR: Pro Forma RevPAR was $170.87, an increase of 4.7% from the comparable period of 2014.
• Pro Forma Hotel Adjusted EBITDA Margin: Pro Forma Hotel Adjusted EBITDA margin was 31.02%, an increase of 113 basis points from 2014.
• Pro Forma Hotel Adjusted EBITDA: Pro Forma Hotel Adjusted EBITDA was $287.5 million, an increase of 9.1% from 2014.
• Adjusted EBITDA: Adjusted EBITDA was $265.9 million, an increase of 12.8% from 2014.
• Adjusted FFO: Adjusted FFO was $203.4 million and Adjusted FFO per diluted share was $1.01.
• Dividends: The Company declared four quarterly dividends totaling $0.50 per share during 2015, returning approximately $96 million to shareholders.

Fourth Quarter 2015 Highlights

• Pro Forma RevPAR: Pro Forma RevPAR was $168.32, an increase of 3.1% from the comparable period of 2014.
• Pro Forma Hotel Adjusted EBITDA Margin: Pro Forma Hotel Adjusted EBITDA margin was 31.26%, an increase of 114 basis points from 2014.
• Pro Forma Hotel Adjusted EBITDA: Pro Forma Hotel Adjusted EBITDA was $73.1 million, an increase of 8.3% from 2014.
• Adjusted EBITDA: Adjusted EBITDA was $67.0 million, an increase of 10.2% from 2014.
• Adjusted FFO: Adjusted FFO was $51.9 million and Adjusted FFO per diluted share was $0.26.
• Westin Boston Financing: The Company entered into a new $205 million mortgage secured by the Westin Boston Waterfront Hotel in October 2015. The mortgage loan has a term of 10 years and bears interest at a fixed rate of 4.36%.
• Orlando Loan Prepayment: On October 9, 2015, the Company prepaid the $55.3 million mortgage loan secured by the Orlando Airport Marriott.
• Repayment of Seller Financing: On November 9, 2015, the Company received full repayment of the $4.0 million loan it provided to the buyer of the Oak Brook Hills Resort in 2014.
• Share Repurchase Program: On November 4, 2015, the Company's Board of Directors authorized a $150 million share repurchase program.
• Dividends: The Company declared a dividend of $0.125 per share during the fourth quarter, which was paid on January 12, 2016.

Recent Developments

• Chicago Marriott Loan Prepayment:  On January 11, 2016, the Company prepaid the $201.7 million mortgage loan secured by the Chicago Marriott Downtown.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "Our portfolio performed well in 2015 and met our expectations from last quarter. The Company had strong execution in the core functions of asset management and finance. Our asset management best practices resulted in 73% profit flow-through from our portfolio and 114 basis points of Hotel Adjusted EBITDA margin growth during the fourth quarter. Our fourth quarter financing activities capped off $355 million of new loans during the year, which enhanced our already strong balance sheet, addressed near-term debt maturities and will save the Company several million dollars in annual interest costs."

Operating Results     

Discussions of "Pro Forma" assumes the Company owned each of its 29 hotels since January 1, 2014 but excludes the Hilton Garden Inn Times Square Central from January 1, 2015 to August 31, 2015, since the hotel opened for business on September 1, 2014.  Please see "Certain Definitions" and "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDA," "Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO."

For the quarter ended December 31, 2015, the Company reported the following:

The Company's fourth quarter results were held back by its New York City hotels and rebranding disruption at The Gwen Chicago. Excluding these hotels, Pro Forma RevPAR growth was 6.0% and Pro Forma Hotel Adjusted EBITDA margins increased 376 basis points.

For the year ended December 31, 2015, the Company reported the following:

Excluding the Company's New York City hotels and The Gwen Chicago, Pro Forma RevPAR growth was 6.7% and Pro Forma Hotel Adjusted EBITDA margins increased 258 basis points.

Hotel Financing Activity

On October 9, 2015, the Company prepaid the $55.3 million mortgage loan secured by the Orlando Airport Marriott. The prepayment saved approximately $0.7 million of interest expense during the fourth quarter, which was factored into the Company's prior guidance.

On October 27, 2015, the Company entered into a new $205 million mortgage loan secured by the Westin Boston Waterfront Hotel. The new loan has a term of 10 years, a fixed interest rate of 4.36% and will amortize on a 30-year schedule. The proceeds from the loan, as well as a portion of a $60 million draw on its senior unsecured credit facility, were utilized to prepay the $201.7 million mortgage loan secured by the Chicago Marriott Downtown Magnificent Mile on January 11, 2016. The lower interest rate on the new loan is expected to save the Company approximately $2.7 million in net interest expense.

During 2015, the Company completed $355 million of new financings at interest rates approximately 150 basis points below the rates on maturing loans. Since 2011, the Company has lowered its weighted average interest rate from 5.6% to 4.1%, resulting in cumulative annual interest savings of approximately $14 million.

Capital Expenditures

The Company spent approximately $63.0 million on capital improvements at its hotels in 2015, which included the following significant projects:

• Hilton Boston Downtown: The Company completed a return on investment project at the hotel to create an incremental 41 guest rooms and upgrade additional guest rooms, which created over 90 premium rooms.
• Chicago Marriott Downtown: The Company commenced a multi-year guest room renovation at the hotel. The first phase of the guest room renovation, which consisted of 140 rooms, including all 25 suites, was successfully completed during the first quarter of 2015. The Company also added Marriott's new prototype F&B grab-and-go outlet in the hotel's lobby, which allowed the hotel to transform room service delivery.

The Company expects to spend approximately $150 million on capital improvements at its hotels in 2016, which includes carryover from certain projects that commenced in 2015.  Significant projects in 2016 include:

• The Gwen, a Luxury Collection: The Company rebranded the Conrad Chicago to Starwood's Luxury Collection on September 1, 2015. The renovation work associated with the brand conversion, which is expected to cost approximately $25 million, will be completed in two phases. The first phase, consisting of the lobby and other public spaces, commenced in January and is expected to completed by May. The second phase of the renovation, consisting of the guest rooms, will be completed during the seasonally slow winter season beginning in late 2016.
• Chicago Marriott Downtown: The second phase of the renovation, which consists of upgrading approximately 460 rooms and creating a new state-of-the-art fitness center, commenced in late 2015 and is expected to be completed early in the second quarter of 2016. The remaining guest rooms will be renovated during the seasonally slow winter months over the next two years and is not expected to result in material disruption.
• The Lodge at Sonoma: The Company expects to renovate the guest rooms at the hotel during the seasonally slow period during late 2016 and early 2017.
• Charleston Renaissance: The Company expects to renovate the guest rooms at the hotel during the fourth quarter of 2016.
• Worthington Renaissance: The Company expects to renovate the guest rooms at the hotel during the seasonally slow summer months of 2016.

Repayment of Seller Financing

In connection with the sale of the Oak Brook Hills Resort in April 2014, the Company provided a $4.0 million unsecured loan to the buyer of the hotel. The loan was subordinate to the buyer's senior mortgage loan, and the Company believed the repayment of the loan was remote and fully reserved the loan. On November 9, 2015, upon the hotel meeting certain operating profit thresholds, the buyer repaid the Company's loan in full. The Company recorded a gain of $3.9 million during the fourth quarter, which is excluded from its reported Adjusted EBITDA and Adjusted FFO.

Balance Sheet

As of December 31, 2015, the Company had $213.6 million of unrestricted cash on hand and approximately $1.2 billion of total debt, which consisted of property-specific mortgage debt and no outstanding borrowings on the Company's $200.0 million senior unsecured credit facility.  The Company currently has $60.0 million outstanding on its senior unsecured credit facility.

Share Repurchase Program

On November 4, 2015, the Company's Board of Directors authorized a $150 million share repurchase program. Repurchases under this program will be made in open market or privately negotiated transactions from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The Company has not repurchased any shares of its common stock since the program started.

Dividends

The Company's Board of Directors declared a quarterly dividend of $0.125 per share to stockholders of record as of December 31, 2015.  The dividend was paid on January 12, 2016.

Outlook and Guidance

The Company has provided annual guidance for 2016, but does not undertake to update it for any developments in its business.  Achievement of the anticipated results is subject to the risks disclosed in the Company's filings with the U.S. Securities and Exchange Commission.  Pro Forma RevPAR assumes that all of the Company's 29 hotels were owned since January 1, 2015.

The Company expects its full year 2016 results to be as follows:

The full year guidance range above reflects income tax expense of $7 million to $11 million, interest expense of $46 million to $47 million and corporate expenses of $24 million to $25 million.

The Company expects approximately 17% to 18% of its full year 2016 Adjusted EBITDA to be earned during the first quarter of 2016.

Selected Quarterly Pro Forma Operating Information

The following table is presented to provide investors with selected quarterly Pro Forma operating information for 2015.  The operating information assumes that all of the Company's 29 hotels were owned since January 1, 2015.

Earnings Call

The Company will host a conference call to discuss its fourth quarter and full year results on Tuesday, February 23, 2016, at 10:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 888-310-1786 (for domestic callers) or 330-863-3357 (for international callers).  The participant passcode is 35693589. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company's website at www.drhc.com or www.earnings.com. A replay of the webcast will also be archived on the website for one week.

About the Company

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in top gateway markets and destination resort locations.  The Company owns 29 premium quality hotels with over 10,900 rooms. The Company has strategically positioned its hotels to be operated both under leading global brands such as Hilton, Marriott, and Westin and boutique hotels in the lifestyle segment. For further information on the Company and its portfolio, please visit DiamondRock Hospitality Company's website at www.drhc.com.

This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "believe," "expect," "intend," "project," "forecast," "plan" and other similar terms and phrases, including references to assumptions and forecasts of future results.  Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made.  These risks include, but are not limited to: national and local economic and business conditions, including the potential for additional terrorist attacks, that will affect occupancy rates at the Company's hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the Company's indebtedness; relationships with property managers; the ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; and other risk factors contained in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of the date of this release, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Non-GAAP Financial Measures

We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP.  EBITDA, Adjusted EBITDA, FFO and Adjusted FFO, as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company.

EBITDA and FFO

EBITDA represents net income excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. In addition, covenants included in our indebtedness use EBITDA as a measure of financial compliance. We also use EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by NAREIT, which defines FFO as net income determined in accordance with GAAP, excluding gains or losses from sales of properties and impairment losses, plus depreciation and amortization. The Company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it is a measure of the Company's operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets.  The Company also uses FFO as one measure in assessing its results.

Adjustments to EBITDA and FFO

We adjust EBITDA and FFO when evaluating our performance because we believe that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA and Adjusted FFO, when combined with GAAP net income, EBITDA and FFO, is beneficial to an investor's complete understanding of our operating performance.  We adjust EBITDA and FFO for the following items:

• Non-Cash Ground Rent: We exclude the non-cash expense incurred from the straight line recognition of rent from our ground lease obligations and the non-cash amortization of our favorable lease assets.
• Non-Cash Amortization of Favorable and Unfavorable Contracts: We exclude the non-cash amortization of favorable and unfavorable contract assets and liabilities recorded in conjunction with certain acquisitions. The amortization of the favorable and unfavorable contracts does not reflect the underlying operating performance of our hotels.
• Cumulative Effect of a Change in Accounting Principle: Infrequently, the Financial Accounting Standards Board (FASB) promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude the effect of these one-time adjustments because they do not reflect our actual performance for that period.
• Gains or Losses from Early Extinguishment of Debt: We exclude the effect of gains or losses recorded on the early extinguishment of debt because we believe they do not accurately reflect the underlying performance of the Company.
• Acquisition Costs: We exclude acquisition transaction costs expensed during the period because we believe they do not reflect the underlying performance of the Company.
• Allerton Hotel and Oak Brook Hills Resort Loan: We excluded the gains from the repayments of the Allerton loan in 2014 and the Oak Brooks Hills Resort loan in 2015 because we believe that they do not reflect the underlying performance of the Company.
• Other Non-Cash and /or Unusual Items: From time to time we incur costs or realize gains that we do not believe reflect the underlying performance of the Company. Such items include, but are not limited to, hotel pre-opening costs, hotel manager transition costs, lease preparation costs, contract termination fees, severance costs, gains or losses from legal settlements, bargain purchase gains, and gains from insurance proceeds.

In addition, to derive Adjusted EBITDA we exclude gains or losses on dispositions and impairment losses because we believe that including them in EBITDA does not reflect the ongoing performance of our hotels. Additionally, the gains or losses on dispositions and impairment losses represent either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to debt instruments. Furthermore, the gain on repayment of note receivable in 2015, which is related to the Oak Brook Hills Resort loan, is reported net of income tax expense.

The following tables are reconciliations of our GAAP net income to EBITDA and Adjusted EBITDA (in thousands):    

The following tables are reconciliations of our GAAP net income to FFO and Adjusted FFO (in thousands):

Use and Limitations of Non-GAAP Financial Measures

Our management and Board of Directors use EBITDA, Adjusted EBITDA, FFO and Adjusted FFO to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

Certain Definitions

In this release, when we discuss "Hotel Adjusted EBITDA," we exclude from Hotel EBITDA the non-cash expense incurred by the hotels due to the straight lining of the rent from our ground lease obligations, the non-cash amortization of our favorable lease assets and other contracts, and the non-cash amortization of our unfavorable contract liabilities. Hotel EBITDA represents hotel net income excluding: (1) interest expense; (2) income taxes; and (3) depreciation and amortization. Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues. Net debt is calculated as total debt outstanding less unrestricted cash.              

 

 

SOURCE DiamondRock Hospitality Company