DiamondRock Hospitality Company Reports Fourth Quarter And Full Year 2019 Results

BETHESDA, Md., Feb. 20, 2020 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 31 premium hotels in the United States, today announced results of operations for the quarter and year ended December 31, 2019.

Fourth Quarter 2019 Highlights:

• Net Income: Net income was $134.6 million and earnings per diluted share was $0.66.
• Comparable Revenues: Comparable total revenues increased 1.7% from the comparable period of 2018.
• Comparable RevPAR: RevPAR was $190.94, a 1.5% increase from the comparable period of 2018.
• Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 29.25%, a 98 basis point contraction from the comparable period of 2018.
• Adjusted EBITDA: Adjusted EBITDA was $62.7 million, a decrease of $1.8 million from 2018.
• Adjusted FFO: Adjusted FFO was $54.7 million and Adjusted FFO per diluted share was $0.27.

Full Year 2019 Highlights:

• Net Income: Net income was $184.2 million and earnings per diluted share was $0.90.
• Comparable Revenues: Comparable total revenues increased 2.7% from the comparable period of 2018.
• Comparable RevPAR: RevPAR was $188.51, a 0.9% increase from the comparable period of 2018.
• Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 29.64%, a 59 basis point contraction from the comparable period of 2018.
• Adjusted EBITDA: Adjusted EBITDA was $260.4 million, an increase of $6.3 million from 2018.
• Adjusted FFO: Adjusted FFO was $217.0 million and Adjusted FFO per diluted share was $1.07.
• Share Repurchases: The Company repurchased 4.4 million shares of its common stock at an average price of $9.65 per share during 2019.
• Settlement of Frenchman's Reef Insurance Claim: The Company settled its insurance claim related to Hurricane Irma for $246.75 million in December 2019. The Company recognized $8.8 million of business interruption income during the year under the insurance claim.
• Refinancing Activity: On July 25, 2019, the Company amended its senior unsecured revolving credit facility to increase capacity to $400 million, decrease pricing and extend the maturity date to July 2023. Concurrently, the Company closed on a new five-year $350 million senior unsecured term loan and repaid $300 million in outstanding senior unsecured term loans.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, "We exceeded the top end of our internal expectations and guidance in 2019 as our hotels collectively gained 260 basis points of market share against their competitive sets.  This success demonstrates the quality of our portfolio and the fruits of our best-in-class asset management platform. Looking forward, DiamondRock should benefit from strong group pace up 14.1%, tailwinds from 2019 renovations and continued strength at our resorts in 2020."

Operating Results      

Please see "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDAre," "Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO" and a reconciliation of these measures to net income. Comparable operating results include the Company's acquisitions for all periods presented and exclude Frenchman's Reef for all periods presented and Havana Cabana Key West from January 1 to March 31, 2019 and the comparable period of 2018 due to the closure of these hotels. In addition, comparable operating results exclude Hotel Emblem from September 1, 2019 to December 31, 2019 and the comparable period of 2018 due to the closure of the hotel for renovation in 2018.  See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

For the quarter ended December 31, 2019, the Company reported the following:

For the year ended December 31, 2019, the Company reported the following:

Frenchman's Reef Insurance Claim Settlement

In December 2019, the Company reached a settlement of its outstanding insurance claim related to Hurricane Irma for total insurance payments of $246.75 million, of which $238.5 related to Frenchman's Reef.  As part of the settlement, the Company agreed that the settlement would not include any additional business interruption income beyond the $8.8 million previously recognized in the first quarter of 2019.  Earlier in 2019, the Company had settled a separate claim for incremental damage caused by Hurricane Maria in the amount of $1.44 million.

The Company is in the process of rebuilding the resort following the significant damage caused by Hurricanes Irma and Maria in 2017.  The property will reopen as two separate resorts, Frenchman's Reef Marriott Resort & Spa and Noni Beach, a St. Thomas Resort, both managed by Aimbridge Hospitality.  The resorts are expected to reopen at the end of 2020.  The Company continues to forecast that the Frenchman's Reef and Noni Beach Resorts will generate a combined $25 million of EBITDA upon stabilization, which is expected to be approximately three years after reopening.  The Company does not expect the two resorts to generate material earnings in 2020.

Financing Activity

The Company completed refinancings in 2019 that increased borrowing capacity, lowered borrowing costs and extended maturities.  On July 25, 2019, the Company entered into an amended and restated credit agreement that provides for a $400 million senior unsecured revolving credit facility and a five-year $350 million senior unsecured term loan.  The Company used the proceeds from the new term loan to repay $300 million of outstanding senior unsecured term loans.  The credit facility matures in July 2023, with a one-year extension option, and the term loan matures in July 2024.  The interest rate is based on the Company's leverage ratio and has a pricing grid ranging from 140 to 205 basis points over LIBOR for the credit facility and 135 to 200 basis points over LIBOR for the term loan.

Capital Expenditures

The Company continued to invest in its portfolio in 2019 and completed several value-add renovation and repositioning projects.  In total, the Company invested approximately $102.7 million in capital improvements at its operating hotels during the year ended December 31, 2019, which included the following significant projects:

• Hotel Emblem San Francisco: In January 2019, the Company completed the repositioning and rebranding of Hotel Emblem, now part of Viceroy's Urban Collection. As part of the renovation, the Company created two additional rooms at the hotel. The hotel currently ranks #4 of 246 hotels in San Francisco on TripAdvisor.
• JW Marriott Denver Cherry Creek: The Company is repositioning this hotel to gain share against its luxury competitive set. The renovation of the hotel's guestrooms and meeting space was completed during 2019 and included the addition of three guestrooms. In early 2020, the Company expects to complete a renovation of the public space and create a new restaurant experience led by celebrity chef Richard Sandoval.
• Sheraton Suites Key West: The Company is in the process of removing the Sheraton brand and repositioning this beachfront resort to an independent boutique resort, the Barbary Beach House. This project was partially completed in 2019, with the remainder to be completed in 2020 following high season. The relaunch of the resort is expected to occur in summer 2020.
• Vail Marriott Mountain Resort & Spa: The Company is pursuing a multi-year repositioning and rebranding of the resort to close the rate gap with the luxury competitive set. The Company completed the renovation of the guestrooms and meeting space in 2018 and upgraded the spa and created a new fitness center in 2019. The resort will become unencumbered of brand at the end of 2021.
• Worthington Renaissance: The Company completed a transformational renovation of the lobby and food & beverage outlets during 2019, including a new Toro Toro restaurant by Richard Sandoval.
• The Landing Resort & Spa Lake Tahoe: In third quarter of 2019, the Company added five new guestrooms at the hotel from areas that were previously non-revenue producing.

Additionally, the Company made significant progress on the rebuilding of Frenchman's Reef, spending approximately $96.6 million during the year ended December 31, 2019.

In 2020, the Company expects to spend approximately $90 million to $100 million on capital improvements at its operating hotels, which includes the completion of certain projects that commenced in 2019.  Significant projects in 2020  include the following:

• The Lodge at Sonoma: The Company will reposition the resort during 2020 in order to capture rate potential against the luxury and lifestyle competitive sets. Integral parts of this project include opening a new restaurant by celebrity chef Michael Mina, upgrading the spa with a luxury spa operator and enhancing the grounds with additions such as firepit gathering areas.
• Hilton Boston Downtown: The Company expects to renovate the hotel's guestrooms and lobby during 2020. The Company will also convert underutilized meeting space into 29 new guestrooms. This hotel will become unencumbered of brand in 2022.
• Hilton Burlington: The Company expects to complete a comprehensive renovation of the hotel's guestrooms and public spaces during 2020.

Balance Sheet

As of December 31, 2019, the Company had $122.5 million of unrestricted cash on hand and approximately $1.1 billion of total debt, which consisted of property-specific mortgage debt, $400.0 million of unsecured term loans and $75.0 million of borrowings on its $400.0 million senior unsecured credit facility.  In January 2020, the Company repaid the $75.0 million of outstanding borrowings on its senior unsecured credit facility.  The Company ended the year with a debt-to-EBITDA ratio of 3.7 times.

Share Repurchase Program

During 2019, the Company repurchased 4.4 million shares of its common stock at an average price of $9.65 per share.  The Company has repurchased 7.8 million shares of its common stock at an average price of $9.58 per share since it began repurchasing shares in December 2018. The Company has $175.2 million of remaining authorized capacity under its $250 million share repurchase program.

Guidance

The Company is providing annual guidance for 2020, 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. Comparable RevPAR growth excludes Frenchman's Reef for all periods.

The Company expects full year 2020 results to be as follows:   

The guidance above incorporates the following assumptions:

• Industry RevPAR growth of -0.5% to +1.0%;
• No material EBITDA contribution from Frenchman's Reef;
• Comparable Hotel Adjusted EBITDA growth of -1.5% to +2.0%;
• Corporate expenses of $29.0 million to $30.0 million;
• Interest expense of $39.5 million to $40.5 million;
• Income tax expense of $1.5 million to $4.5 million; and
• Available rooms of 3,515,629.

Selected Quarterly Comparable Operating Information

The following table is presented to provide investors with selected quarterly comparable operating information.  The operating information excludes Frenchman's Reef for all periods.

Earnings Call

The Company will host a conference call to discuss its fourth quarter and full year results on Friday, February 21, 2020, at 10:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 844-287-6622 (for domestic callers) or 530-379-4559 (for international callers).  The participant passcode is 5897754. 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 31 premium quality hotels with over 10,000 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families as well as unique 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, including statements related to the expected duration of closure of Frenchman's Reef and anticipated insurance coverage. 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, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel 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 U.S. GAAP.  EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel 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.

Use and Limitations of Non-GAAP Financial Measures

Our management and Board of Directors use EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel 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 U.S. 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 U.S. GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by U.S. GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our U.S. GAAP results and the reconciliations to the corresponding U.S. 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.

EBITDA, EBITDAre and FFO

EBITDA represents net income (calculated in accordance with U.S. GAAP) excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization.  The Company computes EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate."  EBITDAre represents net income (calculated in accordance with U.S. GAAP) adjusted for: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and amortization; (4) gains or losses on the disposition of depreciated property including gains or losses on change of control; (5) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (6) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

We believe EBITDA and EBITDAre are useful to an investor in evaluating our operating performance because they help 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, and in the case of EBITDAre, impairment and gains or losses on dispositions of depreciated property) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA and EBITDAre as measures in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by the Nareit, which defines FFO as net income determined in accordance with U.S. GAAP, excluding gains or losses from sales of properties and impairment losses, plus real estate related 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 related depreciation and amortization and gains or losses on the sale of assets.  The Company also uses FFO as one measure in assessing its operating results.

Hotel EBITDA

Hotel EBITDA represents net income excluding:  (1) interest expense, (2) income taxes, (3) depreciation and amortization, (4) corporate general and administrative expenses (shown as corporate expenses on the consolidated statements of operations), and (5) hotel acquisition costs. We believe that Hotel EBITDA provides our investors a useful financial measure to evaluate our hotel operating performance, excluding the impact of our capital structure (primarily interest), our asset base (primarily depreciation and amortization), and our corporate-level expenses (corporate expenses and hotel acquisition costs).  With respect to Hotel EBITDA, we believe that excluding the effect of corporate-level expenses provides a more complete understanding of the operating results over which individual hotels and third-party management companies have direct control.  We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

Adjustments to EBITDAre, FFO and Hotel EBITDA

We adjust EBITDA, FFO and Hotel EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, Adjusted FFO and Hotel Adjusted EBITDA when combined with U.S. GAAP net income, EBITDA, FFO and Hotel EBITDA, is beneficial to an investor's complete understanding of our consolidated and property-level operating performance.  Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues.  We adjust EBITDA, FFO and Hotel EBITDA for the following items:

• Non-Cash Lease Expense and Other Amortization: We exclude the non-cash expense incurred from the straight line recognition of expense from our ground leases and other contractual obligations and the non-cash amortization of our favorable and unfavorable contracts, originally recorded in conjunction with certain hotel acquisitions.  We exclude these non-cash items because they do not reflect the actual cash amounts due to the respective lessors and service providers in the current period and they are of lesser significance in evaluating our actual performance for that period.
• Cumulative Effect of a Change in Accounting Principle: The Financial Accounting Standards Board promulgates new accounting standards that require or permit the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude the effect of these adjustments, which include the accounting impact from prior periods, because they do not reflect the Company's actual underlying performance for the current 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 these gains or losses result from transaction activity related to the Company's capital structure that we believe are not indicative of the ongoing operating performance of the Company or our hotels.
• Hotel Acquisition Costs: We exclude hotel acquisition costs expensed during the period because we believe these transaction costs are not reflective of the ongoing performance of the Company or our hotels.
• Severance Costs: We exclude corporate severance costs, or reversals thereof, incurred with the termination of corporate-level employees and severance costs incurred at our hotels related to lease terminations or structured severance programs because we believe these costs do not reflect the ongoing performance of the Company or our hotels.
• Hotel Manager Transition Items: We exclude the transition items associated with a change in hotel manager because we believe these items do not reflect the ongoing performance of the Company or our hotels.
• Other Items: From time to time we incur costs or realize gains that we consider outside the ordinary course of business and that we do not believe reflect the ongoing performance of the Company or our hotels. Such items may include, but are not limited to, the following: pre-opening costs incurred with newly developed hotels; lease preparation costs incurred to prepare vacant space for marketing; management or franchise contract termination fees; gains or losses from legal settlements; costs incurred related to natural disasters; and gains on property insurance claim settlements, other than income related to business interruption insurance.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to interest rate swaps.  We exclude these non-cash amounts because they do not reflect the underlying performance of the Company.

Reconciliations of Non-GAAP Measures

EBITDA, EBITDAre and Adjusted EBITDA

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

Hotel EBITDA and Hotel Adjusted EBITDA

The following table is a reconciliation of our GAAP net income to Hotel EBITDA and Hotel Adjusted EBITDA (in thousands):        

FFO and Adjusted FFO

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

Reconciliation of Comparable Operating Results

The following presents the revenues, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin together with comparable prior year results, which includes the pre-acquisition results for our 2018 acquisitions and excludes the results for closed hotels (in thousands):

Comparable Hotel Operating Expenses

The following table sets forth hotel operating expenses for the three months and years ended December 31, 2019 and 2018 for each of the hotels that we owned during these periods.  Our GAAP hotel operating expenses for the three months and years ended December 31, 2019 and 2018 consisted of the line items set forth below (dollars in thousands) under the column titled "As Reported."  The amounts reported in this column include amounts that are not comparable period-over-period. In order to reflect the period in 2019 comparable to 2018, the amounts in the column titled "Adjustments for Acquisitions" represent the pre-acquisition operating costs of The Landing Resort & Spa and the Hotel Palomar for the period from January 1, 2018 to February 28, 2018 and Cavallo Point for the period from January 1, 2018 to December 9, 2018.  The amounts in the column titled "Adjustments for Closed Hotels" represent the operating costs for all periods presented of Frenchman's Reef, Havana Cabana Key West from January 1 to March 31, 2019 and the comparable period of 2018 and Hotel Emblem from September 1, 2019 to December 31, 2019 and the comparable period of 2018. Both Frenchman's Reef and Havana Cabana Key West closed in early September 2017 in advance of Hurricane Irma. Havana Cabana Key West reopened in April 2018 and Frenchman's Reef remains closed.  Hotel Emblem closed in September 2018 for a comprehensive renovation and reopened in January 2019.  We provide this important supplemental information to our investors because this information provides a useful means for investors to measure our operating performance on a comparative basis.  See the column titled "Comparable."

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP in this release.  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 at our hotels 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. In particular, we note the pre-acquisition operating results set forth in the column titled "Adjustments for Acquisitions" were obtained from the respective sellers of the hotels during the acquisition due diligence process.  We have made no adjustments to the amounts provided to us by the respective sellers.  The pre-acquisition operating results were not audited or reviewed by our independent auditors.

SOURCE DiamondRock Hospitality Company