DiamondRock Hospitality Company Reports Fourth Quarter And Full Year 2014 Results

BETHESDA, Md., Feb. 24, 2015 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") DRH, a lodging-focused real estate investment trust that owns a portfolio of 28 premium hotels in the United States, today announced results of operations for the fourth quarter and full year ended December 31, 2014.

2014 Operating Highlights

• Pro Forma RevPAR: Pro Forma RevPAR was $161.44, an increase of 11.6% from 2013.
• Pro Forma Hotel Adjusted EBITDA Margin: Pro Forma Hotel Adjusted EBITDA margin was 29.53%, an increase of 275 basis points from 2013.
• Pro Forma Hotel Adjusted EBITDA: Pro Forma Hotel Adjusted EBITDA was $248.6 million, an increase of 21.3% from 2013.
• Adjusted EBITDA: Adjusted EBITDA was $235.8 million, an increase of 19.8% from 2013.
• Adjusted FFO: Adjusted FFO was $171.5 million and Adjusted FFO per diluted share was $0.87.
• Dividends: The Company declared four quarterly dividends totaling $0.41 per share during 2014, returning approximately $80 million to shareholders.

Fourth Quarter 2014 Highlights

• Pro Forma RevPAR: Pro Forma RevPAR was $159.64, an increase of 8.3% from the comparable period of 2013.
• Pro Forma Hotel Adjusted EBITDA Margin: Pro Forma Hotel Adjusted EBITDA margin was 29.30%, an increase of 196 basis points from 2013.
• Pro Forma Hotel Adjusted EBITDA: Pro Forma Hotel Adjusted EBITDA was $61.4 million, an increase of 15.7% from 2013.
• Adjusted EBITDA: Adjusted EBITDA was $60.8 million, an increase of 23.3% from 2013.
• Adjusted FFO: Adjusted FFO was $41.8 million and Adjusted FFO per diluted share was $0.21.
• Westin Fort Lauderdale Acquisition: The Company acquired the 432-room Westin Fort Lauderdale Beach Resort for $149 million in December 2014.
• Non-Core Hotel Disposition: The Company sold the 1,004-room Los Angeles Airport Marriott for proceeds of approximately $160 million in December 2014.
• Lexington Hotel Refinancing: The Company amended its existing $170.4 million mortgage loan secured by the Lexington Hotel New York City in October 2014. The amendment reduced the interest rate and extended the term of the loan.
• Dividends: The Company declared a quarterly dividend of $0.1025 per share during the fourth quarter.

Recent Developments

• Shorebreak Hotel: The Company acquired the Shorebreak Hotel, a 157-room boutique hotel in Huntington Beach, California, for $58.5 million in February 2015.
• Dividend Increase: The Company announced today a 22% increase in its quarterly dividend to $0.125 per share.
• January 2015 RevPAR: Pro Forma RevPAR for January 2015 was $130.70, an increase of 8.8% from the comparable period in 2014.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "The fourth quarter punctuated an excellent 2014 for DiamondRock, in which we delivered industry-leading RevPAR growth and our asset management initiatives drove margin expansion of 275 basis points. Our acquisitions and dispositions are producing excellent results as we continued to position our portfolio to perform well across the cycle."

Operating Results      

Discussions of "Pro Forma" with respect to 2014 operating results include the results of operations of the Inn at Key West and the Westin Fort Lauderdale under previous ownership and exclude the Oak Brook Hills Resort and Los Angeles Airport Marriott, which were sold during 2014, and the Hilton Garden Inn Times Square Central, which 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, 2014, the Company reported the following:

For the year ended December 31, 2014, the Company reported the following:

Westin Fort Lauderdale Acquisition

The Company acquired the 432-room Westin Fort Lauderdale Beach Resort located in Fort Lauderdale, Florida for $149 million, or $345,000 per key, on December 3, 2014. The hotel is expected to exceed the Company's underwriting and the purchase price now represents a 12.0 multiple on projected 2015 Hotel Adjusted EBITDA. In conjunction with the acquisition, the Company terminated the management agreement with Starwood Hotels & Resorts Worldwide and entered into a franchise agreement with Starwood and a new management agreement with HEI Hotels & Resorts to operate the hotel. The Company expects to benefit from several new asset management initiatives at the hotel.

Sale of Los Angeles Airport Marriott

The Company sold the 1,004-room Los Angeles Airport Marriott on December 18, 2014 for approximately $160 million, which included payment for the hotel's replacement reserve, and recognized a gain of $49.7 million. The sales price, including an estimated $15 million of deferred capital expenditures, represents a 6% capitalization rate on the hotel's 2014 net operating income. In conjunction with the sale, the Company prepaid the existing $82.6 million mortgage secured by the hotel and incurred approximately $1.6 million of defeasance costs. The Company has excluded both the gain and the defeasance costs from its reported Adjusted EBITDA and Adjusted FFO. The hotel generated $14.4 million of Hotel Adjusted EBITDA during the year ended December 31, 2014.

Lexington Hotel Refinancing

The Company amended its existing $170.4 million mortgage loan secured by the Lexington Hotel New York City in October 2014.  The amended loan bears interest at an initial floating rate of LIBOR plus 275 basis points, and features a pricing grid that further reduces the spread to as low as 175 basis points upon achieving certain hotel cash flow hurdles.  The reduced borrowing cost is expected to save the Company more than $1.5 million in annual interest expense.  The amended loan extends the term of the loan by 30 months.

ATM Equity Offering Program

The Company issued common stock under its "at-the-market" equity offering program beginning in November 2014.  As of December 31, 2014, the Company sold 4,217,560 shares of its common stock at an average price of $15.12 for net proceeds of $63.1 million.  Subsequent to December 31, 2014, the Company sold an additional 524,606 shares of its common stock at an average price of $15.18 for net proceeds of $7.9 million.  The average price of the shares sold to date under the program is $15.13 and represents a valuation of over 16.5 times 2014 Adjusted EBITDA.

Shorebreak Hotel  Acquisition

The Company acquired the 157-room Shorebreak Hotel located in Huntington Beach, California for $58.5 million on February 6, 2015. The purchase price represents a 12.8 multiple on projected 2015 Hotel Adjusted EBITDA. In conjunction with the acquisition, the Company entered into a new management agreement with Kimpton Hotel and Restaurant Group LLC to operate the hotel.

Capital Expenditures

The Company spent approximately $62.6 million on capital improvements at its hotels in 2014. The majority of the capital improvements related to the substantial completion of the comprehensive renovations of the Westin Washington D.C. City Center, Westin San Diego, Hilton Boston and Hilton Burlington, as well as the guest room renovation at the Hilton Minneapolis.

The Company expects to spend approximately $85 million on capital improvements at its hotels in 2015, which includes carryover from 2014 projects.  Significant projects in 2015 include the addition of 41 rooms at the Hilton Boston Downtown and a partial guestroom renovation at the Chicago Marriott Downtown.

Balance Sheet

As of December 31, 2014, the Company had $144.4 million of unrestricted cash on hand and approximately $1.0 billion of total debt, which consisted solely of property-specific mortgage debt and no outstanding borrowings on the Company's $200 million senior unsecured credit facility.  The Company has approximately $145 million of mortgage debt maturities in 2015 with an average interest rate of 5.8%.  The Company anticipates addressing these maturities with a combination of refinancing proceeds from existing encumbered hotels, proceeds from new mortgage debt on unencumbered hotels, proceeds from the disposition of non-core hotels, capacity under its $200 million senior unsecured credit facility and existing cash balances.

Dividends

The Company's Board of Directors declared a quarterly dividend of $0.1025 per share to stockholders of record as of December 31, 2014.  The dividend was paid on January 12, 2015.  The Company increased its quarterly dividend for 2015 by 22% and its Board of Directors declared a dividend of $0.125 per share for stockholders of record as of March 31, 2015.

Outlook and Guidance

The Company has provided annual guidance for 2015, 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 and Pro Forma Hotel Adjusted EBITDA margin growth assume that all of the Company's 28 hotels were owned since January 1, 2014 and exclude the Hilton Garden Inn Times Square Central for the period from January 1, 2014 to August 31, 2014, since the hotel opened on September 1, 2014.

Based on the above assumptions, the Company expects its full year 2015 results to be as follows:

The midpoint of the guidance range above implies Hotel Adjusted EBITDA margin growth of approximately 100 basis points. In addition, the Company expects corporate expenses to be between $23.5 million and $24.0 million in 2015. The Company expects 16.5% to 17.5% of full year 2015 Adjusted EBITDA to be earned during the first quarter of 2015.

The following table is presented to provide investors with selected quarterly Pro Forma operating information for 2014.  The operating information assumes that all of the Company's 28 hotels were owned since January 1, 2014 and excludes the Hilton Garden Inn Times Square Central for the period from January 1, 2014 to August 31, 2014, since the hotel opened for business on September 1, 2014.

Earnings Call

The Company will host a conference call to discuss its fourth quarter and full year results on Tuesday, February 24, 2015, at 10:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 877-280-4960 (for domestic callers) or 857-244-7317 (for international callers).  The participant passcode is 49928360. 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 thirty days.

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 28 premium quality hotels with over 10,700 rooms. The Company has strategically positioned its hotels to generally be operated under the leading global brands such as Hilton, Marriott, and Westin, as well as 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 the favorable management contract assets recorded in conjunction with our acquisitions of the Westin Washington D.C. City Center, Westin San Diego, and Hilton Burlington and the non-cash amortization of the unfavorable contract liabilities recorded in conjunction with our acquisitions of the Bethesda Marriott Suites, the Chicago Marriott Downtown, the Renaissance Charleston and the Lexington Hotel New York. 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 Loan: We exclude the gain from the prepayment of the loan in 2014. Prior to the prepayment, cash payments received during 2010 and 2011 that were included in Adjusted EBITDA and Adjusted FFO and reduced the carrying basis of the loan were deducted from Adjusted EBITDA and Adjusted FFO, calculated based on a straight-line basis over the anticipated term of the loan.
• 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, pre-opening costs, contract termination fees, severance costs, and gains from legal settlements, bargain purchase gains, and 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.  Specifically, we exclude the impact of the non-cash amortization of the debt premium recorded in conjunction with the acquisition of the JW Marriott Denver at Cherry Creek and fair market value adjustments to the Company's interest rate cap agreement.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE DiamondRock Hospitality Company