DiamondRock Hospitality Company Reports First Quarter 2015 Results And Raises Full Year Guidance

BETHESDA, Md., May 8, 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 first quarter ended March 31, 2015.

First Quarter 2015 Highlights

• Pro Forma RevPAR: Pro Forma RevPAR was $150.78, an increase of 7.9% from the comparable period of 2014.
• Pro Forma Hotel Adjusted EBITDA Margin: Pro Forma Hotel Adjusted EBITDA margin was 25.41%, an increase of 140 basis points from 2014.
• Pro Forma Hotel Adjusted EBITDA: Pro Forma Hotel Adjusted EBITDA was $52.3 million, an increase of 13.6% from 2014.
• Adjusted EBITDA: Adjusted EBITDA was $48.5 million, an increase of 30.0% from 2014.
• Adjusted FFO: Adjusted FFO was $37.7 million and Adjusted FFO per diluted share was $0.19.
• Shorebreak Hotel: The Company acquired the Shorebreak Hotel, a 157-room boutique hotel in Huntington Beach, California, for $58.5 million in February 2015.
• Dividends: The Company declared a dividend of $0.125 per share during the first quarter, which was paid on April 10, 2015.

Recent Developments

• Hotel Refinancing: The Company refinanced the Renaissance Worthington in April 2015 with a new 10-year $85 million mortgage bearing interest at a fixed rate of 3.66%.
• Hotel Rebranding: The Company today announced that it plans to rebrand the hotel currently named the Conrad Chicago to join Starwood's Luxury Collection. The hotel will be managed by a third party pursuant to a franchise agreement.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "Our portfolio performed well overall during the first quarter, especially our most recent acquisitions, which are all ahead of our underwriting.  Eleven of our hotels generated double-digit RevPAR growth during the quarter and our focused asset management initiatives drove meaningful margin expansion. Additionally, we expect to be able to utilize the current favorable interest rate environment to refinance a number of our hotels over the next year to significantly reduce our annual interest expense."

Operating Results     

Discussions of "Pro Forma" assumes the Company owned each of its 28 hotels since January 1, 2014 but excludes the Hilton Garden Inn Times Square Central, 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 March 31, 2015, the Company reported the following:

Shorebreak Hotel Acquisition

The Company acquired the 157-room Shorebreak Hotel, a lifestyle hotel located beachfront in Southern California for $58.5 million on February 6, 2015. The purchase price now represents a 12.4 multiple on projected 2015 Hotel Adjusted EBITDA, which is ahead of our underwriting. In conjunction with the acquisition, the Company engaged Kimpton Hotel and Restaurant Group to operate the hotel.

ATM Equity Offering Program

The Company sold 524,606 shares of its common stock under its at-the-market ("ATM") equity offering program at an average price of $15.18 for net proceeds of $7.8 million during the first week of 2015. The Company has not sold any additional shares under the ATM program since the first week of 2015.

Hotel Financing Activity

The Company entered into a new $85 million mortgage loan secured by the Renaissance Worthington in April 2015.  The new loan has a term of 10 years and bears interest at a fixed rate of 3.66%.  The new loan is interest-only for the first two years after which principal will amortize over 30 years.  The hotel was previously encumbered by a $52.6 million mortgage loan bearing interest at 5.4%

During the first quarter, the Company notified the lender that it intends to prepay the mortgage loan secured by the Frenchman's Reef & Morning Star Marriott Beach Resort in May 2015. The loan bears interest at a fixed rate of 5.44% and had an outstanding principal balance of $56.3 million as of March 31, 2015. The Company expects to prepay the loan with excess proceeds from the Renaissance Worthington refinancing and corporate cash on hand.

The Company currently expects to refinance the mortgage loan secured by the JW Marriott Denver at Cherry Creek during the second quarter, which represents the Company's 2015 final loan maturity. The existing loan, which was assumed when the Company acquired the hotel in 2011, bears interest at a fixed rate of 6.47% and had an outstanding principal balance of $38.4 million as of March 31, 2015.

The Company expects to have 16 of its 28 hotels unencumbered by debt by the end of the second quarter of 2015.

Hotel Rebranding

The Company plans to rebrand the hotel currently known as the Conrad Chicago to join Starwood's Luxury Collection during the third quarter of 2015.  The Company has engaged a respected third-party manager to manage the hotel upon conversion to the Luxury Collection.

Capital Expenditures

The Company currently expects to spend approximately $85 million on capital improvements at its hotels in 2015.  Significant projects include the following:

• Hilton Boston Downtown: The Company renovated approximately 90 rooms at the hotel, creating an incremental 41 guest rooms, as a return on investment project. The project is substantially complete and, as expected, negatively impacted the Company's Pro Forma RevPAR growth during the first quarter by approximately 50 basis points.
• Chicago Marriott Downtown: The Company is planning to complete a multi-year guest room renovation at the hotel. Marriott is contributing to the cost of the renovation through an amendment to the hotel's management agreement to reduce management fees for the remaining term of the management agreement. The amendment is expected to reduce management fees by approximately $1.8 million in 2015. The first phase of the guest room renovation, which consisted of 200 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. The second phase of the guest room renovation will be completed during the seasonally slow winter months over the next three 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 winter months of late 2015 and early 2016.
• Luxury Collection Hotel Chicago: The Company expects to renovate and reposition the hotel currently known as the Conrad Chicago during the next two seasonally slow winter seasons in connection with the rebranding. The Company is currently finalizing the cost and timing of this project.

The Company spent approximately $20.0 million on capital improvements during the quarter ended March 31, 2015, primarily related to the addition of 41 rooms at the Hilton Boston Downtown and the first phase of guest room renovation at the Chicago Marriott Downtown.

Balance Sheet

As of March 31, 2015, the Company had $87.2 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.

Dividends

The Company's Board of Directors declared a quarterly dividend of $0.125 per share to stockholders of record as of March 31, 2015.  The dividend was paid on April 10, 2015 and represents a 22% increase over the prior quarterly dividend.

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 but excludes the Hilton Garden Inn Times Square Central until September 1, 2015, since the hotel opened on September 1, 2014.

The Company is increasing its full year 2015 guidance to reflect first quarter performance. The Company now expects its full year 2015 results to be as follows:

The midpoint of the guidance range above implies Pro Forma Hotel Adjusted EBITDA margin growth in the range of 100 to 150 basis points. In addition, the Company expects the following:

• Corporate expenses of $23.5 million to $24.0 million, which is in line with previous guidance;
• Income tax expense of $10.4 million to $15.6 million, which has increased from previous guidance as a result of hotel outperformance;
• Interest expense of $52.3 million to $52.5 million, which assumes the completion of the refinancing of the Company's 2015 debt maturities; and
• Depreciation expense of $97 million to $98 million

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 containing 10,709 rooms were owned since January 1, 2014, with the exception of the Hilton Garden Inn Times Square Central, which opened for business on September 1, 2014.

Earnings Call

The Company will host a conference call to discuss its first quarter results on Friday, May 8, 2015, at 10:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 866-953-6858 (for domestic callers) or 617-399-3482 (for international callers).  The participant passcode is 23025941. 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 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 Loan: We exclude the gain from the prepayment of the loan in 2014.
• 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, contract termination fees, severance costs, gains or losses 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 any 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