DiamondRock Hospitality Company Reports First Quarter Results

BETHESDA, Md., May 8, 2019 /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 ended March 31, 2019.

First Quarter 2019 Highlights

• Net Income: Net income was $9.0 million and earnings per diluted share was $0.04.
• Comparable Revenues: Total comparable revenues increased 2.0% from the comparable period of 2018.
• Comparable RevPAR: RevPAR was $157.38, a 0.8% decrease from the comparable period of 2018. Excluding the JW Marriott Denver Cherry Creek and Marriott Salt Lake City, which were under renovation during the quarter, the Company's RevPAR was $161.56, an increase of 1.0% from the comparable period of 2018.
• Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 22.90%, a 143 basis point contraction from the comparable period of 2018. Excluding the JW Marriott Denver Cherry Creek and Marriott Salt Lake City, the Company's Hotel Adjusted EBITDA margin was 23.03%, a 53 basis point contraction from the comparable period of 2018.
• Adjusted EBITDA: Adjusted EBITDA was $49.2 million, an increase of $5.8 million from 2018.
• Adjusted FFO: Adjusted FFO was $41.9 million and Adjusted FFO per diluted share was $0.21.
• Business Interruption Income: The Company recognized $8.8 million of business interruption income during the quarter related to the ongoing insurance claim for Frenchman's Reef & Morning Star Marriott Beach Resort ("Frenchman's Reef").
• Share Repurchases: During the first quarter of 2019, the Company repurchased 3.1 million shares of its common stock at an average price of $9.52 per share.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, "First quarter Hotel Adjusted EBITDA came in just ahead of internal expectations as our asset management team successfully executed on its strategy of replacing select higher-rated business transient rooms with more profitable group business.  This strategy led to higher total revenue with robust food and beverage revenue growth of over 8%.  Additionally, early in the quarter we were able to take advantage of market dislocation to buyback 3.1 million shares at a tremendous discount to the implied net asset value of our real estate."

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 and Havana Cabana Key West for all periods presented due to the closure of these hotels. See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

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

The Company's three 2018 acquisitions delivered strong results, with combined RevPAR growth of over 7%. The acquisitions, Cavallo Point in Sausalito, California, The Landing Resort & Spa Lake Tahoe and the Hotel Palomar Phoenix, were consistent with the Company's strategy of acquiring high barrier-to-entry resorts and urban lifestyle hotels.

Frenchman's Reef Insurance Claim Update

As previously disclosed, the Company has filed an insurance claim resulting from the hurricanes that impacted Frenchman's Reef in 2017.  The Company is in the process of rebuilding the resort following the significant damage caused by the hurricanes and expects to reopen the resort in 2020.  Under its insurance policy, the Company is entitled to be compensated for, among other things, the cost to replace the damaged property, as well as lost profits during the rebuilding period.  The Company and its insurers are currently in litigation regarding the Company's insurance claim, while continuing discussions to resolve the matter.

The Company has received approximately $91.8 million in proceeds to date under the insurance claim, which represents reimbursement for the remediation and rebuild of the damaged property, ongoing expenses and lost profits.  Even if the Company believes it is entitled to additional business interruption proceeds, it can only recognize business interruption income to the extent it reaches agreement with the insurers.  During the first quarter of 2019, the Company recognized $8.8 million of business interruption insurance income, which represents lost profits through April 2019.  In 2018, the Company recognized $16.1 million in business interruption insurance income and believes it is entitled to at least that amount for 2019. The Company continues to negotiate with its insurers for additional business interruption proceeds. The Company spent approximately $9.2 million during the first quarter of 2019 on the rebuilding of the resort.

Capital Expenditures

The Company invested approximately $21.1 million in capital improvements at its operating hotels during the three months ended March 31, 2019.  The Company expects to invest approximately $125 million on capital improvements at its hotels in 2019.  Significant projects in 2019 include the following:

• Hotel Emblem San Francisco: The Company completed the repositioning and rebranding of Hotel Emblem in January 2019, which is now part of Viceroy's Urban Collection.
• JW Marriott Denver Cherry Creek: The Company completed the renovation of the hotel's guest rooms and meeting space during the first quarter and expects to renovate the public space later this year.
• Sheraton Suites Key West: The Company expects to complete a comprehensive repositioning renovation of the hotel, which will include upgrades to the resort's entrance, lobby, restaurant, outdoor lounge, pool area and guestrooms. In order to minimize disruption, the renovation is expected to occur from August to November, the hotel's slowest period of the year.
• The Lodge at Sonoma: The Company expects to enhance the overall resort to close the rate gap with the luxury competition in the market, including adding a restaurant by Michael Mina and enhancing the spa to a luxury level.
• Vail Marriott: The Company expects to complete the second phase of the hotel renovation, which includes the upgrade renovation of the spa and fitness center. The scope of this project is consistent with the Company's multi-phased strategy to renovate the hotel to a luxury standard in order to position it for an upbranding in 2021 and close the rate gap with the luxury competitive set.
• Worthington Renaissance: The Company expects to renovate the lobby and complete a return-on-investment repositioning of the restaurant outlets during the third quarter of 2019.

Balance Sheet

As of March 31, 2019, the Company had $36.5 million of unrestricted cash on hand and approximately $1.0 billion of total debt, which consisted of property-specific mortgage debt, $350.0 million of unsecured term loans and $60.0 million of borrowings on its $300.0 million senior unsecured credit facility.  Subsequent to March 31, 2019, the Company borrowed $30.0 million on its senior unsecured credit facility.

Share Repurchase Program

During the first quarter of 2019, the Company repurchased 3.1 million shares of its common stock at an average price of $9.52 per share for a total purchase price of $30.0 million.  The Company has repurchased 6.5 million shares of its common stock at an average price of $9.50 per share since it began repurchasing shares in December 2018.  The Company has $188 million of remaining authorized capacity under its $250 million share repurchase program.

Guidance

The Company is providing annual guidance for 2019, 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 assumes all of the Company's hotels were owned as of January 1, 2018, but excludes Havana Cabana Key West for January 1 to March 31, 2018 and 2019, Hotel Emblem for September 1 to December 31, 2018 and 2019 and Frenchman's Reef for all periods.

The Company is maintaining its 2019 guidance, which was previously provided in connection with the reporting of its 2018 results in February 2019.  The Company continues to expect the full year 2019 results to be as follows:

The guidance above incorporates business interruption insurance income related to Frenchman's Reef of only $8.8 million, which is less than the $16.1 million recognized in 2018.  The Company believes it is entitled to at least $16.1 million of business interruption insurance income for the full year 2019, but the insurers have only agreed to $8.8 million at this time, which represents lost profits through April 2019.  The Company continues to negotiate with its insurers to recover all of the amounts to which it believes it is legally entitled, but the timing of a resolution is uncertain.  The following chart provides a quarterly comparison of income received from business interruption insurance in 2018 and projected for 2019:

The Company expects approximately 29.0% to 30.0% of its full year 2019 Adjusted EBITDA to be earned during the second quarter of 2019.  The Company expects acceleration of RevPAR growth in the second and third quarters due to the benefit from recent renovations, asset management initiatives at newly acquired hotels and a favorable comparison from the 2018 merger integration challenges and union strike at the Westin Boston.

Selected Quarterly Comparable Operating Information

The following table is presented to provide investors with selected quarterly comparable operating information.  The operating information includes the Company's 2018 acquisitions for all periods and excludes Havana Cabana Key West for January 1, 2018 to March 31, 2018, Hotel Emblem for September 1, 2018 to December 31, 2018 and Frenchman's Reef for all periods.

Earnings Call

The Company will host a conference call to discuss its first quarter results on Thursday, May 9, 2019, at 9:00 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 2986858. 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 such as Hilton and Marriott 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.