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.