DiamondRock Hospitality Company Reports Third Quarter 2017 Results

BETHESDA, Md., Nov. 6, 2017 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: 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 quarter ended September 30, 2017.

Third Quarter 2017 Highlights

• Net Income: Net income was $21.6 million and earnings per diluted share was $0.11.
• Comparable RevPAR: RevPAR was $195.13, a 2.1% increase from the comparable period of 2016.
• Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 31.70%, a decrease of 115 basis points from the comparable period of 2016. Comparable hotel operating expenses increased approximately 1.6% from 2016.
• Adjusted EBITDA: Adjusted EBITDA was $63.1 million, a decrease of $2.5 million from 2016.
• Adjusted FFO: Adjusted FFO was $50.1 million and Adjusted FFO per diluted share was $0.25.
• Dividends: The Company declared a dividend of $0.125 per share during the third quarter, which was paid on October 12, 2017.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, "We are pleased with our third quarter results and positive momentum entering the fourth quarter that allowed us to raise full year RevPAR guidance.  Our third quarter results benefited from outperformance in Chicago, Fort Worth and Salt Lake City, as well as our asset management team's strong execution limiting comparable hotel expense growth to 1.6%.  As we look forward, with approximately $167 million of cash on hand, no borrowings on our $300 million credit facility and most of our hotels unencumbered by debt, DiamondRock is well-positioned for capital deployment."

Operating Results      

Please see "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" and a reconciliation of these measures to net income. Comparable operating results include our 2017 acquisitions for all periods presented, exclude the Frenchman's Reef and Morning Star Marriott Beach Resort ("Frenchman's Reef") and the Inn at Key West for all periods presented due to the closure of these hotels and exclude our 2016 dispositions.  See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

For the quarter ended September 30, 2017, the Company reported the following:

For the nine months ended September 30, 2017, the Company reported the following:

Update on Impact from Natural Disasters

The Company was impacted by recent natural disasters.  As previously disclosed, the Company is pursuing insurance claims for the remediation of property damage and business interruption income at each of the impacted hotels. The Company is insured for up to $361 million for each covered event, subject to certain deductibles and sub limits.

• Frenchman's Reef: The hotel sustained significant damage from Hurricanes Irma and Maria. The hotel closed on September 6^th and is currently expected to remain closed through the end of 2018.
• The Inn at Key West: The hotel sustained substantial wind and water-related damage from Hurricane Irma. The hotel closed on September 6^th to comply with a mandatory evacuation order and is currently expected to remain closed into the second quarter of 2018.
• Sheraton Suites Key West: The hotel sustained minimal wind and water-related damage from Hurricane Irma. The hotel closed on September 6^th to comply with a mandatory evacuation order and re-opened on September 16^th.
• Westin Fort Lauderdale Beach Resort: The hotel experienced minimal water intrusion from Hurricane Irma. The hotel closed on September 7^th to comply with a mandatory evacuation order and re-opened on September 12^th.
• The Lodge at Sonoma Renaissance Resort & Spa: The hotel was impacted by smoke infiltration during the recent wildfires and was closed from October 10^th through October 19^th. The smoke infiltration has been remediated and the hotel re-opened on October 20^th.

Hotel Manager Changes

In August 2017, the Company terminated its management agreement with Marriott International for the Courtyard Manhattan/Midtown East and entered into a new 10-year management agreement with HEI Hotels & Resorts.  The Company also entered into a franchise agreement with Marriott International to continue the hotel's Courtyard brand affiliation.  In connection with the termination of the Marriott International management agreement, the Company recognized $1.9 million of accelerated amortization of key money and incurred approximately $0.5 million of severance and other costs, which are excluded from Adjusted EBITDA and Adjusted FFO.

In October 2017, the Company terminated its management agreement with Joie de Vivre Hotels for the Hotel Rex and entered into a new 10-year management agreement with Viceroy Hotels & Resorts to operate the hotel.

Capital Expenditures

The Company spent approximately $77.5 million on capital improvements during the nine months ended September 30, 2017, primarily related to the third phase of the Chicago Marriott Downtown renovation and guest room renovations at the Gwen, Worthington Renaissance, Charleston Renaissance, and The Lodge at Sonoma. The Company expects to spend between $110 million and $120 million on capital improvements at its hotels in 2017.  Significant projects include the following:

• Chicago Marriott Downtown: The Company has completed the third phase of the multi-year renovation, which included the upgrade renovation of approximately 340 guest rooms. The Company expects to renovate the final 258 of 1,200 guest rooms during late 2017 with completion in early 2018.
• The Gwen: The Company completed the renovation of the hotel's 311 guest rooms in April 2017.
• Worthington Renaissance: The Company completed the renovation of the hotel's 504 guest rooms in January 2017.
• Charleston Renaissance: The Company completed the renovation of the hotel's 166 guest rooms in February 2017.
• The Lodge at Sonoma: The Company completed the renovation of the hotel's 182 guest rooms in April 2017.

During the third quarter, the Company recognized impairment losses of approximately $2.4 million, which consisted of $1.8 million related to construction in progress that it determined is not recoverable and $0.6 million related to property damage at the Sheraton Suites Key West.  The impairment losses are excluded from Adjusted EBITDA and Adjusted FFO.

Balance Sheet

As of September 30, 2017, the Company had $166.6 million of unrestricted cash on hand and approximately $940.8 million of total debt, which consisted of property-specific mortgage debt and $300.0 million of unsecured term loans. The Company has no outstanding borrowings on its $300 million senior unsecured credit facility and 20 of its 28 hotels are unencumbered by debt.

Dividends

The Company's Board of Directors declared a quarterly dividend of $0.125 per share to stockholders of record as of September 30, 2017.  The dividend was paid on October 12, 2017.

Guidance

The Company is providing updated annual guidance for 2017, 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 excludes Frenchman's Reef and the Inn at Key West for all periods and assumes that L'Auberge de Sedona and Orchards Inn Sedona were owned since January 1, 2016.

The Company is revising its 2017 guidance for the following: (1) impact of natural disasters, (2) an improved RevPAR growth outlook following 7.9% RevPAR growth in October 2017 and (3) an improved group outlook for the fourth quarter.  The Company's revised full year 2017 guidance is as follows:

Although the Company is actively pursuing advance payments under its property and business interruption insurance claims, the above guidance does not reflect any proceeds from business interruption insurance.  The full year guidance range above reflects expected income tax expense of $8.1 to $11.2 million, expected interest expense of $38.5 to $38.6 million and expected corporate expenses of $25 million.

Selected Quarterly Comparable Operating Information

The following table is presented to provide investors with selected quarterly comparable operating information.  The operating information includes our 2017 acquisitions and excludes our 2016 dispositions, Frenchman's Reef and the Inn at Key West for all periods presented.

Earnings Call

The Company will host a conference call to discuss its third quarter results on Tuesday, November 7, 2017, 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 96252070. 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 28 premium quality hotels with over 9,600 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.  On November 6, 2017, the Company relocated its corporate headquarters to 2 Bethesda Metro Center, Suite 1400, Bethesda, Maryland 20814.  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 the Inn at Key West 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.