DiamondRock Hospitality Company Reports Third Quarter 2019 Results

BETHESDA, Md., Nov. 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 September 30, 2019.

Third Quarter 2019 Highlights

• Net Income: Net income was $11.6 million and earnings per diluted share was $0.06
• Comparable Revenues: Comparable total revenues increased 3.2% from the comparable period of 2018.
• Comparable RevPAR: RevPAR was $196.95, a 1.6% increase from the comparable period of 2018 despite disruption from Hurricane Dorian (40 basis points) and renovations (20 basis points).
• Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 30.67%, a 58 basis point contraction from the comparable period of 2018.
• Adjusted EBITDA: Adjusted EBITDA was $67.5 million, a decrease of $2.8 million from 2018.
• Adjusted FFO: Adjusted FFO was $55.3 million and Adjusted FFO per diluted share was $0.27.
• Share Repurchases: During the third quarter of 2019, the Company repurchased 0.3 million shares of its common stock at an average price of $9.96 per share.
• Refinancings: 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 were pleased with our third quarter results, as we were able to increase comparable revenues by 3.2%.  Our asset management strategy to focus on total revenues led to impressive 6.8% growth in food and beverage revenues and 9.4% growth in other revenue streams.  Our resort portfolio was particularly strong in the quarter with RevPAR growth of 4.3%.  Despite disruption from Hurricane Dorian and anticipated renovations, tight cost controls limited profit margin decline to 58 basis points.  We continued to advance a number of this year's high value-add renovations, including the Hotel Emblem San Francisco, JW Marriott Denver and Vail Mountain Marriott. Looking ahead, our 2020 group pace is up a robust 17%, with the strongest growth at our hotels in Chicago and Boston."

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 beginning September 1, 2019 and the comparable period of 2018 due to the closure of the hotel for renovation during this time period of 2018.  See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

For the quarter ended September 30, 2019, the Company reported the following:

The Company's third quarter results were negatively impacted by the disruption from Hurricane Dorian in September 2019, which affected its three hotels in South Florida and the Renaissance Charleston Historic District.  The disruption to Comparable RevPAR and Comparable Hotel Adjusted EBITDA margins was 40 basis points and 16 basis points, respectively, and $0.8 million in Hotel Adjusted EBITDA.  Additionally, anticipated renovation disruption, primarily related to the repositioning of the Sheraton Suites Key West, negatively impacted Comparable RevPAR and Comparable Hotel Adjusted EBITDA margins by 20 basis points and 11 basis points, respectively, and Hotel Adjusted EBITDA by $0.5 million.

For the nine months ended September 30, 2019, the Company reported the following:

Financing Activity

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.

Frenchman's Reef Insurance Claim Update

The Company is in the process of rebuilding the resort following the significant damage caused by two sequential hurricanes in 2017.  The property will be relaunched 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 in the fall of 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 in litigation regarding the Company's insurance claim with a trial date set for January 2020.  Subsequent to the end of the quarter, the Company received a commitment for $40.1 million of additional insurance proceeds, which brings the total amount received by the Company under its claim to $133.3 million.

Capital Expenditures

The Company invested approximately $75.6 million in capital improvements at its operating hotels during the nine months ended September 30, 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: In January 2019, the Company completed the repositioning and rebranding of Hotel Emblem, which is now part of Viceroy's Urban Collection. As part of the renovation, the Company created two additional rooms at the hotel.
• JW Marriott Denver Cherry Creek: The Company completed the renovation of the hotel's guestrooms and meeting space during the first quarter of 2019 and expects to renovate the public space later this year. As part of the guestrooms renovation, the Company created three additional rooms at the hotel.
• Sheraton Suites Key West: The Company is completing a comprehensive repositioning renovation of the hotel, which includes upgrades to the resort's entrance, lobby, restaurant, outdoor lounge, pool area and guestrooms. The renovation is expected to be substantially complete during the fourth quarter of 2019.
• Vail Marriott: The Company substantially completed the second phase of the hotel renovation in the third quarter of 2019, which included the upgrade 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 to close the rate gap with the luxury competitive set.
• Worthington Renaissance: The Company completed the renovation of the hotel's lobby in September 2019 and expects to complete a repositioning of the restaurant outlets during the fourth quarter of 2019.
• The Landing Resort & Spa Lake Tahoe: In third quarter of 2019, the Company completed the addition of five new guestrooms at the hotel.
• The Lodge at Sonoma: The Company expects to enhance the overall resort to close the rate gap with the luxury competition in the market. Enhancements include adding a restaurant by Michael Mina and upgrading the spa to a luxury level.

Balance Sheet

As of September 30, 2019, the Company had $26.7 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.  The Company expects to end the year with a debt-to-EBITDA ratio of 4.1 times, which would be lower were it not for the loss of EBITDA from the closure of Frenchman's Reef.

Share Repurchase Program

During the third quarter of 2019, the Company repurchased 0.3 million shares of its common stock at an average price of $9.96 per share for a total purchase price of $2.8 million. 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 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 from January 1 to March 31, 2018 and 2019, Hotel Emblem from September 1 to December 31, 2018 and 2019 and Frenchman's Reef for all periods.

The Company is updating its full year guidance for the following: flat transient demand trends continuing in the fourth quarter, the unanticipated disruption from Hurricane Dorian in the third quarter and disruption from PG&E's voluntary power outages in Northern California.  The Company now expects full year 2019 results to be as follows:

The guidance above incorporates business interruption insurance income related to Frenchman's Reef of $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 pursue from insurers all of the amounts to which it believes it is legally entitled under its insurance policies, 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:

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 from January 1, 2018 to March 31, 2018, Hotel Emblem from 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 third quarter results on Friday, November 8, 2019, at 11:00 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 9690568. 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.