DiamondRock Hospitality Company Reports Third Quarter 2020 Results

BETHESDA, Md., Nov. 5, 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 ended September 30, 2020.

"Confronted with the disruption in travel demand caused by the COVID-19 pandemic, I want to commend the DiamondRock team for their unwavering dedication to executing our multi-prong pandemic response plan," said Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company. "Our quarterly cash burn rate significantly outperformed our original expectations as the result of relentless efforts by our asset managers and hotel operators. While our current focus remains centered on balance sheet strength, bolstered by our recent preferred equity offering, we are also taking steps to emerge from the pandemic as an even better company. During the quarter we converted five long-term management agreements to terminable-at-will agreements, distinguishing DiamondRock with the most flexible and least management-encumbered portfolio of any full-service hotel REIT."

Third Quarter 2020 Highlights:

• Hotel Operations: The Company initially suspended operations at 20 of its 30 previously operating hotels throughout March and early April either under governmental orders or due to lack of travel demand caused by the pandemic. The Company reopened 12 hotels during the second quarter and 5 additional hotels during the third quarter as governmental orders were modified or lifted and leisure demand began to return.  The Company currently has 27 of its 30 operating hotels open.   
• Net Loss: Net loss was $79.6 million and loss per diluted share was $0.40.
• Comparable Revenues: Comparable total revenues decreased 79.2% from the comparable period of 2019.
• Comparable RevPAR: RevPAR decreased 81.0% from the comparable period of 2019.
• Hotel Adjusted EBITDA: Hotel Adjusted EBITDA was ($17.4) million, a 42.8% improvement from the second quarter 2020.
• Adjusted EBITDA: Adjusted EBITDA was ($24.4) million, a decrease of $91.9 million from 2019.
• Adjusted FFO: Adjusted FFO was ($43.5) million and Adjusted FFO per diluted share was ($0.22).  Adjusted FFO was negatively impacted by an income tax valuation allowance recognized in the quarter of $12.4 million, or $0.06 per diluted share.
• Preferred Stock Offering: In August and September 2020, the Company issued a total of 4.8 million shares of 8.250% Series A Cumulative Redeemable Preferred Stock for net proceeds of approximately $114.5 million.
• Liquidity: The Company's liquidity increased during the quarter by $70.6 million to $434.5 million, comprised of $110.6 million of unrestricted corporate cash, $23.9 million of unrestricted cash at its hotels and $300.0 million of capacity on the Company's revolving credit facility.

Please see "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDAre," "Adjusted EBITDA," "Hotel Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO" and a reconciliation of these measures to net income. Comparable operating results exclude Frenchman's Reef & Morning Star Marriott Beach Resort for all periods presented due to the closure of the hotel.  See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

For the quarter ended September 30, 2020, the Company reported the following:

For the nine months ended September 30, 2020, the Company reported the following:

Net loss for the three and nine months ended September 30, 2020 includes $7.4 million and $7.8 million, respectively, of severance costs recognized in connection with the elimination of positions at the Company's hotels.  These severance costs are excluded from Hotel Adjusted EBITDA, Adjusted EBITDA and Adjusted FFO in accordance with the Company's definition of these metrics.

Hotel Operations Update

Due to the decline in travel demand from the impact of COVID-19, the Company temporarily suspended operations at 20 of its 30 previously operating properties (which excludes Frenchman's Reef & Morning Star Marriott Beach Resort, where redevelopment has been paused) throughout March and early April.  The Company resumed operations at 12 hotels by the end of the second quarter and another five hotels by the end of the third quarter as governmental orders were modified or lifted and leisure demand began to return.  The Company does not expect to reopen the remaining three closed hotels in 2020, all of which are located in New York City. The Company will continue to aggressively manage costs at its hotels ensure appropriate cleanliness and safety protocols.  The Company is carefully monitoring demand trends and adjusted sales strategies and staffing to respond rapidly in a changing environment.

The Company has successfully improved the cash burn rate at its hotels as a result of aggressive cost controls and increased demand.  The average burn rate for the Company's hotels during the third quarter 2020 was $8.5 million per month, a 19.8% improvement over the average burn rate of $10.6 million per month in the second quarter 2020.

The following table identifies each of the Company's hotels that has suspended operations and the date of reopening, if applicable:

The following tables provide operating information for the Company's portfolio throughout the third quarter:

Capital Expenditures

The Company invested approximately $8.1 million and $39.9 million in capital improvements at its operating hotels during the three and nine months ended September 30, 2020, respectively. Due to the COVID-19 pandemic, the Company has canceled or deferred a significant portion of the planned capital improvements at its operating hotels.  The Company currently expects to invest approximately $10.0 million in the fourth quarter for a total of $50.0 million of investment in capital improvements at its operating hotels during 2020.  Separately, the Company has paused the rebuild of Frenchman's Reef & Morning Star Marriott Beach Resort. The Company spent approximately $38.3 million on the rebuild of Frenchman's Reef & Morning Star Marriott Beach Resort during the nine months ended September 30, 2020.

Management and Franchise Agreement Amendments

On August 27, 2020, the Company entered into an agreement with Marriott International, Inc. modifying several franchise and management contracts.  Key benefits of the agreement include: (i) the conversion of five hotels from brand-managed to franchise with new terminable-at-will management agreements with third-party hotel operators, (ii) a new franchise agreement for the Vail Marriott Mountain Resort to upbrand the resort to a Luxury Collection hotel in 2021, (iii) an option to upbrand the JW Marriott Denver Cherry Creek to a Luxury Collection hotel and (iv) an amendment to the Autograph Collection franchise agreement for The Lexington Hotel to provide a termination right in 2021 subject to a fee.  The agreement results in the Company having 29 of its 31 hotels unencumbered by long-term brand management agreements.

Balance Sheet and Liquidity

As of September 30, 2020, the Company's liquidity was $434.5 million, an increase of $70.6 million during the quarter, and is comprised of $110.6 million of unrestricted corporate cash, $23.9 million of unrestricted cash at its hotels and $300.0 million of capacity on its senior unsecured credit facility.  As of September 30, 2020, the Company had $1.1 billion of total debt outstanding, which consisted of $604.5 million of property-specific, non-recourse mortgage debt, $400.0 million of unsecured term loans and $100.0 million outstanding on its $400.0 million senior unsecured credit facility.  The Company has no material debt maturities until 2022.

In August and September 2020, the Company completed a public offering of a total of 4.8 million shares of 8.250% Series A Cumulative Redeemable Preferred Stock with a $25.00 per share liquidation preference for net proceeds of approximately $114.5 million. 

Dividends

The Company declared an inaugural dividend of $0.1776 per share on its 8.250% Series A Cumulative Redeemable Preferred Stock to shareholders of record as of September 20, 2020.  This dividend was paid on September 30, 2020 and calculated on a pro rata basis from, and including, the original issue date to, and including, September 30, 2020.  In order to preserve liquidity, the Company has suspended its quarterly dividend on common stock commencing with the dividend that would have been paid in April 2020.

Guidance

Given the high level of uncertainty surrounding the COVID-19 pandemic and its effect on hotel demand, the Company previously withdrew full year 2020 guidance originally issued on February 20, 2020 and is not providing updated guidance at this time.

Earnings Call

The Company will host a conference call to discuss its second quarter results on Friday, November 6, 2020, 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 2536596. 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 & Morning Star Marriott Beach Resort. These risks include, but are not limited to: the adverse impact of the novel coronavirus (COVID-19) on the U.S., regional and global economies, travel, the hospitality industry, and the financial condition and results of operations of the Company and its hotels; 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 and its ability to obtain covenant waivers on its credit agreements for its senior unsecured credit facility and unsecured term loans; 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.