BETHESDA, Md., May 6, 2016 — DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 29 premium hotels in the United States, today announced results of operations for the quarter ended March 31, 2016.
First Quarter 2016 Highlights
- RevPAR: RevPAR was $150.61, a 2.1% decline from the comparable period of 2015.
- Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 26.42%, an increase of 14 basis points from the comparable period of 2015.
- Adjusted EBITDA: Adjusted EBITDA was $50.3 million, an increase of 3.7% from 2015.
- Adjusted FFO: Adjusted FFO was $42.8 million and Adjusted FFO per diluted share was $0.21.
- Net Income: Net income was $16.8 million and earnings per diluted share was $0.08.
- Chicago Marriott Loan Prepayment: The Company prepaid the $201.7 million mortgage loan secured by the Chicago Marriott Downtown on January 11, 2016.
- Dividends: The Company declared a dividend of $0.125 per share during the first quarter, which was paid on April 12, 2016.
Recent Developments
- Credit Facility: On May 3, 2016, the Company amended its senior unsecured revolving credit facility, increasing the capacity to $300 million, decreasing pricing and extending the maturity date to May 2020.
- Term Loan: On May 3, 2016, the Company closed on a new five-year $100 million senior unsecured term loan.
- Pending Dispositions: The Company is under contract to dispose of two hotels for approximately $200 million and is currently evaluating other disposition candidates.
Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "We are successfully executing on our priorities for 2016, which include increasing liquidity and investment capacity, with $400 million in financing activity and approximately $200 million in pending dispositions. During the first quarter, we responded to expected RevPAR headwinds resulting from limited convention activity in our top group markets with outstanding asset management performance. Our team achieved a 2% reduction in operating expenses during the quarter, leading to a record 122% profit flow-through and 14 basis points of Hotel Adjusted EBITDA margin expansion. We expect positive RevPAR momentum for the balance of the year as we move to seasonally stronger quarters and more favorable convention calendars in our markets."
Operating Results
Please see "Certain Definitions" and "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."
For the quarter ended March 31, 2016, the Company reported the following:
First Quarter
2016
2015
Change
ADR(1)
$205.08
$201.36
1.8
%
Occupancy(1)
73.4
%
76.4
%
-3.0 percentage points
RevPAR(1)
$150.61
$153.90
-2.1
%
Hotel Adjusted EBITDA Margin(1)
26.42
%
26.28
%
14 basis points
Adjusted EBITDA
$50.3 million
$48.5 million
$1.8 million
Adjusted FFO
$42.8 million
$37.7 million
$5.1 million
Adjusted FFO per diluted share
$0.21
$0.19
$0.02
Net income
$16.8 million
$10.6 million
$6.2 million
Earnings per diluted share
$0.08
$0.05
$0.03
(1) The 2015 amounts include pre-acquisition operating results for the Shorebreak Hotel and Sheraton Suites Key West in order to reflect the period in 2015 comparable to our ownership period in 2016.
The Company's first quarter results were negatively impacted by the Company's two Chicago hotels, which faced a difficult citywide calendar as well as disruption from renovations to upgrade the hotels. Excluding these two hotels, RevPAR increased 0.3% and Hotel Adjusted EBITDA margins increased 60 basis points.
Financing Activity
On January 11, 2016, the Company prepaid the $201.7 million mortgage loan secured by the Chicago Marriott Downtown. The Company funded the prepayment with proceeds from the 4.36% fixed interest rate, 10-year loan placed on the Boston Westin Waterfront Hotel in October 2015, as well as a draw on its senior unsecured credit facility. The mortgage was scheduled to mature in April 2016 and the prepayment saved the Company approximately $2.7 million in net interest expense.
On May 3, 2016, the Company amended its senior unsecured revolving credit facility to increase the capacity to $300 million, decrease pricing and extend the maturity date to May 2020. The new facility also includes an accordion feature to expand up to $600 million, subject to lender consent. The interest rate on the new facility is based on a pricing grid ranging from 150 to 225 basis points over LIBOR, based on the Company's leverage ratio. The interest rate is currently 150 basis points over LIBOR. The Company also lowered the unused facility fees and modified certain financial covenants.
On May 3, 2016, the Company also closed on a new five-year $100 million senior unsecured term loan. The interest rate on the term loan is based on a pricing grid ranging from 145 to 220 basis points over LIBOR, based on the Company's leverage ratio. Upon closing of the term loan, the Company received proceeds of $50 million, which were used with corporate cash to repay $55 million of borrowings outstanding on its senior unsecured credit facility. The Company expects to receive the remaining $50 million of proceeds in connection with the repayment of the mortgage loan secured by the Courtyard Manhattan Fifth Avenue later this month.
Pending Hotel Dispositions
The Company is under contract to dispose of two hotels for an aggregate price of approximately $200 million. The dispositions are consistent with the Company's long-term plan to optimize its portfolio by strategically recycling capital from slower growth assets. These transactions are expected to be accretive to the Company's average portfolio RevPAR, improve the Company's long-term RevPAR growth outlook and increase the Company's Hotel Adjusted EBITDA margin. These transactions are subject to certain conditions, including the assumption of debt on one of the hotels, and no assurance can be made regarding the timing or completion of these transactions. If completed, the net proceeds from these dispositions will further enhance the Company's liquidity and balance sheet capacity, which may be used to repurchase its shares at attractive valuations or for other corporate objectives. In addition to these pending sales, the Company is evaluating the opportunity to sell one or more of its New York City hotels dependent on pricing. None of these hotels are currently under contract for sale.
Capital Expenditures
The Company spent approximately $27.4 million on capital improvements during the quarter ended March 31, 2016, primarily related to the second phase of the Chicago Marriott Downtown renovation and the first phase of the renovation of The Gwen. The Company currently expects to spend approximately $150 million on capital improvements at its hotels in 2016. Significant projects in 2016 include:
- The Gwen, a Luxury Collection Hotel: The Company rebranded the Conrad Chicago to Starwood's Luxury Collection on September 1, 2015. The renovation work associated with the brand conversion, which is expected to cost approximately $25 million, will be completed in two phases. The first phase, consisting of the lobby, rooftop bar and other public spaces, commenced in January and is expected to be completed in May 2016. The second phase of the renovation, consisting of the guest rooms, is expected to be completed during the seasonally slow winter season beginning in late 2016.
- Chicago Marriott Downtown: The second and largest phase of the multi-year renovation was completed early in the second quarter. This phase included the upgrade of approximately 460 rooms and a new state-of-the-art fitness center. The remaining guest rooms will be renovated during the seasonally slow winter months over the next two years.
- The Lodge at Sonoma: The Company expects to renovate the guest rooms at the hotel during the seasonally slow period during late 2016 and early 2017.
- Charleston Renaissance: The Company expects to renovate the guest rooms at the hotel commencing in the fourth quarter of 2016.
- Worthington Renaissance: The Company expects to renovate the guest rooms at the hotel during the seasonally slow summer months of 2016.
- Vail Marriott Mountain Resort & Spa: The Company expects to renovate the guest rooms at the hotel in two phases during seasonally slow periods.
Balance Sheet
As of March 31, 2016, the Company had $48.9 million of unrestricted cash on hand and approximately $1.0 billion of total debt, which consisted of property-specific mortgage debt and $60.0 million of borrowings on its senior unsecured credit facility.
Share Repurchase Program
The Company's Board of Directors authorized a $150 million share repurchase program during 2015. Repurchases under this program will be made in open market or privately negotiated transactions from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The Company has not repurchased any shares of its common stock since the program started.
Dividends
The Company's Board of Directors declared a quarterly dividend of $0.125 per share to stockholders of record as of March 31, 2016. The dividend was paid on April 12, 2016.
Outlook and Guidance
The Company is providing annual guidance for 2016, 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. Pro Forma RevPAR assumes that all of the Company's 29 hotels were owned since January 1, 2015.
The Company is maintaining its 2016 guidance, which was previously provided in connection with the reporting of its 2015 results in February 2016. The guidance below was not adjusted to reflect the two pending hotel dispositions. The Company continues to expect the full year 2016 results to be as follows:
Metric
Low End
High End
Pro Forma RevPAR Growth
2 percent
4 percent
Adjusted EBITDA
$265 million
$278 million
Adjusted FFO
$211 million
$221 million
Adjusted FFO per share (based on 202.1 million shares)
$1.04 per share
$1.09 per share
The full year guidance range above reflects income tax expense of $7 million to $11 million, interest expense of $46 million to $47 million and corporate expenses of $24 million to $25 million.
The Company expects approximately 30% to 31% of its full year 2016 Adjusted EBITDA to be earned during the second quarter of 2016. In addition, the Company expects second quarter RevPAR growth to be in the low single digits.
Selected Quarterly Pro Forma Operating Information
The following table is presented to provide investors with selected quarterly Pro Forma operating information for 2015. The operating information assumes that all of the Company's 29 hotels were owned since January 1, 2015.
Quarter 1, 2015
Quarter 2, 2015
Quarter 3, 2015
Quarter 4, 2015
Full Year 2015
ADR
$
201.36
$
222.39
$
214.38
$
217.23
$
214.12
Occupancy
76.4
%
84.0
%
83.0
%
77.5
%
80.2
%
RevPAR
$
153.90
$
186.80
$
177.89
$
168.32
$
171.79
Revenues (in thousands)
$
215,969
$
254,256
$
238,516
$
233,842
$
942,583
Hotel Adjusted EBITDA (in thousands)
$
56,752
$
88,997
$
75,242
$
73,076
$
294,067
% of full Year
19.3
%
30.3
%
25.6
%
24.8
%
100.0
%
Hotel Adjusted EBITDA Margin
26.28
%
35.00
%
31.55
%
31.25
%
31.20
%
Available Rooms
978,254
991,704
1,003,604
1,003,168
3,976,730
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