DiamondRock Hospitality Company Reports Fourth Quarter And Full Year 2013 Results

BETHESDA, Md., Feb. 25, 2014 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 26 premium hotels in the United States, today announced results of operations for the fourth quarter and full year ended December 31, 2013.  The Company also announced a 21% increase to its quarterly dividend commencing with the first quarter 2014.

2013 Operating Results        

• RevPAR: RevPAR was $138.11, an increase of 1.4% from 2012.  Excluding the New York City hotels under renovation during 2013, the Company's RevPAR increased 5.3% from 2012.
• Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 25.80%, a decrease of 143 basis points from 2012. Excluding the New York City hotels under renovation during 2013, the Company's Hotel Adjusted EBITDA margin increased 45 basis points from 2012.
• Adjusted EBITDA: Adjusted EBITDA was $196.9 million.
• Adjusted FFO: Adjusted FFO was $139.3 million and Adjusted FFO per diluted share was $0.71.
• Dividends: The Company declared four quarterly dividends totaling $0.34 per share during 2013 and returned approximately $65 million to shareholders.

Fourth Quarter 2013 Highlights

• RevPAR: RevPAR was $139.98, an increase of 3.3% from 2012.
• Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 25.81%, a decrease of 188 basis points from 2012.
• Adjusted EBITDA: Adjusted EBITDA was $49.3 million.
• Adjusted FFO: Adjusted FFO was $33.5 million and Adjusted FFO per diluted share was $0.17.
• Lexington Hotel Renovation: The Company completed its comprehensive renovation of the Lexington Hotel New York City during the fourth quarter. The feedback from guests and meeting planners post-renovation has been very favorable.
• Non-Core Hotel Disposition: The Company sold the 487-room Torrance Marriott South Bay for proceeds of approximately $76 million, which represented a 5.8% cap rate on the hotel's net operating income.
• Salt Lake City Refinancing: The Company entered into a new $63 million mortgage loan secured by the Salt Lake City Marriott. The loan has a term of seven years and bears interest at a fixed rate of 4.25%.
• Dividends: The Company declared a quarterly dividend of $0.085 per share during the fourth quarter.

Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "In 2013 we focused on repositioning DiamondRock for meaningful growth in 2014 and beyond. We are pleased to announce that we have substantially completed our $140 million capital program, which included a number of transformational projects such as the comprehensive renovation and rebranding of the Lexington Hotel. Importantly, we don't expect any meaningful renovation disruption in 2014. Our successful strategic initiatives in 2013 have positioned the Company for a strong 2014, as we look for performance to be bolstered by accelerated RevPAR growth, strong group pace, renovation tailwinds and our intensified asset management efforts."

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 December 31, 2013 (92 days), the Company reported the following:

The year-over-year comparability of the Company's fourth quarter results is impacted by the change in its reporting calendar.  For the Company's Marriott-managed hotels, the 2013 fourth quarter includes 5 more days than the pro forma 2012 fourth quarter, which results in the 2013 fourth quarter including approximately 3% additional available room nights as compared to the pro forma 2012 fourth quarter.

For the year ended December 31, 2013, the Company reported the following:

The Company's operating results for the year ended December 31, 2013 were significantly impacted by the displacement of over 86,000 room nights at its three New York City hotels under renovation, the Lexington Hotel, Courtyard Manhattan Midtown East and Courtyard Fifth Avenue. The renovations of the two Courtyards were completed during the second quarter of 2013 and the renovation of the Lexington Hotel was completed in October 2013.  The following are selected operating results for the Company excluding these three hotels:

Capital Expenditures

The Company has substantially completed its $140 million capital improvement program. During the year ended December 31, 2013, the Company spent approximately $107.3 million on these capital improvements. The following is an update on the most significant capital projects.

• Lexington Hotel New York: The Company completed its comprehensive renovation of the Lexington Hotel in October 2013. The hotel joined Marriott's Autograph Collection during August 2013 and has increased average daily rates by approximately $40 from the comparable period in 2012.
• Manhattan Courtyards:  The Company completed the renovation of the guest rooms, corridors and guest bathrooms at the Courtyard Manhattan/Midtown East and Courtyard Manhattan/Fifth Avenue.  The renovation at the Courtyard Midtown East included the addition of 5 new guest rooms.
• Westin Washington D.C.:  A comprehensive $17 million renovation commenced in October 2013 and was substantially completed in February 2014.
• Westin San Diego: A comprehensive $14.5 million renovation commenced in October 2013 and was substantially completed in January 2014.
• Hilton Minneapolis: A $13 million renovation of the guest rooms, guest bathrooms and corridors commenced in November 2013 and will be substantially complete during the first quarter of 2014.
• Hilton Boston: A $7 million renovation of the guest rooms, corridors, public areas, and meeting space commenced in October 2013 and was substantially completed at the end of 2013.
• Hilton Burlington:  A $6 million renovation of the lobby, corridors, guest rooms and outdoor space commenced in November 2013 and was substantially completed in February 2014.

The Company expects to spend approximately $95 million on capital improvements at its hotels in 2014, of which approximately $45 million relates to the completion of 2013 capital projects in early 2014 and approximately $50 million relates to new 2014 capital projects.

Salt Lake City Marriott Refinancing

The Company entered into a new $63 million mortgage loan secured by the Salt Lake City Marriott in October 2013. The new loan has a term of seven years and bears interest at a fixed rate of 4.25%. As part of the refinancing, the Company prepaid the $27.3 million mortgage loan previously secured by the hotel, which had a fixed interest rate of 5.5 % and a maturity date of January 2015. The cost of prepaying the loan through defeasance was approximately $1.5 million, which is added back to Adjusted EBITDA and Adjusted FFO. The Company used the proceeds from the new loan to repay the prior loan and to create additional investment capacity for the acquisition of the Hilton Garden Inn Times Square Central.

Sale of Torrance Marriott South Bay

On November 21, 2013, the Company sold the 487-room Torrance Marriott South Bay for approximately $76 million, which included credit for the hotel's replacement reserve. The proceeds from the sale will be used to create investment capacity for the acquisition of the Hilton Garden Inn Times Square Central.  The Torrance Marriott South Bay generated $5.4 million of Hotel Adjusted EBITDA during the year ended December 31, 2013.

Balance Sheet

As of December 31, 2013, the Company had $144.6 million of unrestricted cash on hand and approximately $1.1 billion of total debt, which consists solely of property-specific mortgage debt.  The Company has no outstanding borrowings on its $200 million senior unsecured credit facility.

Dividends

The Company's Board of Directors declared a quarterly dividend of $0.085 per share to stockholders of record as of December 31, 2013.  The dividend was paid on January 10, 2014.  The Company increased its quarterly dividend for 2014 by 21% and its Board of Directors declared a dividend of $0.1025 per share for stockholders of record as of March 31, 2014.

Outlook and Guidance

The Company is providing annual guidance for 2014, 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.  The Company's outlook assumes the Hilton Garden Inn Times Square Central opens in August 2014.  The 2014 Pro Forma RevPAR growth excludes the Hilton Garden Inn Times Square Central, which is expected to positively impact the Company's RevPAR by approximately 75 basis points.

Based on the above assumptions, the Company expects its full year 2014 results to be as follows:

The Company expects approximately 16% of full year 2014 Adjusted EBITDA to be earned during the first quarter of 2014.

The midpoint of the guidance range above implies Hotel Adjusted EBITDA margin growth of over 250 basis points.  For comparison purposes, the Company's Pro Forma RevPAR growth outlook excluding the New York City hotels under renovation during 2013 is 5.5 percent to 7.5 percent.

Earnings Call

The Company will host a conference call to discuss its fourth quarter and full year results on Tuesday, February 25, 2014, at 9:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 866-318-8618 (for domestic callers) or 617-399-5137 (for international callers).  The participant passcode is 29044846. 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 thirty days.

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 26 premium quality hotels with over 11,100 rooms. The Company has strategically positioned its hotels to generally be operated under the leading global brands such as Hilton, Marriott, and Westin. 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.  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; risks associated with the development of a hotel by a third-party developer; 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.

Non-GAAP Financial Measures

We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP.  EBITDA, Adjusted EBITDA, FFO and Adjusted FFO, as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company.

EBITDA and FFO

EBITDA represents net income excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from  our operating results. In addition, covenants included in our indebtedness use EBITDA as a measure of financial compliance. We also use EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by NAREIT, which defines FFO as net income determined in accordance with GAAP, excluding gains or losses from sales of properties and impairment losses, plus depreciation and amortization. The Company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it is a measure of the Company's operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets.  The Company also uses FFO as one measure in assessing its results.

Adjustments to EBITDA and FFO

We adjust EBITDA and FFO when evaluating our performance because we believe that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA and Adjusted FFO, when combined with GAAP net income, EBITDA and FFO, is beneficial to an investor's complete understanding of our operating performance.  We adjust EBITDA and FFO for the following items:

• Non-Cash Ground Rent: We exclude the non-cash expense incurred from the straight line recognition of rent from our ground lease obligations and the non-cash amortization of our favorable lease assets.
• Non-Cash Amortization of Favorable and Unfavorable Contracts: We exclude the non-cash amortization of the favorable management contract assets recorded in conjunction with our acquisitions of the Westin Washington D.C. City Center, Westin San Diego, and Hilton Burlington and the non-cash amortization of the unfavorable contract liabilities recorded in conjunction with our acquisitions of the Bethesda Marriott Suites, the Chicago Marriott Downtown, the Renaissance Charleston and the Lexington Hotel New York.  The amortization of the favorable and unfavorable contracts does not reflect the underlying operating performance of our hotels.
• Cumulative Effect of a Change in Accounting Principle: Infrequently, the Financial Accounting Standards Board (FASB) promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle.  We exclude the effect of these one-time adjustments because they do not reflect its actual performance for that period.
• Gains or Losses from Early Extinguishment of Debt: We exclude the effect of gains or losses recorded on the early extinguishment of debt because we believe they do not accurately reflect the underlying performance of the Company.
• Acquisition Costs:  We exclude acquisition transaction costs expensed during the period because we believe they do not reflect the underlying performance of the Company.
• Allerton Loan:  In 2012, due to the uncertainty of the timing of the bankruptcy resolution, we excluded both cash interest payments received and the legal costs incurred as a result of the bankruptcy proceedings from our calculation of Adjusted EBITDA and Adjusted FFO.  Due to the settlement of the bankruptcy proceedings and amended and restated loan, we commenced recognizing interest income in 2013, which includes the amortization of the difference between the carrying basis of the old loan and face value of the new loan. Cash payments received during 2010 and 2011 that were included in Adjusted EBITDA and Adjusted FFO and reduced the carrying basis of the loan are now deducted from Adjusted EBITDA and Adjusted FFO on a straight-line basis over the anticipated five-year term of the new loan.
• Other Non-Cash and /or Unusual Items:  From time to time we incur costs or realize gains that we do not believe reflect the underlying performance of the Company.  Such items include, but are not limited to, new hotel pre-opening costs, contract termination fees and severance costs.  In 2012, we excluded the franchise termination fee paid to Radisson Hotels International, Inc. for the Lexington Hotel New York.  In 2013, we excluded the severance costs associated with the departure of our former President and Chief Operating Officer, as well as the write off of unamortized key money, net of a termination payment, related to the termination of the Oak Brook Hills Resort management agreement.

In addition, to derive Adjusted EBITDA we exclude gains or losses on sales of properties and impairment losses because we believe that including them in EBITDA is not consistent with reflecting the ongoing performance of our hotels. Additionally, the gains or losses on sales of properties and impairment losses represent either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to debt instruments.  Specifically, we exclude the impact of the non-cash amortization of the debt premium recorded in conjunction with the acquisition of the JW Marriott Denver at Cherry Creek and fair market value adjustments to the Company's interest rate cap agreement.

The following tables are reconciliations of our U.S. GAAP net income to EBITDA and Adjusted EBITDA (in thousands):   

The following tables are reconciliations of our U.S. GAAP net income to FFO and Adjusted FFO (in thousands):

  

Use and Limitations of Non-GAAP Financial Measures

Our management and Board of Directors use EBITDA, Adjusted EBITDA, FFO and Adjusted FFO to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

Certain Definitions

In this release, when we discuss "Hotel Adjusted EBITDA," we exclude from Hotel EBITDA the non-cash expense incurred by the hotels due to the straight lining of the rent from our ground lease obligations, the non-cash amortization of our favorable lease assets and other contracts, the non-cash amortization of the unfavorable contract liabilities recorded in conjunction with the acquisitions of the Bethesda Marriott Suites, the Chicago Marriott Downtown, the Renaissance Charleston and the Lexington Hotel New York. Hotel EBITDA represents hotel net income excluding: (1) interest expense; (2) income taxes; and (3) depreciation and amortization. Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues. Net debt is calculated as total debt outstanding less unrestricted cash.

SOURCE DiamondRock Hospitality Company