DiamondRock Hospitality Company Reports Second Quarter Results (United States)
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DiamondRock Hospitality Company Reports Second Quarter Results (United States)
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Category: North America & West Indies / Carribean islands - United States - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2011-07-26
DiamondRock Hospitality Company (the "Company") (NYSE: DRH) today announced results of operations for its second fiscal quarter ending June 17, 2011. The Company is a lodging focused real estate investment trust that owns 26 premium hotels in North America and holds a senior mortgage loan secured by another premium hotel.
Second Quarter 2011 Highlights
Pro Forma RevPAR: The Company's Pro Forma RevPAR was $124.03, an increase of 6.4% from the comparable period in 2010. Pro Forma RevPAR is calculated for the 25 hotels owned by the Company as of June 17, 2011 as if these hotels were owned since January 1, 2010 but excludes the operating results of the Frenchman's Reef & Morning Star Marriott Beach Resort due to the impact of the ongoing extensive renovation of the hotel in 2011.
Pro Forma Hotel Adjusted EBITDA Margins: The Company's Pro Forma Hotel Adjusted EBITDA margin was 27.87%, an increase of 104 basis points from the comparable period in 2010. Pro Forma Hotel Adjusted EBITDA margin is calculated for the 25 hotels owned by the Company as of June 17, 2011 as if these hotels were owned since January 1, 2010 but excludes the operating results of the Frenchman's Reef & Morning Star Marriott Beach Resort.
Adjusted EBITDA: The Company's Adjusted EBITDA was $41.1 million.
Adjusted FFO: The Company's Adjusted FFO was $25.6 million and Adjusted FFO per diluted share was $0.15.
Acquisition of the JW Marriott Denver: On May 19, 2011, the Company acquired the JW Marriott Denver at Cherry Creek for approximately $74 million.
Acquisition of the Lexington Hotel NYC: On June 1, 2011, the Company acquired the Lexington Hotel New York for approximately of $337 million.
Acquisition of the Courtyard Denver: On July 22, 2011, the Company acquired the Courtyard Denver Downtown for approximately $46 million.
Hilton Minneapolis Mortgage Loan: On April 15, 2011, the Company received $100 million of proceeds from a new non-recourse loan secured by the Hilton Minneapolis.
Credit Facility Amendment: On June 2, 2011, the Company amended its $200 million corporate credit facility to reduce the interest rate, lower certain fees, and extend the term for an additional year.
Dividends: The Company declared a quarterly dividend of $0.08 per share during the second quarter.
Mark W. Brugger, Chief Executive Officer of DiamondRock Hospitality Company, stated, "The second quarter represented the continued successful execution of our strategy and evidenced both strong internal and external growth for DiamondRock. Our operating results reflect strengthening of lodging fundamentals, which should continue to be strong against a comparison to cyclical trough results as well as constrained new hotel supply. Since last year, we have completed or committed $900 million of high-quality investments with more than half of those investments in Midtown New York. We continue to see excellent acquisition opportunities but remain focused on maximizing value from our existing portfolio."
"We are pleased with our portfolio's room revenue performance, particularly in light of difficult comparisons and convention calendar challenges in our two largest group markets, Chicago and Boston. Group booking pace in these two key markets is up over 8% for the balance of 2011 and 14% for 2012. Overall margin expansion was strong as our cost containment efforts maintained profits even as group banquet contribution moderated," stated John Williams, President and Chief Operating Officer of DiamondRock Hospitality Company. "Our $45 million repositioning of Frenchman's Reef is currently on-time and on-budget, albeit with estimated operating profit displacement increasing $1 million as we temporarily added costs to keep our customers happy during the renovation. The group meeting planner reaction has been better than expected and group pace is up 20% in the fourth quarter of 2011 and 55% for 2012."
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 Margins," "FFO" and "Adjusted FFO." Moreover, the discussions of "Pro Forma RevPAR" and "Pro Forma Hotel Adjusted EBITDA Margins" assume the 25 hotels owned by the Company as of June 17, 2011 were owned since January 1, 2010 but exclude the operating results of the Frenchman's Reef & Morning Star Marriott Beach Resort ("Frenchman's Reef") due to the impact of the extensive renovation of the hotel in 2011, which includes partial closure of the hotel.
For the second quarter beginning March 26, 2011 and ending June 17, 2011, the Company reported the following:
Pro Forma RevPAR increase of 6.4% and Pro Forma Hotel Adjusted EBITDA margin increase of 104 basis points compared to the comparable period in 2010.
Revenues of $169.5 million compared to $151.1 million for the comparable period in 2010.
Adjusted EBITDA of $41.1 million compared to $35.8 million for the comparable period in 2010.
Adjusted FFO of $25.6 million and Adjusted FFO per diluted share of $0.15 based on 167.4 million diluted weighted average shares compared to $21.6 million and $0.16, respectively, for the comparable period in 2010.
Net loss of $0.6 million (or $0.00 per diluted share) compared to net income of $0.8 million (or $0.01 per diluted share) for the comparable period in 2010.
The second quarter Pro Forma RevPAR increase of 6.4% (from $116.60 to $124.03) was driven by a 4.2% increase in the average daily rate (from $157.14 to $163.78) and a 1.5 percentage point increase in occupancy (from 74.2 percent to 75.7 percent). Second quarter Pro Forma Hotel Adjusted EBITDA margins increased 104 basis points (from 26.83% to 27.87%) from the comparable period in 2010.
For the period from January 1, 2011 to June 17, 2011, the Company reported the following:
Pro Forma RevPAR increase of 5.6% and Pro Forma Hotel Adjusted EBITDA margin increase of 82 basis points compared to the comparable period in 2010.
Revenues of $291.8 million compared to $264.0 million for the comparable period in 2010.
Adjusted EBITDA of $59.9 million compared to $54.3 million for the comparable period in 2010.
Adjusted FFO of $37.4 million and Adjusted FFO per diluted share of $0.23 based on 165.7 million diluted weighted average shares compared to $33.6 million and $0.25, respectively, for the comparable period in 2010.
Net loss of $11.6 million (or $0.07 per diluted share) compared to $7.5 million (or $0.06 per diluted share) for the comparable period in 2010.
The year-to-date Pro Forma RevPAR increase of 5.6% (from $104.33 to $110.19) was driven by a 4.4% increase in the average daily rate (from $148.09 to $154.56) and a 0.8 percentage point increase in occupancy (from 70.5 percent to 71.3 percent). Year-to-date Pro Forma Hotel Adjusted EBITDA margins increased 82 basis points (from 22.68% to 23.50%) from the comparable period in 2010.
Hotel Acquisitions
JW Marriott Denver Cherry Creek. On May 19, 2011, the Company completed the acquisition of the 196-room JW Marriott Denver Cherry Creek for approximately $74 million. The acquisition was funded with corporate cash and the assumption of a $42.4 million mortgage loan. The mortgage loan bears a fixed interest rate of 6.47% and matures in July 2015. The JW Marriott was acquired at an 11.5 times multiple of 2012 forecasted EBITDA. The hotel is consistently the market leader among its competitive set and is well-positioned to continue capturing Denver's high-end demand. Earlier this year, the JW Marriott completed a $5.0 million renovation of its guestrooms, which feature four-fixture marble bathrooms, the hotel's 8,400 square feet of meeting space and new state-of-the-art fitness center. With luxury finishes and a 2011 RevPAR of $165, this acquisition enhances the overall quality of the DiamondRock portfolio. The Company entered into a new management agreement with Sage Hospitality to continue managing the hotel. The Company is also investigating a potentially valuable return on investment opportunity to enhance the meeting space at the hotel.
The Lexington Hotel New York City. On June 1, 2011, the Company completed the acquisition of the 712-room Lexington Hotel New York for approximately $337 million. The acquisition was funded with corporate cash and a $115 million draw on the Company's credit facility. The Lexington Hotel was acquired at a 13.5 times multiple of 2012 forecasted EBITDA. The hotel's forecasted 2011 RevPAR of $198 is over 60% above the Company's portfolio average and the hotel is expected to generate Hotel Adjusted EBITDA margins that are over 1200 basis points higher than the portfolio average. The acquisition provides the Company with additional exposure to the dynamic Manhattan market and offers rebranding potential. The Company entered into a new management agreement with Highgate Hotels to continue managing the hotel. The Company is currently exploring opportunities to create significant value by re-branding and/or repositioning the hotel.
Courtyard Denver Downtown. On July 22, 2011, the Company completed the acquisition of the 177-room Courtyard Denver Downtown for approximately $46 million. The acquisition was funded with corporate cash, a draw on the Company's credit facility and the assumption of a $27.2 million mortgage loan. The loan bears interest at 6.26% and is prepayable beginning in February 2012. The hotel is consistently ranked first in its competitive set of downtown Denver hotels. The hotel, created from a conversion of a historic department store, enjoys a superb location in downtown Denver and is centrally located on the 16th Street Pedestrian Mall in the heart of Denver's Central Business District. With its premier location and strong brand, the hotel is able to charge full-service average daily rates with the lower limited-service cost structure. The hotel has achieved a RevPAR premium to the nearest full-service Marriott for seven consecutive years. Earlier this year, the hotel completed an extensive guest room renovation and is in excellent physical condition. The Company expects the hotel to generate 2012 EBITDA of approximately $3.8 million.
Credit Facility Amendment
On June 2, 2011, the Company amended its $200 million corporate credit facility. The amendment removed the LIBOR floor from the interest rate on borrowings, lowered unused fees and reduced the cost to extend the credit facility. Interest continues to accrue on borrowings at varying rates, based upon LIBOR plus an applicable margin. The applicable margin is now based on the Company's ratio of net indebtedness to EBITDA. In addition, the maturity date of the credit facility was extended by one year to August 2014. The Company has an additional one year extension option to August 2015, subject to the satisfaction of customary conditions and the payment of applicable fees. At the end of the second fiscal quarter, the Company had $115 million in outstanding borrowings on the credit facility bearing interest at 2.45%. Subsequent to the end of the second fiscal quarter, the Company borrowed an additional $15 million on the credit facility to fund a portion of its acquisition of the Courtyard Denver Downtown. Based on the Company's current ratio of net indebtedness to EBITDA, future borrowings under the facility are expected to bear interest at LIBOR plus 300 basis points.
Hilton Minneapolis Financing
On April 15, 2011, the Company completed a new $100 million non-recourse loan secured by the Hilton Minneapolis. The loan has a 10-year term, bears interest at an annual fixed rate of 5.46% and amortizes on a 25-year schedule. The Company acquired the Hilton Minneapolis in June 2010 for approximately $157 million and the hotel was previously unencumbered by debt. The Company used the proceeds from this loan toward the purchase of the Lexington Hotel New York.
Dividends
The Company's Board of Directors declared a quarterly dividend of $0.08 per share to stockholders of record as of June 17, 2011. The dividend was paid on June 27, 2011.
Conrad Chicago Performance Termination
The Conrad Chicago failed the performance criteria under the Company's management agreement with Hilton. The Company is currently in negotiations with Hilton and other global brand companies about the optimal long-term solution for the branding and management of the hotel.
Capital Expenditures
During 2011, the Company plans to commence or complete approximately $65 million of capital improvements, approximately $40 million of which will be funded from corporate cash and the remainder from restricted cash (reserves held by hotel managers). The Company's estimated 2011 capital expenditures include approximately $37 million for the 2011 portion of the Frenchman's Reef capital investment program ($32 million from corporate cash and existing property reserves and $5 million from Marriott). The Company has spent approximately $21.3 million on capital improvements as of June 17, 2011.
The Company is continuing to execute on the comprehensive $45 million capital investment program at Frenchman's Reef. The majority of the renovation and repositioning program commenced in early May 2011 when two of the resort's four buildings (representing approximately 300 guestrooms) closed. The Company currently expects $6.5 million of renovation disruption from the project. The renovation disruption estimate is $1.0 million above the Company's estimate at the end of the first fiscal quarter due to the hotel expecting to incur incremental operating cost during the renovation which will include costs to resolve guest satisfaction during the construction period and additional energy costs.
Allerton Hotel Mortgage Loan Update
The Company holds the senior mortgage loan secured by the Allerton Hotel, located in downtown Chicago, Illinois. The loan matured in January 2010 and is in default. On May 5, 2011, the borrower under the loan filed for bankruptcy protection in the Northern District of Illinois. The senior mortgage loan held by the Company is secured by substantially all of the assets of the borrower, including, without limitation, the Allerton Hotel. The filing of the bankruptcy case had the effect of, among other things, automatically staying the foreclosure proceedings that the Company had previously filed against the borrower. While the Company intends to continue to vigorously pursue its rights in the bankruptcy case, it is too early in the process to determine the likelihood of potential outcomes.
Due to the uncertainty of the timing and amount of cash payments expected, the Company is not currently accruing any interest income on the Allerton loan. However, the Company includes all cash received from the borrower in its calculations of Adjusted EBITDA and Adjusted FFO. As of June 17, 2011, the Company had received cash interest payments from the borrower of $0.6 million. Subsequent to June 17, 2011, the Company received cash interest payments of $0.5 million. The Company's 2011 Adjusted EBITDA and Adjusted FFO guidance assumes $3.0 million of cash interest payments received in 2011 on the Allerton loan.
Balance Sheet
As of June 17, 2011, the Company had $20.9 million of unrestricted cash on hand and $1.0 billion of debt outstanding, which consists of $921.1 million of fixed rate, property-specific mortgage debt with no near-term maturities and $115 million of outstanding borrowings on the Company's corporate credit facility. Twelve of the Company's 25 hotels owned at the end of the second fiscal quarter are unencumbered by mortgage debt.
The Company continues to maintain its straightforward capital structure. The Company has no preferred equity outstanding and continues to own 100% of its properties directly.
Outlook and Guidance
The Company is providing guidance, 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 Securities and Exchange Commission. The RevPAR guidance assumes that all of the Company's 26 hotels were owned since January 1, 2010 but excludes Frenchman's Reef for all of 2011 because it is partially closed for the renovation.
The Company is revising its full year 2011 guidance to incorporate the acquisitions of the JW Marriott Denver, Lexington Hotel New York and Courtyard Denver. In addition, the Company is currently maintaining its expectation of receiving $3 million in cash interest payments from the Allerton Hotel mortgage loan. The Company expects full year results as follows:
RevPAR to increase 6 percent to 8 percent.
Adjusted EBITDA of $172 million to $177 million, which assumes $6.5 million of renovation disruption from the Frenchman's Reef repositioning project.
Adjusted FFO of $111 million to $116 million, which assumes income tax expense to range from $6 million to $7 million.
Adjusted FFO per share of $0.66 to $0.69 based on 167.5 million diluted weighted average shares.
Earnings Call
The Company will host a conference call to discuss its second quarter results on Monday, July 25, 2011, at 5:00 p.m. Eastern Time (ET). To participate in the live call, investors are invited to dial 866-788-0542 (for domestic callers) or 857-350-1680 (for international callers). The participant passcode is 74146995. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company's website at www.drhc.com. A replay of the webcast will also be archived on the website for one year.
About the Company
DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of premium hotel properties. The Company owns 26 premium hotels with approximately 12,000 rooms and holds the senior mortgage loan on another premium hotel. The Company's hotels are generally operated under globally recognized brands such as Hilton, Marriott, and Westin.
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