DiamondRock Hospitality Company Beats First Quarter 2012 Guidance
DiamondRock Hospitality Company Beats First Quarter 2012 Guidance And Raises 2012 Outlook
BETHESDA, Md., April 30, 2012 - DiamondRock Hospitality Company (the “Company”) (NYSE: DRH) today announced results of operations for its first fiscal quarter ended March 23, 2012 and raised 2012 guidance to reflect the improving outlook for its portfolio and the outperformance of guidance and consensus. The Company is a lodging-focused real estate investment trust that owns a portfolio of twenty-three premium hotels in North America.
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First Quarter 2012 Highlights
— Pro Forma RevPAR: The Company’s Pro Forma RevPAR was $104.50, an
increase of 8.8% from the comparable period in 2011.
— Pro Forma Hotel Adjusted EBITDA Margin: The Company’s Pro Forma Hotel
Adjusted EBITDA margin was 17.15%, an increase of 119 basis points from
the comparable period in 2011.
— Adjusted EBITDA: The Company’s Adjusted EBITDA was $23.4 million, an
increase of 24% from the comparable period of 2011.
— Adjusted FFO: The Company’s Adjusted FFO was $15.1 million and Adjusted
FFO per diluted share was $0.09.
— Three-Hotel Portfolio Sale: On March 23, 2012, the Company completed the
sale of a portfolio of three non-core hotels for total proceeds of
approximately $272.5 million, which consisted of the contractual sales
price of $262.5 million and approximately $10 million of hotel working
capital and restricted cash, net of closing costs. The Company recorded
a gain on the transaction of approximately $10 million, which has been
excluded from the Company’s Adjusted EBITDA.
— Lexington Mortgage Debt: The Company closed on a $170.4 million
floating-rate loan secured by a mortgage on the Lexington Hotel New
York.
— Prepayment of Courtyard Denver Mortgage: The Company prepaid $27 million
of mortgage debt secured by the Courtyard Denver Downtown prior to its
scheduled maturity in August 2012.
— Dividends: The Company declared a quarterly dividend of $0.08 per share
during the first quarter.
Mark W. Brugger, Chief Executive Officer of DiamondRock Hospitality Company, stated, “The Company is pleased to report the outstanding first quarter performance of our portfolio as lodging fundamentals continue to strengthen. The results were above our original expectations. We are also pleased to report the closing of the sale of three non-core hotels at attractive pricing. With the sale complete, DiamondRock has one of the lowest levered and flexible balance sheets in the industry, which further enhances our external growth story as an opportunistic acquirer of hotels in 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 Margin,” “FFO” and “Adjusted FFO.”
The discussions of “Pro Forma RevPAR” and “Pro Forma Hotel Adjusted EBITDA Margin” assume the Company owned all of its hotels since January 1, 2011 but exclude (i) 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 and (ii) the operating results of the three-hotel portfolio sold during the first fiscal quarter.
For the first quarter beginning January 1, 2012 and ending March 23, 2012, the Company reported the following:
— Pro Forma RevPAR growth of 8.8% and Pro Forma Hotel Adjusted EBITDA
margin expansion of 119 basis points compared to the comparable period
in 2011.
— Revenues of $141.0 million compared to $122.3 million for the comparable
period in 2011, which includes amounts reported in discontinued
operations.
— Adjusted EBITDA of $23.4 million compared to $18.9 million for the
comparable period in 2011.
— Adjusted FFO of $15.1 million and Adjusted FFO per diluted share of
$0.09 compared to $11.8 million and $0.07, respectively, for the
comparable period in 2011.
— Net income of $2.6 million (or $0.02 per diluted share) compared to a
net loss of $11.0 million (or $0.07 per diluted share) for the
comparable period in 2011.
The first quarter Pro Forma RevPAR growth of 8.8% (from $96.04 to $104.50) was driven by a 4.3 percentage point increase in occupancy (from 66.9% to 71.2%) and a 2.3% increase in the average daily rate (from $143.54 to $146.79). The first quarter Pro Forma Hotel Adjusted EBITDA margin increased 119 basis points (from 15.96% to 17.15%) from the comparable period in 2011.
If Frenchman’s Reef and the pre-sale operations of the three non-core hotels are included, the Company’s first quarter RevPAR growth is 9.0% (from $98..24 to $107.07) and the first quarter Hotel Adjusted EBITDA margin increased 152 basis points (from 18.05% to 19.57%) from the comparable period in 2011. This RevPAR growth is driven by a 4.3 percentage point increase in occupancy (from 66.6% to 70.9%) and a 2.4% increase in the average daily rate (from $147.44 to $151.04).
Sale of Hotel Portfolio
On March 23, 2012, the Company completed the sale of a portfolio of three non-core hotels to Inland American for a contractual sales price of $262.5 million. The portfolio consisted of the Griffin Gate Marriott Resort and Spa in Lexington, Kentucky, the Renaissance Waverly in Atlanta, Georgia, and the Renaissance Austin in Austin, Texas. The Company received net cash proceeds of $93 million from the disposition, after $180 million of mortgage debt assumption by the buyer. The proceeds included approximately $10 million for hotel working capital and cash previously held in restricted escrow accounts, net of closing costs. The portfolio generated $21.1 million of Adjusted EBITDA for the Company in 2011 and $5.2 million of Adjusted EBITDA during the Company’s ownership period in 2012. The Company recorded a net gain on the sale of approximately $10 million, which is excluded from its reported Adjusted EBITDA.
Lexington Hotel New York
On March 9, 2012, the Company closed on a $170.4 million loan secured by a mortgage on the Lexington Hotel New York. The loan bears interest at a floating rate of one-month LIBOR plus 300 basis points and has an initial term of three years with two one-year extension options subject to the satisfaction of certain terms and conditions and payment of an extension fee. In connection with the financing, the Company purchased a three-year, 125 basis point LIBOR interest rate cap. The financing includes $25 million of corporate recourse, which will be eliminated when the hotel achieves a specified debt yield test, the capital renovation plan is completed and the branding requirements for the hotel are met.
On March 23, 2012, the Company exercised its termination option under the hotel’s existing franchise agreement with Radisson. The hotel will operate under the Radisson brand through September 15, 2012. The Company paid Radisson a $750,000 termination fee during the first quarter of 2012, which has been excluded from the Company’s reported Adjusted EBITDA and Adjusted FFO.. Also on March 23, 2012, the Company executed a franchise agreement with Marriott to affiliate the hotel with Marriott’s Autograph Collection upon the completion of a comprehensive $30 million property improvement plan. During the period following the hotel’s separation from the Radisson brand and prior to becoming affiliated with the Autograph Collection, which is expected to occur in the second quarter of 2013, the Company expects to operate the Hotel as “The Lexington,” an independent hotel. Highgate Hotels will remain the manager of the hotel.
Dividends
The Company’s Board of Directors declared a quarterly dividend of $0.08 per share to stockholders of record as of March 23, 2012. The dividend was paid on April 4, 2012.
Capital Expenditures
In 2012, the Company expects to spend approximately $45 million on capital improvements at its hotels, $16 million of which is expected to be funded from corporate cash. The Company spent approximately $6.8 million for capital improvements during the first quarter. The most significant projects for 2012 include the following:
— Conrad Chicago: The Company expects to spend $3.5 million to add 4,100
square feet of new meeting space, reposition the food and beverage
outlets and re-concept the hotel lobby. The addition of the new meeting
space is scheduled to take place during the summer of 2012 and the lobby
repositioning in the first quarter of 2013.
— Courtyard Midtown East: The Company expects to spend approximately $2.0
million to renovate the lobby and restaurant, as well as relocate the
fitness center and add 5 additional rooms to the hotel.
— Renaissance Worthington: The Company expects to spend $1.2 million over
the next two years to undertake a comprehensive repair of the concrete
facade of the hotel.
— Marriott Atlanta Alpharetta: The Company expects to spend $2.4 million
to renovate the guestrooms at the hotel during the third quarter of
2012.
In conjunction with executing the rebranding strategy at the Lexington Hotel, the Company is currently planning a comprehensive renovation of the hotel, including the lobby, corridors, guest rooms and guest bathrooms. The cost of the renovation is expected to be approximately $30 million and completed during the first half of 2013.
The Company continues to evaluate an extensive renovation project at the Chicago Marriott Downtown that, if approved, is expected to be completed in subsequent years.
Balance Sheet
The Company continues to maintain its straightforward capital structure. The Company has no preferred equity outstanding and continues to own 100% of its properties.
As of March 23, 2012, the Company had $128.6 million of unrestricted cash on hand and $903.3 million of total debt, which consists solely of property-specific mortgage debt with no near-term maturities. Twelve of the Company’s 23 hotels are unencumbered by mortgage debt and the Company has no borrowings outstanding on its $200 million corporate credit facility.
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 Company’s 2012 RevPAR guidance assumes all of the Company’s 23 hotels were owned since January 1, 2011 and excludes Frenchman’s Reef due to the partial closure for renovation during 2011.
The Adjusted EBITDA and Adjusted FFO guidance includes $5.2 million of Adjusted EBITDA and $2.9 million of Adjusted FFO from the three hotels sold and excludes cash interest payments and legal fees related to the Allerton Hotel.
The Company is increasing its full year 2012 guidance to reflect the outperformance of its hotels during the first quarter, its reassessment of potential disruption at the Chicago Marriott Downtown and Renaissance Worthington, and an improved outlook for the portfolio’s performance for the remainder of the year.
Based on its outlook, the Company now expects the following full year 2012 results:
— RevPAR growth of 6 percent to 8 percent;
— Adjusted EBITDA of $177 million to $186 million;
— Adjusted FFO of $123.5 million to $129.5 million, which assumes the
income tax provision to range from a benefit of $1.0 million to an
expense of $2.0 million; and
— Adjusted FFO per share of $0.73 to $0.77 based on 168.4 million diluted
weighted average shares.
In addition, the Company expects the following results for its second fiscal quarter:
— RevPAR growth of 5 percent to 7 percent;
— Adjusted EBITDA of $47 million to $50 million;
— Adjusted FFO of $32 million to $35 million, which assumes an income tax
provision of $2 million to $3 million; and
— Adjusted FFO per share of $0.19 to $0.21 based on 168.4 million diluted
weighted average shares.
Earnings Call
The Company will host a conference call to discuss its first quarter and full year results on Monday, April 30, 2012, at 2:00 p.m. Eastern Time (ET). To participate in the live call, investors are invited to dial 888-713-4199 (for domestic callers) or 617-213-4861 (for international callers). The participant passcode is 40014947. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company’s website at http://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 23 premium hotels with approximately 10,400 rooms and holds one senior mortgage loan. The Company’s hotels are generally operated under globally recognized brands such as Hilton, Marriott, and Westin. For further information, please visit DiamondRock Hospitality Company’s website at http://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 bankruptcy proceedings on the Allerton Hotel; risks associated with the development of a hotel by a third-party developer; risks associated with the rebranding of the Lexington Hotel New York; 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.
Reporting Periods for Statement of Operations
The results reported in the Company’s consolidated statements of operations are based on results of its hotels reported by hotel managers. The Company’s hotel managers use different reporting periods. Marriott International, the manager of most of the Company’s properties, uses a fiscal year ending on the Friday closest to December 31 and reports 12 weeks of operations for the first three quarters and 16 or 17 weeks for the fourth quarter of the year for its domestic managed hotels. In contrast, Marriott International for its non-domestic hotels (including Frenchman’s Reef), Davidson Hotel Company, manager of the Westin Atlanta North, Vail Resorts, manager of the Vail Marriott, Hilton Hotels Corporation, manager of the Conrad Chicago and the Hilton Minneapolis, Westin Hotel Management, L.P., manager of the Westin Boston Waterfront, Alliance Hospitality Management, manager of the Hilton Garden Inn Chelsea, Sage Hospitality, manager of the JW Marriott Denver Cherry Creek and the Courtyard Denver, and Highgate Hotels, manager of the Lexington Hotel, report results on a monthly basis. Additionally, the Company, as a REIT, is required by U.S. federal tax laws to report results on a calendar year basis. As a result, the Company has adopted the reporting periods used by Marriott International for its domestic hotels, except that the fiscal year always ends on December 31 to comply with REIT rules. The first three fiscal quarters end on the same day as Marriott International’s fiscal quarters but the fourth quarter ends on December 31 and full year results, as reported in the statement of operations, always include the same number of days as the calendar year.
Two consequences of the reporting cycle the Company has adopted are: (1) quarterly start dates will usually differ between years, except for the first quarter which always commences on January 1, and (2) the first and fourth quarters of operations and year-to-date operations may not include the same number of days as reflected in prior years.
While the reporting calendar the Company adopted is more closely aligned with the reporting calendar used by the manager of most of its properties, one final consequence of the calendar is the Company is unable to report any results for Frenchman’s Reef, Westin Atlanta North, Vail Marriott, Conrad Chicago, Westin Boston Waterfront, Hilton Minneapolis, Hilton Garden Inn Chelsea, JW Marriott Denver Cherry Creek, Courtyard Denver or the Lexington Hotel for the month of operations that ends after its fiscal quarter-end because of Vail Resorts, Davidson Hotel Company, Hilton Hotels Corporation, Westin Hotel Management, L.P., Alliance Hospitality Management, Sage Hospitality, Highgate Hotels and Marriott International (for international hotels) make mid-month results available. As a result, the quarterly results of operations include results from these hotels as follows: first quarter (January and February), second quarter (March to May), third quarter (June to August) and fourth quarter (September to December). While this does not affect full-year results, it does affect the reporting of quarterly results.
DIAMONDROCK COMPANY
CONSOLIDATED BALANCE SHEETS
As of March 23, 2012 and December 31, 2011
(in thousands, except share and per share amounts)
March 23, 2012 December 31, 2011
—-
(unaudited)
ASSETS
Property and equipment, at
cost $2,673,080 $2,667,682
Less: accumulated
depreciation (453,882) (433,178)
- -
2,219,198 2,234,504
Assets held for sale - 263,399
Restricted cash 56,099 53,871
Due from hotel managers 51,674 50,728
Note receivable 54,788 54,788
Favorable lease assets, net 43,054 43,285
Prepaid and other assets 67,372 65,900
Cash and cash equivalents 128,570 26,291
Deferred financing costs,
net 9,697 5,869
Total assets $2,630,452 $2,798,635
========== ==========
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage debt $903,331 $762,933
Mortgage debt of assets held
for sale - 180,000
Senior unsecured credit
facility - 100,000
—-
Total debt 903,331 1,042,933
Deferred income related to
key money, net 24,445 24,593
Unfavorable contract
liabilities, net 81,483 81,914
Due to hotel managers 41,740 41,676
Liabilities of assets held
for sale - 3,805
Dividends declared and
unpaid 13,600 13,594
Accounts payable and accrued
expenses 76,549 87,963
——— ———
Total other liabilities 237,817 253,545
Stockholders’ Equity:
Preferred stock, $0.01 par
value; 10,000,000 shares
authorized; no shares - -
issued and outstanding
Common stock, $0.01 par
value; 200,000,000 shares
authorized; 1,679 1,675
167,918,292 and 167,502,359 shares issued
and outstanding at March 23,
2012 and December 31, 2011, respectively
Additional paid-in capital 1,706,490 1,708,427
Accumulated deficit (218,865) (207,945)
- -
Total stockholders’ equity 1,489,304 1,502,157
— —
Total liabilities and
stockholders’ equity $2,630,452 $2,798,635
========== ==========
DIAMONDROCK COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Quarters Ended March 23, 2012 and March 25, 2011
(in thousands, except share and per share amounts)
Fiscal Quarter Fiscal Quarter
Ended Ended
March 23, 2012 March 25, 2011
Revenues: (unaudited) (unaudited)
Rooms $83,388 $69,283
Food and beverage 31,251 29,179
Other 6,783 5,291
——- ——-
Total revenues 121,422 103,753
Operating Expenses:
Rooms 24,879 20,202
Food and beverage 23,844 22,588
Management fees 3,142 2,748
Other hotel expenses 49,003 41,399
Depreciation and
amortization 20,518 18,549
Hotel acquisition costs 33 256
Corporate expenses 4,483 4,074
——- ——-
Total operating expenses 125,902 109,816
Operating loss (4,480) (6,063)
——— ———
Interest income (63) (291)
Interest expense 11,468 8,818
Gain on early extinguishment
of debt (144) -
—— —-
Total other expenses 11,261 8,527
——— ——-
Loss from continuing
operations before income
taxes (15,741) (14,590)
Income tax benefit 5,774 3,727
——- ——-
Loss from continuing
operations (9,967) (10,863)
Income (loss) from
discontinued operations,
net of income taxes 12,582 (181)
Net income (loss) $2,615 $(11,044)
====== ========
Earnings (loss) per share:
Continuing operations $(0.06) $(0.07)
Discontinued operations 0.08 0.00
—— ——
Basic and diluted earnings
(loss) per share $0.02 $(0.07)
===== ======
Weighted-average number of common shares
outstanding:
Basic 167,666,741 163,997,743
=========== ===========
Diluted 168,172,549 163,997,743
=========== ===========
Non-GAAP Financial Measures
The Company uses the following four non-GAAP financial measures that it believes are useful to investors as key measures of its operating performance: (1) EBITDA, (2) FFO, (3) Adjusted EBITDA and (4) Adjusted FFO.
EBITDA represents net (loss) income excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. The Company believes EBITDA is useful to an investor in evaluating its operating performance because it helps investors evaluate and compare the results of its operations from period to period by removing the impact of the Company’s capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization) from its operating results. The Company also uses EBITDA as one measure in determining the value of hotel acquisitions and dispositions.
Historical (in 000s)
——-
Fiscal Quarter Ended
———
March 23, 2012 March 25, 2011
Net income (loss) $2,615 $(11,044)
Interest expense (1) 13,765 11,143
Income tax benefit (2) (5,588) (4,091)
Depreciation and amortization
(3) 20,518 21,352
——— ———
EBITDA $31,310 $17,360
======= =======
(1) Amounts include interest
expense included in
discontinued operations as
follows: $2.3 million in the
fiscal quarter ended March 23,
2012 and $2.3
million in the fiscal quarter
ended March 25, 2011.
(2) Amounts include income tax
provision included in
discontinued operations as
follows: $0.2 million of income
tax expense in the fiscal
quarter ended
March 23, 2012 and $0.4 million
of income tax benefit in the
fiscal quarter ended March 25,
2011.
(3) Amounts include
depreciation expense included
in discontinued operations as
follows: $2.8 million in the
fiscal quarter ended March 25,
2011.
Guidance (in 000s)
——
Quarter 2, 2012 Full Year 2012
-
Low End High End Low End High End
Net
income $9,650 $12,650 $36,128 $43,128
Interest
expense 12,900 11,900 54,000 54,000
Income
tax
expense
(benefit) 2,000 3,000 (1,000) 2,000
Depreciation
and
amortization 21,000 21,000 91,000 90,000
——— ——— ——— ———
EBITDA $45,550 $48,550 $180,128 $189,128
======= ======= ======== ========
The Company also evaluates its performance by reviewing Adjusted EBITDA because it believes that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information regarding the Company’s ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income (loss), is beneficial to a complete understanding of the Company’s operating performance. The Company adjusts EBITDA for the following items, which may occur in any period, and refers to this measure as Adjusted EBITDA:
— Non-Cash Ground Rent: The Company excludes the non-cash expense incurred
from straight lining the rent from its ground lease obligations and the
non-cash amortization of its favorable lease assets.
— The impact of the non-cash amortization of the unfavorable contract
liabilities recorded in conjunction with the Company’s acquisitions of
the Bethesda Marriott Suites, the Chicago Marriott Downtown, the
Renaissance Charleston and the Radisson Lexington. The amortization of
the unfavorable contract liabilities does not reflect the underlying
performance of the Company.
— 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. The
Company excludes these one-time adjustments because they do not reflect
its actual performance for that period.
— Gains from Early Extinguishment of Debt: The Company excludes the effect
of gains recorded on the early extinguishment of debt because it
believes that including them in EBITDA is not consistent with reflecting
the ongoing performance of its hotels.
— Impairment Losses: The Company excludes the effect of impairment losses
recorded because it believes that including them in EBITDA is not
consistent with reflecting the ongoing performance of its hotels. In
addition, the Company believes that impairment charges are similar to
depreciation expense, which is also excluded from EBITDA.
— Gains or Losses on Dispositions: The Company excludes the effect of
gains or losses on dispositions from EBITDA because it believes that
including them is not consistent with reflecting the ongoing performance
of its remaining hotels.
— Acquisition Costs: The Company excludes acquisition transaction costs
expensed during the period because it believes that including these
costs in EBITDA is not consistent with the underlying performance of the
Company.
— Allerton Loan: In 2011, the Company included cash payments received on
its senior loan secured by the Allerton Hotel in Adjusted EBITDA. GAAP
requires the Company to record the cash received from the borrower as a
reduction of its basis in the mortgage loan due to the uncertainty over
the timing and amount of cash payments on the loan. Beginning in 2012,
due to the uncertainty of the timing of the bankruptcy resolution, the
Company excludes both cash interest payments received from the borrower
and the legal costs incurred as a result of the bankruptcy proceedings
from its calculation of Adjusted EBITDA.
— Other Non-Cash and /or Unusual Items: The Company excludes the effect
of certain non-cash and/or unusual items because it believes that
including these costs in EBITDA is not consistent with the underlying
performance of the Company. In 2012, the Company excluded the franchise
termination fee paid to Radisson because it believes that including it
would not be consistent with reflecting the ongoing performance of its
hotels.
Historical (in 000s)
——-
Fiscal Quarter Ended
———
March 23, March 25,
2012 2011
EBITDA $31,310 $17,360
Non-cash ground rent 1,531 1,566
Non-cash amortization of
unfavorable contract
liabilities (432) (426)
Gain on sale of hotel
properties (10,017) -
Gain on early extinguishment
of debt (144) -
Franchise termination fee 750 -
Allerton loan legal fees 322 -
Allerton loan interest
payments - 100
Acquisition costs 33 256
Adjusted EBITDA $23,353 $18,856
======= =======
Guidance (in 000s)
—-
Quarter 2, 2012 Full Year 2012
-
Low End High End Low End High End
EBITDA $45,550 $48,550 $180,128 $189,128
Non-cash ground rent 1,400 1,400 6,100 6,100
Non-cash
amortization of
unfavorable contract
liabilities (450) (450) (1,850) (1,850)
Gain on sale of hotel
properties - - (10,017) (10,017)
Gain on early
extinguishment of
debt - - (144) (144)
Franchise termination
fee - - 750 750
Allerton loan legal
fees 500 500 2,000 2,000
Acquisition costs - - 33 33
Adjusted EBITDA $47,000 $50,000 $177,000 $186,000
======= ======= ======== ========
The Company computes FFO in accordance with standards established by NAREIT, which defines FFO as net (loss) 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.
Historical (in 000s)
——-
Fiscal Quarter Ended
———
March 23, March 25,
2012 2011
Net income (loss) $2,615 $(11,044)
Real estate related
depreciation and amortization
(1) 20,518 21,352
Gain on sale of hotel
properties (10,017) -
—-
FFO $13,116 $10,308
======= =======
FFO per share (basic and
diluted) $0.08 $0.06
===== =====
(1) Amounts include
depreciation expense included
in discontinued operations as
follows: $2.8 million in the
fiscal quarter ended March 25,
2011.
Guidance (in 000s)
—-
Quarter 2, 2012 Full Year 2012
-
Low End High End Low End High End
Net
income $9,650 $12,650 $36,128 $43,128
Gain
on
sale
of
hotel
properties - - (10,017) (10,017)
Real
estate
related
depreciation
and
amortization 21,000 21,000 91,000 90,000
——— ——— ——— ———
FFO $30,650 $33,650 $117,111 $123,111
======= ======= ======== ========
FFO
per
share
(basic
and
diluted) $0.18 $0.20 $0.70 $0.73
===== ===== ===== =====
The Company also evaluates its performance by reviewing Adjusted FFO because it believes that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information regarding the Company’s ongoing operating performance and that the presentation of Adjusted FFO, when combined with the primary GAAP presentation of net income (loss), is beneficial to a complete understanding of the Company’s operating performance. The Company adjusts FFO for the following items, which may occur in any period, and refers to this measure as Adjusted FFO:
— Non-Cash Ground Rent: The Company excludes the non-cash expense incurred
from straight lining the rent from its ground lease obligations and the
non-cash amortization of its favorable lease assets.
— The impact of the non-cash amortization of the unfavorable contract
liabilities recorded in conjunction with the Company’s acquisitions of
the Bethesda Marriott Suites, the Chicago Marriott Downtown, the
Renaissance Charleston and the Radisson Lexington. The amortization of
the unfavorable contract liabilities does not reflect the underlying
performance of the Company.
— Fair Value Adjustments to Debt Instruments: The impact of the non-cash
amortization of the debt premiums recorded in conjunction with the
acquisitions of the JW Marriott Denver at Cherry Creek and Courtyard
Denver Downtown and any fair market value adjustments to the Company’s
interest rate cap agreement.
— 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. The
Company excludes these one-time adjustments because they do not reflect
its actual performance for that period.
— Gains from Early Extinguishment of Debt: The Company excludes the effect
of gains recorded on the early extinguishment of debt because it
believes that including them in FFO is not consistent with reflecting
the ongoing performance of its hotels.
— Acquisition Costs: The Company excludes acquisition transaction costs
expensed during the period because it believes that including these
costs in FFO is not consistent with the underlying performance of the
Company.
— Allerton Loan: In 2011, the Company included cash payments received on
its senior loan secured by the Allerton Hotel in Adjusted FFO. GAAP
requires the Company to record the cash received from the borrower as a
reduction of its basis in the mortgage loan due to the uncertainty over
the timing and amount of cash payments on the loan. Beginning in 2012,
due to the uncertainty of the timing of the bankruptcy resolution, the
Company excludes both cash interest payments received from the borrower
and the legal costs incurred as a result of the bankruptcy proceedings
from its calculation of Adjusted FFO.
— Other Non-Cash and /or Unusual Items: The Company excludes the effect
of certain non-cash and/or unusual items because it believes that
including these costs in FFO is not consistent with the underlying
performance of the Company. In 2012, the Company excluded the
termination fee paid to Radisson because it believes that including it
would not be consistent with reflecting the ongoing performance of its
hotels.
Historical (in 000s)
——-
Fiscal Quarter Ended
———
March 23, March 25,
2012 2011
FFO $13,116 $10,308
Non-cash ground rent 1,531 1,566
Non-cash amortization of
unfavorable contract
liabilities (432) (426)
Fair value adjustments to
debt instruments (47) -
Gain on early extinguishment
of debt (144) -
Franchise termination fee 750 -
Allerton loan legal fees 322 -
Allerton loan interest
payments - 100
Acquisition costs 33 256
Adjusted FFO $15,129 $11,804
======= =======
Adjusted FFO per share
(diluted) $0.09 $0.07
===== =====
Guidance (in 000s)
——
Quarter 2, 2012 Full Year 2012
-
Low End High End Low End High End
FFO $30,650 $33,650 $117,111 $123,111
Non-cash ground rent 1,400 1,400 6,100 6,100
Non-cash
amortization of
unfavorable contract
liabilities (450) (450) (1,850) (1,850)
Fair value
adjustments to debt
instruments (100) (100) (500) (500)
Gain on early
extinguishment of
debt - - (144) (144)
Franchise termination
fee - - 750 750
Allerton loan legal
fees - - 2,000 2,000
Acquisition costs 500 500 33 33
Adjusted FFO $32,000 $35,000 $123,500 $129,500
======= ======= ======== ========
Adjusted FFO per
share (diluted) $0.19 $0.21 $0.73 $0.77
===== ===== ===== =====
Quarterly Pro Forma Financial Information
The following table is presented to provide investors with selected historical quarterly operating information to include the operating results for the Company’s hotels as if they were owned since January 1, 2011 but exclude Frenchman’s Reef and the three hotels sold on March 23, 2012.
Quarter 2, 2011 Quarter 3, 2011 Quarter 4, 2011 Full Year 2011 Quarter 1, 2012
- - - -
RevPAR $128.65 $131.53 $129.59 $123.01 $104.50
Revenues (in thousands) $158,488 $158,702 $213,055 $633,273 $110,524
Hotel Adjusted EBITDA (in thousands) $44,822 $43,832 $60,721 $165,821 $18,954
% of Full Year 27.0% 26.4% 36.6% 100.0% 10.5%
Hotel Adjusted EBITDA Margin 28.28% 27.62% 28.50% 26.18% 17.15%
Available Rooms 863,096 863,096 1,154,207 3,614,960 732,418
Available Rooms
The following table is presented to provide investors with the Company’s total available rooms for its actual ownership period of all its owned hotels during 2011 and 2012.
2011 2012
—— ——
Quarter 1 818,196 877,702
Quarter 2 919,886 907,072
Quarter 3 988,589 907,072
Quarter 4 1,355,863 1,224,541
Full Year 4,082,534 3,916,387
========= =========
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, 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.
DIAMONDROCK COMPANY
PRO FORMA OPERATING DATA
Schedule of Property Level Results
(in thousands)
(unaudited)
Fiscal Quarter Ended
———
March 23, 2012 March 25, 2011 % Change
-
Revenues:
Rooms $76,539 $70,549 8.5%
Food and beverage 28,282 27,140 4.2%
Other 5,703 5,339 6.8%
——- ——- —-
Total revenues 110,524 103,028 7.3%
Operating Expenses:
Rooms 23,633 21,853 8.1%
Food and beverage 21,647 20,960 3.3%
Other direct
departmental 3,344 3,246 3.0%
General and
administrative 10,714 10,388 3.1%
Utilities 4,072 4,347 (6.3%)
Repairs and
maintenance 5,790 5,649 2.5%
Sales and
marketing 9,426 8,760 7.6%
Base management
fees 2,758 2,567 7.4%
Incentive
management fees 60 74 (18.9%)
Property taxes 6,606 5,455 21.1%
Ground rent 3,004 2,882 4.2%
Other fixed
expenses 1,615 1,575 2.5%
——- ——- —-
Total hotel
operating
expenses 92,669 87,756 5.6%
——— ——— —-
Hotel EBITDA 17,855 15,272 16.9%
——— ——— ——
Non-cash ground
rent 1,531 1,606 (4.7%)
Non-cash
amortization of
unfavorable
contract
liabilities (432) (432) 0.0%
—— —— —-
Hotel Adjusted
EBITDA $18,954 $16,446 15.2%
======= ======= ====
NOTE:
The pro forma operating data
above includes the operating
results for the Company’s
hotels assuming they were owned
since January 1, 2011 but
excludes the Frenchman’s Reef &
Morning Star Marriott Beach
Resort due to the extensive
2011 renovation and the
operating results of the three
hotels sold on March 23, 2012.
Market Capitalization as of March 23, 2012
(in thousands, except per share data)
Enterprise Value
—
Common equity capitalization (at March 23, 2012 closing price of $9.89/share) $1,667,880
Consolidated debt 903,331
Cash and cash equivalents (128,570)
-
Total enterprise value $2,442,641
==========
Share Reconciliation
———
Common shares outstanding 167,918
Unvested restricted stock held by management and employees 691
Share grants under deferred compensation plan held by directors 34
—-
Combined shares outstanding 168,643
=======
Debt Summary as of March 23, 2012
(dollars in thousands)
Property Interest Term Outstanding Maturity
Rate Principal
Courtyard Manhattan / Midtown East 8.810% Fixed $42,213 October 2014
Salt Lake City Marriott Downtown 5.500% Fixed 29,823 January 2015
Courtyard Manhattan / Fifth Avenue 6.480% Fixed 50,573 June 2016
Los Angeles Airport Marriott 5.300% Fixed 82,600 July 2015
Marriott Frenchman’s Reef 5.440% Fixed 59,407 August 2015
Renaissance Worthington 5.400% Fixed 55,330 July 2015
Orlando Airport Marriott 5.680% Fixed 58,146 January 2016
Chicago Marriott Downtown 5.975% Fixed 213,611 April 2016
Hilton Minneapolis 5.464% Fixed 98,479 April 2021
JW Marriott Denver Cherry Creek 6.470% Fixed 41,602 July 2015
Lexington Hotel New York LIBOR + Variable 170,368 March 2015
3.00
Debt premium (1) 1,179
——-
Total mortgage debt 903,331
=======
Senior Unsecured Credit Facility LIBOR + Variable - August 2014
3.00
Total Debt $903,331
========
(1) Non-cash GAAP adjustment recorded upon the assumption of the JW Marriott Denver at Cherry Creek mortgage debt in 2011.
Pro Forma Operating Statistics - First Quarter (1)
ADR Occupancy RevPAR Hotel Adjusted EBITDA Margin
—- — ———
1Q 2012 1Q 2011 B/(W) 1Q 2012 1Q 2011 B/(W) 1Q 20112 1Q 2011 B/(W) 1Q 2012 1Q 2011 B/(W)
——- ——- - ——- ——-
Atlanta Alpharetta $144.64 $136.59 5.9% 67.2% 67.1% 0.1% $97.23 $91.60 6.1% 36.00% 33.54% 246 bps
Westin Atlanta North (3) $111.03 $110.15 0.8% 76.5% 63.9% 12.6% $84.92 $70.40 20.6% 21.43% 13.52% 791 bps
Atlanta Waverly (2) $132.02 $133.36 (1.0%) 73.8% 67.6% 6.2% $97.48 $90.13 8.2% 26.33% 23.55% 278 bps
Renaissance Austin (2) $154.28 $148.11 4.2% 73.9% 71.4% 2.5% $114.06 $105.69 7.9% 38.50% 35.14% 336 bps
Bethesda Marriott Suites $176.34 $175.96 0.2% 51.8% 54.7% (2.9%) $91.33 $96.22 (5.1%) 20.67% 20.78% -11 bps
Boston Westin (3) $165.15 $156.57 5.5% 54.6% 47.2% 7.4% $90.23 $73.87 22.1% (4.71%) (10.59%) 588 bps
Renaissance Charleston $169.41 $158.29 7.0% 80.1% 75.6% 4.5% $135.77 $119.72 13.4% 29.51% 25.63% 388 bps
Hilton Garden Inn Chelsea (3) $152.21 $150.89 0.9% 88.8% 83.6% 5.2% $135.17 $126.13 7.2% 22.93% 25.25% -232 bps
Chicago Marriott $155.86 $156.15 (0.2%) 55.8% 50.9% 4.9% $86.99 $79.48 9.4% (2.52%) (1.02%) -150 bps
Chicago Conrad (3) $152.71 $141.83 7.7% 58.2% 60.7% (2.5%) $88.94 $86.16 3.2% (20.70%) (12.89%) -781 bps
Courtyard Denver Downtown (3) $140.70 $139.53 0.8% 80.7% 69.0% 11.7% $113.57 $96.25 18.0% 39.28% 33.21% 607 bps
Courtyard Fifth Avenue $217.61 $209.46 3.9% 84.1% 78.6% 5.5% $182.95 $164.72 11.1% 11.08% 8.88% 220 bps
Courtyard Midtown East $209.34 $203.66 2.8% 79.0% 74.4% 4.6% $165.45 $151.55 9.2% 16.28% 12.77% 351 bps
Frenchman’s Reef (3) $285.06 $275.05 3.6% 83.8% 78.4% 5.4% $238.74 $215.51 10.8% 31.69% 28.41% 328 bps
Griffin Gate Marriott (2) $118.51 $113.30 4.6% 45.8% 43.9% 1.9% $54.31 $49.78 9.1% (2.46%) 0.97% -343 bp