DiamondRock Hospitality pany(DRH) - 2024 Q4 - Annual Report

Portfolio and Operations - As of December 31, 2024, DiamondRock Hospitality Company owned a portfolio of 37 premium hotels and resorts with a total of 10,004 guest rooms located in 26 markets across the United States[26]. - Over 97% of revenues for the year ended December 31, 2024, were derived from core urban and resort destination hotels[36]. - The company has completed rebrandings at six hotels since 2021 and is currently rebranding one additional hotel[39]. - As of December 31, 2024, 34 of the 37 hotels were unencumbered by mortgage debt, indicating a conservative capital structure[42]. - The company’s strategy includes aggressive asset management and disciplined capital allocation to high-quality lodging properties[32]. - The company evaluates each hotel to assess optimal brand and management strategies, leveraging global hotel brands for increased revenue[38]. - 36 hotels are currently operated, with 19 under franchise agreements with Marriott, Hilton, or IHG[113]. - The company holds leasehold interests in 8 hotels, which may complicate financing and limit growth potential[121]. Financial Performance and Strategy - The company aims to deliver long-term stockholder returns that exceed those generated by peers through dividends and capital appreciation[28]. - The company maintains a conservative debt profile with a focus on balance sheet flexibility and low leverage[43]. - The company plans to pursue strategic acquisitions that create value in the near term and evaluate opportunities to dispose of non-core hotels[40]. - The company carries comprehensive property and liability insurance, including coverage for business interruption and natural disasters, but may incur losses from uninsured risks[63]. - The company has significant exposure to natural disasters, with 72% of total revenues in 2024 coming from hotels in metropolitan areas prone to such risks[101]. - The company expects to qualify as a REIT for the taxable year ended December 31, 2024, but cannot assure continued qualification due to complex requirements and potential changes in laws[156]. - To maintain REIT status, the company must distribute at least 90% of its REIT taxable income, which may require borrowing or selling assets if cash flow does not meet distribution needs[160]. Market and Economic Risks - The lodging industry is highly cyclical and linked to macroeconomic indicators such as U.S. GDP growth and consumer confidence, which can adversely affect the company's revenues and profitability[76]. - The company faces significant competition in the hotel market, with risks of over-building leading to decreased RevPAR and profitability[77]. - The increased use of third-party internet travel intermediaries and alternative lodging channels like Airbnb could negatively impact the company's profitability[79]. - Economic recessions could result in declines in average daily room rates, occupancy, and RevPAR, adversely affecting operational results[135]. - Inflation has negatively impacted operating expenses, including labor and utility costs, affecting overall profitability[125]. Regulatory and Compliance Issues - The company is subject to various governmental regulations that can materially impact capital expenditures and earnings[60]. - The company believes it is in substantial compliance with the Americans with Disabilities Act (ADA), but ongoing assessments and modifications may impact financial condition and distributions to stockholders[154]. - Environmental regulations may impose significant costs for compliance and cleanup, affecting financial condition and operational results[149]. - Climate change regulations may necessitate capital investments in energy efficiency and sustainable practices, impacting operational costs[153]. Cybersecurity and Operational Risks - Cybersecurity incidents pose risks to operations and could result in significant costs and reputational damage[106]. - The company engages a managed services provider for cybersecurity, which includes a virtual chief information security officer (vCISO) and a virtual chief information officer (vCIO)[202]. - The Audit Committee oversees the company's cybersecurity program and receives quarterly updates on incidents and developments[203]. - The company has implemented a cyber risk management program for third-party property managers to assess their cybersecurity maturity[200]. - The company faces various cybersecurity risks but has not experienced material impacts on its business strategy or financial condition to date[201]. Labor and Employment Considerations - The company employed 34 full-time employees, with no part-time employees, and none are union members[61]. - The company prioritizes employee well-being to attract and retain talent, focusing on competitive pay, benefits, and a discrimination-free work environment[62]. - Labor union activities may increase operational costs and reduce profitability, impacting financial results[128]. - Labor shortages may slow growth and increase operational costs due to the need for higher wages to attract qualified employees[130]. - Local jurisdictions in the U.S. are considering legislation to increase minimum wage, which could significantly raise hotel operating costs[131]. Legal and Litigation Risks - The company may face litigation that could materially impact its financial condition and results of operations[186]. - The company anticipates that the aggregate liabilities from ongoing legal proceedings will not materially impact its financial condition or results of operations[222]. Debt and Financial Obligations - Approximately $575.0 million of unhedged variable rate debt as of December 31, 2024, exposing the company to interest rate fluctuations[125]. - Existing debt agreements contain financial covenants that may limit operational flexibility and distributions to stockholders[137]. - Future debt service obligations may require liquidation of properties and jeopardize the ability to maintain REIT tax status[144]. - Increased interest rates could elevate interest expenses and reduce cash available for distributions to stockholders[146]. - Property tax increases due to rate changes or reassessments could negatively impact cash flow and financial condition[168]. Management and Franchise Agreements - The company has hotel management agreements that generally renew automatically for negotiated consecutive periods upon expiration unless the manager opts not to renew[208]. - The franchise agreements for 20 franchised hotels include fees of 5$119.0 million and annual dividends of about $9.8 million[191]. - The company intends to pay quarterly dividends representing at least 90% of its REIT taxable income, but future distributions may be adversely affected by various risks and uncertainties[182]. - The market price of the company's common stock and Series A Preferred Stock may decline due to increased market interest rates, which could make the returns on investment less attractive[185]. - Future issuances of common stock or Series A Preferred Stock may depress the market price and dilute existing stockholders' equity interests[189]. - The company has the authority to issue up to 400,000,000 shares of common stock and 10,000,000 shares of preferred stock, which could delay or prevent a change in control[174].