DiamondRock Hospitality pany(DRH) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited consolidated financial statements for Q1 2019, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets Compares financial position as of March 31, 2019, to December 31, 2018, highlighting asset, liability, and equity changes, including ASC 842 adoption Consolidated Balance Sheet Highlights (in thousands) | Category | March 31, 2019 | December 31, 2018 | Change | % Change | |:---|:---|:---|:---|:---| | Assets ||||| | Property and equipment, net | $2,942,350 | $2,944,617 | $(2,267) | (0.08)% | | Right-of-use assets | $99,316 | — | $99,316 | N/A | | Favorable lease assets, net | — | $63,945 | $(63,945) | (100.00)% | | Cash and cash equivalents | $36,523 | $43,863 | $(7,340) | (16.73)% | | Total assets | $3,240,883 | $3,197,580 | $43,303 | 1.35% | | Liabilities ||||| | Total debt | $1,034,907 | $977,966 | $56,941 | 5.82% | | Lease liabilities | $101,801 | — | $101,801 | N/A | | Total liabilities | $1,410,941 | $1,306,987 | $103,954 | 7.95% | | Equity ||||| | Total stockholders' equity | $1,822,262 | $1,882,897 | $(60,635) | (3.22)% | | Total equity | $1,829,942 | $1,890,593 | $(60,651) | (3.21)% | - The adoption of ASC 842 on January 1, 2019, led to the recognition of $99.3 million in right-of-use assets and $101.8 million in lease liabilities, while favorable lease assets were eliminated[9][69] Consolidated Statements of Operations Shows significant net income increase for Q1 2019 versus Q1 2018, driven by higher revenues and insurance income, despite increased expenses Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | % Change | |:---|:---|:---|:---|:---|\ | Total revenues | $202,375 | $181,530 | $20,845 | 11.48% | | Total operating expenses, net | $185,885 | $168,011 | $17,874 | 10.64% | | Income before income taxes | $5,131 | $4,153 | $978 | 23.55% | | Income tax benefit | $3,849 | $185 | $3,664 | 1980.54% | | Net income | $8,980 | $4,338 | $4,642 | 107.01% | | Net income attributable to common stockholders | $8,945 | $4,338 | $4,607 | 106.19% | | Basic earnings per share | $0.04 | $0.02 | $0.02 | 100.00% | | Diluted earnings per share | $0.04 | $0.02 | $0.02 | 100.00% | - Business interruption insurance income significantly increased to $8.8 million in Q1 2019 from $6.0 million in Q1 2018, primarily due to the Frenchman's Reef insurance claim[12][152] Consolidated Statements of Equity Reports equity decrease from December 2018 to March 2019, mainly from ASC 842 adoption, dividends, and stock repurchases, partially offset by net income Consolidated Statements of Equity Highlights (in thousands) | Metric | December 31, 2018 | March 31, 2019 | Change | |:---|:---|:---|:---|\ | Total Stockholders' Equity | $1,882,897 | $1,822,262 | $(60,635) | | Noncontrolling Interests | $7,696 | $7,680 | $(16) | | Total Equity | $1,890,593 | $1,829,942 | $(60,651) | | Cumulative effect of ASC 842 adoption | — | $(15,286) | $(15,286) | | Dividends and distributions | — | $(25,370) | $(25,370) | | Common stock repurchased and retired | — | $(29,998) | $(29,998) | | Net income | — | $8,945 | $8,945 | - The company repurchased 3,143,922 shares of common stock for $30.0 million during the three months ended March 31, 2019[18][80] Consolidated Statements of Cash Flows Shows a net decrease in cash for Q1 2019, primarily from investing activities, partially offset by operating and financing cash flows Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | |:---|:---|:---|:---|\ | Net cash provided by operating activities | $21,862 | $33,605 | $(11,743) | | Net cash used in investing activities | $(30,289) | $(123,653) | $93,364 | | Net cash provided by (used in) financing activities | $207 | $(26,238) | $26,445 | | Net decrease in cash, cash equivalents, and restricted cash | $(8,220) | $(116,286) | $108,066 | | Cash, cash equivalents, and restricted cash at end of period | $83,378 | $107,487 | $(24,109) | - Investing activities in Q1 2019 included $21.1 million in capital expenditures for operating hotels and $9.2 million for Frenchman's Reef, with no hotel acquisitions, a significant change from Q1 2018 which included $119.0 million for hotel acquisitions[21][173] - Financing activities in Q1 2019 included a $60.0 million draw on the senior unsecured credit facility, offset by $26.1 million in distributions and $30.0 million in common stock repurchases[21][174] Notes to the Consolidated Financial Statements Provides detailed information on organization, accounting policies, and specific financial statement line items, including property, leases, equity, and debt 1. Organization Describes DiamondRock Hospitality as a lodging-focused REIT owning 31 premium hotels, operating through an UPREIT structure - As of March 31, 2019, the company owned 31 hotels with 10,093 guest rooms across 21 markets, with Frenchman's Reef & Morning Star Beach Resort remaining closed due to hurricane damage[28] - The company operates as an UPREIT, with its operating partnership owning the hotel properties; DiamondRock Hospitality Company is the sole general partner and owns 99.6% of the common OP units[29] 2. Summary of Significant Accounting Policies Outlines the company's significant accounting policies, covering areas like revenue recognition, leases, stock-based compensation, and income taxes - The company adopted ASU No. 2016-02, Leases (ASC 842), on January 1, 2019, using the modified retrospective approach, resulting in $101.2 million in lease liabilities and $99.6 million in right-of-use assets, primarily for ground leases[69] - Revenues are recognized when goods or services are provided, with room sales recognized over the length of stay and food and beverage sales at the point of service; the company acts as a principal for certain ancillary services[39] - The company has elected to be treated as a REIT, requiring distribution of at least 90% of its taxable income annually and compliance with other requirements; income from hotel properties is structured to qualify as 'rents from real properties' through leases to taxable REIT subsidiaries (TRSs)[45][46] 3. Property and Equipment Property and equipment, net, slightly decreased from December 2018 to March 2019, with ongoing construction and accrued capital expenditures Property and Equipment (in thousands) | Category | March 31, 2019 | December 31, 2018 | |:---|:---|:---|\ | Land | $617,695 | $617,695 | | Buildings and site improvements | $2,698,771 | $2,682,320 | | Furniture, fixtures and equipment | $502,265 | $491,421 | | Construction in progress | $38,112 | $38,623 | | Less: accumulated depreciation | $(922,487) | $(893,436) | | Total Property and equipment, net | $2,942,350 | $2,944,617 | - Accrued capital expenditures were $9.4 million as of March 31, 2019, down from $12.4 million at December 31, 2018[73] 4. Leases Operating leases, primarily ground leases, have a 67-year weighted-average term and 5.77% discount rate, with total lease liabilities of $101.8 million - As of March 31, 2019, operating leases had a weighted-average remaining lease term of 67 years and a weighted-average discount rate of 5.77%[74] Operating Lease Costs and Liabilities (in thousands) | Metric | Three Months Ended March 31, 2019 | |:---|:---|\ | Operating lease cost | $2,751 | | Variable lease payments | $337 | | Cash paid for amounts included in the measurement of operating lease liabilities | $788 | | Total lease liabilities (as of March 31, 2019) | $101,801 | 5. Equity Details common and preferred stock, 201.4 million common shares outstanding, active share repurchase, ATM program, and OP/LTIP units - As of May 9, 2019, 201,448,479 shares of common stock were outstanding[4] - The company has a $250 million share repurchase program, under which $30.0 million was used to repurchase 3,143,922 shares at an average price of $9.52 per share during Q1 2019; $187.8 million remains authorized[80] - An 'at-the-market' equity offering program allows for the issuance of up to $200 million in common stock, with no sales made during Q1 2019[79] - As of March 31, 2019, 796,684 common OP units were held by unaffiliated third parties, redeemable for cash or common stock[83] 6. Stock Incentive Plans Describes the 2016 Equity Incentive Plan, issuing RSAs, PSUs, and LTIP units, with compensation expense recognized over vesting periods Stock Incentive Awards Summary (Q1 2019) | Award Type | Unvested Balance (Jan 1, 2019) | Granted (Q1 2019) | Vested (Q1 2019) | Unvested Balance (Mar 31, 2019) | Unrecognized Compensation Cost (Mar 31, 2019) | |:---|:---|:---|:---|:---|:---|\ | Restricted Stock Awards (shares) | 641,844 | 73,240 | (300,575) | 414,509 | $4.1 million | | Performance Stock Units (target units) | 781,923 | 296,050 | (251,375) | 837,399 | $6.7 million | | LTIP Units (units) | — | 281,925 | — | 281,925 | $2.9 million | - PSUs issued in 2017, 2018, and 2019 are 50% tied to relative total stockholder return and 50% to hotel market share improvement over a three-year performance period[91] - LTIP units, granted for the first time in Q1 2019, are designed to offer comparable long-term incentives to restricted stock with more favorable income tax treatment, vesting ratably over three years[98][99] 7. Earnings Per Share Basic and diluted EPS calculated based on net income and weighted-average shares; Q1 2019 EPS was $0.04, double Q1 2018 Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Net income available to common stockholders | $8,910 | $4,338 | | Weighted-average common shares outstanding—basic | 202,817,124 | 201,145,014 | | Weighted-average common shares outstanding—diluted | 203,537,829 | 201,775,832 | | Basic earnings per share | $0.04 | $0.02 | | Diluted earnings per share | $0.04 | $0.02 | - Unvested share-based awards with nonforfeitable dividend rights are treated as participating securities in EPS calculations using the two-class method[101] 8. Debt Total debt increased to $1.03 billion as of March 31, 2019, with a 4.13% weighted-average interest rate and 4.2 years maturity Debt Summary (in thousands) | Debt Type | March 31, 2019 (Principal Balance) | December 31, 2018 (Principal Balance) | |:---|:---|:---|\ | Mortgage and other debt, net | $626,553 | $629,747 | | Unsecured term loans, net | $348,354 | $348,219 | | Senior unsecured credit facility | $60,000 | — | | Total debt, net | $1,034,907 | $977,966 | | Weighted-Average Interest Rate | 4.13% | N/A | | Weighted-Average Maturity | ~4.2 years | N/A | - As of March 31, 2019, eight of the company's 31 hotels were secured by mortgage debt, and the company was in compliance with all financial covenants[107][109] - The company had $60.0 million outstanding under its $300 million senior unsecured credit facility as of March 31, 2019, with a leverage ratio of 29.1%, resulting in an interest rate of LIBOR plus 150 basis points for the subsequent quarter[112] - In January 2019, an interest rate swap agreement was entered into to fix LIBOR at 2.41% through October 2023 for the $50 million unsecured term loan[115] 9. Fair Value of Financial Instruments Fair value of debt and interest rate swaps are primarily Level 2 measurements, estimated by discounting future cash flows at market rates Fair Value of Financial Instruments (in thousands) | Instrument | March 31, 2019 (Carrying Amount) | March 31, 2019 (Fair Value) | December 31, 2018 (Carrying Amount) | December 31, 2018 (Fair Value) | |:---|:---|:---|:---|:---|\ | Debt | $1,034,907 | $1,027,913 | $977,966 | $960,447 | | Interest rate swap agreements | $572 | $572 | — | — | - The fair value of debt and interest rate swaps are Level 2 measurements, with credit risk valuation adjustments for swaps considered Level 3 inputs but not significant to the overall fair value[117] 10. Commitments and Contingencies Involved in legal proceedings, including litigation with insurers over Frenchman's Reef hurricane damage, and one hotel is in franchise default - The company is engaged in litigation with property insurers in St. Thomas, U.S. Virgin Islands, and New York regarding coverage for hurricane damage to Frenchman's Reef[119][209] - One hotel remains in default under its franchise agreement due to low guest satisfaction scores, but the franchisor has not yet taken action to terminate the agreement[120][123] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, operating performance, and future outlook, including strategy, KPIs, and non-GAAP measures Overview DiamondRock Hospitality is a lodging REIT focused on long-term stockholder returns through disciplined capital allocation and high-quality properties - The company's strategy focuses on acquiring, owning, asset managing, and renovating premium hotel properties in North American urban and resort markets with superior growth prospects and high barriers-to-entry[130][132] - As of March 31, 2019, the portfolio included 31 hotels with 10,093 guest rooms, with Frenchman's Reef still closed due to hurricane damage[128] Key Indicators of Financial Condition and Operating Performance Evaluates performance using metrics like Occupancy, ADR, RevPAR, EBITDA, EBITDAre, Adjusted EBITDA, FFO, and Adjusted FFO - Key performance indicators include Occupancy percentage, Average Daily Rate (ADR), Revenue per Available Room (RevPAR), EBITDA, EBITDAre, Adjusted EBITDA, FFO, and Adjusted FFO[134] - RevPAR, calculated as ADR multiplied by occupancy, is a critical metric for monitoring individual hotel and overall business operating performance, with room revenue comprising approximately 68% of total revenues in Q1 2019[135] Our Hotels Hotel portfolio showed varied performance across 30 operating hotels in Q1 2019, with a weighted average RevPAR decrease of 0.2% Key Hotel Operating Statistics (Three Months Ended March 31, 2019) | Metric | Value | |:---|:---|\ | Total Number of Rooms | 9,591 | | Weighted Average Occupancy (%) | 73.1% | | Weighted Average ADR ($) | $216.45 | | Weighted Average RevPAR ($) | $158.30 | | % Change from 2018 RevPAR | (0.2)% | - Notable RevPAR changes include Bethesda Marriott Suites (22.0% increase), The Landing Resort & Spa (11.9% increase), and JW Marriott Denver at Cherry Creek ((36.4%) decrease)[139] Results of Operations Total revenues increased 11.5% in Q1 2019, leading to more than doubled net income, supported by tax benefits and insurance income Revenue Total revenues increased by $20.9 million (11.5%) to $202.4 million in Q1 2019, driven by acquisitions and Havana Cabana Key West reopening Revenue Breakdown (in millions) | Category | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Rooms | $136.7 | $129.0 | 6.0% | | Food and beverage | $50.5 | $40.8 | 23.8% | | Other | $15.2 | $11.7 | 29.9% | | Total revenues | $202.4 | $181.5 | 11.5% | - Non-comparable increases in total revenues included $9.3 million from Cavallo Point (acquired Dec 2018), $4.5 million from Hotel Palomar Phoenix (acquired Mar 2018), $2.9 million from Havana Cabana Key West (reopened Apr 2018), and $1.2 million from The Landing Resort & Spa (acquired Mar 2018)[141] Key Hotel Operating Statistics (Excluding Frenchman's Reef and Havana Cabana Key West) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Occupancy % | 72.9% | 73.6% | (0.7)% | | ADR | $215.83 | $215.62 | 0.1% | | RevPAR | $157.38 | $158.72 | (0.8)% | Hotel Operating Expenses Total hotel operating expenses increased by $19.2 million (13.8%) to $158.6 million in Q1 2019, due to acquisitions and Frenchman's Reef costs Hotel Operating Expenses (in millions) | Category | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | % Change | |:---|:---|:---|:---|\ | Rooms departmental expenses | $38.8 | $35.6 | 9.0% | | Food and beverage departmental expenses | $33.1 | $27.5 | 20.4% | | Base management fees | $4.4 | $1.6 | 175.0% | | Property taxes | $14.5 | $13.7 | 5.8% | | Total hotel operating expenses | $158.6 | $139.4 | 13.8% | - Non-comparable increases in hotel operating expenses included $7.4 million from Cavallo Point, $3.7 million from Frenchman's Reef (due to legal/professional fees), $2.8 million from Hotel Palomar Phoenix, $1.4 million from Havana Cabana Key West, and $1.2 million from The Landing Resort & Spa[147] - Severance costs of $2.8 million were incurred in Q1 2018 related to a voluntary buyout program at the Lexington Hotel New York, with no comparable costs in Q1 2019[148] Depreciation and Amortization Depreciation and amortization expense increased by $4.1 million (16.4%) in Q1 2019, mainly from 2018 hotel acquisitions and capital expenditures Depreciation and Amortization (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | % Change | |:---|:---|:---|:---|:---|\ | Depreciation and amortization | $28,996 | $24,902 | $4,094 | 16.4% | - The increase is mainly attributed to depreciation from hotel acquisitions in 2018 and capital expenditures on recent hotel renovations[149] Corporate Expenses Corporate expenses decreased by $2.7 million (27.8%) in Q1 2019, primarily due to $3.0 million in Q1 2018 severance costs Corporate Expenses (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | % Change | |:---|:---|:---|:---|:---|\ | Corporate expenses | $7,064 | $9,786 | $(2,722) | (27.8)% | - The decrease was primarily driven by $3.0 million in severance costs recognized in Q1 2018 related to the departure of the former Chief Financial Officer[150] Business Interruption Insurance Income Business interruption insurance income increased to $8.8 million in Q1 2019, primarily from the Frenchman's Reef insurance claim Business Interruption Insurance Income (in thousands) | Hotel | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Frenchman's Reef | $8,822 | $5,285 | | Havana Cabana Key West | — | $212 | | The Lodge at Sonoma | — | $530 | | Total | $8,822 | $6,027 | - The income in Q1 2019 was solely related to the Frenchman's Reef insurance claim, while Q1 2018 included claims for Havana Cabana Key West and The Lodge at Sonoma[152] Interest Expense Interest expense increased to $11.7 million in Q1 2019, mainly due to a new term loan, higher rates, and an interest rate swap adjustment Interest Expense Breakdown (in millions) | Category | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Mortgage debt interest | $6.6 | $6.7 | | Term loan interest | $3.4 | $2.3 | | Credit facility interest and unused fees | $0.7 | $0.4 | | Interest rate swap mark-to-market adjustment | $0.6 | — | | Total | $11.7 | $9.9 | - The increase was primarily driven by the $50 million unsecured term loan funded in December 2018, higher interest rates on term loans, and the mark-to-market adjustment of the interest rate swap entered in January 2019[153] Income Taxes Recorded an income tax benefit of $3.8 million in Q1 2019, significantly higher than Q1 2018, including a $4.1 million benefit on domestic TRSs Income Tax Benefit (in millions) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Income tax benefit | $3.8 | $0.2 | | Domestic TRSs pre-tax loss benefit | $4.1 | $1.2 | | Foreign income tax expense (Frenchman's Reef TRS) | $(0.3) | $(1.0) | Liquidity and Capital Resources Maintains conservative capital structure for balance sheet flexibility, meeting liquidity needs through cash flows, credit facilities, and active share repurchase/ATM programs Our Financing Strategy Committed to a conservative capital structure with $1.0 billion debt, 4.13% weighted average interest, and 4.2 years maturity, with 23 of 31 hotels unencumbered ATM Program Has an 'at-the-market' equity offering program for up to $200 million in common stock, with no sales in Q1 2019 Share Repurchase Program Board approved a $250 million share repurchase program; $30.0 million used in Q1 2019, with $187.8 million remaining authorized Short-Term Borrowings Does not typically use short-term borrowings for liquidity, except for its senior unsecured credit facility Senior Unsecured Credit Facility Has a $300 million senior unsecured credit facility, with $60.0 million outstanding as of March 31, 2019, and $30.0 million borrowed post-quarter Unsecured Term Loans Holds three unsecured term loans totaling $350 million, expiring between May 2021 and October 2023, with consistent financial covenants Sources and Uses of Cash Cash sources include operations, stock sales, debt, and insurance; uses include acquisitions, debt service, and capital expenditures; $36.5 million unrestricted cash as of March 31, 2019 - Net cash provided by operations was $21.9 million in Q1 2019, while net cash used in investing activities was $30.3 million, and net cash provided by financing activities was $0.2 million[172][173][174] - For the remainder of 2019, significant cash sources are expected to be net cash flow from hotel operations, insurance proceeds, and credit line draws, with uses including debt service, capital expenditures, distributions, and potential share repurchases[175] Dividend Policy Intends to distribute at least 90% of REIT taxable income annually; $0.125 per share dividends paid on January 14 and April 12, 2019 - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually[176] Dividends Paid in 2019 | Payment Date | Record Date | Dividend per Share | |:---|:---|:---|\ | January 14, 2019 | January 4, 2019 | $0.125 | | April 12, 2019 | March 29, 2019 | $0.125 | Capital Expenditures Spent $21.1 million on capital improvements in Q1 2019, with $125 million expected for 2019, including major renovations at several hotels - Approximately $21.1 million was spent on capital improvements during Q1 2019[180] - The company expects to spend approximately $125 million on capital improvements in 2019, including projects at Hotel Emblem San Francisco, JW Marriott Denver Cherry Creek, Sheraton Suites Key West, The Lodge at Sonoma, and Vail Marriott[180] - As of March 31, 2019, $42.6 million was set aside in property improvement funds for capital projects, included in restricted cash[179] Off-Balance Sheet Arrangements No material off-balance sheet arrangements impacting financial condition, results of operations, liquidity, or capital resources Non-GAAP Financial Measures Uses non-GAAP measures like EBITDA, EBITDAre, FFO, and Adjusted FFO to evaluate operating performance by excluding non-cash and specific transaction costs Use and Limitations of Non-GAAP Financial Measures Non-GAAP measures are used for performance evaluation but have limitations, as they exclude expenses like depreciation and interest; GAAP results should also be reviewed EBITDA, EBITDAre and FFO EBITDA and EBITDAre evaluate operating performance by removing capital structure impact; FFO excludes property sales, impairment, and real estate depreciation Adjustments to EBITDAre and FFO Adjusts EBITDAre and FFO for non-cash lease expense, accounting changes, acquisition costs, severance, and other non-recurring items to show ongoing performance Reconciliation of Net Income to EBITDA, EBITDAre, and Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Net income | $8,980 | $4,338 | | Interest expense | $11,662 | $9,877 | | Income tax benefit | $(3,849) | $(185) | | Real estate related depreciation and amortization | $28,996 | $24,902 | | EBITDA / EBITDAre | $45,789 | $38,932 | | Non-cash lease expense and other amortization | $1,715 | $1,057 | | Uninsured costs related to natural disasters | $1,367 | $(214) | | Hotel manager transition and pre-opening items | $297 | $(2,183) | | Severance costs | — | $5,847 | | Adjusted EBITDA | $49,168 | $43,439 | Reconciliation of Net Income to FFO and Adjusted FFO (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |:---|:---|:---|\ | Net income | $8,980 | $4,338 | | Real estate related depreciation and amortization | $28,996 | $24,902 | | Impairment losses | — | — | | FFO | $37,976 | $29,240 | | Non-cash lease expense and other amortization | $1,715 | $1,057 | | Uninsured costs related to natural disasters | $1,367 | $(214) | | Hotel manager transition and pre-opening items | $297 | $(2,183) | | Severance costs | — | $5,847 | | Fair value adjustments to derivative instruments | $572 | — | | Adjusted FFO | $41,927 | $33,747 | Critical Accounting Policies Critical accounting policies involve significant estimates for hotel investments, depreciation, impairment reviews, and inflation impact, detailed in the annual 10-K - Acquired hotels and identifiable intangible assets are recorded at total cost and allocated based on relative fair value, with depreciation over estimated useful lives (5-40 years for buildings, 1-10 years for FF&E)[198] - Investments in hotels are reviewed for impairment when events or changes in circumstances indicate that carrying value may not be recoverable, based on estimated undiscounted future cash flows[199] - Hotel operators can adjust room rates daily to reflect inflation, but competitive pressures may limit this ability[201] New Accounting Pronouncements Not Yet Implemented Refers to Note 2 for additional information on recently issued accounting pronouncements not yet implemented Item 3. Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate risk, with $300 million of $1.0 billion debt at variable rates; 100 basis point change impacts annual interest by $3.0 million - The primary market risk is interest rate risk, with $300 million of the $1.0 billion outstanding debt being variable rate as of March 31, 2019[204] - A 100 basis point fluctuation in market interest rates on variable rate debt would result in an annual increase or decrease of $3.0 million in interest expense[204] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2019[205] - No material changes to internal control over financial reporting were identified during the most recent fiscal quarter[206] PART II. OTHER INFORMATION Item 1. Legal Proceedings Involved in legal proceedings, including litigation with insurers over Frenchman's Reef hurricane damage; management believes no material financial impact - The company is subject to routine litigation and a specific lawsuit against property insurers concerning hurricane damage to Frenchman's Reef[208][209] - Management believes that potential liabilities from these matters, beyond insurance coverage, will not have a material adverse impact on the company's financial condition or results of operations[208] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for December 31, 2018 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Repurchased 3,143,922 common shares for $30.0 million in Q1 2019 under the $250 million program; $187.8 million remains authorized Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | |:---|:---|:---|:---|\ | January 1 - January 31, 2019 | 3,143,922 | $9.52 | 3,143,922 | | February 1 - February 28, 2019 | 39,716 | $10.66 | — | | March 1 - March 31, 2019 | — | — | — | | Total | 3,183,638 | $9.53 (approx) | 3,143,922 | - As of May 9, 2019, $187.8 million of authorized capacity remained under the $250 million share repurchase program[210] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period Item 4. Mine Safety Disclosures This item is not applicable for the reporting period Item 5. Other Information No other information to report under this item for the reporting period Item 6. Exhibits Lists exhibits filed with Form 10-Q, including LTIP Units Award Agreement, CEO/CFO certifications, and XBRL financial statements - Exhibits include the Form of LTIP Units Award Agreement, CEO and CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and XBRL formatted financial statements[218]