DiamondRock Hospitality pany(DRH) - 2024 Q1 - Quarterly Results

Executive Summary & Company Overview DiamondRock Hospitality Company reported strong Q1 2024 comparable total revenue growth, announced key leadership appointments, and reaffirmed its strategic focus on value-added hotel real estate First Quarter 2024 Highlights DiamondRock Hospitality Company reported its first quarter 2024 results with comparable total revenues increasing by 3.8% from 2023, alongside a slight decrease in comparable RevPAR and Hotel Adjusted EBITDA. The company also raised the midpoint of its full-year guidance First Quarter 2024 Financial Highlights (Millions) | Metric | 2024 (Millions) | Change from 2023 | | :-------------------------------- | :-------------- | :--------------- | | Net Income | $8.4 | (8.7)% | | Earnings per diluted share | $0.03 | 0.0% | | Comparable Total Revenues | $256.4 | 3.8% | | Comparable RevPAR | $184.23 | (0.4)% | | Comparable Hotel Adjusted EBITDA | $61.4 | (3.0)% | | Comparable Hotel Adjusted EBITDA Margin | 23.95% | (169 bps) | | Adjusted EBITDA | $53.6 | (3.2)% | | Adjusted FFO | $36.0 | (5.3)% | | Adjusted FFO per diluted share | $0.17 | (5.6)% | Recent Developments & Leadership Changes The Company announced significant leadership changes, appointing Jeffrey Donnelly as CEO, Briony Quinn as CFO, and Justin Leonard as President and COO, while reducing its executive team from six to four members to drive business momentum - Jeffrey Donnelly was appointed Chief Executive Officer, Briony Quinn was named Executive Vice President, Chief Financial Officer and Treasurer, and Justin Leonard was appointed President and maintained his role as Chief Operating Officer[4] - The executive team structure was reduced from six to four members[5] CEO Commentary CEO Jeffrey Donnelly expressed commitment to the strategy of acquiring, actively owning, and disposing of value-added resort and urban hotel real estate. He noted strong food and beverage sales offsetting softer luxury resort growth and highlighted confidence in group sales and leadership structure savings as reasons for raising full-year guidance - The Company remains committed to its strategy to create long-term shareholder value through the acquisition, active-ownership, and disposition of value-added resort and urban hotel real estate[7] - First quarter total revenue growth was largely in line with expectations, with strong food and beverage sales from a 10.2% increase in group room nights offsetting softer top-line growth at luxury resorts[8] - Full-year earnings guidance was raised to incorporate savings from a streamlined leadership structure and confidence in group pace, with 85% of budgeted full-year group revenues already on the books[9] About the Company DiamondRock Hospitality Company is a self-advised REIT owning a portfolio of 36 premium hotels and resorts (over 9,700 rooms) in leisure destinations and top gateway markets, strategically positioned under global brand families and independent boutique hotels - DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that owns a portfolio of 36 premium hotels and resorts with over 9,700 rooms[17] - The portfolio is geographically diversified, concentrated in leisure destinations and top gateway markets, and operated under leading global brand families as well as independent boutique hotels[17] Financial Performance The Company reported Q1 2024 operating results, maintained robust liquidity, detailed capital expenditures, declared dividends, and provided a comprehensive market capitalization and debt summary Operating Results (Comparable & Actual) For Q1 2024, comparable total revenues increased by 3.8% to $256.4 million, while comparable RevPAR slightly decreased by 0.4% to $184.23. Actual net income was $8.4 million, an 8.7% decrease from Q1 2023 Comparable and Actual Operating Results (Quarter Ended March 31, in millions) | Metric | 2024 | 2023 | Change From 2023 | | :-------------------------- | :----- | :----- | :--------------- | | Comparable Operating Results | | | | | ADR | $269.53 | $276.43 | (2.5)% | | Occupancy | 68.4% | 66.9% | 1.5% | | RevPAR | $184.23 | $185.00 | (0.4)% | | Total RevPAR | $288.92 | $282.28 | 2.4% | | Room Revenues (millions) | $163.5 | $161.9 | 1.0% | | Total Revenues (millions) | $256.4 | $247.0 | 3.8% | | Hotel Adjusted EBITDA (millions) | $61.4 | $63.3 | (3.0)% | | Hotel Adjusted EBITDA Margin | 23.95% | 25.64% | (169 bps) | | Available Rooms | 887,523 | 875,126 | 12,397 | | Actual Operating Results | | | | | Total Revenues (millions) | $256.4 | $243.6 | 5.3% | | Net income (millions) | $8.4 | $9.2 | (8.7)% | | Earnings per diluted share | $0.03 | $0.03 | 0.0% | | Adjusted EBITDA (millions) | $53.6 | $55.4 | (3.2)% | | Adjusted FFO (millions) | $36.0 | $38.0 | (5.3)% | | Adjusted FFO per diluted share | $0.17 | $0.18 | (5.6)% | Balance Sheet and Liquidity As of March 31, 2024, the Company maintained strong liquidity of $628.5 million, comprising $228.5 million in cash and full capacity on its $400 million credit facility. Total debt outstanding was $1.2 billion - The Company ended the quarter with $628.5 million of liquidity, comprised of $120.1 million of unrestricted corporate cash, $108.4 million of unrestricted cash at its hotels, and full capacity on its $400 million senior unsecured credit facility[11] - As of March 31, 2024, total debt outstanding was $1.2 billion, consisting of $800.0 million of unsecured term loans and $375.7 million of property-specific, non-recourse mortgage debt[11] Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | ASSETS | | | | Property and equipment, net | $2,750,573 | $2,755,195 | | Cash and cash equivalents | $120,064 | $121,595 | | Total assets | $3,238,797 | $3,238,687 | | LIABILITIES AND EQUITY | | | | Debt, net of unamortized debt issuance costs | $1,174,733 | $1,177,005 | | Total liabilities | $1,589,555 | $1,589,704 | | Total stockholders' equity | $1,641,898 | $1,642,075 | | Total equity | $1,649,242 | $1,648,983 | | Total liabilities and equity | $3,238,797 | $3,238,687 | Capital Expenditures The Company invested $18.9 million in capital improvements during Q1 2024 and anticipates a total of approximately $100 million for the full year, focusing on significant renovation and repositioning projects across several properties - The Company invested approximately $18.9 million in capital improvements at its hotels during the three months ended March 31, 2024[11] - The Company continues to expect to spend approximately $100 million on capital improvements at its hotels in 2024[11] Dividends The Company declared a quarterly cash dividend of $0.03 per common share and $0.515625 per share for its 8.250% Series A Cumulative Redeemable Preferred Stock - The Company declared a quarterly cash dividend of $0.03 per common share, paid on April 12, 2024[12] - A quarterly dividend of $0.515625 per share was paid on its 8.250% Series A Cumulative Redeemable Preferred Stock on March 29, 2024[12] Market Capitalization and Debt Summary As of March 31, 2024, the total enterprise value was $3.23 billion, with common equity capitalization at $2.05 billion. The debt portfolio included $1.18 billion in consolidated debt, with a weighted-average interest rate of 5.22% Market Capitalization as of March 31, 2024 (in thousands) | Metric | Amount | | :-------------------------------------------------- | :------------- | | Common equity capitalization (at $9.61/share) | $2,053,739 | | Preferred equity capitalization (at $25.00/share) | $119,000 | | Consolidated debt (face amount) | $1,175,728 | | Cash and cash equivalents | ($120,064) | | Total enterprise value | $3,228,403 | | Combined shares and units | 213,708 | Debt Summary as of March 31, 2024 (dollars in thousands) | Loan Type | Interest Rate | Term | Outstanding Principal | Maturity | | :------------------------------------ | :------------ | :------- | :-------------------- | :----------- | | Property-specific mortgage debt (4 loans) | 3.66%-4.40% | Fixed | $375,728 | Aug 2024 - Nov 2025 | | Unsecured term loan | SOFR + 1.35% | Variable | $500,000 | Jan 2028 | | Unsecured term loan | SOFR + 1.35% | Variable | $300,000 | Jan 2025 | | Senior unsecured credit facility | SOFR + 1.40% | Variable | $0 | Sep 2026 | | Total debt | | | $1,175,728 | | | Weighted-average interest rate of fixed rate debt | 4.09% | | | | | Total weighted-average interest rate (incl. swaps) | 5.22% | | | | Financial Guidance DiamondRock revised its full-year 2024 guidance upwards for Adjusted EBITDA and FFO, while maintaining comparable RevPAR growth expectations, and provided updates on key renovation projects Full Year 2024 Guidance Revision DiamondRock revised its full-year 2024 guidance, raising the midpoint for Adjusted EBITDA by $5.0 million to a range of $270-$290 million and Adjusted FFO by $2.0 million to $194-$214 million, with Adjusted FFO per diluted share now expected between $0.91 and $1.00. Comparable RevPAR growth guidance remains unchanged at 2.0% to 4.0% Revised Full Year 2024 Guidance | Metric | Previous Low End | Previous High End | Revised Low End | Revised High End | Change at Midpoint | | :-------------------------------- | :--------------- | :---------------- | :-------------- | :--------------- | :----------------- | | Comparable RevPAR Growth | 2.0% | 4.0% | 2.0% | 4.0% | - | | Adjusted EBITDA (millions) | $260 | $290 | $270 | $290 | +$5.0 million | | Adjusted FFO (millions) | $187 | $217 | $194 | $214 | +$2.0 million | | Adjusted FFO per diluted share | $0.88 | $1.02 | $0.91 | $1.00 | +$0.01 per share | - Guidance incorporates corporate expenses of $29.5 million to $30.5 million (excluding executive transition costs), interest expense of $65.2 million to $66.2 million, and 3,571,062 available rooms[18] Key Project Updates The Company is undertaking several significant renovation and repositioning projects, including the Westin San Diego Bayview (Q2 2024 completion), Hilton Burlington Lake Champlain rebranding to Curio Collection (Summer 2024), Orchards Inn Sedona repositioning (2025 completion), and The Landing Lake Tahoe Resort and Spa renovation (2025 completion) - Westin San Diego Bayview: Comprehensive guestroom renovation expected to be completed in Q2 2024[14] - Hilton Burlington Lake Champlain: Repositioning to rebrand as a Curio Collection by Hilton hotel, including a new restaurant concept, expected to be completed in Summer 2024[14] - Orchards Inn Sedona: Repositioning as The Cliffs at L'Auberge, integrating with L'Auberge de Sedona and including new pool construction, guestroom renovation, and new event space, expected to commence in 2024 and complete in 2025[14] - The Landing Lake Tahoe Resort and Spa: Renovation to accommodate 14 new keys and construct an adjacent indoor/outdoor event space, expected to be completed in 2025[14] Non-GAAP Financial Measures This section defines and reconciles key non-GAAP financial measures, including EBITDA, FFO, and comparable operating results, to their most directly comparable GAAP measures Definition and Use of Non-GAAP Measures The Company utilizes non-GAAP measures such as EBITDA, EBITDAre, Adjusted EBITDA, Hotel Adjusted EBITDA, FFO, and Adjusted FFO to evaluate operating performance and facilitate comparisons, acknowledging their limitations and providing reconciliations to GAAP measures - The Company uses EBITDA, EBITDAre, Adjusted EBITDA, Hotel Adjusted EBITDA, FFO, and Adjusted FFO as key measures of operating performance, useful for evaluating hotel performance and facilitating comparisons with other lodging REITs[25][26][29] - These non-GAAP measures are presented in addition to GAAP results and exclude certain expenses or expenditures like depreciation, interest, and capital expenditures, as well as specific non-cash or non-recurring items to provide a clearer view of ongoing operating performance[26][27][31] - Hotel Adjusted EBITDA specifically excludes corporate-level expenses to provide a more complete understanding of property-level operating results[33] Reconciliation of EBITDA, EBITDAre, and Adjusted EBITDA Reconciliation tables show the derivation of EBITDA, EBITDAre, and Adjusted EBITDA from net income for Q1 2024 and 2023, and for the full-year 2024 guidance, adjusting for interest expense, income tax, depreciation, and specific non-cash items Reconciliation of GAAP Net Income to EBITDA, EBITDAre, and Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------ | :------ | :------ | | Net income | $8,358 | $9,188 | | Interest expense | $16,246 | $17,172 | | Income tax benefit | ($1,090) | ($226) | | Real estate related depreciation and amortization | $28,313 | $27,472 | | EBITDA/EBITDAre | $51,827 | $53,606 | | Non-cash lease expense and other amortization | $1,518 | $1,550 | | Hotel pre-opening costs | $234 | $216 | | Adjusted EBITDA | $53,579 | $55,372 | | Corporate expenses | $8,904 | $7,867 | | Interest (income) and other (income) expense, net | ($1,069) | ($423) | | Hotel Adjusted EBITDA | $61,414 | $62,816 | Full Year 2024 Guidance for Adjusted EBITDA (in thousands) | Metric | Low End | High End | | :------------------------------------------ | :------ | :------- | | Net income | $86,817 | $108,817 | | Interest expense | $66,183 | $65,183 | | Income tax expense | — | $1,000 | | Real estate related depreciation and amortization | $110,000 | $108,000 | | EBITDA/EBITDAre | $263,000 | $283,000 | | Non-cash lease expense and other amortization | $6,200 | $6,200 | | Hotel pre-opening costs | $800 | $800 | | Adjusted EBITDA | $270,000 | $290,000 | Reconciliation of FFO and Adjusted FFO Reconciliation tables illustrate the calculation of FFO and Adjusted FFO from net income for Q1 2024 and 2023, and for the full-year 2024 guidance, primarily by adding back real estate related depreciation and amortization and adjusting for non-cash lease expense and hotel pre-opening costs Reconciliation of GAAP Net Income to FFO and Adjusted FFO (in thousands) | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------ | :------ | :------ | | Net income | $8,358 | $9,188 | | Real estate related depreciation and amortization | $28,313 | $27,472 | | FFO | $36,671 | $36,660 | | Distribution to preferred stockholders | ($2,454) | ($2,454) | | FFO available to common stock and unit holders | $34,217 | $34,206 | | Non-cash lease expense and other amortization | $1,518 | $1,550 | | Hotel pre-opening costs | $234 | $216 | | Fair value adjustments to interest rate swaps | — | $2,014 | | Adjusted FFO available to common stock and unit holders | $35,969 | $37,986 | | Adjusted FFO available to common stock and unit holders, per diluted share | $0.17 | $0.18 | Full Year 2024 Guidance for Adjusted FFO (in thousands) | Metric | Low End | High End | | :------------------------------------------ | :------ | :------- | | Net income | $86,817 | $108,817 | | Real estate related depreciation and amortization | $110,000 | $108,000 | | FFO | $196,817 | $216,817 | | Distribution to preferred stockholders | ($9,817) | ($9,817) | | FFO available to common stock and unit holders | $187,000 | $207,000 | | Non-cash lease expense and other amortization | $6,200 | $6,200 | | Hotel pre-opening costs | $800 | $800 | | Adjusted FFO available to common stock and unit holders | $194,000 | $214,000 | | Adjusted FFO available to common stock and unit holders, per diluted share | $0.91 | $1.00 | Reconciliation of Comparable Operating Results The Company provides a reconciliation of actual revenues and Hotel Adjusted EBITDA to comparable figures for Q1 2024 and Q1 2023, specifically excluding pre-acquisition operating results for Chico Hot Springs Resort from the prior year to ensure comparability Reconciliation of Comparable Operating Results (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | | :-------------------------------- | :----- | :----- | | Revenues | $256,423 | $243,553 | | Less: Hotel revenues from prior ownership | — | $3,481 | | Comparable Revenues | $256,423 | $247,034 | | Hotel Adjusted EBITDA | $61,414 | $62,816 | | Less: Hotel Adjusted EBITDA from prior ownership | — | $520 | | Comparable Hotel Adjusted EBITDA | $61,414 | $63,336 | | Hotel Adjusted EBITDA Margin | 23.95% | 25.79% | | Comparable Hotel Adjusted EBITDA Margin | 23.95% | 25.64% | Hotel Adjusted EBITDA Reconciliation Detailed hotel-level reconciliations are provided for Q1 2024 and Q1 2023, showing how Hotel Adjusted EBITDA is derived from net income, depreciation, interest expense, and specific adjustments for each property Hotel Adjusted EBITDA Reconciliation - First Quarter 2024 (in thousands) | Hotel | Total Revenues | Net Income / (Loss) | Depreciation | Interest Expense | Adjustments | Hotel Adjusted EBITDA | | :------------------------------------------ | :------------- | :------------------ | :----------- | :--------------- | :---------- | :-------------------- | | Atlanta Marriott Alpharetta | $4,186 | $1,090 | $375 | $0 | $0 | $1,465 | | Bourbon Orleans Hotel | $4,991 | $1,314 | $874 | $0 | ($29) | $2,159 | | Cavallo Point, The Lodge at the Golden Gate | $9,847 | ($66) | $1,461 | $0 | $94 | $1,489 | | ... (partial list) ... | | | | | | | | Worthington Renaissance Fort Worth Hotel | $12,577 | $2,174 | $851 | $702 | $0 | $3,727 | | Comparable Total | $256,423 | $27,328 | $28,313 | $4,157 | $1,518 | $61,414 | Hotel Adjusted EBITDA Reconciliation - First Quarter 2023 (in thousands) | Hotel | Total Revenues | Net Income / (Loss) | Depreciation | Interest Expense | Adjustments | Hotel Adjusted EBITDA | | :------------------------------------------ | :------------- | :------------------ | :----------- | :--------------- | :---------- | :-------------------- | | Atlanta Marriott Alpharetta | $4,017 | $939 | $364 | $0 | $0 | $1,303 | | Bourbon Orleans Hotel | $5,064 | $1,429 | $837 | $0 | $6 | $2,272 | | Cavallo Point, The Lodge at the Golden Gate | $10,393 | $894 | $1,392 | $0 | $94 | $2,380 | | ... (partial list) | | | | | | | | Worthington Renaissance Fort Worth Hotel | $12,092 | $1,907 | $1,126 | $712 | $0 | $3,745 | | Total | $243,553 | $29,579 | $27,472 | $4,214 | $1,550 | $62,816 | | Add: Prior Ownership Results | $3,481 | $295 | $225 | $0 | $0 | $520 | | Comparable Total | $247,034 | $29,874 | $27,697 | $4,214 | $1,550 | $63,336 | Supplemental Operating Information This section provides detailed historical and hotel-level comparable operating statistics for the first quarter of 2024 and prior periods Selected Quarterly Comparable Operating Information Presents a historical overview of key comparable operating metrics, including ADR, Occupancy, RevPAR, Total RevPAR, Revenues, and Hotel Adjusted EBITDA, for each quarter of 2023 and Q1 2024 Selected Quarterly Comparable Operating Information (2023 & Q1 2024) | Metric | Quarter 1, 2023 | Quarter 2, 2023 | Quarter 3, 2023 | Quarter 4, 2023 | Full Year 2023 | Quarter 1, 2024 | | :-------------------------- | :-------------- | :-------------- | :-------------- | :-------------- | :------------- | :-------------- | | ADR | $276.43 | $292.67 | $273.28 | $282.57 | $281.36 | $269.53 | | Occupancy | 66.9% | 76.6% | 76.4% | 68.4% | 72.1% | 68.4% | | RevPAR | $185.00 | $224.27 | $208.66 | $193.16 | $202.81 | $184.23 | | Total RevPAR | $282.28 | $333.24 | $310.54 | $294.05 | $305.08 | $288.92 | | Revenues (in thousands) | $247,034 | $295,059 | $278,162 | $263,547 | $1,083,802 | $256,423 | | Hotel Adjusted EBITDA (in thousands) | $63,336 | $94,335 | $80,492 | $64,817 | $302,980 | $61,414 | | Hotel Adjusted EBITDA Margin | 25.64% | 31.97% | 28.94% | 24.59% | 27.96% | 23.95% | | Available Rooms | 875,126 | 885,430 | 895,743 | 896,260 | 3,552,559 | 887,523 | Operating Statistics – First Quarter (Hotel Level) Provides granular operating statistics for each of the Company's 36 hotels for Q1 2024 compared to Q1 2023, detailing changes in ADR, Occupancy, and RevPAR Operating Statistics – First Quarter (Hotel Level) | Hotel | Rooms | 1Q 2024 ADR | 1Q 2023 ADR | ADR B/(W) 2023 | 1Q 2024 Occupancy | 1Q 2023 Occupancy | Occupancy B/(W) 2023 | 1Q 2024 RevPAR | 1Q 2023 RevPAR | RevPAR B/(W) 2023 | | :------------------------------------------ | :---- | :---------- | :---------- | :------------- | :------------------ | :------------------ | :------------------- | :------------- | :------------- | :---------------- | | Atlanta Marriott Alpharetta | 318 | $165.66 | $159.23 | 4.0% | 59.1% | 62.6% | (3.5)% | $97.96 | $99.61 | (1.7)% | | Bourbon Orleans Hotel | 220 | $261.57 | $260.14 | 0.5% | 76.6% | 80.9% | (4.3)% | $200.49 | $210.46 | (4.7)% | | Cavallo Point, The Lodge at the Golden Gate | 142 | $550.92 | $567.94 | (3.0)% | 51.0% | 52.7% | (1.7)% | $281.13 | $299.21 | (6.0)% | | ... (partial list) ... | | | | | | | | | | | | Worthington Renaissance Fort Worth Hotel | 504 | $209.20 | $196.60 | 6.4% | 69.9% | 74.1% | (4.2)% | $146.33 | $145.65 | 0.5% | | Comparable Total | 9,757 | $269.53 | $276.43 | (2.5)% | 68.4% | 66.9% | 1.5% | $184.23 | $185.00 | (0.4)% | Forward-Looking Statements This section includes a standard disclaimer regarding forward-looking statements, highlighting inherent risks and uncertainties that could impact future results Forward-Looking Statements Disclaimer This section serves as a cautionary note, indicating that the press release contains forward-looking statements subject to various known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from expectations - The press release contains forward-looking statements identified by terms such as 'believe,' 'expect,' 'intend,' 'project,' 'forecast,' and 'plan,' including references to assumptions and forecasts of future results[18] - Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those anticipated[18] - Risks include the adverse impact of COVID-19, national and local economic conditions, operating risks, relationships with property managers, competition, and changes in travel patterns, taxes, and government regulations[18]