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

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for DiamondRock Hospitality Company as of March 31, 2024, and for the three months then ended, including balance sheets, income statements, equity, cash flows, and notes Consolidated Balance Sheets The company's total assets and total liabilities and equity remained stable at approximately $3.24 billion from December 2023 to March 2024, with $2.75 billion in net property and $1.17 billion in debt | Balance Sheet Items | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $3,238,797 | $3,238,687 | | Property and equipment, net | $2,750,573 | $2,755,195 | | Cash and cash equivalents | $120,064 | $121,595 | | Total Liabilities | $1,589,555 | $1,589,704 | | Debt, net | $1,174,733 | $1,177,005 | | Total Equity | $1,649,242 | $1,648,983 | Consolidated Statements of Operations and Comprehensive Income Total revenues increased to $256.4 million in Q1 2024, but net income decreased to $8.3 million due to higher operating expenses, with diluted EPS remaining flat at $0.03 | Income Statement Items | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $256,423 | $243,553 | | Rooms | $163,507 | $160,673 | | Food and beverage | $68,381 | $59,777 | | Total Operating Expenses | $233,978 | $217,842 | | Net Income | $8,358 | $9,188 | | Net income attributable to common stockholders | $5,874 | $6,702 | | Earnings per share—diluted | $0.03 | $0.03 | - Comprehensive income attributable to the Company increased to $9.6 million in Q1 2024 from $9.3 million in Q1 2023, primarily driven by an unrealized gain on interest rate derivative instruments[12] Consolidated Statements of Equity Total equity slightly increased from $1.649 billion at year-end 2023 to $1.6492 billion in Q1 2024, driven by net income offset by stock distributions - Key activities affecting equity in Q1 2024 included net income of $8.3 million, distributions on common stock of $6.3 million, distributions on preferred stock of $2.5 million, and share-based compensation of $1.9 million[16] Consolidated Statements of Cash Flows Net cash from operating activities decreased to $31.2 million in Q1 2024, with cash used in investing activities at $18.9 million and financing activities at $14.3 million | Cash Flow Activities | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,233 | $58,069 | | Net cash used in investing activities | ($18,867) | ($21,642) | | Net cash used in financing activities | ($14,293) | ($21,063) | | Net (decrease) increase in cash | ($1,927) | $15,364 | Notes to the Consolidated Financial Statements The notes detail the company's organization, accounting policies, debt, equity, and subsequent events, including a new CEO appointment and expected $19 million severance costs in Q2 2024 - The company is a lodging-focused REIT that owns a portfolio of 36 premium hotels and resorts with 9,757 guest rooms as of March 31, 2024[26] | Debt Summary | As of March 31, 2024 | | :--- | :--- | | Total Debt Principal | $1,175.7 million | | Weighted-Average Interest Rate | 5.22% | | Unsecured Term Loans | $800.0 million | | Mortgage Loans | $375.7 million | - The company has a $200 million share repurchase program authorized through February 28, 2025, with $185.3 million remaining capacity as of May 3, 2024; no shares were repurchased in Q1 2024[53] - On April 15, 2024, the company appointed Jeffrey J. Donnelly as the new CEO and announced other leadership changes, expecting to recognize approximately $19 million in severance costs in Q2 2024[71][72][73] Management's Discussion and Analysis (MD&A) Management discusses Q1 2024 operating results, financial condition, and liquidity, highlighting a 5.3% revenue increase, decreased net income, a conservative capital structure, and planned $100 million in capital improvements Overview The company operates as a REIT with 36 premium hotels, focusing on aggressive asset management and disciplined capital allocation, with significant leadership changes occurring in April 2024 - The company's strategy is to apply aggressive asset management and disciplined capital allocation to high-quality lodging properties in North American urban and resort markets to deliver long-term stockholder returns[78] - On April 15, 2024, the company announced significant leadership changes, including the appointment of Jeffrey J. Donnelly as CEO, Briony R. Quinn as CFO, and Justin L. Leonard as President[81] Results of Operations Q1 2024 total revenues increased by 5.3% to $256.4 million, driven by a 14.4% rise in food and beverage revenue, while hotel operating expenses increased by 7.8%, and RevPAR slightly decreased by 0.4% | Revenue Breakdown | Q1 2024 (in thousands) | Q1 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Rooms | $163,507 | $160,673 | 1.8% | | Food and beverage | $68,381 | $59,777 | 14.4% | | Other | $24,535 | $23,103 | 6.2% | | Total revenues | $256,423 | $243,553 | 5.3% | | Key Operating Statistics | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Occupancy % | 68.4% | 66.9% | 1.5% | | ADR | $269.53 | $276.43 | (2.5)% | | RevPAR | $184.23 | $185.00 | (0.4)% | - Total hotel operating expenses increased by 7.8% year-over-year, primarily due to increased occupancy, related labor costs, higher property tax assessments, and insurance premiums[98] Liquidity and Capital Resources The company maintains a conservative capital structure with 32 of 36 hotels unencumbered, plans to repay a $73.9 million mortgage in 2024, and holds $120.1 million in unrestricted cash with full availability on its $400 million credit facility - The company has one mortgage loan with a principal balance of $73.9 million maturing in 2024, which it intends to repay using cash on hand[102] - As of March 31, 2024, the company had $1.2 billion of debt outstanding with a weighted average interest rate of 5.22%, and 32 of its 36 hotels are unencumbered by mortgage debt[108] - As of March 31, 2024, liquidity consisted of $120.1 million in unrestricted cash, $45.2 million in restricted cash, and full availability on its $400 million senior unsecured credit facility[116] Capital Expenditures The company plans to invest approximately $100 million in capital improvements in 2024, with $18.9 million already spent in Q1, focusing on guestroom renovations and property repositioning - The company expects to spend approximately $100 million on capital improvements in 2024[124] - Key 2024 projects include guestroom renovation at Westin San Diego Bayview, repositioning Hilton Burlington Lake Champlain to a Curio Collection, integrating Orchards Inn Sedona with L'Auberge de Sedona, and renovating The Landing Lake Tahoe[124] Non-GAAP Financial Measures The company uses non-GAAP measures like EBITDA and FFO; Q1 2024 Adjusted EBITDA was $53.6 million, and Adjusted FFO was $36.0 million, both slightly down year-over-year | Reconciliation to Adjusted EBITDA | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net income | $8,358 | $9,188 | | EBITDA / EBITDAre | $51,827 | $53,606 | | Adjusted EBITDA | $53,579 | $55,372 | | Reconciliation to Adjusted FFO | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net income | $8,358 | $9,188 | | FFO | $36,671 | $36,660 | | Adjusted FFO available to common stock and unit holders | $35,969 | $37,986 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk on its $0.8 billion variable-rate debt, with a 100 basis point change impacting annual interest expense by $4.8 million - The company's primary market risk is interest rate risk; of its $1.2 billion in total debt, $0.8 billion is variable-rate[142] - A 100 basis point fluctuation in interest rates on the unhedged variable rate debt would result in an annual change to interest expense of $4.8 million[142] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[143] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[144] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation but does not anticipate any material adverse impact on its financial condition or results of operations - The company states that it is subject to various legal proceedings in the ordinary course of business but does not expect them to have a material adverse impact on its financial condition[146] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, were reported - No material changes to the risk factors from the Annual Report on Form 10-K for the year ended December 31, 2023, were reported[147] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q1 2024, but employees surrendered 316,624 shares for tax withholding, with $185.3 million remaining under the share repurchase authorization - In February 2024, 316,624 shares were surrendered by employees for tax withholding on vested restricted stock; these were not part of the formal share repurchase program[149] - The company has approximately $185.3 million remaining under its $200.0 million share repurchase program, which expires on February 28, 2025[149] Other Information No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during Q1 2024 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[152] Exhibits This section lists the exhibits filed with the Form 10-Q, including the 2024 Equity Incentive Plan, CEO and CFO certifications, and Interactive Data Files (XBRL) - Exhibits filed with the report include the DiamondRock Hospitality Company 2024 Equity Incentive Plan, CEO/CFO certifications (Rule 13a-14(a) and Section 906), and Inline XBRL documents[153]