Largest Quarterly Hotel Profit Since Pandemic Inception

Third Quarter RevPAR Exceeded 80% of 2019

BETHESDA, Md., Nov. 4, 2021 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 31 premium hotels in the United States, today announced results of operations for the quarter ended September 30, 2021.

Highlights:

• Net Loss: Net loss was $1.8 million and loss per diluted share was $0.02.
• Comparable Revenues: Comparable total revenues were $181.5 million, which represents 20.4% decline from the comparable period of 2019.
• Comparable RevPAR: Comparable RevPAR was $155.17, which represents a 19.6% decline from the comparable period of 2019. Comparable ADR increased 0.7% from the comparable period in 2019.
• Comparable Hotel Adjusted EBITDA:Comparable Hotel Adjusted EBITDA was $48.3 million, a $18.4 million improvement from the second quarter of 2021.
• Adjusted EBITDA: Adjusted EBITDA was $38.9 million, a $19.1 million improvement from the second quarter of 2021.
• Adjusted FFO: Adjusted FFO was $20.9 million and Adjusted FFO per diluted share was $0.10.
• Liquidity: The Company ended the third quarter with $537.9 million total liquidity. The Company has remained cash flow positive at the hotel level since March 2021.
• Hotel Acquisitions: The Company acquired the Bourbon Orleans Hotel in New Orleans, Louisiana and the Henderson Park Inn in Destin, Florida during the quarter. These acquisitions continued the Company's strategy to increase exposure to resort and leisure-oriented hotels.
• Preliminary October Results: Preliminary comparable revenues for October 2021 are 78.6% of the same period in 2019, as compared to 73.5% of the same period in 2019 for September 2021.

"Third quarter results exceeded our expectations as travel demand continued to return to our hotels and our asset management best practices enabled solid profit flow through.  Remarkably, the portfolio achieved a higher average room rate than the comparable quarter in 2019, with a number of our resorts setting all-time records," said Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company. "Our two recent acquisitions are tracking ahead of our underwriting for the year, and we are actively exploring a number of additional acquisition opportunities with our substantial investment capacity.  Additionally, we are finalizing the upbrandings of our resorts in Vail and Key West, with several more value-creation repositionings behind those.   Lastly, I want to say that we were honored to have our ESG efforts recognized by GRESB as DiamondRock was once again ranked #1 among our peers for our corporate responsibility program."

Operating Results

Please see "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDAre," "Adjusted EBITDA," "Hotel Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO" and a reconciliation of these measures to net income. Comparable operating results include our 2021 acquisitions and exclude our 2021 dispositions for all periods presented.  See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

The following tables provide operating information for the nine months ended September 30, 2021 and preliminary operating information for October 2021(1):

Hotel Acquisitions

The Company purchased the Bourbon Orleans Hotel in New Orleans, Louisiana on July 29, 2021 and the Henderson Park Inn in Destin, Florida on July 30, 2021.  The combined purchase price for the two hotels was $108.6 million. Inclusive of transaction costs, the total investment was $117.4 million.  The total investment in the Bourbon Orleans Hotel represents a 7% capitalization rate on 2019 net operating income ("NOI"). The hotel reopened in June and is expected to generate approximately a 6.3% NOI yield in 2022 and is underwritten to achieve a stabilized 8% NOI yield. The investment in the Henderson Park Inn represents an 8.8% capitalization rate on 2021 forecasted NOI.  Both hotels are currently forecasted to exceed the Company's original underwriting for 2021. 

Capital Expenditures

The Company has invested approximately $30.1 million in capital improvements at its operating hotels during the nine months ended September 30, 2021.  The Company spent approximately $2.7 million on the rebuild of Frenchman's Reef during the nine months ended September 30, 2021 and has no further obligation to fund any additional amounts related to the rebuild following the sale of the property on April 30, 2021.  The Company expects to spend approximately $55 million on necessary capital improvements and a select few transformational projects with attractive returns on investment in 2021. Significant projects include the following:

• The Lodge at Sonoma: The Company completed an upgrade renovation to reposition and rebrand the hotel to an Autograph Collection Hotel during the third quarter. The renovation includes a new restaurant by celebrity chef Michael Mina.
• Vail Marriott Mountain Resort: The Company is completing the final phase of a multi-year renovation to rebrand the resort as The Hythe Vail, a Luxury Collection Hotel in the fourth quarter of 2021.
• Margaritaville Beach House Key West: The Company is investing $3 million to convert the Barbary Beach House Key West to the Margaritaville Beach Resort Key West in the fourth quarter of 2021.
• JW Marriott Denver Cherry Creek: The Company is completing renovations in order to rebrand the hotel as Hotel Clio, a Luxury Collection Hotel at the first quarter of 2022.

Balance Sheet and Liquidity

As of September 30, 2021, the Company's liquidity was $537.9 million and is comprised of $66.5 million of unrestricted corporate cash, $71.4 million of unrestricted cash at its hotels and $400.0 million of capacity on its senior unsecured credit facility.  As of September 30, 2021, the Company had $1.0 billion of total debt outstanding, which consisted of $586.3 million of property-specific, non-recourse mortgage debt, $400.0 million of unsecured term loans and no outstanding borrowings on its $400.0 million senior unsecured credit facility.  The Company has no debt maturities until 2022. 

Dividends

The Company declared a quarterly dividend of $0.515625 per share on its 8.250% Series A Cumulative Redeemable Preferred Stock to shareholders of record as of September 17, 2021.  This dividend was paid on September 30, 2021.  The Company has suspended its quarterly common stock cash dividends. The resumption in quarterly common dividends will be determined by the Company's Board of Directors after considering the Company's obligations under its various financing agreements, projected taxable income, compliance with its debt covenants, long-term operating projections, expected capital requirements and risks affecting the Company's business.

Earnings Call

The Company will host a conference call to discuss its third quarter results on Friday, November 5, 2021, at 9:00 a.m. Eastern Time (ET).  To participate in the live call, investors are invited to dial 844-287-6622 (for domestic callers) or 530-379-4559 (for international callers).  The participant passcode is 9668876. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company's website at www.drhc.com or www.earnings.com. A replay of the webcast will also be archived on the website for one week.

About the Company

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in top gateway markets and destination resort locations.  The Company currently owns 31 premium quality hotels with over 9,100 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families as well as unique boutique hotels in the lifestyle segment.  For further information on the Company and its portfolio, please visit DiamondRock Hospitality Company's website at 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: the adverse impact of the novel coronavirus (COVID-19) on the U.S., regional and global economies, travel, the hospitality industry, and the financial condition and results of operations of the Company and its hotels; 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 and its ability to obtain covenant waivers on its credit agreements for its senior unsecured credit facility and unsecured term loans; 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; 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.

Non-GAAP Financial Measures

We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with U.S. GAAP.  EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO, as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company.

Use and Limitations of Non-GAAP Financial Measures

Our management and Board of Directors use EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable U.S. GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by U.S. GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our U.S. GAAP results and the reconciliations to the corresponding U.S. GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

EBITDA, EBITDAre and FFO

EBITDA represents net income (calculated in accordance with U.S. GAAP) excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization.  The Company computes EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate."  EBITDAre represents net income (calculated in accordance with U.S. GAAP) adjusted for: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and amortization; (4) gains or losses on the disposition of depreciated property including gains or losses on change of control; (5) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (6) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

We believe EBITDA and EBITDAre are useful to an investor in evaluating our operating performance because they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization, and in the case of EBITDAre, impairment and gains or losses on dispositions of depreciated property) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA and EBITDAre as measures in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by the Nareit, which defines FFO as net income determined in accordance with U.S. GAAP, excluding gains or losses from sales of properties and impairment losses, plus real estate related 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 related depreciation and amortization and gains or losses on the sale of assets.  The Company also uses FFO as one measure in assessing its operating results.

Hotel EBITDA

Hotel EBITDA represents net income excluding:  (1) interest expense, (2) income taxes, (3) depreciation and amortization, (4) corporate general and administrative expenses (shown as corporate expenses on the consolidated statements of operations), and (5) hotel acquisition costs. We believe that Hotel EBITDA provides our investors a useful financial measure to evaluate our hotel operating performance, excluding the impact of our capital structure (primarily interest), our asset base (primarily depreciation and amortization), and our corporate-level expenses (corporate expenses and hotel acquisition costs).  With respect to Hotel EBITDA, we believe that excluding the effect of corporate-level expenses provides a more complete understanding of the operating results over which individual hotels and third-party management companies have direct control.  We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

Adjustments to EBITDAre, FFO and Hotel EBITDA

We adjust EBITDAre, FFO and Hotel EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, Adjusted FFO and Hotel Adjusted EBITDA when combined with U.S. GAAP net income, EBITDAre, FFO and Hotel EBITDA, is beneficial to an investor's complete understanding of our consolidated and property-level operating performance.  Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues.  We adjust EBITDAre, FFO and Hotel EBITDA for the following items:

• Non-Cash Lease Expense and Other Amortization: We exclude the non-cash expense incurred from the straight line recognition of expense from our ground leases and other contractual obligations and the non-cash amortization of our favorable and unfavorable contracts, originally recorded in conjunction with certain hotel acquisitions. We exclude these non-cash items because they do not reflect the actual cash amounts due to the respective lessors and service providers in the current period and they are of lesser significance in evaluating our actual performance for that period.
• Cumulative Effect of a Change in Accounting Principle: The Financial Accounting Standards Board promulgates new accounting standards that require or permit the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude the effect of these adjustments, which include the accounting impact from prior periods, because they do not reflect the Company's actual underlying performance for the current period.
• Gains or Losses from Early Extinguishment of Debt: We exclude the effect of gains or losses recorded on the early extinguishment of debt because these gains or losses result from transaction activity related to the Company's capital structure that we believe are not indicative of the ongoing operating performance of the Company or our hotels.
• Hotel Acquisition Costs: We exclude hotel acquisition costs expensed during the period because we believe these transaction costs are not reflective of the ongoing performance of the Company or our hotels.
• Severance Costs: We exclude corporate severance costs, or reversals thereof, incurred with the termination of corporate-level employees and severance costs incurred at our hotels related to lease terminations or structured severance programs because we believe these costs do not reflect the ongoing performance of the Company or our hotels.
• Hotel Manager Transition Items: We exclude the transition items associated with a change in hotel manager because we believe these items do not reflect the ongoing performance of the Company or our hotels.
• Other Items: From time to time we incur costs or realize gains that we consider outside the ordinary course of business and that we do not believe reflect the ongoing performance of the Company or our hotels. Such items may include, but are not limited to, the following: pre-opening costs incurred with newly developed hotels; lease preparation costs incurred to prepare vacant space for marketing; management or franchise contract termination fees; gains or losses from legal settlements; costs incurred related to natural disasters; and gains on property insurance claim settlements, other than income related to business interruption insurance.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to interest rate swaps.  We exclude these non-cash amounts because they do not reflect the underlying performance of the Company.

Reconciliations of Non-GAAP Measures

EBITDA, EBITDAre and Adjusted EBITDA

The following tables are reconciliations of our GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA (in thousands):      

Hotel EBITDA and Hotel Adjusted EBITDA

The following table is a reconciliation of our GAAP net income to Hotel EBITDA and Hotel Adjusted EBITDA (in thousands):

FFO and Adjusted FFO

The following tables are reconciliations of our GAAP net income to FFO and Adjusted FFO (in thousands):

Reconciliation of Comparable Operating Results

The following presents the revenues, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin together with comparable prior year results, which excludes the results for our 2021 dispositions (in thousands):         

Selected Quarterly Comparable Operating Information

The following tables are presented to provide investors with selected quarterly comparable operating information.  The operating information includes historical quarterly operating results for our 31-hotel portfolio, which includes our 2021 acquisitions and excludes our 2021 dispositions.