Pro Forma RevPAR Increased 11.9% and Hotel Adjusted EBITDA Increased 17.3%
BETHESDA, Md., Aug. 8, 2014 -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 25 premium hotels in the United States, today announced results of operations for the quarter ended June 30, 2014.
: Pro Forma RevPAR was $169.21, an increase of 11.9% from 2013.
: Pro Forma Hotel Adjusted EBITDA margin was 32.53%, an increase of 243 basis points from 2013.
: Pro Forma Hotel Adjusted EBITDA was $74.7 million, an increase of 17.3% from 2013.
: Adjusted EBITDA was $70.9 million, an increase of 13.6% from 2013.
: Adjusted FFO was $51.9 million and Adjusted FFO per diluted share was $0.26.
: The Company declared a quarterly dividend of $0.1025 per share during the second quarter.
The $58.5 million senior mortgage loan secured by the Allerton Hotel Chicago was prepaid at par during the second quarter.
: The Company settled a litigation claim against certain contractors involved with the original construction of the Westin Boston Waterfront Hotel, which resulted in a net gain of $11.0 million during the second quarter.
: The Company refinanced the Courtyard Manhattan/Midtown East in July 2014 with a new $86.0 million mortgage bearing interest at 4.4%.
Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company, stated, "Our strong second quarter results reflect the initial impact of our significant investments to reposition DiamondRock's portfolio of the past year. Additionally, the combination of our successful internal initiatives to drive performance and an extended lodging recovery enable us to raise our full year guidance. The Company will benefit from the forthcoming acquisition of the Hilton Garden Inn Times Square Central and recent actions taken to lower our cost of capital. As we continue to execute on our strategy, strengthen our portfolio, and reap the benefits of completed renovations, we remain confident in our ability to deliver growth and strong shareholder returns across the full lodging cycle."
Please see "Certain Definitions" and "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDA," "Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO." Discussions of "Pro Forma" exclude the Oak Brook Hills Resort, which was sold in April 2014.
For the quarter ended June 30, 2014, the Company reported the following:
Hilton Garden Inn Times Square Update
The Company is under contract to purchase the 282-room hotel being constructed in Times Square for a fixed price of approximately $127 million, or $450,000 per key. The hotel will be branded a Hilton Garden Inn and be operated by Highgate Hotels, the largest operator of hotels in New York City. The balance of the acquisition price, which is approximately $100 million, is expected to be with corporate cash on hand. The Company currently expects the hotel to open during September and continues to expect the hotel to generate approximately $5.0 million of Hotel Adjusted EBITDA during 2014.
Courtyard Manhattan/Midtown East Refinancing
In July 2014, the Company entered into a new $86 million mortgage loan secured by the Courtyard Manhattan/Midtown East. The new loan has a term of 10 years and bears interest at a fixed rate of 4.4%. The new loan is interest-only for the first two years after which principal will amortize over 30 years. The hotel was previously encumbered by a $41.3 million mortgage loan bearing interest at 8.81%.
Sale of Oak Brook Hills Resort
As disclosed in its previous earnings announcement, the Company sold the 386-room Oak Brook Hills Resort to an unaffiliated third party for $30.1 million on April 14, 2014. In connection with the sale, the Company provided $4 million of seller financing. The Company recognized a net gain on the sale of the hotel of approximately $1.3 million, which is excluded from Adjusted EBITDA and Adjusted FFO.
Allerton Loan Prepayment
The $58.5 million senior mortgage loan secured by the Allerton Hotel Chicago was prepaid at par on May 21, 2014. In connection with the prepayment, the Company recognized a gain of $13.6 million, which is excluded from Adjusted EBITDA and Adjusted FFO.
Westin Boston Waterfront Hotel Litigation Settlement
In May 2014, the Company settled a legal action alleging certain issues related to the original construction of the Westin Boston Waterfront Hotel with the contractors and their insurers for $14.0 million in full and complete satisfaction of its claims against the contractors. The settlement resulted in a net gain of $11.0 million, which is excluded from Adjusted EBITDA and Adjusted FFO. The Company recorded the settlement net of a $1.2 million contingency fee paid to legal counsel and $1.8 million of legal fees and other costs incurred over the course of the legal proceedings. The $1.8 million of legal fees and other costs were previously recorded as corporate expenses and the repayment of those costs through the settlement proceeds is recorded as a reduction of corporate expenses during the three months ended June 30, 2014.
The Company has spent approximately $40.4 million on capital improvements during the six months ended June 30, 2014. The majority of the capital improvements related to the substantial completion of the Company's $140 million capital improvement program, which included the comprehensive renovations of the Westin Washington D.C. City Center, Westin San Diego, Hilton Boston and Hilton Burlington, as well as the guest room renovation at the Hilton Minneapolis.
The Company continues to expect to spend approximately $95 million on capital improvements at its hotels in 2014, of which approximately $45 million relates to the completion of the $140 million capital improvement program and approximately $50 million relates to new 2014 capital projects. The Company does not expect any material disruption from capital projects in 2014.
As of June 30, 2014, the Company had $253.9 million of unrestricted cash on hand and approximately $1.1 billion of total debt, which consists primarily of property-specific mortgage debt as well as $41.3 million outstanding borrowings under the Company's $200 million senior unsecured credit facility. As of today, the Company has over $240 million of unrestricted cash on hand and no outstanding borrowings under its senior unsecured credit facility.
The Company's Board of Directors declared a quarterly dividend of $0.1025 per share to stockholders of record as of June 30, 2014. The dividend was paid on July 10, 2014.
Outlook and Guidance
The Company is providing annual guidance for 2014, but does not undertake to update it for any developments in its business. Achievement of the anticipated results is subject to the risks disclosed in the Company's filings with the U.S. Securities and Exchange Commission. The Company's outlook assumes the Hilton Garden Inn Times Square Central opens in September 2014. The 2014 Pro Forma RevPAR growth excludes the Hilton Garden Inn Times Square Central, which is expected to positively impact the Company's RevPAR by approximately 75 basis points.
The Company is increasing its full year 2014 guidance to incorporate its second quarter outperformance. The Company now expects the full year 2014 results to be as follows:
The Company expects approximately 26% of full year 2014 Adjusted EBITDA and Adjusted FFO to be earned during the third quarter 2014.
The midpoint of the guidance range above implies Hotel Adjusted EBITDA margin growth of over 265 basis points. The Company also increased its Pro Forma RevPAR growth outlook excluding the New York City hotels under renovation during 2013 to 6 percent to 8 percent.
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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 owns 25 premium quality hotels with over 10,700 rooms. The Company has strategically positioned its hotels to generally be operated under the leading global brands such as Hilton, Marriott, and Westin. For further information on the Company and its portfolio, please visit DiamondRock Hospitality Company's website at .