Document
false0001298946 0001298946 2019-11-08 2019-11-08


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
November 8, 2019 
DiamondRock Hospitality Company
(Exact name of registrant as specified in charter)
Maryland
 
001-32514
 
20-1180098
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
2 Bethesda Metro Center, Suite 1400
BethesdaMD 20814
(Address of Principal Executive Offices) (Zip Code)

(Registrant’s telephone number, including area code): (240) 744-1150
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
DRH
 
New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      



 





This Current Report on Form 8-K (“Current Report”) 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,” “anticipate,” “position,”  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 those risks and uncertainties associated with our business described from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on February 26, 2019. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this Current Report is as of the date of this Current Report, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in our expectations.
ITEM 2.02. Results of Operations and Financial Condition.
On November 8, 2019, DiamondRock Hospitality Company (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2019. A copy of that press release is furnished as Exhibit 99.1 and is incorporated by reference herein.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.

ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are included with this report: 
 
 
 
Exhibit No.
  
Description
 
 
99.1
  
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
 
Cover Page Interactive Data File





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
DIAMONDROCK HOSPITALITY COMPANY
 
 
 
 
Date: November 8, 2019
 
 
 
By:
 
/s/ Briony R. Quinn
 
 
 
 
 
 
Briony R. Quinn
 
 
 
 
 
 
Senior Vice President and Treasurer







Exhibit

http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13190599&doc=8

COMPANY CONTACTS    

Jeff Donnelly
Chief Financial Officer
(240) 744-1190

Briony Quinn
Senior Vice President
(240) 744-1196

FOR IMMEDIATE RELEASE

DIAMONDROCK HOSPITALITY COMPANY REPORTS THIRD QUARTER 2019 RESULTS
Comparable Total Revenue Growth of 3.2%
2020 Group Pace Remains Strong
BETHESDA, Maryland, Friday, November 8, 2019 – 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, 2019.
Third Quarter 2019 Highlights
Net Income: Net income was $11.6 million and earnings per diluted share was $0.06
Comparable Revenues: Comparable total revenues increased 3.2% from the comparable period of 2018.
Comparable RevPAR: RevPAR was $196.95, a 1.6% increase from the comparable period of 2018 despite disruption from Hurricane Dorian (40 basis points) and renovations (20 basis points).
Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 30.67%, a 58 basis point contraction from the comparable period of 2018.
Adjusted EBITDA: Adjusted EBITDA was $67.5 million, a decrease of $2.8 million from 2018.
Adjusted FFO: Adjusted FFO was $55.3 million and Adjusted FFO per diluted share was $0.27.
Share Repurchases: During the third quarter of 2019, the Company repurchased 0.3 million shares of its common stock at an average price of $9.96 per share.
Refinancings: On July 25, 2019, the Company amended its senior unsecured revolving credit facility to increase capacity to $400 million, decrease pricing and extend the maturity date to July 2023. Concurrently, the Company closed on a new five-year $350 million senior unsecured term loan and repaid $300 million in outstanding senior unsecured term loans.
Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, “We were pleased with our third quarter results, as we were able to increase comparable revenues by 3.2%. Our asset management strategy to focus on total revenues led to impressive 6.8% growth in food and beverage revenues and 9.4% growth in other revenue streams. Our resort portfolio was particularly strong in the quarter with RevPAR growth of 4.3%. Despite disruption from Hurricane Dorian and anticipated renovations, tight cost controls limited




profit margin decline to 58 basis points. We continued to advance a number of this year's high value-add renovations, including the Hotel Emblem San Francisco, JW Marriott Denver and Vail Mountain Marriott. Looking ahead, our 2020 group pace is up a robust 17%, with the strongest growth at our hotels in Chicago and Boston.
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 Margin,” “FFO” and “Adjusted FFO” and a reconciliation of these measures to net income. Comparable operating results include the Company's acquisitions for all periods presented and exclude Frenchman's Reef for all periods presented and Havana Cabana Key West from January 1 to March 31, 2019 and the comparable period of 2018 due to the closure of these hotels. In addition, comparable operating results exclude Hotel Emblem beginning September 1, 2019 and the comparable period of 2018 due to the closure of the hotel for renovation during this time period of 2018. See “Reconciliation of Comparable Operating Results” attached to this press release for a reconciliation to historical amounts.

For the quarter ended September 30, 2019, the Company reported the following:
 
Third Quarter
 
 
2019
 
2018
Change

Comparable Operating Results (1)
 
 
 
 
ADR

$238.35

 

$235.89

1.0
%
Occupancy
82.6
%
 
82.2
%
0.4 percentage points

RevPAR

$196.95

 

$193.90

1.6
%
Total RevPAR

$271.99

 

$263.86

3.1
%
Revenues
$239.4 million

 
$232.0 million

3.2
%
Hotel Adjusted EBITDA
$73.4 million

 
$72.5 million

1.2
%
Hotel Adjusted EBITDA Margin
30.67
%
 
31.25
%
-58 basis points

Available Rooms
880,320

 
879,368

952 rooms

 
 
 
 
 
Actual Operating Results (2)
 
 
 
 
Revenues
$240.3 million

 
$220.8 million

8.8
%
Net income
$11.6 million

 
$31.4 million

-$19.8 million

Earnings per diluted share

$0.06

 

$0.15


-$0.09

Adjusted EBITDA
$67.5 million

 
$70.3 million

-$2.8 million

Adjusted FFO
$55.3 million

 
$56.9 million

-$1.6 million

Adjusted FFO per diluted share

$0.27

 

$0.27


$0.00

(1) Comparable operating results exclude Frenchman’s Reef for all periods presented and Hotel Emblem from September 1, 2019 to September 30, 2019 and the comparable period of 2018 and include pre-acquisition operating results for Cavallo Point from July 1, 2018 to September 30, 2018. Pre-acquisition operating results were obtained from the seller during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the seller and these pre-acquisition operating results were not audited or reviewed by the Company's independent auditors.
(2) Actual operating results include all of the Company's hotels for its respective ownership periods.

The Company's third quarter results were negatively impacted by the disruption from Hurricane Dorian in September 2019, which affected its three hotels in South Florida and the Renaissance Charleston Historic District. The disruption to Comparable RevPAR and Comparable Hotel Adjusted EBITDA margins was 40 basis points and 16 basis points, respectively, and $0.8 million in Hotel Adjusted EBITDA. Additionally, anticipated renovation disruption, primarily related to the repositioning of the Sheraton Suites Key West, negatively impacted Comparable RevPAR and Comparable Hotel Adjusted EBITDA margins by 20 basis points and 11 basis points, respectively, and Hotel Adjusted EBITDA by $0.5 million.

2



For the nine months ended September 30, 2019, the Company reported the following:
 
Year to Date
 
 
2019
 
2018
Change

Comparable Operating Results (1)
 
 
 
 
ADR

$235.75

 

$234.20

0.7
%
Occupancy
79.6
%
 
79.5
%
0.1 percentage points

RevPAR

$187.70

 

$186.30

0.8
%
Total RevPAR

$267.27

 

$259.74

2.9
%
Revenues
$696.8 million

 
$676.0 million

3.1
%
Hotel Adjusted EBITDA
$207.5 million

 
$204.3 million

1.6%

Hotel Adjusted EBITDA Margin
29.77
%
 
30.23
%
-46 basis points

Available Rooms
2,607,189

 
2,602,428

4,761 rooms

 
 
 
 
 
Actual Operating Results (2)
 
 
 
 
Revenues
$700.6 million

 
$640.3 million

9.4
%
Net income
$49.6 million

 
$63.8 million

-$14.2 million

Earnings per diluted share

$0.24

 

$0.31


-$0.07

Adjusted EBITDA
$197.8 million

 
$189.5 million

$8.3 million

Adjusted FFO
$162.3 million

 
$156.2 million

$6.1 million

Adjusted FFO per diluted share

$0.80

 

$0.76


$0.04

(1) Comparable operating results exclude Frenchman’s Reef for all periods presented, Havana Cabana Key West from January 1 to March 31, 2019 and the comparable period of 2018 and Hotel Emblem from September 1, 2019 to September 30, 2019 and the comparable period of 2018 and include pre-acquisition operating results for The Landing Resort & Spa and Hotel Palomar Phoenix from January 1, 2018 to February 28, 2018 and Cavallo Point from January 1, 2018 to September 30, 2018. Pre-acquisition operating results were obtained from the seller during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the seller and these pre-acquisition operating results were not audited or reviewed by the Company's independent auditors.
(2) Actual operating results include all of the Company's hotels for its respective ownership periods.

Financing Activity

On July 25, 2019, the Company entered into an amended and restated credit agreement that provides for a $400 million senior unsecured revolving credit facility and a five-year $350 million senior unsecured term loan. The Company used the proceeds from the new term loan to repay $300 million of outstanding senior unsecured term loans. The credit facility matures in July 2023, with a one-year extension option, and the term loan matures in July 2024. The interest rate is based on the Company's leverage ratio and has a pricing grid ranging from 140 to 205 basis points over LIBOR for the credit facility and 135 to 200 basis points over LIBOR for the term loan.

Frenchman's Reef Insurance Claim Update

The Company is in the process of rebuilding the resort following the significant damage caused by two sequential hurricanes in 2017. The property will be relaunched as two separate resorts, Frenchman's Reef Marriott Resort & Spa and Noni Beach, a St. Thomas Resort, both managed by Aimbridge Hospitality. The resorts are expected to reopen in the fall of 2020. Under its insurance policy, the Company is entitled to be compensated for, among other things, the cost to replace the damaged property, as well as lost profits during the rebuilding period. The Company and its insurers are in litigation regarding the Company's insurance claim with a trial date set for January 2020. Subsequent to the end of the quarter, the Company received a commitment for $40.1 million of additional insurance proceeds, which brings the total amount received by the Company under its claim to $133.3 million.


3



Capital Expenditures

The Company invested approximately $75.6 million in capital improvements at its operating hotels during the nine months ended September 30, 2019. The Company expects to invest approximately $125 million on capital improvements at its hotels in 2019. Significant projects in 2019 include the following:

Hotel Emblem San Francisco: In January 2019, the Company completed the repositioning and rebranding of Hotel Emblem, which is now part of Viceroy's Urban Collection. As part of the renovation, the Company created two additional rooms at the hotel.
JW Marriott Denver Cherry Creek: The Company completed the renovation of the hotel's guestrooms and meeting space during the first quarter of 2019 and expects to renovate the public space later this year. As part of the guestrooms renovation, the Company created three additional rooms at the hotel.
Sheraton Suites Key West: The Company is completing a comprehensive repositioning renovation of the hotel, which includes upgrades to the resort’s entrance, lobby, restaurant, outdoor lounge, pool area and guestrooms. The renovation is expected to be substantially complete during the fourth quarter of 2019.
Vail Marriott: The Company substantially completed the second phase of the hotel renovation in the third quarter of 2019, which included the upgrade of the spa and fitness center. The scope of this project is consistent with the Company's multi-phased strategy to renovate the hotel to a luxury standard in order to position it for an upbranding in 2021 to close the rate gap with the luxury competitive set.
Worthington Renaissance: The Company completed the renovation of the hotel's lobby in September 2019 and expects to complete a repositioning of the restaurant outlets during the fourth quarter of 2019.
The Landing Resort & Spa Lake Tahoe: In third quarter of 2019, the Company completed the addition of five new guestrooms at the hotel.
The Lodge at Sonoma: The Company expects to enhance the overall resort to close the rate gap with the luxury competition in the market. Enhancements include adding a restaurant by Michael Mina and upgrading the spa to a luxury level.

Balance Sheet
 
As of September 30, 2019, the Company had $26.7 million of unrestricted cash on hand and approximately $1.1 billion of total debt, which consisted of property-specific mortgage debt, $400.0 million of unsecured term loans and $75.0 million of borrowings on its $400.0 million senior unsecured credit facility. The Company expects to end the year with a debt-to-EBITDA ratio of 4.1 times, which would be lower were it not for the loss of EBITDA from the closure of Frenchman's Reef.

Share Repurchase Program

During the third quarter of 2019, the Company repurchased 0.3 million shares of its common stock at an average
price of $9.96 per share for a total purchase price of $2.8 million. The Company has repurchased 7.8 million shares of its common stock at an average price of $9.58 per share since it began repurchasing shares in December 2018. The Company has $175.2 million of remaining authorized capacity under its $250 million share repurchase program.

Guidance
The Company is providing annual guidance for 2019, 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. Comparable RevPAR growth assumes all of the Company’s hotels were owned as of January 1, 2018, but excludes Havana Cabana Key West from January 1 to March 31, 2018 and 2019, Hotel Emblem from September 1 to December 31, 2018 and 2019 and Frenchman’s Reef for all periods.
 
The Company is updating its full year guidance for the following: flat transient demand trends continuing in the fourth quarter, the unanticipated disruption from Hurricane Dorian in the third quarter and disruption from PG&E's voluntary power outages in Northern California. The Company now expects full year 2019 results to be as follows:

4



 
 
Prior Guidance
Revised Guidance
Change at Midpoint
 
Metric
Low End
High End
Low End
High End
 
 
(Includes Frenchman's Reef Business Interruption Agreed Upon For Partial Year 2019)
 
Comparable RevPAR Growth
0 percent
1.5 percent
0 percent
0.75 percent
-37.5 basis points
 
Comparable Total RevPAR Growth
0.5 percent
2.5 percent
1.0 percent
2.5 percent
+25 basis points
 
Adjusted EBITDA
$256 million
$265 million
$256 million
$260 million
-$2.5 million
 
Adjusted FFO
$206 million
$214 million
$211 million
$214 million
+$2.5 million
 
Adjusted FFO per share (based on 204 million diluted shares)
$1.01 per share
$1.05 per share
$1.03 per share
$1.05 per share
+$0.01 per share

The guidance above incorporates business interruption insurance income related to Frenchman's Reef of $8.8 million, which is less than the $16.1 million recognized in 2018. The Company believes it is entitled to at least $16.1 million of business interruption insurance income for the full year 2019, but the insurers have only agreed to $8.8 million at this time, which represents lost profits through April 2019. The Company continues to pursue from insurers all of the amounts to which it believes it is legally entitled under its insurance policies, but the timing of a resolution is uncertain. The following chart provides a quarterly comparison of income received from business interruption insurance in 2018 and projected for 2019:
Frenchman's Reef BI Income
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Full Year
2018
$5.3 million
$2.0 million
$5.7 million
$3.1 million
$16.1 million
2019
$8.8 million
$0.0 million
$0.0 million
TBD
$8.8 million + TBD

Selected Quarterly Comparable Operating Information

The following table is presented to provide investors with selected quarterly comparable operating information. The operating information includes the Company's 2018 acquisitions for all periods and excludes Havana Cabana Key West from January 1, 2018 to March 31, 2018, Hotel Emblem from September 1, 2018 to December 31, 2018 and Frenchman's Reef for all periods.
 
Quarter 1, 2018
Quarter 2, 2018
Quarter 3, 2018
Quarter 4, 2018
Full Year 2018
ADR
$
215.62

$
248.73

$
235.89

$
244.43

$
236.71

Occupancy
73.6
%
82.7
%
82.2
%
76.9
%
78.9
%
RevPAR
$
158.72

$
205.69

$
193.90

$
188.06

$
186.75

Revenues (in thousands)
$
195,580

$
248,351

$
232,028

$
231,328

$
907,287

Hotel Adjusted EBITDA (in thousands)
$
47,577

$
84,225

$
72,513

$
69,921

$
274,236

        % of full Year
17.35
%
30.71
%
26.44
%
25.50
%
100.0
%
Hotel Adjusted EBITDA Margin
24.33
%
33.91
%
31.25
%
30.23
%
30.23
%
Available Rooms
853,470

869,590

879,368

873,540

3,475,968


5



Earnings Call
The Company will host a conference call to discuss its third quarter results on Friday, November 8, 2019, at 11:00 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 9690568. 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 owns 31 premium quality hotels with over 10,000 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, including statements related to the expected duration of closure of Frenchman’s Reef and anticipated insurance coverage. These risks include, but are not limited to: 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; 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.

6



DIAMONDROCK HOSPITALITY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Property and equipment, net
$
3,008,023

 
$
2,944,617

Right-of-use assets (1)
98,496

 

Favorable lease assets, net

 
63,945

Restricted cash
49,579

 
47,735

Due from hotel managers
114,125

 
86,914

Prepaid and other assets (2)
18,249

 
10,506

Cash and cash equivalents
26,723

 
43,863

Total assets
$
3,315,195

 
$
3,197,580

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Mortgage and other debt, net of unamortized debt issuance costs
$
619,956

 
$
629,747

Term loans, net of unamortized debt issuance costs
398,699

 
348,219

Senior unsecured credit facility
75,000

 

Total debt
1,093,655

 
977,966

 
 
 
 
Deferred income related to key money, net
11,441

 
11,739

Unfavorable contract liabilities, net
67,997

 
73,151

Deferred rent
51,020

 
93,719

Lease liabilities (1)
102,970

 

Due to hotel managers
81,426

 
72,678

Distributions declared and unpaid
25,771

 
26,339

Accounts payable and accrued expenses (3)
70,561

 
51,395

Total liabilities
1,504,841

 
1,306,987

Equity:
 
 
 
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding

 

Common stock, $0.01 par value; 400,000,000 shares authorized; 200,196,850 and 204,536,485 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
2,002

 
2,045

Additional paid-in capital
2,087,937

 
2,126,472

Accumulated deficit
(287,582
)
 
(245,620
)
Total stockholders’ equity
1,802,357

 
1,882,897

Noncontrolling interests
7,997

 
7,696

Total equity
1,810,354

 
1,890,593

Total liabilities and equity
$
3,315,195

 
$
3,197,580


(1) On January 1, 2019, we adopted Accounting Standard No. 2016-02, Leases (Topic 842), as amended. The new standard requires that all leases be recognized as lease assets and lease liabilities on the balance sheet. As a result, we have recognized $98.5 million of right-of-use assets and $103.0 million of lease liabilities as of September 30, 2019. The adoption did not affect our statement of operations.

(2) Includes $2.8 million and $0.2 million of insurance receivables, $0.3 million of deferred tax assets, $6.5 million and $3.9 million of prepaid expenses and $8.6 million and $6.1 million of other assets as of September 30, 2019 and December 31, 2018, respectively.

(3) Includes $7.2 million of deferred tax liabilities, $3.6 million and $1.9 million of accrued hurricane-related costs, $19.1 million and $17.8 million of accrued property taxes, $23.3 million and $12.4 million of accrued capital expenditures, and $17.4 million and $12.1 million of other accrued liabilities as of September 30, 2019 and December 31, 2018, respectively.

7



DIAMONDROCK HOSPITALITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:

 
 
 
 
 
 
Rooms
$
174,113

 
$
165,750

 
$
492,395

 
$
469,786

Food and beverage
50,624

 
42,922

 
161,803

 
135,286

Other
15,542

 
12,146

 
46,374

 
35,225

Total revenues
240,279

 
220,818

 
700,572

 
640,297

Operating Expenses:
 
 
 
 
 
 
 
Rooms
42,840

 
41,779

 
124,581

 
117,972

Food and beverage
34,262

 
29,047

 
103,868

 
88,202

Management fees
6,088

 
6,099

 
18,745

 
15,542

Franchise fees
6,894

 
6,507

 
19,961

 
19,285

Other hotel expenses
85,157

 
72,224

 
241,955

 
222,152

Depreciation and amortization
29,474

 
26,369

 
87,805

 
77,304

Corporate expenses
6,318

 
4,521

 
20,785

 
22,139

Business interruption insurance income

 
(8,227
)
 
(8,822
)
 
(16,254
)
Gain on property insurance settlement


 
(1,730
)
 

 
(1,730
)
Total operating expenses, net
211,033

 
176,589

 
608,878

 
544,612

 

 

 
 
 

Interest and other income, net
(102
)
 
(621
)
 
(510
)
 
(1,428
)
Interest expense
14,184

 
10,233

 
38,264

 
30,384

Loss on early extinguishment of debt
2,373

 

 
2,373

 

  Total other expenses, net
16,455

 
9,612

 
40,127

 
28,956

Income before income taxes
12,791

 
34,617

 
51,567

 
66,729

Income tax expense
(1,217
)
 
(3,174
)
 
(1,939
)
 
(2,939
)
Net income
11,574

 
31,443

 
49,628

 
63,790

Less: Net income attributable to noncontrolling interests
(45
)
 

 
(194
)
 

Net income attributable to common stockholders
$
11,529

 
$
31,443

 
$
49,434

 
$
63,790

Earnings per share:
 
 
 
 
 
 
 
Basic earnings per share
$
0.06

 
$
0.15

 
$
0.24

 
$
0.31

Diluted earnings per share
$
0.06

 
$
0.15

 
$
0.24

 
$
0.31

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
201,448,348

 
208,758,945

 
202,218,646

 
204,520,637
Diluted
201,992,289

 
209,597,037

 
202,682,588

 
205,349,762







8




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

9



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, EBITDA, 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 EBITDA, 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 (including adjustments related to property insurance settlements); costs incurred related to natural disasters; and gains from insurance proceeds, other than income related to business interruption insurance.

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



10



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):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
11,574

 
$
31,443

 
$
49,628

 
$
63,790

Interest expense
14,184

 
10,233

 
38,264

 
30,384

Income tax expense
1,217

 
3,174

 
1,939

 
2,939

Real estate related depreciation and amortization
29,474

 
26,369

 
87,805

 
77,304

EBITDA/EBITDAre
56,449

 
71,219

 
177,636

 
174,417

Non-cash lease expense and other amortization
1,750

 
1,343

 
5,249

 
3,842

Uninsured costs related to natural disasters (1)
6,378

 
1,690

 
11,445

 
3,005

Hotel manager transition and pre-opening items (2)
582

 
100

 
1,050

 
(1,699
)
Gain on property insurance settlement

 
(1,730
)
 

 
(1,730
)
Loss on early extinguishment of debt
2,373

 

 
2,373

 

Severance costs (3)

 
(2,351
)
 

 
11,691

Adjusted EBITDA
$
67,532

 
$
70,271

 
$
197,753

 
$
189,526

(1)  
Represents professional fees and other costs incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance.
(2)
Three months ended September 30, 2019 consist of (a) less than $0.1 million of pre-opening costs related to the reopening of the Hotel Emblem and manager transition costs related to the Westin Washington, D.C. City Center and (b) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Nine months ended September 30, 2019 consists of (a) $0.4 million of pre-opening costs related to the reopening of the Hotel Emblem, (b) $0.1 million of manager transition costs related to the Westin Washington, D.C. City Center and (c) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Three months ended September 30, 2018 consists of $0.1 million related to manager transition costs at L'Auberge de Sedona and Orchards Inn Sedona and pre-opening costs related to the reopening of the Havana Cabana Key West and Hotel Emblem. Nine months ended September 30, 2018 consists of (a) manager transition costs of $0.1 million related to the Hotel Emblem, L'Auberge de Sedona and Orchards Inn Sedona and (b) pre-opening costs of $0.4 million related to the reopening of the Havana Cabana Key West and Hotel Emblem, offset by $2.2 million of accelerated amortization of key money in connection with the termination of the Frenchman's Reef management agreement.
(3)  
Three months ended September 30, 2018 consists of the reversal of expenses related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations. Nine months ended September 30, 2018 consists of (a) $10.9 million related to payments made to unionized employees under a voluntary buyout program at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations and (b) $0.8 million related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations.

11



 
Full Year 2019 Guidance
 
Low End
 
High End
Net income
$
62,300

 
$
66,300

Interest expense
48,500

 
47,500

Income tax expense
1,500

 
3,500

Real estate related depreciation and amortization
118,000

 
117,000

EBITDA/EBITDAre
230,300

 
234,300

Non-cash lease expense and other amortization
7,100

 
7,100

Hotel manager transition and pre-opening items
1,200

 
1,200

Loss on early extinguishment of debt
2,400

 
2,400

Uninsured costs related to natural disasters
15,000

 
15,000

Adjusted EBITDA
$
256,000

 
$
260,000

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):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
11,574

 
$
31,443

 
$
49,628

 
$
63,790

Interest expense
14,184

 
10,233

 
38,264

 
30,384

Income tax expense
1,217

 
3,174

 
1,939

 
2,939

Real estate related depreciation and amortization
29,474

 
26,369

 
87,805

 
77,304

EBITDA
56,449

 
71,219

 
177,636

 
174,417

Corporate expenses
6,318

 
4,521

 
20,785

 
22,139

Interest and other income, net
(102
)
 
(621
)
 
(510
)
 
(1,428
)
Loss on early extinguishment of debt
2,373

 

 
2,373

 

Uninsured costs related to natural disasters (1)
6,378

 
1,690

 
11,445

 
3,005

Severance costs (2)

 

 

 
10,914

Gain on property insurance settlement

 
(1,730
)
 

 
(1,730
)
Hotel EBITDA
71,416

 
75,079

 
211,729

 
207,317

Non-cash lease expense and other amortization
1,750

 
1,343

 
5,249

 
3,842

Hotel manager transition and pre-opening items (3)
582

 
100

 
1,050

 
(1,699
)
Hotel Adjusted EBITDA
$
73,748

 
$
76,522

 
$
218,028

 
$
209,460

     
(1)     Represents professional fees and other costs incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance.
(2) Represents payments made to unionized employees under a voluntary buyout program at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations.
(3) Three months ended September 30, 2019 consist of (a) less than $0.1 million of pre-opening costs related to the reopening of the Hotel Emblem and manager transition costs related to the Westin Washington, D.C. City Center and (b) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Nine months ended September 30, 2019 consists of (a) $0.4 million of pre-opening costs related to the reopening of the Hotel Emblem, (b) $0.1 million of manager transition costs related to the Westin Washington, D.C. City Center and (c) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Three months ended September 30, 2018 consists of $0.1 million related to manager transition costs at L'Auberge de Sedona and Orchards Inn Sedona and pre-opening costs related to the reopening of the Havana Cabana Key West and Hotel Emblem. Nine months ended September 30,

12



2018 consists of (a) manager transition costs of $0.1 million related to the Hotel Emblem, L'Auberge de Sedona and Orchards Inn Sedona and (b) pre-opening costs of $0.4 million related to the reopening of the Havana Cabana Key West and Hotel Emblem, offset by $2.2 million of accelerated amortization of key money in connection with the termination of the Frenchman's Reef management agreement.

FFO and Adjusted FFO
The following tables are reconciliations of our GAAP net income to FFO and Adjusted FFO (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
2019
 
2018
 
2019
 
2018
Net income
$
11,574

 
$
31,443

 
$
49,628

 
$
63,790

Real estate related depreciation and amortization
29,474

 
26,369

 
87,805

 
77,304

FFO
41,048

 
57,812

 
137,433

 
141,094

Non-cash lease expense and other amortization
1,750

 
1,343

 
5,249

 
3,842

Uninsured costs related to natural disasters (1)
6,378

 
1,690

 
11,445

 
3,005

Hotel manager transition and pre-opening items (2)
582

 
100

 
1,050

 
(1,699
)
Gain on property insurance settlement

 
(1,730
)
 

 
(1,730
)
Loss on early extinguishment of debt
2,373

 

 
2,373

 

Severance costs (3)

 
(2,351
)
 

 
11,691

Fair value adjustments to derivative instruments
3,143

 

 
4,790

 

Adjusted FFO
$
55,274

 
$
56,864

 
$
162,340

 
$
156,203

Adjusted FFO per diluted share
$
0.27

 
$
0.27

 
$
0.80

 
$
0.76

(1)  
Represents professional fees and other costs incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance.
(2) 
Three months ended September 30, 2019 consist of (a) less than $0.1 million of pre-opening costs related to the reopening of the Hotel Emblem and manager transition costs related to the Westin Washington, D.C. City Center and (b) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Nine months ended September 30, 2019 consists of (a) $0.4 million of pre-opening costs related to the reopening of the Hotel Emblem, (b) $0.1 million of manager transition costs related to the Westin Washington, D.C. City Center and (c) $0.6 million of manager termination fees for L'Auberge de Sedona and Orchards Inn Sedona. Three months ended September 30, 2018 consists of $0.1 million related to manager transition costs at L'Auberge de Sedona and Orchards Inn Sedona and pre-opening costs related to the reopening of the Havana Cabana Key West and Hotel Emblem. Nine months ended September 30, 2018 consists of (a) manager transition costs of $0.1 million related to the Hotel Emblem, L'Auberge de Sedona and Orchards Inn Sedona and (b) pre-opening costs of $0.4 million related to the reopening of the Havana Cabana Key West and Hotel Emblem, offset by $2.2 million of accelerated amortization of key money in connection with the termination of the Frenchman's Reef management agreement.
(3)  
Three months ended September 30, 2018 consists of the reversal of expenses related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations. Nine months ended September 30, 2018 consists of (a) $10.9 million related to payments made to unionized employees under a voluntary buyout program at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations and (b) $0.8 million related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations.

13



 
Full Year 2019 Guidance
 
Low End
 
High End
Net income
$
62,300

 
$
66,300

Real estate related depreciation and amortization
118,000

 
117,000

FFO
180,300

 
183,300

Non-cash lease expense and other amortization
7,100

 
7,100

Hotel manager transition and pre-opening items
1,200

 
1,200

Loss on early extinguishment of debt
2,400

 
2,400

Uninsured costs related to natural disasters
15,000

 
15,000

Fair value adjustments to derivative instruments
5,000

 
5,000

Adjusted FFO
$
211,000

 
$
214,000

Adjusted FFO per diluted share
$
1.03

 
$
1.05


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 includes the pre-acquisition results for our 2018 acquisitions and excludes the results for closed hotels (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
240,279

 
$
220,818

 
$
700,572

 
$
640,297

Hotel revenues from prior ownership (1)

 
11,255

 

 
35,706

Hotel revenues from closed hotels (2)
(844
)
 
(46
)
 
(3,759
)
 
(46
)
Comparable Revenues
$
239,435

 
$
232,027

 
$
696,813

 
$
675,957

 
 
 
 
 
 
 
 
Hotel Adjusted EBITDA
$
73,748

 
$
76,522

 
$
218,028

 
$
209,460

Hotel Adjusted EBITDA from prior ownership (1)

 
3,627

 

 
9,838

Hotel Adjusted EBITDA from closed hotels (2)
(308
)
 
(7,636
)
 
(10,556
)
 
(14,983
)
Comparable Hotel Adjusted EBITDA
$
73,440

 
$
72,513

 
$
207,472

 
$
204,315

 
 
 
 
 
 
 
 
Hotel Adjusted EBITDA Margin
30.69
%
 
34.65
%
 
31.12
%
 
32.71
%
Comparable Hotel Adjusted EBITDA Margin
30.67
%
 
31.25
%
 
29.77
%
 
30.23
%
(1) 
Amounts represent the pre-acquisition operating results of The Landing Resort & Spa and Hotel Palomar for the period from January 1, 2018 to February 28, 2018 and Cavallo Point for the period from January 1, 2018 to September 30, 2018. Pre-acquisition operating results were obtained from the seller during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the seller and these pre-acquisition operating results were not audited or reviewed by the Company's independent auditors.
(2) 
Amounts represent the operating results of Frenchman's Reef for all periods presented, Havana Cabana Key West for January 1 to March 31, 2019 and the comparable period of 2018 and Hotel Emblem from September 1, 2019 to September 30, 2019 and the comparable period of 2018.


14



Comparable Hotel Operating Expenses
The following table sets forth hotel operating expenses for the three and nine months ended September 30, 2019 and 2018 for each of the hotels that we owned during these periods. Our GAAP hotel operating expenses for the three and nine months ended September 30, 2019 and 2018 consisted of the line items set forth below (dollars in thousands) under the column titled “As Reported.” The amounts reported in this column include amounts that are not comparable period-over-period. In order to reflect the period in 2019 comparable to 2018, the amounts in the column titled “Adjustments for Acquisitions” represent the pre-acquisition operating costs of The Landing Resort & Spa and the Hotel Palomar for the period from January 1, 2018 to February 28, 2018 and Cavallo Point for the period from January 1, 2018 to September 30, 2018. The amounts in the column titled “Adjustments for Closed Hotels” represent the operating costs for all periods presented of Frenchman's Reef, Havana Cabana Key West from January 1 to March 31, 2019 and the comparable period of 2018 and Hotel Emblem from September 1, 2019 to September 30, 2019 and the comparable period of 2018. Both Frenchman's Reef and Havana Cabana Key West closed in early September 2017 in advance of Hurricane Irma. Havana Cabana Key West reopened in April 2018 and Frenchman's Reef remains closed. Hotel Emblem closed in September 2018 for a comprehensive renovation and reopened in January 2019. We provide this important supplemental information to our investors because this information provides a useful means for investors to measure our operating performance on a comparative basis. See the column titled “Comparable."
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP in this release. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations at our hotels that we believe, when viewed with our GAAP results and the reconciliations to the corresponding 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. In particular, we note the pre-acquisition operating results set forth in the column titled “Adjustments for Acquisitions” were obtained from the respective sellers of the hotels during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the respective sellers. The pre-acquisition operating results were not audited or reviewed by our independent auditors.













15



 
As Reported
 
Adjustments for Closed Hotels
 
Adjustments for Acquisitions
 
Comparable
 
Three Months Ended September 30,
 
 
Three Months Ended September 30,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms departmental expenses
$
42,840

 
$
41,779

 
2.5
 %
 
$
(211
)
 
$
(37
)
 
$

 
$
1,424

 
$
42,629

 
$
43,166

 
(1.2
)%
Food and beverage departmental expenses
34,262

 
29,047

 
18.0
 %
 
(35
)
 
(15
)
 

 
2,964

 
34,227

 
31,996

 
7.0
 %
Other direct departmental
3,984

 
2,598

 
53.3
 %
 
(14
)
 
(1
)
 

 
1,044

 
3,970

 
3,641

 
9.0
 %
General and administrative
20,843

 
18,212

 
14.4
 %
 
(110
)
 
(46
)
 

 
1,015

 
20,733

 
19,181

 
8.1
 %
Utilities
5,572

 
5,567

 
0.1
 %
 
(9
)
 
(15
)
 

 
17

 
5,563

 
5,569

 
(0.1
)%
Repairs and maintenance
8,816

 
8,035

 
9.7
 %
 
(20
)
 
(7
)
 

 
274

 
8,796

 
8,302

 
6.0
 %
Sales and marketing
16,957

 
15,705

 
8.0
 %
 
(75
)
 
(39
)
 

 
523

 
16,882

 
16,189

 
4.3
 %
Franchise fees
6,894

 
6,507

 
5.9
 %
 

 

 

 

 
6,894

 
6,507

 
5.9
 %
Base management fees
4,920

 
4,725

 
4.1
 %
 
(23
)
 
(1
)
 

 
280

 
4,897

 
5,004

 
(2.1
)%
Incentive management fees
1,168

 
1,374

 
(15.0
)%
 

 

 

 

 
1,168

 
1,374

 
(15.0
)%
Property taxes
14,766

 
14,157

 
4.3
 %
 
(35
)
 
324

 

 

 
14,731

 
14,481

 
1.7
 %
Lease expense
3,144

 
2,974

 
5.7
 %
 

 

 

 

 
3,144

 
2,974

 
5.7
 %
Insurance
2,300

 
1,996

 
15.2
 %
 
(9
)
 
(13
)
 

 
93

 
2,291

 
2,076

 
10.4
 %
Uninsured costs related to natural disasters
6,378

 
1,690

 
277.4
 %
 
(6,378
)
 
(1,690
)
 

 

 

 

 
 %
Hotel manager transition/pre-opening items
582

 
100

 
482.0
 %
 

 
(100
)
 

 

 
582

 

 
100.0
 %
Other fixed expenses
1,815

 
1,190

 
52.5
 %
 
5

 
(167
)
 

 
(4
)
 
1,820

 
1,019

 
78.6
 %
Total hotel operating expenses
$
175,241

 
$
155,656

 
12.6
 %
 
$
(6,914
)
 
$
(1,807
)
 
$

 
$
7,630

 
$
168,327

 
$
161,479

 
4.2
 %
Uninsured costs related to natural disasters
(6,378
)
 
(1,690
)
 
 
 
6,378

 
1,690

 

 

 

 

 
 
Hotel manager transition/pre-opening items
(582
)
 
(100
)
 
 
 

 
100

 

 

 
(582
)
 

 
 
Non-cash lease expense and other amortization
(1,750
)
 
(1,343
)
 
 
 

 

 

 

 
(1,750
)
 
(1,343
)
 
 
Total adjusted hotel operating expenses
$
166,531

 
$
152,523

 
9.2
 %
 
$
(536
)
 
$
(17
)
 
$

 
$
7,630

 
$
165,995

 
$
160,136

 
3.7
 %

16



 
As Reported
 
Adjustments for Closed Hotels
 
Adjustments for Acquisitions
 
Comparable
 
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms departmental expenses
$
124,581

 
$
117,972

 
5.6
 %
 
$
(674
)
 
$
(37
)
 
$

 
$
4,745

 
$
123,907

 
$
122,680

 
1.0
 %
Food and beverage departmental expenses
103,868

 
88,202

 
17.8
 %
 
(232
)
 
(15
)
 

 
10,092

 
103,636

 
98,279

 
5.5
 %
Other direct departmental
11,593

 
7,617

 
52.2
 %
 
(71
)
 
(1
)
 

 
3,186

 
11,522

 
10,802

 
6.7
 %
General and administrative
61,948

 
54,514

 
13.6
 %
 
(300
)
 
(46
)
 

 
3,349

 
61,648

 
57,817

 
6.6
 %
Utilities
15,623

 
15,600

 
0.1
 %
 
(95
)
 
(15
)
 

 
162

 
15,528

 
15,747

 
(1.4
)%
Repairs and maintenance
26,118

 
23,908

 
9.2
 %
 
(120
)
 
(7
)
 

 
1,032

 
25,998

 
24,933

 
4.3
 %
Sales and marketing
49,628

 
45,878

 
8.2
 %
 
(182
)
 
(73
)
 

 
1,776

 
49,446

 
47,581

 
3.9
 %
Franchise fees
19,961

 
19,285

 
3.5
 %
 

 

 

 

 
19,961

 
19,285

 
3.5
 %
Base management fees
14,829

 
11,407

 
30.0
 %
 
(111
)
 
2,184

 

 
923

 
14,718

 
14,514

 
1.4
 %
Incentive management fees
3,916

 
4,135

 
(5.3
)%
 

 

 

 

 
3,916

 
4,135

 
(5.3
)%
Property taxes
43,171

 
41,950

 
2.9
 %
 
(99
)
 
271

 

 
81

 
43,072

 
42,302

 
1.8
 %
Lease expense
9,554

 
8,651

 
10.4
 %
 

 

 

 
50

 
9,554

 
8,701

 
9.8
 %
Insurance
6,605

 
5,135

 
28.6
 %
 
(121
)
 
(53
)
 

 
402

 
6,484

 
5,484

 
18.2
 %
Severance costs

 
10,914

 
(100.0)%

 

 

 

 

 

 
10,914

 
(100.0)%

Uninsured costs related to natural disasters
11,445

 
3,005

 
280.9
 %
 
(11,445
)
 
(3,005
)
 

 

 

 

 
 %
Hotel manager transition/pre-opening items
1,050

 
484

 
116.9
 %
 

 

 

 
(399
)
 
1,050

 
85

 
1,135.3
 %
Other fixed expenses
5,220

 
4,496

 
16.1
 %
 
(20
)
 
(186
)
 

 
117

 
5,200

 
4,427

 
17.5
 %
Total hotel operating expenses
$
509,110

 
$
463,153

 
9.9
 %
 
$
(13,470
)
 
$
(983
)
 
$

 
$
25,516

 
$
495,640

 
$
487,686

 
1.6
 %
Severance costs

 
(10,914
)
 
 
 

 

 

 

 

 
(10,914
)
 
 
Uninsured costs related to natural disasters
(11,445
)
 
(3,005
)
 
 
 
11,445

 
3,005

 

 

 

 

 
 
Hotel manager transition/pre-opening items
(1,050
)
 
1,699

 
 
 

 
(1,784
)
 

 

 
(1,050
)
 
(85
)
 
 
Non-cash lease expense and other amortization
(5,249
)
 
(3,842
)
 
 
 

 

 

 
(50
)
 
(5,249
)
 
(3,892
)
 
 
Total adjusted hotel operating expenses
$
491,366

 
$
447,091

 
9.9
 %
 
$
(2,025
)
 
$
238

 
$

 
$
25,466

 
$
489,341

 
$
472,795

 
3.5
 %


17



Market Capitalization as of September 30, 2019
(in thousands)
Enterprise Value
 
 
 
 
 
Common equity capitalization (at September 30, 2019 closing price of $10.25/share)
 
$
2,068,222

Consolidated debt (face amount)
 
1,098,390

Cash and cash equivalents
 
(26,723)

Total enterprise value
 
$
3,139,889

Share Reconciliation
 
 
 
 
 
Common shares outstanding
 
200,197

Unvested restricted stock held by management and employees
 
393

Share grants under deferred compensation plan
 
1,188

Combined shares outstanding
 
201,778

Debt Summary as of September 30, 2019
(dollars in thousands)
Loan
 
Interest Rate
 
Term
 
Outstanding Principal

 
Maturity
Marriott Salt Lake City Downtown
 
4.25%
 
Fixed
 
$
53,866

 
November 2020
Westin Washington D.C. City Center
 
3.99%
 
Fixed
 
61,106

 
January 2023
The Lodge at Sonoma, a Renaissance Resort & Spa
 
3.96%
 
Fixed
 
27,188

 
April 2023
Westin San Diego
 
3.94%
 
Fixed
 
62,241

 
April 2023
Courtyard Manhattan / Midtown East
 
4.40%
 
Fixed
 
81,494

 
August 2024
Renaissance Worthington
 
3.66%
 
Fixed
 
81,321

 
May 2025
JW Marriott Denver at Cherry Creek
 
4.33%
 
Fixed
 
61,549

 
July 2025
Westin Boston Waterfront Hotel
 
4.36%
 
Fixed
 
191,682

 
November 2025
New Market Tax Credit loan(1)
 
5.17%
 
Fixed
 
2,943

 
December 2020
     Unamortized debt issuance costs
 
 
 
 
 
(3,434
)
 
 
Total mortgage and other debt, net of unamortized debt issuance costs
 
 
 
 
 
619,956

 
 
 
 
 
 
 
 
 
 
 
Unsecured term loan
 
LIBOR + 1.40(2)
 
Variable
 
350,000

 
July 2024
Unsecured term loan
 
LIBOR + 1.40(3)
 
Fixed
 
50,000

 
October 2023
     Unamortized debt issuance costs
 
 
 
 
 
(1,301
)
 
 
Unsecured term loans, net of unamortized debt issuance costs
 
 
 
398,699

 
 
 
 
 
 
 
 
 
 
 
Senior unsecured credit facility
 
LIBOR + 1.45
 
Variable
 
75,000

 
July 2023 (4)
 
 
 
 
 
 
 
 
 
Total debt, net of unamortized debt issuance costs
 
 
 
 
 
$
1,093,655

 
 
Weighted-average interest rate of fixed rate debt
 
3.98
%
 
 
 
 
 
 
Total weighted-average interest rate
 
3.87
%
 
 
 
 
 
 
(1) 
Assumed in connection with the acquisition of the Hotel Palomar Phoenix in March 2018.
(2) 
The Company entered into an interest rate swap agreement in July 2019 to fix LIBOR at 1.70% for $175 million of the term loan through July 2024.
(3) 
The Company entered into an interest rate swap agreement in January 2019 to fix LIBOR at 2.41% through October 2023.
(4) 
May be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.

18



Operating Statistics – Third Quarter
 
 
ADR
 
Occupancy
 
RevPAR
 
Hotel Adjusted EBITDA Margin
 
 
3Q 2019
3Q 2018
B/(W)
 
3Q 2019
3Q 2018
B/(W)
 
3Q 2019
3Q 2018
B/(W)
 
3Q 2019
3Q 2018
B/(W)
Atlanta Alpharetta Marriott
 
$
163.80

$
162.26

0.9
 %
 
72.9
%
72.9
%
 %
 
$
119.41

$
118.35

0.9
 %
 
32.96
%
35.64
%
-268 bps
Bethesda Marriott Suites
 
$
167.95

$
166.55

0.8
 %
 
70.4
%
63.1
%
7.3
 %
 
$
118.20

$
105.09

12.5
 %
 
23.38
%
19.60
%
378 bps
Boston Westin
 
$
261.88

$
259.62

0.9
 %
 
84.5
%
83.0
%
1.5
 %
 
$
221.26

$
215.46

2.7
 %
 
28.96
%
27.89
%
107 bps
Hilton Boston Downtown
 
$
342.48

$
339.42

0.9
 %
 
92.6
%
93.7
%
(1.1
)%
 
$
317.16

$
317.98

(0.3
)%
 
44.00
%
45.25
%
-125 bps
Hilton Burlington
 
$
244.03

$
237.75

2.6
 %
 
90.1
%
90.2