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): September 11, 2014
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.) |
3 Bethesda Metro Center, Suite 1500
Bethesda, MD 20814
(Address of Principal Executive Offices) (Zip Code)
(240) 744-1150
(Registrant’s telephone number, including area code)
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)) |
ITEM 7.01. Regulation FD Disclosure
A copy of a slide presentation that DiamondRock Hospitality Company (“DiamondRock”) intends to use at an investor conference is attached to this Current Report on Form 8-K (“Current Report”) as Exhibit 99.1 and is incorporated by reference herein. Additionally, DiamondRock has posted the slide presentation in the investor relations/presentations section of its website at www.drhc.com.
The information in this Current Report, including the exhibit attached hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Current Report, including the exhibit, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act, regardless of any incorporation by reference language in any such filing. This Current Report will not be deemed an admission as to the materiality of any information in this Current Report that is required to be disclosed solely by Regulation FD.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. |
Description | |
| 99.1 | Investor Presentation September 2014 | |
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: September 11, 2014 | By: | /s/ William J. Tennis | ||||
| William J. Tennis | ||||||
| Executive Vice President, General Counsel and Corporate Secretary | ||||||
| Exhibit 99.1
|
Exhibit 99.1
Investor Presentation
September 2014
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DiamondRock at a Glance
KEY STATISTICS (as of 09/05/14)
Hotels 27
Rooms 11,000+
Enterprise Value $3.6B
Enterprise Value / Key $326,000
Net Debt/EBITDA(1) 4.2x
INDUSTRY LEADING GROWTH IN 2014
RevPAR Growth: 9.5%-11.5%
265 Bps Margin Expansion Expected
Margin Growth Expected to Double Peer Average
90% URBAN AND DESTINATION RESORTS IN TOP U.S. MARKETS
San Diego San
Denver 5% Other 4% 3% Francisco
1%
Washington,
DC 5% New York
20%
Los Angeles
5% Destination
Minneapolis Resorts
5% Other CBD 16%
10%
Chicago
Boston 13% 13%
WELL-DIVERSIFIED BRAND PORTFOLIO
Hilton Conrad JW Marriott Boutique
Garden Inn 4% 3% 3%
6%
Courtyard
8% Marriott 33%
Autograph
8%
Renaissance
9% Westin 15%
Hilton 11%
Values in % of 2014F EBITDA(2)
(1) Based on mid-point of 2014 EBITDA guidance and projected 2014 year-end net debt.
(2) Based on 2014F EBITDA for all properties including HGI Time Square Central PF for normalized, full year results.
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Premier Portfolio With Urban and Resort Concentration
Lexington Hotel NYC Courtyard Midtown NYC Hilton Garden Inn Courtyard 5th Ave NYC Hilton Garden Inn
Times Square Chelsea NYC
Chicago Marriott Conrad Chicago Hilton Minneapolis Westin Boston Hilton Boston Hilton Burlington Westin
Downtown Washington DC
Westin San Diego Marriott Atlanta Marriott Salt Lake City The Worthington Courtyard Denver JW Marriott Hotel Rex
Alpharetta Dallas / Ft. Worth Downtown Denver San Francisco
Frenchman’s Reef Vail Marriott The Lodge at Sonoma Renaissance Charleston Inn at Key West
Marriott Resort and Spa Mountain Resort Resort and Spa Historic District
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Why DiamondRock? Top 5
High Quality Portfolio: Upgraded via Capital Recycling
2014F RevPAR of $157
$1.3B in deals this cycle
Sold hotels: RevPAR = $90
Bought hotels: RevPAR =$177
Outsized Internal Growth: Renovated and Repositioned Portfolio
Multi-year payoff from $140M capital renovations in 2013 / 2014
Profit Margin Expansion Momentum
Profit margin growth expected to double industry average in 2014
New asset management leadership driving outsized margin growth
360 basis points below prior peak at year-end provides further opportunity for growth
External Growth Opportunities
HGI TSC: 20% discount to current market value
Inn at Key West: Off-market, accretive
$150M excess cash at 2014 year-end for dry powder
Fortress Balance Sheet
3.0x net debt-to-EBITDA by 2016 from internal growth alone
Inn at Key West Acquired at
7.4% Cap Rate
Acquired Hilton Garden Inn Times Square at 20% Discount to Market Value
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DRH Portfolio Outperforming with Additional Upside
DRH TO EXCEED PEER SET REVPAR GROWTH
14.0%
12.0%
10.3% 10.5%
10.0%
8.0% 6.9%
6.5%
6.0%
4.0%
370bps
YTD 2014 2014E
Peer Set Average1 DRH
ABOVE AVERAGE EBITDA MARGIN EXPANSION
300 (Bps)
265
250
200 175
150 137
122
100
50
YTD 2014 2014E
Peer Set Average 1 DRH
143bps
#1 Growth among peer lodging REITs for 2014
150 bps above HST 2014E margin expansion
202 bps above LHO 2014E margin expansion
177 bps above SHO 2014E margin expansion
Profit margin upside:
360 bps below prior peak margins
260 bps gap to SHO’s 2013 margins
New asset management leadership driving
outsized margin growth
SIGNFICANT MARGIN UPSIDE TO PRIOR PEAK
34%
32.7%
Margins 32%
EBITDA
.
Hotel Adj.
30%
29.1%
28%
2014F Prior Peak (2007)
(1) Peer group includes BEE, CHSP, FCH, HST, LHO, PEB, SHO.
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Company Growth Catalysts Position DRH for Multi-Year Outperformance
2015 GROWTH DRIVERS
HGI Times HGI Times Square Hotel Adj. EBITDA to Reach 9.0% Yield $6 -$7M EBITDA
Square
Multi-year Outperformance from Renovated Portfolio:
Renovated • The Lexington Hotel $4 -$6M EBITDA
Portfolio
• Westin DC and Westin San Diego $1 -$2M EBITDA
Investment in High ROI and Value-Add Projects:
Value Add • Potential to add 41 keys at Boston Hilton through expansion option $1.3M NOI
Projects • Creation of 6,500 sq. ft. of meeting space at Boston Westin $1.2M NOI
• Conversion of vacant restaurant at the Lexington into morning breakfast
lounge, additional meeting space, and lobby bar overflow in evening $0.5M NOI
Asset Management Goal to Further Exceed Average Peer Margin
Margin Expansion by 50 – 100 bps through 2015 and 2016 $4 -$8M EBITDA
Expansion • Portfolio 360bps below prior peak profit margins indicates even further
opportunity for future growth beyond 2015
Ability to execute accretive deals in near term with $250M in dry powder:
• Disciplined
Dry Powder • Urban and Resort Focus $15M-$20M
• Near-Term Accretive EBITDA
• Not Capital Disruptive
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Capital Structure: Low Risk / High Flexibility
CAPITAL STRUCTURE
Simple Capital Structure:
Virtually no recourse debt
No Corporate Debt or Preferreds
Highly liquid
$150M of cash YE14
Undrawn revolver
3.0x net debt-to-EBITDA by 2016 on internal growth alone
Refinancing near-term debt maturities potential to generate $5M+ in annual cash flow
NET DEBT + PREF / EBITDA
HST
DRH
LHO
SHO
PEB
BEE
HT
FCH
2.0 4.0 6.0 8.0 10.0
Source: Citi Investment Research and Analysis
13 UNENCUMBERED HOTELS WITH $1.4B
ASSET VALUE
Chicago Marriott
Lexington Hotel
Hilton Boston
Hilton Minneapolis
Boston Westin
Frenchman’s Reef
Conrad Chicago Marriott
Vail Marriott LAX Marriott
Courtyard Denver JW Marriott Cherry Creek
Hotel Rex San Francisco Courtyard 5th Avenue
Hilton Burlington Courtyard Midtown East
Hilton Garden Inn Salt Lake City Marriott
Chelsea
Worthington
Alpharetta Marriott Renaissance
Charleston Renaissance Orlando Airport Marriott
Bethesda Marriott Suites Westin Washington, DC
HGI Times Square Sonoma Renaissance
Inn at Key West Westin San Diego
13 UNENCUMBERED HOTELS 14 ENCUMBERED HOTELS
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Attractive Valuation and Return of Capital
2014 TOTAL SHAREHOLDER RETURNS
DRH Peer Avg
Total Return
YTD 2014 17.9% 24.6% 6.7%
25.0%
20.0% DRH
Peer Avg.
15.0%
10.0%
5.0%
0.0%
(5.0%)
1/1/2014
2/1/2014
3/1/2014
4/1/2014
5/1/2014
6/1/2014
7/1/2014
8/1/2014
9/1/2014
YTD total returns 7 percentage points below
the peer average
Not Yet Realized:
Credit for industry leading RevPAR and
EBITDA margin growth
Value of Multi-year DRH growth catalysts
EBITDA multiple currently at discount to peers
DISCIPLINED TO RETURN CAPITAL TO SHAREHOLDERS
$500M in dividends paid
Raised 2014 dividend 20%+
Competitive yield over 3%
14 consecutive quarters of dividends (Top quartile)
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Key Takeaways
Transformed Portfolio in Markets with Superior Growth Potential
Renovation Fueling Outperformance
360bps of Margin Expansion Opportunity
Fortress Balance Sheet with 3.0x Net Debt / EBITDA by 2016
$250M of Investment Capacity
Hotel Rex San Francisco
Hilton Garden Inn Times Square
The Lodge at Sonoma Resort and Spa
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APPENDIX
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Lodging Cycle – Many Years Left To Go
Forecast through 2017 of:
RevPAR to increase at a
CAGR of 5.5%
Supply and Demand growth
favorable through 2016
HISTORICAL AND FORECAST REVPAR, SUPPLY AND DEMAND
10%
5%
0%
-5%
-10%
-15%
-20%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RevPAR Supply Demand
Source: Smith Travel Research August 2014 11
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Portfolio Focused on Markets with Above Average RevPAR Growth Potential
PKF FORECASTED REVPAR CAGR 2013-2017(1)
8.5%
8.1% 8.0%
DRH to Outperform NYC
Market RevPAR Growth on
7.5% NYC Capital Expenditures
6.9% Program and Lexington
6.6% 6.6% Rebranding
6.5% 6.3%
5.9% 5.9%
5.5%
5.5%
5.0%
4.5% 4.4%
4.1%
3.5% 3.3%
2.5%
Denver
San Francisco
Boston
Minneapolis
Orlando
Los Angeles
San Diego
Chicago
US Upper Upscale
Fort Worth
Salt Lake City
New York
Washington D.C.
(1) Source: PKF Hotel Horizons June to August 2014.
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New York City Market Overview
Q1 2014 RevPAR growth impacted by harsh weather conditions and by benefit of Hurricane Sandy demand in Q1 2013
Q2 2014 RevPAR growth exceeded expectation and Q3 trending positive with year-end 2014 growth forecast at 3.4%
NYC projected to achieve annualized RevPAR growth of 3.5% 2013 – 2018
55.8mm total visitors and 11.9mm international visitors expected in 2014 up from 54.3mm and 11.4mm in 2013 respectively
Supply Growth – Submarkets Matter
Midtown East submarket has significantly lower supply growth than any other Manhattan submarket
Majority of near-term NYC supply will come online in 2014 and majority of long-term projects (2016 and beyond) in planning phases
3.5% ANNUALIZED REVPAR GROWTH 2013-2018
6.0% 5.4% 5.6%
4.0% 3.4% 3.7% 3.5%
2.3%
2.0% 1.4%
0.0%
-2.0%
-2.1%
-4.0%
Q1 2014 Q2 2014 YTD 2014 2015 2016 2017 2018
Source: PKF Hotel Horizons September to November 2014 Forecast.
NYC AVG REVPAR OVER 2.0x TOP 25 AVG REVPAR
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
NYC Top 25
Source: PKF Hotel Horizons September to November 2014 Forecast.
Supply Growth New York City Midtown East
2014 7.5% 3.8%
2015 5.2% 0.5%
2016 and Beyond 14.6% 2.5%
Source: Lodging Econometrics Q1 2014 Report.
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Lexington Hotel Successfully Repositioned
Renovation and rebranding to Autograph Collection complete in 2013
Successfully generating target returns
ADR increase of approx. $30 since conversion with opportunity to further increase
Approx. 60% of hotel guests are Marriott Reward members
Highest-rated transient segment now 80%+ of mix, discount leisure and contract are less than 20%
Hotel Adj. EBITDA of $20M+ in 2014 and projected to grow to $30M by 2016
Additional profit upside:
Converting underutilized space into flexible space to be used as concierge lounge, meeting space, and as additional lobby bar seating
EXPECTED REVPAR GROWTH OF 18% BY 2016
$280
$260
$240
$220
$200
2014F 2016E
9% CAGR
EBITDA EXPECTED TO GROW BY 26% BY 2016
$ 30
$ 28
$ 26
$ 24
$ 22
$ 20
2014F 2016E
12% CAGR
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Hilton Garden Inn Times Square
PROJECTED EBITDA GROWTH
14
12
10
8
6
4
2
0
2014F 2015E 2016E
Value in Millions
Successfully locked in 2010 pricing ($450K/key) with
current values indicating $20M NAV gain
Hotel Adj. EBITDA of $5M in 2014 growing to 9.0% yield
($11M+) in 2015
Additional Profit Upside:
• Successfully leased F&B operations to save hotel
$0.5M in operations costs in addition to generating
incremental rental income
• Successfully combined management positions with
other DRH owned hotel to streamline labor costs
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Continued Outsized Growth From Renovated Portfolio
1 Westin DC
2 Westin San Diego
3 Hilton Boston
Expect 20%+ RevPAR growth in 2H 2014
Expect to significantly outperform the market through 2016 as RevPAR index grows to 105 from 87
Opportunity to add highly profitable keys from under-utilized space
Outsized RevPAR growth through 2016
Capitalize on prime location adjacent to Federal Courthouse
Further leverage of two new legal war rooms: $0.3M of revenues actualized
Streamlined F&B operations to improve experience and drive efficiencies
4 consecutive quarters of double-digit RevPAR growth 2H 2014 RevPAR growth of approx. 20%
2015 group booking pace up approx. 22%
Significant NAV appreciation through creation of 41 new keys from converting under-utilized suites into two rooms 16
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Significant Value Created by Early Cycle Acquisitions
U.S. ANNUAL GROWTH IN VALUE PER ROOM
30%
21% 20% 20%
20% 17% 15%
12%
9%
10%
0%
-10% -4%
-20% -15%
-30%
-31%
-40%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: HVS Hotel Valuation Index
Significant early cycle value appreciation
Price per key increased 68% from 2010 to 2012
Value creation opportunity remains
Forecasted price per key to increase 40% from 2013 to 2015
Hotel Rex San Francisco
Renaissance Charleston Historic District
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Increased Exposure to Urban Hotels
CURRENT PORTFOLIO (BY EBITDA)
Other, 11% Resort, 16%
Urban, 73%
Acquired over 4,000 urban and destination resort rooms since 2010
Disposed of over 2,600 non-core rooms since 2012
Increased growth potential based on historical trends
Urban markets historically outperform
HISTORICAL 100BPS REVPAR CAGR PREMIUM FOR URBAN vs U.S.
URBAN US US Urban REVPAR CAGR US Industry REVPAR CAGR
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Smith Travel Research 18
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Increased Third Party Managers And Brand
Diversification
Goal of 50/50 brand/third-party managers
Adoption of best practices, improving overall portfolio profitability
Increased third party management by 30 percentage points1
Reduced overall concentration of Marriott brands by 22 percentage points1 and increased
diversity of Marriott brands (JW Marriott, Autograph Collection, Renaissance, and Courtyard)
CURRENT PORTFOLIO (BY EBITDA)(1)
Managers Brands
Third-Party 39% Marriott 44%
Starwood
8% Hilton 9%
Hilton Conrad JW Marriott Boutique
Garden Inn 4% 3% 2%
6%
Courtyard
8% Marriott 33%
Autograph
8%
Renaissance
9% Westin 15%
Hilton 11%
(1) Based on 2014F EBITDA for all properties including HGI Time Square Central PF for normalized, full year results. 19
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Portfolio Transformation
BETTER MARKETS, HIGHER QUALITY ASSETS
$0.4B in Strategic Dispositions $1.3B in Strategic Acquisitions
Lexington, KY Suburban Austin, TX New York, NY Boston, MA San Diego, CA
Suburban Atlanta, GA Suburban Los Angeles, CA Minneapolis, MN Denver, CO Charleston, SC
Suburban Chicago, IL Washington, DC Burlington, VT San Francisco, CA
Key West, FL
Dispositions: 1 to 2 non-core assets marketed over next 24 months
Acquisitions: Disciplined, actively seeking core hotels with strong returns
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Accretive External Growth Potential
PLATFORM TO TARGET ACCRETIVE DEALS
1. Ability to acquire assets without raising equity
2. Investment Capacity = $250M of high-quality assets
3. New CIO with strong track record
4. Targeting off-market deals
KEY INVESTMENT CRITERIA
Target Markets: Top Urban & Resort Locations
Will avoid significant capital investment or deep/lengthy turnaround
Preference for value-add via better asset management or brand change
Near-term accretive
Highly disciplined
Inn at Key West Acquired at 7.4% Cap Rate
Acquired Hilton Garden Inn Times Square at
20% Discount to Market Value
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Forward Looking Statements
Certain statements made during this presentation are forward-looking statements that are subject to risks and uncertainties. Forward-looking statements generally include the words “believe,” “expect,” “anticipate,” “plan,” “estimate,” “project,” “will,” “intend” or other similar expressions. Forward-looking statements include, without limitation, statements regarding, industry outlook, results of operations, cash flows, business strategies, growth and value opportunities, capital and other expenditures, financing plans, expense reduction initiatives and projected dispositions.
Factors that could cause actual results to materially differ from those contained in the forward-looking statements include, without limitation, those risks and uncertainties discussed in the Company’s most recent Annual Report on
Form 10-K, quarterly report on Form 10-Q and current reports on Form 8-K, which have been filed with the Securities and Exchange Commission, all of which you should carefully review. The forward-looking statements made are based on our beliefs, assumptions and expectations of future performance, taking into account all information currently available to us. Actual results could differ materially from the forward-looking statements made during this presentation. The forward-looking statements made during this presentation are subject to the safe harbor of the Private Securities Litigation Reform Act of 1995.
Any forward-looking statement speaks only as of the date on which it is made. 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 presentation is as of the date of this presentation, 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.
This presentation contains statistics and other data that has been obtained or compiled from information made available by third-party service providers.
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