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):
July 14, 2016
DiamondRock Hospitality Company
(Exact name of registrant as specified in charter)
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Maryland |
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001-32514 |
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20-1180098 |
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(State or Other Jurisdiction |
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(Commission File Number) |
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(IRS Employer |
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):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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 29, 2016. 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 7.01. Regulation FD Disclosure.
On July 14, 2016, the Company issued a press release announcing that the Company has completed the sales of the Hilton Garden Inn Chelsea / New York City and Hilton Minneapolis. A copy of that press release is furnished as Exhibit 99.1 to this Current Report.
The Company has provided a presentation summarizing the highlights of its 2016 disposition activity, which is attached to this Current Report as Exhibit 99.2.
The information in this Item 7.01 of this Current Report, including Exhibits 99.1 and 99.2 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 that Section, nor shall such information be deemed 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
See Exhibits Index
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.
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DIAMONDROCK HOSPITALITY COMPANY | |
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Date: July 14, 2016 |
By: |
/s/ William J. Tennis |
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William J. Tennis |
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Executive Vice President, General Counsel and |
EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Press Release dated July 14, 2016 |
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99.2 |
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2016 Disposition Highlights |
Exhibit 99.1
COMPANY CONTACT
Sean Mahoney
(240) 744-1150
FOR IMMEDIATE RELEASE
DIAMONDROCK COMPLETES SALE OF HILTON GARDEN INN CHELSEA / NEW YORK CITY AND PROVIDES UPDATE ON RECENT DISPOSITIONS
Also Announces the Sale of the Hilton Minneapolis
Projects Year-End Cash Balance in Excess of $200 Million
BETHESDA, Maryland, July 14, 2016 — DiamondRock Hospitality Company (the “Company”) (NYSE: DRH) announced today that it completed the sale of the 169-room Hilton Garden Inn Chelsea / New York City for $65 million to an affiliate of a China-based entity. The sale price represents a 13.5x multiple on the Hotel’s adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the trailing 12-month period ended March 31, 2016 and a 6.6% capitalization rate on the Hotel’s net operating income (“NOI”) for the trailing 12-month period ended March 31, 2016. Additionally, the hotel is subject to a property improvement plan by Hilton that requires a corridor and rooms renovation. JLL served as the broker on this transaction and conducted a full marketing process.
The Company also announced today that it completed the sale of the 821-room Hilton Minneapolis for total consideration of approximately $143 million. The total consideration represents a 7.6% capitalization rate on the hotel’s NOI for the trailing 12-month period ended March 31, 2016 and an 11.0x multiple on the Hotel’s Adjusted EBITDA for the trailing 12-month period ending March 31, 2016. The opportunistic sale resulted from a reverse-inquiry from a private equity firm that has a longstanding relationship with the Company.
“The sale of the Hilton Garden Inn Chelsea / New York City moves the Company towards an even more diversified portfolio by reducing the Company’s allocation to New York City by approximately 150 basis points. The Company also improved its portfolio quality with the recent sales of the Hilton Minneapolis and the Orlando Airport Marriott, which ranked at the bottom of the portfolio as measured by average RevPAR. Furthermore, the three sales in 2016 have enhanced DiamondRock’s balance sheet and the Company now expects to end the year with a projected cash balance in excess of $200 million and with no outstanding borrowings on its $300 million senior unsecured credit facility. This expanded investment capacity creates a number of value creation opportunities for the Company going forward,” stated Mark W. Brugger, President and Chief Executive Officer of the Company.
The sales of the Hilton Garden Inn Chelsea / New York City and the Hilton Minneapolis will collectively reduce the Company’s full year 2016 Adjusted EBITDA by approximately $12.2 million and Adjusted FFO by $9.6 million.
Excluding the three dispositions, the Company’s 2015 comparable portfolio EBITDA margin increases by approximately 50 basis points and the 2015 comparable portfolio RevPAR increases by approximately $8. The sales also increase the Company’s third-party operated hotels to over 50% of the portfolio.
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 26 premium quality hotels with approximately 9,500 rooms. The Company has strategically positioned its hotels to generally be operated under leading global brands such as Marriott, Westin and Hilton, as well as boutique brands 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: 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;potential changes in our expected sources and uses of cash; 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.
Reconciliation of Hotel Net Income to Hotel Adjusted EBITDA and Net Operating Income
(Unaudited, in millions)
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Trailing Twelve Months Ended March 31, 2016 |
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Hilton Garden Inn |
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Hilton Minneapolis |
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Net income |
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$ |
3.4 |
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$ |
1.9 |
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Interest expense |
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— |
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5.1 |
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Depreciation expense |
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1.4 |
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6.7 |
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EBITDA |
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4.8 |
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13.7 |
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Non-cash ground rent |
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— |
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(0.8 |
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Adjusted EBITDA |
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$ |
4.8 |
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$ |
12.9 |
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Capital reserve contribution |
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(0.5 |
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(2.1 |
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Net Operating Income |
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$ |
4.3 |
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$ |
10.8 |
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Reconciliation of Net Income to Adjusted EBITDA and Adjusted FFO
(Unaudited, in millions)
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2016 Forecasted Non-Ownership Period |
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Hilton Garden |
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Hilton |
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Total |
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Net income |
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$ |
2.2 |
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$ |
4.4 |
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$ |
6.6 |
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Interest expense |
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— |
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2.5 |
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2.5 |
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Depreciation expense |
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0.7 |
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2.9 |
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3.6 |
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EBITDA |
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2.9 |
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9.8 |
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12.7 |
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Non-cash ground rent |
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— |
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(0.5 |
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(0.5 |
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Adjusted EBITDA |
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$ |
2.9 |
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$ |
9.3 |
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$ |
12.2 |
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Income tax benefit (expense) |
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0.1 |
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(0.2 |
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(0.1 |
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Interest expense |
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— |
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(2.5 |
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(2.5 |
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Adjusted FFO |
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$ |
3.0 |
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$ |
6.6 |
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$ |
9.6 |
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This press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) Rules. These measures are not in accordance with, or an alternative to, measures prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the hotel’s results of operations determined in accordance with GAAP.
Exhibit 99.2
2016 Dispositions Highlights July 2016
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. 2
Overview of 2016 Disposition Program Orlando Airport Marriott Hilton Minneapolis HGI Chelsea Average near-term capital needs, union brand-managed, near-term capital needs, (1) Total consideration is the purchase price plus FF&E Reserve (for Orlando and Minneapolis) and standard pro-rations of working capital at closing. (2) Trailing twelve months through the period ended March 31, 2016. 3 Disposition Rationale: •Hilton Garden Inn Chelsea –Lowers NYC exposure, union hotel, disruptive near-term capital needs •Hilton Minneapolis –Ground lease, low RevPAR, brand-managed, •Orlando Airport Marriott –Airport hotel, lowest RevPAR hotel (sub $100), peaking cash flows Orlando Airport Marriott Hilton Minneapolis HGI Chelsea Weighted Total Consideration(1) $67M $143M $65M $275M 2015 RevPAR $92.21 $115.44 $219.97 $119.78 TTM NOI Cap Rate(2) 9.7% 7.6% 6.6% 7.8% TTM NOI Cap Rate w/ Capital(2) 7.5% 6.3% 5.9% 6.6% TTM EBITDA Multiple(2) 8.6x 11.0x 13.5x 10.7x TTM EBITDA Multiple w/ Capital(2) 11.0x 13.1x 14.9x 12.8x 2016 DISPOSITION PROGRAM: •Sold three non-core hotels for total of $275 million: –Hilton Garden Inn Chelsea –Hilton Minneapolis –Orlando Airport Marriott •Proceeds enhance balance sheet capacity for potential share repurchases and other corporate purposes
DRH 2016 Disposition Program Impact of Dispositions: • • Portfolio RevPAR increased by approximately $8 Improves Hotel Adj. EBITDA margins by approximately 46 bps Increased share of third-party operated hotels Helps right-size allocation to NYC Avoids over $50M of disruptive, near-term capital expenditures RevPAR $179.94 Hotel Adj. EBITDA Margins 31.66% +46 bps • • • Pre-Dispositions Post-Dispositions Pre-Dispositions Post-Dispositions Other San Francisco 4% San Diego 5% 1% Washington, DC 5% Destination Resorts 17% Marriott 37% Denver 6% South Florida 11% Boston 16% Third-Party 52% Other CBD 11% Starwood 11% New York 12% Chicago 12% (1) Based on 2015A financials pre and post the disposition of the Orlando Airport, Minneapolis Hilton, and HGI Chelsea for the full fiscal year. (2) Based on 2016F Hotel Adj. EBITDA for all properties. Comparable excludes Orlando Airport, Minneapolis Hilton, and HGI Chelsea for 2016. 4 IMPROVED THIRD-PARY MANAGER SHARE(2) CURRENT MARKET DIVERSITY(2) 31.20% +$8 $171.79 IMPROVED PORTOLIO QUALITY(1)
Enhanced Balance Sheet Capacity and Leverage • $120M net proceeds from asset sales • $300M Line of Credit with no outstanding borrowings • >$200 million year-end projected cash 17 UNENCUMBERED HOTELS (~$145M in 2015A Hotel Adj. EBITDA) 9 ENCUMBERED HOTELS 350 300 250 200 150 100 50 - 100 2016(1) 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 5 (1) No additional maturities in 2016. 290 170 - ---131 73 52 - NO NEAR-TERM DEBT MATURITIES PROJECTED YEAR-END KEY BALANCE SHEET STATS Year-end Projected Cash >$200 Million Weighted Average Debt Maturity 7 Years Weighted Average Interest Rate 3.7% Lexington Hotel Boston Westin Courtyard Midtown East Salt Lake City Marriott Westin Washington, DC Sonoma Renaissance Westin San Diego Worthington Renaissance JW Marriott Cherry Creek Hilton Boston The Gwen Vail Marriott Courtyard Denver Hotel Rex San Francisco Hilton Burlington Alpharetta Marriott Charleston Renaissance Bethesda Marriott Suites HGI Times Square Inn at Key West Key West Suites Westin Fort Lauderdale Shorebreak Hotel Frenchman’s Reef Marriott Chicago Marriott Courtyard 5th Avenue 17 UNENCUMBERED HOTELS
6 6 APPENDIX
Trailing Tweln :\Ionths Ended :\Ia.-cb 31.2016 Hilton Garden Inn Chelsea I New York Orlando Airport Maniott Hilton :\ Iinntapolis s s 1.9 5.1 6.7 Net inrome Interest expense Depreciation expe11se EBITDA Non-cash ground retll Ad justed EBITDA 3.8 1.7 2.3 $ 3.4 1.4 4.8 13.7 (0.8) 7.8 s s $ 7.8 4.8 12.9 (1.3) (0.5) (2.1) Capital reserve contribution Net Operating Income s s 4.3 10.8 $ 6.5 7
