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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):
February 26, 2018 
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
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
o 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.      o

 




ITEM 2.02. Results of Operations and Financial Condition.
On February 26, 2018, DiamondRock Hospitality Company (the “Company”) issued a press release announcing its financial results for the quarter and year ended December 31, 2017. 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
  




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: February 27, 2018
 
 
 
By:
 
/s/ William J. Tennis
 
 
 
 
 
 
William J. Tennis
 
 
 
 
 
 
Executive Vice President, General Counsel and Corporate Secretary







Exhibit

https://cdn.kscope.io/672c94d2122fb7ee7808fa72b42e2c64-drhlogopressreleasea08.gif

COMPANY CONTACT    

Mark Brugger
(240) 744-1150

FOR IMMEDIATE RELEASE

DIAMONDROCK HOSPITALITY COMPANY REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS
RevPAR Results at Top End of Guidance Range
Provides 2018 Outlook
Announces Pending Acquisition
BETHESDA, Maryland, Monday, February 26, 2018 – DiamondRock Hospitality Company (the “Company”) (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 28 premium hotels in the United States, today announced results of operations for the quarter and year ended December 31, 2017.

2017 Operating Highlights
•
Net Income: Net income was $91.9 million and earnings per diluted share was $0.46.
•
Comparable RevPAR: RevPAR was $183.99, a 2.5% increase from the comparable period of 2016.
•
Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 31.21%, a 74 basis point contraction from the comparable period of 2016.
•
Adjusted EBITDA: Adjusted EBITDA was $250.0 million, a decrease of $8.9 million from 2016. The decrease was due primarily to dispositions in 2016 and natural disaster impact in 2017.
•
Adjusted FFO: Adjusted FFO was $201.0 million and Adjusted FFO per diluted share was $1.00.
•
Dividends: The Company declared four quarterly dividends totaling $0.50 per share during 2017, returning over $100 million to shareholders.

Fourth Quarter 2017 Highlights
•
Net Income: Net income was $24.8 million and earnings per diluted share was $0.12.
•
Comparable RevPAR: RevPAR was $184.24, a 3.8% increase from the comparable period of 2016.
•
Comparable Hotel Adjusted EBITDA Margin: Hotel Adjusted EBITDA margin was 31.22%, a 77 basis point contraction from the comparable period of 2016.
•
Adjusted EBITDA: Adjusted EBITDA was $61.9 million, an increase of $3.2 million from 2016.
•
Adjusted FFO: Adjusted FFO was $50.7 million and Adjusted FFO per diluted share was $0.25.
•
Business Interruption Insurance Income: The Company recognized $4.1 million of business interruption insurance income during the quarter related to Frenchman's Reef and Morning Star Marriott Beach Resort and the Inn at Key West.



•
Dividends: The Company declared a dividend of $0.125 per share during the fourth quarter, which was paid on January 12, 2018.
Recent Developments
•
Hotel Acquisition: In January 2018, the Company signed a purchase and sale agreement to acquire the Landing Resort & Spa in South Lake Tahoe, California. The acquisition is expected to close before the end of the first quarter and will be funded with cash on hand.
Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, “Our fourth quarter performance marked a great finish to 2017, as the portfolio generated the strongest RevPAR growth for the year. Our portfolio continues to gain market share from smart renovations, excellent locations, and our leading asset management platform. As we begin 2018, DiamondRock is confident about its internal value-creation opportunities. We are investing in our portfolio to increase net asset value from repositionings such as those at the Hotel Rex San Francisco by Viceroy, Havana Cabana Key West, Vail Marriott Resort and Chicago Marriott Downtown. The Company is also finding high-quality acquisitions to enhance its portfolio and drive additional value creation for shareholders with the Landing under contract. We continue to evaluate other opportunities to add unique resorts and urban lifestyle hotels to our portfolio.”
Operating Results    
Please see “Non-GAAP Financial Measures” attached to this press release for an explanation of the terms “EBITDA,” “Adjusted EBITDA,” “Hotel Adjusted EBITDA Margin,” “FFO” and “Adjusted FFO” and a reconciliation of these measures to net income. Comparable operating results include our 2017 acquisitions for all periods presented, exclude the Frenchman's Reef and Morning Star Marriott Beach Resort (“Frenchman's Reef”) and the Inn at Key West for all periods presented due to the closure of these hotels and exclude our 2016 dispositions. See “Reconciliation of Comparable Operating Results” attached to this press release for a reconciliation to historical amounts.

For the quarter ended December 31, 2017, the Company reported the following:
 
Fourth Quarter
 
 
2017
 
2016
Change

Comparable Operating Results (1)
 
 
 
 
ADR

$236.95

 

$233.04

1.7
%
Occupancy
77.8
%
 
76.1
%
1.7 percentage points

RevPAR

$184.24

 

$177.45

3.8
%
Revenues
$207.1 million

 
$199.0 million

4.1
%
Hotel Adjusted EBITDA Margin
31.22
%
 
31.99
%
-77 basis points

 
 
 
 
 
Actual Operating Results (2)
 
 
 
 
Revenues
$207.0 million

 
$206.6 million

0.2
%
Net income
$24.8 million

 
$23.9 million

$0.9 million

Earnings per diluted share

$0.12

 

$0.12


$0.00

Adjusted EBITDA
$61.9 million

 
$58.7 million

$3.2 million

Adjusted FFO
$50.7 million

 
$48.4 million

$2.3 million

Adjusted FFO per diluted share

$0.25

 

$0.24


$0.01

(1) Comparable operating results exclude Frenchman’s Reef and the Inn at Key West for all periods presented and include pre-acquisition operating results for L'Auberge de Sedona and Orchards Inn Sedona from October 1, 2016 to December 31, 2016. The pre-acquisition operating results were obtained from the seller of the hotels during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the seller. The pre-acquisition operating results were not audited or reviewed by the Company's independent auditors. Additionally, 2016 amounts exclude the operating results of hotels sold during 2016.

2


(2) Actual operating results for 2016 include Frenchman’s Reef and the Inn at Key West for the full fourth quarter of 2016 and the operating results of hotels sold during 2016 for the Company's respective ownership periods.

For the year ended December 31, 2017, the Company reported the following:
 
Year Ended
 
 
2017
 
2016
Change

Comparable Operating Results (1)
 
 
 
 
ADR

$229.06

 

$226.21

1.3
 %
Occupancy
80.3
%
 
79.4
%
0.9 percentage points

RevPAR

$183.99

 

$179.55

2.5
 %
Revenues
$817.9 million

 
$804.3 million

1.7
 %
Hotel Adjusted EBITDA Margin
31.21
%
 
31.95
%
-74 basis points

 
 
 
 
 
Actual Operating Results (2)
 
 
 
 
Revenues
$870.0 million

 
$896.6 million

-3.0
 %
Net income
$91.9 million

 
$114.8 million

-$22.9 million

Earnings per diluted share

$0.46

 

$0.57


-$0.11

Adjusted EBITDA
$250.0 million

 
$258.9 million

-$8.9 million

Adjusted FFO
$201.0 million

 
$206.3 million

-$5.3 million

Adjusted FFO per diluted share

$1.00

 

$1.02


-$0.02

(1) Comparable operating results exclude Frenchman’s Reef and the Inn at Key West for all periods presented and include pre-acquisition operating results for L'Auberge de Sedona and Orchards Inn Sedona from January 1, 2017 to February 27, 2017 and January 1, 2016 to December 31, 2016. The pre-acquisition operating results were obtained from the seller of the hotels during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by the seller. The pre-acquisition operating results were not audited or reviewed by the Company's independent auditors. Additionally, 2016 amounts exclude hotels sold during 2016.
(2) Actual operating results include Frenchman’s Reef and the Inn at Key West for the period the hotels were open in 2017 (January 1, 2017 to September 5, 2017) and the full year period of 2016. Actual operating results for 2016 include the operating results of hotels sold during 2016 for the Company's respective ownership periods.

Update on Impact from Natural Disasters

The current status of the Company's hotels most impacted by natural disasters is as follows:

•
Frenchman’s Reef: The Company has made progress on remediation of the significant hurricane-related damage. The hotel is currently expected to remain closed through the end of 2019. The Company is currently working with its insurance carriers and the USVI government to evaluate all alternatives. The Company expects to receive insurance proceeds for its business interruption losses, including lost profits during the closure period.

•
The Inn at Key West: The Company is in the process of completing a comprehensive renovation of the hotel in connection with remediation of the substantial wind and water-related damage from Hurricane Irma. The hotel is expected to reopen as the Havana Cabana Key West in April 2018. The Company expects to receive insurance proceeds for its business interruption losses, including lost profits during the closure period.

As previously disclosed, the Company is pursuing insurance claims for the remediation of property damage and business interruption at Frenchman's Reef, the Inn at Key West and the Lodge at Sonoma. The Company is insured for up to $361 million for each covered event, subject to certain deductibles and other conditions. During the fourth quarter, the Company recognized $4.1 million of business interruption income for Frenchman’s Reef and Inn at Key West.


3



Hotel Acquisition Activity

During 2017, the Company acquired two hotels for a total purchase price of $97 million in the resort market of Sedona, Arizona. The L'Auberge de Sedona and the Orchards Inn Sedona generated combined RevPAR growth of 19.3% and Hotel Adjusted EBITDA margin growth of 382 basis points during 2017. The combined hotels outperformed the Company's underwriting by $1.2 million in 2017 and the Company's total investment represents a 9% yield on full year 2017 Hotel Adjusted EBITDA.

The Company is under contract to acquire the 77-room Landing Resort & Spa in South Lake Tahoe, California for $42 million, or $545,000 per key. The Landing Resort & Spa is a premier luxury resort with one of the best locations in Lake Tahoe. TripAdvisor's 2018 Traveler's Choice Awards ranks The Landing as one of the top 20 hotels in the U.S. and Condé Nast Readers’ Choice Award named the hotel the #1 resort in Northern California in 2016. The resort was redeveloped and opened essentially new in 2013. The acquisition is expected to close before the end of the first quarter and will be funded with corporate cash. The Company has identified a number of value-add and asset management opportunities and has underwritten the resort to stabilize in the coming years at an approximate 9.5% EBITDA yield on its total investment after full implementation of its value-add asset management plan. The acquisition represents a 7% yield on 2017 Hotel Adjusted EBITDA.

Hotel Manager Changes

The Company made several manager changes during 2017 that it believes will create value going forward. In August 2017, the Company terminated its management agreement with Marriott at the Courtyard Midtown East and entered into a new franchise agreement with Marriott and a new management agreement with HEI. In October 2017, the Company entered into a new management agreement with Viceroy Hotels & Resorts for the Hotel Rex as part of its strategy to significantly reposition the hotel into a higher rate category. In December 2017, the Company terminated its management agreement with the seller at the L'Auberge de Sedona and Orchards Inn Sedona and entered into a new management agreement with Two Roads Hospitality, a national hotel operator with extensive luxury resort experience. The Company exercised its right to terminate its management agreement with Marriott for Frenchman's Reef due to the hotel's extensive property damage, effective February 20, 2018.

Capital Expenditures

The Company invested approximately $100 million on capital improvements during the year ended December 31, 2017, which included the following significant projects:

•
Chicago Marriott Downtown: The Company completed the third phase of its multi-year renovation, which included the upgrade renovation of approximately 340 guest rooms. The hotel gained over 5.5 percentage points in market share during 2017.
•
The Gwen Chicago: The Company completed the $27 million rebranding renovation of the hotel, including a complete renovation of its 311 guest rooms in April 2017. The hotel is currently ranked in the Top 10 of all hotels in Chicago by TripAdvisor.
•
Worthington Renaissance: The Company completed the renovation of the hotel's 504 guest rooms in January 2017. Since the renovation, RevPAR has increased 23% and the hotel gained over 20 points of market share.
•
Charleston Renaissance: The Company completed the renovation of the hotel's 166 guest rooms in February 2017. The hotel has gained significant market share post renovation, most dramatically in the fourth quarter with a 21 percentage point gain.
•
The Lodge at Sonoma: The Company completed the renovation of the hotel's 182 guest rooms in April 2017. The ramp up after the renovation was interrupted by the impact of wildfires in Northern California, however the hotel is expected to gain market share in 2018.

In pursuit of optimizing its capital allocation, the Company is finding the highest return opportunities in the current environment are through value creation investments in its existing portfolio. In total, DiamondRock expects to

4


invest approximately $135 million on capital improvements at its hotels in 2018, which includes carryover from certain projects that commenced in 2017. Significant projects in 2018 include the following:

•
Chicago Marriott Downtown: The Company commenced the final phase of its $110 million, multi-year renovation, which includes the final 258 of 1,200 guest rooms and all of the hotel's 60,000 square feet of prime meeting space. Meeting planners have responded well with post-renovation booking pace up 12.7% in 2018. With the best location and strong brand, the hotel is well positioned to continue to gain market share following the first quarter renovation disruption.
•
Havana Cabana Key West: The Company will relaunch this newly-themed boutique hotel following a comprehensive repositioning of the entire asset post hurricane. The hotel will re-open as the Havana Cabana Key West in April 2018. This fully renovated and repositioned boutique hotel is expected to drive incremental market share of 5 to 10 percentage points. The Company does not anticipate significant Hotel Adjusted EBITDA displacement as it expects to receive business interruption insurance proceeds for the closure period.
•
Vail Marriott Resort: This well-located Vail resort becomes unencumbered by brand and management over the next several years, creating numerous up-branding options to capture higher revenues and close the ADR gap among the luxury hotels in this growing market. In anticipation of this, the Company will complete a comprehensive renovation of the hotel's guest rooms and meeting space in 2018 after the ski season. The renovation will be done to a luxury standard to position the hotel to gain market share and partially close the gap with the luxury comp set, which currently has a $175 average daily rate premium to the Vail Marriott.
•
Westin Fort Lauderdale Beach Resort: Since its acquisition in 2014, the Westin has cumulatively exceeded underwriting by $5.5 million in Hotel Adjusted EBITDA and is currently generating a 9.8x EBITDA multiple on the Company's all-in investment. To capitalize on this high-performing asset, the Company expects to renovate the hotel's 432 guest rooms in 2018. This renovation follows the completion of the newly-created Lona restaurant and redeveloped lobby experience. The rooms renovation will give the Westin the ability to increase business transient rates and to increase both group room nights and rates.
•
JW Marriott Denver: To maintain its leadership position as the premier luxury hotel within Denver’s high-end submarket of Cherry Creek, the Company expects to commence a renovation in the fourth quarter of 2018 of the JW Marriott’s guest rooms, public space and meeting rooms. Since the majority of this renovation will take place in 2019, the Company does not expect any material displacement in 2018.
•
Hotel Rex: This boutique hotel located in the heart of San Francisco’s Union Square will close for the last four months of 2018 to complete a comprehensive renovation and transformation to a Viceroy hotel. Following this renovation and relaunch, the hotel will be well-positioned to take advantage of an anticipated record year in San Francisco in 2019.

The Company anticipates approximately $6 million in renovation displacement to Hotel Adjusted EBITDA in 2018, which is approximately $2 million more than the prior year. The displacement is primarily attributable to the upgrade renovations at the Vail Marriott Resort, Hotel Rex San Francisco, Westin Ft. Lauderdale Beach Resort, and the Chicago Marriott Downtown. The displacement is expected to be approximately $2 million during the first quarter, $1 million during the second quarter, and $1.5 million during each of the third and fourth quarters.

Balance Sheet
 
As of December 31, 2017, the Company had $183.6 million of unrestricted cash on hand and approximately $937.8 million of total debt (approximately 3.0x full year 2017 Adjusted EBITDA), which consisted of property-specific mortgage debt and $300.0 million of unsecured term loans. The Company has no outstanding borrowings on its $300 million senior unsecured credit facility and 20 of its 28 hotels are unencumbered by debt.

Dividends

The Company’s Board of Directors declared a quarterly dividend of $0.125 per share to stockholders of record as of December 31, 2017. The dividend was paid on January 12, 2018.

5



ATM Equity Offering Program

The Company issued common stock under its "at-the-market" equity offering program subsequent to December 31, 2017. In 2018, the Company opportunistically sold 230,719 shares of its common stock at an average price of $12.02 per share for net proceeds of $2.7 million.

Guidance
The Company’s actual results for the year ended December 31, 2017, which came in at or above the high end of its previously provided guidance, are as follows:

Metric
Guidance
Actual Results
Performance Relative to Midpoint
Low End
High End
Comparable RevPAR Growth

2 percent
2.5 percent
2.5 percent
+ 0.25 percent
Adjusted EBITDA

$239 million
$247 million
$250.0 million
+ $7.0 million
Adjusted FFO

$192.3 million
$197.3 million
$201.0 million
+ $6.2 million
Adjusted FFO per share

$0.95 per share
$0.98 per share
$1.00 per share
+ $0.035 per share

The Company is providing annual guidance for 2018, 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 includes the Landing Resort & Spa and excludes Frenchman’s Reef and the Inn at Key West for all periods.

The Company expects the full year 2018 results to be as follows:
 
Metric
Low End
High End
 
 
Comparable RevPAR Growth

0 percent
2 percent
 
Adjusted EBITDA

$244 million
$256 million
 
Adjusted FFO

$194 million
$204 million
 
Adjusted FFO per share (based on 202 million diluted shares)

$0.96 per share
$1.01 per share

The guidance above incorporates the following assumptions:

•
Hotel Adjusted EBITDA from the Landing Resort & Spa of approximately $2.5 million;
•
Business interruption insurance proceeds of approximately $20 million;
•
Corporate expenses of $27.5 million to $28.5 million, excluding severance charges expected as a result of the Company's CFO transition;
•
Interest expense of $40 million to $41 million; and
•
Income tax expense of $9 million to $12 million;

The Company expects approximately 14% to 15% of its full year 2018 Adjusted EBITDA to be earned during the first quarter of 2018. Comparable RevPAR growth for the first quarter is expected to be approximately 1%. The Company's first quarter operating results are expected to be impacted by approximately $2.0 million of renovation displacement, primarily at the Chicago Marriott and the comparison to strong results in the Washington D.C. market from the Presidential inauguration in 2017.


6


Selected Quarterly Comparable Operating Information

The following table is presented to provide investors with selected quarterly comparable operating information. The operating information is for our 27-hotel portfolio, which includes our 2018 and 2017 acquisitions and excludes Frenchman's Reef and the Inn at Key West for all periods presented.
 
Quarter 1, 2017
Quarter 2, 2017
Quarter 3, 2017
Quarter 4, 2017
Full Year 2017
ADR
$
210.38

$
238.76

$
229.78

$
237.14

$
229.59

Occupancy
72.9
%
84.8
%
85.3
%
77.6
%
80.2
%
RevPAR
$
153.39

$
202.53

$
196.08

$
183.98

$
184.09

Revenues (in thousands)
$
177,409

$
226,295

$
214,513

$
208,983

$
827,200

Hotel Adjusted EBITDA (in thousands)
$
44,803

$
79,767

$
68,645

$
65,191

$
258,406

        % of full Year
17.3
%
30.9
%
26.6
%
25.2
%
100.0
%
Hotel Adjusted EBITDA Margin
25.25
%
35.25
%
32.00
%
31.19
%
31.24
%
Available Rooms
818,910

827,855

832,556

835,470

3,314,791

Earnings Call
The Company will host a conference call to discuss its fourth quarter and full year results on Tuesday, February 27, 2018, at 9:00 a.m. Eastern Time (ET). To participate in the live call, investors are invited to dial 844-287-6622 (for domestic callers) or 530-379-4559 (for international callers). The participant passcode is 8076259. 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. As of February 26, 2018, the Company owns 28 premium quality hotels with over 9,600 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families such as Hilton and Marriott 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 the Inn at Key West and anticipated insurance coverage and closing of the pending acquisition. 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.

7




DIAMONDROCK HOSPITALITY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
December 31, 2017
 
December 31, 2016
ASSETS
(unaudited)
 
 
Property and equipment, net
$
2,692,286

 
$
2,646,676

Restricted cash
40,204

 
46,069

Due from hotel managers
86,621

 
77,928

Favorable lease assets, net
26,690

 
18,013

Prepaid and other assets (1)
71,488

 
19,127

Cash and cash equivalents
183,569

 
243,095

Total assets
$
3,100,858

 
$
3,050,908

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Mortgage debt, net of unamortized debt issuance costs
$
639,639

 
$
821,167

Term loan, net of unamortized debt issuance costs
298,153

 
99,372

Total debt
937,792

 
920,539

 
 
 
 
Deferred income related to key money, net
14,307

 
20,067

Unfavorable contract liabilities, net
70,734

 
72,646

Deferred ground rent
86,614

 
80,509

Due to hotel managers
74,213

 
58,294

Dividends declared and unpaid
25,708

 
25,567

Accounts payable and accrued expenses (2)
57,845

 
36,499

Total other liabilities
329,421

 
293,582

Stockholders’ 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; 200,306,733 and 200,200,902 shares issued and outstanding at December 31, 2017 and 2016, respectively
2,003

 
2,002

Additional paid-in capital
2,061,451

 
2,055,365

Accumulated deficit
(229,809
)
 
(220,580
)
Total stockholders’ equity
1,833,645

 
1,836,787

Total liabilities and stockholders’ equity
$
3,100,858

 
$
3,050,908



(1) Includes $55.8 million of insurance receivables as of December 31, 2017, $0.9 million and $5.0 million of deferred tax assets, $8.0 million and $6.0 million of prepaid expenses and $6.8 million and $8.1 million of other assets as of December 31, 2017 and 2016, respectively.

(2) Includes $6.0 million and $2.5 million of deferred tax liabilities, $11.2 million of accrued hurricane-related costs as of December 31, 2017, $15.3 million and $12.1 million of accrued property taxes, $11.7 million and $10.8 million of accrued capital expenditures, and $13.6 million and $11.1 million of other accrued liabilities as of December 31, 2017 and 2016, respectively.

8


DIAMONDROCK HOSPITALITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2017
 
2016
Revenues:
(unaudited)
 
(unaudited)
 
(unaudited)
 
 
Rooms
$
152,627

 
$
151,910

 
$
635,932

 
$
650,624

Food and beverage
42,858

 
42,906

 
183,049

 
194,756

Other
11,552

 
11,805

 
51,024

 
51,178

Total revenues
207,037

 
206,621

 
870,005

 
896,558

Operating Expenses:
 
 
 
 
 
 
 
Rooms
38,123

 
37,414

 
158,534

 
159,151

Food and beverage
27,136

 
28,198

 
120,460

 
125,916

Management fees
3,652

 
7,107

 
21,969

 
30,143

Other hotel expenses
74,236

 
70,229

 
302,272

 
302,805

Depreciation and amortization
24,059

 
23,713

 
99,090

 
97,444

Hotel acquisition costs
—

 
—

 
2,028

 
—

Corporate expenses
7,512

 
6,209

 
26,711

 
23,629

Gain on business interruption insurance
(4,051
)
 
—

 
(4,051
)
 
—

Impairment losses
852

 
—

 
3,209

 
—

Total operating expenses, net
171,519

 
172,870

 
730,222

 
739,088

Operating profit
35,518

 
33,751

 
139,783

 
157,470

 
 
 
 
 
 
 
 
Interest and other income, net
(897
)
 
(311
)
 
(1,820
)
 
(762
)
Interest expense
9,691

 
9,493

 
38,481

 
41,735

Loss on early extinguishment of debt
—

 
—

 
274

 
—

Loss (gain) on sales of hotel properties, net
764

 
(379
)
 
764

 
(10,698
)
Total other expenses, net
9,558

 
8,803

 
37,699

 
30,275

Income before income taxes
25,960

 
24,948

 
102,084

 
127,195

Income tax expense
(1,188
)
 
(1,042
)
 
(10,207
)
 
(12,399
)
Net income
$
24,772

 
$
23,906

 
$
91,877

 
$
114,796

Earnings per share:
 
 
 
 
 
 
 
Basic earnings per share
$
0.12

 
$
0.12

 
$
0.46

 
$
0.57

Diluted earnings per share
$
0.12

 
$
0.12

 
$
0.46

 
$
0.57

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
200,835,786

 
200,754,972

 
200,784,450
 
201,079,573
Diluted
201,626,820

 
201,483,397

 
201,521,468
 
201,676,258








9



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, 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, 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, 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 and FFO

EBITDA represents net income excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it helps 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) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA as one measure in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by 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 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 depreciation and amortization and gains or losses on the sale of assets. The Company also uses FFO as one measure in assessing its operating results.

Hotel EBITDA

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


10


Adjustments to EBITDA, FFO and Hotel EBITDA

We adjust EBITDA, 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 Ground Rent: We exclude the non-cash expense incurred from the straight line recognition of rent from our ground lease obligations and the non-cash amortization of our favorable lease assets. We exclude these non-cash items because they do not reflect the actual rent amounts due to the respective lessors in the current period and they are of lesser significance in evaluating our actual performance for that period.

•
Non-Cash Amortization of Favorable and Unfavorable Contracts: We exclude the non-cash amortization of the favorable and unfavorable contracts recorded in conjunction with certain acquisitions because the non-cash amortization is based on historical cost accounting and is of lesser significance in evaluating our actual performance for that period.

•
Cumulative Effect of a Change in Accounting Principle: Infrequently, the Financial Accounting Standards Board (FASB) promulgates new accounting standards that require 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 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 costs and other related items, such as the acceleration of key money amortization, 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; bargain purchase gains incurred upon acquisition of a hotel; costs incurred related to natural disasters, such as hurricanes; and gains from insurance proceeds, other than income related to business interruption insurance.

In addition, to derive Adjusted EBITDA we exclude gains or losses on dispositions and impairment losses because we believe that including them in EBITDA does not reflect the ongoing performance of our hotels. Additionally, the gain or loss on dispositions and impairment losses are based on historical cost accounting and represent either accelerated depreciation or excess depreciation in previous periods, and depreciation is excluded from EBITDA.

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



11


Reconciliations of Non-GAAP Measures

EBITDA and Adjusted EBITDA

The following tables are reconciliations of our GAAP net income to EBITDA and Adjusted EBITDA (in thousands):
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2017
 
2016
Net income
$
24,772

 
$
23,906

 
$
91,877

 
$
114,796

Interest expense
9,691

 
9,493

 
38,481

 
41,735

Income tax expense
1,188

 
1,042

 
10,207

 
12,399

Real estate related depreciation
24,059

 
23,713

 
99,090

 
97,444

EBITDA
59,710

 
58,154

 
239,655

 
266,374

Non-cash ground rent
1,535

 
1,441

 
6,290

 
5,671

Non-cash amortization of favorable and unfavorable contract liabilities, net
(478
)
 
(478
)
 
(1,912
)
 
(1,912
)
Hotel acquisition costs
—

 
—

 
2,028

 
—

Hurricane-related costs (1)
1,787

 
—

 
3,280

 
—

Impairment losses
852

 
—

 
3,209

 
—

Hotel manager transition items and pre-opening costs (2)
(2,275
)
 
—

 
(3,637
)
 
—

Loss on early extinguishment of debt
—

 
—

 
274

 
—

Loss (gain) on sale of hotel properties, net (3)
764

 
(379
)
 
764

 
(10,698
)
Severance costs (4)
—

 
—

 
—

 
(563
)
Adjusted EBITDA
$
61,895

 
$
58,738

 
$
249,951

 
$
258,872

(1)  
Represents stabilization, cleanup, and other costs (such as hotel labor) incurred at our hotels impacted by Hurricanes Irma or Maria that are not expected to be recovered by insurance.
(2)
Includes items related to the hotel manager changes during three months ended December 31, 2017, as follows: a reduction in employee severance costs of approximately $0.1 million related to Courtyard Manhattan Midtown East; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef. Includes items related to the hotel manager changes during the year ended December 31, 2017, as follows: Courtyard Manhattan Midtown East: (a) employee severance costs of approximately $0.3 million, (b) transition costs of approximately $0.1 million offset by (c) $1.9 million of accelerated amortization of key money received from Marriott; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef.
(3) 
During the three months ended December 31, 2017, we recognized an incremental pre-tax loss of $0.8 million due to a post-closing adjustment for hotel expenses incurred under our ownership period related to 2016 dispositions.
(4) During the year ended December 31, 2016, we reversed $0.7 million of previously recognized compensation expense for forfeited equity awards related to the resignation of our former Executive Vice President and Chief Operating Officer. Amounts are classified as corporate expenses on the consolidated statements of operations.


12


 
Full Year 2018 Guidance
 
Low End
 
High End
Net income
$
82,600

 
$
93,600

Interest expense
41,000

 
40,000

Income tax expense
9,000

 
12,000

Real estate related depreciation
100,000

 
99,000

EBITDA
232,600

 
244,600

Non-cash ground rent
6,300

 
6,300

Non-cash amortization of favorable and unfavorable contracts, net
(1,900
)
 
(1,900
)
Hotel acquisition costs
1,000

 
1,000

Hurricane-related costs
3,000

 
3,000

Severance costs
3,000

 
3,000

Adjusted EBITDA
$
244,000

 
$
256,000



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 December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2017
 
2016
Net income
$
24,772

 
$
23,906

 
$
91,877

 
$
114,796

Interest expense
9,691

 
9,493

 
38,481

 
41,735

Income tax expense
1,188

 
1,042

 
10,207

 
12,399

Real estate related depreciation
24,059

 
23,713

 
99,090

 
97,444

EBITDA
59,710

 
58,154

 
239,655

 
266,374

Corporate expenses
7,512

 
6,209

 
26,711

 
23,629

Interest and other income, net
(897
)
 
(311
)
 
(1,820
)
 
(762
)
Gain on business interruption insurance
(4,051
)
 
—

 
(4,051
)
 
—

Hotel acquisition costs
—

 
—

 
2,028

 
—

Loss on early extinguishment of debt
—

 
—

 
274

 
—

Hurricane-related costs (1)
1,787

 
—

 
3,280

 
—

Impairment losses
852

 
—

 
3,209

 
—

Loss (gain) on sale of hotel properties, net (2)
764

 
(379
)
 
764

 
(10,698
)
Hotel EBITDA
65,677

 
63,673

 
270,050

 
278,543

Non-cash ground rent
1,535

 
1,441

 
6,290

 
5,671

Non-cash amortization of favorable and unfavorable contract liabilities, net
(478
)
 
(478
)
 
(1,912
)
 
(1,912
)
Hotel manager transition items and pre-opening costs (3)
(2,275
)
 
—

 
(3,637
)
 
—

Hotel Adjusted EBITDA
$
64,459

 
$
64,636

 
$
270,791

 
$
282,302

(1)     Represents stabilization, cleanup, and other costs (such as hotel labor) incurred at our hotels impacted by Hurricanes Irma or Maria that are not expected to be recovered by insurance.
(2) During the three months ended December 31, 2017, we recognized an incremental pre-tax loss of $0.8 million due to a post-closing adjustment for hotel expenses incurred under our ownership period related to 2016 dispositions.
(3) Includes items related to the hotel manager changes during three months ended December 31, 2017, as follows: a reduction in employee severance costs of approximately $0.1 million related to Courtyard Manhattan Midtown East; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef. Includes items related to the hotel manager changes during the year ended

13


December 31, 2017, as follows: Courtyard Manhattan Midtown East: (a) employee severance costs of approximately $0.3 million, (b) transition costs of approximately $0.1 million offset by (c) $1.9 million of accelerated amortization of key money received from Marriott; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef.

FFO and Adjusted FFO
The following tables are reconciliations of our GAAP net income to FFO and Adjusted FFO (in thousands):
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017
 
2016
Net income
$
24,772

 
$
23,906

 
$
91,877

 
$
114,796

Real estate related depreciation
24,059

 
23,713

 
99,090

 
97,444

Impairment losses
852

 
—

 
3,209

 
—

Loss (gain) on sales of hotel properties, net of income tax (1)
458

 
(232
)
 
458

 
(9,118
)
FFO
50,141

 
47,387

 
194,634

 
203,122

Non-cash ground rent
1,535

 
1,441

 
6,290

 
5,671

Non-cash amortization of favorable and unfavorable contract liabilities, net
(478
)
 
(478
)
 
(1,912
)
 
(1,912
)
Hotel acquisition costs
—

 
—

 
2,028

 
—

Hurricane-related costs (2)
1,787

 
—

 
3,280

 
—

Hotel manager transition items and pre-opening costs (3)
(2,275
)
 
—

 
(3,637
)
 
—

Loss on early extinguishment of debt
—

 
—

 
274

 
—

Severance costs (4)
—

 
—

 
—

 
(563
)
Fair value adjustments to debt instruments
—

 
—

 
—

 
19

Adjusted FFO
$
50,710

 
$
48,350

 
$
200,957

 
$
206,337

Adjusted FFO per diluted share
$
0.25

 
$
0.24

 
$
1.00

 
$
1.02


(1) During the three months ended December 31, 2017, we recognized an incremental loss of $0.5 million due to a post-closing adjustment for hotel expenses incurred under our ownership period related to 2016 dispositions.
(2)     Represents stabilization, cleanup, and other costs (such as hotel labor) incurred at our hotels impacted by Hurricanes Irma or Maria that are not expected to be recovered by insurance.
(3) Includes items related to the hotel manager changes during three months ended December 31, 2017, as follows: a reduction in employee severance costs of approximately $0.1 million related to Courtyard Manhattan Midtown East; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef. Includes items related to the hotel manager changes during the year ended December 31, 2017, as follows: Courtyard Manhattan Midtown East: (a) employee severance costs of approximately $0.3 million, (b) transition costs of approximately $0.1 million offset by (c) $1.9 million of accelerated amortization of key money received from Marriott; transition costs of approximately $0.4 million related to the Hotel Rex, L'Auberge de Sedona and Orchards Inn Sedona; offset by $2.6 million of accelerated amortization of key money received from Marriott for Frenchman's Reef.
(4) During the three months ended December 31, 2016, we reversed $0.7 million of previously recognized compensation expense for forfeited equity awards related to the resignation of our former Executive Vice President and Chief Operating Officer. Amounts are classified as corporate expenses on the consolidated statements of operations.




14


 
Full Year 2018 Guidance
 
Low End
 
High End
Net income
$
82,600

 
$
93,600

Real estate related depreciation
100,000

 
99,000

FFO
182,600

 
192,600

Non-cash ground rent
6,300

 
6,300

Non-cash amortization of favorable and unfavorable contract liabilities, net
(1,900
)
 
(1,900
)
Acquisition costs
1,000

 
1,000

Hurricane-related costs
3,000

 
3,000

Severance costs
3,000

 
3,000

Adjusted FFO
$
194,000

 
$
204,000

Adjusted FFO per diluted share
$
0.96

 
$
1.01



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 2017 acquisitions and excludes the results for our 2016 dispositions (in thousands):
 
Three Months Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2017
 
2016
Revenues
$
207,037

 
$
206,621

 
$
870,005

 
$
896,558

Hotel revenues from prior ownership (1)
—

 
8,146

 
3,422

 
28,248

Hotel revenues from closed hotels (2)
108

 
(15,797
)
 
(55,529
)
 
(75,141
)
Hotel revenues from sold hotels (3)
—

 
—

 
—

 
(45,320
)
Comparable Revenues
$
207,145

 
$
198,970

 
$
817,898

 
$
804,345

 
 
 
 
 
 
 
 
Hotel Adjusted EBITDA
$
64,459

 
$
64,636

 
$
270,791

 
$
282,302

Hotel Adjusted EBITDA from prior ownership (1)
—

 
2,433

 
229

 
6,609

Hotel Adjusted EBITDA from closed hotels (2)
208

 
(3,424
)
 
(15,729
)
 
(20,387
)
Hotel Adjusted EBITDA from sold hotels (3)
—

 
—

 
—

 
(11,544
)
Comparable Hotel Adjusted EBITDA
$
64,667

 
$
63,645

 
$
255,291

 
$
256,980

 
 
 
 
 
 
 
 
Hotel Adjusted EBITDA Margin
31.13
%
 
31.28
%
 
31.13
%
 
31.49
%
Comparable Hotel Adjusted EBITDA Margin
31.22
%
 
31.99
%
 
31.21
%
 
31.95
%
(1) 
Amounts represent the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from January 1, 2017 to February 27, 2017 and January 1, 2016 to December 31, 2016, respectively. The pre-acquisition operating results 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 seller. The 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 and Inn at Key West as they are closed due to hurricane damage.
(3) 
Amounts represent the historical operating results of the Orlando Airport Marriott, Minneapolis Hilton and Hilton Garden Inn Chelsea for their respective ownership periods.



15


Comparable Hotel Operating Expenses
The following table sets forth hotel operating expenses for the three months and years ended December 31, 2017 and 2016 for each of the hotels that we owned during these periods. Our GAAP hotel operating expenses for the three months and years ended December 31, 2017 and 2016 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 2017 comparable to our ownership period in 2016, the amounts in the column titled “Adjustments for Acquisitions and Dispositions” represent the pre-acquisition operating costs of the L'Auberge de Sedona and Orchards Inn Sedona for the period from January 1, 2017 to February 27, 2017 and January 1, 2016 to December 31, 2016 and excludes the operating costs of the Orlando Airport Marriott, Minneapolis Hilton and Hilton Garden Inn Chelsea for the time periods presented. The amounts in the column titled “Adjustments for Closed Hotels” represent the operating costs for all periods presented of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West as they are closed due to hurricane damage. 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.


16


 
As Reported
 
Adjustments for Acquisitions/Dispositions
 
Adjustments for Closed Hotels
 
Comparable
 
Three Months Ended December 31,
 
 
Three Months Ended December 31,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms departmental expenses
$
38,123

 
$
37,414

 
1.9
 %
 
$
—

 
$
1,365

 
$
—

 
$
(2,147
)
 
$
38,123

 
$
36,632

 
4.1
 %
Food and beverage departmental expenses
27,136

 
28,198

 
(3.8
)%
 
—

 
2,020

 
—

 
(3,599
)
 
27,136

 
26,619

 
1.9
 %
Other direct departmental
2,310

 
2,173

 
6.3
 %
 
—

 
379

 
3

 
(630
)
 
2,313

 
1,922

 
20.3
 %
General and administrative
18,037

 
18,422

 
(2.1
)%
 
—

 
712

 
1

 
(1,695
)
 
18,038

 
17,439

 
3.4
 %
Utilities
4,769

 
5,833

 
(18.2
)%
 
—

 
160

 
—

 
(1,185
)
 
4,769

 
4,808

 
(0.8
)%
Repairs and maintenance
8,160

 
8,520

 
(4.2
)%
 
—

 
312

 
—

 
(954
)
 
8,160

 
7,878

 
3.6
 %
Sales and marketing
14,525

 
14,575

 
(0.3
)%
 
—

 
468

 
—

 
(1,178
)
 
14,525

 
13,865

 
4.8
 %
Franchise fees
6,682

 
5,296

 
26.2
 %
 
—

 
—

 
—

 
—

 
6,682

 
5,296

 
26.2
 %
Base management fees
1,978

 
5,327

 
(62.9
)%
 
—

 
232

 
2,624

 
(439
)
 
4,602

 
5,120

 
(10.1
)%
Incentive management fees
1,674

 
1,780

 
(6.0
)%
 
—

 
—

 
—

 
—

 
1,674

 
1,780

 
(6.0
)%
Property taxes
12,748

 
11,214

 
13.7
 %
 
—

 
68

 
(54
)
 
(48
)
 
12,694

 
11,234

 
13.0
 %
Ground rent
2,540

 
2,513

 
1.1
 %
 
—

 
—

 
—

 
—

 
2,540

 
2,513

 
1.1
 %
Insurance
1,122

 
1,566

 
(28.4
)%
 
—

 
69

 
(53
)
 
(381
)
 
1,069

 
1,254

 
(14.8
)%
Manager transition costs
329

 
—

 
100.0
 %
 
—

 
—

 
—

 
—

 
329

 
—

 
100.0%

Hurricane-related costs
1,787

 
—

 
100.0
 %
 
—

 
—

 
(675
)
 
—

 
1,112

 
—

 
100.0%

Other fixed expenses
1,227

 
117

 
948.7
 %
 
—

 
61

 
(17
)
 
(117
)
 
1,210

 
61

 
1,883.6
 %
Total hotel operating expenses
$
143,147

 
$
142,948

 
0.1
 %
 
$
—

 
$
5,846

 
$
1,829

 
$
(12,373
)
 
$
144,976

 
$
136,421

 
6.3
 %
Hotel manager transition costs
2,275

 
—

 
100.0
 %
 
—

 
—

 
(2,604
)
 
—

 
(329
)
 
—

 
(100.0
)%
Hurricane-related costs
(1,787
)
 
—

 
(100.0
)%
 
—

 
—

 
675

 
—

 
(1,112
)
 
—

 
(100.0
)%
Non-cash ground rent
(1,535
)
 
(1,441
)
 
6.5
 %
 
—

 
(133
)
 
—

 
—

 
(1,535
)
 
(1,574
)
 
(2.5
)%
Non-cash amortization of favorable and unfavorable contract liabilities, net
478

 
478

 
—
 %
 
—

 
—

 
—

 
—

 
478

 
478

 
—
 %
Total adjusted hotel operating expenses
$
142,578

 
$
141,985

 
0.4
 %
 
$
—

 
$
5,713

 
$
(100
)
 
$
(12,373
)
 
$
142,478

 
$
135,325

 
5.3
 %

17


 
As Reported
 
Adjustments for Acquisitions/Dispositions
 
Adjustments for Closed Hotels
 
Comparable
 
Year Ended December 31,
 
 
Year Ended December 31,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rooms departmental expenses
$
158,534

 
$
159,151

 
(0.4
)%
 
$
774

 
$
(2,435
)
 
$
(7,019
)
 
$
(9,810
)
 
$
152,289

 
$
146,906

 
3.7
 %
Food and beverage departmental expenses
120,460

 
125,916

 
(4.3
)%
 
919

 
(677
)
 
(12,622
)
 
(16,487
)
 
108,757

 
108,752

 
—
 %
Other direct departmental
11,479

 
11,350

 
1.1
 %
 
257

 
1,314

 
(2,125
)
 
(2,674
)
 
9,611

 
9,990

 
(3.8
)%
General and administrative
74,724

 
76,459

 
(2.3
)%
 
416

 
(1,596
)
 
(5,236
)
 
(7,271
)
 
69,904

 
67,592

 
3.4
 %
Utilities
23,396

 
25,868

 
(9.6
)%
 
107

 
(659
)
 
(3,891
)
 
(5,077
)
 
19,612

 
20,132

 
(2.6
)%
Repairs and maintenance
34,496

 
35,589

 
(3.1
)%
 
209

 
(528
)
 
(2,830
)
 
(3,887
)
 
31,875

 
31,174

 
2.2
 %
Sales and marketing
59,109

 
61,955

 
(4.6
)%
 
262

 
(2,095
)
 
(3,913
)
 
(4,927
)
 
55,458

 
54,933

 
1.0
 %
Franchise fees
23,959

 
21,817

 
9.8
 %
 
—

 
(586
)
 
—

 
—

 
23,959

 
21,231

 
12.8
 %
Base management fees
15,710

 
22,332

 
(29.7
)%
 
110

 
(488
)
 
1,052

 
(2,113
)
 
16,872

 
19,731

 
(14.5
)%
Incentive management fees
6,259

 
7,811

 
(19.9
)%
 
—

 
—

 
—

 
—

 
6,259

 
7,811

 
(19.9
)%
Property taxes
51,927

 
46,426

 
11.8
 %
 
82

 
(891
)
 
(229
)
 
(231
)
 
51,780

 
45,304

 
14.3
 %
Ground rent
10,243

 
12,634

 
(18.9
)%
 
—

 
(2,902
)
 
—

 
—

 
10,243

 
9,732

 
5.3
 %
Insurance
5,980

 
7,107

 
(15.9
)%
 
45

 
(28
)
 
(1,285
)
 
(1,777
)
 
4,740

 
5,302

 
(10.6
)%
Manager transition costs
838

 
—

 
100.0%

 
—

 
—

 
—

 
—

 
838

 
—

 
100.0%

Hurricane-related costs
1,929

 
—

 
100.0
 %
 
—

 
—

 
(675
)
 
—

 
1,254

 
—

 
100.0%

Other fixed expenses
4,192

 
3,600

 
16.4
 %
 
40

 
117

 
(452
)
 
(500
)
 
3,780

 
3,217

 
17.5
 %
Total hotel operating expenses
$
603,235

 
$
618,015

 
(2.4
)%
 
$
3,221

 
$
(11,454
)
 
$
(39,225
)
 
$
(54,754
)
 
$
567,231

 
$
551,807

 
2.8
 %
Hotel manager transition costs
3,637

 
—

 
100.0%

 
—

 
—

 
(2,604
)
 
—

 
1,033

 
—

 
100.0%

Hurricane-related costs
(3,280
)
 
—

 
(100.0%)

 
—

 
—

 
2,026

 
—

 
(1,254
)
 
—

 
(100.0%)

Non-cash ground rent
(6,290
)
 
(5,671
)
 
10.9
 %
 
(25
)
 
(683
)
 
—

 
—

 
(6,315
)
 
(6,354
)
 
(0.6
)%
Non-cash amortization of favorable and unfavorable contract liabilities, net
1,912

 
1,912

 
—
 %
 
—

 
—

 
—

 
—

 
1,912

 
1,912

 
—
 %
Total adjusted hotel operating expenses
$
599,214

 
$
614,256

 
(2.4
)%
 
$
3,196

 
$
(12,137
)
 
$
(39,803
)
 
$
(54,754
)
 
$
562,607

 
$
547,365

 
2.8
 %


18



Market Capitalization as of December 31, 2017
(in thousands)

Enterprise Value
 
 
 
 
 
Common equity capitalization (at December 31, 2017 closing price of $11.29/share)
 
$
2,274,556

Consolidated debt (face amount)
 
944,434

Cash and cash equivalents
 
(183,569)

Total enterprise value
 
$
3,035,421

Share Reconciliation
 
 
 
 
 
Common shares outstanding
 
200,307

Unvested restricted stock held by management and employees
 
631

Share grants under deferred compensation plan
 
528

Combined shares outstanding
 
201,466


Debt Summary as of December 31, 2017
(dollars in thousands)

Property
 
Interest Rate
 
Term
 
Outstanding Principal

 
Maturity
Marriott Salt Lake City Downtown
 
4.25%
 
Fixed
 
56,717

 
November 2020
Westin Washington D.C. City Center
 
3.99%
 
Fixed
 
64,833

 
January 2023
The Lodge at Sonoma, a Renaissance Resort & Spa
 
3.96%
 
Fixed
 
28,277

 
April 2023
Westin San Diego
 
3.94%
 
Fixed
 
64,859

 
April 2023
Courtyard Manhattan / Midtown East
 
4.40%
 
Fixed
 
84,067

 
August 2024
Renaissance Worthington
 
3.66%
 
Fixed
 
84,116

 
May 2025
JW Marriott Denver at Cherry Creek
 
4.33%
 
Fixed
 
63,519

 
July 2025
Westin Boston Waterfront Hotel
 
4.36%
 
Fixed
 
198,046

 
November 2025
     Debt issuance costs, net
 
 
 
 
 
(4,795
)
 
 
Total mortgage debt, net of unamortized debt issuance costs
 
 
 
 
 
$
639,639

 
 
 
 
 
 
 
 
 
 
 
Unsecured term loan
 
LIBOR + 1.45(1)
 
Variable
 
100,000

 
May 2021
Unsecured term loan
 
LIBOR + 1.45(1)
 
Variable
 
200,000

 
April 2022
     Debt issuance costs, net
 
 
 
 
 
(1,847
)
 
 
Unsecured term loans, net of unamortized debt issuance costs
 
 
 
$
298,153

 
 
 
 
 
 
 
 
 
 
 
Senior unsecured credit facility
 
LIBOR + 1.50
 
Variable
 
$
—

 
May 2020 (2)
 
 
 
 
 
 
 
 
 
Total debt, net of unamortized debt issuance costs
 
 
 
 
 
$
937,792

 
 
 
 
 
 
 
 
 
 
 
Weighted-average interest rate of fixed rate debt
 
4.22
%
 
 
 
 
 
 
Total weighted-average interest rate
 
3.79
%
 
 
 
 
 
 

(1) 
The interest rate as of December 31, 2017 was 2.81%.
(2) 
May be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions.

19


Operating Statistics – Fourth Quarter
 
 
ADR
 
Occupancy
 
RevPAR
 
Hotel Adjusted EBITDA Margin
 
 
4Q 2017
4Q 2016
B/(W)
 
4Q 2017
4Q 2016
B/(W)
 
4Q 2017
4Q 2016
B/(W)
 
4Q 2017
4Q 2016
B/(W)
Atlanta Alpharetta Marriott
 
$
164.31

$
167.36

(1.8
)%
 
72.4
%
67.5
%
4.9
 %
 
$
118.95

$
113.03

5.2
 %
 
35.93
%
33.80
%
213 bps
Bethesda Marriott Suites
 
$
169.80

$
170.45

(0.4
)%
 
72.6
%
73.9
%
(1.3
)%
 
$
123.30

$
126.03

(2.2
)%
 
31.42
%
27.21
%
421 bps
Boston Westin
 
$
255.06

$
255.94

(0.3
)%
 
70.0
%
66.1
%
3.9
 %
 
$
178.62

$
169.24

5.5
 %
 
29.20
%
32.78
%
-358 bps
Hilton Boston Downtown
 
$
280.96

$
271.13

3.6
 %
 
85.6
%
83.7
%
1.9
 %
 
$
240.38

$
227.07

5.9
 %
 
38.48
%
39.05
%
-57 bps
Hilton Burlington
 
$
171.73

$
162.24

5.8
 %
 
78.4
%
77.6
%
0.8
 %
 
$
134.66

$
125.84

7.0
 %
 
38.72
%
37.28
%
144 bps
Renaissance Charleston
 
$
250.74

$
221.48

13.2
 %
 
86.3
%
70.6
%
15.7
 %
 
$
216.45

$
156.35

38.4
 %
 
42.35
%
30.74
%
1161 bps
Chicago Marriott
 
$
232.55

$
234.22

(0.7
)%
 
69.0
%
71.5
%
(2.5
)%
 
$
160.44

$
167.42

(4.2
)%
 
27.34
%
27.68
%
-34 bps
Chicago Gwen
 
$
249.54

$
201.82

23.6
 %
 
80.6
%
85.9
%
(5.3
)%
 
$
201.09

$
173.44

15.9
 %
 
23.74
%
34.76
%
-1102 bps
Courtyard Denver Downtown
 
$
181.13

$
194.30

(6.8
)%
 
85.6
%
70.8
%
14.8
 %
 
$
155.13

$
137.65

12.7
 %
 
45.09
%
45.35
%
-26 bps
Courtyard Fifth Avenue
 
$
295.92

$
287.86

2.8
 %
 
93.5
%
93.6
%
(0.1
)%
 
$
276.74

$
269.41

2.7
 %
 
29.74
%
28.16
%
158 bps
Courtyard Midtown East
 
$
297.86

$
298.68

(0.3
)%
 
96.6
%
94.1
%
2.5
 %
 
$
287.79

$
281.12

2.4
 %
 
34.33
%
36.56
%
-223 bps
Fort Lauderdale Westin
 
$
181.04

$
177.42

2.0
 %
 
82.1
%
76.7
%
5.4
 %
 
$
148.56

$
136.03

9.2
 %
 
33.91
%
29.67
%
424 bps
Frenchman's Reef
 
$
—

$
237.83

(100.0
)%
 
—
%
76.7
%
(76.7
)%
 
$
—

$
182.36

(100.0
)%
 
93.33
%
19.19
%
7414 bps
JW Marriott Denver Cherry Creek
 
$
258.59

$
253.41

2.0
 %
 
80.9
%
80.3
%
0.6
 %
 
$
209.23

$
203.42

2.9
 %
 
32.34
%
34.15
%
-181 bps
Inn at Key West
 
$
—

$
194.28

(100.0
)%
 
—
%
68.5
%
(68.5
)%
 
$
—

$
133.00

(100.0
)%
 
3,666.67
%
43.12
%
362355 bps
Sheraton Suites Key West
 
$
244.92

$
245.88

(0.4
)%
 
76.8
%
78.8
%
(2.0
)%
 
$
188.17

$
193.72

(2.9
)%
 
42.44
%
47.55
%
-511 bps
Lexington Hotel New York
 
$
288.97

$
277.94

4.0
 %
 
94.0
%
96.5
%
(2.5
)%
 
$
271.67

$
268.30

1.3
 %
 
24.80
%
24.22
%
58 bps
Hotel Rex
 
$
200.57

$
206.06

(2.7
)%
 
73.9
%
76.5
%
(2.6
)%
 
$
148.20

$
157.74

(6.0
)%
 
29.83
%
31.75
%
-192 bps
Salt Lake City Marriott
 
$
162.36

$
155.42

4.5
 %
 
68.0
%
63.3
%
4.7
 %
 
$
110.37

$
98.35

12.2
 %
 
29.19
%
33.14
%
-395 bps
L'Auberge de Sedona
 
$
614.39

$
547.93

12.1
 %
 
78.0
%
77.0
%
1.0
 %
 
$
478.93

$
422.11

13.5
 %
 
31.32
%
27.47
%
385 bps
Orchards Inn Sedona
 
$
249.17

$
220.86

12.8
 %
 
78.9
%
80.2
%
(1.3
)%
 
$
196.70

$
177.14

11.0
 %
 
37.97
%
32.27
%
570 bps
Shorebreak
 
$
221.23

$
201.49

9.8
 %
 
73.4
%
72.1
%
1.3
 %
 
$
162.42

$
145.24

11.8
 %
 
26.97
%
27.20
%
-23 bps
The Lodge at Sonoma
 
$
267.16

$
287.57

(7.1
)%
 
64.3
%
73.5
%
(9.2
)%
 
$
171.66

$
211.47

(18.8
)%
 
18.14
%
27.92
%
-978 bps
Hilton Garden Inn Times Square Central
 
$
299.11

$
293.15

2.0
 %
 
98.1
%
97.9
%
0.2
 %
 
$
293.45

$
287.10

2.2
 %
 
38.75
%
41.51
%
-276 bps
Vail Marriott
 
$
278.62

$
293.45

(5.1
)%
 
54.0
%
57.6
%
(3.6
)%
 
$
150.43

$
169.06

(11.0
)%
 
24.02
%
30.64
%
-662 bps
Westin San Diego
 
$
171.28

$
175.77

(2.6
)%
 
79.0
%
81.1
%
(2.1
)%
 
$
135.38

$
142.60

(5.1
)%
 
33.05
%
35.54
%
-249 bps
Westin Washington D.C. City Center
 
$
217.30

$
213.85

1.6
 %
 
85.0
%
83.8
%
1.2
 %
 
$
184.60

$
179.18

3.0
 %
 
35.35
%
34.76
%
59 bps
Renaissance Worthington
 
$
182.34

$
170.49

7.0
 %
 
71.2
%
54.5
%
16.7
 %
 
$
129.75

$
92.92

39.6
 %
 
34.54
%
27.59
%
695 bps
Total (1)
 
$
236.96

$
232.89

1.7
 %
 
77.8
%
76.1
%
1.7
 %
 
$
184.25

$
177.20

4.0
 %
 
31.13
%
31.23
%
-10 bps
Comparable Total (1) (2)
 
$
236.95

$
233.04

1.7
 %
 
77.8
%
76.1
%
1.7
 %
 
$
184.24

$
177.45

3.8
 %
 
31.22
%
31.99
%
-77 bps

(1) 
Amounts include the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from October 1, 2016 to December 31, 2016.
(2) 
Amounts exclude the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.

20


Operating Statistics – Year to Date
 
 
ADR
 
Occupancy
 
RevPAR
 
Hotel Adjusted EBITDA Margin
 
 
YTD 2017
YTD 2016
B/(W)
 
YTD 2017
YTD 2016
B/(W)
 
YTD 2017
YTD 2016
B/(W)
 
YTD 2017
YTD 2016
B/(W)
Atlanta Alpharetta Marriott
 
$
167.22

$
172.88

(3.3
)%
 
75.3
%
72.2
%
3.1
 %
 
$
125.92

$
124.74

0.9
 %
 
33.52
%
35.38
%
-186 bps
Bethesda Marriott Suites
 
$
170.04

$
170.47

(0.3
)%
 
74.8
%
72.1
%
2.7
 %
 
$
127.21

$
122.85

3.5
 %
 
29.05
%
27.96
%
109 bps
Boston Westin
 
$
254.75

$
245.09

3.9
 %
 
76.8
%
78.0
%
(1.2
)%
 
$
195.64

$
191.11

2.4
 %
 
30.92
%
31.48
%
-56 bps
Hilton Boston Downtown
 
$
288.20

$
279.94

3.0
 %
 
86.1
%
86.8
%
(0.7
)%
 
$
248.15

$
242.86

2.2
 %
 
39.78
%
40.32
%
-54 bps
Hilton Burlington
 
$
178.05

$
175.99

1.2
 %
 
80.8
%
80.4
%
0.4
 %
 
$
143.78

$
141.54

1.6
 %
 
39.98
%
40.51
%
-53 bps
Renaissance Charleston
 
$
246.83

$
222.73

10.8
 %
 
80.9
%
85.8
%
(4.9
)%
 
$
199.73

$
191.08

4.5
 %
 
38.28
%
37.80
%
48 bps
Chicago Marriott
 
$
221.62

$
223.39

(0.8
)%
 
72.1
%
70.0
%
2.1
 %
 
$
159.69

$
156.26

2.2
 %
 
25.88
%
26.29
%
-41 bps
Chicago Gwen
 
$
227.49

$
206.84

10.0
 %
 
74.9
%
79.2
%
(4.3
)%
 
$
170.48

$
163.71

4.1
 %
 
22.84
%
31.08
%
-824 bps
Courtyard Denver Downtown
 
$
200.85

$
201.53

(0.3
)%
 
82.2
%
79.9
%
2.3
 %
 
$
165.10

$
161.01

2.5
 %
 
48.05
%
48.54
%
-49 bps
Courtyard Fifth Avenue
 
$
261.32

$
260.10

0.5
 %
 
90.2
%
89.5
%
0.7
 %
 
$
235.69

$
232.86

1.2
 %
 
19.74
%
20.76
%
-102 bps
Courtyard Midtown East
 
$
257.86

$
263.37

(2.1
)%
 
91.7
%
92.5
%
(0.8
)%
 
$
236.53

$
243.49

(2.9
)%
 
27.27
%
30.70
%
-343 bps
Fort Lauderdale Westin
 
$
189.47

$
192.44

(1.5
)%
 
85.7
%
88.2
%
(2.5
)%
 
$
162.31

$
169.72

(4.4
)%
 
35.89
%
37.79
%
-190 bps
Frenchman's Reef
 
$
282.68

$
252.96

11.7
 %
 
87.8
%
84.0
%
3.8
 %
 
$
248.16

$
212.59

16.7
 %
 
26.49
%
24.81
%
168 bps
JW Marriott Denver Cherry Creek
 
$
261.38

$
265.96

(1.7
)%
 
81.0
%
81.5
%
(0.5
)%
 
$
211.82

$
216.66

(2.2
)%
 
34.04
%
35.70
%
-166 bps
Inn at Key West
 
$
197.17

$
205.26

(3.9
)%
 
82.1
%
82.4
%
(0.3
)%
 
$
161.89

$
169.10

(4.3
)%
 
45.43
%
46.09
%
-66 bps
Sheraton Suites Key West
 
$
254.02

$
256.93

(1.1
)%
 
86.2
%
85.8
%
0.4
 %
 
$
218.90

$
220.55

(0.7
)%
 
44.74
%
45.05
%
-31 bps
Lexington Hotel New York
 
$
246.10

$
243.23

1.2
 %
 
92.6
%
91.9
%
0.7
 %
 
$
227.89

$
223.48

2.0
 %
 
17.10
%
17.60
%
-50 bps
Hotel Rex
 
$
219.31

$
230.96

(5.0
)%
 
81.4
%
82.1
%
(0.7
)%
 
$
178.45

$
189.59

(5.9
)%
 
33.98
%
35.68
%
-170 bps
Salt Lake City Marriott
 
$
165.98

$
159.85

3.8
 %
 
76.5
%
69.1
%
7.4
 %
 
$
126.92

$
110.39

15.0
 %
 
37.66
%
35.69
%
197 bps
L'Auberge de Sedona (1)
 
$
570.65

$
496.86

14.9
 %
 
77.2
%
75.5
%
1.7
 %
 
$
440.32

$
375.36

17.3
 %
 
27.61
%
23.99
%
362 bps
Orchards Inn Sedona (1)
 
$
236.47

$
211.59

11.8
 %
 
82.5
%
82.5
%
—
 %
 
$
195.16

$
174.63

11.8
 %
 
35.38
%
32.44
%
294 bps
Shorebreak
 
$
238.63

$
225.01

6.1
 %
 
75.6
%
79.0
%
(3.4
)%
 
$
180.34

$
177.80

1.4
 %
 
28.91
%
32.62
%
-371 bps
The Lodge at Sonoma
 
$
312.44

$
293.15

6.6
 %
 
64.9
%
79.4
%
(14.5
)%
 
$
202.68

$
232.88

(13.0
)%
 
25.87
%
30.24
%
-437 bps
Hilton Garden Inn Times Square Central
 
$
245.38

$
249.60

(1.7
)%
 
97.3
%
96.8
%
0.5
 %
 
$
238.66

$
241.63

(1.2
)%
 
30.81
%
33.24
%
-243 bps
Vail Marriott
 
$
281.61

$
276.25

1.9
 %
 
69.7
%
69.4
%
0.3
 %
 
$
196.24

$
191.73

2.4
 %
 
32.89
%
35.77
%
-288 bps
Westin San Diego
 
$
192.08

$
186.43

3.0
 %
 
84.9
%
85.1
%
(0.2
)%
 
$
163.06

$
158.58

2.8
 %
 
37.97
%
37.23
%
74 bps
Westin Washington D.C. City Center
 
$
221.71

$
220.48

0.6
 %
 
86.2
%
85.4
%
0.8
 %
 
$
191.10

$
188.25

1.5
 %
 
38.86
%
37.70
%
116 bps
Renaissance Worthington
 
$
182.15

$
178.05

2.3
 %
 
74.4
%
61.7
%
12.7
 %
 
$
135.44

$
109.89

23.3
 %
 
35.71
%
31.63
%
408 bps
Total 
 
$
230.61

$
227.32

1.4
 %
 
80.6
%
79.7
%
0.9
 %
 
$
185.93

$
181.17

2.6
 %
 
31.13
%
31.64
%
-51 bps
Comparable Total (2)
 
$
229.06

$
226.21

1.3
 %
 
80.3
%
79.4
%
0.9
 %
 
$
183.99

$
179.55

2.5
 %
 
31.21
%
31.95
%
-74 bps
(1) 
Hotels were acquired on February 28, 2017. Amounts reflect the operating results these hotels for the period from February 28, 2017 to December 31, 2017 and February 28, 2016 to December 31, 2016, respectively.
(2) 
Amounts include the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from January 1, 2017 to February 27, 2017 and January 1, 2016 to December 31, 2016, respectively. Amounts exclude the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.

21


 
Hotel Adjusted EBITDA Reconciliation
 
 
Fourth Quarter 2017
 
 
 
 
 
Plus:
Plus:
Plus:
Equals:
 
 
Total Revenues
 
Net Income / (Loss)
Depreciation
Interest Expense
Adjustments (1)
Hotel Adjusted EBITDA
Atlanta Alpharetta Marriott
 
$
4,890

 
$
1,294

$
463

$
—

$
—

$
1,757

Bethesda Marriott Suites
 
$
4,294

 
$
(512
)
$
348

$
—

$
1,513

$
1,349

Boston Westin
 
$
22,615

 
$
2,207

$
2,205

$
2,252

$
(60
)
$
6,604

Hilton Boston Downtown
 
$
9,702

 
$
2,496

$
1,237

$
—

$
—

$
3,733

Hilton Burlington
 
$
4,246

 
$
1,130

$
514

$
—

$
—

$
1,644

Renaissance Charleston
 
$
3,792

 
$
1,247

$
391

$
—

$
(32
)
$
1,606

Chicago Marriott
 
$
25,026

 
$
3,442

$
3,789

$
8

$
(397
)
$
6,842

Chicago Gwen
 
$
7,590

 
$
705

$
1,097

$
—

$
—

$
1,802

Courtyard Denver Downtown
 
$
2,728

 
$
919

$
311

$
—

$
—

$
1,230

Courtyard Fifth Avenue
 
$
4,889

 
$
1,012

$
447

$
—

$
(5
)
$
1,454

Courtyard Midtown East
 
$
8,756

 
$
1,445

$
663

$
998

$
(100
)
$
3,006

Fort Lauderdale Westin
 
$
10,960

 
$
2,417

$
1,299

$
—

$
—

$
3,716

Frenchman's Reef
 
$
(105
)
 
$
(102
)
$
4

$
—

$
—

$
(98
)
JW Marriott Denver Cherry Creek
 
$
5,869

 
$
673

$
513

$
712

$
—

$
1,898

Inn at Key West
 
$
(3
)
 
$
(110
)
$
—

$
—

$
—

$
(110
)
Sheraton Suites Key West
 
$
3,812

 
$
1,320

$
298

$
—

$
—

$
1,618

Lexington Hotel New York
 
$
19,761

 
$
1,405

$
3,483

$
5

$
8

$
4,901

Hotel Rex
 
$
1,549

 
$
313

$
149

$
—

$
—

$
462

Salt Lake City Marriott
 
$
7,578

 
$
1,042

$
530

$
640

$
—

$
2,212

L'Auberge de Sedona
 
$
7,207

 
$
1,770

$
487

$
—

$
—

$
2,257

Orchards Inn Sedona
 
$
2,144

 
$
536

$
235

$
—

$
43

$
814

Shorebreak
 
$
3,608

 
$
521

$
467

$
—

$
(15
)
$
973

The Lodge at Sonoma
 
$
4,200

 
$
(27
)
$
496

$
293

$
—

$
762

Hilton Garden Inn Times Square Central
 
$
7,755

 
$
2,217

$
788

$
—

$
—

$
3,005

Vail Marriott
 
$
7,316

 
$
1,253

$
504

$
—

$
—

$
1,757

Westin San Diego
 
$
7,875

 
$
830

$
1,111

$
662

$
—

$
2,603

Westin Washington D.C. City Center
 
$
8,856

 
$
1,124

$
1,306

$
701

$
—

$
3,131

Renaissance Worthington
 
$
10,127

 
$
1,762

$
924

$
810

$
2

$
3,498

Total
 
$
207,037

 
$
32,329

$
24,059

$
7,081

$
957

$
64,459

Less: Closed Hotels (2)
 
$
108

 
$
212

$
(4
)
$
—

$
—

$
208

Comparable Total
 
$
207,145

 
$
32,541

$
24,055

$
7,081

$
957

$
64,667

(1) 
Includes non-cash expenses incurred by the hotels due to the straight lining of the rent from ground lease obligations, the non-cash amortization favorable and unfavorable contract liabilities and hotel manager transition costs.
(2) 
Amounts represent the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.


22


Hotel Adjusted EBITDA Reconciliation
 
 
Fourth Quarter 2016
 
 
 
 
 
Plus:
Plus:
Plus:
Equals:
 
 
Total Revenues
 
Net Income / (Loss)
Depreciation
Interest Expense
Adjustments (1)
Hotel Adjusted EBITDA
Atlanta Alpharetta Marriott
 
$
4,665

 
$
1,206

$
371

$
—

$
—

$
1,577

Bethesda Marriott Suites
 
$
4,252

 
$
(704
)
$
353

$
—

$
1,508

$
1,157

Boston Westin
 
$
21,076

 
$
2,488

$
2,192

$
2,289

$
(60
)
$
6,909

Hilton Boston Downtown
 
$
9,112

 
$
2,327

$
1,231

$
—

$
—

$
3,558

Hilton Burlington
 
$
4,219

 
$
1,064

$
509

$
—

$
—

$
1,573

Renaissance Charleston
 
$
2,762

 
$
637

$
244

$
—

$
(32
)
$
849

Chicago Marriott
 
$
27,689

 
$
4,701

$
3,387

$
(26
)
$
(397
)
$
7,665

Chicago Gwen
 
$
6,416

 
$
1,501

$
729

$
—

$
—

$
2,230

Courtyard Denver Downtown
 
$
2,428

 
$
821

$
280

$
—

$
—

$
1,101

Courtyard Fifth Avenue
 
$
4,762

 
$
829

$
460

$
—

$
52

$
1,341

Courtyard Midtown East
 
$
8,611

 
$
1,461

$
673

$
1,014

$
—

$
3,148

Fort Lauderdale Westin
 
$
9,266

 
$
1,560

$
1,189

$
—

$
—

$
2,749

Frenchman's Reef
 
$
14,155

 
$
1,022

$
1,694

$
—

$
—

$
2,716

JW Marriott Denver Cherry Creek
 
$
5,976

 
$
809

$
508

$
724

$
—

$
2,041

Inn at Key West
 
$
1,642

 
$
520

$
188

$
—

$
—

$
708

Sheraton Suites Key West
 
$
4,023

 
$
1,397

$
516

$
—

$
—

$
1,913

Lexington Hotel New York
 
$
18,639

 
$
(313
)
$
3,430

$
1,388

$
9

$
4,514

Hotel Rex
 
$
1,600

 
$
365

$
143

$
—

$
—

$
508

Salt Lake City Marriott
 
$
6,738

 
$
1,056

$
520

$
657

$
—

$
2,233

Shorebreak
 
$
3,051

 
$
459

$
386

$
—

$
(15
)
$
830

The Lodge at Sonoma
 
$
5,742

 
$
953

$
351

$
299

$
—

$
1,603

Hilton Garden Inn Times Square Central
 
$
7,596

 
$
2,362

$
791

$
—

$
—

$
3,153

Vail Marriott
 
$
7,438

 
$
1,802

$
477

$
—

$
—

$
2,279

Westin San Diego
 
$
8,221

 
$
1,213

$
1,032

$
677

$
—

$
2,922

Westin Washington D.C. City Center
 
$
8,473

 
$
933

$
1,290

$
722

$
—

$
2,945

Renaissance Worthington
 
$
8,069

 
$
639

$
769

$
816

$
2

$
2,226

Total
 
$
206,621

 
$
31,108

$
23,713

$
8,560

$
1,067

$
64,636

Add: Prior Ownership Results(2)
 
$
8,146

 
$
1,467

$
934

$
—

$
32

$
2,433

Less: Closed Hotels (3)
 
$
(15,797
)
 
$
(1,542
)
$
(1,882
)
$
—

$
—

$
(3,424
)
Comparable Total
 
$
198,970

 
$
31,033

$
22,765

$
8,560

$
1,099

$
63,645


(1) 
Includes non-cash expenses incurred by the hotels due to the straight lining of the rent from ground lease obligations, the non-cash amortization favorable and unfavorable contract liabilities and hotel manager transition costs.
(2) 
Amounts represent the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from October 1, 2016 to December 31, 2016.
(3) 
Amounts represent the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.

23


Hotel Adjusted EBITDA Reconciliation
 
 
Year to Date 2017
 
 
 
 
 
Plus:
Plus:
Plus:
Equals:
 
 
Total Revenues
 
Net Income / (Loss)
Depreciation
Interest Expense
Adjustments (1)
Hotel Adjusted EBITDA
Atlanta Alpharetta Marriott
 
$
19,735

 
$
4,990

$
1,626

$
—

$
—

$
6,616

Bethesda Marriott Suites
 
$
16,923

 
$
(2,536
)
$
1,388

$
—

$
6,064

$
4,916

Boston Westin
 
$
92,987

 
$
11,230

$
8,772

$
8,990

$
(241
)
$
28,751

Hilton Boston Downtown
 
$
39,353

 
$
10,706

$
4,947

$
—

$
—

$
15,653

Hilton Burlington
 
$
17,329

 
$
4,870

$
2,058

$
—

$
—

$
6,928

Renaissance Charleston
 
$
13,741

 
$
3,882

$
1,504

$
—

$
(126
)
$
5,260

Chicago Marriott
 
$
102,913

 
$
13,336

$
14,753

$
129

$
(1,589
)
$
26,629

Chicago Gwen
 
$
25,810

 
$
1,780

$
4,115

$
—

$
—

$
5,895

Courtyard Denver Downtown
 
$
11,451

 
$
4,301

$
1,201

$
—

$
—

$
5,502

Courtyard Fifth Avenue
 
$
16,578

 
$
1,334

$
1,789

$
—

$
150

$
3,273

Courtyard Midtown East
 
$
28,765

 
$
789

$
2,661

$
3,986

$
409

$
7,845

Fort Lauderdale Westin
 
$
44,818

 
$
10,934

$
5,152

$
—

$
—

$
16,086

Frenchman's Reef
 
$
50,140

 
$
7,532

$
4,398

$
—

$
1,351

$
13,281

JW Marriott Denver Cherry Creek
 
$
23,640

 
$
3,169

$
2,035

$
2,843

$
—

$
8,047

Inn at Key West
 
$
5,389

 
$
1,931

$
517

$
—

$
—

$
2,448

Sheraton Suites Key West
 
$
17,371

 
$
6,458

$
1,171

$
—

$
142

$
7,771

Lexington Hotel New York
 
$
64,418

 
$
(4,864
)
$
13,907

$
1,938

$
32

$
11,013

Hotel Rex
 
$
7,078

 
$
1,833

$
572

$
—

$
—

$
2,405

Salt Lake City Marriott
 
$
33,620

 
$
7,984

$
2,110

$
2,566

$
—

$
12,660

L'Auberge de Sedona
 
$
21,781

 
$
4,349

$
1,664

$
—

$
—

$
6,013

Orchards Inn Sedona
 
$
7,552

 
$
1,752

$
780

$
—

$
140

$
2,672

Shorebreak
 
$
14,563

 
$
2,502

$
1,766

$
—

$
(58
)
$
4,210

The Lodge at Sonoma
 
$
20,882

 
$
2,383

$
1,848

$
1,171

$
—

$
5,402

Hilton Garden Inn Times Square Central
 
$
25,030

 
$
4,548

$
3,164

$
—

$
—

$
7,712

Vail Marriott
 
$
36,979

 
$
10,164

$
1,999

$
—

$
—

$
12,163

Westin San Diego
 
$
35,823

 
$
6,554

$
4,401

$
2,648

$
—

$
13,603

Westin Washington D.C. City Center
 
$
35,308

 
$
5,715

$
5,193

$
2,813

$
—

$
13,721

Renaissance Worthington
 
$
40,028

 
$
7,456

$
3,599

$
3,229

$
8

$
14,292

Total
 
$
870,005

 
$
135,082

$
99,090

$
30,313

$
6,282

$
270,791

Add: Prior Ownership Results (2)
 
$
3,422

 
$
(293
)
$
522

$
—

$
—

$
229

Less: Closed Hotels (3)
 
$
(55,529
)
 
$
(9,463
)
$
(4,915
)
$
—

$
(1,351
)
$
(15,729
)
Comparable Total
 
$
817,898

 
$
125,326

$
94,697

$
30,313

$
4,931

$
255,291

(1) 
Includes non-cash expenses incurred by the hotels due to the straight lining of the rent from ground lease obligations, the non-cash amortization favorable and unfavorable contract liabilities and hotel manager transition costs.
(2) 
Amounts represent the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from January 1, 2017 to February 27, 2017.
(3) 
Amounts represent the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.

24


Hotel Adjusted EBITDA Reconciliation
 
 
Year to Date 2016
 
 
 
 
 
Plus:
Plus:
Plus:
Equals:
 
 
Total Revenues
 
Net Income / (Loss)
Depreciation
Interest Expense
Adjustments (1)
Hotel Adjusted EBITDA
Atlanta Alpharetta Marriott
 
$
20,171

 
$
5,681

$
1,456

$
—

$
—

$
7,137

Bethesda Marriott Suites
 
$
16,383

 
$
(2,944
)
$
1,420

$
—

$
6,105

$
4,581

Boston Westin
 
$
94,096

 
$
11,917

$
8,787

$
9,162

$
(241
)
$
29,625

Hilton Boston Downtown
 
$
38,694

 
$
10,733

$
4,862

$
—

$
8

$
15,603

Hilton Burlington
 
$
17,607

 
$
5,163

$
1,970

$
—

$
—

$
7,133

Renaissance Charleston
 
$
13,229

 
$
4,122

$
1,004

$
—

$
(126
)
$
5,000

Hilton Garden Inn Chelsea
 
$
6,413

 
$
1,057

$
601

$
—

$
—

$
1,658

Chicago Marriott
 
$
102,041

 
$
14,774

$
13,253

$
384

$
(1,589
)
$
26,822

Chicago Gwen
 
$
24,232

 
$
4,717

$
2,815

$
—

$
—

$
7,532

Courtyard Denver Downtown
 
$
11,166

 
$
4,277

$
1,143

$
—

$
—

$
5,420

Courtyard Fifth Avenue
 
$
16,407

 
$
170

$
1,817

$
1,212

$
207

$
3,406

Courtyard Midtown East
 
$
29,621

 
$
2,364

$
2,683

$
4,048

$
—

$
9,095

Fort Lauderdale Westin
 
$
46,088

 
$
12,709

$
4,709

$
—

$
—

$
17,418

Frenchman's Reef
 
$
66,948

 
$
10,083

$
6,528

$
—

$
—

$
16,611

JW Marriott Denver Cherry Creek
 
$
24,911

 
$
3,950

$
2,054

$
2,890

$
—

$
8,894

Inn at Key West
 
$
8,193

 
$
3,040

$
736

$
—

$
—

$
3,776

Sheraton Suites Key West
 
$
18,320

 
$
6,194

$
2,060

$
—

$
—

$
8,254

Lexington Hotel New York
 
$
62,072

 
$
(8,146
)
$
13,614

$
5,424

$
32

$
10,924

Minneapolis Hilton
 
$
24,790

 
$
(13
)
$
2,917

$
2,514

$
(586
)
$
4,832

Orlando Airport Marriott
 
$
14,117

 
$
4,481

$
573

$
—

$
—

$
5,054

Hotel Rex
 
$
7,458

 
$
2,090

$
571

$
—

$
—

$
2,661

Salt Lake City Marriott
 
$
29,104

 
$
5,642

$
2,103

$
2,641

$
—

$
10,386

Shorebreak
 
$
14,129

 
$
3,151

$
1,516

$
—

$
(58
)
$
4,609

The Lodge at Sonoma
 
$
25,404

 
$
5,022

$
1,462

$
1,198

$
—

$
7,682

Hilton Garden Inn Times Square Central
 
$
25,406

 
$
5,272

$
3,173

$
—

$
—

$
8,445

Vail Marriott
 
$
35,472

 
$
10,778

$
1,910

$
—

$
—

$
12,688

Westin San Diego
 
$
35,166

 
$
6,266

$
4,115

$
2,711

$
—

$
13,092

Westin Washington D.C. City Center
 
$
34,738

 
$
5,202

$
4,994

$
2,901

$
—

$
13,097

Renaissance Worthington
 
$
34,182

 
$
4,959

$
2,598

$
3,248

$
8

$
10,813

Total
 
$
896,558

 
$
142,711

$
97,444

$
38,333

$
3,760

$
282,302

Add: Prior Ownership Results(2)
 
$
28,248

 
$
2,778

$
3,736

$
—

$
95

$
6,609

Less: Sold Hotels (3)
 
$
(45,320
)
 
$
(5,525
)
$
(4,091
)
$
(2,514
)
$
586

$
(11,544
)
Less: Closed Hotels (4)
 
$
(75,141
)
 
$
(13,123
)
$
(7,264
)
$
—

$
—

$
(20,387
)
Comparable Total
 
$
804,345

 
$
126,841

$
89,825

$
35,819

$
4,441

$
256,980

(1) 
Includes non-cash expenses incurred by the hotels due to the straight lining of the rent from ground lease obligations, the non-cash amortization favorable and unfavorable contract liabilities and hotel manager transition costs.
(2) 
Amounts represent the pre-acquisition operating results of the L'Auberge de Sedona and Orchards Inn Sedona for the period from January 1, 2016 to December 31, 2016.
(3) 
Amounts represent the operating results of the three hotels sold in 2016: Orlando Airport Marriott, Minneapolis Hilton and Hilton Garden Inn Chelsea.
(4) 
Amounts represent the operating results of Frenchman's Reef and Morning Star Marriott Beach Resort and Inn at Key West, which are closed due to hurricane damage.

25