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):
January 31, 2019
DiamondRock Hospitality Company
(Exact name of registrant as specified in charter)
Maryland | 001-32514 | 20-1180098 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
2 Bethesda Metro Center, Suite 1400
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
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 27, 2018. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this Current Report is as of the date of this Current Report, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in our expectations.
ITEM 2.02. Results of Operations and Financial Condition.
On January 31, 2019, DiamondRock Hospitality Company (the “Company”) issued a press release announcing its preliminary financial results for the quarter and year ended December 31, 2018. 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 (the “Securities Act”), or the Exchange Act, regardless of any general incorporation language in such filing.
ITEM 7.01. Regulation FD Disclosure
A copy of a slide presentation that the Company intends to use at investor meetings is attached to this Current Report as Exhibit 99.2 and is incorporated by reference herein. The Company has posted the presentation in the investor relations/presentations section of its website at www.drhc.com.
The information furnished pursuant to this Item 7.01, including Exhibit 99.2, shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of 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 or the Exchange Act, regardless of any general incorporation language in such filing. This Current Report will not be deemed an admission as to the materiality of any information in this Current Report that is required to be disclosed solely by Regulation FD.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are included with this report:
Exhibit No. | Description | |
99.1 | ||
99.2 | ||
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: January 31, 2019 | By: | /s/ Briony R. Quinn | ||||
Briony R. Quinn | ||||||
Senior Vice President and Treasurer | ||||||
COMPANY CONTACT
Jay Johnson
(240) 744-1150
FOR IMMEDIATE RELEASE
DIAMONDROCK HOSPITALITY COMPANY REPORTS PRELIMINARY FOURTH QUARTER AND FULL YEAR 2018 RESULTS
Provides 2019 Outlook
Repurchases 6.5 Million Shares
BETHESDA, Maryland, Thursday, January 31, 2019 – DiamondRock Hospitality Company (the “Company”) (NYSE: DRH) today announced preliminary results of operations for the fourth quarter and year ended December 31, 2018 and its outlook for 2019. The Company’s final detailed results of operations for the quarter and year ended December 31, 2018 will be announced on February 25, 2019.
Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company stated, “Full year 2018 results were consistent with our internal expectations and above the mid-point of our guidance. We were pleased with 1.3% RevPAR growth in light of an 80 basis point headwind from renovation disruption and an additional 50 basis point headwind from the union strike and Marriott/Starwood integration issues at the Boston Westin. The year also marked great progress on several major repositionings, including the Hotel Emblem San Francisco and Havana Cabana Key West. Additionally, we repurchased 6.5 million shares of our stock over the last 60 days under our share repurchase plan to take advantage of our discount to NAV and the recent pullback in lodging REIT stock prices.”
Preliminary 2018 Results
The Company’s preliminary results for the fourth quarter and year ended December 31, 2018 are as follows:
Fourth Quarter | Full Year | ||
Preliminary Comparable Operating Results (1) | |||
RevPAR Growth | 1.9% | 1.3% | |
Preliminary Actual Operating Results (2) | |||
Revenues | $223.4M | $863.7M | |
Net income | $22.0M - $23.0M | $85.7M - $86.7M | |
Earnings per diluted share | $0.10 - $0.11 | $0.41 - $0.42 | |
Adjusted EBITDA | $63.0M - $64.0M | $252.5M - $253.5M | |
Adjusted FFO | $52.0M - $52.5M | $208.5M - $209.0M | |
Adjusted FFO per diluted share | $0.25 | $1.01 | |
Weighted average diluted shares outstanding | 209.1M | 206.2M | |
(1) Comparable operating results include our 2018 and 2017 acquisitions for all periods and exclude the Frenchman's Reef and Morning Star Marriott Beach Resort (“Frenchman's Reef”) and Havana Cabana Key West for all periods presented due to the closure of these hotels. In addition, comparable operating results exclude Hotel Emblem (formerly Hotel Rex) from September 1 to December 31, 2018 and the comparable period of 2017 due to the closure of the hotel for renovation. Pre-acquisition operating results of acquired hotels were obtained from the seller during the acquisition due diligence process. We have made no adjustments to the amounts provided to us by each seller and these pre-acquisition operating results were not audited or reviewed by the Company's independent auditors.
(2) Actual operating results include Frenchman’s Reef, Havana Cabana Key West and Hotel Emblem and the operating results of hotels acquired for the Company's respective ownership periods.
Please see “Non-GAAP Financial Measures” attached to this press release for an explanation of the terms “Adjusted EBITDA,” “FFO” and “Adjusted FFO” and a reconciliation of these measures to net income.
The preliminary results are not audited and are subject to adjustments that may result from the completion of the Company’s year-end closing process. As previously announced, the Company intends to release final 2018 financial results after the market closes on February 25, 2019, and hold its earnings call on February 26, 2019.
Share Repurchase Program
The Company has repurchased 6.5 million shares of its common stock at an average price of $9.50 per share since it began repurchasing shares in December 2018. The Company repurchased 3.4 million shares of its common stock at an average price of $9.49 per share for a total purchase price of $32.2 million during the fourth quarter of 2018. Subsequent to December 31, 2018, the Company repurchased 3.1 million shares of its common stock at an average price of $9.52 per share for a total purchase price of $30.0 million. The Company has $188 million of remaining authorized capacity under its $250 million share repurchase program.
Frenchman’s Reef Update
The Company is in the process of rebuilding Frenchman’s Reef following the significant damage caused by the hurricanes in 2017 and the resort is expected to reopen in 2020. Under its insurance policy, the Company is entitled to be compensated for, among other things, the cost to replace the damaged property, as well as for lost profits during the rebuilding period. The Company and its insurers are currently in discussions and litigation regarding the Company's insurance claim and the Company plans to provide a more comprehensive update on its earnings call scheduled for February 26, 2019.
2019 Guidance
The Company is providing annual guidance for 2019, but does not undertake to update it for any developments in its business. Achievement of the anticipated results is subject to the risks disclosed in the Company’s filings with the U.S. Securities and Exchange Commission. Comparable RevPAR growth assumes all of the Company’s hotels were owned as of January 1, 2018, but excludes Havana Cabana Key West for January 1 to March 31, 2018 and 2019, Hotel Emblem for September 1 to December 31, 2018 and 2019 and Frenchman’s Reef for all periods.
The Company expects full year 2019 Comparable RevPAR growth in the range of 0.5 percent to 2.5 percent for its portfolio. Accordingly, the Company is providing the following guidance:
Metric | Low End | High End | |
(Includes Frenchman's Reef Business Interruption Agreed Upon For Partial Year 2019) | |||
Adjusted EBITDA | $256 million | $268 million | |
Adjusted FFO | $204 million | $214 million | |
Adjusted FFO per share (based on 205 million diluted shares) | $1.00 per share | $1.04 per share | |
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The guidance above incorporates business interruption insurance income related to Frenchman's Reef of only $8.8 million, which is less than the $16.1 million recognized in 2018. The Company believes it is entitled to at least $16.1 million of business interruption insurance income for the full year 2019, but the insurers have only agreed to $8.8 million at this time, which represents lost profits through April 2019. The Company continues to negotiate with its insurers to recover all of the amounts to which it believes it is legally entitled, but the timing of a resolution is uncertain. The following chart provides a quarterly comparison of income received from business interruption insurance in 2018 and projected for 2019:
Frenchman's Reef BI Income | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Full Year |
2018 | $5.3 million | $2.0 million | $5.7 million | $3.1 million | $16.1 million |
2019 | $8.8 million | TBD | TBD | TBD | $8.8 million + TBD |
The Company's guidance also incorporates renovation disruption of approximately $3 million to $4 million to Hotel Adjusted EBITDA and does not incorporate any additional share repurchases.
About the Company
DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in top gateway markets and destination resort locations. The Company owns 31 premium quality hotels with over 10,000 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families 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 anticipated insurance coverage. These risks include, but are not limited to: national and local economic and business conditions, including the potential for additional terrorist attacks, that will affect occupancy rates at the Company’s hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the Company’s indebtedness; relationships with property managers; the ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; and other risk factors contained in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of the date of this release, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
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Non-GAAP Financial Measures
We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with U.S. GAAP. EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO, as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company.
Use and Limitations of Non-GAAP Financial Measures
Our management and Board of Directors use EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable U.S. GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.
These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by U.S. GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our U.S. GAAP results and the reconciliations to the corresponding U.S. GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.
EBITDA, EBITDAre and FFO
EBITDA represents net income (calculated in accordance with U.S. GAAP) excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. The Company computes EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." EBITDAre represents net income (calculated in accordance with U.S. GAAP) adjusted for: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and amortization; (4) gains or losses on the disposition of depreciated property including gains or losses on change of control; (5) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (6) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.
We believe EBITDA and EBITDAre are useful to an investor in evaluating our operating performance because they help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization, and in the case of EBITDAre, impairment and gains or losses on dispositions of depreciated property) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA and EBITDAre as one measure in determining the value of hotel acquisitions and dispositions.
The Company computes FFO in accordance with standards established by the Nareit, which defines FFO as net income determined in accordance with U.S. GAAP, excluding gains or losses from sales of properties, impairment losses on depreciable real estate consolidated on the Company’s balance sheet, impairment losses on any investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and real estate-related depreciation and amortization. The Company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it is a measure of the Company's operations without regard to specified non-cash items, such as real estate 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.
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Adjustments to EBITDAre, FFO and Hotel EBITDA
We adjust EBITDAre, FFO and Hotel EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, Adjusted FFO and Hotel Adjusted EBITDA when combined with U.S. GAAP net income, EBITDA, EBITDAre, FFO and Hotel EBITDA, is beneficial to an investor's complete understanding of our consolidated and property-level operating performance.
We adjust EBITDAre, 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, or reversals thereof, incurred with the termination of corporate-level employees and severance costs incurred at our hotels related to lease terminations or structured severance programs because we believe these costs do not reflect the ongoing performance of the Company or our hotels. |
• | Hotel Manager Transition Items: We exclude the transition items associated with a change in hotel manager because we believe these items do not reflect the ongoing performance of the Company or our hotels. |
• | Other Items: From time to time we incur costs or realize gains that we consider outside the ordinary course of business and that we do not believe reflect the ongoing performance of the Company or our hotels. Such items may include, but are not limited to, the following: pre-opening costs incurred with newly developed hotels; lease preparation costs incurred to prepare vacant space for marketing; management or franchise contract termination fees; gains or losses from legal settlements; costs incurred related to natural disasters; and gains from insurance proceeds, other than income related to business interruption insurance. |
In addition, to derive Adjusted FFO we exclude any fair value adjustments to debt instruments. We exclude these non-cash amounts because they do not reflect the underlying performance of the Company.
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Reconciliations of Non-GAAP Measures
EBITDA, EBITDAre and Adjusted EBITDA
The following tables are reconciliations of our GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA (in millions):
Three Months Ended December 31, 2018 | Year Ended December 31, 2018 | ||||||||||||||
Low End | High End | Low End | High End | ||||||||||||
Net income | $ | 22.0 | $ | 23.0 | $ | 85.7 | $ | 86.7 | |||||||
Interest expense | 10.5 | 10.5 | 41.0 | 41.0 | |||||||||||
Income tax expense | 0.5 | 1.0 | 3.0 | 3.5 | |||||||||||
Real estate related depreciation and amortization | 27.5 | 27.0 | 105.0 | 104.5 | |||||||||||
EBITDA | 60.5 | 61.5 | 234.7 | 235.7 | |||||||||||
Impairment losses | — | — | — | — | |||||||||||
Loss on sale of hotel properties | — | — | — | — | |||||||||||
EBITDAre | 60.5 | 61.5 | 234.7 | 235.7 | |||||||||||
Non-cash ground rent | 2.0 | 2.0 | 7.3 | 7.3 | |||||||||||
Non-cash amortization of favorable and unfavorable contract liabilities, net | (0.5 | ) | (0.5 | ) | (2.0 | ) | (2.0 | ) | |||||||
Hurricane-related costs (1) | 0.8 | 0.8 | 4.0 | 4.0 | |||||||||||
Hotel manager transition and pre-opening items (2) | 0.2 | 0.2 | (1.5 | ) | (1.5 | ) | |||||||||
Gain on property insurance settlement | — | — | (1.7 | ) | (1.7 | ) | |||||||||
Severance costs (3) | — | — | 11.7 | 11.7 | |||||||||||
Adjusted EBITDA | $ | 63.0 | $ | 64.0 | $ | 252.5 | $ | 253.5 | |||||||
(1) | Represents stabilization, cleanup, and other costs (such as professional fees and hotel labor) incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance. |
(2) | Three months ended December 31, 2018 consists of $0.2 million related to pre-opening costs related to the reopening of Hotel Emblem. Year ended December 31, 2018 consists of (a) manager transition costs of $0.1 million related to the Hotel Emblem, L'Auberge de Sedona and Orchards Inn Sedona and (b) pre-opening costs of $0.6 million related to the reopening of the Havana Cabana Key West and Hotel Emblem, offset by $2.2 million of accelerated amortization of key money in connection with the termination of the Frenchman's Reef management agreement. |
(3) | Year ended December 31, 2018 consists of (a) $10.9 million related to payments made to unionized employees under a voluntary buyout program at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations and (b) $0.8 million related to the departure of our former Executive Vice President and Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations. |
Full Year 2019 Guidance | |||||||
Low End | High End | ||||||
Net income | $ | 86.7 | $ | 97.7 | |||
Interest expense | 48.5 | 47.5 | |||||
Income tax expense | 3.5 | 6.5 | |||||
Real estate related depreciation and amortization | 110.0 | 109.0 | |||||
EBITDAre | 248.7 | 260.7 | |||||
Non-cash ground rent | 7.3 | 7.3 | |||||
Non-cash amortization of favorable and unfavorable contracts, net | (2.0 | ) | (2.0 | ) | |||
Hurricane-related costs | 2.0 | 2.0 | |||||
Adjusted EBITDA | $ | 256.0 | $ | 268.0 | |||
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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, 2018 | Year Ended December 31, 2018 | ||||||||||||||
Low End | High End | Low End | High End | ||||||||||||
Net income | $ | 22.0 | $ | 23.0 | $ | 85.7 | $ | 86.7 | |||||||
Real estate related depreciation and amortization | 27.5 | 27.0 | 105.0 | 104.5 | |||||||||||
FFO | 49.5 | 50.0 | 190.7 | 191.2 | |||||||||||
Non-cash ground rent | 2.0 | 2.0 | 7.3 | 7.3 | |||||||||||
Non-cash amortization of favorable and unfavorable contract liabilities, net | (0.5 | ) | (0.5 | ) | (2.0 | ) | (2.0 | ) | |||||||
Hurricane-related costs (1) | 0.8 | 0.8 | 4.0 | 4.0 | |||||||||||
Hotel manager transition and pre-opening items (2) | 0.2 | 0.2 | (1.5 | ) | (1.5 | ) | |||||||||
Gain on property insurance settlement | — | — | (1.7 | ) | (1.7 | ) | |||||||||
Severance costs (3) | — | — | 11.7 | 11.7 | |||||||||||
Adjusted FFO | $ | 52.0 | $ | 52.5 | $ | 208.5 | $ | 209.0 | |||||||
Adjusted FFO per diluted share | $ | 0.25 | $ | 0.25 | $ | 1.01 | $ | 1.01 | |||||||
(1) | Represents stabilization, cleanup, and other costs (such as professional fees and hotel labor) incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance. |
(2) | Three months ended December 31, 2018 consists of $0.2 million related to pre-opening costs related to the reopening of Hotel Emblem. Year ended December 31, 2018 consists of (a) manager transition costs of $0.1 million related to the Hotel Emblem, L'Auberge de Sedona and Orchards Inn Sedona and (b) pre-opening costs of $0.6 million related to the reopening of the Havana Cabana Key West and Hotel Emblem, offset by $2.2 million of accelerated amortization of key money in connection with the termination of the Frenchman's Reef management agreement. |
(3) Year ended December 31, 2018 consists of (a) $10.9 million related to payments made to unionized employees under a voluntary buyout program at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations and (b) $0.8 million related to the departure of our former Executive Vice President and Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations.
Full Year 2019 Guidance | |||||||
Low End | High End | ||||||
Net income | $ | 86.7 | $ | 97.7 | |||
Real estate related depreciation and amortization | 110.0 | 109.0 | |||||
FFO | 196.7 | 206.7 | |||||
Non-cash ground rent | 7.3 | 7.3 | |||||
Non-cash amortization of favorable and unfavorable contract liabilities, net | (2.0 | ) | (2.0 | ) | |||
Hurricane-related costs | 2.0 | 2.0 | |||||
Adjusted FFO | $ | 204.0 | $ | 214.0 | |||
Adjusted FFO per diluted share | $ | 1.00 | $ | 1.04 | |||
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INVESTOR DAY 2019 Vail Marriott Mountain Resort January 31st, 2019 | Vail Marriott
DRH Evolution Since Prior Investor Day DRH Portfolio Evolution 2013 Investor Day 2019 Investor Day Increase / (Decrease) RevPAR $137.24 $187.13 36% AFFO Per Share $0.73 $1.01 38% Net Debt 11/ EBITDA Hotels 4.9x 3.5x 28% Better Resorts (% of Portfolio) 14% 32% 100%+ Short-Term/Terminable Management Agreements 46% 65% 19 pp’s (% of Portfolio) Hotel Adjusted EBITDA per Key(1) Hotel Adjusted EBITDA Margins(1) ($ in thousands) +52% +451bps $27.0 30.3% $17.8 25.8% 2013 2019 2013 2019 Investor Day Investor Day Investor Day Investor Day Note: 2013 Investor day on September 3, 2013. Metrics based on full-year pro forma RevPAR and EBITDA. (1) Represents full-year Pro Forma Hotel Adjusted EBITDA for 2013 and 2018. 2
DRH Leadership Team: 100+ Years of Experience MARK W. BRUGGER JAY JOHNSON THOMAS HEALY PRESIDENT, CHIEF EXECUTIVE EXECUTIVE VICE PRESIDENT AND EXECUTIVE VICE PRESIDENT AND CHIEF OFFICER AND DIRECTOR CHIEF FINANCIAL OFFICER OPERATING OFFICER WILLIAM J. TENNIS TROY FURBAY BRIONY R. QUINN EXECUTIVE VICE PRESIDENT, GENERAL EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT COUNSEL AND CORPORATE SECRETARY CHIEF INVESTMENT OFFICER AND TREASURER 3
DRH Four Pillars to Drive Performance Portfolio Quality Smart External Growth Internal Growth Plan: Fortress Balance Sheet & Nimble • Maximize Profits • New ROI Projects Capital Allocation 4
High-Quality Diversified Portfolio The Chicago Gwen, Luxury Collection
High Quality Portfolio in Key Gateway Markets Approximately 2/3 of portfolio located in top, gateway markets. 6
Strong Resort Market Presence Approximately 1/3 of portfolio located in destination resort markets. 7
Short Term Agreements Driving Value One of the least encumbered portfolios among all full-service REITs. 2019 2026 23% 35% 7 Hotels 4 assets 77% 11 Hotels 65% Become 24 Hotels 20 Hotels Unencumbered Management 29% 36% 42% 9 Hotels 3 assets 11 Hotels 13 Hotels 45% Become 14 Hotels 29% Unencumbered Brand 9 Hotels 19% 9 Hotels 6 Hotels Terminable Franchise Agreements(1)(2) Encumbered(1)(2) Unencumbered (1) Agreements terminable at will. (2) Assumes the asset remains unencumbered when current agreements ends. 8
2018 Overview & Preliminary 2019 Outlook Hotel Emblem, San Francisco
2018 Results In-Line With Guidance Full Year Preliminary Full Variance to Guidance Year Results Midpoint RevPAR 1.0% to 1.5% 1.3% +0.1% Change Adjusted $252.5M to $250 to $255 million +$0.5 million EBITDA $253.5M Adjusted $208.5M to $205 to $209 million +$1.75 million FFO $209.0M Adjusted $0.99 to $1.01 per $1.01 per share +$0.01 per share FFO/Share share Note: Represents preliminary 2018 results of operations. Results are subject to risks and uncertainties as defined in press release filed with SEC on January 31st, 2019. 10
Actively Repurchasing Stock: 6.5M Shares • $250M Plan Authorization • $62M repurchased at $9.50 per share under current 10b5-1 • Active every trading day since early December 2018 Implied Valuation 2018 EBITDA Multiple 11.4x 2018 NOI Cap Rate 8.1% Discount to NAV 25% - 40% Note: Based on latest data as of January 25th, 2018. 11
Continued Strength in RevPAR 2018 Q4 2019 RevPAR Industry Forecasts Total +2.9% +2.4% Industry STR: 2.3% PWC: 2.3% CBRE: 2.5% Resorts +4.0% +3.0% 2019 Brand Luxury +3.7% +3.7% RevPAR Guidance Marriott: 1% - 3%(1) Upper (2) +2.0% +1.6% Hilton: 2% - 4% Upscale Source: STR, PKF, PWC, Company Filings. Represents Q4 and FY 2018 RevPAR. (1) North American RevPAR guidance for 2019. (2) System-wide RevPAR guidance for 2019. 12
Key Factors Affecting 2019 Guidance Lower Renovation Disruption(1) BI Proceeds Lower in 2019 Renovation ROI Payoffs Citywide Calendars Off Cycle(2) Rising Labor Costs and Acquisitions Property Taxes Marriott / Starwood Merger Integration Complete (1) 2019 renovation disruption estimate is $3M to $4M versus $6M in 2018. (2) Current 2019 group pace by revenue has improved 240 bps since 3Q18 and is now forecasted to contract 4.6%. 2/3 of group needed to achieve 2019 budget is already under contract. 13
Preliminary 2019 Guidance 2019 Guidance Metric Low End High End RevPAR Growth 0.5% 2.5% Adjusted EBITDA $256 million $268 million Adjusted FFO $204 million $214 million Adjusted FFO per share $1.00 per share $1.04 per share (based on 205 million diluted shares) Note: Includes Frenchman's Reef business interruption agreed upon to date. Frenchman's Reef business interruption income of $8.8M has been agreed upon for partial year 2019. We believe we are entitled to at least $16M of business interruption income for the full year 2019. Note: Represents preliminary 2019 outlook. Results are subject to risks and uncertainties as defined in press release filed with SEC on January 31st, 2019. 14
DRH 2020 Outlook Favorable • DRH 2020 pace up 15% • Chicago combined pace up >30% • Boston combined pace up nearly 20% Chicago • DC pace up nearly 30% • NYC supply additions to decline by 30%+ • Frenchman’s Reef & Morning Star Resort to Reopen Boston Note: Latest pace data as of January 25th, 2019. Source: STR. 15
Key Market Outlook Boston Harbor Cityscape
Boston: Strong Long-Term Investment Drivers US 17 Source: HFF, Wall Street Research.
Boston Seaport: Opportunity to Close Gap with Copley (1) (1) Last five years. BCEC Boston Westin 18 Source: HFF, Wall Street Research.
Chicago: Setting Up for Strong 2020 and 2021 16% 32% 19 Source: HFF, Wall Street Research.
New York City: Supply Story to Turn Positive in 2020 20 Source: STR, Wall Street Research. 20
California: High Growth Driven by Tech & Other Drivers 21 Source: HFF, Wall Street Research. 21
South Florida: Low Supply & Strong Demand Key West & The Florida Keys Fort Lauderdale • Key West the #1 RevPAR market in the country • Attracts more than 15.5M visitors annually when compared against STR’s Top 25 • Fastest growing airport in North America • Through 2017, the Keys experienced a five-year ‒ Over 32.5M passengers in 2017 compound annual RevPAR growth rate of 5.5% ‒ Added 28 new routes in 2017 and 10 new • No new supply due to moratorium on development flights in 2018 • Key West cruise port: 700K+ passengers annually • 23 miles of beach (Blue Wave Certified) • ~70% of the U.S. population has no passport • Annual Fort Lauderdale Boat Show is world’s largest • $1.57B in new development projects 22 Source: HFF, Wall Street Research.
How Do We Best Allocate Capital in This Environment? Shorebreak Hotel
Creating Value Throughout Cycle Value Creation Playbook Tools Available • Match-fund Near-term Accretive Acquisitions By Issuing • $350M Investment Equity At or Above NAV Lower Capacity • Consider Opportunistically Raising Equity Above NAV, if • Acquisitions appropriate • ATM program • Limit Non-core Asset Sales • Sell Non-Core Assets • Explore high-value creating acquisition and • Consider Accretive Acquisition Opportunities disposition • Consider All Options for Use of Dispositions Proceeds opportunities • Sell Non-Core Assets and Deploy Proceeds Into Share Cost of Capital of Cost Repurchases • Share repurchase program • Consider Using Leverage Capacity to Opportunistically Accelerate Share Repurchases • Recently expanded program to $250M • Explore Additional Asset Sales Higher 24
Proven Acquisition Strategy Vail Marriott Mountain Resort
Vail Marriott Mountain Resort: Created >$100M in NAV Timeless real estate soon to be unencumbered of brand & management. INVESTMENT HIGHLIGHTS • Vail is one of best-performing investments in our portfolio ‒ Recently completed a rooms and meeting space renovation to bring resort closer to luxury comp set ‒ ~$300 rate discount to luxury comp set in ski season ‒ $3M - $4M EBITDA upside with renovation and rebranding • DRH Basis of $260K/Key for 344-room hotel ‒ Significant discount to est. NAV of $500K per key • Franchise and management agreements expire within 7% EBITDA CAGR FROM 2010 TO 2017 next ~3 years creating significant optionality 12.6 12.2 12.3 PERFORMANCE SINCE ACQUISITION 11.1 9.9 Disruption 2005 2018 Increase 8.9 RevPAR $112.66 $168.77 50% 7.1 9.3 EBITDA $4.7 $9.3 98% 5.9 EBITDA Margin 27.3% 29.1% 180bps EBITDA Multiple(1) 13.4 9.6 28% NAV(2) $62M $170M 174% 2011 2012 2013 2014 2015 2016 2017 2018 (3) (1) EBITDA multiple on current investment basis. (2) NAV based on internal estimates. 26 (3) $3.0 million of EBITDA disruption from renovation and Marriott merger integration in 2018. Actual EBITDA of $9.3M disrupted by $3.0M for full year.
L’Auberge de Sedona and Orchards Inn Sedona Off-market transaction with significant upside. • $97M acquisition of two iconic assets with immediate asset management upside in attractive, high-growth resort market - No new supply currently planned or under development in Sedona - Top ten Conde-Nast rated hotel in Southwest • Plan to reposition Orchards Inn to more upscale standard in 2020 to drive rate (~$330 rate gap with L’Auberge de Sedona) • Already exceeding underwriting for stabilized EBITDA at time of acquisition PERFORMANCE SINCE ACQUISITION(1) 2016 2018 Increase RevPAR $262.36 $340.91 30% EBITDA $6.6 $10.1 53% EBITDA Margin 23.3% 29.3% 600bps EBITDA Multiple(2) 15.0 9.8 34% NAV(3) 97M 110M 13% (1) Combined performance for L’Auberge de Sedona and Orchards Inn. (2) EBITDA multiple on current investment basis. (3) NAV based on internal estimates. 27
Westin Fort Lauderdale Beach Resort & Spa Nearly 30% increase in NAV over four years of ownership. • NAV increase of $44M since acquisition • EBITDA exceeded underwriting by over $5M • Full guestroom renovation completed in 2018, with F&B and lobby repositioning completed in 2017 - New restaurant, Lona, is driving revenue growth with improved mix (60% non-hotel guests) - Guestroom renovation to drive market share as Fort Lauderdale supply trends upward • Eliminated >$5M of annual expenses in first year with continued overhaul of expense structure and operations subsequently PERFORMANCE SINCE ACQUISITION 2014 2018F Increase RevPAR $148.94 $159.99 7% EBITDA $9.6M $15.0M 56% EBITDA Margin 21.9% 31.8% 990bps EBITDA Multiple(1) 14.8 11.1 25% NAV(2) $156M $200M 28% (1) EBITDA multiple on current investment basis. (2) NAV based on internal estimates. 28
Over $380M of NAV Created in Resort Portfolio EBITDA Multiple @ EBITDA Increase Investment ($M) Purchase YE 2018 $M Burlington Hilton $62 16.5x 8.8x $3.8 Cavallo Point $152 13.8x 13.8x $0.0 Charleston Renaissance $42 11.9x 7.1x $2.6 Fort Lauderdale Westin $166 14.8x 11.1x $4.9 Frenchman's Reef & Morning Star(1) $178 7.1x 10.7x $6.0 Havana Cabana(1) $59 12.2x 15.6x ($0.2) Key West Suites $96 14.9x 12.7x $1.3 The Landing Resort & Spa(1) $42 17.8x 17.8 NA Sedona - L'Auberge $69 15.8x 9.4x $3.1 Sedona - Orchards Inn $31 13.7x 10.5x $0.7 Shorebreak $63 14.6x 12.9x $0.9 Sonoma Renaissance $40 10.7x 5.1x $4.9 Vail Marriott Mountain Resort $89 13.4x 9.6x $4.6 Total Resort $1,088 13.1x 10.7x $32.4 DRH values its resort portfolio at a 6.5% cap rate, which implies over $380M of NAV value over investment(2). Note: Historical RevPAR and EBITDA results pro forma for acquisitions for full period year prior to acquisition. Havana Cabana excluded due to natural disaster closure. Frenchman’s Reef uses pre-hurricane figures due to closure. (1) Landing EBITDA adjusted for transition disruption post-acquisition. Frenchman’s and Havana Cabana EBITDA adjusted for hurricane disruption. (2) Valuation calculated using 2018 net operating income with 6.5% cap rate. Frenchman’s valuation calculated using 8.5% cap rate. 29
External Growth Strategy Havana Cabana
Portfolio Strategy to Drive Performance 10% Allocation in Any One DIVERSIFICATION Market Reduces Risk LIFESTYLE HOTELS, INDEPENDENTS 1/3 of Portfolio AND SOFT BRANDS(1) Historically Have Outperformed: RESORTS Target 50% of Portfolio (1) Independent, lifestyle and soft brand hotels include the Havana Cabana, Cavallo Point, Hotel Emblem, L’Auberge de Sedona, Orchards Inn, The Landing, Palomar Phoenix, Shorebreak Hotel, the Lexington and The Gwen. Soft brands, including Autograph and Luxury Collection, are included as lifestyle / boutique. Based on 2018F EBITDA for all properties except Frenchman’s Reef and Havana Cabana where 2016A used due to closure. Pro forma for full year for acquisitions. 31
Research Demonstrates Small Resorts Outperform • According to CBRE/PKF research study, small resorts(1) have: • Less downside risk due to larger stream of reliable non-rooms revenue • Preserved the most ADR through the recession of the early 2000s • Achieved superior levels of ADR growth since 2009 to all other market classes REVPAR CAGR FROM 1987 - 2017 4.5% Total US: 4.0% 4.2% 4.0% 3.1% 3.5% 3.8% 3.0% 3.1% 3.3% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1 Small Resorts Upper Upscale Luxury All Resorts All Urban Hotels Source: CBRE Hotels Research. (1) Collection of non-golf resorts with less than 200 rooms 32
Strong RevPAR Growth for Small Resorts REVPAR COMPARISON FROM 1987 - 2017 • Small Resorts have operated with a consistently higher RevPAR during the post- Great Recession period • May be result of a strategy to pursue higher rates at the expense of occupancy - Allowed for strong RevPAR with reduced variable expenses and higher income Above trend line growth expected to continue. Source: CBRE Hotels Research. 33
Significant Contribution from Non-Rooms Revenue NON-ROOM REVENUE COMPARISON • Both small and large resorts have increasingly relied on non-room revenues - Non-room revenues have grown more quickly and regularly than that of other benchmark groups • Since 1989, small resort non- room revenue approx. tripled while non-room revenue only doubled in other groups - Much of this growth premium was realized during the post-Great Recession period Source: CBRE Hotels Research. 34
DRH Resorts Resilient During Downturns • DiamondRock selectively acquires small, upscale resorts in high barrier to entry markets that are more resistant to downturns • Significantly lower supply in DRH resort markets • During the 2009 global recession, DiamondRock’s resorts outperformed the rest of the portfolio in EBITDA margin DRH EBITDA MARGIN DECLINE – 2009(1) 0.0% -1.0% -2.0% -3.0% -2.5% -4.0% -5.0% -6.0% -5.5% Resorts Non-Resorts (1) Includes resorts owned during prior recession or current resorts with comparable data at time of recession. Resorts included are Burlington Hilton, Frenchman’s Reef, Griffin Gate, Havana Cabana, Sheraton Suites Key West, Sonoma Renaissance, and Vail Marriott. Non-resorts include all DRH owned non-resort hotels in 2009. 35
DRH Lifestyle & Independent Strategy RATIONALE FOR TARGETING LIFESTYLE CURRENT HOTELS, INDEPENDENTS, & SOFT BRANDS ALLOCATION(1) • To grow with shift towards experiential travel Lifestyle, Independents, & Soft Brands • Reduces reliance on traditional brands 21% Traditional • Balances portfolio Brands 79% • Greater opportunity for smaller deals LONG-TERM TARGET ALLOCATION • Target allocation will be achieved through acquisitions of lifestyle hotels, independents and soft brands and dispositions of traditional boxes Lifestyle, Independent, & Soft Brands Traditional 33% Brands 66% (1) Independent, lifestyle and soft brand hotels include the Havana Cabana, Cavallo Point, Hotel Emblem, L’Auberge de Sedona, Orchards Inn, The Landing, Palomar Phoenix, Shorebreak Hotel, the Lexington and The Gwen. Soft brands, including Autograph and Luxury Collection, are included as lifestyle / boutique. Based on 2018F EBITDA for all properties except Frenchman’s Reef and Havana Cabana where 2016A used due to closure. Pro forma for full year for acquisitions. 36
Consumers Spending More on Experiences Than Material Goods Indexed Spending Growth (1980-2017) 15-Year Spending CAGR (2002-2017) 1,000 5.0% 800 Shift in 600 Consumer Spending 3.0% 2.2% 400 200 0.9% 0 1980 1985 1990 1995 2000 2005 2010 2015 Motor Vehicles Home Jewelry and Consumer Furnishings Watches Experiences (1) Motor Vehicles Home Furnishings Jewelry and Watches Consumer Experiences (1) Source: Bureau of Economic Analysis. Note: Represents personal consumption expenditures by category indexed to 100 for the year 1980. (1) Experiences include the following Bureau of Economic Analysis categories: accommodations, air travel, foreign travel by US residents, membership clubs, sports centers, parks, theaters, museums, casino gambling, and food services. 37
How Do We Maximize Internal Growth? L’Auberge de Sedona
Asset Management Philosophy Proven three-pillared approach to successful asset management Revenue Growth Cost Focus Capital Management Improve market penetration Enhance margins through Determine effective capital with cutting-edge revenue business intelligence tools allocation while prioritizing management program and operator collaboration ROI projects Sedona The Gwen, Luxury Collection Hotel Emblem San Francisco 39
Best-in-Class Asset Management Team 1 Chief Operating Officer ASSET MANAGEMENT DESIGN & CONSTRUCTION 5 1 VP Asset VP Design and Management Construction 2 2 4 Project Managers Revenue Asset Strategy Management Specialists Analysts 1 Director of Project Finance 1 Project Accountant 40
DRH to Benefit from Renovated Portfolio >70% of DRH portfolio has been renovated in recent years. CapEx as a % of Revenue (3-Year Average) 13.2% 12.6% 11.7% 11.6% 7.9% 7.2% SHO DRH PEB LHO HST PK $110 Million Renovation Complete $27 Million Renovation Complete Chicago Marriott Downtown Magnificent Mile The Gwen, Luxury Collection Source: Wall Street Research, Company Filings. 41
Revenue Management: Ahead of the Curve Monitor room-type performance based Technology to identify ideal on sold vs. occupied segmentation mix Uncover & correct potential Segment by day of week pace issues in early stages to to identify rate efficiency impact ADR Drive Utilize Effectively execute Monitor OTA parity premium room type Average Business and system price strategy Rate Intelligence hurdling Optimize Leverage Created platform to Executed strategic analyze each accounts’ BT Digital social media booking patterns Performance Media approach Restructure room types for control over compressed periods Pixel tracking to measure ROI Proprietary tools to identify lead time by Improve digital presence, website corporate account & length of stay conversion and metasearch 42
Case Study – L’Auberge de Sedona Since acquisition, Hotel ADR has grown $114 and EBITDA has grown $2.9M. DRH acquired the property in February of 2017 Our team identified opportunity to drive incremental ADR with a premium room-type strategy Garden/Spa Cottage Vista Cottage Creekside Cottage ADR increase of $112 ADR increase of $197 ADR increase of $128 2018 ADR: $499 2018 ADR: $706 2018 ADR: $732 2016 ADR: $387 2016 ADR: $509 2016 ADR: $603 43
Case Study – The Gwen The Gwen increased EBITDA by $3M in 2018. Segmentation - Case Study Business Transient Rate RevPAR Index (Luxury Class) Focused on growing market share in the business transient The Gwen’s RPI increased segment, driving corporate volume midweek. 250bps for Chicago luxury hotels. 2018 RevPAR is up +19% to last year 270.00 105 260.00 104 250.00 103 240.00 230.00 102 220.00 101 2014 2018 2014 2018 #1 most improved Guest Satisfaction rating in 2018 out of all North American Marriott luxury branded hotels and Rated 7 of 204 hotels in Chicago on TripAdvisor. 44
Cost Control Focus: Millions in Cost Savings Focusing on the largest variable expenses to drive NOI. Labor Management Energy Efficiency Food Cost Estimated Savings: Estimated Savings: Estimated Savings: $6.2M $1.5M $1.1M Implemented in: Implemented in: Implemented in: 12 Hotels 19 Hotels 15 Hotels Implemented labor management Completed lighting Implemented company-wide system to reduce expenses and retrofits throughout procurement program to promote improve productivity our portfolio best-practices 45
Operating Initiatives – Labor Management System New labor management system with total estimated savings of $6.2M. Implemented in: 12 Hotels by YE 2018 Analyze findings Provide Implement a tool to Study historical Review existing and current recommendations manage labor productivity by job planning methods productivity for implementation schedule on measures of new system property Results with new labor management system: • Total estimated savings of $6.2M upon implementation throughout the portfolio • 2018 productivity improved 1.7% Opportunities with new system: • 2018 productivity only increased 0.5% at hotels without new labor management system Goal: Implement system in all DRH hotels by 2019 to further improve productivity. 46
Operating Initiatives – Option One Energy Conducted comprehensive lighting efficiency audits and LED lighting conversions across the portfolio. $1.5M $2.5M 23 Annual savings CapEx Investment Hotels that have undergone across 19 hotels prior to utility rebates lighting retrofits by YE 2018 100% of hotels will be fully LED by the end of 2019. 47
Operating Initiatives – Food Cost Asset Management implementing best practices with new partners. $1.1M 200bps 75% Estimated Food Margin Properties to have implemented 2019 Savings Improvement New System by YE 2019 Last quarter, margin improvement for properties that implemented new food cost system outperformed other properties by 190bps. 48
Commitment to Sustainability • Sustainability initiatives drive profitability • DRH participates in GRESB, widely regarded as the premier ESG environmental benchmarking tool in the real estate industry • In 2018, DRH achieved the 4th highest score in the Global Lodging Sector and earned Green Star Status • DRH’s GRESB score is 28% higher than Global Lodging Sector average Greenhouse (1) Gas Emissions Water Consumption(2) Energy Consumption(3) 28% 17% 31% Since 2013 Since 2013 Since 2013 Note: Metrics from 2013 to 2017 for owned portfolio. Data excludes all properties that not owned for entire year. (1) Based on greenhouse gas emissions intensity (kilograms per square foot) (2) Based on water consumption (kilo-gallons) 49 (3) Based on energy intensity (kilowatt hours per square foot)
>$200M Value Creation Opportunities Incremental Capital Incremental Incremental Property Project Spend EBITDA Value JW Marriott Denver Renovation and Restaurant Repositioning $2.4M $1.25M $17M Hotel Emblem Complete Renovation and Repositioning $5.1M $1.5M - $1.8M $25M - $30M Sheraton Key West Reposition as an Independent Hotel $10.7M $1.7M - $2.2M $23M - $31M The Lodge at Sonoma Reposition as Autograph Collection $5.0M $1.2M $17M Hilton Boston Downtown 28 Additional Guestrooms $2.7M $1.0M $14M Sedona - Orchards Inn Reposition as Cliffs at L'Auberge $10.8M $2.7M $37M Worthington Renaissance Restaurant, Lobby and Courthouse Conservatory $13.8M $3.0M $36M The Landing Resort & Spa Additional 22 Keys and Resort Enhancements $9.4M $1.8M $27M Vail Marriott Resort Renovation and Repositioning $27.0M $3.0M - $4.0M $41M - $55M Total $89.3M $17 - $19M $237 - $264M Value-Add Opportunities to be implemented from 2019-2021. 50
Sheraton Suites Key West: Increase NAV by $23M to $31M Highest RevPAR Market with no new supply under construction. Repositioning Opportunity • Sheraton brand holding back rate • Largest guestrooms on the island • Only hotel on the island’s best beach Lobby Rendering • Reposition to enhance resort experience and drive resort fee Projected ADR – • Conservative underwriting estimates an incremental ADR of $10 As is vs Independent (RevPAR of $7) from repositioning $321 $312 $311 $303 $301 • Independent hotels in the market have a $20 RevPAR premium $290 $291 over branded hotels $280 2019 2020 2021 2022 As Is Independent Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details Q4 2019 $10.7M $1.7M – $2.2M $23M – $31M 51
Sedona Master Plan: Increase NAV by $37M Reposition Orchards Inn with luxury rooms and form connection with L’Auberge de Sedona to create one resort. Current Market Conditions • Market RevPAR up 18% over past 24 months in high barrier-to-entry market • L’Auberge is one of only two luxury resorts in Sedona Operational Potential • Connect Orchards and L’Auberge to be one resort • Reposition Orchards as unique room type: Cliffs at L’Auberge Sedona • Add 4 new, high ROI cottages on currently vacant space • Create dramatic pool and wedding event areas Assumptions • Orchards rate to increase by +$100 as Cliffs at L’Auberge • L’Auberge ADR premium to remain >$200 over Orchards • Incremental F&B due to centralized pool bar experience and additional wedding venue to yield $2M annually • 4 new cottages at $650 rate to drive $925K new revenue Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details Pending $10.8M $2.7M $37M 52
Vail Marriott Repositioning: Increase NAV by $41M to $55M Completed first of three phase plan to comprehensively renovate hotel to a luxury standard. Vail Market Conditions • Market has evolved into a 5-star, luxury destination • Lionshead increasingly sought-after location in Vail Upside Opportunity • Hotel unencumbered of brand and manager in 2021 • Hotel is currently under-branded; rebranding to luxury will open Renovated Guestroom the property up to: • Luxury travel agents and other market segments • Increased ADR ($175 full-year ADR gap to luxury comp set) • Incremental $1 in rate yields +$30K in annual EBITDA Phase I Phase II Phase III Guestroom & Spa, Lobby, Lobby Bar, Meeting Space Fitness Center Retail, Pool, Outdoor Event Space New Lobby Design Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details 2021 $27.0M $3.0M – $4.0M $41M – $55M 53
Vail Marriott Guestroom Renovation Vail Marriott Renovated Guestroom 54 54
Vail Marriott Renovated Lobby 55
Hotel Emblem San Francisco: Increase NAV by $25M to $30M Complete renovation and repositioning as part of Viceroy’s Urban Retreat Collection. Renovation Details • Hotel reopened in Jan 2019 as the Hotel Emblem by Viceroy • San Francisco citywide rooms up +80% in 2019 • Renovation included all areas of hotel • Repositioned lobby bar for higher volume Renovated Guestroom Design • Under-utilized meeting room in lobby converted into a grab-and-go/café leased by Bluestone Lane Coffee New Lobby Bar Design New Hotel Emblem Branding Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details 2019 $5.1M $1.5M – $1.8M $25M – $30M 56
The Landing Resort & Spa: Increase NAV by $27M Premier location in Lake Tahoe with beach and ski resort access. Current Market Conditions • Lake Tahoe is one of the top-rated resort markets in the US • Due to government regulations, Lake Tahoe possesses limited hotel inventory and high barriers to entry • Property has the best lakefront location in South Lake Tahoe • Walking distance to Heavenly Ski Resort by Vail Resorts Opportunity • Add 22 unique lake/mountain facing cottages • Increase wedding business • Create outdoor social catering and F&B space to enhance F&B profits Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details Q4 2020 $9.4M $1.8M $27M 57
The Lodge at Sonoma: Increase NAV by $17M Reposition hotel to take advantage of location and drive luxury business. Operational Potential • Sonoma has grown into a premier wine market – in the last 5 years Comp Set RevPAR has grown +$60 with rate increases of +$70 Cottage Enhancements • Invest in resort landscaping to create 70 private terraces with fire pits and a more intimate experience between buildings • Add outdoor social space to increase wedding business Restaurant • Reposition restaurant through partnership with celebrity chef Michael Mina • Incremental Restaurant Revenue of $4.1M Spa • Enhance spa offerings and profitability with best-in-class third-party spa manager • Incremental Spa Revenue of $1.0M Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details 2019 $5.0M $1.2M $17M 58
JW Marriott Cherry Creek: Increase NAV by $17M Comprehensive Renovation to Bolster Position as Leading Cherry Creek Hotel. Renovation Plan • Upgrade guestrooms, public space and meeting space • Capitalize on the strength of location within the submarket and the JW brand • Reposition rooms as best luxury product in market Toro Latin Kitchen and Lounge Design • Gain 800 to 1000bps in market share to luxury hotels in Denver and approximately $750K in EBITDA impact • Renovate lobby and re-concept the restaurant and bar • Partner with celebrity chef Richard Sandoval to convert current restaurant to Toro Latin Gastro Bar • Add 3 keys by moving concierge lounge to 2nd floor and dividing a New Guestroom Design large suite Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details Q1 2019 $2.4M $1.25M $17M 59
Before JW Cherry Creek Guestroom JW Cherry Creek Guestroom 60 60
After JW Cherry Creek Guestroom JW Cherry Creek Guestroom 61 61
Worthington Renaissance: Increase NAV by $36M Renovate public spaces by creating a 15,000+ SF ballroom, repositioning the restaurant, and redesigning the lobby. Restaurant Repositioning Operational Potential • Prime Sundance Square location • Partner with celebrity chef Richard Sandoval to convert current restaurant to popular Toro Bistro Courthouse Conservatory(1) Renovated Ballroom • All-glass function space with views of the courthouse will position Worthington as the #1 venue for social catering Proven Track Record Post-Renovation • $2.4M increase in 2017 EBITDA post-renovation over average of last three years • RevPAR index gained +20 points of share following renovation Rendering of Courthouse Conservatory (1) Still analyzing ROI and costs. Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details Q3 2020 $13.8M $3.0M $36M 62
Hilton Boston Downtown: Increase NAV by $14M Convert 3rd floor meeting space into 28 additional guest rooms. Market Conditions are Ideal for Key Addition • 1.4M SF of office space is under development in the CBD • 2017 had 200 nights above 95% occupancy Increasing Operational Potential for Property • Unencumbered of brand and management in 2022 Renovated Double Room • 91% transient demand and meeting space is underutilized • Opportunity to add 28 keys for less than half of replacement cost • In 2015, DRH added 41 keys through suite conversions at over 26.8% IRR proven demand Renovated King Room Project Estimated Completion Incremental Capital Spend Incremental EBITDA Incremental Value Details 2020 $2.7M $1.0M $14M 63
Cavallo Point: 10 Years of ROI Opportunities Newly acquired luxury resort located in Golden Gate National Recreation Area in Sausalito, CA. Situational Overview • Famous luxury resort in highly desirable Sausalito • Situated at the base of the Golden Gate Bridge with sweeping views of the San Francisco Bay • Average daily rate over $400 • Independently branded with third-party operator • Low-to-zero supply growth market • 2019 RevPAR growth expected to exceed national average Numerous Upside Opportunities • Owner-operated with upside from asset management best practices • Convert former unused guard house at resort’s entrance into a bakery and F&B outlet – incremental $2M in revenue • Entitlement allows for an additional 83 Keys Project Purchase Price Yield on TTM NOI Total RevPAR EBITDA Multiple Details $152M 6.7% $809 12.8x 64
Frenchman’s Reef & Morning Star Beach Resort Morning Star Beach Resort
Frenchman’s Reef Resort & Morning Star Beach Resort Key Facts & Figures Q2 2020 Projected Reopening $20M+ Brand Support $30M USVI Support $350+ Stabilized ADR $25M Stabilized EBITDA 66
Frenchman’s Reef Insurance Claim Insurance Overview • $280M(1) Total Claim (includes rebuild cost, lost profits and ongoing expenses & other costs) ‒ $95M in cash received to date from insurers ‒ $361M is policy limit per storm • DiamondRock expects to fund $45M in brand and infrastructure upgrades not covered by insurance ‒ To be offset by key money (+$20M) from brand and other outside funding sources Total Rebuild Cost Total Rebuild Upgrades Rebuild $180M $45M $225M Business Interruption • Insurance policy covers all lost profits through rebuild period plus 18-month stabilization period • Through 2018, recovery of lost profits of $19M recognized and agreed to ($3M in 2017 and $16M in 2018) • For 2019, insurers have agreed to $8.8M in BI for lost profits through April 2019 • DiamondRock believes it is entitled to at least $16M in lost profits for FY 2019. Not yet agreed to by insurers The Company is actively pursuing all its rights, but the position of the insurer will create timing issues. As with all legal disputes, final results cannot be guaranteed. (1) Amounts provided are approximate. As of 1/25/19. 67
Best-in-Class Rebuild Team Kollin Altomare Architects WhiteSpace The Johnson Studio (Design) (F&B Design) WhiteSpace (Design) Four Seasons Punta Mita Resort & Spa Four Seasons Scottsdale at Troon North The Ritz-Carlton Grand Cayman Four Seasons Scottsdale at Troon North The Ritz-Carlton Laguna Niguel Four Seasons Hotel Austin (Blue, Seven, Taikun, Ritz Lobby Bar) FourRitz Seasons-Carlton HotelHalf MoonAustin Bay The Fairmont Scottsdale Princess Resort Lobster Sea Bar Grille (Miami Beach) Ritz-Carlton Half Moon Bay The Ritz Carlton, Kapalua Maui Del Frisco’s Double Eagle Steakhouse (Dallas) Maris Collective Richard Sandoval Group (Retail, Concepts, Programming) (Celebrity Chef) Four Seasons Nevis Four Seasons Maui Four Seasons Punta Mita Four Season Anguilla Maya (NYC, Dubai) Fairmont Kea Lani, Maui Toro (Abu Dhabi) 68
Morning Star Pool Area Rendering 69
Morningstar Lobby Morning Star Lobby Rendering Morningstar Virtual Tour 70 70
Morningstar Renovated Guestroom Morning Star Guestroom Rendering Morningstar Virtual Tour 71 71
Frenchman’s Reef Lobby Frenchman’s Reef Lobby Rendering Frenchman's Virtual Tour 72 72
Frenchman’s Reef Renovated Guestroom Frenchman’s Reef Guestroom Rendering Frenchman's Virtual Tour 73 73
Frenchman’s Reef Bridge to Stabilized EBITDA +$12.8M $25.1M Potential Upside From Items Not In Underwriting: $16.9M • Increased Resort Fee Revenue +$1.6M • Spa Income ($4.5M) +$1.5M ($1.7M) • Casino Income ($1.6M) • Additional F&B outlets & repositioning 2016 Franchise & Insurance Other Utilities F&B Rooms Stabilized EBITDA Other Fees Savings Profits Profits EBITDA (2023) 1 2 3 4 5 6 EBITDA Bridge Components 1 Franchise Fees $2.5M Franchise Fee (new) and additional S&M and other expenses 2 Insurance Increased insurance costs post-hurricane Conservative Assumptions lower resort fee income, higher expenses, no 3 Other cancellation fee income and no spa income 4 Utilities $1.5M savings from improved infrastructure and utilities enhancement 5 F&B Profits Increased profits from enhanced F&B offering 6 Rooms Profits ~$80 Increase to RevPAR 74
Balance Sheet & Capital Structure South Lake Tahoe
Best Balance Sheet in Company History Net Debt / EBITDA Unencumbered Properties 23 4.9x 3.6x 3.5x 14 14 2010 2014 2018 2010 2014 2018 Total Debt / Total Asset Value Fixed Charge Coverage Ratio 41% 4.3x 35% 30% 2.9x 2.3x 2010 2014 2018 2010 2014 2018 Source: Company Filings. 76
Balance Sheet Can Withstand 2008-Type Downturn DRH Stress Testing 2019F 2020F 2021F 2022F RevPAR Growth -1.0% -8.7% -7.5% 6.3% Corp. EBITDA Growth 1.0% -13.8% -13.8% 12.6% Net Debt-to-EBITDA 3.4x 3.9x 4.5x 4.0x Leverage Ratio 32.7% 38.2% 44.1% 39.1% (60% Maximum) Fixed Charge Coverage Ratio 4.3x 3.6x 3.1x 3.5x (1.5x Minimum) • Balance Sheet is prepared to withstand severe downturn • Stress test assumes >15% RevPAR and >25% EBITDA decline • 23 unencumbered properties throughout forecast • Net debt-to-EBITDA of 4.5x, leverage ratio of 44% and FCCR of 3.1x at trough • No outstanding borrowings on LOC in this scenario Note: Excludes Frenchman’s Reef from topline and revenue operating statistics, but includes BI for Frenchman’s from a baseline of 2016A EBITDA. 77
$350 Million of Investment Capacity CONSERVATIVE BALANCE LEVERAGE AT LOW SHEET STRATEGY END OF PEER GROUP • Net Debt to 2019 EBITDA of 3.5x 9.8 • $300M Line of Credit with no outstanding 8.5 7.9 borrowings 5.8 • 23 unencumbered hotels 5.3 Average: 4.9X 4.2 3.8 • Well-laddered maturity schedule with no 3.7 3.5 3.5 maturities until November 2020 1.5 1.4 • $350 million of investment capacity • No more than 35% floating rate debt Source: Baird. Net Debt plus preferred / 2019 Consensus EBITDA. Source: Company Filings, Wall Street Research. 78
Compelling Valuation Cavallo Point, the Lodge at the Golden Gate
Top-Tier Portfolio Quality 2017 Portfolio Average Daily Rate $246 PF 2018 ADR of $237 $229 $227 $225 $220 $211 Peer Average: $216 $209 $202 $171 PEB DRH HST CHSP HT SHO XHR PK RLJ Top Tier Source: Company Filings as of Q4 2017. Note: Pebblebrook data is not pro forma for LaSalle merger. 80
Compelling Valuation 2018 Consensus EBITDA Multiple 13.4 13.2 12.6 11.7 Peer Average: 11.7x 11.3 11.2 11.1 10.5 10.2 PEB CHSP HT SHO PK DRH XHR HST RLJ Source: Baird, FactSet. Data as of 1/25/19. 81
DiamondRock Currently Trades At a Steep Discount to NAV Market price of $9.88(1) represents a 30% discount to NAV per share. Hotel NOI Cap Rate Estimated Value(2) Region FC Sept 2018 Low Mid High Low Mid High Mid / Key(3) Boston $34.5 6.0% 6.5% 7.0% $494 $532 $576 $444 Chicago $30.2 6.5% 7.0% 7.5% $403 $432 $465 $286 Dallas / Fort Worth $12.4 7.0% 7.5% 8.0% $155 $166 $177 $328 Denver $11.3 6.0% 6.5% 7.0% $162 $174 $189 $467 New York City $27.6 5.0% 5.5% 6.0% $460 $502 $552 $331 San Diego $12.4 6.5% 7.0% 7.5% $166 $178 $191 $407 San Francisco $11.8 5.0% 5.5% 6.0% $197 $215 $237 $912 Washington, DC $14.1 6.5% 7.0% 7.5% $188 $201 $217 $295 Other Urban $20.8 6.5% 7.0% 7.5% $277 $296 $319 $277 Resorts $66.7 6.0% 6.5% 7.0% $953 $1,026 $1,112 $497 Resorts Under Development $15.0 8.0% 8.5% 9.0% $167 $176 $188 $553 Total $257.0 6.1% 6.6% 7.1% $3,622 $3,899 $4,223 $393 NAV Per Share $12.84 $14.18 $15.73 Note: San Francisco NOI includes Cavallo Point Resort as if owned for full-year 2018 Havana Cabana, Palomar Phoenix, Hotel Emblem, Frenchman’s Reef and Landing Resort are included using stabilized NOI as proxy for multiple. (1) Share price as of January 25, 2018 (2) Dollar amounts in millions (3) Dollar amounts in thousands 82
Trading at Clear Discount to Value DiamondRock has repurchased $62M worth of shares in the last 90 days. DRH COMPANY VALUATION - SHARE PRICE SENSITIVITY $8.00 $9.00 $10.00 $11.00 $12.00 2018 Consensus EBITDA 10.2x 11.0x 11.9x 12.7x 13.5x Multiple 2018 Consensus 9.1% 8.4% 7.8% 7.3% 6.9% NOI Cap Rate 2019 Consensus EBITDA 9.9x 10.7x 11.4x 12.2x 13.0x Multiple Discount to Current Stock (19.0%) (8.9%) 1.2% 11.3% 21.5% Price ($9.70) Discount to 52-Week (38.4%) (30.7%) (23.0%) (15.3%) (7.6%) High ($12.99) Discount to Internal NAV (43.6%) (36.5%) (29.5%) (22.4%) (15.4%) ($14.18) Discount to Replacement (48.7%) (44.6%) (40.4%) (36.3%) (32.2%) Cost ($500/Key) Data as of 1/25/19. Source: Wall Street Research, Internal Data. 83
Key Takeaways The Landing Resort & Spa
Key Takeaways Balance Sheet in Great Shape ($350M Dry Powder) Significant ROI Projects ($200M NAV+) External Growth Focus on Resorts (5 of Last 6 Deals) Compelling Relative Valuation (25% - 40% Discount to NAV) Strong 2020 Setup (Group Pace Up 15%) 85
