DiamondRock Hospitality Company Announces Strong First Quarter 2006 Results
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DiamondRock Hospitality Company Announces Strong First Quarter 2006 Results
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2006-05-03
DiamondRock Hospitality Company (the "Company") (NYSE:DRH) today announced results of operations for the fiscal quarter ended March 24, 2006. DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner and acquirer of premium hotels in North America.
First Quarter 2006 Highlights
* RevPAR
- Pro forma same-store revenue per available room ("RevPAR") for our
current portfolio, including our newly acquired hotels, increased
13.1 percent over the comparable period in 2005.
- For those hotels that we owned for the entire quarter, same-store
RevPAR increased 9.8 percent despite the impact of hotel renovation
projects.
* Hotel Profit Margins
- Pro forma same-store hotel profit margins for our current portfolio,
including our newly acquired hotels, increased approximately 240
basis points.
- For those hotels that we owned for the entire quarter, same-store
hotel profit margins increased approximately 110 basis points despite
the impact of hotel renovation projects.
* Adjusted EBITDA of $20.9 million.
* Adjusted Funds from Operations ("Adjusted FFO") of $15.1 million and
Adjusted FFO per share of $0.29.
* We acquired the Chicago Marriott Downtown Magnificent Mile ("Chicago
Marriott Downtown") at the end of the quarter and we acquired the Westin
Atlanta North at Perimeter Center ("Westin Atlanta North") in the second
quarter.
* After quarter end, we completed a very successful secondary equity
offering with net proceeds of $238.2 million.
William W. McCarten, chairman and chief executive officer, stated, "The first quarter results were very strong despite the impact of hotel renovation projects in the quarter. The performance of the portfolio was enhanced by a number of positive factors: strong industry fundamentals, concentration of our portfolio in high growth markets such as New York, Chicago, and Los Angeles, and the positive benefits of our value-add asset management strategies such as the conversion of one of our Manhattan hotels from an independent brand to a powerful, nationally known brand (Courtyard by Marriott). We remain bullish on the outlook for the balance of 2006."
Operating Results
Please see "Certain Definitions" and "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDA," "Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO," "Adjusted FFO" and "Same Store." Moreover, the discussions of RevPAR, Adjusted EBITDA and Hotel Adjusted EBITDA Margin assume that the acquired hotels were owned by the Company for the comparable reporting periods of 2005.
For the first fiscal quarter, beginning January 1, 2006 and ended March 24, 2006, the Company reported revenues of $83.1 million and net income of $4.4 million (or $0.08 per share). Adjusted EBITDA was $20.9 million. Adjusted FFO and Adjusted FFO per share were $15.1 million and $0.29 per share, respectively.
Entire Portfolio
Pro forma same-store RevPAR for our current portfolio of hotels, including the hotels acquired at or after quarter end, increased 13.1 percent from $98.48 to $111.34 as compared to the same period in 2005, driven by a 10.0 percent increase in the average daily rate and a 1.9 percentage point increase in occupancy.
Pro forma same-store Hotel Adjusted EBITDA Margins for our current portfolio of hotels, including the hotels acquired at or after quarter end, increased approximately 240 basis points (from 23.2 percent to 25.6 percent) over the same period in 2005.
The RevPAR and Hotel Adjusted EBITDA Margins are presented on a pro forma basis as if the Chicago Marriott Downtown and the Westin Atlanta North were acquired on the first day of the first quarter of 2006 and all of our acquisitions that occurred in 2005 occurred on the first day of the first quarter of 2005. Because the Chicago Marriott Downtown and Westin Atlanta North had excellent growth in the first quarter, the inclusion of these hotels increased the overall RevPAR results by 3.3 percentage points and Hotel Adjusted EBITDA Margins by 130 basis points.
Period of Ownership
Same-store RevPAR for the hotels that we owned for the entire quarter increased 9.8 percent from $103.38 to $113.48 as compared to the same period in 2005, driven exclusively by a 9.8 percent increase in the average daily rate. Same-store Hotel Adjusted EBITDA Margins for our hotels increased 110 basis points (from 26.6 percent to 27.7 percent) over the same period in the prior year.
Acquisition of the Chicago Marriott Downtown & Westin Atlanta North
On March 24, 2006, the last day of our fiscal quarter, we acquired the 1,192-room Chicago Marriott Downtown. It is located in the heart of Chicago's famed retail district on Michigan Avenue known as the "Magnificent Mile." The contractual purchase price for the hotel was $295 million plus approximately $11 million of net consideration in the form of an assumed property tax liability and other adjustments. The hotel is budgeted to generate over $23.7 million of Adjusted EBITDA for our period of ownership in 2006.
On May 2, 2006, we acquired the 369-room Westin Atlanta North hotel. The Perimeter Center market boasts over 23 million square feet of office space and major demand generators like General Electric, Microsoft, Eli Lilly as well as three world-class hospitals located less than one mile from the hotel. The hotel was acquired for total consideration of $61.5 million. We project the need for approximately $3 million of capital upgrades at the hotel. Upon our acquisition, Noble Management Group, LLC took over management of the hotel pursuant to a new Westin franchise agreement. The hotel is budgeted to generate over $3.7 million of EBITDA for our period of ownership in 2006, and $6.3 million of Adjusted EBITDA over the forward 12 months from our acquisition date.
Secondary Offering
On April 4, 2006, we completed our secondary offering of 19.3 million shares of common stock, including the shares sold pursuant to the over- allotment option of the underwriters. DiamondRock received cash proceeds, after deducting offering costs, of $238.2 million. After this offering, we have 70.1 million shares of common stock outstanding.
Balance Sheet & Recent Financing Activity
As of the end of the first quarter, we had total assets of $1.4 billion and total debt of $751 million. This debt includes $79.5 million outstanding on a bank term loan obtained in connection with the acquisition of the Chicago Marriott Downtown as well as $33.0 million outstanding on our corporate credit facility. Additionally, we assumed approximately $220 million of floating- rate property specific debt in connection with the acquisition of the Chicago Marriott Downtown hotel.
During the second quarter we repaid the entire balance under our corporate credit facility and the $79.5 million bank term loan with a portion of the proceeds from our secondary equity offering. In addition, we refinanced (with no prepayment penalty) the $220 million floating-rate debt secured by the Chicago Marriott Downtown with a 10-year $220 million fixed-rate loan that bears interest at 5.98%.
As previously announced, Lehman Brothers Bank has provided a commitment to refinance the existing mortgage loan on the Courtyard Manhattan/Fifth Avenue. Pursuant to this commitment, we expect to refinance the existing $23 million floating-rate loan with a $51 million fixed-rate loan that matures in 10 years and will bear interest at 6.48%. The new loan proceeds allow us to finance out more than 150% of our total investment in the hotel. The loan is expected to close in the second quarter.
After completing the expected refinancing of the Courtyard Manhattan/Fifth Avenue, we will have total debt of $666 million. The debt will be comprised entirely of fixed-rate, property-specific mortgages with an average weighted interest rate of 5.7 percent and a weighted average maturity of over 9 years.
Outlook
We are providing updated guidance, but do not undertake to update it for any developments in our business. Achievement of the anticipated results is subject to the risks disclosed in our filings with the Securities and Exchange Commission.
The guidance below includes the estimated disruption impact of the planned $89.5 million of renovations of our hotels during 2006. Furthermore, the RevPAR and Hotel Adjusted EBITDA margin guidance are presented on a pro forma basis as they assume that we owned all of our hotels for the comparable reporting periods of 2005. However, our guidance does not include the results from any hotel that we acquired in 2006 for the period prior to our ownership in 2006 (or the comparable reporting period of 2005). Finally, our guidance does not reflect the impact of any additional hotel acquisitions.
For the period that we own our hotels in 2006, we expect:
* RevPAR to increase 8.5 to 10.5 percent.
* Hotel Adjusted EBITDA Margins to increase 160 to 210 basis points.
* Adjusted EBITDA of $122.0 million to $125.0 million.
* Adjusted FFO of $82.5 million to $85.5 million. The updated Adjusted
FFO guidance assumes that the full-year tax expense will increase from
$600 thousand to $3.0 million as a result of our 2006 acquisitions and
out performance at certain hotels.
* Adjusted FFO per share of $1.26 to $1.30.
* Fully diluted weighted average shares outstanding of 66.1 million.
2006 quarterly results will be partially impacted by our reporting calendar and by the timing of our 2006 capital expenditures.
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