Diamondrock Hospitality Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. DiamondRock is a lodging REIT and hotel owner. At quarter-end it owned 31 hotels with 10,103 rooms; four of 30 previously operating hotels were closed for all or part of the quarter, and Frenchman’s Reef remained closed following hurricane damage.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $72.9 million | $170.0 million |
| Net loss | $171.6 million | $34.7 million |
| Net loss attributable to common stockholders | $173.3 million; $0.82 per share | $34.6 million; $0.17 per share |
| Net cash used in operating activities | $34.9 million | Net cash provided of $10.3 million |
| Adjusted EBITDA | Loss of $9.6 million | Income of $11.9 million |
| Adjusted FFO available to common stock and unit holders | Loss of $24.9 million | Income of $8.4 million |
Revenue fell 57.1% year over year: rooms revenue declined 54.9%, food and beverage 68.3%, and other revenue 39.9%. Portfolio occupancy was 26.9% versus 59.1%; ADR was $216.85 versus $216.46; RevPAR declined 54.4% to $58.34. Hotel operating expenses fell 49.4% to $77.9 million, less than the revenue decline. Interest expense was $8.5 million versus $21.2 million; the comparison was affected by interest-rate-swap fair-value changes.
Net loss included $122.6 million of property impairments: $111.7 million for The Lexington Hotel and $10.8 million for Frenchman’s Reef. Without these charges, reported loss would have been substantially lower; the filing’s non-GAAP reconciliations provide alternative performance measures.
Balance sheet, debt and liquidity
At March 31, 2021, total assets were $2.99 billion and total debt, net of issuance costs, was $1.09 billion, up from $1.05 billion at year-end 2020. Debt had a 3.87% weighted-average interest rate and approximately 3.2-year weighted-average maturity. The company had $99.8 million of unrestricted corporate cash, $24.1 million of restricted cash, and $300.0 million of unused capacity on its $400 million revolving facility. Management reported total liquidity of $436.9 million, including unrestricted hotel cash held by managers.
Operating cash outflow of $34.9 million and investing cash outflow of $12.0 million were partly offset by $36.0 million of financing inflows, including $45.0 million of revolver borrowings. All mortgage loans with cash-trap provisions were below their required operating thresholds. Management did not expect the traps to impair short-term liquidity. The company concluded there was no substantial doubt about its ability to continue as a going concern over the next 12 months.
Changes, outlook and risks
- COVID-19: The pandemic materially reduced lodging demand and adversely affected results. Leisure-oriented hotels improved in late 2020 and Q1 2021, while other markets remained at historically low demand. Management expected COVID-19 to continue materially affecting 2021 results, financial position and cash flow; the timing and pace of recovery remained uncertain.
- Property transactions: The company agreed to sell The Lexington Hotel for $185 million, with closing anticipated before the end of Q3 2021; completion was not assured. Frenchman’s Reef was sold on April 30, 2021 for $35 million cash plus a contingent participation in future profits. The contingent proceeds are uncertain.
- Capital spending: Management expected approximately $55 million of 2021 capital improvements, including renovations and rebranding projects at The Lodge at Sonoma, Vail Marriott Mountain Resort and JW Marriott Denver Cherry Creek.
- Financing restrictions: Amendments extended covenant relief through Q4 2021, raised the minimum-liquidity covenant to $125 million and modified financial covenant thresholds. The agreements also restrict certain borrowing, dividends, repurchases, capital spending and asset transactions, subject to exceptions. $321.8 million of debt was variable-rate; a 100-basis-point rate move would change annual interest expense by approximately $3.2 million.
- Distributions: The common dividend remained suspended. The company paid a $0.515625-per-share Series A preferred dividend in March 2021. Management said common-dividend resumption would depend on business conditions, financing obligations, capital needs and board approval.
- Other risks: Risks include continued weakness in travel, reopening and operating hotels, debt and refinancing requirements, interest-rate and LIBOR transition exposure, and execution of the proposed Lexington sale. Routine litigation was disclosed; management did not expect it to materially affect financial condition or results.
Investor verification checklist
- Track hotel occupancy, ADR and RevPAR recovery by market, particularly the divergence between leisure and urban properties.
- Verify completion and net proceeds of The Lexington sale, and monitor the contingent profit participation from Frenchman’s Reef.
- Monitor liquidity against the $125 million minimum covenant, covenant relief and amended leverage/coverage tests, and any cash traps.
- Assess whether operating cash flow and the planned $55 million capital program remain consistent with available liquidity and debt obligations.
- Review the valuation assumptions behind the $122.6 million impairment charges and the company’s ability to restore profitability and common dividends.