DiamondRock Hospitality Company — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide standalone fourth-quarter financial results. DiamondRock is a lodging REIT and hotel owner, not an operator. At year-end it owned 35 premium hotels and resorts with 9,607 rooms across 24 U.S. markets.
Financial and operating performance
- Revenue: $1.002 billion, up 76.6% from $567.1 million in 2021. Rooms revenue was $681.3 million, food and beverage $238.2 million, and other revenue $82.0 million.
- Hotel operating statistics: Occupancy was 68.3% versus 51.5%; ADR was $286.50 versus $250.73; RevPAR was $195.69 versus $129.18, up 51.5%.
- Profit: GAAP net income was $109.7 million, compared with a $195.4 million loss in 2021; diluted EPS was $0.47 versus a $0.96 loss. Net margin was approximately 11.0%, calculated as net income divided by revenue. Adjusted EBITDA was $280.6 million, up from $83.5 million; Adjusted FFO available to common stock and unit holders was $215.9 million versus $26.3 million.
- Expenses and margins: Hotel operating expenses were $696.8 million, up 50.9%, as occupancy recovered and acquisitions added costs. Total operating expenses, net, were $839.7 million. Higher revenue outpaced hotel operating expense growth, but the filing does not present a single comparable hotel operating margin measure.
- Cash flow: Operating cash flow was $206.2 million, compared with cash used of $2.3 million in 2021. Investing cash use was $248.6 million, including $67.7 million in capital expenditures and $181.9 million for acquisitions. Financing cash provided was $74.0 million.
- Debt and liquidity: Year-end debt was $1.186 billion, with a 4.83% weighted-average interest rate and approximately 3.4-year weighted-average maturity. Of the debt, $575 million was variable rate; a 100-basis-point rate change would affect annual interest expense by about $5.8 million. Cash and cash equivalents were $67.6 million, with $39.6 million restricted cash and no revolver borrowings. Management reported liquidity above $550 million, including available credit capacity. Cash traps held $2.9 million.
- Balance sheet: Total assets were $3.208 billion and total equity was $1.596 billion. Thirty-one of 35 hotels were unencumbered by mortgage debt.
Material changes versus 2021
- Results improved substantially as all hotels were open during 2022 and travel demand recovered. Revenue rose 76.6%; occupancy increased 16.8 percentage points and RevPAR grew 51.5%.
- Net income turned positive, aided by lower impairment losses: $2.8 million in 2022 versus $126.7 million in 2021. The 2021 charges related primarily to hotels subsequently sold.
- Interest expense increased to $38.3 million from $37.0 million, primarily because of higher term-loan interest amid rising rates; favorable interest-rate swap fair-value movements partly offset the increase.
- DiamondRock acquired Tranquility Bay Beachfront Resort ($62.4 million), Kimpton Shorebreak Fort Lauderdale Beach Resort ($35.6 million), and Lake Austin Spa Resort ($75.8 million), including stated transaction costs and prorations.
- In September 2022, it refinanced and replaced prior credit arrangements with a $400 million revolving facility and $800 million in term loans. It repaid four mortgage loans scheduled to mature in 2023, leaving no debt maturities until August 2024. The refinancing generated a $9.7 million early-extinguishment loss.
- The company repurchased 1.6 million shares for $12.3 million at an average $7.81 per share. It resumed common dividends in October 2022 after suspending them in 2020.
Outlook, risks, and unusual items
- Outlook: Management expects corporate travel to expand and destination resorts to remain supported by leisure demand in 2023, while noting uncertainty about a potential U.S. economic contraction and uneven travel recovery. It cites labor, insurance, property-tax and other operating-cost pressures. No quantified revenue or earnings guidance is provided.
- Capital spending: Expected 2023 hotel capital improvements are $100 million to $115 million. Planned projects include renovations and repositioning at Hilton Boston Downtown/Faneuil Hall and Hilton Burlington Lake Champlain.
- Management commentary: Management highlights portfolio quality, resort exposure, recent and planned hotel upbrandings, asset-management projects, expected savings from converting six Marriott-managed contracts to franchises, conservative leverage, and liquidity as favorable factors.
- Key risks: Hotel demand and earnings are cyclical and sensitive to recession, inflation, interest rates, business and group travel, labor costs, and competitive supply. Other material exposures include refinancing and covenant risk, reliance on third-party managers and major brands, renovations, severe weather and insurance deductibles, ground leases, cyber incidents, and maintaining REIT qualification.
- Unusual items and contingencies: 2022 included a $2.8 million impairment of the Tranquility Bay right-to-manage intangible and a $9.8 million loss on early debt extinguishment. Management believes routine litigation liabilities beyond insurance are not expected to materially adversely affect results, but outcomes remain uncertain. One portion of the Worthington Renaissance Fort Worth parking-garage ground lease was on a month-to-month holdover basis after expiring in July 2022.
- Distributions: The common dividend resumed at $0.03 per share paid in October 2022; a $0.06 per-share payment followed in January 2023. The Series A preferred stock carries an 8.25% cumulative dividend. Future common distributions remain subject to board discretion, cash needs, debt terms, and REIT requirements.
Important facts for investors to verify
- Confirm the recovery trend in occupancy, ADR, RevPAR, and hotel-level profitability, especially for urban and group-business properties.
- Review the $100 million to $115 million 2023 capital program, project timing, and expected returns alongside inflationary construction and labor costs.
- Check debt covenant headroom, variable-rate exposure, refinancing needs, and the stated liquidity calculation; significant scheduled principal is due in 2025.
- Assess whether operating cash flow can support common and preferred dividends, capital spending, acquisitions, and any further repurchases.
- Evaluate assumptions underlying the $45.2 million Tranquility Bay right-to-manage intangible and the associated impairment; KPMG identified its valuation as a critical audit matter.
- Monitor storm and earthquake exposure, insurance availability and deductibles, ground-lease obligations, and the month-to-month parking-garage lease.