DiamondRock Hospitality Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. DiamondRock is a lodging-focused REIT that owned 36 hotels with 9,757 rooms at quarter-end. It owns, but does not operate, its hotels. Unless otherwise noted, amounts are in U.S. dollars.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $256.4 million | $243.6 million | +5.3% |
| Net income | $8.4 million | $9.2 million | Down $0.8 million |
| Net income attributable to common stockholders | $5.9 million | $6.7 million | Down $0.8 million |
| Diluted EPS | $0.03 | $0.03 | No change |
| Net cash provided by operating activities | $31.2 million | $58.1 million | Down $26.8 million |
| Capital expenditures | $18.9 million | $21.6 million | Down $2.8 million |
| Hotel Adjusted EBITDA | $61.4 million | $62.8 million | Down 2.2% |
| Adjusted EBITDA | $53.6 million | $55.4 million | Down 3.2% |
| Adjusted FFO available to common stock and unit holders | $36.0 million | $38.0 million | Down 5.3% |
GAAP net margin was approximately 3.3%, versus 3.8% in Q1 2023. Hotel Adjusted EBITDA margin was approximately 24.0%, versus 25.8%. Hotel statistics were 68.4% occupancy (66.9% prior year), ADR of $269.53 ($276.43), and RevPAR of $184.23 ($185.00), a 0.4% decline.
Rooms revenue rose 1.8%, food and beverage revenue rose 14.4%, and other revenue rose 6.2%. Revenue growth reflected the 2023 acquisition of Chico Hot Springs, improving urban group and corporate travel, and higher banquet, audiovisual, and resort-fee revenue. Resort demand normalized, and ADR declined. Hotel operating expenses increased 7.8%, exceeding revenue growth, primarily due to the acquired property, occupancy-related labor costs, and higher property taxes and insurance.
Cash, debt, and liquidity
- At March 31, cash and cash equivalents were $120.1 million; restricted cash was $45.2 million. Total assets were $3.24 billion and debt, net of issuance costs, was $1.17 billion.
- Operating cash flow was $31.2 million; investing cash outflow was $18.9 million and financing cash outflow was $14.3 million. Management attributed the year-over-year operating cash flow decline primarily to timing differences in collections from hotel managers.
- Debt principal was $1.18 billion, with a 5.22% weighted-average interest rate and approximately 2.4-year weighted-average maturity, assuming available extensions are exercised. The company had no borrowings on its $400 million revolving credit facility.
- A $73.9 million mortgage matures in August 2024; management intends to repay it with cash on hand. Other notable maturities are a $300 million term loan in January 2025, which may be extended subject to conditions, and a $500 million term loan in January 2028.
- About $0.8 billion of debt carried variable rates; $325 million was hedged with interest rate swaps. A 100-basis-point move in rates on unhedged variable-rate debt would change annual interest expense by approximately $4.8 million.
- The company reported compliance with its credit agreement covenants and no mortgage cash traps. It had $41.2 million in property improvement reserves within restricted cash.
Outlook, risks, and notable items
- Management expects approximately $100 million of hotel capital improvements in 2024, including renovations and repositioning projects at the Westin San Diego Bayview, Hilton Burlington Lake Champlain, Orchards Inn Sedona, and The Landing Lake Tahoe Resort and Spa.
- Management expects net cash flow from hotel operations to be a significant cash source for the remainder of 2024. Expected uses include debt service and maturities, capital spending, distributions, corporate expenses, and severance payments.
- On April 15, 2024, Jeffrey J. Donnelly became CEO, Briony R. Quinn became CFO and Treasurer, and Justin L. Leonard became President; the prior CEO/President and Chief Investment Officer departed. The company expects to recognize approximately $19 million in Q2 2024 for leadership-change costs and severance.
- Corporate expenses rose 13.2%, partly due to a $0.8 million accelerated equity-compensation charge following the General Counsel’s announced retirement.
- Management identifies inflation, higher interest rates, lodging demand and operating-cost volatility, financing availability, hotel renovations, competition, natural disasters, pandemics, cybersecurity, and REIT qualification among key risks. It reported no material changes to the risk factors in its 2023 Form 10-K.
- Routine litigation is ongoing; management does not expect aggregate uninsured liabilities to materially affect financial condition or results, while noting outcomes are uncertain.
Most important facts for investors to verify
- Whether hotel demand, particularly urban group and corporate travel, sustains revenue growth while resort demand and ADR remain under pressure.
- Execution and funding of the approximately $100 million 2024 capital program, including project costs, timing, and operating disruption.
- Cash available after the August 2024 mortgage repayment and the effect of the January 2025 term-loan maturity and extension conditions.
- Actual Q2 leadership-transition and severance charges versus the approximately $19 million estimate.
- Interest-rate exposure, hedge coverage, covenant headroom, and the impact of variable rates on cash flow.
- Cash flow conversion: Q1 operating cash flow declined materially year over year, with management citing hotel-manager collection timing.