DiamondRock Hospitality Company — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 4, 2022. DiamondRock owns and asset-manages premium hotels and resorts. At quarter-end, it owned 34 hotels with 9,567 rooms.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $281.4 million | $124.8 million | $478.2 million | $197.7 million |
| Net income (loss) | $52.7 million | $(19.1) million | $62.8 million | $(190.7) million |
| Net income (loss) attributable to common stockholders | $50.1 million | $(21.5) million | $57.6 million | $(194.8) million |
| Diluted EPS | $0.23 | $(0.10) | $0.27 | $(0.92) |
| Adjusted EBITDA | $92.0 million | $19.8 million | $136.9 million | $10.2 million |
Q2 revenue rose 125.5% year over year. Occupancy was 74.8%, ADR was $296.83, and RevPAR was $222.02, up 25.6%, 23.1%, and 87.2%, respectively. For the first half, occupancy was 65.4%, ADR was $289.12, and RevPAR was $189.09, up 25.9%, 20.8%, and 100.1%. The filing attributes improvement primarily to increased travel demand and hotel recovery, with acquisitions also contributing. Approximate GAAP net margin was 18.7% for Q2 2022, versus a loss in Q2 2021.
Cash flow, six months: Operating cash flow was $75.5 million, compared with cash used of $36.4 million in 2021. Investing used $133.2 million, including $106.2 million for acquisitions and $28.0 million of capital expenditures. Financing provided $96.3 million, including $110.0 million of credit-facility draws. Cash, cash equivalents, and restricted cash totaled $114.1 million at June 30; unrestricted cash was $71.7 million and restricted cash was $42.4 million.
Debt and liquidity: Total debt, net of issuance costs, was $1.170 billion, versus $1.067 billion at December 31, 2021. The weighted-average interest rate was 4.20%, and weighted-average debt maturity was approximately 2.2 years. The $400 million revolving facility had $200 million outstanding at quarter-end; the company repaid $25 million after quarter-end. Four mortgage loans, with $180.3 million principal outstanding, mature within 12 months of June 30. Management said available revolving-facility capacity was sufficient to address those maturities. The company reported compliance with original, unmodified credit covenants for two consecutive quarters and exit from covenant-relief restrictions.
Changes, outlook, and notable items
- All hotels were open in Q2 2022; four had suspended operations for part of Q2 2021. Recovery and acquisitions drove substantial revenue growth, while hotel operating expenses increased with occupancy and related operating costs.
- The company acquired Tranquility Bay Beachfront Resort for $63.0 million in January and Kimpton Fort Lauderdale Beach Resort for $35.3 million in April, excluding prorations and transaction costs. It also bought four third-party units at Tranquility Bay. Acquisitions were funded with corporate cash.
- First-half 2022 impairment losses were $2.8 million, related to the Tranquility Bay rental-management intangible asset. First-half 2021 impairment losses were $126.7 million, mainly related to hotel dispositions. The company also recorded $0.5 million of business-interruption insurance income associated with the 2021 Caldor wildfire closure.
- No specific full-year revenue or earnings guidance is provided. Management expected recovery to continue, but anticipated COVID-19 could continue to weigh on results, financial position, and cash flows through the remainder of 2022; recovery could vary by market. Resort occupancy had reached or exceeded pre-pandemic levels, while urban demand was still improving. Business travel and group-meeting recovery remained uncertain.
- Management expected approximately $100 million of 2022 capital improvements, including renovation and repositioning projects. Approximately $28.0 million had been invested in capital improvements in the first half.
- The common dividend had been suspended since 2020 through Q2 2022. On August 2, 2022, the board declared a $0.03-per-share quarterly common dividend payable to holders of record September 30, 2022. Series A preferred dividends continued at $0.515625 per share quarterly.
- Key risks include inflation and higher interest rates, rising hotel operating and renovation costs, travel-demand uncertainty, COVID-19 variants, financing and refinancing availability, debt obligations, and the transition from LIBOR to replacement rates. A 100-basis-point change in rates on variable-rate debt was estimated to affect annual interest expense by $4.2 million.
- Routine legal claims are disclosed; management did not expect uninsured liabilities to have a material adverse effect, while noting outcomes remain uncertain. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Progress and terms for refinancing or repaying the $180.3 million of near-term mortgage maturities, and the July 2023 revolving-facility maturity.
- Whether hotel demand and pricing gains persist, particularly in urban markets and business/group travel, and how inflation affects operating margins.
- Actual liquidity, facility availability, and covenant compliance after quarter-end, including the effect of higher floating-rate borrowing costs and LIBOR transition.
- Returns and integration of the 2022 hotel acquisitions, and the expected cost, timing, and returns of the planned capital projects.
- Whether the newly declared common dividend is sustainable alongside debt service, capital spending, and REIT distribution requirements.