DiamondRock Hospitality Company — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Dollar amounts are in U.S. dollars.
Business context
DiamondRock is a lodging REIT that owns, but does not directly operate, premium hotels and resorts. At year-end it owned 31 properties with 10,102 rooms across 21 markets; Frenchman’s Reef in the U.S. Virgin Islands remained closed after hurricane damage. COVID-19 led to temporary closures at 20 of 30 previously operating hotels during 2020. As of March 1, 2021, 26 of those 30 were open.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $299.5 million | $938.1 million |
| Net income (loss) | $(396.0) million | $184.2 million |
| Net income (loss) attributable to common stockholders | $(397.7) million | $183.5 million |
| Basic and diluted EPS | $(1.97) | $0.91 basic; $0.90 diluted |
| Adjusted EBITDA | $(64.5) million | $260.4 million |
| Adjusted FFO available to common stock and unit holders | $(85.3) million | $217.0 million |
| Net cash from (used in) operating activities | $(83.7) million | $193.3 million |
| Capital expenditures | $88.1 million | $199.3 million |
Revenue fell 68.1%. Portfolio occupancy was 27.0%, down from 79.1%; ADR was $207.68, down 13.0%; and RevPAR was $55.99, down 70.3%. The filing does not provide a single consolidated operating margin measure; reported results include substantial impairment and other unusual items.
At year-end, cash and cash equivalents were $111.8 million (plus $23.1 million restricted cash), total debt carrying value was $1.049 billion, and total liabilities were $1.428 billion. Management reported debt of approximately $1.0 billion, a 3.89% weighted-average interest rate and approximately 3.5-year weighted-average maturity. It reported $345 million of available credit-facility capacity. The filing also cites total liquidity of $481.7 million, which does not reconcile to the stated cash and facility-capacity figures and merits verification.
Material changes and unusual items
- Revenue and hotel demand contracted sharply as a result of the pandemic; 2020 RevPAR declined 70.3% from 2019.
- The company recorded a $174.1 million impairment loss on Frenchman’s Reef in the fourth quarter after concluding a sale significantly before the end of its estimated useful life was more likely than not. The hotel’s reported fair value was $45.5 million.
- By contrast, 2019 included a $144.2 million gain on the Frenchman’s Reef property-insurance settlement. That gain materially affects the year-over-year comparison.
- Interest expense rose to $54.0 million from $46.6 million, principally because interest-rate-swap fair-value expense increased to $10.0 million from $2.5 million.
- The company raised $86.8 million net through common-stock sales and $114.5 million net through issuance of 4.76 million Series A preferred shares. Common shares outstanding rose to 210.1 million from 200.2 million.
- The quarterly common dividend was suspended beginning with the payment that would have been made in April 2020. Preferred stock carries an 8.250% cumulative dividend; 2020 preferred distributions were $3.3 million.
- Operating cash use was $83.7 million, while financing activities provided $117.7 million. Investing activities used $79.0 million, including $40.9 million for Frenchman’s Reef reconstruction before work was paused.
Outlook, financing and risks
Management expected U.S. RevPAR to improve in 2021 from depressed 2020 levels as vaccines became available and travel demand recovered. It expected destination resorts to recover ahead of urban hotels; business travel and conference activity were expected to lag, with early signs of business travel resuming in late 2021. The company did not provide specific numerical revenue or earnings guidance. It forecast approximately $50 million of 2021 capital improvements, including renovations and rebranding projects at The Lodge at Sonoma and two Colorado hotels.
Management said existing cash and credit availability were expected to cover short-term liquidity needs and concluded there was no substantial doubt about the company’s ability to continue as a going concern for the following 12 months. Credit-agreement amendments waived tested financial covenants through the fourth quarter of 2021 and modified certain covenants through the first quarter of 2023; they also impose restrictions, including a minimum-liquidity covenant. The January 2021 amendment raised that minimum to $125 million. At year-end, cash-trap provisions were triggered on all mortgage loans with such provisions, except the Salt Lake City loan.
Key risks include the uncertain duration and impact of COVID-19, covenant compliance after relief periods, hotel demand and operating-cost pressures, refinancing and interest-rate exposure, and the paused Frenchman’s Reef rebuild. Construction commitments totaled approximately $102.5 million, including $84.3 million for Frenchman’s Reef; contracts allow cancellation subject to costs incurred and related termination costs. Management was exploring alternatives, including a capital partner. The filing reports no material litigation outcome, but notes ordinary-course claims and uncertainty.
Important facts for investors to verify
- Reconcile management’s stated $481.7 million liquidity with $111.8 million of unrestricted cash and $345 million of facility capacity.
- Review covenant terms, minimum-liquidity requirements, restrictions, and the company’s ability to meet covenants once relief expires.
- Assess hotel reopening status, demand recovery, and the assumptions supporting 2021 RevPAR and profitability expectations.
- Verify Frenchman’s Reef rebuild or disposition plans, funding needs, construction commitments, and impairment valuation assumptions.
- Evaluate the effect of common-share issuance, preferred dividends and suspended common dividends on per-share returns and future distributions.
- Consider the distinction between GAAP results and non-GAAP measures, particularly the 2020 impairment and 2019 insurance-settlement gain.