DiamondRock Hospitality Co. 10-Q Summary
Business Context and Reporting Period
Company: DiamondRock Hospitality Company (DiamondRock)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Fiscal quarter ended June 19, 2009, and the period from January 1, 2009, to June 19, 2009.
Business Overview: DiamondRock is a lodging-focused REIT owning 20 premium hotels and resorts with approximately 9,600 guestrooms across key U.S. gateway cities and destination resorts. Properties are operated under brands owned by Marriott, Starwood, or Hilton.
Key Financial Metrics
| Metric | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Total Revenues | $143.6 million | $181.0 million | $262.2 million | $313.9 million |
| Net Income (Loss) | $2.5 million | $21.8 million | $(2.8) million | $26.9 million |
| Operating Profit | $10.1 million | $33.7 million | $10.3 million | $45.5 million |
| EBITDA | $30.0 million | $52.1 million | $48.9 million | $81.0 million |
| Funds From Operations (FFO) | $22.2 million | $39.8 million | $35.6 million | $61.7 million |
| Cash from Operations | N/A | N/A | $30.3 million | $48.0 million |
| Total Debt | $819.4 million | $878.4 million | $819.4 million | $878.4 million |
| Cash & Equivalents | $51.6 million | $13.8 million (Dec 2008) | $51.6 million | $24.9 million (Jun 2008) |
| Weighted Avg. Interest Rate | 5.62% | N/A | 5.62% | N/A |
Operating Statistics (YTD 2009 vs. YTD 2008):
- Occupancy: 66.4% (down 5.9 percentage points)
- Average Daily Rate (ADR): $157.36 (down 12.8%)
- Revenue per Available Room (RevPAR): $104.53 (down 19.9%)
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 20.7% in Q2 2009 and 16.5% YTD 2009 compared to the prior year, driven by a significant drop in RevPAR due to lower occupancy and ADR.
- Profitability: Net income turned to a net loss YTD 2009 ($2.8 million loss) compared to $26.9 million income in 2008. Q2 2009 net income was $2.5 million, a sharp decline from $21.8 million in Q2 2008.
- Debt Reduction: The company repaid the entire $57.0 million balance on its senior unsecured credit facility in Q2 2009 using proceeds from a follow-on equity offering. Total debt decreased from $878.4 million to $819.4 million.
- Capital Expenditures: Hotel capital expenditures were significantly reduced to $13.3 million YTD 2009, down from $36.8 million in the same period in 2008, as the company curtails spending following major renovations completed in 2006-2008.
- Equity Raise: In April 2009, the company completed a follow-on public offering of 17.8 million shares at $4.85 per share, raising net proceeds of approximately $82.1 million.
Guidance, Outlook, and Risks
- Outlook: Management anticipates a challenging operating environment for the remainder of 2009 and into 2010 due to the severe economic recession. Lodging demand is expected to lag the general economic recovery. New hotel supply is expected to peak in 2009, negatively impacting certain markets (e.g., Fort Worth, Chicago, Austin).
- Liquidity Strategy: The company is focused on preserving liquidity. It expects to fund approximately $10 million of 2009 capital expenditures from corporate cash. The next dividend is expected to be paid to stockholders of record as of December 31, 2009, equal to 100% of 2009 taxable income, with the option to pay up to 90% in stock.
- Debt Maturities: Two near-term mortgage maturities totaling $68 million are due: $40.2 million on the Courtyard Manhattan/Midtown East (Dec 2009) and $27.7 million on the Griffin Gate Marriott (Jan 2010). A term sheet has been signed for a $43 million refinancing of the Manhattan property at 8.8% interest, subject to closing conditions.
- Risks: Primary risks include the continued impact of the recession on travel demand, the ability to refinance debt in a tight credit market, and the potential for further declines in ADR and occupancy. The company notes that 99.4% of its debt is fixed-rate, mitigating interest rate risk.
Key Facts for Investor Verification
- Refinancing Status: Verify the closing status of the $43 million refinancing for the Courtyard Manhattan/Midtown East, which is subject to a material adverse change clause and other conditions.
- Dividend Policy: Confirm the final determination of the 2009 dividend amount and the proportion paid in cash versus stock, as this impacts cash flow requirements.
- Occupancy Trends: Monitor if occupancy rates stabilize or continue to decline, as this is the primary driver of revenue and EBITDA performance.
- Covenant Compliance: Review the company's leverage ratio (44.7% actual vs. 65% covenant) and fixed charge coverage ratio (2.4x actual vs. 1.6x covenant) to ensure continued compliance with the unsecured credit facility, despite the facility being fully repaid.
- Capital Expenditure Budget: Track actual capital spending against the $35 million 2009 budget to ensure the company maintains its strategy of minimizing cash outflows.