BETHESDA, Md., Oct. 22 /PRNewswire-FirstCall/ -- DiamondRock Hospitality Company (the "Company") today announced results of operations for its third fiscal quarter, which ended on September 8, 2006, and raised full-year guidance. DiamondRock Hospitality Company is a self-advised real estate investment trust ("REIT") that is an owner and acquirer of premium hotels in North America.
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Third Quarter 2006 Highlights
* RevPAR: Same-store revenue per available room ("RevPAR") increased 14.6
percent over the comparable period in 2005.
* Hotel Profit Margins: Same-store hotel adjusted earnings before
interest expense, taxes, depreciation and amortization ("EBITDA")
margins increased 427 basis points.
* Adjusted EBITDA: The Company's Adjusted EBITDA was $29.8 million.
* Adjusted FFO: The Company reported adjusted funds from operations
("Adjusted FFO") of $20.6 million and Adjusted FFO per share of $0.29.
* Dividend: The Company declared a quarterly dividend of $0.18 per share
during the third quarter.
* Definitive Agreement to Acquire Conrad Chicago: The Company signed a
definitive, binding agreement to acquire the Conrad Chicago for $117.5
million.
* Subsequent Successful Equity Raise: The Company raised net proceeds of
$97 million in connection with a follow-on equity offering shortly
after the end of the third quarter.
William W. McCarten, chairman and chief executive officer, stated, "The results for the third quarter and the revised forecast for the balance of the year exceeded our expectations as our portfolio continued to leverage the strong momentum of the lodging recovery and our asset management initiatives. In fact, half of our portfolio hotels reported double digit RevPAR growth, and margin expansion was excellent. New York, Chicago and Atlanta were particularly strong. Leisure was also a bright spot with outstanding third quarters at Vail and St. Thomas. We are raising our full-year outlook to reflect the strong market. We are optimistic that our portfolio of hotels will continue to perform well in 2007 and should outperform the general market."
Operating Results
Please see "Certain Definitions" and "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDA," "Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO," "Adjusted FFO" and "Same Store." Moreover, the discussions of RevPAR, Adjusted EBITDA and Hotel Adjusted EBITDA Margin assume that the acquired hotels were owned by us for the comparable periods of 2005.
For the third quarter, beginning June 17, 2006 and ended September 8, 2006, the Company reported the following:
* Revenues of $114.9 million compared to $65.4 million for the comparable
period in 2005.
* Net income of $6.5 million (or $0.09 per diluted share) compared to
$2.2 million (or $0.04 per diluted share) for the comparable period in
2005.
* Adjusted EBITDA was $29.8 million compared to $13.8 million for the
comparable period in 2005.
* Adjusted FFO and Adjusted FFO per share were $20.6 million and $0.29,
respectively, compared to $11.3 million and $0.22, respectively, for
the comparable period in 2005.
For our entire portfolio of 17 hotels, same-store RevPAR for the third quarter increased 14.6 percent from $103.02 to $118.06 as compared to the same period in 2005, driven by a 12.3 percent increase in the average daily rate and a 1.6 percentage point increase in occupancy (from 74.5 percent to 76.1 percent). Same-store hotel adjusted EBITDA margins for our hotels increased 427 basis points (from 22.95 percent to 27.22 percent) over the same period in the prior year. RevPAR and margin improvements were partially attributable to comparisons with prior periods in which hotels had undergone renovations and experienced disruption.
The financial results in the third quarter were above our prior guidance. This outperformance is primarily attributable to four factors:
* Higher Than Expected Room Rate. Our RevPAR was above our prior
guidance because we were able to aggressively increase daily rate in
our core markets. Our portfolio is heavily weighted towards New York
City, Chicago and Atlanta, markets that are experiencing higher than
expected transient demand. As we price our transient rooms daily, we
are able to capitalize on this higher demand by significantly
increasing our daily rate in these markets. Most of these rate
increases flow directly to the bottom line, thus improving margins and
EBITDA above our prior forecast. To a lesser degree, we expect this
trend to continue in the fourth quarter.
* Less Renovation Disruption. We experienced less disruption than
anticipated from our major renovations at the Los Angeles Airport
Marriott, Frenchman's Reef & Morningstar Marriott Resort, and Orlando
Airport Marriott, reflecting both effective asset management and some
delays to the fourth quarter.
* More Higher-Margin Food and Beverage Sales. Profit margins are higher
on group catering than on other types of food and beverage sales at our
hotels. Last year we began working with our hotel managers to increase
the mix of groups that utilize hotel catering. That strategy was more
successful than we originally forecast in the third quarter.
* Better Performance at Oak Brook Hills Marriott. Following the weak
conversion of the Oak Brook Hills Marriott Resort, improving the
financial performance at the hotel has been a high priority. Hotel and
asset management initiatives improved transient demand, and the hotel
outperformed its third quarter EBITDA forecast by $0.4 million or 18%.
While the hotel continues to present operational challenges and will be
significantly below original budget, we are encouraged by these
results.
Year-to-date, the Company reported the following:
* Revenues of $323.0 million compared to $125.3 million for the
comparable period in 2005.
* Net income of $24.7 million (or $0.38 per diluted share) compared to a
net loss of $8.9 million (or $0.27 per diluted share) for the
comparable period in 2005.
* Adjusted EBITDA of $89.1 million compared to $25.3 million for the
comparable period in 2005.
* Adjusted FFO and Adjusted FFO per share were $62.9 million and $0.99,
respectively, compared to $15.8 million and $0.47, respectively, for
the comparable period in 2005.
Same-store RevPAR for the year-to-date through the end of the third quarter increased 12.2 percent from $108.03 to $121.20 as compared to the same period in 2005, driven by a 10.8 percent increase in the average daily rate and a 0.9 percentage point increase in occupancy (from 74.5 percent to 75.4 percent). Year-to-date, same-store hotel adjusted EBITDA margins for our hotels increased 299 basis points (from 26.13 percent to 29.12 percent) over the same period in the prior year. RevPAR and margin improvements were partially attributable to comparisons with prior periods in which hotels had undergone renovations and experienced disruption.
DiamondRock is entitled to contractual yield support from its hotel operators under certain management agreements, most significantly at the Oak Brook Hills Marriott and the Orlando Airport Marriott. The Company received $0.8 million of yield support in the third quarter, contributing 67 basis points to our third quarter Hotel Adjusted EBITDA margins, and an aggregate of $2.4 million of yield support year-to-date, contributing 75 basis points to our year-to-date Hotel Adjusted EBITDA margins.
Balance Sheet
As of the end of the third quarter, the Company had total assets of approximately $1.5 billion. Cash and cash equivalents were $120 million, including $27 million of restricted cash.
As of the end of the third quarter, the Company had total debt of approximately $665 million, comprised entirely of fixed-rate, property specific mortgages with a weighted average interest rate of 5.7 percent and a weighted average maturity of 9 years. Seven of the Company's 17 hotels are unencumbered by mortgage debt.
Additionally, the Company's liquidity is enhanced by a $75 million secured line of credit, which was completely undrawn as of the end of the third quarter. With lender consent, the line of credit may be increased to $250 million.
As of the end of the third quarter, the Company continued to own 100% of its properties directly and has issued no operating partnership units or preferred stock.
Outlook
The Company is providing updated guidance, but does not undertake to update it for any developments in our business. Achievement of the anticipated results is subject to the risks disclosed in our filings with the Securities and Exchange Commission.
The guidance below includes the estimated disruption impact of significant renovations planned for our hotels during 2006 and the completion of the Conrad Chicago acquisition in mid-November. Furthermore, the RevPAR and Hotel Adjusted EBITDA margin guidance are presented on a pro forma basis as they assume that we owned all of our hotels for the comparable prior year periods. However, no other part of our guidance includes the results from any hotel that we acquired in 2006 for the period prior to our ownership in 2006 (or the comparable reporting period of 2005).
For the fourth quarter of 2006, we expect:
* RevPAR to increase 10 to 11 percent.
* Hotel Adjusted EBITDA Margins to increase 280 to 320 basis points.
* Adjusted EBITDA of $41 million to $42 million.
* Adjusted FFO of $27.5 million to $28.5 million.
* Adjusted FFO per share of $0.36 to $0.37 based on 76.2 million diluted
weighted average shares.
For the full year 2006, we expect:
* RevPAR to increase 10.5 to 11.5 percent.
* Hotel Adjusted EBITDA Margins to increase 280 to 300 basis points.
* Adjusted EBITDA of $130 million to $131 million.
* Adjusted FFO of $90.5 million to $91.5 million.
* Adjusted FFO per share of $1.33 to $1.35, based on 67.9 million diluted
weighted average shares.
Comparison with Prior 2006 Guidance
The following is a chart showing our current guidance for the period that we own our hotels in 2006 with a comparison to prior guidance:
Prior Guidance Revised Guidance
RevPAR Growth 9% to 11% 10.5% to 11.5%
Hotel Adjusted EBITDA
Margins 180 to 220 basis points 280 to 300 basis points
Adjusted EBITDA $124.0 to $126.0 million $130 to $131 million
Adjusted FFO $84 to $86 million $90.5 to $91.5 million
Adjusted FFO/Share $1.27 to $1.30 per share $1.33 to $1.35 per share
Dividend for Third Quarter 2006
On September 19, 2006, a cash dividend of $0.18 per share was paid to shareholders of record as of September 8, 2006.
Major Capital Expenditures
We have and continue to make significant capital investments in our hotels. From January 1, 2006, through the end of the third quarter, we have spent $40.6 million on capital projects. The following are the projects that we have substantially completed through the end of the third quarter:
* Bethesda Marriott Suites: We completed all of the planned guestsuites
renovations in the first quarter of 2006.
* Courtyard Manhattan Fifth Avenue: We completed the guestroom and
corridor renovation during 2005. The renovation of the lobby and other
public spaces was completed in the second quarter of 2006.
* Courtyard Manhattan Midtown East: During the first quarter, we
completed the renovation of guestrooms, lobby, restaurant and meeting
space.
The major capital projects still to be completed are as follows:
* Frenchman's Reef & Morning Star Marriott Beach Resort: In 2005, we
completed the replacement of case goods in a portion of the guestrooms.
We are undertaking several significant projects at the hotel during the
fourth quarter of 2006, including additional replacement of case goods
in select rooms and the renovation of guestrooms, restaurants, and
certain meeting space.
* Los Angeles Airport Marriott: In 2005, we completed a renovation of
the ballroom, conversion of a food outlet to a junior ballroom and
renovation of the bar. Additionally, we are currently completing a
comprehensive room renovation, which we have accelerated from 2007 to
2006. The project consists of the renovation of the guestrooms and
bathrooms and is being funded, in part, by a $1.5 million non-
recoverable contribution from Marriott International. The renovation is
scheduled to be completed by the end of 2006.
* Oak Brook Hills Marriott Resort: We have begun a significant renovation
in the fourth quarter of 2006 and will complete the work in early 2007.
The renovation includes the guestrooms and bathrooms, the main ballroom
and meeting rooms and the lobby.
* Orlando Airport Marriott: We began a significant renovation in the
third quarter of 2006. The renovation includes the guestrooms and
bathrooms, the meeting rooms and the lobby. The renovation is
scheduled to be completed by the end of the year.
* Torrance Marriott: We are currently completing the renovation of the
Torrance Marriott. The initial phase of the project consisted of the
renovation of the guestroom soft goods and bathrooms and the renovation
of the main ballroom and meeting rooms, which were completed in January
2006. During the third quarter of 2006, we began renovations that
include the lobby and the conversion of a food and beverage outlet to
meeting space.
* Vail Marriott: We are currently designing a major renovation of the
ballrooms.
Earnings Call
We will host a conference call to discuss third quarter results and our 2006 guidance on Monday, October 23, 2006, at 2:00pm Eastern Time (ET). To participate in the live call, investors are invited to dial 1-800-591-6945 (for domestic callers) or 617-614-4911 (for international callers). The participant passcode is 52537336. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company's website at http://www.drhc.com/. A replay of the webcast will also be archived on the website for 30 days.
About the Company
DiamondRock Hospitality Company is a self-advised REIT that is an owner and acquirer of premium hotel properties. We own 17 hotels that are comprised of 7,683 rooms. Upon the completion of the acquisition of the Conrad Chicago, we will own 18 hotels comprised of 7,994 rooms. We have a strategic acquisition sourcing relationship with Marriott International. For further information, please visit our website at http://www.drhc.com/.
This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will," "continue" and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward- looking statements are made. These risks include, but are not limited to: national and local economic and business conditions, including the potential for additional terrorist attacks, that will affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to complete planned renovation on budget; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; our ability to complete acquisitions; our ability to raise equity capital; the performance of acquired properties after they are acquired; necessary capital expenditures on the acquired properties; and our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and other risks and uncertainties associated with our business described from time to time in our filings with the Securities and Exchange Commission. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of the date of this release, and we undertake no obligation to update any forward-looking statement to conform the statement to actual results or changes in our expectations.
Reporting Periods for Statement of Operations
The results we report in our consolidated statements of operations are based on results of our hotels reported to us by our hotel managers. Our hotel managers use different reporting periods. Marriott International, the manager of the majority of our hotel properties, uses a fiscal year ending on the Friday closest to December 31 and reports twelve weeks of operations for the first three quarters and sixteen or seventeen weeks for the fourth quarter of the year for its domestic managed hotels. In contrast, Marriott International for its non-domestic hotels (including Frenchman's Reef), Noble Management Group, LLC, our manager of the Westin Atlanta North hotel, and Vail Resorts, our manager of the Vail Marriott, report results on a monthly basis. Additionally, the Company, as a REIT, is required by tax law to report results on a calendar year. As a result, the Company has adopted the reporting periods used by Marriott International for its domestic hotels, except that the fiscal year always ends on December 31 to comply with REIT rules. The first three fiscal quarters end on the same day as Marriott International's fiscal quarters but our fourth quarter ends on December 31 and our full year results, as reported in our statement of operations, always include the same number of days as the calendar year.
Two consequences of the reporting cycle we have adopted are: (1) quarterly start dates will usually differ between years, except for the first quarter which always commences on January 1, and (2) our first and fourth quarters of operations and year-to-date operations may not include the same number of days as reflected in prior years.
While the reporting calendar we adopted is more closely aligned with the reporting calendar used by the manager of a majority of our properties, one final consequence of our calendar is we are unable to report any results for Frenchman's Reef, Westin Atlanta North or for the Vail Marriott for the month of operations that ends after our fiscal quarter-end because neither Vail Resorts, Noble Management Group, LLC (the manager of the Westin Atlanta North hotel) nor Marriott International make mid-month results available to us. As a result, our quarterly results of operations include results from Frenchman's Reef, Westin Atlanta North and the Vail Marriott as follows: first quarter (January and February), second quarter (March to May), third quarter (June to August) and fourth quarter (September to December). While this does not affect full-year results, it does affect the reporting of quarterly results.
Yield Support
In connection with entering into certain management agreements with Marriott, Marriott provided the Company with limited operating cash flow guarantees ("yield support") for those hotels. The yield support is designed to protect us from the disruption often associated with changing the hotel's brand or manager or undergoing significant renovations. Across our portfolio, we are entitled to up to $2.5 million of yield support through December 31, 2007 for the Oak Brook Hills Marriott, $1.0 million of yield support through December 31, 2006 at the Orlando Airport Marriott and $0.1 million in each of 2006 and 2007 for the Buckhead SpringHill Suites. We currently anticipate that we will recognize $3.2 million of the $3.6 million of yield support available for the three hotels in 2006.
Ground Leases
Three of our hotels are subject to ground leases: Bethesda Marriott Suites, Courtyard Manhattan Fifth Avenue, and Salt Lake City Downtown Marriott. In addition, part of a parking structure at a fourth hotel and two golf courses at two additional hotels are also subject to ground leases. In accordance with GAAP, the Company records rent expense on a straight-line basis for ground leases that provide minimal rental payments that increase in pre-established amounts over the remaining term of the ground lease. For the third quarter 2006, contractual cash rent payable on the ground leases totaled $0.4 million and the Company recorded approximately $2.1 million in ground rent expense. The non-cash portion of ground rent expense recorded for the third fiscal quarter was $1.7 million.
DIAMONDROCK HOSPITALITY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 8, 2006 December 31, 2005
(Unaudited)
Property and equipment, at cost $1,381,733,408 $899,309,856
Less: accumulated depreciation (56,830,201) (28,747,457)
1,324,903,207 870,562,399
Deferred financing costs, net 3,450,127 2,846,661
Restricted cash 27,070,515 23,109,153
Due from hotel managers 42,828,456 38,964,986
Favorable lease asset, net 10,266,673 10,601,577
Prepaid and other assets 20,608,389 10,495,765
Cash and cash equivalents 93,082,205 9,431,741
Total assets $1,522,169,572 $966,012,282
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Debt, at face amount $662,148,395 $428,394,735
Debt premium 2,670,227 2,782,322
Total debt 664,818,622 431,177,057
Deferred income related to key money 11,604,401 10,311,322
Unfavorable contract liabilities, net 88,371,703 5,384,431
Due to hotel managers 22,888,703 22,790,896
Dividends declared and unpaid 12,835,514 8,896,101
Accounts payable and accrued expenses 31,437,386 24,064,047
Total other liabilities 167,137,707 71,446,797
Shareholders' Equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized; no shares
issued and outstanding - -
Common stock, $.01 par value; 100,000,000
shares authorized; 70,441,632 and
50,819,864 shares issued and outstanding
at September 8, 2006 and December 31, 2005,
respectively 704,416 508,199
Additional paid-in capital 728,867,133 491,951,223
Accumulated deficit (39,358,306) (29,070,994)
Total shareholders' equity 690,213,243 463,388,428
Total liabilities and shareholders'
equity $1,522,169,572 $966,012,282
DIAMONDROCK HOSPITALITY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Fiscal Period from Period from
Quarter Quarter January 1, January 1,
Ended Ended 2006 to 2005 to
September 8, September 9, September 8, September 9,
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Rooms $76,804,975 $43,007,699 $212,593,189 $85,509,567
Food and beverage 31,319,744 17,607,225 92,065,252 31,812,477
Other 6,774,121 4,792,077 18,329,885 7,949,454
Total revenues 114,898,840 65,407,001 322,988,326 125,271,498
Operating Expenses:
Rooms 18,323,795 10,853,919 49,292,789 21,439,976
Food and beverage 21,831,929 13,658,368 62,141,105 24,420,522
Management fees 4,427,423 2,171,128 12,124,268 4,280,139
Other hotel expenses 40,300,608 24,887,133 109,273,487 49,247,846
Depreciation and
amortization 12,796,842 7,369,396 33,922,175 16,072,526
Corporate expenses 2,812,119 2,452,887 8,025,371 10,399,626
Total operating
expenses 100,492,716 61,392,831 274,779,195 125,860,635
Operating profit (loss) 14,406,124 4,014,170 48,209,131 (589,137)
Other Expenses (Income):
Interest income (1,295,971) (654,201) (2,686,501) (1,215,028)
Interest expense 9,057,682 4,156,249 24,189,649 10,640,988
Total other expenses 7,761,711 3,502,048 21,503,148 9,425,960
Income (loss) before
income taxes 6,644,413 512,122 26,705,983 (10,015,097)
Income tax (expense)
benefit (173,616) 1,684,346 (1,972,492) 1,125,499
Net income (loss) $6,470,797 $2,196,468 $ 24,733,491 $(8,889,598)
Earnings (loss) per share:
Basic and diluted $ 0.09 $0.04 $0.38 $(0.27)
DIAMONDROCK HOSPITALITY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from Period from
January 1, January 1,
2006 to 2005 to
September 8, September 9,
2006 2005
Cash flows from operating activities: (Unaudited) (Unaudited)
Net income (loss) $24,733,491 $(8,889,598)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Real estate depreciation 33,922,175 16,072,526
Corporate asset depreciation as
corporate expenses 107,821 75,166
Non-cash straight line ground rent 5,113,378 4,839,677
Non-cash financing costs as interest 668,617 1,100,820
Market value adjustment to interest rate caps 16,070 (11,402)
Amortization of debt premium and unfavorable
contract liabilities (937,639) (139,234)
Amortization of deferred income (206,921) (106,867)
Stock-based compensation 2,020,301 5,582,077
Deferred income tax benefit (1,103,252) (1,125,499)
Changes in assets and liabilities:
Prepaid expenses and other assets 974,559 1,012,604
Restricted cash 966,864 (3,400,377)
Due to/from hotel managers (3,765,664) (11,837,240)
Accounts payable and accrued expenses 385,389 4,069,073
Net cash provided by operating activities 62,895,189 7,241,726
Cash flows from investing activities:
Hotel acquisitions (145,566,189) (530,905,343)
Hotel capital expenditures (38,959,105) (9,646,244)
Receipt of deferred key money 1,500,000 4,000,000
Change in restricted cash (2,711,445) (14,340,275)
Purchase deposits (10,000,000) -
Net cash used in investing activities (195,736,739) (550,891,862)
Cash flows from financing activities:
Proceeds from mortgage debt 271,000,000 246,500,000
Repayments of debt (325,500,000) (56,948,685)
Draws on senior secured credit facility 24,000,000 5,000,000
Proceeds from short-term loan 79 ,500,000 -
Repayments of senior secured credit facility (33,000,000) -
Scheduled mortgage debt principal payments (2,246,340) (2,146,538)
Payment of financing costs (1,272,083) (2,682,201)
Proceeds from sale of common stock 239,229,900 291,799,785
Payment of costs related to sale of
common stock (1,204,206) (3,206,639)
Payment of taxes on vested shares (3,078,302) -
Payment of dividends (30,936,955) (1,680,656)
Net cash provided by financing activities 216,492,014 476,635,066
Net increase (decrease) in cash and cash
equivalents $83,650,464 $(67,015,070)
Cash and cash equivalents, beginning of
period 9,431,741 76,983,107
Cash and cash equivalents, end of period $93,082,205 $9,968,037
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest $21,442,775 $9,283,715
Cash paid for income taxes $926,060 $1,114,363
Capitalized interest $ 381,191 $107,111
Non Cash Investing and Financing Activities:
Assumption of mortgage debt $ 220,000,000 $-
Repayments of mortgage debt with
restricted cash $- $7,051,315
Non-GAAP Financial Measures
We use the following four non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: (1) EBITDA (2) Adjusted EBITDA, (3) FFO and (4) Adjusted FFO.
EBITDA represents net income (loss) excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. We believe EBITDA is useful to an investor in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. We also use EBITDA as one measure in determining the value of hotel acquisitions and dispositions.
Historical
Fiscal Fiscal
Quarter Ended Quarter Ended
September 8, September 9,
2006 2005
Net income $6,470,797 $2,196,468
Interest expense 9,057,682 4,156,249
Income tax expense (benefit) 173,616 (1,684,346)
Depreciation and amortization 12,796,842 7,369,396
EBITDA $ 28,498,937 $ 12,037,767
Historical
Period from Period from
January 1, January 1,
2006 to 2005 to
September 8, September 9,
2006 2005
Net income (loss) $24,733,491 $(8,889,598)
Interest expense 24,189,649 10,640,988
Income tax expense (benefit) 1,972,492 (1,125,499)
Depreciation and amortization 33,922,175 16,072,526
EBITDA $84,817,807 $16,698,417
Forecast Fourth Quarter 2006
Low End High End
Net income $7,700,000 $8,700,000
Interest expense 12,100,000 12,100,000
Income tax expense 1,400,000 1,400,000
Depreciation and amortization 18,000,000 18,000,000
EBITDA $39,200,000 $40,200,000
Forecast Full Year 2006
Low End High End
Net income $32,400,000 $33,400,000
Interest expense 36,200,000 36,200,000
Income tax expense 3,300,000 3,300,000
Depreciation and amortization 52,000,000 52,000,000
EBITDA $ 123,900,000 $124,900,000
Management also evaluates our performance by reviewing Adjusted EBITDA because the Company believes that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to a complete understanding of our operating performance. We adjust EBITDA for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA:
* Non-Cash Ground Rent: We exclude the non-cash expense incurred from
straight lining the rent from our ground lease obligations and the
non-cash amortization of our favorable lease asset.
* The impact of the non-cash amortization of the unfavorable contract
liabilities recorded in conjunction with our acquisitions of the
Bethesda Marriott Suites and the Chicago Marriott Downtown. The
amortization of the unfavorable contract liabilities does not reflect
the underlying performance of the Company.
* Cumulative effect of a change in accounting principle: Infrequently,
the Financial Accounting Standards Board (FASB) promulgates new
accounting standards that require the consolidated statement of
operations to reflect the cumulative effect of a change in accounting
principle. We exclude these one-time adjustments because they do not
reflect our actual performance for that period.
* Impairment Losses: We exclude the effect of impairment losses recorded
because we believe that including them in EBITDA is not consistent with
reflecting the ongoing performance of our remaining assets. In
addition, we believe that impairment charges are similar to gains
(losses) on dispositions and depreciation expense, both of which are
also excluded from EBITDA.
Historical
Fiscal Fiscal
Quarter Ended Quarter Ended
September 8, September 9,
2006 2005
EBITDA $ 28,498,937 $12,037,767
Non-cash ground rent 1,701,010 1,730,168
Non-cash amortization of unfavorable
contract liabilities (396,825) -
Adjusted EBITDA $ 29,803,122 $ 13,767,935
Historical
Period from Period from
January 1, January 1,
2006 to 2005 to
September 8, September 9,
2006 2005
EBITDA $ 84,817,807 $16,698,417
Non-cash ground rent 5,113,382 4,910,278
Initial public offering stock grants - 3,736,250
Non-cash amortization of unfavorable
contract liabilities (825,543) -
Adjusted EBITDA $ 89,105,646 $25,344,945
Forecast Fourth Quarter 2006
Low End High End
EBITDA $ 39,200,000 $40,200,000
Non-cash ground rent 2,300,000 2,300,000
Non-cash amortization of unfavorable
contract liabilities (500,000) (500,000)
Adjusted EBITDA $ 41,000,000 $42,000,000
Forecast Full Year 2006
Low End High End
EBITDA $ 123,900,000 $124,900,000
Non-cash ground rent 7,500,000 7,500,000
Non-cash amortization of unfavorable
contract liabilities (1,400,000) (1,400,000)
Adjusted EBITDA $ 130,000,000 $131,000,000
We compute FFO in accordance with standards established by NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding gains (losses) from sales of property, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures (which are calculated to reflect FFO on the same basis). We believe that the presentation of FFO provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified non-cash items, such as real estate depreciation and amortization and gain or loss on sale of assets. We also use FFO as one measure in determining our results after taking into account the impact of our capital structure.
Historical
Fiscal Fiscal
Quarter Ended Quarter Ended
September 8, September 9,
2006 2005
Net income $6,470,797 $2,196,468
Real estate related depreciation and
amortization 12,796,842 7,369,396
FFO $ 19,267,639 $9,565,864
FFO per Share (Basic and Diluted) $0.27 $0.19
Historical
Period from Period from
January 1, January 1,
2006 to 2005 to
September 8, September 9,
2006 2005
Net income (loss) $ 24,733,491 $(8,889,598)
Real estate related depreciation and
amortization 33,922,175 16,072,526
FFO $ 58,655,666 $7,182,928
FFO per Share (Basic and Diluted) $0.91 $0.21
Forecast Fourth Quarter 2006
Low End High End
Net income $7,700,000 $8,700,000
Real estate related depreciation and
amortization 18,000,000 18,000,000
FFO $ 25,700,000 $ 26,700,000
Forecast Full Year 2006
Low End High End
Net income $32,400,000 $33,400,000
Real estate related depreciation and
amortization 52,000,000 52,000,000
FFO $84,400,000 $85,400,000
Management also evaluates our performance by reviewing Adjusted FFO because the Company believes that the exclusion of certain additional recurring and non-recurring items described below provides useful supplemental information regarding our ongoing operating performance and that the presentation of Adjusted FFO, when combined with the primary GAAP presentation of net income, is beneficial to a complete understanding of our operating performance. We adjust FFO for the following items, which may occur in any period, and refer to this measure as Adjusted FFO:
* Non-Cash Ground Rent: We exclude the non-cash expense incurred from
straight lining the rent from our ground lease obligations and the non-
cash amortization of our favorable lease asset.
* The impact of the non-cash amortization of the unfavorable contract
liabilities recorded in conjunction with our acquisitions of the
Bethesda Marriott Suites and the Chicago Marriott Downtown. The
amortization of the unfavorable contract liabilities does not reflect
the underlying performance of the Company.
* Cumulative effect of a change in accounting principle: Infrequently,
the Financial Accounting Standards Board (FASB) promulgates new
accounting standards that require the consolidated statement of
operations to reflect the cumulative effect of a change in accounting
principle. We exclude these one-time adjustments because they do not
reflect our actual performance for that period.
* Impairment Losses: We exclude the effect of impairment losses recorded
because we believe that including them in EBITDA is not consistent with
reflecting the ongoing performance of our remaining assets. In
addition, we believe that impairment charges are similar to gains
(losses) on dispositions and depreciation expense, both of which are
also excluded from EBITDA.
Historical
Fiscal Fiscal
Quarter Ended Quarter Ended
September 8, September 9,
2006 2005
FFO $19,267,639 $9,565,864
Non-cash ground rent 1,701,010 1,730,168
Non-cash amortization of unfavorable
contract liabilities (396,825) -
Adjusted FFO $20,571,824 $11,296,032
Adjusted FFO per Share (Basic and Diluted) $ 0.29 $0.22
Historical
Period from Period from
January 1, January 1,
2006 to 2005 to
September 8, September 9,
2006 2005
FFO $58,655,666 $7,182,928
Non-cash ground rent 5,113,382 4,910,278
Initial public offering stock grants - 3,736,250
Non-cash amortization of unfavorable
contract liabilities (825,543) -
Adjusted FFO $62,943,505 $15,829,456
Adjusted FFO per Share (Basic and Diluted) $ 0.99 $0.47
Forecast Fourth Quarter 2006
Low End High End
FFO $25,700,000 $26,700,000
Non-cash ground rent 2,300,000 2,300,000
Non-cash amortization of unfavorable
contract liabilities (500,000) (500,000)
Adjusted FFO $27,500,000 $28,500,000
Forecast Full Year 2006
Low End High End
FFO $84,400,000 $85,400,000
Non-cash ground rent 7,500,000 7,500,000
Non-cash amortization of unfavorable
contract liabilities (1,400,000) (1,400,000)
Adjusted FFO $90,500,000 $91,500,000
Certain Definitions
In this release, when we discuss our hotels on a "Same Store" basis, we are discussing all of our hotels except the newly built SpringHill Suites Atlanta Buckhead, which we exclude for all periods prior to its opening in July of 2005 and the comparable period in 2006.
In this release, when we discuss "Hotel Adjusted EBITDA," we exclude from Hotel EBITDA the non-cash expense incurred by the hotels due to the straight lining of the rent from our ground lease obligations, the non-cash amortization of our favorable lease asset, and the non-cash amortization of the unfavorable contract liabilities recorded in conjunction with the acquisitions of the Bethesda Marriott Suites and the Chicago Marriott Downtown. Hotel EBITDA represents hotel net income (loss) excluding: (1) interest expense; (2) income taxes; and (3) depreciation and amortization. Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues.
Market Capitalization as of September 8, 2006
Enterprise Value September 8, 2006
Common equity capitalization (at 9/8/06 closing price
of $16.40/share) $1,169,457,940
Consolidated debt (excluding debt premium) 662,148,395
Cash and cash equivalents (93,082,205)
Total enterprise value $1,738,524,130
Dividend Per Share
Common dividend declared (holders of record on
September 8, 2006) $ 0.18
Share Reconciliation
Common shares outstanding, held by third parties 65,536,790
Common shares outstanding, held by Marriott International 4,428,571
Common shares outstanding, held by corporate officers and
directors 476,271
Subtotal 70,441,632
Unvested restricted stock held by management and employees 461,527
Share grants under deferred compensation plan held by
corporate officers 405,252
Combined shares outstanding 71,308,411
Debt Summary at September 8, 2006
(dollars in thousands)
Interest Outstanding
Property Rate Term Principal Maturity
Courtyard Manhattan / Midtown East 5.195% Fixed $43,524 December 2009
Salt Lake City Marriott Downtown 5.500% Fixed 37,269 December 2014
Courtyard Manhattan / Fifth Avenue 6.48% Fixed 51,000 May 2016
Marriott Griffin Gate Resort 5.110% Fixed 29,969 January 2010
Bethesda Marriott Suites 7.690% Fixed 18,886 February 2023
Los Angeles Airport Marriott 5.300% Fixed 82,600 June 2015
Marriott Frenchman's Reef 5.440% Fixed 62,500 July 2015
Renaissance Worthington 5.400% Fixed 57,400 June 2015
Orlando Airport Marriott 5.680% Fixed 59,000 December 2015
Chicago Marriott Downtown 5.98% Fixed 220,000 April 2016
Total Debt (excluding Debt Premium)$662,148
Portfolio Composition and Projected Total Investment
Number 2005 2006
of Investment Hotel
Property Location Rooms (1) Acquisitions
Atlanta Alpharetta Marriott Atlanta, GA 318 $38,833,000 $
Atlanta North at Perimeter
Westin Atlanta, GA 369 62,614,000
Bethesda Marriott Suites Bethesda, MD 272 42,185,000
Chicago Marriott Downtown Chicago, IL 1,192 308,200,000
Conrad Chicago Chicago, IL 311 119,000,000
Courtyard Manhattan /
Fifth Avenue New York, NY 185 41,832,000
Courtyard Manhattan /
Midtown East New York, NY 312 75,382,000
Frenchman's Reef &
Morning Star Marriott
Beach Resort St. Thomas, USVI 504 76,106,000
Los Angeles Airport
Marriott Los Angeles, CA 1,004 114,681,000
Marriott Griffin Gate
Resort Lexington, KY 408 49,779,000
Oak Brook Hills Marriott
Resort Oak Brook, IL 384 66,165,000
Orlando Airport Marriott Orlando, FL 486 71,154,000
Renaissance Worthington Fort Worth, TX 504 80,811,000
Salt Lake City Marriott Salt Lake
Downtown City, UT 510 51,123,000
SpringHill Suites Atlanta
Buckhead Atlanta, GA 220 34,341,000
The Lodge at Sonoma, a
Renaissance Resort and
Spa Sonoma, CA 182 32,430,000
Torrance Marriott Los Angeles
County, CA 487 67,421,000
Vail Marriott Mountain
Resort and Spa Vail, CO 346 65,259,000
Total 7,994 $907,502,000 $489,814,000
2006 Y/E 2006
Forecasted Total
Capital Projected Projected
Expenditures Investment Investment
Property (2) (3) Per Room
Atlanta Alpharetta Marriott $229,242 $39,062,242 $122,837
Atlanta North at Perimeter
Westin 294,767 62,908,767 170,484
Bethesda Marriott Suites 5,484,134 47,669,134 175,254
Chicago Marriott Downtown 2,037,954 310,237,954 260,267
Conrad Chicago 0 119,000,000 382,637
Courtyard Manhattan /
Fifth Avenue 3,174,653 45,006,653 243,279
Courtyard Manhattan /
Midtown East 3,178,762 78,560,762 251,797
Frenchman's Reef & Morning
Star Marriott Beach Resort 9,424,335 85,530,335 169,703
Los Angeles Airport Marriott 15,757,209 130,438,209 129,919
Marriott Griffin Gate Resort 1,861,039 51,640,039 126,569
Oak Brook Hills Marriott Resort 10,964,931 77,129,931 200,859
Orlando Airport Marriott 9,399,686 80,553,686 165,748
Renaissance Worthington 2,346,840 83,157,840 164,996
Salt Lake City Marriott Downtown 3,597,804 54,720,804 107,296
SpringHill Suites Atlanta Buckhead 41,083 34,382,083 156,282
The Lodge at Sonoma, a Renaissance
Resort and Spa 514,559 32,944,559 181,014
Torrance Marriott 6,187,031 73,608,031 151,146
Vail Marriott Mountain Resort
and Spa 3,683,050 68,942,050 199,254
Total $78,177,079 $1,475,493,079 $184,575
(1) As of December 31, 2005.
(2) 2006 Forecasted Capital Expenditures represents capital expenditures
regardless of whether they will be paid for through an escrow account
or owner funding and excludes capital expenditures of $5.2 million
that are projected to shift to 2007.
(3) Total projected investments for each hotel property is the gross book
value of the hotel as of December 31, 2005 plus budgeted 2006 capital
improvements.
Pro Forma Operating Statistics (1)
ADR Occupancy B/(W)
3Q 2006 3Q 2005 B/(W) 3Q 2006 3Q 2005 % pts.
Atlanta Alpharetta $ 139.41 $132.22 5.4% 64.6% 57.8% 6.8%
Westin Atlanta North
(2) $ 142.89 $131.88 8.4% 67.4% 59.7% 7.6%
Bethesda Marriott
Suites $ 162.87 $142.70 14.1% 76.3% 86.0% (9.8%)
Buckhead SpringHill
Suites $ 108.28 $95.24 13.7% 68.6% 40.3% 28.3%
Chicago Marriott $ 196.89 $177.15 11.1% 88.6% 80.1% 8.5%
Courtyard Fifth
Avenue $ 236.93 $188.16 25.9% 90.9% 55.1% 35.7%
Courtyard Midtown
East $ 236.15 $211.05 11.9% 88.4% 88.2% 0.2%
Frenchman's Reef (2) $ 172.72 $161.18 7.2% 83.5% 81.6% 1.9%
Griffin Gate
Marriott $ 124.79 $117.05 6.6% 69.7% 70.7% (1.0%)
Los Angeles Airport $ 110.79 $97.49 13.6% 73.9% 82.9% (9.0%)
Oak Brook Hills (3) $ 134.07 $119.64 12.1% 69.1% 60.6% 8.5%
Orlando Airport
Marriott (3) $ 96.43 $ 96.51 (0.1%) 66.6% 69.9% (3.3%)
Salt Lake City
Marriott $ 132.30 $116.72 13.4% 68.9% 76.4% (7.5%)
Sonoma Renaissance $ 247.50 $227.38 8.8% 80.1% 81.6% (1.5%)
Torrance Marriott $ 112.05 $100.97 11.0% 85.1% 86.1% (1.1%)
Vail Marriott (2) $ 156.47 $141.08 10.9% 64.8% 58.8% 6.0%
Renaissance
Worthington $ 155.13 $141.70 9.5% 72.0% 74.2% (2.3%)
Hotel Adjusted EBITDA
RevPAR Margin
3Q 2006 3Q 2005 B/(W) 3Q 2006 3Q 2005 B/(W)
Atlanta Alpharetta $90.06 $76.44 17.8% 30.1% 26.9% 3.18%
Westin Atlanta North
(2) $96.30 $78.79 22.2% 30.4% 22.7% 7.64%
Bethesda Marriott
Suites $ 124.21 $122.77 1.2% 26.7% 27.0% (0.35%)
Buckhead SpringHill
Suites $ 74.26 $38.34 93.7% 29.8% 32.6% (2.74%)
Chicago Marriott $ 174.52 $141.95 22.9% 32.7% 26.0% 6.63%
Courtyard Fifth
Avenue $ 215.30 $103.77 107.5% 35.5% (2.3%) 37.80%
Courtyard Midtown
East $ 208.79 $186.25 12.1% 38.5% 34.9% 3.59%
Frenchman's Reef (2) $ 144.25 $131.50 9.7% 16.3% 16.1% 0.16%
Griffin Gate
Marriott $87.02 $82.76 5.1% 25.1% 23.7% 1.38%
Los Angeles Airport $81.89 $80.86 1.3% 20.2% 25.2% (4.99%)
Oak Brook Hills (3) $92.70 $72.51 27.8% 37.0% 24.9% 12.16%
Orlando Airport
Marriott $64.19 $67.44 (4.8%) 19.5% 15.6% 3.93%
Salt Lake City
Marriott $91.14 $89.12 2.3% 24.9% 29.7% (4.78%)
Sonoma Renaissance $ 198.29 $185.62 6.8% 31.4% 26.1% 5.29%
Torrance Marriott $95.32 $86.96 9.6% 25.7% 25.9% (0.23%)
Vail Marriott (2) $ 101.35 $82.97 22.2% 21.4% 10.5% 10.90%
Renaissance
Worthington $ 111.61 $105.20 6.1% 21.2% 14.0% 7.22%
(1) In some cases, DiamondRock was not the owner of the hotel during all
or part of the respective quarter. Data provided is based on the best
currently available data.
(2) The hotel reports results on a monthly basis. The figures presented
are based on the Company's reporting calendar for the third quarter
and include the months of June, July and August.
(3) During 2005, the property was operated on a monthly financial
reporting basis. Therefore, the figures presented for 2005 reflect a
calendar quarter of July 1, 2005 - September 30, 2005.
Hotel Adjusted EBITDA Reconciliation (1)(2)
3rd Quarter 2006
Plus: Plus: Plus: Equals:
Net Non-Cash Hotel
Total Income/ Deprec- Interest Adjust- Adjusted
Revenues (Loss) iation Expense ments (2) EBITDA
Atlanta
Alpharetta $3,527 $729 $331 $- $- $1,061
Westin Atlanta
North (3) $4,767 $890 $556 $- $- $1,447
Bethesda Marriott
Suites $3,660 $(1,549) $664 $355 $1,506 $976
Buckhead SpringHill
Suites $1,529 $187 $269 $- $- $456
Chicago Marriott $24,426 $2,804 $2,344 $3,195 $(365) $7,979
Courtyard Fifth
Avenue $3,386 $(58) $407 $781 $72 $1,202
Courtyard Midtown
East $5,690 $1,161 $491 $536 $- $2,188
Frenchman's
Reef (3) $10,940 $(126) $1,104 $800 $- $1,778
Griffin Gate
Marriott $5,775 $524 $557 $367 $1 $1,449
Los Angeles
Airport $11,517 $198 $1,212 $919 $- $2,329
Oak Brook Hills $7,192 $1,618 $921 $- $125 $2,663
Orlando $3,977 $(984) $1,004 $756 $- $776
Salt Lake City
Marriott $5,670 $300 $627 $484 $- $1,411
Sonoma Renaissance $5,047 $962 $621 $- $- $1,583
Torrance Marriott $5,149 $798 $524 $- $- $1,322
Vail Marriott (3) $5,147 $540 $563 $- $- $1,104
Renaissance
Worthington $7,500 $294 $563 $731 $- $1,588
(1) In some cases, DiamondRock was not the owner of the hotel during all
or part of the respective quarter. Data provided is based on the best
currently available data.
(2) The non-cash adjustments include expenses incurred by the hotels due
to the straight lining of the rent from our ground lease obligations,
the non-cash amortization of our favorable lease asset, and the
non-cash amortization of the unfavorable contract liabilities recorded
in conjunction with the acquisitions of the Bethesda Marriott Suites
and the Chicago Marriott Downtown.
(3) The hotel reports results on a monthly basis. The figures presented
are based on the Company's reporting calendar for the third quarter
and include the months of June, July and August.
Hotel Adjusted EBITDA Reconciliation (1)(2)
3rd Quarter 2005
Plus: Plus: Plus: Equals:
Net Non-Cash Hotel
Total Income/ Deprec- Interest Adjust- Adjusted
Revenues (Loss) iation Expense ments (2) EBITDA
Atlanta Alpharetta $2,911 $453 $330 $- $- $783
Westin Atlanta
North (3) $4,156 $944 $- $- $- $944
Bethesda Marriott
Suites $3,761 $(1,344) $504 $375 $1,480 $1,016
Buckhead SpringHill
Suites $476 $(91) $247 $- $- $155
Chicago Marriott $20,611 $5,366 $- $- $- $5,366
Courtyard Fifth
Avenue $1,639 $(897) $502 $285 $72 $(38)
Courtyard Midtown
East $5,038 $833 $384 $541 $- $1,757
Frenchman's Reef (3) $9,933 $13 $906 $680 $- $1,599
Griffin Gate
Marriott $5,758 $509 $485 $370 $1 $1,365
Los Angeles Airport $11,210 $908 $950 $969 $- $2,827
Oak Brook Hills (4) $5,731 $592 $695 $- $138 $1,426
Orlando (4) $4,471 $(633) $555 $774 $- $696
Salt Lake City
Marriott $5,404 $548 $563 $492 $- $1,603
Sonoma Renaissance $4,600 $794 $405 $- $- $1,199
Torrance Marriott $4,975 $207 $1,081 $- $- $1,288
Vail Marriott (3) $4,229 $(49) $495 $- $- $446
Renaissance
Worthington $6,841 $(126) $412 $669 $- $955
(1) In some cases, DiamondRock was not the owner of the hotel during all
or part of the respective quarter. Data provided is based on the best
currently available data.
(2) The non-cash adjustments include expenses incurred by the hotels due
to the straight lining of the rent from our ground lease obligations,
the non-cash amortization of our favorable lease asset, and the
non-cash amortization of the unfavorable contract liabilities recorded
in conjunction with the acquisitions of the Bethesda Marriott Suites
and the Chicago Marriott Downtown.
(3) The hotel reports results on a monthly basis. The figures presented
are based on the Company's reporting calendar for the third quarter
and include the months of June, July and August.
(4) During 2005, the property was operated on a monthly financial
reporting basis. Therefore, the figures presented for 2005 reflect a
calendar quarter of July 1, 2005 - September 30, 2005.
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