DiamondRock Hospitality Company (NYSE:DRH) today announced results of operations for its third fiscal quarter 2007. The Company is a lodging focused real estate investment trust ("REIT") that owns and acquires premium hotels in North America.
Third Quarter 2007 Highlights
RevPAR: Same-store revenue per available room ("RevPAR") increased 11.5 percent over the comparable period in 2006.
Hotel Adjusted EBITDA Margins: Same-store hotel adjusted earnings before interest expense, taxes, depreciation and amortization ("Adjusted EBITDA") margins increased 245 basis points.
Adjusted EBITDA: The Company's Adjusted EBITDA was $45.8 million.
Adjusted FFO: The Company reported adjusted funds from operations ("Adjusted FFO") of $34.4 million and Adjusted FFO per share of $0.36.
Dividend: The Company declared a quarterly dividend of $0.24 per share during the third quarter.
Bethesda Refinancing: On July 31, 2007, the Company refinanced its $18.4 million fixed-rate mortgage debt on the Bethesda Marriott Suites with a $5.0 million variable-rate mortgage and a draw under its corporate credit facility.
William W. McCarten, chairman and chief executive officer, stated: "DiamondRock had a terrific third quarter as it continued to leverage a very strong travel environment. For the balance of 2007, we continue to see strong fundamentals with constrained supply in urban and resort markets and solid demand from all of our customer segments."
Operating Results
For the third quarter, beginning June 16, 2007 and ended September 7, 2007, the Company reported the following:
Revenues of $168.0 million compared to $114.9 million for the comparable period in 2006.
Adjusted EBITDA of $45.8 million compared to $29.8 million for the comparable period in 2006.
Adjusted FFO and Adjusted FFO per diluted share of $34.4 million and $0.36, respectively, compared to $20.6 million and $0.29, respectively, for the comparable period in 2006.
Net income of $15.9 million (or $0.17 per diluted share) compared to $6.5 million (or $0.09 per diluted share) for the comparable period in 2006.
Same-store RevPAR for the third quarter increased 11.5 percent from $117.23 to $130.68 as compared to the same period in 2006, driven by a 6.4 percent increase in the average daily rate and a 3.6 percentage point increase in occupancy (from 74.3 percent to 77.9 percent). Same-store Hotel Adjusted EBITDA margins for our hotels increased 245 basis points over the same period in the prior year.
The third quarter Adjusted FFO benefited by approximately $1.0 million (or $0.01 per share) from lower income taxes compared with our prior quarterly guidance. However, our full year income tax projections remain unchanged.
Year-to-date, beginning January 1, 2007 and ended September 7, 2007, the Company reported the following:
Revenues of $481.3 million compared to $323.0 million for the comparable period in 2006.
Adjusted EBITDA of $134.4 million compared to $89.1 million for the comparable period in 2006.
Adjusted FFO and Adjusted FFO per diluted share of $98.2 million and $1.05, respectively, compared to $62.9 million and $0.99, respectively, for the comparable period in 2006.
Net income of $43.2 million (or $0.46 per diluted share) compared to $24.7 million (or $0.38 per diluted share) for the comparable period in 2006.
Same-store year-to-date RevPAR increased 10.0 percent from $117.76 to $129.48 as compared to the same period in 2006, driven by a 7.0 percent increase in the average daily rate and a 2.0 percentage point increase in occupancy (from 73.6 percent to 75.6 percent). Year-to-date, same-store Hotel Adjusted EBITDA margins for our hotels increased 173 basis points over the same period in the prior year.
The third quarter and full year results are impacted by the refinancing of the Bethesda Marriott Suites mortgage debt. The refinancing allowed the Company to lower its interest rate on the associated debt. The new mortgage loan has a three-year term, can be repaid at any time without penalty, and bears interest of LIBOR plus 95 basis points. Net income reflects a gain of $0.4 million, which is comprised of the removal of the $2.5 million debt premium offset by the $2.0 million prepayment penalty and the write-off of deferred financing costs of $0.1 million. The reported Adjusted EBITDA and Adjusted FFO amounts exclude the net gain from the refinancing of Bethesda Marriott Suites debt.
Operating Results Compared to Prior Guidance
The following is a chart showing our actual third quarter 2007 results compared to our guidance for the third quarter 2007:
3Q 2007 Guidance Actual 3Q 2007 Results
RevPAR Growth 9% to 10% 11.5 %
Hotel Adjusted EBITDA Margins 150 to 200 basis 245 basis points
points
Adjusted EBITDA $43.5 to $45.5 $45.8 million
million
Adjusted FFO $30.9 to $32.9 $34.4 million
million
Adjusted FFO/Share $0.32 to $0.35 per $0.36 per diluted
diluted share share
Balance Sheet
As of the end of the third quarter, the Company had total assets of approximately $2.1 billion. Cash and cash equivalents were $53.7 million, including $28.0 million of restricted cash.
As of the end of the third quarter, the Company had total debt of approximately $864.0 million, comprised primarily of $825.5 million of property specific mortgages and $38.5 million drawn on our unsecured credit facility. The Company's debt has a weighted average interest rate of 5.7 percent and a weighted average maturity of 7.7 years as of September 7, 2007. Nine of the Company's 21 hotels were unencumbered by mortgage debt as of September 7, 2007.
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 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 RevPAR guidance is presented on a pro forma basis as it assumes that we owned all of our hotels for the comparable prior year periods.
Same-store RevPAR to increase 8 to 10 percent.
Hotel Adjusted EBITDA Margins to increase 150 to 200 basis points.
Adjusted EBITDA of $204 million to $208 million.
Adjusted FFO of $148.6 million to $152.6 million.
Adjusted FFO per share of $1.58 to $1.62, based on 94.3 million diluted weighted average shares.
Based on our current forecast, we expect to be towards the middle of our full year 2007 Adjusted EBITDA and Adjusted FFO guidance. In addition, we currently estimate that 2008 RevPAR growth will be in the 6 to 8 percent range.
Dividends for Third Quarter 2007
On September 18, 2007, a cash dividend of $0.24 per share was paid to shareholders of record as of September 7, 2007, the last day of our fiscal third quarter.
2007 Major Capital Expenditures
We have and continue to make significant capital investments in our hotels. In 2007, we expect to incur approximately $70 to $80 million of capital improvements at our hotels. We incurred $38.5 million of capital projects for the period from January 1, 2007 to September 7, 2007. The status of our most significant projects is as follows:
Chicago Marriott Downtown: The Company is currently completing a $35 million renovation of the hotel. The renovation includes a complete redo of all the meeting rooms and ballrooms, adding 17,000 square feet of new meeting space, reconcepting and relocating the restaurant, expanding the lobby bar and creating a Marriott "great room" in the lobby. The work began during the third quarter of 2007 and will be completed in the first half of 2008. The estimated disruption of approximately $1.5 million to Hotel Adjusted EBITDA, mainly associated with the ballroom renovations, will occur primarily in the first quarter of 2008.
Westin Boston Waterfront: The Company is currently planning the construction of approximately $18 million of improvements to the unfinished shell space attached to the hotel. The improvements include the creation of over 37,000 square feet of meeting/exhibit space. The project will be completed in the first quarter of 2008.
Oak Brook Hills Marriott Resort: The Company completed a significant renovation of the hotel in early 2007. The renovation included the guestrooms and bathrooms, the main ballroom and meeting rooms, the restaurant, lounge and lobby.
Los Angeles Airport Marriott: The Company completed the renovation of 19 suites during the second quarter of 2007 and plans to renovate the breakout meeting rooms in the fourth quarter of 2007.
Griffin Gate: The Company added a spa, repositioned and reconcepted the hotel restaurants as well as added meeting space to the hotel. These projects were completed during the second quarter of 2007.
Westin Atlanta North: The Company completed the renovation of the guestrooms during the third quarter of 2007.
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