DIAMONDROCK HOSPITALITY COMPANY REPORTS FOURTH QUARTER AND FULL YEAR 2021 RESULTS

BETHESDA, Md., Feb. 17, 2022 /PRNewswire/ --DiamondRock Hospitality Company (the "Company") (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 33 premium hotels in the United States, today announced results of operations for the quarter and year ended December 31, 2021.

Fourth Quarter 2021 Highlights

• Net Loss: Net loss was $2.9 million and loss per diluted share was $0.03.
• Comparable Revenues: Comparable total revenues were $196.8 million, which represents a 13.3% decline from the comparable period of 2019.
• Comparable RevPAR: Comparable RevPAR was $158.53, which represents a 12.5% decline from the comparable period of 2019. Comparable ADR increased 7.6% from the comparable period in 2019.
• Comparable Hotel Adjusted EBITDA: Comparable Hotel Adjusted EBITDA was $43.1 million, a 33.1% decline from the comparable period of 2019.
• Adjusted EBITDA: Adjusted EBITDA was $34.4 million.
• Adjusted FFO: Adjusted FFO was $19.1 million and Adjusted FFO per diluted share was $0.09.
• Hotel Acquisition: The Company acquired the Henderson Beach Resort in Destin, Florida for $112.5 million on December 23, 2021.
• Mortgage Loan Extension: The Company executed a one year extension of the mortgage loan secured by the Salt Lake City Marriott, which takes the maturity of this loan to January 2023.

Full Year 2021 Highlights

• Net Loss: Net loss was $195.4 million and loss per diluted share was $0.96.
• Comparable Revenues: Comparable total revenues were $611.7 million, which represents a 33.5% decline from the comparable period of 2019.
• Comparable RevPAR: Comparable RevPAR was $124.74, which represents a 32.6% decline from the comparable period of 2019. Comparable ADR increased 2.4% from the comparable period in 2019.
• Comparable Hotel Adjusted EBITDA: Comparable Hotel Adjusted EBITDA was $129.1 million, a $144.1 million decline from the comparable period of 2019.
• Adjusted EBITDA: Adjusted EBITDA was $83.5 million.
• Adjusted FFO: Adjusted FFO was $26.3 million and Adjusted FFO per diluted share was $0.12.
• Liquidity: The Company ended 2021 with $441.3 million total liquidity. The Company has remained cash flow positive at the hotel level since March 2021.
• Capital Recycling Transactions: Completed six transactions to recycle $220 million from low-yield, encumbered, capital-intensive properties into $293 million of high-quality, unencumbered, independent hotels and resorts.

Recent Developments

• Hotel Acquisition: The Company acquired the Tranquility Bay Beachfront Resort in Marathon, Florida for $63.0 million on January 6, 2022.
• Hotel Brand Conversions: The Company completed the conversion of the Bethesda Marriott Suites to the Embassy Suites by Hilton Bethesda in February 2022. The Company is currently completing renovations to rebrand the JW Marriott Denver Cherry Creek as Hotel Clio, a Luxury Collection Hotel at the end of the first quarter of 2022.
• Loan Amendments: The Company executed further amendments to the credit agreements for its $400 million revolving credit facility and $400 million in unsecured term loans to extend the waiver of financial covenants through the first quarter of 2022 and the modification of certain financial covenants through the second quarter of 2023.

"The results for 2021 far exceeded our original expectations with Comparable Total RevPAR within 1.5% of 2019 levels in December. Our strategic decision over 7 years ago to pivot to destination resorts and lifestyle hotels has paid off as those properties have collectively exceeded prior peak revenues from robust leisure demand. Gateway hotels improved as well but due to restraints on corporate travel their best days lie ahead. Forward bookings into 2022 were strong, although the Omicron variant likely delayed the emerging business and group recovery by a few months," said Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company. "We are particularly proud of the $500 million in transformative real estate transactions completed over the last year. These transactions are expected to add an incremental $20 million of Hotel Adjusted EBITDA in 2022 and continue to build the Company's resort and urban lifestyle hotel portfolio, which now comprises over 60% of the Company's hotels."

Operating Results

Please see "Non-GAAP Financial Measures" attached to this press release for an explanation of the terms "EBITDAre," "Adjusted EBITDA," "Hotel Adjusted EBITDA," "Hotel Adjusted EBITDA Margin," "FFO" and "Adjusted FFO" and a reconciliation of these measures to net income. Comparable operating results include our 2021 acquisitions and exclude our 2021 dispositions for all periods presented. See "Reconciliation of Comparable Operating Results" attached to this press release for a reconciliation to historical amounts.

The following tables provide comparable monthly operating information for the year ended December 31, 2021(1):

As a result of the spike in COVID-19 cases from the Omicron variant, we expect the change in total revenues and Hotel Adjusted EBITDA margins as compared to 2019 will be softer in the first quarter of 2022 than in the fourth quarter of 2021. Preliminary January 2022 total revenues are expected to be up 126% compared to January 2021 and down approximately 23% compared to January 2019. January 2022 ADR is expected to be higher than 2019 by approximately 20%, but is offset by a 22-point decrease in occupancy due to the impact on demand from Omicron. The monthly sequential comparison to 2019 for portfolio total revenue is expected to increase for the balance of the first quarter 2022.

Hotel Acquisitions

The Company completed four acquisitions during 2021 and early 2022, which have shifted the Company's portfolio to almost two-thirds leisure-oriented hotels and resorts.

• Bourbon Orleans Hotel (New Orleans, Louisiana): This 220-room independent boutique lifestyle hotel, located at the heart of the French Quarter, was acquired in July 2021 for $89.9 million or a 7.0% capitalization rate on 2019 hotel net operating income ("NOI").
• Henderson Park Inn (Destin, Florida): This 37-room beachfront resort Henderson Park Inn was acquired in July 2021 for $27.5 million. The resort has exceeded the Company's initial underwriting and generated a 9.0% yield on 2021 hotel NOI.
• Henderson Beach Resort (Destin, Florida): This 170-room recently constructed luxury oceanfront resort was purchased in December 2021 for $112.5 million. The purchase price represents a 6.4% yield on 2021 hotel NOI and is expected to stabilize above an 8.0% yield.
• Tranquility Bay Beachfront Resort (Marathon, Florida): This 103-unit luxury beachfront resort was purchased in January 2022 for $63.0 million. The resort has a total of 231 bedrooms in 87 two-bedroom and three-bedroom beach houses, as well as 16 tropical garden guest rooms. The purchase price represents an 11.6% yield on 2021 hotel NOI.

Loan Amendments

On December 27, 2021, the Company extended its only near-term debt maturity, the mortgage loan secured by the Salt Lake City Marriott, to January 2023.

On February 4, 2022, the Company further amended the credit agreements for its $400 million revolving credit facility and $400 million in unsecured term loans to extend the waiver period for the testing of financial covenants from December 31, 2021 to March 31, 2022, unless terminated early at the Company's option. The amendments also extend the modification of certain financial covenants, once quarterly testing resumes, to June 30, 2023. The amendments also provide the Company with the ability to acquire up to $550 million of unencumbered properties upon certain conditions.

Capital Expenditures

The Company invested approximately $44.5 million on capital improvements at its hotels during the year ended December 31, 2021. In addition, the Company spent approximately $2.7 million on the rebuild of Frenchman's Reef during the year ended December 31, 2021, but has no further obligation to fund any additional amounts related to the rebuild following the sale of the property on April 30, 2021. Significant projects in 2021 include the following:

• The Lodge at Sonoma: The Company completed a renovation to reposition and rebrand the hotel to an Autograph Collection Hotel in July of 2021. The renovation includes a new restaurant by celebrity chef Michael Mina.
• The Hythe Vail, a Luxury Collection Resort: The Company completed the final phase of a multi-year renovation to rebrand the Vail Marriott Mountain Resort as The Hythe Vail, a Luxury Collection Resort, in the fourth quarter of 2021.
• Margaritaville Beach House Key West: The Company converted the Barbary Beach House Key West to the Margaritaville Beach Resort Key West in the fourth quarter of 2021.

The Company expects to spend approximately $100 million on capital improvements at its hotels in 2022, which includes the completion of certain projects that commenced in 2021. Significant projects in 2022 include the following:

• JW Marriott Denver Cherry Creek: The Company is completing renovations to rebrand the hotel as Hotel Clio, a Luxury Collection Hotel at the end of the first quarter of 2022.
• Hilton Boston Downtown/Faneuil Hall: The Company expects to commence a comprehensive renovation and repositioning of the hotel commencing in the fourth quarter of 2022. The hotel's franchise agreement expires in 2023.
• Orchards Inn Sedona: The Company expects to commence the first phase of the upgrade renovation of the resort in mid-2022.
• Hilton Burlington Lake Champlain: The Company expects to complete a renovation of the hotel to rebrand it as a Curio Collection Hotel in late 2022. The renovation is expected to include a new restaurant concept by a local renowned chef.

Balance Sheet and Liquidity

As of December 31, 2021, the Company's liquidity was $441.3 million, comprised of $38.6 million of unrestricted corporate cash, $92.7 million of unrestricted cash at its hotels and $310.0 million of capacity on its senior unsecured credit facility. As of December 31, 2021, the Company had $1.1 billion of total debt outstanding, which consisted of $580.5 million of property-specific, non-recourse mortgage debt, $400.0 million of unsecured term loans and $90.0 million of outstanding borrowings on its $400.0 million senior unsecured credit facility. Subsequent to December 31, 2021, the Company drew an additional $70.0 million on its senior unsecured credit facility to fund the Tranquility Bay Beachfront Resort acquisition.

Dividends

The Company declared a quarterly dividend of $0.515625 per share on its 8.250% Series A Cumulative Redeemable Preferred Stock to shareholders of record as of December 20, 2021. This dividend was paid on December 31, 2021. The Company has suspended its quarterly common stock cash dividends. The resumption in quarterly common dividends will be determined by the Company's Board of Directors after considering the Company's obligations under its various financing agreements, projected taxable income, compliance with its debt covenants, long-term operating projections, expected capital requirements and risks affecting the Company's business.

Earnings Call

The Company will host a conference call to discuss its fourth quarter and full year results on Friday, February 18, 2022, at 9:00 a.m. Eastern Time (ET). To participate in the live call, investors are invited to dial 844-287-6622 (for domestic callers) or 530-379-4559 (for international callers). The participant passcode is 6819388. A live webcast of the call will be available via the investor relations section of DiamondRock Hospitality Company's website at www.drhc.com or www.earnings.com. For those unable to listen to the call live, a taped rebroadcast will be available two hours after completion of the live call through March 11, 2022. To access the rebroadcast, dial 855-859-2056, or internationally at 404-537-3406, and use conference ID 6819388. A replay of the webcast will also be archived on the website for one week.

About the Company

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in leisure destinations and top gateway markets. The Company currently owns 33 premium quality hotels with over 9,400 rooms. The Company has strategically positioned its hotels to be operated both under leading global brand families as well as unique boutique hotels in the lifestyle segment. For further information on the Company and its portfolio, please visit DiamondRock Hospitality Company's website at 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 "believe," "expect," "intend," "project," "forecast," "plan" 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: the adverse impact of the novel coronavirus (COVID-19) on the U.S., regional and global economies, travel, the hospitality industry, and the financial condition and results of operations of the Company and its hotels; national and local economic and business conditions, including the potential for additional terrorist attacks, that will affect occupancy rates at the Company's hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the Company's indebtedness and its ability to obtain covenant waivers on its credit agreements for its senior unsecured credit facility and unsecured term loans; relationships with property managers; the 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; and other risk factors contained in the Company's filings with the Securities and Exchange Commission. Although the Company believes 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 the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Non-GAAP Financial Measures

We use the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with U.S. GAAP. EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO, as calculated by us, may not be comparable to other companies that do not define such terms exactly as the Company.

Use and Limitations of Non-GAAP Financial Measures

Our management and Board of Directors use EBITDA, EBITDAre, Adjusted EBITDA, Hotel EBITDA, Hotel Adjusted EBITDA, FFO and Adjusted FFO to evaluate the performance of our hotels and to facilitate comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital intensive companies. The use of these non-GAAP financial measures has certain limitations. These non-GAAP financial measures as presented by us, may not be comparable to non-GAAP financial measures as calculated by other real estate companies. These measures do not reflect certain expenses or expenditures that we incurred and will incur, such as depreciation, interest and capital expenditures. We compensate for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our reconciliations to the most comparable U.S. GAAP financial measures, and our consolidated statements of operations and cash flows, include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures.

These non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with U.S. GAAP. They should not be considered as alternatives to operating profit, cash flow from operations, or any other operating performance measure prescribed by U.S. GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our U.S. GAAP results and the reconciliations to the corresponding U.S. GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

EBITDA, EBITDAre and FFO

EBITDA represents net income (calculated in accordance with U.S. GAAP) excluding: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; and (3) depreciation and amortization. The Company computes EBITDAre in accordance with the National Association of Real Estate Investment Trusts ("Nareit") guidelines, as defined in its September 2017 white paper "Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate." EBITDAre represents net income (calculated in accordance with U.S. GAAP) adjusted for: (1) interest expense; (2) provision for income taxes, including income taxes applicable to sale of assets; (3) depreciation and amortization; (4) gains or losses on the disposition of depreciated property including gains or losses on change of control; (5) impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate; and (6) adjustments to reflect the entity's share of EBITDAre of unconsolidated affiliates.

We believe EBITDA and EBITDAre are useful to an investor in evaluating our operating performance because they help 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, and in the case of EBITDAre, impairment and gains or losses on dispositions of depreciated property) from our operating results. In addition, covenants included in our debt agreements use EBITDA as a measure of financial compliance. We also use EBITDA and EBITDAre as measures in determining the value of hotel acquisitions and dispositions.

The Company computes FFO in accordance with standards established by the Nareit, which defines FFO as net income determined in accordance with U.S. GAAP, excluding gains or losses from sales of properties and impairment losses, plus real estate related depreciation and amortization. The Company believes that the presentation of FFO provides useful information to investors regarding its operating performance because it is a measure of the Company's operations without regard to specified non-cash items, such as real estate related depreciation and amortization and gains or losses on the sale of assets. The Company also uses FFO as one measure in assessing its operating results.

Hotel EBITDA

Hotel EBITDA represents net income excluding: (1) interest expense, (2) income taxes, (3) depreciation and amortization, (4) corporate general and administrative expenses (shown as corporate expenses on the consolidated statements of operations), and (5) hotel acquisition costs. We believe that Hotel EBITDA provides our investors a useful financial measure to evaluate our hotel operating performance, excluding the impact of our capital structure (primarily interest), our asset base (primarily depreciation and amortization), and our corporate-level expenses (corporate expenses and hotel acquisition costs). With respect to Hotel EBITDA, we believe that excluding the effect of corporate-level expenses provides a more complete understanding of the operating results over which individual hotels and third-party management companies have direct control. We believe property-level results provide investors with supplemental information on the ongoing operational performance of our hotels and effectiveness of the third-party management companies operating our business on a property-level basis.

Adjustments to EBITDAre, FFO and Hotel EBITDA

We adjust EBITDAre, FFO and Hotel EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, Adjusted FFO and Hotel Adjusted EBITDA when combined with U.S. GAAP net income, EBITDAre, FFO and Hotel EBITDA, is beneficial to an investor's complete understanding of our consolidated and property-level operating performance. Hotel Adjusted EBITDA margins are calculated as Hotel Adjusted EBITDA divided by total hotel revenues. We adjust EBITDAre, FFO and Hotel EBITDA for the following items:

• Non-Cash Lease Expense and Other Amortization: We exclude the non-cash expense incurred from the straight line recognition of expense from our ground leases and other contractual obligations and the non-cash amortization of our favorable and unfavorable contracts, originally recorded in conjunction with certain hotel acquisitions. We exclude these non-cash items because they do not reflect the actual cash amounts due to the respective lessors and service providers in the current period and they are of lesser significance in evaluating our actual performance for that period.
• Cumulative Effect of a Change in Accounting Principle: The Financial Accounting Standards Board promulgates new accounting standards that require or permit the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude the effect of these adjustments, which include the accounting impact from prior periods, because they do not reflect the Company's actual underlying performance for the current period.
• Gains or Losses from Early Extinguishment of Debt: We exclude the effect of gains or losses recorded on the early extinguishment of debt because these gains or losses result from transaction activity related to the Company's capital structure that we believe are not indicative of the ongoing operating performance of the Company or our hotels.
• Hotel Acquisition Costs: We exclude hotel acquisition costs expensed during the period because we believe these transaction costs are not reflective of the ongoing performance of the Company or our hotels.
• Severance Costs: We exclude corporate severance costs, or reversals thereof, incurred with the termination of corporate-level employees and severance costs incurred at our hotels related to lease terminations or structured severance programs because we believe these costs do not reflect the ongoing performance of the Company or our hotels.
• Hotel Manager Transition Items: We exclude the transition items associated with a change in hotel manager because we believe these items do not reflect the ongoing performance of the Company or our hotels.
• Other Items: From time to time we incur costs or realize gains that we consider outside the ordinary course of business and that we do not believe reflect the ongoing performance of the Company or our hotels. Such items may include, but are not limited to, the following: pre-opening costs incurred with newly developed hotels; lease preparation costs incurred to prepare vacant space for marketing; management or franchise contract termination fees; gains or losses from legal settlements; costs incurred related to natural disasters; and gains on property insurance claim settlements, other than income related to business interruption insurance.

In addition, to derive Adjusted FFO we exclude any fair value adjustments to interest rate swaps. We exclude these non-cash amounts because they do not reflect the underlying performance of the Company.

Reconciliations of Non-GAAP Measures

EBITDA, EBITDAre and Adjusted EBITDA

The following tables are reconciliations of our GAAP net income to EBITDA, EBITDAre and Adjusted EBITDA (in thousands):

Hotel EBITDA and Hotel Adjusted EBITDA

The following table is a reconciliation of our GAAP net income to Hotel EBITDA and Hotel Adjusted EBITDA (in thousands):

FFO and Adjusted FFO

The following tables are reconciliations of our GAAP net income to FFO and Adjusted FFO (in thousands):

Reconciliation of Comparable Operating Results

The following presents the revenues, Hotel Adjusted EBITDA and Hotel Adjusted EBITDA Margin together with comparable prior year results, which excludes the results for our 2021 dispositions (in thousands):

Selected Quarterly Comparable Operating Information

The following tables are presented to provide investors with selected quarterly comparable operating information. The operating information includes historical quarterly operating results for our 33-hotel portfolio owned as of the date of this press release.

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SOURCE DiamondRock Hospitality Company