Maryland | 20-1180098 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
2 Bethesda Metro Center, Suite 1400, Bethesda, Maryland | 20814 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
Emerging growth company o |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, $0.01 par value per share | DRH | New York Stock Exchange |
Page No. | |
Item I. | Financial Statements |
March 31, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
Property and equipment, net | $ | 2,942,350 | $ | 2,944,617 | |||
Right-of-use assets | 99,316 | — | |||||
Favorable lease assets, net | — | 63,945 | |||||
Restricted cash | 46,855 | 47,735 | |||||
Due from hotel managers | 99,959 | 86,914 | |||||
Prepaid and other assets | 15,880 | 10,506 | |||||
Cash and cash equivalents | 36,523 | 43,863 | |||||
Total assets | $ | 3,240,883 | $ | 3,197,580 | |||
LIABILITIES AND EQUITY | |||||||
Liabilities: | |||||||
Mortgage and other debt, net of unamortized debt issuance costs | $ | 626,553 | $ | 629,747 | |||
Term loans, net of unamortized debt issuance costs | 348,354 | 348,219 | |||||
Senior unsecured credit facility | 60,000 | — | |||||
Total debt | 1,034,907 | 977,966 | |||||
Deferred income related to key money, net | 11,640 | 11,739 | |||||
Unfavorable contract liabilities, net | 69,231 | 73,151 | |||||
Deferred rent | 48,539 | 93,719 | |||||
Due to hotel managers | 78,373 | 72,678 | |||||
Distributions declared and unpaid | 25,734 | 26,339 | |||||
Lease liabilities | 101,801 | — | |||||
Accounts payable and accrued expenses | 40,716 | 51,395 | |||||
Total liabilities | 1,410,941 | 1,306,987 | |||||
Equity: | |||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||
Common stock, $0.01 par value; 400,000,000 shares authorized; 201,448,479 and 204,536,485 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 2,015 | 2,045 | |||||
Additional paid-in capital | 2,097,691 | 2,126,472 | |||||
Accumulated deficit | (277,444 | ) | (245,620 | ) | |||
Total stockholders’ equity | 1,822,262 | 1,882,897 | |||||
Noncontrolling interests | 7,680 | 7,696 | |||||
Total equity | 1,829,942 | 1,890,593 | |||||
Total liabilities and equity | $ | 3,240,883 | $ | 3,197,580 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Revenues: | |||||||
Rooms | $ | 136,653 | $ | 128,978 | |||
Food and beverage | 50,465 | 40,792 | |||||
Other | 15,257 | 11,760 | |||||
Total revenues | 202,375 | 181,530 | |||||
Operating Expenses: | |||||||
Rooms | 38,819 | 35,600 | |||||
Food and beverage | 33,150 | 27,454 | |||||
Management fees | 5,340 | 2,833 | |||||
Franchise fees | 5,859 | 5,903 | |||||
Other hotel expenses | 75,479 | 67,560 | |||||
Depreciation and amortization | 28,996 | 24,902 | |||||
Corporate expenses | 7,064 | 9,786 | |||||
Business interruption insurance income | (8,822 | ) | (6,027 | ) | |||
Total operating expenses, net | 185,885 | 168,011 | |||||
Interest and other income, net | (303 | ) | (511 | ) | |||
Interest expense | 11,662 | 9,877 | |||||
Total other expenses, net | 11,359 | 9,366 | |||||
Income before income taxes | 5,131 | 4,153 | |||||
Income tax benefit | 3,849 | 185 | |||||
Net income | 8,980 | 4,338 | |||||
Less: Net income attributable to noncontrolling interests | (35 | ) | — | ||||
Net income attributable to common stockholders | $ | 8,945 | $ | 4,338 | |||
Earnings per share: | |||||||
Basic earnings per share | $ | 0.04 | $ | 0.02 | |||
Diluted earnings per share | $ | 0.04 | $ | 0.02 |
Common Stock | ||||||||||||||||||||||||||
Shares | Par Value | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||
Balance at December 31, 2018 | 204,536,485 | $ | 2,045 | $ | 2,126,472 | $ | (245,620 | ) | $ | 1,882,897 | $ | 7,696 | $ | 1,890,593 | ||||||||||||
Cumulative effect of ASC 842 adoption | — | — | — | (15,286 | ) | (15,286 | ) | — | (15,286 | ) | ||||||||||||||||
Dividends and distributions ($0.125 per common share/unit) | — | — | 113 | (25,483 | ) | (25,370 | ) | (134 | ) | (25,504 | ) | |||||||||||||||
Share-based compensation | 55,916 | 1 | 1,073 | — | 1,074 | 83 | 1,157 | |||||||||||||||||||
Common stock repurchased and retired | (3,143,922 | ) | (31 | ) | (29,967 | ) | — | (29,998 | ) | — | (29,998 | ) | ||||||||||||||
Net income | — | — | — | 8,945 | 8,945 | 35 | 8,980 | |||||||||||||||||||
Balance at March 31, 2019 | 201,448,479 | $ | 2,015 | $ | 2,097,691 | $ | (277,444 | ) | $ | 1,822,262 | $ | 7,680 | $ | 1,829,942 |
Balance at December 31, 2017 | 200,306,733 | $ | 2,003 | $ | 2,061,451 | $ | (229,809 | ) | $ | 1,833,645 | $ | — | $ | 1,833,645 | ||||||||||||
Distributions on common stock/units ($0.125 per share/unit) | — | — | 111 | (25,370 | ) | (25,259 | ) | — | (25,259 | ) | ||||||||||||||||
Share-based compensation | 25,309 | — | 2,279 | — | 2,279 | — | 2,279 | |||||||||||||||||||
Sale of common stock | 230,719 | 3 | 2,743 | — | 2,746 | — | 2,746 | |||||||||||||||||||
Net income | — | — | — | 4,338 | 4,338 | — | 4,338 | |||||||||||||||||||
Balance at March 31, 2018 | 200,562,761 | $ | 2,006 | $ | 2,066,584 | $ | (250,841 | ) | $ | 1,817,749 | $ | — | $ | 1,817,749 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 8,980 | $ | 4,338 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 28,996 | 24,902 | |||||
Corporate asset depreciation as corporate expenses | 55 | 52 | |||||
Non-cash lease expense and other amortization | 1,715 | 1,057 | |||||
Non-cash interest rate swap fair value adjustment | 572 | — | |||||
Amortization of debt issuance costs | 482 | 461 | |||||
Amortization of deferred income related to key money | (99 | ) | (2,271 | ) | |||
Stock-based compensation | 1,454 | 2,458 | |||||
Changes in assets and liabilities: | |||||||
Prepaid expenses and other assets | (5,445 | ) | 13,937 | ||||
Due to/from hotel managers | (6,850 | ) | (5,888 | ) | |||
Accounts payable and accrued expenses | (7,998 | ) | (5,441 | ) | |||
Net cash provided by operating activities | 21,862 | 33,605 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures for operating hotels | (21,081 | ) | (25,823 | ) | |||
Capital expenditures for Frenchman's Reef | (9,208 | ) | — | ||||
Hotel acquisitions | — | (119,049 | ) | ||||
Proceeds from property insurance | — | 21,219 | |||||
Net used in investing activities | (30,289 | ) | (123,653 | ) | |||
Cash flows from financing activities: | |||||||
Scheduled mortgage debt principal payments | (3,389 | ) | (3,442 | ) | |||
Proceeds from sale of common stock, net | — | 2,746 | |||||
Draws on senior unsecured credit facility | 60,000 | 65,000 | |||||
Repayments of senior unsecured credit facility | — | (65,000 | ) | ||||
Distributions to common stock and units | (26,110 | ) | (25,362 | ) | |||
Repurchase of common stock | (29,998 | ) | — | ||||
Shares redeemed to satisfy tax withholdings on vested share based compensation | (296 | ) | (180 | ) | |||
Net cash provided by (used in) financing activities | 207 | (26,238 | ) | ||||
Net decrease in cash, cash equivalents, and restricted cash | (8,220 | ) | (116,286 | ) | |||
Cash, cash equivalents, and restricted cash at beginning of period | 91,598 | 223,773 | |||||
Cash, cash equivalents, and restricted cash at end of period | $ | 83,378 | $ | 107,487 |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Cash paid for interest | $ | 10,122 | $ | 9,158 | |||
Cash paid for income taxes | $ | 20 | $ | 86 | |||
Capitalized interest | $ | 152 | $ | — | |||
Non-cash cumulative effect of ASC 842 accounting standard adoption | $ | 15,286 | $ | — | |||
Non-cash Investing and Financing Activities: | |||||||
Unpaid dividends and distributions | $ | 25,734 | $ | 25,605 | |||
Loan assumed in hotel acquisition | $ | — | $ | 2,943 |
March 31, 2019 | December 31, 2018 | ||||||
Cash and cash equivalents | $ | 36,523 | $ | 43,863 | |||
Restricted cash (1) | 46,855 | 47,735 | |||||
Total cash, cash equivalents, and restricted cash | $ | 83,378 | $ | 91,598 |
(1) | Restricted cash primarily consists of reserves for replacement of furniture and fixtures held by our hotel managers and cash held in escrow pursuant to lender requirements. |
1. | Organization |
2. | Summary of Significant Accounting Policies |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Frenchman's Reef | $ | 8,822 | $ | 5,285 | |||
Havana Cabana Key West | — | 212 | |||||
The Lodge at Sonoma | — | 530 | |||||
Total | $ | 8,822 | $ | 6,027 |
3. | Property and Equipment |
March 31, 2019 | December 31, 2018 | ||||||
Land | $ | 617,695 | $ | 617,695 | |||
Land improvements | 7,994 | 7,994 | |||||
Buildings and site improvements | 2,698,771 | 2,682,320 | |||||
Furniture, fixtures and equipment | 502,265 | 491,421 | |||||
Construction in progress | 38,112 | 38,623 | |||||
3,864,837 | 3,838,053 | ||||||
Less: accumulated depreciation | (922,487 | ) | (893,436 | ) | |||
$ | 2,942,350 | $ | 2,944,617 |
Three Months Ended March 31, 2019 | ||||
Operating lease cost | $ | 2,751 | ||
Variable lease payments | $ | 337 | ||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 788 |
Year Ending December 31, | As of March 31, 2019 | |||
2019 (excluding the three months ended March 31, 2019) | $ | 2,455 | ||
2020 | 3,320 | |||
2021 | 4,805 | |||
2022 | 3,940 | |||
2023 | 3,997 | |||
Thereafter | 763,074 | |||
Total lease payments | 781,591 | |||
Less imputed interest | (679,790 | ) | ||
Total lease liabilities | $ | 101,801 |
Year Ending December 31, | As of December 31, 2018 | |||
2019 | $ | 5,232 | ||
2020 | 4,866 | |||
2021 | 6,132 | |||
2022 | 5,122 | |||
2023 | 5,096 | |||
Thereafter | 636,770 | |||
$ | 663,218 |
Payment Date | Record Date | Dividend per Share | ||||
January 14, 2019 | January 4, 2019 | $ | 0.125 | |||
April 12, 2019 | March 29, 2019 | $ | 0.125 |
Number of Shares | Weighted- Average Grant Date Fair Value | |||||
Unvested balance at January 1, 2019 | 641,844 | $ | 10.25 | |||
Granted | 73,240 | 10.65 | ||||
Vested | (300,575 | ) | 10.07 | |||
Unvested balance at March 31, 2019 | 414,509 | $ | 10.41 |
Number of Target Units | Weighted- Average Grant Date Fair Value | |||||
Unvested balance at January 1, 2019 | 781,923 | $ | 11.19 | |||
Granted | 296,050 | 10.14 | ||||
Additional units from dividends | 10,801 | 9.05 | ||||
Vested (1) | (251,375 | ) | 8.80 | |||
Unvested balance at March 31, 2019 | 837,399 | $ | 10.28 |
(1) | The number of shares of common stock earned for the PSUs vested in 2019 was equal to 74.33% of the PSU Target Award. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Numerator: | |||||||
Net income attributable to common stockholders | $ | 8,945 | $ | 4,338 | |||
Dividends declared on unvested share-based compensation | (35 | ) | — | ||||
Net income available to common stockholders | $ | 8,910 | $ | 4,338 | |||
Denominator: | |||||||
Weighted-average number of common shares outstanding—basic | 202,817,124 | 201,145,014 | |||||
Effect of dilutive securities: | |||||||
Unvested restricted common stock | 49,761 | 294,613 | |||||
Shares related to unvested PSUs | 670,944 | 336,205 | |||||
Weighted-average number of common shares outstanding—diluted | 203,537,829 | 201,775,832 | |||||
Earnings per share: | |||||||
Net income per share available to common stockholders—basic | $ | 0.04 | $ | 0.02 | |||
Diluted earnings per share available to common stockholders—diluted | $ | 0.04 | $ | 0.02 |
Principal Balance as of | ||||||||||||
Loan | Interest Rate | Maturity Date | March 31, 2019 | December 31, 2018 | ||||||||
Salt Lake City Marriott Downtown mortgage loan | 4.25% | November 2020 | $ | 54,733 | $ | 55,032 | ||||||
Westin Washington D.C. City Center mortgage loan | 3.99% | January 2023 | 62,188 | 62,734 | ||||||||
The Lodge at Sonoma, a Renaissance Resort & Spa mortgage loan | 3.96% | April 2023 | 27,517 | 27,633 | ||||||||
Westin San Diego mortgage loan | 3.94% | April 2023 | 62,999 | 63,385 | ||||||||
Courtyard Manhattan / Midtown East mortgage loan | 4.40% | August 2024 | 82,236 | 82,620 | ||||||||
Renaissance Worthington mortgage loan | 3.66% | May 2025 | 82,126 | 82,540 | ||||||||
JW Marriott Denver at Cherry Creek mortgage loan | 4.33% | July 2025 | 62,117 | 62,411 | ||||||||
Boston Westin mortgage loan | 4.36% | November 2025 | 193,517 | 194,466 | ||||||||
New Market Tax Credit loan (1) | 5.17% | December 2020 | 2,943 | 2,943 | ||||||||
Unamortized debt issuance costs | (3,823 | ) | (4,017 | ) | ||||||||
Total mortgage and other debt, net of unamortized debt issuance costs | 626,553 | 629,747 | ||||||||||
Unsecured term loan | LIBOR + 1.45% (2) | May 2021 | 100,000 | 100,000 | ||||||||
Unsecured term loan | LIBOR + 1.45% (2) | April 2022 | 200,000 | 200,000 | ||||||||
Unsecured term loan | LIBOR + 1.45% (3) | October 2023 | 50,000 | 50,000 | ||||||||
Unamortized debt issuance costs | (1,646 | ) | (1,781 | ) | ||||||||
Unsecured term loans, net of unamortized debt issuance costs | 348,354 | 348,219 | ||||||||||
Senior unsecured credit facility | LIBOR + 1.50% (4) | May 2020 (5) | 60,000 | — | ||||||||
Total debt, net of unamortized debt issuance costs | $ | 1,034,907 | $ | 977,966 | ||||||||
Weighted-Average Interest Rate | 4.13% |
(1) | Assumed in connection with the acquisition of the Hotel Palomar Phoenix in March 2018. |
(2) | The interest rate at March 31, 2019 was 3.94%. |
(3) | The interest rate at March 31, 2019 was 3.86%. We entered into an interest rate swap agreement in January 2019 to fix LIBOR at 2.41% through October 2023. |
(4) | The interest rate at March 31, 2019 was 3.99%. |
(5) | The credit facility may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions. |
Leverage Ratio | Applicable Margin | ||
Less than or equal to 35% | 1.50 | % | |
Greater than 35% but less than or equal to 45% | 1.65 | % | |
Greater than 45% but less than or equal to 50% | 1.80 | % | |
Greater than 50% but less than or equal to 55% | 2.00 | % | |
Greater than 55% | 2.25 | % |
Actual at | |||
Covenant | March 31, 2019 | ||
Maximum leverage ratio (1) | 60% | 29.1% | |
Minimum fixed charge coverage ratio (2) | 1.50x | 4.13x | |
Minimum tangible net worth (3) | $1.98 billion | $2.75 billion | |
Secured recourse indebtedness | Less than 45% of Total Asset Value | 18.6% |
(1) | Leverage ratio is net indebtedness, as defined in the credit agreement, divided by total asset value, defined in the credit agreement as the value of our owned hotels based on hotel net operating income divided by a defined capitalization rate. |
(2) | Fixed charge coverage ratio is Adjusted EBITDA, generally defined in the credit agreement as EBITDA less FF&E reserves, for the most recently ending 12 months, to fixed charges, which is defined in the credit agreement as interest expense, all regularly scheduled principal payments and payments on capitalized lease obligations, for the same most recently ending 12-month period. |
(3) | Tangible net worth, as defined in the credit agreement, is (i) total gross book value of all assets, exclusive of depreciation and amortization, less intangible assets, total indebtedness, and all other liabilities, plus (ii) 75% of net proceeds from future equity issuances. |
Applicable Margins | ||||||
Leverage Ratio | $100 Million and $200 Million Term Loans | $50 Million Term Loan | ||||
Less than or equal to 25% | 1.45 | % | 1.40 | % | ||
Greater than 25% but less than or equal to 35% | 1.45 | % | 1.45 | % | ||
Greater than 35% but less than or equal to 45% | 1.60 | % | 1.55 | % | ||
Greater than 45% but less than or equal to 50% | 1.75 | % | 1.75 | % | ||
Greater than 50% but less than or equal to 55% | 1.95 | % | 1.95 | % | ||
Greater than 55% | 2.20 | % | 2.20 | % |
March 31, 2019 | December 31, 2018 | ||||||||||||||
Carrying Amount (1) | Fair Value | Carrying Amount (1) | Fair Value | ||||||||||||
Debt | $ | 1,034,907 | $ | 1,027,913 | $ | 977,966 | $ | 960,447 | |||||||
Interest rate swap agreements | $ | 572 | $ | 572 | $ | — | $ | — |
(1) | The carrying amount of debt is net of unamortized debt issuance costs. |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | negative changes in the economy, including, but not limited to, a reversal of current job growth trends, an increase in unemployment or a decrease in corporate earnings and investment; |
• | increased competition in the lodging industry and from alternative lodging channels or third party internet intermediaries in the markets in which we own properties; |
• | failure to effectively execute our long-term business strategy and successfully identify and complete acquisitions; |
• | risks and uncertainties affecting hotel renovations and management (including, without limitation, construction delays, increased construction costs, disruption in hotel operations and the risks associated with our franchise agreements); |
• | risks associated with the availability and terms of financing and the use of debt to fund acquisitions and renovations or refinance existing indebtedness, including the impact of higher interest rates on the cost and/or availability of financing; |
• | risks associated with the lodging industry overall, including, without limitation, an increase in alternative lodging channels, decreases in the frequency of business travel and increases in operating costs; |
• | risks associated with natural disasters; |
• | estimated costs and duration of renovation or restoration projects and estimated insurance recoveries; |
• | costs of compliance with government regulations, including, without limitation, the Americans with Disabilities Act; |
• | potential liability for uninsured losses and environmental contamination; |
• | risks associated with security breaches through cyber-attacks or otherwise, as well as other significant disruptions of our information technologies and systems, which support our operations and our hotel managers; |
• | risks associated with our potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended; |
• | possible adverse changes in tax and environmental laws; and |
• | risks associated with our dependence on key personnel whose continued service is not guaranteed. |
• | Occupancy percentage; |
• | Average Daily Rate (or ADR); |
• | Revenue per Available Room (or RevPAR); |
• | Earnings Before Interest, Income Taxes, Depreciation and Amortization (or EBITDA), Earnings Before Interest, Income Taxes, Depreciation and Amortization for real estate (or EBITDAre), and Adjusted EBITDA; and |
• | Funds From Operations (or FFO) and Adjusted FFO. |
Property (1) | Location | Number of Rooms | Occupancy (%) | ADR($) | RevPAR($) | % Change from 2018 RevPAR (2) | |||||||||||||
Chicago Marriott Downtown | Chicago, Illinois | 1,200 | 51.7 | % | $ | 158.35 | $ | 81.79 | 0.9 | % | |||||||||
Westin Boston Waterfront Hotel | Boston, Massachusetts | 793 | 65.5 | % | 202.24 | 132.39 | (0.4 | )% | |||||||||||
Lexington Hotel New York | New York, New York | 725 | 80.1 | % | 192.38 | 154.04 | (0.5 | )% | |||||||||||
Salt Lake City Marriott Downtown | Salt Lake City, Utah | 510 | 59.2 | % | 173.62 | 102.73 | (20.6 | )% | |||||||||||
Renaissance Worthington | Fort Worth, Texas | 504 | 79.4 | % | 188.12 | 149.42 | (0.2 | )% | |||||||||||
Westin San Diego | San Diego, California | 436 | 77.5 | % | 189.85 | 147.20 | (2.2 | )% | |||||||||||
Westin Fort Lauderdale Beach Resort | Fort Lauderdale, Florida | 432 | 95.5 | % | 254.27 | 242.76 | 0.3 | % | |||||||||||
Westin Washington, D.C. City Center | Washington, D.C. | 410 | 77.5 | % | 201.14 | 155.88 | (4.9 | )% | |||||||||||
Hilton Boston Downtown | Boston, Massachusetts | 403 | 83.5 | % | 197.84 | 165.25 | 3.9 | % | |||||||||||
Vail Marriott Mountain Resort & Spa | Vail, Colorado | 344 | 82.4 | % | 440.49 | 362.79 | 1.2 | % | |||||||||||
Marriott Atlanta Alpharetta | Atlanta, Georgia | 318 | 70.5 | % | 177.33 | 124.93 | 2.4 | % | |||||||||||
Courtyard Manhattan/Midtown East | New York, New York | 321 | 92.0 | % | 190.02 | 174.85 | 3.9 | % | |||||||||||
The Gwen Chicago | Chicago, Illinois | 311 | 70.4 | % | 188.98 | 133.05 | (0.1 | )% | |||||||||||
Hilton Garden Inn Times Square Central | New York, New York | 282 | 98.0 | % | 181.10 | 177.48 | 0.7 | % | |||||||||||
Bethesda Marriott Suites | Bethesda, Maryland | 272 | 65.3 | % | 172.21 | 112.46 | 22.0 | % | |||||||||||
Hilton Burlington | Burlington, Vermont | 258 | 70.7 | % | 130.74 | 92.39 | (2.6 | )% | |||||||||||
Hotel Palomar Phoenix | Phoenix, Arizona | 242 | 88.2 | % | 233.06 | 205.66 | 7.2 | % | |||||||||||
JW Marriott Denver at Cherry Creek | Denver, Colorado | 196 | 46.5 | % | 240.96 | 112.09 | (36.4 | )% | |||||||||||
Courtyard Manhattan/Fifth Avenue | New York, New York | 189 | 77.4 | % | 212.18 | 164.30 | (7.0 | )% | |||||||||||
Sheraton Suites Key West | Key West, Florida | 184 | 94.1 | % | 310.04 | 291.63 | 5.3 | % | |||||||||||
The Lodge at Sonoma, a Renaissance Resort & Spa | Sonoma, California | 182 | 61.5 | % | 233.68 | 143.63 | 1.5 | % | |||||||||||
Courtyard Denver Downtown | Denver, Colorado | 177 | 73.3 | % | 171.92 | 126.00 | (10.2 | )% | |||||||||||
Renaissance Charleston | Charleston, South Carolina | 166 | 83.8 | % | 236.72 | 198.44 | 1.6 | % | |||||||||||
Shorebreak Hotel | Huntington Beach, California | 157 | 75.3 | % | 236.80 | 178.23 | 2.1 | % | |||||||||||
Cavallo Point, The Lodge at the Golden Gate | Sausalito, California | 142 | 63.4 | % | 437.76 | 277.38 | 5.7 | % | |||||||||||
Havana Cabana Key West (3) | Key West, Florida | 106 | 94.7 | % | 254.41 | 240.94 | 100.0 | % | |||||||||||
Hotel Emblem | San Francisco, California | 96 | 57.5 | % | 247.10 | 142.06 | (10.3 | )% | |||||||||||
L'Auberge de Sedona | Sedona, Arizona | 88 | 80.4 | % | 575.73 | 462.91 | 3.8 | % | |||||||||||
The Landing Resort & Spa | South Lake Tahoe, California | 77 | 53.0 | % | 275.79 | 146.21 | 11.9 | % | |||||||||||
Orchards Inn Sedona | Sedona, Arizona | 70 | 73.9 | % | 255.22 | 188.58 | (1.7 | )% | |||||||||||
TOTAL/WEIGHTED AVERAGE | 9,591 | 73.1 | % | $ | 216.45 | $ | 158.30 | (0.2 | )% |
Three Months Ended March 31, | ||||||||||
2019 | 2018 | % Change | ||||||||
Rooms | $ | 136.7 | $ | 129.0 | 6.0 | % | ||||
Food and beverage | 50.5 | 40.8 | 23.8 | % | ||||||
Other | 15.2 | 11.7 | 29.9 | % | ||||||
Total revenues | $ | 202.4 | $ | 181.5 | 11.5 | % |
• | $2.9 million increase from the Havana Cabana Key West, which was closed on September 6, 2017 due to Hurricane Irma and re-opened in April 2018. |
• | $1.2 million increase from The Landing Resort & Spa, which was acquired on March 1, 2018. |
• | $4.5 million increase from the Hotel Palomar Phoenix, which was acquired on March 1, 2018. |
• | $9.3 million increase from Cavallo Point, The Lodge at the Golden Gate (“Cavallo Point”), which was acquired on December 12, 2018. |
Three Months Ended March 31, | ||||||||||
2019 | 2018 | % Change | ||||||||
Occupancy % | 72.9 | % | 73.6 | % | (0.7 | )% | ||||
ADR | $ | 215.83 | $ | 215.62 | 0.1 | % | ||||
RevPAR | $ | 157.38 | $ | 158.72 | (0.8 | )% |
• | $0.3 million increase from the Havana Cabana Key West, which was closed on September 6, 2017 due to Hurricane Irma and re-opened in April 2018. |
• | $0.3 million increase from The Landing Resort & Spa, which was acquired on March 1, 2018. |
• | $1.6 million increase from the Hotel Palomar Phoenix, which was acquired on March 1, 2018. |
• | $3.9 million increase from Cavallo Point, which was acquired on December 12, 2018. |
Three Months Ended March 31, | ||||||||||
2019 | 2018 | % Change | ||||||||
Rooms departmental expenses | $ | 38.8 | $ | 35.6 | 9.0 | % | ||||
Food and beverage departmental expenses | 33.1 | 27.5 | 20.4 | |||||||
Other departmental expenses | 3.8 | 2.5 | 52.0 | |||||||
General and administrative | 19.5 | 17.0 | 14.7 | |||||||
Utilities | 5.1 | 5.0 | 2.0 | |||||||
Repairs and maintenance | 8.5 | 7.8 | 9.0 | |||||||
Sales and marketing | 15.5 | 13.9 | 11.5 | |||||||
Franchise fees | 5.9 | 5.9 | — | |||||||
Base management fees | 4.4 | 1.6 | 175.0 | |||||||
Incentive management fees | 0.9 | 1.2 | (25.0 | ) | ||||||
Property taxes | 14.5 | 13.7 | 5.8 | |||||||
Other fixed charges | 4.1 | 2.6 | 57.7 | |||||||
Severance costs | — | 2.8 | (100.0 | ) | ||||||
Uninsured costs related to natural disasters | 1.4 | (0.2 | ) | 800.0 | ||||||
Lease expense | 3.1 | 2.5 | 24.0 | |||||||
Total hotel operating expenses | $ | 158.6 | $ | 139.4 | 13.8 | % |
• | $3.7 million increase from Frenchman's Reef, which was closed on September 6, 2017 due to Hurricane Irma and remains closed. In connection with the termination of the hotel manager of Frenchman's Reef in February 2018, we recognized $2.2 million of accelerated amortization of key money during the three months ended March 31, 2018. This amortization reduced base management fees during the three months ended March 31, 2018. The remaining increase quarter-over-quarter is primarily due to an increase in legal and professional fees incurred in connection with the ongoing insurance claim. |
• | $1.4 million increase from the Havana Cabana Key West, which was closed on September 6, 2017 due to Hurricane Irma and re-opened in April 2018. |
• | $1.2 million increase from The Landing Resort & Spa, which was acquired on March 1, 2018. |
• | $2.8 million increase from the Hotel Palomar Phoenix, which was acquired on March 1, 2018. |
• | $7.4 million increase from Cavallo Point, which was acquired on December 12, 2018. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Mortgage debt interest | $ | 6.6 | $ | 6.7 | |||
Term loan interest | 3.4 | 2.3 | |||||
Credit facility interest and unused fees | 0.7 | 0.4 | |||||
Amortization of deferred financing costs and debt premium | 0.6 | 0.5 | |||||
Capitalized interest | (0.2 | ) | — | ||||
Interest rate swap mark-to-market adjustment | 0.6 | — | |||||
$ | 11.7 | $ | 9.9 |
• | 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains, plus |
• | 90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code, minus |
• | any excess non-cash income. |
Payment Date | Record Date | Dividend per Share | ||||
January 14, 2019 | January 4, 2019 | $ | 0.125 | |||
April 12, 2019 | March 29, 2019 | $ | 0.125 |
• | Hotel Emblem San Francisco: We completed the repositioning and rebranding of Hotel Emblem in January 2019, which is now part of Viceroy's Urban Collection. |
• | JW Marriott Denver Cherry Creek: We completed the renovation of the hotel's guest rooms and meeting space during the first quarter and expect to renovate the public space later this year. |
• | Sheraton Suites Key West: We expect to complete a comprehensive repositioning renovation of the hotel, which will include upgrades to the resort’s entrance, lobby, restaurant, outdoor lounge, pool area and guestrooms. In order to minimize disruption, the renovation is expected to occur from August to November, the hotel’s slowest period of the year. |
• | The Lodge at Sonoma: We expect to enhance the overall resort to close the rate gap with the luxury competition in the market, including adding a restaurant by Michael Mina and enhancing the spa to a luxury level. |
• | Vail Marriott: We expect to complete the second phase of the hotel renovation, which includes the upgrade renovation of the spa and fitness center. The scope of this project is consistent with the Company's multi-phased strategy to renovate the hotel to a luxury standard in order to position it for an upbranding in 2021 and close the rate gap with the luxury competitive set. |
• | Worthington Renaissance: We expect to renovate the lobby and complete a return-on-investment repositioning of the restaurant outlets during the third quarter of 2019. |
• | 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 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 from insurance proceeds, other than income related to business interruption insurance. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net income | $ | 8,980 | $ | 4,338 | |||
Interest expense | 11,662 | 9,877 | |||||
Income tax benefit | (3,849 | ) | (185 | ) | |||
Real estate related depreciation and amortization | 28,996 | 24,902 | |||||
EBITDA / EBITDAre | 45,789 | 38,932 | |||||
Non-cash lease expense and other amortization | 1,715 | 1,057 | |||||
Uninsured costs related to natural disasters (1) | 1,367 | (214 | ) | ||||
Hotel manager transition and pre-opening items (2) | 297 | (2,183 | ) | ||||
Severance costs (3) | — | 5,847 | |||||
Adjusted EBITDA | $ | 49,168 | $ | 43,439 |
(1) | Represents professional fees and other costs incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance. | |
(2) | Three months ended March 31, 2019 consists of $0.3 million of pre-opening costs related to the reopening of the Hotel Emblem. Three months ended March 31, 2018 consists of accelerated amortization of key money received from Marriott International, Inc. in connection with the termination of the management agreement for Frenchman's Reef. | |
(3) | Three months ended March 31, 2018 consists of (a) $3.0 million related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations, and (b) $2.8 million related to payments made to unionized employees under a voluntary buyout at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations. |
Three Months Ended March 31, | |||||||
2019 | 2018 | ||||||
Net income | $ | 8,980 | $ | 4,338 | |||
Real estate related depreciation and amortization | 28,996 | 24,902 | |||||
Impairment losses | — | — | |||||
FFO | 37,976 | 29,240 | |||||
Non-cash lease expense and other amortization | 1,715 | 1,057 | |||||
Uninsured costs related to natural disasters (1) | 1,367 | (214 | ) | ||||
Hotel manager transition and pre-opening items (2) | 297 | (2,183 | ) | ||||
Severance costs (3) | — | 5,847 | |||||
Fair value adjustments to derivative instruments | 572 | — | |||||
Adjusted FFO | $ | 41,927 | $ | 33,747 |
(1) | Represents professional fees and other costs incurred at our hotels impacted by Hurricanes Irma or Maria that have not been or are not expected to be recovered by insurance. | |
(2) | Three months ended March 31, 2019 consists of $0.3 million of pre-opening costs related to the reopening of the Hotel Emblem. Three months ended March 31, 2018 consists of accelerated amortization of key money received from Marriott International, Inc. in connection with the termination of the management agreement for Frenchman's Reef. | |
(3) | Three months ended March 31, 2018 consists of (a) $3.0 million related to the departure of our former Chief Financial Officer, which is classified within corporate expenses on the consolidated statement of operations, and (b) $2.8 million related to payments made to unionized employees under a voluntary buyout at the Lexington Hotel New York, which are classified within other hotel expenses on the consolidated statement of operations. |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (3) (4) | ||||||||
January 1 - January 31, 2019 | 3,143,922 | (1) | $ | 9.52 | 3,143,922 | $ | 187,820 | |||||
February 1 - February 28, 2019 | 39,716 | (2) | $ | 10.66 | — | $ | 187,820 | |||||
March 1 - March 31, 2019 | — | $ | — | — | $ | 187,820 |
(1) | Reflects shares purchased under the Company's $250 million share repurchase program. |
(2) | Reflects shares surrendered to the Company by employees for payment of tax withholding obligations in connection with the vesting of restricted stock. |
(3) | Represents amounts available under the Company's $250 million share repurchase program. To facilitate repurchases, we make purchases pursuant to a trading plan under Rule 10b5-1 of the Exchange Act, which allows us to repurchase shares during periods when we otherwise may be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. The share repurchase program may be suspended or terminated at any time without prior notice. Our share repurchase program will be effective until November 6, 2020. |
(4) | Since March 31, 2019, we have not repurchased any additional shares of our common stock. As of May 9, 2019, we have $187.8 million of authorized capacity remaining under our share repurchase program. |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
(a) | Exhibits |
Exhibit | ||
10.1*† | Form of LTIP Units Award Agreement under the 2016 Equity Incentive Plan | |
31.1* | Certification of Chief Executive Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act | |
31.2* | Certification of Chief Financial Officer Required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act | |
32.1** | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
Attached as Exhibit 101 to this report are the following materials from DiamondRock Hospitality Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the related notes to these consolidated financial statements. | ||
† Exhibit is a management contract or compensatory plan or arrangement | ||
* Filed herewith | ||
** Furnished herewith |
DiamondRock Hospitality Company |
May 9, 2019 |
/s/ Jay L. Johnson |
Jay L. Johnson |
Executive Vice President and Chief Financial Officer |
(Principal Financial Officer) |
/s/ Briony R. Quinn |
Briony R. Quinn |
Senior Vice President and Treasurer |
(Principal Accounting Officer) |
No. of LTIP Units: [ __ ] |
Vesting Date | Incremental Percentage Becoming Vested | Cumulative Percentage Vested |
February 27, 20[ ] | 33.3% | 33.3% |
February 27, 20[ ] | 33.3% | 66.6% |
February 27, 20[ ] | 33.4% | 100% |
1. | The name, address and taxpayer identification number of the undersigned and the taxable year for which this election is being made are: |
2. | Description of property with respect to which the election is being made: |
3. | The date on which the LTIP Units were transferred is [ ], 201_. |
4. | Nature of restrictions to which the LTIP Units are subject: |
(a) | With limited exceptions, until the LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP Units. |
(b) | The Taxpayer’s LTIP Units vest in accordance with the vesting provisions described in the Schedule attached hereto. Unvested LTIP Units are forfeited in accordance with the vesting provisions described in the Schedule attached hereto. |
5. | The fair market value at time of transfer (determined without regard to any restrictions other than nonlapse restrictions as defined in §1.83-3(h) of the Income Tax Regulations) of the LTIP Units with respect to which this election is being made is $0 per LTIP Unit. |
6. | The amount paid by the Taxpayer for the LTIP Units was $0 per LTIP Unit. |
7. | The amount to include in gross income is $0. |
1. | I have reviewed this Quarterly Report on Form 10-Q of DiamondRock Hospitality Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Mark W. Brugger | |
Mark W. Brugger | |
Chief Executive Officer (Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of DiamondRock Hospitality Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Jay L. Johnson | |
Jay L. Johnson | |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
/s/ Mark W. Brugger | /s/ Jay L. Johnson | |
Mark W. Brugger | Jay L. Johnson | |
Chief Executive Officer | Executive Vice President and Chief Financial Officer | |
May 9, 2019 | May 9, 2019 |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
May 09, 2019 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | DiamondRock Hospitality Co | |
Entity Central Index Key | 0001298946 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 201,448,479 | |
Entity Small Business | false | |
Entity Emerging Growth Company | false |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2019 |
Dec. 31, 2018 |
---|---|---|
Stockholders' Equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 400,000,000 | 400,000,000 |
Common stock, shares issued (in shares) | 201,448,479 | 204,536,485 |
Common stock, shares outstanding (in shares) | 201,448,479 | 204,536,485 |
Consolidated Statements of Equity (Parenthetical) - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Statement of Stockholders' Equity [Abstract] | ||
Dividends per common share (in dollars per share) | $ 0.125 | $ 0.125 |
Organization |
3 Months Ended |
---|---|
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization DiamondRock Hospitality Company (the “Company” or “we”) is a lodging-focused real estate company that owns a portfolio of premium hotels and resorts. Our hotels are concentrated in key gateway cities and in destination resort locations and the majority of our hotels are operated under a brand owned by one of the leading global lodging brand companies (Marriott International, Inc. (“Marriott”) or Hilton Worldwide (“Hilton”)). We are an owner, as opposed to an operator, of the hotels in our portfolio. As an owner, we receive all of the operating profits or losses generated by our hotels after we pay fees to the hotel managers, which are based on the revenues and profitability of the hotels. As of March 31, 2019, we owned 31 hotels with 10,093 guest rooms, located in the following markets: Atlanta, Georgia; Boston, Massachusetts (2); Burlington, Vermont; Charleston, South Carolina; Chicago, Illinois (2); Denver, Colorado (2); Fort Lauderdale, Florida; Fort Worth, Texas; Huntington Beach, California; Key West, Florida (2); New York, New York (4); Phoenix, Arizona; Salt Lake City, Utah; San Diego, California; San Francisco, California (2); Sedona, Arizona (2); Sonoma, California; South Lake Tahoe, California; Washington D.C. (2); St. Thomas, U.S. Virgin Islands; and Vail, Colorado. As of March 31, 2019, the Frenchman's Reef & Morning Star Beach Resort (“Frenchman's Reef”) is closed as a result of damage incurred from Hurricanes Irma and Maria in September 2017. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT, in which our hotel properties are owned by our operating partnership, DiamondRock Hospitality Limited Partnership, or subsidiaries of our operating partnership. The Company is the sole general partner of our operating partnership and owns 99.6% of the limited partnership units (“common OP units”) of our operating partnership. The remaining 0.4% of the common OP units are held by third parties. See Note 5 for additional disclosures related to common OP units. |
Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation Our financial statements include all of the accounts of the Company and its subsidiaries in accordance with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation. If the Company determines that it has an interest in a variable interest entity within the meaning of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. Our operating partnership meets the criteria of a variable interest entity. The Company is the primary beneficiary and, accordingly, we consolidate our operating partnership. In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2019, the results of our operations for the three months ended March 31, 2019 and 2018, the statements of equity for the three months ended March 31, 2019 and 2018, and the cash flows for the three months ended March 31, 2019 and 2018. Interim results are not necessarily indicative of full-year performance because of the impact of seasonal and short-term variations. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2018, included in our Annual Report on Form 10-K filed on February 26, 2019. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment Investment purchases of hotel properties, land, land improvements, building and furniture, fixtures and equipment and identifiable intangible assets are generally accounted for as asset acquisitions and recorded at relative fair value based upon total accumulated cost of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from the Company’s accounts and any resulting gain or loss is included in the statements of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel, less costs to sell, exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. We will classify a hotel as held for sale in the period that we have made the decision to dispose of the hotel, a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash and no significant financing or other contingencies exist which could cause the transaction to not be completed in a timely manner. If these criteria are met, we will record an impairment loss if the fair value less costs to sell is lower than the carrying amount of the hotel and related assets and will cease recording depreciation expense. We will classify the assets and related liabilities as held for sale on the balance sheet. Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Revenue Recognition Revenues from operations of the hotels are recognized when the goods or services are provided. Revenues consist of room sales, food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and resort fees. Rooms revenue is recognized over the length of stay that the hotel room is occupied by the customer. Food and beverage revenue is recognized at the point in time in which the goods and/or services are rendered to the customer, such as for restaurant dining services or banquet services. Other revenues are recognized at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and we assess whether we are the principal or agent in these arrangements. If we are the principal, we recognize revenue based upon the gross sales price. Advance deposits are recorded as liabilities when a customer or group of customers provides a deposit for a future stay or banquet event at our hotels. Advance deposits are converted to revenue when the services are provided to the customer or when a customer with a noncancelable reservation fails to arrive for part or all of the reservation. Conversely, advance deposits are generally refundable upon guest cancellation of the related reservation within an established period of time prior to the reservation. Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus other potentially dilutive securities such as stock grants or shares issuable in the event of conversion of common OP units. No adjustment is made for shares that are anti-dilutive during a period. Stock-based Compensation We account for stock-based employee compensation using the fair value based method of accounting. We record the cost of awards with service or market conditions based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Income Taxes We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings during the period in which the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have elected to be treated as a real estate investment trust (“REIT”) under the provisions of the Internal Revenue Code of 1986, as amended, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built-in gains” on sales of certain assets. Our taxable REIT subsidiaries will generally be subject to federal, state, local, and/or foreign income taxes. In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, we lease each of our hotel properties to a wholly owned subsidiary of Bloodstone TRS, Inc., our taxable REIT subsidiary (“TRS”) except for Frenchman’s Reef, which is owned by a Virgin Islands corporation that we have elected to be treated as a TRS, and Cavallo Point, The Lodge at the Golden Gate (“Cavallo Point”), which is leased to a wholly owned subsidiary of the Company that we have elected to be treated as a TRS. We had no accruals for tax uncertainties as of March 31, 2019 and December 31, 2018. Fair Value Measurements In evaluating fair value, U.S. GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The hierarchy ranks the observability of inputs used to determine fair value, which are then classified and disclosed in one of the three categories. The three levels are as follows: •Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities •Level 2 - Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets in markets that are not active and model-derived valuations whose inputs are observable •Level 3 - Model-derived valuations with unobservable inputs Intangible Assets and Liabilities Intangible assets and liabilities are recorded on non-market contracts assumed as part of the acquisition of certain hotels. We review the terms of agreements assumed in conjunction with the purchase of a hotel to determine if the terms are favorable or unfavorable compared to an estimated market agreement at the acquisition date. We do not amortize intangible assets with indefinite useful lives, but we review these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. Comprehensive Income We do not have any comprehensive income other than net income. If we have any comprehensive income in future periods, such that a statement of comprehensive income would be necessary, such statement will be reported as one statement with the consolidated statement of operations. Derivative Instruments In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments, including interest rate swaps and caps, to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. We have not elected hedge accounting treatment for the changes in the fair value of derivatives. Changes in the fair value of derivatives are recorded each period in the consolidated statements of operations. Noncontrolling Interests The noncontrolling interest is the portion of equity in our operating partnership not attributable, directly or indirectly, to the Company. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from our less-than-wholly-owned operating partnership are reported within the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Income or loss is allocated to noncontrolling interests based on their weighted average ownership percentage for the applicable period. Consolidated statements of equity include beginning balances, activity for the period and ending balances for stockholders’ equity, noncontrolling interests and total equity. Restricted Cash Restricted cash primarily consists of reserves for replacement of furniture and fixtures generally held by our hotel managers and cash held in escrow pursuant to lender requirements. Deferred Financing Costs Financing costs are recorded at cost as a component of the debt carrying amount and consist of loan fees and other costs incurred in connection with the issuance of debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the remaining life of the debt and is included in interest expense in the accompanying consolidated statements of operations. Due to/from Hotel Managers The due from hotel managers consists of hotel level accounts receivable, periodic hotel operating distributions receivable from managers and prepaid and other assets held by the hotel managers on our behalf. The due to hotel managers represents liabilities incurred by the hotel on behalf of us in conjunction with the operation of our hotels which are legal obligations of the Company. Key Money Key money received in conjunction with entering into hotel management or franchise agreements or completing specific capital projects is deferred and amortized over the term of the hotel management agreement, the term of the franchise agreement, or other systematic and rational period, if appropriate. Deferred key money is classified as deferred income in the accompanying consolidated balance sheets and amortized as an offset to management fees or franchise fees. Leases We determine if an arrangement is a lease or contains an embedded lease at inception. For agreements with both lease and nonlease components (e.g., common-area maintenance costs), we do not separate the nonlease components from the lease components, but account for these components as one. We determine the lease classification (operating or finance) at lease inception. Right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. The discount rate used to determine the present value of the lease payments is our incremental borrowing rate as of the lease commencement date, as the implicit rate is not readily determinable. The right-of-use assets also include any initial direct costs and any lease payments made at or before the commencement date, and is reduced for any unrestricted incentives received at or before the commencement date. Options to extend or terminate the lease are included in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Variable payments that are based on an index or a rate are included in the recognition of our right-of-use assets and lease liabilities using the index or rate at lease commencement; however, changes to these lease payments due to rate or index updates are recorded as rent expense in the period incurred. Contingent rentals based on a percentage of sales in excess of stipulated amounts are not included in the measurement of the lease liability and right-of-use asset but will be recognized as variable lease expense when they are incurred. Leases that contain provisions that increase the fixed minimum lease payments based on previously incurred variable lease payments related to performance will be remeasured, as these payments now represent an increase in the fixed minimum payments for the remainder of the lease term. However, leases with provisions that increase minimum lease payments based on changes in a reference index or rate (e.g. Consumer Price Index) will not be remeasured as such changes do not constitute a resolution of a contingency. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of our cash and cash equivalents. We maintain cash and cash equivalents with various financial institutions. We perform periodic evaluations of the relative credit standing of these financial institutions and limit the amount of credit exposure with any one institution. Segment Reporting Each one of our hotels is an operating segment. We evaluate each of our properties on an individual basis to assess performance, the level of capital expenditures, and acquisition or disposition transactions. Our evaluation of individual properties is not focused on property type (e.g. urban, suburban, or resort), brand, geographic location, or industry classification. We aggregate our operating segments using the criteria established by U.S. GAAP, including the similarities of our product offering, types of customers and method of providing service. All of our properties react similarly to economic stimulus, such as business investment, changes in Gross Domestic Product, and changes in travel patterns. As such, all our operating segments meet the aggregation criteria, resulting in a single reportable segment represented by our consolidated financial results. Accounting for Impact of Natural Disasters Assets destroyed or damaged as a result of natural disasters or other involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved. Income resulting from business interruption insurance is not recognized until all contingencies related to the insurance recoveries are resolved. In September 2017, Hurricane Irma caused significant damage to Frenchman's Reef and Havana Cabana Key West. Frenchman's Reef was further impacted by Hurricane Maria. The Company filed insurance claims for the remediation and repair of property damage and business interruption resulting from the hurricanes, as well as from the 2017 wildfires in Northern California that impacted the Lodge at Sonoma. In July 2018, the Company settled the insurance claims for Havana Cabana Key West and The Lodge at Sonoma. The Frenchman's Reef insurance claim is ongoing. We received $5.0 million and $40.0 million of insurance proceeds during the three months ended March 31, 2019 and 2018, respectively. The following table summarizes the business interruption insurance income by impacted hotel (in thousands):
Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee's accounting for operating leases by requiring recognition of right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2018. We adopted ASU No. 2016-02, along with its related clarifications and amendments (collectively, “ASC 842”), on January 1, 2019. Our consolidated financial statements as of March 31, 2019, and for the three months then ended, are presented in accordance with ASC 842. The primary impact of the new standard is to the treatment of our ground leases, which represent the majority of all of our operating lease payments. Upon adoption, our right-of-use assets were adjusted for deferred rent and favorable and unfavorable lease intangible amounts included on our balance sheet as of December 31, 2018. On January 1, 2019, we recognized lease liabilities totaling $101.2 million and right-of-use assets totaling $99.6 million. We adopted ASC 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized in accumulated deficit on the adoption date and prior periods were not restated. The adoption of the standard did not have a material impact to our results of operations, cash flows, or liquidity. On adoption of the standard, we elected all available practical expedients provided for in ASC 842, including: (i) no reassessment of whether any expired or existing contracts were or contained leases; (ii) no reassessment of the lease classification for any expired or existing leases; (iii) no reassessment of initial direct costs for any existing leases; and (iv) use of hindsight in determining the lease term and in assessing the likelihood that a purchase option will be exercised. The practical expedients were consistently applied to all existing leases as of January 1, 2019. We also elected an accounting policy to account for leases with an initial term of 12 months or less using existing guidance for operating leases. For lease agreements in which we are the lessor, we have analyzed the standard and determined that there was no material impact to the recognition, measurement, or presentation of these revenues. Room revenues, which constitute the majority of our revenues, are considered short-term leases. We also earn revenues from retail leases at our hotel properties, which are included in other revenue. |
Property and Equipment |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment | Property and Equipment Property and equipment as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):
As of March 31, 2019 and December 31, 2018, we had accrued capital expenditures of $9.4 million and $12.4 million, respectively. |
Leases |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases | Leases We are subject to operating leases, the most significant of which are ground leases. We are the lessee to ground leases under nine of our hotels and one parking garage. The lease liabilities for our operating leases assume the exercise of all available extension options, as we believe they are reasonably certain to be exercised. As of March 31, 2019, our operating leases have a weighted-average remaining lease term of 67 years and a weighted-average discount rate of 5.77%. The components of operating lease expense, which is included in other hotel expenses in our consolidated statement of operations, and cash paid for amounts included in the measurement of lease liabilities, are as follows (in thousands):
Maturities of lease liabilities are as follows (in thousands):
The future minimum annual rental commitments under all noncancelable operating leases in effect as of December 31, 2018, as determined prior to the adoption of ASC 842 and its related practical expedients, are as follows (in thousands):
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Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||
Equity | Equity Common Shares We are authorized to issue up to 400 million shares of common stock, $0.01 par value per share. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends out of assets legally available for the payment of dividends when authorized by our board of directors. We have an “at-the-market” equity offering program (the “Current ATM Program”), pursuant to which we may issue and sell shares of our common stock from time to time, having an aggregate offering price of up to $200 million. We did not sell any shares of common stock during the three months ended March 31, 2019, and the full amount remains available under the Current ATM Program. Our board of directors has approved a $250 million share repurchase program authorizing us to repurchase shares of our common stock. Repurchases under this program are made in open market or privately negotiated transactions as permitted by federal securities laws and other legal requirements. This authority may be exercised from time to time and in such amounts as market conditions warrant, and subject to regulatory considerations. The timing, manner, price and actual number of shares repurchased will depend on a variety of factors including stock price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The share repurchase program may be suspended or terminated at any time without prior notice. During the three months ended March 31, 2019, we repurchased 3,143,922 shares of our common stock at an average price of $9.52 per share for a total purchase price of $30.0 million. We retired all repurchased shares on their respective settlement dates. As of May 9, 2019, we have $187.8 million of authorized capacity remaining under our share repurchase program. Preferred Shares We are authorized to issue up to 10 million shares of preferred stock, $0.01 par value per share. Our board of directors is required to set for each class or series of preferred stock the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, and terms or conditions of redemption. As of March 31, 2019 and December 31, 2018, there were no shares of preferred stock outstanding. Operating Partnership Units In connection with the acquisition of Cavallo Point in December 2018, we issued 796,684 common OP units to third parties, otherwise unaffiliated with the Company, at $11.76 per unit. Each common OP unit is redeemable at the option of the holder beginning December 12, 2019. Holders of common OP units have certain redemption rights, which enable them to cause our operating partnership to redeem their units in exchange for cash per unit equal to the market price of our common stock, at the time of redemption, or, at our option, for shares of our common stock on a one-for-one basis, subject to adjustment upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions. As of March 31, 2019, there were 796,684 common OP units held by unaffiliated third parties. Long-Term Incentive Partnership units (“LTIP units”), which are also referred to as profits interest units, may be issued to eligible participants under the 2016 Plan (as defined below) for the performance of services to or for the benefit of our operating partnership. LTIP units are a class of partnership unit in our operating partnership and will receive, whether vested or not, the same per-unit distributions as the outstanding common OP units, which equal per-share dividends on shares of our common stock. Initially, LTIP units have a capital account balance of zero, do not receive an allocation of operating income (loss), and do not have full parity with common OP units with respect to liquidating distributions. If such parity is reached, vested LTIP units may be converted, at any time, into an equal number of common OP units, and thereafter will possess all of the rights and interests of common OP units, including the right to exchange the common OP units for cash per unit equal to the market price of our common stock, at the time of redemption, or, at our option, for shares of our common stock on a one-for-one basis, subject to adjustment upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions. See Note 6 for additional disclosures related to LTIP units. Dividends and Distributions We have paid the following dividends to holders of our common stock and distributions to holders of operating partnership units during 2019 as follows:
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Stock Incentive Plans |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Incentive Plans | Stock Incentive Plans We are authorized to issue up to 6,082,664 shares of our common stock under our 2016 Equity Incentive Plan (the “2016 Plan”), of which we have issued or committed to issue 1,203,677 shares as of March 31, 2019. In addition to these shares, additional shares of common stock could be issued in connection with the performance stock unit awards, as further described below. Restricted Stock Awards Restricted stock awards issued to our officers and employees generally vest over a three-year period from the date of the grant based on continued employment. We measure compensation expense for the restricted stock awards based upon the fair market value of our common stock at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period and is included in corporate expenses in the accompanying consolidated statements of operations. A summary of our restricted stock awards from January 1, 2019 to March 31, 2019 is as follows:
The remaining share awards are expected to vest as follows: 9,542 shares during 2019, 239,781 shares during 2020, 140,772 shares during 2021, and 24,414 during 2022. As of March 31, 2019, the unrecognized compensation cost related to restricted stock awards was $4.1 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 22 months. We recorded $0.7 million and $1.3 million of compensation expense related to restricted stock awards for the three months ended March 31, 2019 and 2018, respectively. The compensation expense for the three months ended March 31, 2018 includes $0.6 million related to the accelerated vesting of awards in connection with the departure of our former Chief Financial Officer. Performance Stock Units Performance stock units (“PSUs”) are restricted stock units that vest three years from the date of grant. Each executive officer is granted a target number of PSUs (the “PSU Target Award”). For 75% of the PSUs issued in 2016 and vesting in 2019, the actual number of shares of common stock issued to each executive officer is subject to the achievement of certain levels of total stockholder return relative to the total stockholder return of a peer group of publicly traded lodging REITs over a three-year performance period. There will be no payout of shares of our common stock if our total stockholder return falls below the 30th percentile of the total stockholder returns of the peer group. The maximum number of shares of common stock issued to an executive officer is equal to 150% of the PSU Target Award and is earned if our total stockholder return is equal to or greater than the 75th percentile of the total stockholder returns of the peer group. The remaining 25% of PSUs issued in 2016 and vesting in 2019 is determined based on achieving improvement in market share for each of our hotels over the three-year performance period based on a report prepared for each hotel by STR Global, a well-recognized and universally accepted benchmarking service for the hospitality industry. For the PSUs issued in 2017, 2018, and 2019, and vesting in 2020, 2021, and 2022, respectively, the calculation of total stockholder return relative to the total stockholder return of a peer group over a three-year performance period applies to 50% of the number of PSUs to be earned in the performance period. The remaining 50% is determined based on the achievement of improvement in market share for each of our hotels over the three-year performance period. For the PSUs tied to relative stockholder return issued in 2018 and 2019, the number of PSUs to be earned is limited to target if the Company's total stockholder return is negative for the performance period. We measure compensation expense for the PSUs based upon the fair market value of the award at the grant date. Compensation expense is recognized on a straight-line basis over the three-year performance period and is included in corporate expenses in the accompanying consolidated statements of operations. The grant date fair value of the portion of the PSUs based on our relative total stockholder return is determined using a Monte Carlo simulation performed by a third-party valuation firm. The grant date fair value of the portion of the PSUs based on improvement in market share for each of our hotels is the closing price of our common stock on the grant date. On March 1, 2019, our board of directors granted 296,050 PSUs to our executive officers. The grant date fair value of the portion of the PSUs based on our relative total stockholder return was $9.68 using the assumptions of volatility of 24.3% and a risk-free rate of 2.54%. The grant date fair value of the portion of the PSUs based on hotel market share was $10.65, the closing stock price of our common stock on such date. A summary of our PSUs from January 1, 2019 to March 31, 2019 is as follows:
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The remaining unvested PSUs are expected to vest as follows: 234,414 units during 2020, 306,935 units during 2021 and 296,050 units during 2022. The number of shares earned upon vesting is subject to the attainment of the performance goals described above. As of March 31, 2019, the unrecognized compensation cost related to the PSUs was $6.7 million and is expected to be recognized on a straight-line basis over a weighted average period of 23 months. We recorded $0.6 million and $1.1 million, respectively, of compensation expense related to the PSUs for the three months ended March 31, 2019, and 2018. The compensation expense for the three months ended March 31, 2018 includes $0.6 million related to the accelerated vesting of awards in connection with the departure of our former Chief Financial Officer. LTIP Units During the three months ended March 31, 2019, instead of granting restricted stock for the time-based portion of the annual long-term incentive award, we granted LTIP units to our executive officers. LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under the 2016 Plan. At the time of award, LTIP units do not have full economic parity with common OP units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules. During the three months ended March 31, 2019, we granted 281,925 LTIP units to executive officers. These granted LTIP units had a weighted-average grant date fair value of $10.65 per unit. There are currently no vested LTIP units outstanding. The LTIP units are expected to vest ratably in 2020, 2021, and 2022. As of March 31, 2019, the unrecognized compensation cost related to LTIP unit awards was $2.9 million and the weighted-average period over which the unrecognized compensation expense will be recorded is approximately 35 months. We recorded $0.1 million of compensation expense related to LTIP unit awards for the three months ended March 31, 2019. We did not record any compensation expense related to LTIP unit awards during 2018. |
Earnings Per Share |
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Earnings Per Share | Earnings Per Share Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is calculated by dividing net income available to common stockholders that has been adjusted for dilutive securities, by the weighted-average number of common shares outstanding including dilutive securities. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per share pursuant to the two-class method. Accordingly, distributed and undistributed earnings attributable to unvested share-based compensation (participating securities) have been excluded, as applicable, from net income or loss available to common stockholders used in the basic and diluted earnings per share calculations. The following is a reconciliation of the calculation of basic and diluted earnings per share (in thousands, except share and per share data):
The common OP units held by the noncontrolling interest holders have been excluded from the denominator of the diluted earnings per share calculation as there would be no effect on the amounts since the common OP units' share of income or loss would also be added or subtracted to derive net income (loss) available to common stockholders. |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt The following table sets forth information regarding the Company’s debt as of March 31, 2019 and December 31, 2018 (dollars in thousands):
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Mortgage and Other Debt We have incurred limited recourse, property specific mortgage debt secured by certain of our hotels. In the event of default, the lender may only foreclose on the secured assets; however, in the event of fraud, misapplication of funds or other customary recourse provisions, the lender may seek payment from us. As of March 31, 2019, eight of our 31 hotels were secured by mortgage debt. Our mortgage debt contains certain property specific covenants and restrictions, including minimum debt service coverage ratios that trigger “cash trap” provisions as well as restrictions on incurring additional debt without lender consent. As of March 31, 2019, we were in compliance with the financial covenants of our mortgage debt. Senior Unsecured Credit Facility We are party to a senior unsecured credit facility with a capacity up to $300 million. The maturity date is May 2020 and may be extended for an additional year upon the payment of applicable fees and the satisfaction of certain customary conditions. The facility also includes an accordion feature to expand up to $600 million, subject to lender consent. The interest rate on the facility is based upon LIBOR, plus an applicable margin based upon the Company’s leverage ratio, as follows:
In addition to the interest payable on amounts outstanding under the facility, we were required to pay an amount equal to 0.20% of the unused portion of the facility if the average usage of the facility was greater than 50% or 0.30% of the unused portion of the facility if the average usage of the facility was less than or equal to 50%. The facility also contains various corporate financial covenants. A summary of the most restrictive covenants is as follows:
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As of March 31, 2019, we had $60.0 million in borrowings outstanding under the facility and the Company's leverage ratio was 29.1%. Accordingly, interest on our borrowings under the facility will be based on LIBOR plus 150 basis points for the following quarter. We incurred interest and unused credit facility fees on the facility of $0.7 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively. Subsequent to March 31, 2019, we borrowed $30.0 million under the facility. Unsecured Term Loans We are party to three five-year unsecured term loans. The financial covenants of the three term loans are consistent with the covenants on our senior unsecured credit facility, which are described above. The interest rate on each of the term loans is based on a pricing grid ranging from 140 to 220 basis points over LIBOR, based on the Company's leverage ratio, as follows:
As of March 31, 2019, the Company's leverage ratio was 29.1%. Accordingly, interest on our borrowings under the term loans will be based on LIBOR plus 145 basis points for the following quarter. We incurred interest on the term loans of $3.4 million and $2.3 million for the three months ended March 31, 2019 and 2018, respectively. In January 2019, we entered into an interest rate swap agreement to fix LIBOR at 2.41% through October 2023 for the $50 million unsecured term loan. |
Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments The fair value of certain financial assets and liabilities and other financial instruments as of March 31, 2019 and December 31, 2018, in thousands, is as follows:
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The fair value of our debt is a Level 2 measurement under the fair value hierarchy (see Note 2). We estimate the fair value of our debt by discounting the future cash flows of each instrument at estimated market rates. The fair value of our interest rate swaps is a Level 2 measurement under the fair value hierarchy. We estimate the fair value of the interest rate swap based on the interest rate yield curve and implied market volatility as inputs and adjusted for the counterparty's credit risk. We concluded the inputs for the credit risk valuation adjustment are Level 3 inputs, however these inputs are not significant to the fair value measurement in its entirety. The carrying value of our other financial instruments approximate fair value due to the short-term nature of these financial instruments. |
Commitments and Contingencies |
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Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Litigation We are subject to various claims, lawsuits and legal proceedings, including routine litigation arising in the ordinary course of business, regarding the operation of our hotels and Company matters. While it is not possible to ascertain the ultimate outcome of such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts covered by insurance will not have a material adverse impact on our financial condition or results of operations. The outcome of claims, lawsuits and legal proceedings brought against the Company, however, is subject to significant uncertainties. On August 13, 2018, the Company brought suit against certain of its property insurers in St. Thomas, U.S. Virgin Islands, over the amount of the coverage the insurers owe as a result of the damage caused to Frenchman's Reef by Hurricane Irma. On September 28, 2018, certain of the Company's property insurers brought a similar suit against the Company in New York seeking a declaration that the insurers do not owe the full amount of the Company's claim. Notwithstanding the litigation, the Company and its insurers continue to engage in discussions and negotiation regarding the Company's claim. Other Matters In February 2016, the Company was notified by the franchisor of one of its hotels that as a result of low guest satisfaction scores, the Company was in default under the franchise agreement for that hotel. The Company continues to proactively work with the franchisor and the manager of the hotel and has developed and executed a plan aimed to improve guest satisfaction scores. Though the guest satisfaction scores have improved, the Company remains in default under the franchise agreement. While the franchisor has reserved all of its rights under the franchise agreement, no action to terminate the franchise agreement has been taken by the franchisor and no accrual was recorded as of March 31, 2019 or 2018. If the Company is not successful in resolving the matter, the franchisor may seek to terminate the franchise agreement and assert a claim it is owed a termination fee, including a payment for liquidated damages, which could result in a material adverse effect on the Company's business, financial condition or results of operation. |
Summary of Significant Accounting Policies (Policies) |
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Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation Our financial statements include all of the accounts of the Company and its subsidiaries in accordance with U.S. GAAP. All intercompany accounts and transactions have been eliminated in consolidation. If the Company determines that it has an interest in a variable interest entity within the meaning of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, the Company will consolidate the entity when it is determined to be the primary beneficiary of the entity. Our operating partnership meets the criteria of a variable interest entity. The Company is the primary beneficiary and, accordingly, we consolidate our operating partnership. In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2019, the results of our operations for the three months ended March 31, 2019 and 2018, the statements of equity for the three months ended March 31, 2019 and 2018, and the cash flows for the three months ended March 31, 2019 and 2018. Interim results are not necessarily indicative of full-year performance because of the impact of seasonal and short-term variations. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2018, included in our Annual Report on Form 10-K filed on February 26, 2019. |
Use of Estimates | Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Property and Equipment | Property and Equipment Investment purchases of hotel properties, land, land improvements, building and furniture, fixtures and equipment and identifiable intangible assets are generally accounted for as asset acquisitions and recorded at relative fair value based upon total accumulated cost of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. Property and equipment purchased after the hotel acquisition date is recorded at cost. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from the Company’s accounts and any resulting gain or loss is included in the statements of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 to 40 years for buildings, land improvements, and building improvements and 1 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets. We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel, less costs to sell, exceed its carrying value. If the estimated undiscounted future cash flows are less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel’s estimated fair market value is recorded and an impairment loss is recognized. We will classify a hotel as held for sale in the period that we have made the decision to dispose of the hotel, a binding agreement to purchase the property has been signed under which the buyer has committed a significant amount of nonrefundable cash and no significant financing or other contingencies exist which could cause the transaction to not be completed in a timely manner. If these criteria are met, we will record an impairment loss if the fair value less costs to sell is lower than the carrying amount of the hotel and related assets and will cease recording depreciation expense. We will classify the assets and related liabilities as held for sale on the balance sheet. |
Cash and Cash Equivalents | Cash and Cash Equivalents We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. |
Revenue Recognition | Revenue Recognition Revenues from operations of the hotels are recognized when the goods or services are provided. Revenues consist of room sales, food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and resort fees. Rooms revenue is recognized over the length of stay that the hotel room is occupied by the customer. Food and beverage revenue is recognized at the point in time in which the goods and/or services are rendered to the customer, such as for restaurant dining services or banquet services. Other revenues are recognized at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and we assess whether we are the principal or agent in these arrangements. If we are the principal, we recognize revenue based upon the gross sales price. Advance deposits are recorded as liabilities when a customer or group of customers provides a deposit for a future stay or banquet event at our hotels. Advance deposits are converted to revenue when the services are provided to the customer or when a customer with a noncancelable reservation fails to arrive for part or all of the reservation. Conversely, advance deposits are generally refundable upon guest cancellation of the related reservation within an established period of time prior to the reservation. |
Earnings Per Share | Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period plus other potentially dilutive securities such as stock grants or shares issuable in the event of conversion of common OP units. No adjustment is made for shares that are anti-dilutive during a period. |
Stock-based Compensation | Stock-based Compensation We account for stock-based employee compensation using the fair value based method of accounting. We record the cost of awards with service or market conditions based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. |
Income Taxes | Income Taxes We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings during the period in which the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We have elected to be treated as a real estate investment trust (“REIT”) under the provisions of the Internal Revenue Code of 1986, as amended, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built-in gains” on sales of certain assets. Our taxable REIT subsidiaries will generally be subject to federal, state, local, and/or foreign income taxes. In order for the income from our hotel property investments to constitute “rents from real properties” for purposes of the gross income tests required for REIT qualification, the income we earn cannot be derived from the operation of any of our hotels. Therefore, we lease each of our hotel properties to a wholly owned subsidiary of Bloodstone TRS, Inc., our taxable REIT subsidiary (“TRS”) except for Frenchman’s Reef, which is owned by a Virgin Islands corporation that we have elected to be treated as a TRS, and Cavallo Point, The Lodge at the Golden Gate (“Cavallo Point”), which is leased to a wholly owned subsidiary of the Company that we have elected to be treated as a TRS. |
Fair Value Measurements | Fair Value Measurements In evaluating fair value, U.S. GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). The hierarchy ranks the observability of inputs used to determine fair value, which are then classified and disclosed in one of the three categories. The three levels are as follows: •Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities •Level 2 - Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets in markets that are not active and model-derived valuations whose inputs are observable •Level 3 - Model-derived valuations with unobservable inputs |
Intangible Assets and Liabilities | Intangible Assets and Liabilities Intangible assets and liabilities are recorded on non-market contracts assumed as part of the acquisition of certain hotels. We review the terms of agreements assumed in conjunction with the purchase of a hotel to determine if the terms are favorable or unfavorable compared to an estimated market agreement at the acquisition date. We do not amortize intangible assets with indefinite useful lives, but we review these assets for impairment annually or at interim periods if events or circumstances indicate that the asset may be impaired. |
Comprehensive Income | Comprehensive Income We do not have any comprehensive income other than net income. If we have any comprehensive income in future periods, such that a statement of comprehensive income would be necessary, such statement will be reported as one statement with the consolidated statement of operations. |
Derivative Instruments | Derivative Instruments In the normal course of business, we are exposed to the effects of interest rate changes. We may enter into derivative instruments, including interest rate swaps and caps, to manage or hedge interest rate risk. Derivative instruments are recorded at fair value on the balance sheet date. We have not elected hedge accounting treatment for the changes in the fair value of derivatives. Changes in the fair value of derivatives are recorded each period in the consolidated statements of operations. |
Noncontrolling Interests | Noncontrolling Interests The noncontrolling interest is the portion of equity in our operating partnership not attributable, directly or indirectly, to the Company. Such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. On the consolidated statements of operations, revenues, expenses and net income or loss from our less-than-wholly-owned operating partnership are reported within the consolidated amounts, including both the amounts attributable to the Company and noncontrolling interests. Income or loss is allocated to noncontrolling interests based on their weighted average ownership percentage for the applicable period. Consolidated statements of equity include beginning balances, activity for the period and ending balances for stockholders’ equity, noncontrolling interests and total equity. |
Restricted Cash | Restricted Cash Restricted cash primarily consists of reserves for replacement of furniture and fixtures generally held by our hotel managers and cash held in escrow pursuant to lender requirements. |
Deferred Financing Costs | Deferred Financing Costs Financing costs are recorded at cost as a component of the debt carrying amount and consist of loan fees and other costs incurred in connection with the issuance of debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the remaining life of the debt and is included in interest expense in the accompanying consolidated statements of operations. |
Due to/from Hotel Managers | Due to/from Hotel Managers The due from hotel managers consists of hotel level accounts receivable, periodic hotel operating distributions receivable from managers and prepaid and other assets held by the hotel managers on our behalf. The due to hotel managers represents liabilities incurred by the hotel on behalf of us in conjunction with the operation of our hotels which are legal obligations of the Company. |
Key Money | Key Money Key money received in conjunction with entering into hotel management or franchise agreements or completing specific capital projects is deferred and amortized over the term of the hotel management agreement, the term of the franchise agreement, or other systematic and rational period, if appropriate. Deferred key money is classified as deferred income in the accompanying consolidated balance sheets and amortized as an offset to management fees or franchise fees. |
Leases | Leases We determine if an arrangement is a lease or contains an embedded lease at inception. For agreements with both lease and nonlease components (e.g., common-area maintenance costs), we do not separate the nonlease components from the lease components, but account for these components as one. We determine the lease classification (operating or finance) at lease inception. Right-of-use assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date. The discount rate used to determine the present value of the lease payments is our incremental borrowing rate as of the lease commencement date, as the implicit rate is not readily determinable. The right-of-use assets also include any initial direct costs and any lease payments made at or before the commencement date, and is reduced for any unrestricted incentives received at or before the commencement date. Options to extend or terminate the lease are included in the recognition of our right-of-use assets and lease liabilities when it is reasonably certain that we will exercise the option. Variable payments that are based on an index or a rate are included in the recognition of our right-of-use assets and lease liabilities using the index or rate at lease commencement; however, changes to these lease payments due to rate or index updates are recorded as rent expense in the period incurred. Contingent rentals based on a percentage of sales in excess of stipulated amounts are not included in the measurement of the lease liability and right-of-use asset but will be recognized as variable lease expense when they are incurred. Leases that contain provisions that increase the fixed minimum lease payments based on previously incurred variable lease payments related to performance will be remeasured, as these payments now represent an increase in the fixed minimum payments for the remainder of the lease term. However, leases with provisions that increase minimum lease payments based on changes in a reference index or rate (e.g. Consumer Price Index) will not be remeasured as such changes do not constitute a resolution of a contingency. |
Concentration of Credit Risk | Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of our cash and cash equivalents. We maintain cash and cash equivalents with various financial institutions. We perform periodic evaluations of the relative credit standing of these financial institutions and limit the amount of credit exposure with any one institution. |
Segment Reporting | Segment Reporting Each one of our hotels is an operating segment. We evaluate each of our properties on an individual basis to assess performance, the level of capital expenditures, and acquisition or disposition transactions. Our evaluation of individual properties is not focused on property type (e.g. urban, suburban, or resort), brand, geographic location, or industry classification. We aggregate our operating segments using the criteria established by U.S. GAAP, including the similarities of our product offering, types of customers and method of providing service. All of our properties react similarly to economic stimulus, such as business investment, changes in Gross Domestic Product, and changes in travel patterns. As such, all our operating segments meet the aggregation criteria, resulting in a single reportable segment represented by our consolidated financial results. |
Accounting for Impacts of Natural Disasters | Accounting for Impact of Natural Disasters Assets destroyed or damaged as a result of natural disasters or other involuntary events are written off or reduced in carrying value to their salvage value. When recovery of all or a portion of the amount of property damage loss or other covered expenses through insurance proceeds is demonstrated to be probable, a receivable is recorded and offsets the loss or expense up to the amount of the total loss or expense. No gain is recorded until all contingencies related to the insurance claim have been resolved. Income resulting from business interruption insurance is not recognized until all contingencies related to the insurance recoveries are resolved. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which primarily changes the lessee's accounting for operating leases by requiring recognition of right-of-use assets and lease liabilities. This standard is effective for annual reporting periods beginning after December 15, 2018. We adopted ASU No. 2016-02, along with its related clarifications and amendments (collectively, “ASC 842”), on January 1, 2019. Our consolidated financial statements as of March 31, 2019, and for the three months then ended, are presented in accordance with ASC 842. The primary impact of the new standard is to the treatment of our ground leases, which represent the majority of all of our operating lease payments. Upon adoption, our right-of-use assets were adjusted for deferred rent and favorable and unfavorable lease intangible amounts included on our balance sheet as of December 31, 2018. On January 1, 2019, we recognized lease liabilities totaling $101.2 million and right-of-use assets totaling $99.6 million. We adopted ASC 842 using the modified retrospective approach whereby the cumulative effect of adoption was recognized in accumulated deficit on the adoption date and prior periods were not restated. The adoption of the standard did not have a material impact to our results of operations, cash flows, or liquidity. On adoption of the standard, we elected all available practical expedients provided for in ASC 842, including: (i) no reassessment of whether any expired or existing contracts were or contained leases; (ii) no reassessment of the lease classification for any expired or existing leases; (iii) no reassessment of initial direct costs for any existing leases; and (iv) use of hindsight in determining the lease term and in assessing the likelihood that a purchase option will be exercised. The practical expedients were consistently applied to all existing leases as of January 1, 2019. We also elected an accounting policy to account for leases with an initial term of 12 months or less using existing guidance for operating leases. For lease agreements in which we are the lessor, we have analyzed the standard and determined that there was no material impact to the recognition, measurement, or presentation of these revenues. Room revenues, which constitute the majority of our revenues, are considered short-term leases. We also earn revenues from retail leases at our hotel properties, which are included in other revenue. |
Summary of Significant Accounting Policies (Tables) |
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Schedule of gain on business interruption | The following table summarizes the business interruption insurance income by impacted hotel (in thousands):
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Property and Equipment (Tables) |
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Property and equipment | Property and equipment as of March 31, 2019 and December 31, 2018 consists of the following (in thousands):
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Leases (Tables) |
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Components of Lease Expense and Other Information | The components of operating lease expense, which is included in other hotel expenses in our consolidated statement of operations, and cash paid for amounts included in the measurement of lease liabilities, are as follows (in thousands):
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Summary of Operating Lease Maturities | Maturities of lease liabilities are as follows (in thousands):
The future minimum annual rental commitments under all noncancelable operating leases in effect as of December 31, 2018, as determined prior to the adoption of ASC 842 and its related practical expedients, are as follows (in thousands):
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Equity (Tables) |
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Mar. 31, 2019 | ||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||
Schedule of dividends payable | We have paid the following dividends to holders of our common stock and distributions to holders of operating partnership units during 2019 as follows:
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Stock Incentive Plans (Tables) |
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of restricted stock awards | A summary of our restricted stock awards from January 1, 2019 to March 31, 2019 is as follows:
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Schedule of nonvested performance-based units activity | A summary of our PSUs from January 1, 2019 to March 31, 2019 is as follows:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of earnings (loss) per share, basic and diluted | The following is a reconciliation of the calculation of basic and diluted earnings per share (in thousands, except share and per share data):
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Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of long term debt | The following table sets forth information regarding the Company’s debt as of March 31, 2019 and December 31, 2018 (dollars in thousands):
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Summary of applicable margin based upon the Company’s ratio of net indebtedness to EBITDA | The interest rate on each of the term loans is based on a pricing grid ranging from 140 to 220 basis points over LIBOR, based on the Company's leverage ratio, as follows:
The interest rate on the facility is based upon LIBOR, plus an applicable margin based upon the Company’s leverage ratio, as follows:
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Summary of the most restrictive covenants for senior unsecured credit facility | The facility also contains various corporate financial covenants. A summary of the most restrictive covenants is as follows:
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Fair Value of Financial Instruments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of certain financial assets and liabilities and other financial instruments | The fair value of certain financial assets and liabilities and other financial instruments as of March 31, 2019 and December 31, 2018, in thousands, is as follows:
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Summary of Significant Accounting Policies - Narrative (Details) - USD ($) |
3 Months Ended | |||
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Mar. 31, 2019 |
Mar. 31, 2018 |
Jan. 01, 2019 |
Dec. 31, 2018 |
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Property, Plant and Equipment [Line Items] | ||||
Accrual for tax uncertainties | $ 0 | $ 0 | ||
Proceeds from insurance settlement, property and business interruption | 5,000,000 | $ 40,000,000 | ||
Lease liabilities | 101,801,000 | |||
Right-of-use assets | $ 99,316,000 | |||
Minimum | Land, Buildings and Improvements | ||||
Property, Plant and Equipment [Line Items] | ||||
Useful life | 5 years | |||
Minimum | Furniture, fixtures and equipment | ||||
Property, Plant and Equipment [Line Items] | ||||
Useful life | 1 year | |||
Maximum | Land, Buildings and Improvements | ||||
Property, Plant and Equipment [Line Items] | ||||
Useful life | 40 years | |||
Maximum | Furniture, fixtures and equipment | ||||
Property, Plant and Equipment [Line Items] | ||||
Useful life | 10 years | |||
Accounting Standards Update 2016-02 | ||||
Property, Plant and Equipment [Line Items] | ||||
Lease liabilities | $ 101,200,000 | |||
Right-of-use assets | $ 99,600,000 |
Summary of Significant Accounting Policies - Schedule of Gain on Business Interruption (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
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Business Interruption Loss [Line Items] | ||
Gain on business interruption insurance | $ 8,822 | $ 6,027 |
Frenchman's Reef | ||
Business Interruption Loss [Line Items] | ||
Gain on business interruption insurance | 8,822 | 5,285 |
Havana Cabana Key West | ||
Business Interruption Loss [Line Items] | ||
Gain on business interruption insurance | 0 | 212 |
The Lodge at Sonoma | ||
Business Interruption Loss [Line Items] | ||
Gain on business interruption insurance | $ 0 | $ 530 |
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
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Property and Equipment | ||
Property and equipment, at cost | $ 3,864,837 | $ 3,838,053 |
Less: accumulated depreciation | (922,487) | (893,436) |
Property and equipment, net | 2,942,350 | 2,944,617 |
Land | ||
Property and Equipment | ||
Property and equipment, at cost | 617,695 | 617,695 |
Land improvements | ||
Property and Equipment | ||
Property and equipment, at cost | 7,994 | 7,994 |
Buildings and site improvements | ||
Property and Equipment | ||
Property and equipment, at cost | 2,698,771 | 2,682,320 |
Furniture, fixtures and equipment | ||
Property and Equipment | ||
Property and equipment, at cost | 502,265 | 491,421 |
Construction in progress | ||
Property and Equipment | ||
Property and equipment, at cost | $ 38,112 | $ 38,623 |
Property and Equipment - Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2019 |
Dec. 31, 2018 |
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Property, Plant and Equipment [Abstract] | ||
Accrued capital expenditures | $ 9.4 | $ 12.4 |
Leases - Narrative (Details) |
Mar. 31, 2019 |
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Leases [Abstract] | |
Weighted-average remaining lease term | 67 years |
Weighted-average discount rate | 5.77% |
Leases - Lease Cost and Other Information (Details) $ in Thousands |
3 Months Ended |
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Mar. 31, 2019
USD ($)
| |
Leases [Abstract] | |
Operating lease cost | $ 2,751 |
Variable lease payments | 337 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ 788 |
Leases - Operating Lease Maturities (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
---|---|---|
Operating Lease Liabilities, Payments Due [Abstract] | ||
2019 (excluding the three months ended March 31, 2019) | $ 2,455 | |
2020 | 3,320 | |
2021 | 4,805 | |
2022 | 3,940 | |
2023 | 3,997 | |
Thereafter | 763,074 | |
Total lease payments | 781,591 | |
Less imputed interest | (679,790) | |
Total lease liabilities | $ 101,801 | |
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract] | ||
2019 | $ 5,232 | |
2020 | 4,866 | |
2021 | 6,132 | |
2022 | 5,122 | |
2023 | 5,096 | |
Thereafter | 636,770 | |
Total | $ 663,218 |
Equity - Schedule of Dividends Payable (Details) - $ / shares |
Apr. 12, 2019 |
Jan. 14, 2019 |
---|---|---|
Dividends Payable [Line Items] | ||
Dividends per Share (in dollars per share) | $ 0.125 | |
Subsequent Event | ||
Dividends Payable [Line Items] | ||
Dividends per Share (in dollars per share) | $ 0.125 |
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
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Numerator: | ||
Net income | $ 8,945 | $ 4,338 |
Dividends declared on unvested share-based compensation | (35) | 0 |
Net income available to common stockholders | $ 8,910 | $ 4,338 |
Denominator: | ||
Weighted-average number of common shares outstanding—basic (in shares) | 202,817,124 | 201,145,014 |
Effect of dilutive securities: | ||
Weighted-average number of common shares outstanding—diluted (in shares) | 203,537,829 | 201,775,832 |
Earnings per share: | ||
Basic earnings per share (in dollars per share) | $ 0.04 | $ 0.02 |
Diluted earnings per share (in dollars per share) | $ 0.04 | $ 0.02 |
Unvested restricted common stock | ||
Effect of dilutive securities: | ||
Unvested restricted common stock and shares related to unvested PSUs (in shares) | 49,761 | 294,613 |
Shares related to unvested PSUs | ||
Effect of dilutive securities: | ||
Unvested restricted common stock and shares related to unvested PSUs (in shares) | 670,944 | 336,205 |
Debt - Mortgage and Other Debt (Details) |
Mar. 31, 2019
Hotel
|
---|---|
Debt Instrument [Line Items] | |
Number of hotels (in hotels) | 31 |
Mortgages | |
Debt Instrument [Line Items] | |
Number of hotels (in hotels) | 8 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Mar. 31, 2019 |
Dec. 31, 2018 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Carrying amount | $ 1,034,907 | $ 977,966 |
Carrying Amount | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Carrying amount | 1,034,907 | 977,966 |
Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Fair Value | 1,027,913 | 960,447 |
Interest Rate Swap | Carrying Amount | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swap agreements | 572 | 0 |
Interest Rate Swap | Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swap agreements | $ 572 | $ 0 |
Label | Element | Value | ||
---|---|---|---|---|
Restricted Cash | us-gaap_RestrictedCash | $ 47,735,000 | [1] | |
Restricted Cash | us-gaap_RestrictedCash | 46,855,000 | [1] | |
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | (15,286,000) | ||
Retained Earnings [Member] | ||||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | (15,286,000) | ||
Parent [Member] | ||||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ (15,286,000) | ||
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