DiamondRock Hospitality Company (the “Company”) (NYSE: DRH), a lodging-focused real estate investment trust that owns a portfolio of 31 premium hotels in the United States, provided an update today on the impact of COVID-19 on its operations and announced the proactive steps management is taking to mitigate the financial impact.
The Company is withdrawing the guidance it issued on February 20, 2020, due to the uncertainty surrounding the impact of the COVID-19 pandemic. As of March 14, 2020, the Company’s total revenues have been negatively impacted by approximately $23 million of cancelled group business, excluding potential cancellation fees. Other highlights:
- Nearly 85% of the group cancellations are concentrated in March (55%) and April (30%).
- At this time, less than 3% of group business cancellations extend beyond June 2020.
- Cancellation fees are expected to mitigate a portion of the expected losses.
- Geographically, nearly 41% of the group business cancellations are in Boston, 8.5% are in Chicago, 8.0% are in Fort Worth and less than 3% are in New York.
Mark W. Brugger, President and Chief Executive Officer of the Company stated, “DiamondRock’s hotels have seen a material uptick in group business and transient cancellations as a result of corporate and government travel restrictions. Our top priority is assisting public health efforts to slow the spread of COVID-19. We are working with our operators to ensure that we do all we can to protect our customers and employees of our hotels.”
In order to mitigate the financial impact of the slowdown in travel activity, DiamondRock is taking aggressive action at both the property and corporate level.
- To ensure DiamondRock has significant funds to meet its ongoing obligations, the Company has drawn the remaining $360 million on its $400 million credit facility. The Company currently holds unrestricted cash of approximately $380 million.
- The Board of Directors has approved a suspension of the quarterly dividend commencing with the first quarter dividend that would have been paid in April 2020. DiamondRock intends to pay a fourth quarter 2020 dividend sufficient to cover 100% of its taxable income for the year ending December 31, 2020. Depending upon the ultimate distribution requirement, the suspension of the dividend could preserve up to $100 million of capital.
In coordination with its hotel operators, the Company has developed actions plans to significantly reduce costs at each of its hotels:
- The Company has suspended operations at hotel restaurants and outlets where demand is insufficient or local prohibitions do not permit social gatherings.
- The Company is proactively “right-sizing” hotels to current demand levels in order to aggressively reduce costs and maximize efficiency.
- The Company has cancelled or deferred the vast majority of its capital expenditures.
Mark W. Brugger concluded, “It is our hope that our communities can take the difficult steps necessary to quickly and dramatically slow the spread of COVID-19. If our communities respond appropriately, the downturn in travel, while severe, should be comparatively short. While the U.S. travel industry is facing great uncertainty, we believe DiamondRock has the ability to withstand the current slowdown because of its strong balance sheet and liquidity position. We are taking all appropriate steps to preserve capital until we have visibility on the depth and duration of the pause in demand improves. Accordingly, we have drawn our credit facility and now have approximately $380 million of cash on our balance sheet. In addition, the Board believes the most conservative action is to suspend the quarterly dividend and to pay a dividend, if needed, at the end of the year equivalent to 100% of our taxable income. I have challenged our team to maximize our financial flexibility. New procedures are being instituted to reduce risk and protect the safety of our guests and team members. We are working closely with our operators to identify fresh approaches to reduce operating costs.”