Major renovations after the 2017 hurricanes are paused and Marriot Frenchman’s Reef, St. Thomas’s largest hotel, may be sold in the near future, as owner DiamondRock Hospitality’s finances are strained by the pandemic and the rise of Airbnb.
DiamondRock owns the property, under the Marriott brand, while Aimbridge Hospitality manages it. DiamondRock pays fees for the branding and management.
In DiamondRock’s 2020 financial statement for the U.S. Securities and Exchange Commission, released in March, company officials said, “The outbreak of the novel coronavirus … has impacted, and could continue to materially and adversely impact, our financial condition and results of operations.”
The proxy statement also says the “increase in the use of third-party internet travel intermediaries and the increase in alternative lodging channels, such as Airbnb, could adversely affect our profitability.”
They recorded an operating loss for 2020, fed largely by big, pandemic-related drops in travel.
The hotel was offline after hurricanes Irma and Maria both damaged the facilities. DiamondRock got an insurance settlement to rebuild and was starting the process when the pandemic hit.
“We are in the process of rebuilding Frenchman’s Reef but paused the reconstruction in March 2020 in response to COVID-19,” officials say in the proxy statement. While they are evaluating when or how to resume construction and hope to find a capital partner, “there is no guarantee that we will be able to engage a capital partner on terms favorable to us, or at all” and the work “may be more susceptible” to risks of cost overruns and delays due to its geographic isolation.
In 2020, DiamondRock recorded an impairment loss of $174.1 million related to Frenchman’s Reef. In layman’s terms, that means they reduced the value of the hotel as an asset on the company’s books because they believe future earnings are less than the book value of the hotel.
The statement indicates the hotel is likely to be sold.
These announcements come not long after the V.I. Economic Authority approved the company’s application to use its future hotel tax revenue to finance loans to pay for upgrades.
According to the financial statement, Frenchman’s Reef has long had V.I. tax breaks reducing the income tax rate to 4.4 percent, and that was reduced to 2.3 percent from 2020, through 2030.