Hotel Transaction Florida

DiamondRock Acquires The Inn at Key West for $47.5 Million

DiamondRock Hospitality Company (NYSE: DRH) announced that it recently acquired the fee simple interest in a 106-room boutique hotel, The Inn at Key West in Key West, Florida, for a contractual purchase price of $47.5 million (or $448,000 per guest room).
The Inn at Key West
DiamondRock Acquires The Inn at Key West for $47.5 million

DiamondRock

DiamondRock Hospitality Company (NYSE: DRH) announced that it recently acquired the fee simple interest in a 106-room boutique hotel, The Inn at Key West in Key West, Florida, for a contractual purchase price of $47.5 million (or $448,000 per guest room).  The contractual purchase price represents a 12.1 multiple on forecasted 2014 Hotel earnings before interest, taxes, depreciation and amortization ("EBITDA") of $3.9 million and a 7.6% capitalization rate on the Hotel's 2014 forecasted net operating income.

"The Inn at Key West is a highly attractive off-market investment located in the highest RevPAR market in the United States," said Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company.  "The acquisition meets all of our stated investment criteria as it is located within a prime destination resort market, requires limited near-term capital investment, and is an immediately accretive use of our investment capacity.  Moreover, we are pleased to enter the Key West market, which is a high-RevPAR, high-growth resort market.  This acquisition adds an outstanding hotel to our high-quality portfolio."

The boutique resort hotel includes many unique resort amenities, including one of the best pool experiences in the market with the largest fresh water pool in Key West. The Hotel is accessed by North Roosevelt Boulevard, the main thoroughfare in Key West, which recently underwent a significant beautification project that includes the addition of a new boardwalk experience along the Salt Pond Keys. Moreover, it is located minutes from the epicenter of Key West such as the Old Town and Duval Street

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Key West's temperate climate, access to premier water sports, and unique culture has resulted in consistent year-round lodging demand.  We believe supply risk is significantly mitigated because development of additional hotel rooms on the island is prohibited by the Rate of Growth Ordinance.  This favorable combination of strong demand and capped supply has led Key West to have the highest Occupancy, Average Daily Rate ("ADR"), and Revenue per Available Room ("RevPAR") levels in the United States. In the twelve-month period ended June 30, 2014, the Key West market tract achieved year-over-year RevPAR growth of 21.8%.

In the twelve-month period ended June 30, 2014, The Inn at Key West achieved a RevPAR of $174 from a combination of 86.3 percent occupancy and an ADR of over $202. The EBITDA for the Company's ownership period in 2014 is expected to be approximately $1.0 million, with approximately 80% of that amount earned during the fourth quarter. 

The acquisition of the Hotel achieves several Company strategic objectives including increasing the quality, as measured by RevPAR, of its portfolio as well as further diversifying the Company's brand and manager representation. The Hotel underwent an extensive renovation in 2009 and will remain an independently branded hotel operated by an independent management company. The Company plans to implement at the Hotel its asset management best practices, with a focus on revenue management strategies and cost containment programs in both the rooms and food & beverage departments.

The Company funded the acquisition with existing corporate cash.  The acquisition of The Inn at Key West brings the total representation of resorts within the Company's portfolio to 16 percent.

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in top gateway markets and destination resort locations. The Company owns 27 premium quality hotels with over 11,000 rooms. The Company has strategically positioned its hotels to generally be operated under leading global brands such as Hilton, Marriott, and Westin.

2014

Forecast

2014 Period of

Ownership

Estimated Net Income

$     2,450

$          465

Income Tax Expense

75

20

Depreciation Expense

1,375

515

Interest Expense

-

-

Estimated EBITDA

$     3,900

$        1,000



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