DiamondRock Acquires New York City Hilton Garden Inn
BETHESDA, Md., Sept 13, 2010 /PRNewswire via COMTEX/ --
DiamondRock Hospitality Company (the "Company") (NYSE: DRH) today announced that it has acquired the 169-room Hilton Garden Inn Chelsea New York City (the "Hotel"). The purchase price of $68.4 million represents a 12.9 multiple of 2010 EBITDA and a 7% capitalization rate on 2010 net operating income.
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"We are extremely pleased to acquire our third hotel in New York City at an attractive valuation that will be immediately accretive to earnings. New York City has proven to be one of the best hotel markets in the United States and is exhibiting robust growth in 2010. The Hotel was particularly desirable to DiamondRock because of its ability to charge essentially full-service room rates with a more profitable limited service cost structure as a result of its strong Hilton Garden Inn branding, access to Hilton Worldwide's powerful reservations system, and traveler loyalty generated from the Hilton guest rewards program," said Mark W. Brugger, Chief Executive Officer of DiamondRock Hospitality Company.
The Hotel is recently constructed and opened at the end of 2007. The Hotel occupies a convenient location in Chelsea on West 28th Street, between 6th and 7th Avenues in New York City. Chelsea has become one of the most desirable 24-hour destinations in Manhattan given its abundance of restaurants, nightlife and shopping. The location produces leisure demand from its close proximity to prime travel destinations such as Times Square, the Empire State Building and Madison Square Garden. Moreover, Chelsea derives strong business transient demand from its central access to both Midtown and Downtown as well as major transportation hubs. Importantly, the Hotel is located only one block from a Subway Station.
The New York City lodging market has produced the highest long-term RevPAR growth in the United States and is viewed as one of the most desirable hotel markets in the country. The market was significantly impacted by the global financial crisis in 2008 and 2009 and is currently in the early stages of a strong recovery. The strength of the Manhattan market has provided consistent demand and recent pricing power as evidenced by market occupancy of close to 80% and average daily rate of over $200 through the first seven months of 2010.
The purchase price of $68.4 million represents a 12.9 multiple of the Hotel's 2010 full-year forecasted EBITDA of $5.3 million and better than a 7% capitalization rate on forecasted 2010 full-year net operating income of $4.8 million. The Hotel is projected to generate approximately $2.5 million of EBITDA during the Company's 2010 ownership period and approximately $6.0 million in 2011. The Company expects the Hotel to generate RevPAR growth of over 20% in 2010 with an average daily rate of over $200 and an EBITDA margin of approximately 45%. Additionally, the Hotel has outperformed its competitive set in terms of both occupancy and average rate through the first seven months of 2010 resulting in a RevPAR penetration of over 100 percent.
The Company retained the current Hotel manager subject to a new, short-term management agreement. The acquisition was funded by the Company's corporate cash. The Company now expects to end 2010 with an unrestricted cash balance of approximately $90 million, no near-term debt maturities, and an untapped $200 million corporate revolver.
About the Company
DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of premium hotel properties. Including the acquisition of the Hilton Garden Inn Chelsea New York City, the Company owns 23 hotels with over 10,700 rooms as well as the senior note on a 443-room hotel. For further information, please visit DiamondRock Hospitality Company's website at www.drhc.com.
This press release contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms and phrases such as "believe," "expect," "intend," "project," "forecast," and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: national and local economic and business conditions including an economic downturn in New York City; the potential for additional terrorist attacks that will affect occupancy rates at the Company's hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of the Company's indebtedness; relationships with property managers; the ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations which influence or determine wages, prices, construction procedures and costs; and the ability to achieve the returns that the Company expects from the Hilton Garden Inn Chelsea, including its forecasts of EBITDA and NOI. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of the date of this release, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.
Reconciliation of Forecasted Net Income to EBITDA and NOI (in
thousands)
2010 Period Full Year Full Year
of 2010 2011
Ownership ---------- ----------
---------
Net Income $1,750 $2,900 $3,600
Income Taxes 50 100 100
Depreciation
Expense 700 2,300 2,300
Interest Expense - - -
--- --- ---
EBITDA $2,500 5,300 $6,000
====== ======
Less: Escrow
Contributions (500)
----
Net Operating
Income (NOI) $4,800
======
Total Revenues $11,600
=======
EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. We believe it is a useful financial performance measure for us and for our stockholders and is a complement to net income and other financial performance measures provided in accordance with GAAP. We use EBITDA to measure the financial performance of our operating hotels because it excludes expenses such as depreciation and amortization, income taxes and interest expense, which are not indicative of operating performance. By excluding interest expense, EBITDA measures our financial performance irrespective of our capital structure or how we finance our properties and operations. By excluding depreciation and amortization expense, which can vary from hotel to hotel based on a variety of factors unrelated to the hotels' financial performance, we can more accurately assess the financial performance of our hotels. Under GAAP, hotels are recorded at historical cost at the time of acquisition and are depreciated on a straight-line basis. By excluding depreciation and amortization, we believe EBITDA provides a basis for measuring the financial performance of hotels unrelated to historical cost. However, because EBITDA excludes depreciation and amortization, it does not measure the capital we require to maintain or preserve our fixed assets. In addition, because EBITDA does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. EBITDA, as calculated by us, may not be comparable to EBITDA reported by other companies that do not define EBITDA exactly as we define the term. Because we use EBITDA to evaluate our financial performance, we reconcile it to net income (loss) which is the most comparable financial measure calculated and presented in accordance with GAAP. EBITDA does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity. EBITDA margin is calculated as EBITDA divided by total revenues.
Net Operating Income (or NOI) is defined as net income (loss) before interest, income taxes, depreciation and amortization and less contributions to FF&E escrows. We believe it is a useful financial performance measure for us and for our stockholders and is a complement to net income and other financial performance measures provided in accordance with GAAP. We use NOI to measure the financial performance of our operating hotels because it excludes expenses such as depreciation and amortization, income taxes and interest expense, which are not indicative of operating performance. By excluding interest expense, NOI measures our financial performance irrespective of our capital structure or how we finance our properties and operations. By excluding depreciation and amortization expense, which can vary from hotel to hotel based on a variety of factors unrelated to the hotels' financial performance, we can more accurately assess the financial performance of our hotels. Under GAAP, hotels are recorded at historical cost at the time of acquisition and are depreciated on a straight-line basis. By excluding depreciation and amortization, we believe NOI provides a basis for measuring the financial performance of hotels unrelated to historical cost. In addition, because NOI does not reflect interest expense, it does not take into account the total amount of interest we pay on outstanding debt nor does it show trends in interest costs due to changes in our borrowings or changes in interest rates. By excluding contributions to FF&E escrows, we can more accurately assess the cash generated for our hotels' operations. Because we use NOI to evaluate our financial performance, we reconcile it to net income (loss) which is the most comparable financial measure calculated and presented in accordance with GAAP. NOI does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to operating income or net income determined in accordance with GAAP as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of liquidity.
SOURCE DiamondRock Hospitality Company