DIAMONDROCK HOSPITALITY ACQUIRES THE AC HOTEL MINNEAPOLIS DOWNTOWN

Rhea-AI Summary

DiamondRock Hospitality Company (NYSE: DRH) has acquired the AC Hotel Minneapolis Downtown for $30 million ($122,000 per key). The 245-room hotel, built in 2016, is located in downtown Minneapolis, a major hub for Fortune 1000 companies and biotechnology. The acquisition represents an 8.2% capitalization rate on forecasted 2024 net operating income and brings DRH's portfolio to 37 hotels. The property is expected to add 20 basis points to comparable full-year RevPAR growth and 10 basis points to Total RevPAR growth, though it won't significantly impact 2024 Adjusted EBITDA or FFO per share.

Positive

• Acquisition price of $122,000 per key represents significant discount to replacement cost
• 8.2% capitalization rate on forecasted 2024 net operating income
• Minimal future capital requirements due to recent construction (2016)
• Property expected to contribute positively to RevPAR and Total RevPAR growth
• Immediate yield generation from existing cash flow

Negative

• No meaningful contribution to 2024 Adjusted EBITDA or FFO per share
• $30 million cash expenditure impacts company's liquidity

Insights

Financial Analyst

The acquisition of AC Hotel Minneapolis Downtown for $30 million represents a strategic move with several positive financial implications. At $122,000 per key, the purchase price appears attractive compared to typical replacement costs for similar properties. The 8.2% capitalization rate indicates a solid potential return on investment, significantly above current market averages for hotel properties.

The minimal impact on 2024 guidance suggests conservative financial planning, while the modest RevPAR and Total RevPAR growth contributions (20 and 10 basis points respectively) indicate potential for future upside. The cash purchase demonstrates strong balance sheet management and efficient capital deployment, particularly noteworthy in the current high-interest-rate environment.

Market Research Analyst

Minneapolis's downtown market positioning is particularly compelling for this acquisition. The area's high concentration of Fortune 1000 companies and growing biotechnology sector provides a diverse demand base for corporate travel. The 2016 construction date means minimal immediate capital expenditure requirements, while the property's location in a recovering market suggests potential for revenue growth as office occupancy rates improve.

The AC Hotel brand's modern, business-focused concept aligns well with the market's corporate demographic. This acquisition brings DiamondRock's portfolio to 37 properties, enhancing geographic diversification and strengthening their presence in key business markets.

BETHESDA, Md., Nov. 15, 2024 /PRNewswire/ -- DiamondRock Hospitality Company (the "Company") (NYSE: DRH) today announced it has acquired the fee simple interest in the 245-room AC Hotel Minneapolis Downtown (the "Hotel") for $30 million, or approximately $122,000 per key with cash on hand. The Hotel, constructed in 2016, is located in downtown Minneapolis, which has one of the largest concentrations of Fortune 1000 companies in the world and is also a major hub for biotechnology and medical innovation.

"The AC Hotel Minneapolis Downtown represents an opportunity to acquire a recently constructed urban hotel with good in-place cash flow in a rapidly recovering hotel market with a strong roster of companies increasing their return to the office," said Jeffrey Donnelly, Chief Executive Officer of DiamondRock Hospitality Company. "The acquisition is aligned with our strategic objectives as we evaluate our portfolio and look to recycle capital efficiently into hotels at a significant discount to replacement cost with minimal future capital requirements while also providing the Company with immediate yield."

The acquisition represents a 8.2% capitalization rate on the Hotel's forecasted 2024 net operating income and brings the total number of properties in the Company's portfolio to 37 hotels. The acquisition of the Hotel was not contemplated in the Company's updated full-year 2024 guidance issued on November 7, 2024.  Given the timing of the acquisition, the Hotel will not contribute meaningfully to the Company's full year 2024 Adjusted EBITDA or Adjusted FFO per share. However, the Hotel is expected to be included in the Company's comparable metrics and add approximately 20 basis points to the Company's comparable full-year RevPAR growth and 10 basis points to the comparable full-year Total RevPAR growth.

About the Company

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 leisure destinations and top gateway markets. The Company currently owns 37 premium quality hotels and resorts with over 10,000 rooms. The Company has strategically positioned its portfolio to be operated both under leading global brand families as well as independent boutique hotels in the lifestyle segment. For further information on the Company and its portfolio, 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," "plan" 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: the adverse impact of any future pandemic, epidemic or outbreak of any highly infectious disease on the U.S., regional and global economies, travel, the hospitality industry, and the financial condition and results of operations of the Company and its hotels; national and local economic and business conditions, including 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; 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 other risk factors contained in the Company's filings with the Securities and Exchange Commission. 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 Hotel Net Income to Hotel Net Operating Income
(Unaudited, in millions)
Hotel net income	$       1.6
Adjustment:
Depreciation and amortization	1.3
Hotel EBITDA	$       2.9
Adjustment:
Capital reserve	(0.4)
Hotel net operating income	$       2.5

Hotel EBITDA and net operating income are non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) Rules. The Company's presentation of the hotel's forecasted EBITDA and forecasted net operating income after capital reserves should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of the hotel's financial performance. The table above is a reconciliation of the hotel's forecasted EBITDA and net operating income after capital reserves calculations to hotel net income in accordance with GAAP. The Company has presented forecasted hotel EBITDA and forecasted hotel net operating income after capital reserves, because it believes these measures provide investors and analysts with an understanding of the hotel-level operating performance.

View original content:https://www.prnewswire.com/news-releases/diamondrock-hospitality-acquires-the-ac-hotel-minneapolis-downtown-302306419.html

SOURCE DiamondRock Hospitality Company

FAQ

How much did DiamondRock Hospitality (DRH) pay for AC Hotel Minneapolis Downtown?

DiamondRock Hospitality paid $30 million, or approximately $122,000 per key, for the AC Hotel Minneapolis Downtown.

What is the capitalization rate for DRH's AC Hotel Minneapolis acquisition?

The acquisition represents an 8.2% capitalization rate on the hotel's forecasted 2024 net operating income.

How will the AC Hotel Minneapolis acquisition impact DRH's 2024 RevPAR?

The hotel is expected to add approximately 20 basis points to DRH's comparable full-year RevPAR growth and 10 basis points to Total RevPAR growth.

How many properties does DiamondRock Hospitality (DRH) now own after the AC Hotel acquisition?

Following the AC Hotel Minneapolis acquisition, DiamondRock Hospitality's portfolio includes 37 hotels.