DiamondRock lets go of underperforming hotel

(Orlando Airport Marriott)

DiamondRock Hospitality Company completed the sale of the 485-room Orlando Airport Marriott Lakeside for roughly $67 million. The total consideration of the sale, adjusted to include the cost of projected near-term capital expenditures, represents a 7.2-percent capitalization rate on the hotel's net operating income for the year ended Dec. 31, 2015.

"We are pleased to complete the sale of the Orlando Airport Marriott and execute upon our strategy of disposing of non-core assets and building strategic capacity to remain opportunistic and flexible at this stage of the cycle," said Mark W. Brugger, president and CEO of DiamondRock Hospitality. "This hotel represents the lowest RevPAR property in our portfolio, requires significant near-term capital investment, and reached prior peak Hotel Adjusted EBITDA that has grown nearly 60% over the last two years. We expect to pursue the disposition of additional non-core hotels and be a net seller for the remainder of 2016."

For the year ending Dec. 31, 2015, the Hotel generated RevPAR of approximately $92, which was over 45 percent below DiamondRock's 2015 Pro Forma RevPAR of $171.79. The sale raises the Company's average 2015 RevPAR by nearly $4 pro forma for the disposition.

The total consideration, including near-term capital expenditures, represents a 4.9-percent capitalization rate on the Hotel's average net operating income and a 16.2x multiple on the hotel's average hotel adjusted EBITDA for the five year period ended Dec. 31, 2015.

DiamondRock expects to record a gain on the sale. The company's full year 2016 guidance assumed the Hotel generated adjusted EBITDA and adjusted FFO of approximately $3.1 million and $2.7 million, respectively, following the sale, which closed on June 8, 2016. The sale will also reduce the company's second quarter adjusted EBITDA and adjusted FFO by approximately $0.3 million.

The cash proceeds from the sale were used to repay the $20 million outstanding on its senior unsecured credit facility and to build unrestricted cash.