Bethesda-based real estate investment trust (REIT),
DiamondRock Hospitality Company (
, recently announced the acquisition of Hotel Rex in San
Francisco for $29.5 million. This major acquisition marks the
entry of DiamondRock in San Francisco.
The 94-room Hotel Rex was opened in 1996 and is managed by Joie
de Vivre Hospitality, Inc. The hotel is situated in the heart of
San Francisco city in close proximity to city landmarks
such as Union Square, Moscone Convention Center, Yerba Buena
Gardens and the Museum of Modern Art.
Hotel Rex is a well-equipped boutique hotel, which caters to
both leisure and business travelers, and enjoys current occupancy
rate of over 85%. DiamondRock intends to invest in further
renovation and development of the property to hike Average Daily
Rate (ADR) and also avail leased space opportunities for
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DiamondRock anticipates that the hotel will generate revenue per
available room (RevPAR) of over $150 in 2012, which represents a
year-over-year increase of 20%. RevPAR is expected to increase
over 10% in 2013 backed by strong demand for all guest types in
The acquisition is in line with the company's ongoing portfolio
restructuring activity. The company is actively selling off the
non-core properties and using the proceeds to purchase assets in
fast growing regional markets in the U.S. In October 2012,
DiamondRock sold a
Starwood Hotels and Resorts Worldwide Inc. (
property - Westin Atlanta Perimeter North - for $39.6 million.
The hotel was sold to a joint venture among Carey Watermark
The Arden Group Inc. (
and Marcus Hotels & Resorts of
The Marcus Corporation (
San Francisco, the leading financial and cultural center of
Northern California and the San Francisco Bay Area, is one of the
top tourist destinations in the world. Year-to-date through
October 2012, the city recorded strong performance with RevPAR
growth of approximately 14.0%. The city's lodging industry mainly
benefits from high demand and lack of new hotel supply.
Moreover, the advent of highly profitable events in the city
going forward will likely boost the operating performance of the
lodging market in coming years. These growth factors have caught
the attention of DiamondRock. However, DiamondRock should be wary
of its competitors. Its top peers,
Strategic Hotels & Resorts, Inc. (
FelCor Lodging Trust Incorporated (
, already have a strong presence in the city.
DiamondRock owns, acquires, and invests in upscale hotels under
the Hilton, Marriott and Westin brands across the U.S. The
company reported adjusted FFO (funds from operations) of 18 cents
in the third quarter of 2012, missing the Zacks Consensus
Estimate by a penny. Its current property portfolio includes 27
hotels with over 11,600 rooms.
We have a long-term Underperform recommendation on DiamondRock.
Also, it carries a short-term Zacks #4 Rank (Sell).
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization and
other non-cash expenses to net income.