DiamondRock Hospitality Co., a lodging-focused Maryland corporation operating as a real estate investment trust, announced that it has acquired two resorts in Sedona for $97 million, according to a filing Tuesday with the Securities and Exchange Commission.
The company upwardly revised its 2017 earnings guidance from 92 cents per share to 96 cents per share, reflecting an additional $7.5 million of expected earnings attributable to the acquisition.
DiamondRock’s primary business is to acquire, own and renovate full-service hotel properties. The company owns a portfolio of 28 hotels in the United States, consisting of over 9,600 rooms. Subsidiaries of the company’s partnership, DiamondRock Hospitality Limited Partnership, own the individual hotels.
The company’s most recent purchases, the 88-room L’Auberge and the adjacent 70-room Orchards Inn, include a combined 158 guest rooms, 5,000 square feet of meeting space, outdoor wedding venues and two restaurants.
Since 2015, the resorts have undergone $14 million in renovations, and DiamondRock plans to spend $5 million on renovations in the off-seasons over the next two years.
The company said it expects earnings driven by the labor productivity and lower food and beverage cost initiatives that it plans to implement to reach approximately $9.5 million over the next two to three years.
“This acquisition represents a rare opportunity to own two high-quality resort properties in a coveted, high barrier-to-entry resort market,” said Mark Brugger, president and chief executive officer of DiamondRock.
“While we believe the initial pricing of the deal is attractive, we have identified significant opportunities to increase profitability through the implementation of our well-proven asset management practices and thoughtful capital enhancements.”
The $97 million purchase price represents an 8 percent yield and 12.6 multiple on the resorts’ forecasted 2017 earnings before interest, taxes, depreciation and amortization. The yield is calculated by dividing the hotels’ net operating income by the purchase price.
In May 2011, DiamondRock announced a $72.6 million purchase price for JW Marriott Denver.
In December 2014, DiamondRock bought the Westin Beach Resort & Spa in Fort Lauderdale, Florida for $149 million.
Investor demand for luxury resorts has recovered from the 2008 real estate crash partly because of little new construction in the industry. The Sedona market is one of the highest-growth markets in the U.S., with no new hotel supply under development in the near-term.
DiamondRock trades on the the New York Stock Exchange under the ticker “DRH.” Shares closed down 3 percent at $10.87 Tuesday with about 3.2 million shares trading hands. The company sees an average trading volume of 2.7 million shares.
