BETHESDA, Md.—DiamondRock Hospitality Company has entered into a purchase and sale agreement to sell the 1,004-room Los Angeles Airport Marriott. This transaction is the result of a reverse inquiry from the same buyer who purchased the Torrance Marriott from the company in late 2013.
The company will receive total gross consideration from the sale of the hotel of approximately $160 million, including payment for the hotel’s capital reserve. The total consideration represents a 6.6 percent capitalization rate on the hotel’s net operating income of $10.5 million for the trailing 12-month period ended Sept. 30, 2014. The company expects the transaction to close late in 2014, subject to the satisfaction of customary closing conditions.
“Over the past few years, we have transformed our portfolio through strategic divestitures of non-core hotels and targeted acquisitions to focus on premium lodging assets in urban gateway markets. We are pleased to announce the agreement to sell this non-core, airport hotel, illustrating our commitment to take advantage of an attractive transaction market,” said Mark W. Brugger, president and chief executive officer of DiamondRock Hospitality Company.
The company acquired the hotel in 2005 for approximately $118 million and expects to generate a leveraged internal rate of return over 16 percent on its investment. The hotel was last renovated by the company during 2006. The total consideration plus an estimated $15 million of incremental capital expenditures represents a 6 percent capitalization rate on the hotel’s net operating income of $10.5 million for the trailing 12-month period ended Sept. 30, 2014. The company expects to record a gain on the sale, which will be excluded from its reported Adjusted EBITDA and Adjusted FFO.
The company expects to realize net proceeds from the disposition of approximately $158 million, as $2 million of the total consideration will be used to defease the existing $82.6 million mortgage secured by the hotel. The company will exclude the defeasance cost from its reported Adjusted EBITDA and Adjusted FFO.
The company believes that the sale of the Los Angeles Airport Marriott will achieve its strategic objectives to improve the quality of its portfolio and to increase its portfolio allocation to third-party managed hotels. The sale is expected to increase the company’s 2014 pro-forma portfolio RevPAR by approximately $4.50 and increase the company’s exposure to third-party managed hotels by approximately 300 basis points.