NEW YORK CITY DiamondRock Hospitality Co. has acquired the 169-key Hilton Garden Inn Chelsea hotel in New York City for US$68.4 million, its third hotel purchase in the city.
“We are extremely pleased to acquire our third hotel in New York City at an attractive valuation that will be immediately accretive to earnings,” says DiamondRock CEO Mark Brugger. “New York City has proven to be one of the best hotel markets in the United States and is exhibiting robust growth in 2010. The hotel was particularly desirable to DiamondRock because of its ability to charge essentially full-service room rates with a more profitable limited-service cost structure as a result of its strong Hilton Garden Inn branding, access to Hilton Worldwide’s powerful reservations system and traveler loyalty generated from the Hilton guest rewards program.”
The hotel is recently constructed and opened at the end of 2007. Its location produces leisure demand from its close proximity to Times Square, the Empire State Building and Madison Square Garden. Moreover, Chelsea derives strong business transient demand from its central access to both Midtown and Downtown as well as major transportation hubs.
The New York City lodging market has produced the highest long-term RevPAR growth in the United States and is viewed as one of the most desirable hotel markets in the country. The market was significantly impacted by the global financial crisis in 2008 and 2009 and is currently in the early stages of recovery. The strength of the Manhattan market has provided consistent demand and recent pricing power, as evidenced by market occupancy of close to 80% and ADR of more than US$200 through the first seven months of 2010.
The purchase price of US$68.4 million represents a 12.9 multiple of the hotel’s 2010 full-year forecasted EBITDA of US$5.3 million and better than a 7% capitalization rate on forecasted 2010 full-year net operating income of US$4.8 million. The hotel is projected to generate US$6 million in 2011.
The acquisition was funded by DiamondRock’s corporate cash. The company expects to end 2010 with an unrestricted cash balance of approximately US$90 million, no near-term debt maturities and an untapped US$200 million corporate revolver.
DiamondRock is retaining the current hotel manager subject to a new, short-term agreement.