Dealmaker: DiamondRock Hospitality Acquires Two Hotels for $97M

DiamondRock Hospitality Co., Bethesda, Md., acquired L’Auberge de Sedona and Orchards Inn Sedona from IMH Financial Corp., Paradise Valley, Ariz., in a $97 million off-market transaction.

The real estate investment trust funded the acquisition with existing corporate cash. The $614,000-per-key purchase price represents an 8 percent yield and 12.6 multiple on the resorts’ forecasted 2017 earnings.
DiamondRock President and CEO Mark Brugger said the assets offered a rare opportunity to own two properties in a high barrier-to-entry resort market.

The Sedona market is one of highest-growth hotel markets in the U.S., with revenue per available room increasing 11.3 percent in 2016, DiamondRock said. The market’s RevPAR grew at a 5.7 percent compound annual growth rate over the last 10 years, more than 200 basis points greater than the long-run national average. The city also has no new hotel supply under development.

Condé Nast ranked the 88-room L’Auberge the number one hotel in the southwest U.S. last year. Combined, the resorts include 158 guest rooms, 5,000 square feet of meeting space and two restaurants. IMH Financial Corp. invested more than $14 million into the properties since 2015.

“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,” Brugger said.

DiamondRock said it will invest a $5 million into a capital investment plan to position the resorts to capture additional revenue and market share. The real estate investment trust expects these initiatives will drive $9.5 million in earnings over the next two to three years.

IMH Financial Corp. will continue to manage L’Auberge de Sedona and Orchards Inn under a five-year management agreement.

With these acquisitions, DiamondRock owns 28 Class A hotels with more than 9,600 rooms operated under brands including Hilton, Marriott and Westin as well as boutique hotels in the lifestyle segment.