DiamondRock Recycles Capital with the Best of Them

BETHESDA, MD-According to DiamondRock Hospitality Co., the REIT is selling three hotels in its portfolio for a total of $262.5 million. It revealed this during its third quarter earnings call. The three properties are the 409-room Griffin Gate Marriott Resort and Spa in Lexington, KY; the 521-room Renaissance Waverly in Atlanta; and the 492-room Renaissance Austin, located in the Arboretum submarket of Austin, TX. An affiliate of Inland American is selling the 1,422-room portfolio, the sale of which is expected to close by year end.

There are a lot of reasons why the sale is good for DiamondRock, CEO Mark W. Brugger said in a prepared statement.  It “improves our portfolio quality, increases our concentration in key urban gateway locations and provides DiamondRock with significant investment capacity to be opportunistic despite the turmoil in the capital markets,” he said. Translation: these are non-core assets and their sale will allow DiamondRock to hunt for new opportunities. The REIT, in effect, in recycling its capital.

Certainly DiamondRock is not alone. If there is any one trend that is characterizing REITs’ buying and selling behavior these days it is capital recycling. The public markets are still open to REITs, but volatile enough for these companies to remain cautious with their portfolios. At the same time, for many REITs this is an excellent time to acquire. As Brugger said about DiamondRock, “the third quarter results reflect strong lodging fundamentals and our group booking pace for 2012 is excellent, with group revenue on the books up 10 percent.”

Another REIT that shifted some non-core assets off its books while grabbing a core property is Equity One. It just sold two non-core assets in California for $124.9 million and acquired a high end retail center in Miami for $55.5 million.

DiamondRock has also done well for itself securing new capital. Earlier this year, it closed on a new $100 million limited recourse loan, secured by a mortgage on the Hilton Minneapolis. At the time it said it was positioning itself to be a preferred buyer in the hotel acquisition market. “At the mid-point of our guidance, we project to have over $300 million of cash available for acquisitions in 2011, not including any incremental debt,” Brugger said when the loan closed. The REIT was unable to return a call to GlobeSt.com in time for publication.