DiamondRock Closes $495 Million Deal

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Publicly-traded DiamondRock Hospitality Company (NYSE: DRH) recently completed a $495 million deal involving four hotels from affiliates of Blackstone Real Estate Partners VI. The hotel portfolio picked up by DiamondRock comprised the Hilton Boston Downtown, the Westin Washington D.C. City Center, the Hilton Burlington, and the Westin San Diego.

Separately, DiamondRock also gained a significant new shareholder in Blackstone through a private placement of common stock.

"This off-market acquisition enhances our portfolio quality and growth prospects while adding to our brand and geographic diversity," DiamondRock CEO Mark Brugger said from his Bethesda, Md., headquarters. "In addition to growth from the ongoing recovery in lodging fundamentals within these markets, we believe that there are a number of upside opportunities within the acquisition portfolio that can be achieved through smart capital investment and aggressive asset management initiatives. Additionally, we welcome Blackstone as a significant shareholder and look forward to building on that relationship."

The acquisition was funded with a combination of borrowings under DiamondRock's senior unsecured credit facility, cash on hand, net proceeds from the company's recent public offering of common stock and the issuance of shares of the company's common stock to Blackstone.

Goldman, Sachs & Co. acted as the primary financial advisor to the DiamondRock in connection with the acquisition. BofA Merrill Lynch also provided financial advisor services to the company in connection with the transaction.

"We are pleased to close this transaction with DiamondRock, a company with solid assets and a strong management team led by Mark Brugger," said Jonathan D. Gray, Global Head of Real Estate at Blackstone. "We believe in the continued lodging recovery and are excited about receiving an ownership stake in the company."

The Westin San Diego, a 436-room full-service hotel located in downtown San Diego, is the largest of the four hotels now under control by DiamondRock. Featuring over 19,000 square feet of meeting space, the hotel is part of a premier San Diego mixed-use facility and was converted to the Westin brand in 2007.

The hotel is within walking distance of several major group and leisure demand generators, including the San Diego Convention Center, Seaport Village, Little Italy, the Gaslamp Quarter and is across the street from the new Federal Courthouse (expected to open in late 2012).  The Company plans to invest approximately $10 million in capital improvements over the next two years to renovate the hotel with an expectation of increasing market penetration, mostly through expected increases in average daily rate. The renovations will focus on the guestrooms and in the lobby area where there is an opportunity to design an enhanced arrival experience and capture greater revenue opportunities.

Across the country, the Hilton Boston Downtown is a 362-room full-service hotel located in the Financial District of downtown Boston with over 10,000 square feet of meeting space.  The Hilton Boston is the only full-service Hilton in downtown Boston and leverages the Hilton distribution system.

DiamondRock plans to invest approximately $6.0 million in capital improvements over the next two years in order to reposition the hotel to capture higher rated business transient demand.

In the nation's capital, the Westin Washington, D.C. City Center is a 406-room full-service hotel located in downtown Washington, D.C. with over 12,000 square feet of meeting space.  The hotel converted to the Westin brand in 2006 after undergoing a major renovation.  The hotel is centrally located to appeal to business and leisure guests visiting the K Street business corridor, White House, Washington Convention Center, National Mall and U.S. Capitol. The Company plans to invest approximately $13.0 million in capital improvements over the next two years to renovate the hotel with an expectation of increasing average daily rate and market penetration for all customer segments.

Meanwhile, the Hilton Burlington, a 258-room full-service hotel located in downtown Burlington, Vermont, wraps up the deal. DiamondRock executives believe that the hotel, with almost 16,000 square feet of meeting space, provides the best group experience in Burlington and is attractive to state and regional association groups year round.  The hotel's location near Lake Champlain makes it the premier location for Burlington's summertime destination activities and festivals.

The Company plans to invest approximately $6.0 million in capital improvements over the next two years to renovate the hotel with an expectation of increasing both group and leisure rates.

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of premium hotel properties.  With the completion of the recent acquisition, DiamondRock now owns 27 premium hotels with approximately 11,900 rooms, holds one senior mortgage loan secured by an additional hotel, and has the right to acquire, upon completion, a hotel under development in New York City.  The company's hotels are generally operated under globally recognized brands such as Hilton, Marriott, and Westin.