DiamondRock Closes Financing - Analyst Blog

By Zacks | December 21, 2012 AAA

In an effort to reduce its interest costs and extend its debt maturity, DiamondRock Hospitality Co. (DRH), a real estate investment trust (REIT), recently closed on a $74 million loan financing secured by  its Westin Washington D.C. City Center hotel. The 10-year loan carries a fixed interest rate of 3.99%. With this transaction, of the 27 hotels owned by DiamondRock, 15 remain unencumbered by property-specific mortgage debt.

The proceeds from the loan will be utilized to repay outstanding debts on the company's credit facility. DiamondRock expects to have approximately $20 million outstanding debt under its $200 million senior unsecured credit facility by the end of 2012.

The strategic move is aimed to significantly reduce its borrowings under its credit facility, lower its  interest burden, and capitalize on further growth opportunities. As of September 7, 2012, the company had $21.6 million of unrestricted cash on hand and approximately $1.0 billion of total debt.

DiamondRock is an owner of premium hotel properties. The company acquires and invests in upscale hotels under the Hilton, Marriot and Westin brands across the U.S. The company reported adjusted FFO (funds from operations) of 18 cents per share in the third quarter of 2012, missing the Zacks Consensus Estimate by a penny. Currently, the company owns 27 premium hotels with approximately 11,600 rooms.

DiamondRock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We have a long-term Neutral recommendation on the stock. One of its competitors, Ashford Hospitality Trust Inc (AHT) holds a Zacks #3 Rank, which translates into a short term Hold rating.

Note: Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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