("DiamondRock") (NYSE: DRH) today announced that it has entered into a definitive agreement with a Boston based developer to acquire the leasehold interest in the recently built 793-room Westin Boston Waterfront Hotel, which is attached to the recently built convention center in downtown Boston, Massachusetts. In addition to the Westin Boston Waterfront Hotel, the acquisition will include a leasehold interest in 100,000 square feet of retail space and an option to acquire a leasehold interest in an adjacent site with development rights to build a new hotel with approximately 325 rooms. The contractual purchase price for all three of the assets is $330.3 million. We project that the existing hotel and retail space will generate $24.6 million of earnings before interest, taxes, depreciation and amortization (or "EBITDA") for the full year 2007 and $31.8 million in 2008. The retail space is not expected to begin generating cash flow until 2008. Including the cost of expected tenant improvements in the retail space, the estimated total investment of $350 million by 2008 represents an 11 times multiple of forecasted 2008 EBITDA (not including any income from the option on the development site).
"This opportunity is an excellent fit with DiamondRock's strategy of building a portfolio of high quality, high growth hotels located in urban and resort locations. The hotel is located in the rapidly developing Seaport District of downtown Boston, which is one of the most vibrant redevelopment areas on the East Coast. The Seaport District is expected to see the building of a new mall, millions of square feet of office space and thousands of residential units over the next several years. Its proximity to the airport, the financial district, waterfront and the Back Bay make it the logical focus point for growth within Boston," commented William W. McCarten, Chairman and Chief Executive Officer of DiamondRock.
"The Westin Boston Waterfront Hotel is one of the most exciting acquisition opportunities I have seen. The hotel is physically attached to the new convention center and will always be the preferred hotel for convention attendees. Boston remains one of the most requested convention venues in the country. Moreover, this hotel has great growth prospects. The Seaport District has many similarities to the Copley District in the 1980's. The combination of Seaport District growth and the normal ramp up of a convention hotel should yield several years of outsized growth," added John Williams, President and Chief Operating Officer of DiamondRock.
DiamondRock expects to close on the acquisition of the existing hotel and the rights to the development site prior to the end of the Company's first quarter. The closing on the retail space is expected to occur later this year as subject to the satisfaction of certain closing conditions. DiamondRock has made a $3 million non-refundable deposit upon entering into the purchase agreement. Moreover, the closing of the acquisition is subject to several customary conditions.
The Acquisition. The Westin Boston Waterfront Hotel opened in June 2006 and contains 793 rooms and approximately 32,000 square-feet of meeting space. The Westin Boston Waterfront Hotel is attached to the recently built Boston Convention and Exhibition Center, or the BCEC, and is located in the Seaport District. The Westin Boston Waterfront Hotel includes a full service restaurant, a lobby lounge, a Starbucks licensed cafe, a 400-car underground parking facility, a fitness center, an indoor swimming pool, a business center, and a gift shop. The Westin Boston Waterfront Hotel has the right until 2017 to use, on an as available basis, up to 50,000 square feet of meeting space and up to 40,000 square feet of ballroom space at the BCEC.
The retail space is a separate three floor 100,000 square foot building attached to the Westin Boston Waterfront Hotel. We intend to convert a portion of the space into prime meeting and exhibit space and lease the remainder to prime upscale restaurants.
The hotel development site is a 1 1/2 acre parcel of vacant land that is immediately adjacent to the Westin Boston Waterfront Hotel. The site is zoned for approximately 325 rooms and 100 underground parking spaces and, upon construction, could also be attached to the BCEC. The new hotel would either be an expansion of the existing hotel or a separate Starwood branded hotel.
