DiamondRock Hospitality Company announced that it recently acquired the fee simple interest in the 184-suite Sheraton Suites Key West in Key West, Florida, for $94.0 million (or $511,000 per guest room). “We are very excited about our acquisition of this all-suites hotel, which represents our second acquisition in the highest RevPAR market in the United States,” said Mark W. Brugger, President and Chief Executive Officer of DiamondRock Hospitality Company.” With 480 square foot guestrooms, the Hotel features some of the largest rooms in the market. The Hotel is in excellent condition and features direct access to Smathers Beach, the largest and most popular beach in Key West.
“The company is finalizing its plans to reposition and re-launch the hotel as an independent lifestyle resort, leveraging the hotel’s high quality, superior room size, and beachfront location. As part of the repositioning plan, the company is developing a $5 million capital plan to improve the arrival experience, lobby, pool, and guest rooms. These renovations are expected to be minimally disruptive and will primarily be completed in the offseason. The conversion to an independent hotel is expected to take place in late 2016 after initial upgrades are completed.
The hotel will continue to be managed by Ocean Properties, a leading operator of over 100 branded and independent hotels, including six Key West hotels. “We are thrilled to establish a relationship with Ocean Properties, a proven leader in managing both branded and high-end, independent hotels,” added Mark W. Brugger. Ocean Properties is the Company’s 10th independent manager, and this hotel will be the Company’s 15th third-party managed hotel. Over 50% of the Company’s portfolio is now managed by leading third-party operators. “We are so pleased to be partnering with DiamondRock Hospitality Company, one of the top leaders in the hospitality industry in the United States,” said Mike Walsh, President of Ocean Properties. “This is an exceptional hotel with significant upside opportunities in a high-growth market that we know extremely well.
Key West is one of the most robust and consistent hotel markets in the United States. Development of additional hotel rooms on the island is prohibited by a Rate of Growth Ordinance which limits occupancy growth on the island, whether residential or transient. The combination of strong demand and capped supply has allowed Key West to become the highest RevPAR market in the country. As a testament to Key West’s stability, the market has also outperformed the United States average in each of the last two downturns. The company funded the acquisition with existing corporate cash and a draw on its line of credit. The company expects to end the year with nothing outstanding on its line of credit and approximately $250M in corporate cash after completing our refinancing initiatives.