ATLANTA-Two large local hotels belonging to Bethesda, MD-based DiamondRock Hospitality Co. are being put on the market as the REIT attempts to overcome declining profits and reduce its exposure to weaker markets. Sources point to the 369-room Westin Atlanta Perimeter North and the 318-room Atlanta Marriott Alpharetta, both which are suburban properties.
DiamondRock on Wednesday posted 9% lower funds from operations for its third quarter ending Sept. 5, to $30.5 million from $33.4 million a year ago. The company cited the overall economy and declining demand for hotel rooms as reasons for the falling FFO.
"We expect fundamentals to remain difficult over the next several quarters and are managing the business accordingly," DiamondRock CEO Mark Brugger said in a prepared statement. He added that the company's management is focused on containing costs to maximize profits.
John Williams, Diamond president and chief operating officer, said during Wednesday's earnings call that tough economic times, like storms, are difficult to read and predict. "Our objective is to react promptly to what we know and prepare prudently for what we don't know," he said.
Williams indicated that Atlanta is currently among the company's weaker markets, along with Chicago and Orlando, FL. DiamondRock owns the Conrad Chicago, the Chicago Marriott Downtown Magnificent Mile and the Orlando Marriott Airport in those cities.
DiamondRock, which also owns the 521-room Renaissance Waverly Hotel in Atlanta, bought the Westin Perimeter North in 2006 for $61.5 million and the Marriott Alpharetta in 2005 for $39.3 million, plus the added expense of ballroom renovations earlier this year. Local hotel brokers say they aren't certain how much those properties will fetch in the current market, given reduced demand and the ongoing credit crunch.
The good news for DiamondRock is that its third-quarter FFO was in line with analysts' expectations, while its 3% decline in revenue of $161.4 million was not as deep as they thought it would be. The company stated that it tapped into a $55-million credit line in late summer "to manage perceived risks of some bank participants during the recent market turmoil."
Across the board, hotel companies have taken a hit during the ongoing economic downturn. Some analysts are predicting declines in revenue per available room of nearly 6% next year, followed by 2% in 2010, and foresee a U-shaped recovery.
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