DiamondRock shares waver after public stock offer

Shares of DiamondRock Hospitality Co. wavered on Tuesday after the hotel real estate investment trust offered 15.5 million of its shares to the public, but noted that it has not made progress in selling any of its properties.

Late Tuesday, DiamondRock said the public offering priced at $4.85 per share, which implies gross proceeds of about $75.2 million.

The underwriters have been granted a 30-day option to buy up to about 2.3 million additional common shares to cover possible overallotments.

In a statement, the company said it plans to use the net proceeds from the offering to pay down debt and for general corporate purposes.

Friedman Billings Ramsey analyst C. Patrick Scholes, however, expects that the proceeds may be used to bolster DiamondRock's cash reserves for potential purchases of distressed assets.

Scholes said having cash reserves and a strong balance sheet is "ideal" for hotel REITS at this time, because he expects "significant influx of distressed hotel assets hitting the market later this year." He said DiamondRock is being proactive in building a "war chest" for acquisitions.

The analyst predicted that other hotel REITs may follow DiamondRock in issuing equity.

Also Monday, DiamondRock said revenue per available room at its comparable hotels dropped 16.5 percent in the fiscal first quarter ended March 27. Revenue per available room, or revpar, is a key gauge of a hotelier's performance.

DiamondRock also said it has not received "attractive" bids on any of the 11 hotels it has put up for sale. The company is considering selling one or two of the properties and said it continues to evaluate that option.

DiamondRock shares gained 8 cents to $5.17 in afternoon trading, after gaining as much as 8.3 percent earlier in the session. The stock has traded between $2.30 and $14.65 during the past 52 weeks.