To strengthen its presence in the West Coast and leverage on the growing fundamentals, RLJ Lodging Trust (RLJ) is acquiring a 10-hotel portfolio from the affiliates of Hyatt Hotels Corp. (H) for around $313 million.
A definitive purchase and sale agreement has already been inked in this context and the deal is anticipated to be accomplished in Mar 2014, subject to customary closing conditions. The hotels would continue to be managed by a Hyatt affiliate under new management deals.
The Hyatt portfolio of 10 hotels, comprising 1,560 rooms, would add 7 hotels in California, thereby significantly enhancing this lodging real estate investment trust’s (REIT) presence in the region. The rest of the hotels are situated in dense leading markets in Texas, North Carolina and Wisconsin.
Encouraging fundamentals in the lodging industry are expected to drive RevPAR (revenue per available room) growth and improve operating results in the West Coast. The pace of group booking for 2014 is favorable, reflecting better business this year while supply growth in the West Coast is expected to be pretty slow.
The acquisition of this portfolio would help RLJ in more than doubling its hotel EBITDA in the West Coast and over 50% of the hotels in this Hyatt portfolio are projected to be included in RLJ’s top 50 EBITDA contributors roaster.
RLJ plans to use around $25 million in capital expenditures (large part this investment to take place in the next 2 years) for the Hyatt Portfolio. The company would fund this buyout through several measures including cash on hand, its undrawn revolving credit facility and debt financing.
Following this acquisition, RLJ is projected to enjoy ownership of 160 properties, comprising 158 hotels and 2 planned hotel conversions, positioned in 24 states and the District of Columbia. The deal would also lead to RLJ’s asset acquisition tally reaching nearly $900 million since its IPO.
RLJ currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may also consider stocks like Chatham Lodging Trust (CLDT) and Pebblebrook Hotel Trust (PEB). Both these stocks carry a Zacks Rank #2 (Buy).
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