In order to strengthen its presence in the West Coast and leverage on the growing fundamentals, RLJ Lodging Trust (RLJ) bought 2 hotels in an off-market transaction for a total of $120 million. In particular, the company acquired Courtyard Portland City Center in Portland, OR and Embassy Suites Irvine Orange County in Irvine, CA.
The purchase price of the assets signifies a forward capitalization rate of about 7.4% on their combined expected net operating income in 2015. This lodging real estate investment trust (REIT) financed the acquisition with its available cash and revolving credit facility.
Details of the Hotels
The 256-room Courtyard Portland City Center hotel is in the heart of downtown Portland and derives advantage from the high barriers to entry factor and uptick in corporate, group, and leisure demand available in the city. Reputed apparel, technology and advanced manufacturing giants such as Intel Corporation (INTC) and Nike, Inc. (NKE) have their presence in region.
On the other hand, the 293-room Embassy Suites Irvine Orange County hotel is positioned in Orange County’s largest office submarket and caters to the corporate demand of the area. The city of Irvine, which is in the center of southern California’s Orange County, houses major employers in the education, life sciences, software, and advanced manufacturing industries such as Allergan Inc. (AGN) and the University of California Irvine. Also, it gains from demand generated by leisure tourists.
Notably, the properties’ total revenue per available room (RevPAR) in 2013 is 10% higher than RLJ Lodging’s reported RevPAR in 2013. This makes these properties an accretive buy for RLJ Lodging.
In Conclusion
With both the Portland and Irvine markets outperforming the overall RevPAR growth in the U.S. (as per Smith Travel Research), we view the acquisitions as a strategic fit for RLJ Lodging. Encouraging fundamentals in both the markets are expected to drive the company’s RevPAR growth in the West Coast in 2014 and going forward.
Following this acquisition, RLJ Lodging’s portfolio count totaled 148, which comprises 146 hotels with around 23,000 rooms and 2 planned hotel conversions, situated in 21 states and the District of Columbia.
RLJ Lodging currently carries a Zacks Rank #2 (Buy).
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