RLJ Lodging Trust RLJ announced that it has sold the luxury Boston hotel, Fairmont Copley Plaza, in a $170-million deal. The 383-room hotel has been sold for approximately $444,000 per key.
The sale price represents a capitalization rate of around 4.6% on the hotel’s estimated 2017 net operating income (NOI). It also indicates a hotel EBITDA multiple of roughly 16.5x based on the hotel’s estimated hotel EBITDA for 2017.
The sale is a strategic fit for the company which is aimed at disposing non-core assets and channelizing the proceeds to other strategic priorities. Notably, the 2016 EBITDA margin of the hotel is around 50% lower as compared to the pro-forma average of the company’s newly combined portfolio for 2016. Hence, this transaction is accretive to RLJ Lodging’s hotel EBITDA margin as well as shareholder value.
RLJ Lodging plans to utilize the net proceeds from the disposal to repay its debt and for other general corporate purposes.
The company had acquired the iconic Boston property through its merger with FelCor Lodging Trust Incorporated on Sep 1, 2017. The merger made RLJ Lodging the third largest lodging real estate investment trust (REIT) by enterprise value, expanding its portfolio to 160 hotels that are concentrated primarily in the urban and coastal markets. (Read more: RLJ Lodging Closes Merger with FelCor Lodging Trust)
Per management, the sale of the asset shortly after the merger reflects the company’s emphasis to achieve an optimal portfolio in a disciplined manner. While the combined entity is eyeing expansion in high-growth markets, it is also exploring opportunities to sell assets, which are non-core to its operations, through a disposition strategy.
RLJ Lodging currently carries a Zacks Rank #3 (Hold). Moreover, RLJ’s shares have outperformed its industry, in the past six months. While the company has gained 8.4%, the industry has incurred loss of 2.3% during this period.
Better-ranked stocks in the real estate investment trust space include Franklin Street Properties FSP, Columbia Property Trust CXP and MedEquities Realty Trust MRT. All three carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Franklin Street Properties’ funds from operations (FFO) per share estimates for 2017 remained unchanged at $1.05 over the past month. Its share price has increased 2.1% in three months’ time.
Columbia Property Trust’s FFO per share estimates for the current year have moved up 2.7% to $1.15 in a month’s time. Over the past three months, the company’s shares have gained 5.4%.
MedEquities Realty‘s 2017 FFO per share estimates remained unchanged at $1.12 over the past month. The stock has been down 3% for the past three months.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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