Bethesda, Maryland-based
RLJ Lodging Trust (
)
, a real estate investment trust (REIT), recently entered the
Greater Boston market with the acquisition of Embassy Suites in
Waltham, Massachusetts. The purchase price of $64.5 million
signifies a forward capitalization rate of around 7.9% on the
hotel’s estimated net operating income in 2013.
The acquisition of the top-class hotel is in line with the
company’s goal of investment in key gateway U.S. markets
including Washington DC and New York City. With the addition of
this new hotel, RLJ Lodging now owns around 145 hotels with over
21,600 rooms across 21 states and the District of Columbia.
Waltham, a city in Middlesex County, is known to be a major
contributor to the American Industrial Revolution. The city
boasts a class of national and international biotech, technology,
and information system companies such as
Raytheon Co. (
)
,
International Business Machines Corporation (
)
and
Verizon Communications Inc. (
)
. The strong corporate demand in the market motivated RLJ Lodging
to spread its footprint in the market. However, the company
should be wary of a strong competitor –
Host Hotels Resorts Inc. (
)
, which has major brand properties in the market.
Embassy Suites, located in Boston’s high-technology,
pharmaceutical, and life sciences belt and corporate corridor
along Route 128 and Highway 95, is a well-known upscale hotel for
both business and vacation travelers. The hotel is in close
proximity to various tourist attractions such as Lexington and
Concord historical sites, Boston’s Freedom Trail, Faneuil Hall
Marketplace and Boston Marathon.
Last year, the hotel underwent a $12 million brand conversion
from a DoubleTree Guest Suites to Embassy Suites. The hotel is
one of the only three Embassy Suites in Boston. The other two are
at Marlborough and Logan airport. RLJ Lodging’s decision to buy
Embassy Suites is justified by the fact that the hotel generated
more than 37% RevPAR (revenue per available room) growth through
September. The company expects the hotel to continue its RevPAR
growth benefitting from its recent brand conversion, high
business tourist demand and high-end market location.
Founded in 2000, RLJ Lodging invests in real estate markets and
manages real estate funds in the U.S. It primarily focuses on the
acquisition of premium-branded, focused-service and compact
full-service hotels. The company reported adjusted FFO (funds
from operations) of 48 cents in the third quarter of 2012,
missing the Zacks Consensus Estimate by a penny.
We have a long-term Neutral recommendation on RLJ Lodging. Also,
it carries a short-term Zacks #3 Rank (Hold).
Note: 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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