RLJ Lodging Trust (RLJ) purchased a hotel – Residence Inn Atlanta Midtown Historic – in Atlanta, Ga. through a foreclosure sale. The move helped the company to add a premium asset to its portfolio at a substantial discount to its replacement cost.
In particular, RLJ Lodging purchased a mortgage loan in Nov 2009 for around $5.0 million. The loan was collateralized by this 78-room Residence Inn Atlanta Midtown Historic. With the borrower defaulting on the loan early this year, RLJ Lodging acquired the property through a bid that equaled the company’s basis in the mortgage loan.
Having around 16.5 million square feet of total office space within close proximity, the hotel is expected to benefit greatly from the corporate demand. Headquarters of notable companies like The Coca-Cola Company (KO), UPS, The Home Depot, Inc. (HD), and Delta Air Lines Inc. (DAL) are located here. Also, the Federal Reserve Bank of Atlanta, Georgia Institute of Technology, Equifax, Norfolk Southern and PricewaterhouseCoopers are positioned nearby.
Regarded as one of the top convention destinations in the U.S. as well as a premier entertainment district, the Atlanta market opens up opportunities for the company to boost its top line.
Later this year, RLJ Lodging plans to close down the hotel and make a comprehensive renovation. It will reopen in the third quarter of 2014 and the company estimates investments (including capital expenditures) to lead to a forward capitalization rate of about 12% based on the 2015 net operating income of the hotel.
With the acquisition of the above-mentioned property, RLJ Lodging now owns 150 properties, including 148 hotels and 2 planned hotel conversions, located in 22 states and the District of Columbia.
We expect the acquired property’s RevPAR to gain from the diverse economy of Atlanta that also serves as a gateway to the southeast. Also, its acquisition at a favorable price is encouraging.
Currently, RLJ Lodging carries a Zacks Rank #2 (Buy).
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