Bethesda, Maryland-based RLJ Lodging Trust (RLJ), 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. (RTN), International Business Machines Corporation (IBM) and Verizon Communications Inc. (VZ). 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. (HST), 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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